<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 (S) 240.14a-11(c) or (S) 240.14a-12
Cummins Engine Company, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] 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:
<PAGE>
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, 2000, at 10:00
a.m., local time, for the following purposes:
1. to elect ten directors of the Company for the ensuing year;
2. to ratify the appointment of Arthur Andersen LLP as auditors for the
year 2000;
3. 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 14, 2000, 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.
Pamela F. Carter,
Secretary
March 1, 2000
<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, 2000, 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 1, 2000.
Holders of the Company's Common Stock of record at the close of business on
February 14, 2000 are entitled to vote at the Annual Meeting. On that date
there were issued and outstanding 41,497,920 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.
<PAGE>
PRINCIPAL SECURITY OWNERSHIP
The following table identifies those shareholders known to the Company to
be the beneficial owners of more than five percent of the Common Stock of the
Company and shows as to each such shareholder as of February 14, 2000 (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 Percent
of Beneficial Ownership of Class
----------------------- --------
<S> <C> <C>
Cummins Engine Company, Inc. 3,726,079 8.98%
Employee Benefits Trust
c/o The Vanguard Fiduciary
Trust Company
Post Office Box 2900
Valley Forge, PA 19482
Cummins Engine Company, Inc. Collective 3,700,000 8.92%
Investment Trust
for Pension Plans
c/o The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
FMR Corporation 2,850,288(1) 6.87%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------
(1) The source of this information is a Schedule 13G dated February 14, 2000
disclosing beneficial ownership by FMR. FMR states in its 13G that it has
sole investment power for all of the shares, sole voting power for 40,588
shares and no shared investment or voting power.
2
<PAGE>
ELECTION OF DIRECTORS
(Item 1)
It is intended that votes will be cast pursuant to the accompanying proxy
for the election of the ten 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.
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 21 through 25 of
this proxy statement.
<TABLE>
<CAPTION>
Amount and Stock Units
First Year Nature of Beneficial Held as of Percent
Elected a Ownership as of February 29, of
Name and Occupation Age Director(1) February 29, 2000(2) 2000(3) Class
------------------- --- ---------- -------------------- ------------ -------
<S> <C> <C> <C> <C> <C>
Robert J. Darnall....... 61 1989 3,149 2,847 *
Retired Chairman and
Chief Executive
Officer, Inland Steel
Industries, Inc.,
steel manufacturing
and materials
distribution
John M. Deutch.......... 61 1997 3,557 0 *
Institute Professor,
Massachusetts
Institute of
Technology
Walter Y. Elisha........ 67 1991 3,168 3,454 *
Retired Chairman and
Chief Executive
Officer of Springs
Industries, Inc.,
manufacturer of home
furnishings,
industrial and
specialty fabrics
Hanna H. Gray........... 69 1977 2,256 0 *
President Emeritus and
Professor of History,
University of Chicago
James A. Johnson........ 56 1999 2,926 0 *
Chairman and Chief
Executive Officer,
Johnson Capital
Partners
William I. Miller....... 43 1989 40,328 (4) 708 *
Chairman, Irwin
Financial Corporation,
financial services
company
William D. Ruckelshaus.. 67 1974 3,149 7,160 *
Principal, Madrona
Investment Group,
L.L.C.
Theodore M. Solso....... 52 1994 284,142 (5) 0 *
Chairman and Chief
Executive Officer of
Cummins
Franklin A. Thomas...... 65 1973 2,854 6,218 *
Consultant, TFF Study
Group
J. Lawrence Wilson...... 64 1990 14,133 3,019 *
Retired Chairman and
Chief Executive
Officer, Rohm and Haas
Company, specialty
chemical 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.
3
<PAGE>
(2) Except as indicated, the voting and investment powers of the shares listed
are held solely by the reported owner.
(3) Compensatory stock units payable only in cash. The value of each unit is
equal to the value of one share of the Company's Common Stock. See
director retirement plan elimination discussion on page 6.
(4) Includes 16,411 shares held by Mr. Miller for the benefit of his children.
(5) Includes 126,350 shares which Mr. Solso has the right to acquire within
the next 60 days through the exercise of stock options. Also included are
15,919 shares held by a family trust and 14,604 shares held by a family
limited partnership of which Mr. Solso is a general partner.
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 5 meetings during 1999. All of the directors
attended 75% or more of the meetings of the Board and Committees on which they
served.
The Board of Directors has established eight 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 R. J. Darnall
(Chairman), W. Y. Elisha and J. A. Johnson. The Committee reviews the
accounting and auditing principles and procedures of the Company. The Audit
Committee reviews the scope, timing, and fees for the annual audit and the
results of audit examinations performed by the internal auditors and
independent public accountants, including their recommendations to improve the
system of accounting and internal controls. The Audit Committee met four times
during 1999.
Compensation Committee. The members of the Compensation Committee are H. H.
Gray (Chairman), 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 1999.
Nominating and Organization Committee. The members of the Nominating and
Organization Committee are F. A. Thomas (Chairman), H. Brown, R. J. Darnall,
J. M. Deutch, W. Y. Elisha, H. H. Gray, J. A. Johnson, W. I. Miller, W. D.
Ruckelshaus, H. B. Schacht and J. L. Wilson. The Nominating and Organization
Committee reviews and makes recommendations to the Board with respect to
membership, size, composition, procedures and organization of the Board of
Directors. The Committee also evaluates the Chief Executive Officer's
performance and monitors meeting attendance of Board members. 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 and Organization Committee replaced the former Nominating
Committee and met four times during 1999.
4
<PAGE>
Executive Committee. The members of the Executive Committee are Theodore M.
Solso (Chairman), W. I. Miller and Franklin A. Thomas. The Executive Committee
is authorized to exercise the powers of the Board of Directors in the
management and direction of the business and affairs of the Company during the
intervals between meetings of the Board of Directors. The Executive Committee
did not meet during 1999.
Other Committees. In addition to the Committees described above, the Board
of Directors has established the following committees: Finance Committee (J.
L. Wilson, Chairman, W. I. Miller and H. B. Schacht); Proxy Committee (H. B.
Schacht, Chairman, and F. A. Thomas); and Technology and Environment Committee
(H. Brown, Chairman and J. M. Deutch).
Each director who is not an officer of the Company receives an annual fee
of $66,000, $33,000 of which is paid in cash and $33,000 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 Executive or Proxy Committee) receive an additional
annual fee of $9,000. Non-chair members of the Audit, Finance, Executive,
Compensation, Nominating and Organization, and Technology and Environment
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.
Director Harold Brown, who is retiring from the Board of Directors and is
not a nominee for re-election, had a consulting arrangement with the Company
pursuant to which he provided consulting services in connection with the
Company's research and development activities and related technology issues.
During 1999, 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 served 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 during 1999, Dr. Brown was paid an
annual retainer of $17,000, including $7,000 for serving as Chairman, and an
additional fee of $3,000 for each day of meetings attended during the year.
The Company has a deferred compensation plan for non-employee directors,
pursuant to which such directors may elect to defer receipt of all or any
portion of their compensation while they serve as a director of the Company.
Upon ceasing to be a director, the deferred compensation, plus accrued
interest, is paid to the director or the director's beneficiary in a lump sum
or in annual installments, not to exceed ten, as specified by the director.
Upon a change of control of the Company (as defined in the plan), such
deferred compensation and interest is paid in cash to the director in one lump
sum.
5
<PAGE>
During 1997, the Board of Directors eliminated future service accruals
under a non-employee director retirement plan and, in lieu thereof, the amount
of each director's annual retainer fees payable in restricted Common Stock was
increased. Directors with vested retirement plan benefits on the date future
accruals were eliminated were given an option to have their accrued benefits
frozen and retained in the plan for future payment, or to convert the present
value (using the same actuarial assumptions as are applicable to the payment
of pension benefits to the Company's employees) of their accrued benefits into
phantom units of Common Stock based on a trailing trading day average of
closing prices of Common Stock on the date of conversion. The stock units,
including additional stock units credited thereon as dividend equivalents, are
evidenced by bookkeeping entries. Recipients have no voting or investment
power with respect to the stock units. The value of each director's stock
units will be payable only in cash on or after the director ceasing to be a
member of the Board or upon a change of control of the Company. The total
number of units credited to each director as a result of retirement plan
benefit conversion elections is listed in the director nominee table on page
3.
6
<PAGE>
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 three 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 and works with management to establish the
general compensation philosophy of the Company. It reviews 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 compensation levels and
awards for each of the five most highly paid officers and takes appropriate
action. In its review, the Committee has direct access to advice from
professional executive compensation consultants. The Committee also reviews
its actions with the full Board of Directors.
Objectives and Principles of Executive Compensation
Cummins' executive compensation is designed to attract, motivate, and
retain the personnel required to achieve the Company's performance goals in
the competitive global business environment. The program is designed to
reflect the individual's contribution and the performance of the Company. The
program attempts to strike an appropriate balance between short-term and long-
term performance.
The Company is committed to the concept of pay for sustained financial
performance. We evaluate performance over several periods of time. While the
specific elements of executive compensation vary from time to time, the
Compensation Committee focuses on this central principle of pay for
performance in reviewing the compensation program, any proposed changes, and
the specific awards.
The Committee follows several principles, in addition to pay for
performance, in designing and implementing compensation programs for its
officers.
. Programs should provide competitive compensation opportunity; the concept
of opportunity is important in our program. We believe the executive
should have the opportunity to do well if the Company does well, but that
total compensation should vary in relation to the Company's performance.
. An individual's compensation should be at the median of the range when
compared to the compensation of individuals in U.S. industrial companies
with sales volumes similar to Cummins, when Cummins' financial
performance is at the median of those companies.
7
<PAGE>
. 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 Statement, unless the
compensation meets certain requirements. The Committee adopted changes to the
compensation program, approved by shareholders in 1995, that qualify payments
under the Senior Executive Bonus Plan and Senior Executive Three Year
Performance Plan for tax deductibility under Section 162(m). These changes
were designed to maximize tax deductibility, while retaining the ability to
attract, retain and motivate executives to achieve our business objectives.
Payments under these plans were certified by the Compensation Committee for
each payment period in 1999.
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).
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 300 U.S. industrial
corporations. 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.
8
<PAGE>
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 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 U.S.
industrial companies measured over recent history. In 1999, Return on Average
Net Assets was the measure used to compare performance.
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.
One-half of the bonus for senior managers of the Company's Business Units
is determined by the Return on Average Net Assets of the Business Units, and
one-half continued to be based on the Company's performance, as described
above. The Committee believes this formula provides appropriate balance,
compensating for performance measured at the Business Unit level as well as
for the total Company. Basing a significant portion of the bonus on total
Company results rewards Business Units for working in an integrated way,
maximizing our total financial performance. Adding the Business Unit measure
emphasizes business results each key manager affects most directly.
In order to comply with the requirements of Section 162(m), designated
officers (the Chief Executive Officer and the Chief Operating Officer in 1999)
were compensated under a modified version of the Short-Term Bonus Plan, called
the Senior Executive Bonus Plan. The Senior Executive Bonus Plan differs from
the Short-Term Bonus Plan in which many employees at all levels of the
Company, including all officers, participate, only in that the Compensation
Committee has no discretion to increase the payouts once it establishes the
performance measures each year.
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.
9
<PAGE>
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 was in 1995. The performance measure for all Award Cycles
has been 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.
For the Target Awards granted in 1997, 1998, and 1999 the payouts will be
linked to the Corporation's Common Stock price. The Target Award was made in
stock units, calculated as the Target Award dollars divided by the six-month
average Cummins stock price as of the grant date. The payout will be
calculated as (number of stock units granted) x (payout factor) x (six-month
average Cummins Stock Price as of the payout date). This design further links
the interests of senior managers and our shareholders.
As with the Short-Term Bonus Plan, to comply with the requirements of
Section 162(m), designated officers (the Chief Executive Officer and Chief
Operating Officer in 1999) were compensated under a modified version of the
Three Year Performance Plan, called the Senior Executive Three Year
Performance Plan. The plans are identical except that the Committee's
discretion to adjust payments upward is eliminated in the Senior Executive
Three Year Performance Plan.
4. Long-Term: The 1992 Cummins Stock Incentive Plan
Annually since 1992, 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.
Compensation of the Chief Executive Officer
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.
10
<PAGE>
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.
In 1999, Company performance was significantly stronger than in 1998, and
the bonus reflected the performance.
In February, 1999 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 2003) under the Medium-Term Three Year Performance Plan.
This was the eighth set of grants under these Plans. The Committee intends to
continue making 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 CEO, on a yearly basis, discusses in detail his priorities and
objectives with the Nominating and Organization Committee (The members and
responsibilities of the Nominating and Organization Committee are described on
page 4 of this Proxy Statement). The Nominating and Organization Committee
formally reviews the CEO's performance annually, based on how well the CEO
performed against his workplan, including the progress made by the Company in
implementing its business strategy and achieving its business objectives, both
short-term and long-term. This review, which is reported in detail to the
Committee, 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
William D. Ruckelshaus
Franklin A. Thomas
11
<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.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CUMMINS ENGINE CO., INC.,
S&P 500 INDEX AND PEER GROUP INDEX
COMPARISON OF CUMULATIVE TOTAL RETURN OF ONE OR MORE
COMPANIES, PEER GROUPS, INDUSTRY AND/OR BROAD MARKETS
<TABLE>
<CAPTION>
------------------------------FISCAL YEAR ENDING----------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPANY/INDEX/MARKET 12/30/1994 12/29/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999
Cummins Engine 100.00 83.73 106.58 139.19 85.69 119.44
Peer Group Index 100.00 118.96 151.25 212.76 184.31 205.54
S&P 500 Index 100.00 137.58 169.17 225.61 290.09 351.13
</TABLE>
- --------
*Arvin Industries, Inc., Caterpillar, Inc., Dana Corporation, Deere & Company,
Detroit Diesel Corporation, Eaton Corporation, Ingersoll-Rand Company, Navistar
International Corporation and Paccar, Inc.
Compensation Tables and Other Information
The summary compensation table and accompanying notes and other information
on the following pages include individual compensation information for the last
three fiscal years on the Company's Chairman and Chief Executive Officer and
the four other most highly compensated executive officers during 1999. James A.
Henderson retired as Chairman and Chief Executive Officer effective December
31, 1999. Theodore M. Solso became Chairman and Chief Executive Officer of the
Company effective January 1, 2000. 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.
12
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Annual
Principal Position Compensation Long Term Compensation
- ------------------ ---------------------- -------------------------------
Awards Payouts
------------------- -----------
(1) (2) (3) (4)
Stock Medium-
Restricted Options/ Term
Stock SARs Performance All Other
Year Salary Bonus Awards (#) Plans Compensation
---- -------- -------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. A. Henderson........ 1999 $912,500 $842,500 $1,062,875 60,000 $ 93,750 $23,689
Chairman of the Board 1998 $781,875 $338,555 $ 641,844 155,000 $170,000 $15,560
and Chief Executive
Officer 1997 $810,000 $544,229 $ 676,266 43,700 $255,000 $19,863
T. M. Solso............ 1999 $675,000 $584,812 $ 715,025 38,300 $ 70,000 $54,353
President and Chief 1998 $548,750 $222,233 $ 446,500 24,500 $100,000 $36,559
Operating Officer 1997 $557,500 $346,013 $2,539,688 33,300 $131,250 $78,330
F. J. Loughrey......... 1999 $475,000 $226,391 $ 343,019 17,900 $ 38,750 $36,723
Executive Vice
President 1998 $409,270 $100,015 $ 306,969 11,500 $ 70,000 $23,563
President--Engine 1997 $400,000 $266,694 $1,748,250 20,900 $ 93,750 $32,743
Business
K. M. Patel............ 1999 $370,000 $242,537 $ 314,031 16,500 $ 25,000 $ 9,213
Executive Vice
President 1998 $296,667 $ 95,242 $ 251,156 11,300 $ 35,000 $ 5,154
and Chief Financial
Officer 1997 $280,000 $148,275 $1,748,250 20,900 $ 26,250 $ 9,837
J. K. Edwards.......... 1999 $375,000 $212,075 $ 314,031 16,500 $ 25,000 $13,726
Executive Vice
President 1998 $324,250 $ 98,959 $ 251,156 11,300 $ 45,000 $ 6,850
Group President--Power 1997 $315,000 $114,975 $1,748,250 20,900 $ 45,000 $10,518
Generation
</TABLE>
- ---------
(1) Pursuant to the Corporation's 1992 Stock Incentive Plan, a total of
366,200 shares of Restricted Stock were granted in 1999, having a total
value at date of grant of $17,336,900. The shares will be restricted for
two years and one month subsequent to grant, then are vested in one-third
annual increments, if the participant remains an employee of the Company.
As of year-end 1999, the total number of shares of Restricted Stock and
the value thereof held by each executive officer was as follows: J. A.
Henderson, 61,417 shares, $2,967,209; T. M. Solso, 68,266 shares,
$3,298,101; F. J. Loughrey, 43,599 shares, $2,106,377; K. M. Patel, 40,999
shares, $1,980,764; J. K. Edwards, 41,433 shares, $2,001,732. Dividends
are paid on all shares of Restricted Stock.
(2) Stock Options awarded pursuant to the Corporations 1992 Stock Incentive
Plan. Stock Options may not be exercised for two years subsequent to grant
and expire ten years from grant.
(3) The payout for 1999 represents payout for the 1996-1998 Award Cycle under
the Three Year Performance Plan. The payout is calculated as the
individual's Target Award times Payout Factor for the Award Cycle. The
Payout Factor was based on the Corporation's Return on Equity compared to
the median ROE of a panel of nine comparator companies over the Three Year
Award Cycle.
(4) Amounts reported as "All Other Compensation" for 1999 include,
respectively, matching contributions by the Company under the Retirement
and Savings Plan and "above market" earnings on previously deferred
compensation as follows:
J. A. Henderson $827 and $22,862; T. M. Solso $7,342 and $47,011; F. J.
Loughrey $7,634 and $29,089; K. M. Patel $7,197 and $2,016; J. K. Edwards
$7,342 and $6,384.
13
<PAGE>
Security Ownership of Management
Set forth below is information as of February 29, 2000, regarding the
beneficial ownership of Common Stock of the Company by the Chief Executive
Officer, each of the other named executive officers for 1999 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>
James A. Henderson
Chairman of the Board and Chief Executive
Officer.......................................... 505,032(1) 1.2%
Theodore M. Solso
President and Chief Operating Officer............ 284,142(2) *
F. Joseph Loughrey
Executive Vice President, Group President--Engine
Business......................................... 151,432(3) *
K. M. Patel
Executive Vice President and Chief Financial
Officer.......................................... 134,123(4) *
J. K. Edwards
Executive Vice President, Group President--Power
Generation....................................... 135,404(5) *
All directors and executive officers as a group, a
total of 23 persons.............................. 1,693,481(6) 4.1%
</TABLE>
- ---------
*Less than 1%
(1) Includes 378,000 shares which Mr. Henderson has the right to acquire
within the next 60 days through the exercise of stock options. Also
included are 5,772 shares held by Mr. Henderson's wife who has sole voting
and investment powers thereof and 14,000 shares held by a family
foundation for which Mr. and Mrs. Henderson are directors.
(2) See footnote 5 to the director nominee listing on page 3.
(3) Includes 60,850 shares which Mr. Loughrey has the right to acquire within
the next 60 days through the exercise of stock options.
(4) Includes 51,350 shares which Mr. Patel has the right to acquire within the
next 60 days through the exercise of stock options.
(5) Includes 56,350 shares which Mr. Edwards has the right to acquire within
the next 60 days through the exercise of stock options.
(6) Includes 804,850 shares which the officers and directors have the right to
acquire within the next 60 days through the exercise of stock options.
The following table discloses, for each of the named executive officers,
information regarding individual grants of stock options and stock
appreciation rights made during 1999, and their potential realizable values.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants 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>
J. A. Henderson......... 60,000 6.8% $41.188 2/09/09 $1,556,888 $3,929,288
T. M. Solso............. 38,300 4.3% $41.188 2/09/09 $ 993,813 $2,508,195
F. J. Loughrey.......... 17,900 2.0% $41.188 2/09/09 $ 464,471 $1,172,237
K. M. Patel............. 16,500 1.9% $41.188 2/09/09 $ 428,144 $1,080,554
J. K. Edwards........... 16,500 1.9% $41.188 2/09/09 $ 428,144 $1,080,554
</TABLE>
14
<PAGE>
Stock option and stock appreciation right exercise activity during 1999, on
an aggregated basis for each of the named executives, is contained in the
following table. Also disclosed are the number and value of options and
appreciation rights, on an aggregated basis, held by each named executive as of
December 31, 1999.
Aggregated Option/SAR Exercises in Last Fiscal Year, and FY-End Option/SAR
Value
<TABLE>
<CAPTION>
Value of
Number of Value Number of Unexercised
Securities Realized Unexercised In-the-Money
Underlying ($) Options/SARs at FY-End (#)Options/SARs at FY-End ($)
Options/SARs ----------- ------------------------- -------------------------
Name Exercised Exercisable Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. A. Henderson......... 0 $ 0 154,000 224,000 $872,644 $470,944
T. M. Solso............. 0 $ 0 98,850 71,800 $562,327 $272,888
F. J. Loughrey.......... 0 $ 0 46,350 38,400 $230,056 $127,538
K. M. Patel............. 0 $ 0 37,050 36,800 $180,147 $117,563
J. K. Edwards........... 0 $ 0 42,050 36,800 $216,969 $117,563
</TABLE>
Estimated benefits payable to each named executive pursuant to long-term
incentive plan rights awarded during 1999 are disclosed in the following table.
Long-Term Incentive Plan Awards in Last Fiscal Year/SAR Value
<TABLE>
<CAPTION>
Estimated
Number of Future Payouts Under
Shares, Units Non-Stock Price-Based Plans
or other Period Until ------------------------------
Name Rights(1) Payout Threshold Target Maximum
---- ------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
J. A. Henderson......... 15,516 2000-2002 3,879 15,516 31,032
T. M. Solso............. 11,771 2000-2002 2,943 11,771 23,542
F. J. Loughrey.......... 5,484 1999-2001 1,371 5,484 10,968
K. M. Patel............. 5,083 1999-2001 1,271 5,083 10,166
J. K. Edwards........... 5,083 1999-2001 1,271 5,083 10,166
</TABLE>
- ---------
(1) Stock units were awarded under the Company's Three Year Performance Plan
and Senior Executive 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 1999-2001 Award Cycle under the
Three Year Performance Plan (payable in 2002) and the 2000-2002 Award Cycle
under the Senior Executive Three Year Performance Plan (payable in 2003),
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 (25% of the Target Award) will be earned
if the Company's ROE is 50% of the Peer Group companies' median ROE. The
Maximum Payment (200% of the Target Award) is earned if the Company's ROE
is 200% of the Peer Group companies' median ROE. The payouts will be equal
to the number of stock units awarded times the Payout Factor for the Award
Cycle times the six-month trailing average price of Common Stock at the end
of the Award Cycle.
15
<PAGE>
Pension Plan Table
The Company maintains retirement pension programs for its employees,
including the executive officers named in the Summary Compensation Table on
page 13. Elements of the program for the executive officers include the
Company's Cash Balance Pension Plan, the Excess Benefit Plan which provides
pension benefits in excess of limitations imposed by the Internal Revenue
Code, and the Supplemental Life Insurance and Deferred Income Program.
Benefits are not offset or otherwise reduced by amounts payable or received
under Social Security. The following table sets forth the estimated maximum
annual pension benefits payable on a straight life annuity basis under the
program to the officers in various compensation and years of service
classifications upon retirement at age 65. An officer who is among the
Company's two highest paid executive officers at the time of retirement will
receive an annual benefit greater than amounts reflected in the table by an
amount equal to 10% of the officer's covered compensation.
Estimated Annual Benefit Upon Retirement
<TABLE>
<CAPTION>
Average
Total Cash
Compensation
(Base Salary
plus Short- 30+
Term Bonus) 10 Years 15 Years 20 Years 25 Years Years
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 40,000 $ 60,000 $ 80,000 $ 90,000 $100,000
$ 275,000 $ 55,000 $ 82,500 $110,000 $123,750 $137,500
$ 350,000 $ 70,000 $105,000 $140,000 $157,500 $175,000
$ 425,000 $ 85,000 $127,500 $170,000 $191,250 $212,500
$ 500,000 $100,000 $150,000 $200,000 $225,000 $250,000
$ 575,000 $115,000 $172,500 $230,000 $258,750 $287,500
$ 650,000 $130,000 $195,000 $260,000 $292,500 $325,000
$ 725,000 $145,000 $217,500 $290,000 $326,250 $362,500
$ 800,000 $160,000 $240,000 $320,000 $360,000 $400,000
$ 875,000 $175,000 $262,500 $350,000 $393,750 $437,500
$ 950,000 $190,000 $285,000 $380,000 $427,500 $475,000
$1,025,000 $205,000 $307,500 $410,000 $461,250 $512,500
$1,100,000 $220,000 $330,000 $440,000 $495,000 $550,000
$1,175,000 $235,000 $352,500 $470,000 $528,750 $587,500
$1,250,000 $250,000 $375,000 $500,000 $562,500 $625,000
$1,325,000 $265,000 $397,500 $530,000 $596,250 $662,500
$1,400,000 $280,000 $420,000 $560,000 $630,000 $700,000
$1,475,000 $295,000 $442,500 $590,000 $663,750 $737,500
</TABLE>
Compensation for purposes of the pension program is the highest average
total cash compensation, including base salary and short-term bonus payments,
for any consecutive five-year period prior to retirement. Covered compensation
is disclosed under the "Salary" and "Bonus" columns of the Summary
Compensation Table. Covered compensation and full years of service as of
December 31, 1999 for the Company's Chief Executive Officer and the other
named executive officers are as follows: J. A. Henderson, $1,341,967, 35
years; T. M. Solso, $905,299, 28 years; F. J. Loughrey, $599,091, 26 years; K.
M. Patel, $410,142, 25 years; J. K. Edwards, $451,358, 27 years.
16
<PAGE>
Change of Control Arrangements
In the event of a change of control of the Company, the Company will
provide benefits to certain executives including the Chief Executive Officer
and other executive officers named in the Summary Compensation Table on page
13. Certain named executive officers as designated by the Compensation
Committee would be entitled to three year's salary plus twelve quarterly bonus
payments. The Company will also provide for the full vesting of certain
insurance and retirement benefits and the continuation in effect for a three-
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.
The value of supplemental and excess retirement annuity benefits will also be
paid in cash. All amounts of employee compensation and director annual fees
deferred, respectively, under the Company's Deferred Compensation Plan and
Deferred Compensation Plan for Non-Employee Directors will be paid in cash.
The Company will also pre-fund certain premium payment obligations under a
split-dollar life insurance arrangement described below with director Henry B.
Schacht through a grantor trust. A change of control for these purposes is
defined in each of the various plans, programs and arrangements providing
these benefits.
Other Transactions and Agreements With Directors and Officers
Irwin Financial Corporation ("IFC") owns a partial interest in one of the
Company's business aircraft and has an arrangement with the Company to share
the fixed and operating expenses of such aircraft. During 1999, $169,784 was
paid to the Company by IFC under this arrangement. Director nominee William I.
Miller is Chairman and an executive officer of IFC.
As an employee of the Company until his retirement at year-end 1999,
director James A. Henderson had deferred receipt of certain amounts of his
salary and bonus pursuant to the Company's Deferred Compensation Plan, which
amounts had been included in the respective Summary Compensation Tables of the
Company's proxy statements for the years in which earned. On December 15, 1999
the Company and Mr. Henderson agreed that he would forego receipt of all of
his $1,280,975 projected year-end 1999 Deferred Compensation Plan account
balance and future earnings thereon in exchange for entering into a split-
dollar life insurance arrangement with the Company. Under the terms of the
Deferred Compensation Plan, Mr. Henderson's unpaid balance would have
continued to accrue interest and would have been payable over a ten-year
period beginning in 2000. Discounted at 7%, the present value cost to the
Company of the Deferred Compensation Plan liability, including projected
deferred earnings payable thereon to Mr. Henderson, would have been
$1,593,913. Under the split-dollar arrangement, the Company has agreed to fund
a grantor trust with sufficient assets to pay premiums of $409,665 per year
for ten years in connection with insurance policies on the lives of Mr.
Henderson and his wife, and the Company will be refunded all of such premiums
after fifteen years, resulting in an equal present value cost to the Company
of $1,593,913. The arrangement is similar to the one Mr. Henderson and the
Company entered into in 1996. The Company has also agreed to similarly fund
its obligations under the 1996 arrangement. Mr. Henderson is not a nominee for
re-election to the Board of Directors.
As a director of the Company, Henry B. Schacht had deferred receipt of his
annual retainer fees for all years following his retirement as an employee of
the Company pursuant to the Company's Deferred Compensation Plan for Non-
Employee Directors. As of April 15, 1999, the total amount of
17
<PAGE>
fees deferred including accrued interest thereon payable by the Company to Mr.
Schacht was $256,399. On that date, the Company and Mr. Schacht agreed that he
would forego receipt of this balance and future earnings thereon in exchange
for entering into a split-dollar life insurance arrangement with the Company
similar to the one he and the Company entered into in 1996 in connection with
amounts deferred under the active employee Deferred Compensation Plan, and to
Mr. Henderson's arrangement as described above. Mr. Schacht's deferred balance
would have continued to accrue interest and would have been payable in 15
annual installments following his retirement from the Board. Discounted at 7%,
the present value cost to the Company of this deferred balance, including
projected deferred earnings payable thereon to Mr. Schacht, would have been
$211,529. Under the split-dollar arrangement, the Company will pay premiums of
$54,367 per year for ten years in connection with an insurance policy on the
lives of Mr. Schacht and his wife and will be refunded all of such premiums
after fifteen years, resulting in an equal present value cost to the Company
of $211,529. Under both this and his 1996 arrangement with the Company, Mr.
Schacht has the right to require the Company to pre-fund its premium payment
obligations through a grantor trust. The Company is also required to pre-fund
its obligations upon a change of control of the Company. Mr. Schacht is not a
nominee for re-election to the Board of Directors of the Company.
Pursuant to the Company's Key Employee Stock Investment Plan, certain
officers have 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,
1999, the largest aggregate amount owed for such purchases and loans at any
time since January 1, 1999, and the amount owed as of January 31, 2000:
<TABLE>
<CAPTION>
Amount of
Indebtedness
Largest as of
Amount of January 31,
Indebtedness 2000
------------ ------------
<S> <C> <C>
J. S. Blackwell................................. $247,575.00 $247,575.00
P. F. Carter.................................... $243,475.00 $ 31,725.00
M. R. Gerstle................................... $286,187.50 $ 98,437.50
J. A. Henderson................................. $625,127.72 $ 0.00
M. D. Jones..................................... $292,312.50 $292,312.50
F. J. McDonald.................................. $ 65,125.00 $ 65,125.00
R. J. Mills..................................... $204,977.38 $ 0.00
K. M. Patel..................................... $349,847.50 $131,250.00
T. M. Solso..................................... $639,976.50 $639,976.50
C. M. Vujovich.................................. $ 62,062.50 $ 31,812.50
</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, 1986 Stock Option Plan and 1992 Stock Incentive Plan.
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 1999, four
executive officers sold shares to the Company pursuant to this policy.
18
<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 2000. 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 2000 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.
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 and 2 of the Notice
of Annual Meeting of Shareholders. However, if other business properly comes
before the Meeting, the members of the Proxy Committee will vote the returned
proxies as the Board of Directors recommends.
OTHER INFORMATION
Shareholder Proposals
Shareholders may submit proposals to be considered for shareholder action
at the 2001 Annual Meeting of Shareholders and inclusion in the Company's
Proxy Statement and proxy card if they do so in accordance with the
appropriate regulations of the Securities and Exchange Commission. For such
proposals to be considered for inclusion in the Proxy Statement and form of
proxy for the 2001 Annual Meeting of Shareholders, proposals must be received
by the Secretary of the Company no later than November 1, 2000.
If a shareholder desires to bring proper business before an annual meeting
of shareholders which is not the subject of a proposal timely submitted for
inclusion in the Company's Proxy Statement and form of proxy as described
above, the shareholder must follow procedures outlined in the Company's By-
Laws. Pursuant to the Company's By-Laws, a shareholder may propose business to
be considered at the annual meeting, provided that the shareholder (a) is a
shareholder of record at
19
<PAGE>
the time of giving notice to the Company of the proposal and is entitled to
vote at the annual meeting where the proposal will be considered, and (b)
complies with the notice procedures of Article I of the Company's By-Laws.
That Article provides that the proposing shareholder must deliver written
notice of the proposal to the Company's Secretary no later than 90 days
preceding the first Tuesday of April of the meeting year, unless the Board of
Directors establishes an earlier date than the first Tuesday of April for the
annual meeting, in which case written notice of the proposal must be delivered
not later than the close of business on the 10th day following the first
public disclosure of the earlier date. The required notice must contain
certain information, including information about the shareholder, as
prescribed by the By-Laws.
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 1, 2000
20
<PAGE>
NOMINEES FOR BOARD OF DIRECTORS
Mr. Solso was elected Chairman of the Board and Chief
Executive Officer of the Company in 2000 after
serving as its President since 1995, Chief Operating
Officer since 1994 and Executive Vice President--
Operations from 1992 through 1994. From 1988 to 1992
he was Vice President and General Manager--Engine
Business after serving in various other executive
positions with the Company. 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
Irwin Financial Corporation, and Ashland, Inc. and is
a member of the boards of Cummins Engine Foundation
and Otter Creek Golf Course in Columbus, Indiana. He
is also a member of the Board of Trustees, DePauw
University.
PHOTO OF THEODORE M. SOLSO
THEODORE M. SOLSO
Mr. Darnall is the retired Chairman and Chief
Executive Officer of Inland Steel Industries. Inland
was the parent company for Inland Steel Company and
Ryerson Tull, Inc. Concluding his 36-year Inland
career in late 1998, Mr. Darnall joined Ispat
International N.V. as head of North American
operations until early 2000. Ispat had acquired
Inland Steel Company in July 1998. He graduated from
DePauw University in 1960 with a BA in mathematics.
He also earned a BS degree in Civil Engineering from
Columbia University in 1962, after which he joined
Inland. In 1973 he earned an MBA from the University
of Chicago. Mr. Darnall is a member of the Board of
Directors of Household International, Inc., Ispat
International N.V., and the Federal Reserve Bank of
Chicago, where he currently serves as Vice Chairman.
He is past Chairman of the American Iron and Steel
Institute, and a director of the International Iron
and Steel Institute. He also serves on the Board of
Trustees of the University of Chicago, the Museum of
Science and Industry, and Rush Presbyterian St.
Luke's Medical Center. He is past chairman and a
current director of both the Glenwood School for Boys
and Junior Achievement of Chicago.
PHOTO OF ROBERT J. DARNALL
ROBERT J. DARNALL
21
<PAGE>
Mr. Deutch has been an Institute Professor at the
Massachusetts Institute of Technology since 1990. He
joined the MIT faculty in 1970 and served as Dean of
Science from 1982 to 1985 and Provost from 1985 to
1990. Mr. Deutch received a B.A. in History and
Economics from Amherst College in 1961; and a B.S. in
Chemical Engineering in 1961 and Ph.D. in Physical
Chemistry in 1965, both from MIT. While on leave from
his current post at MIT, Mr. Deutch served as
Director of Central Intelligence during 1995 and
1996. From 1994 through 1995 he was U.S. Deputy
Secretary of Defense and also served as
Undersecretary of Defense for Acquisition and
Technology between 1993 and 1994. He was Director of
Energy Research and Undersecretary of the U.S.
Department of Energy during the Carter
Administration. He is a Director of Ariad, Citicorp,
CMS Energy, Raytheon Corporation and Schlumberger,
and is also a Trustee of Resources for the Future,
the Urban Institute and Director of the Council on
Foreign Relations.
PHOTO OF JOHN DEUTCH
JOHN M. DEUTCH
Mr. Elisha is the retired Chairman and Chief
Executive Officer of Springs Industries, Inc. He is a
graduate of Wabash College and the Harvard Business
School. 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
served as Springs Industries, Inc.'s Chief Executive
Officer from 1981 through 1997 and was Chairman of
its Board from 1983 until 1998. He also serves on the
Board of Directors for AT&T and Carolina Power &
Light. Mr. Elisha is an honorary trustee of the
Brookings Institution and a trustee of the Committee
for Economic Development. He is a member of the
Business Council and the Council on Competitiveness;
a member of the President's Advisory Committee for
Trade Policy and Negotiations and is past President
of the American Textile Manufacturers Institute. Mr.
Elisha is also a Trustee of Wabash College and has
served as a member of the Board of Directors of the
Associates of the Harvard Business School.
PHOTO OF WALTER ELISHA
WALTER Y. ELISHA
22
<PAGE>
Mrs. Gray is President Emeritus and Professor of
History, University of Chicago. 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.
PHOTO OF HANNA H. GRAY
HANNA H. GRAY
Mr. Johnson is Chairman and CEO of Johnson Capital
Partners, a private investment company. He received a
B.A. degree in political science from the University
of Minnesota and an M.P.A. degree in public affairs
from the Woodrow Wilson School at Princeton.
Beginning in January of 1990 and continuing through
December 1999 he was employed by Fannie Mae. He
served as Vice Chairman (1990), Chairman and CEO
(1991-1998), and Chairman of the Executive Committee
(1999). Prior to joining Fannie Mae, Mr. Johnson was
a managing director in corporate finance at Lehman
Brothers. Before joining Lehman, he was the president
of Public Strategies, a Washington-based consulting
firm he founded to advise corporations on strategic
issues. From 1977 to 1981, he served as executive
assistant to Vice President Walter F. Mondale.
Earlier, he was employed by the Dayton Hudson
Corporation, worked as a staff member in the U.S.
Senate, and was on the faculty at Princeton
University. Mr. Johnson serves as chairman of The
John F. Kennedy Center for the Performing Arts, and
is chairman of the board of trustees of The Brookings
Institution. He also serves on the boards of Carnegie
Corporation of New York; Carnegie Endowment for
International Peace; Dayton Hudson Corporation; The
Enterprise Foundation; The Goldman Sachs Group, Inc.;
Kaufman and Broad Home Corporation; National
Association on Fetal Alcohol Syndrome; National
Housing Endowment; Temple-Inland, Inc.; and
UnitedHealth Group. He is also a member of The
Business Council.
PHOTO OF JAMES A. JOHNSON
JAMES A. JOHNSON
23
<PAGE>
Mr. Miller is Chairman of Irwin Financial
Corporation. 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 floor
cleaning equipment), a Director of the New
Perspective Fund, Inc. and the New World Fund and a
Trustee of the EuroPacific Growth Fund (all three 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. Ruckelshaus is currently a Principal in the
Madrona Investment Group, L.L.C. and former Chairman
of Browning-Ferris Industries from 1995 through 1999.
He was Chairman and Chief Executive Officer of
Browning-Ferris Industries until 1996. 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 of counsel in the law
firm of Perkins Coie, with offices in Seattle,
Portland, Anchorage and Washington, D.C. from 1985 to
1988. Mr. Ruckelshaus is a Director of Monsanto,
Inc., Nordstrom, Inc., Weyerhaeuser Company, Coinstar
Inc. and Solutia Inc.
WILLIAM D.
RUCKELSHAUS
24
<PAGE>
Mr. Thomas is an attorney and a Consultant with the
TFF Study Group and served as President of The Ford
Foundation until 1996. 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. He is also a Director of
Citigroup, Inc., Conoco, Inc., ALCOA, Lucent
Technologies, Inc., and PepsiCo.
FRANKLIN A.
THOMAS
Mr. Wilson is the retired Chairman and Chief
Executive Officer of Rohm and Haas Company. Mr.
Wilson received a bachelor's degree in mechanical
engineering from Vanderbilt University in 1958 and an
M.B.A. from Harvard University in 1963. He served as
an officer in the U.S. Navy from 1958 to 1961. Mr.
Wilson joined Rohm and Haas Company in 1965 as an
operations research analyst. He 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
Administration and Finance and Vice Chairman. Mr.
Wilson was a Director of Rohm and Haas Company from
1977 to 1999 and served as Chairman and Chief
Executive Officer from 1988 to 1999. Mr. Wilson is a
member of the board of Vanderbilt University, the
Vanguard Group of Investment Companies, Mead
Corporation and AmeriSource Health Corporation. He is
past Chairman of the Board of the Philadelphia High
School Academies, Inc. and The Chemical Manufacturers
Association.
J. LAWRENCE
WILSON
25
<PAGE>
<PAGE>
CUMMINS ENGINE COMPANY, INC.
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, April 4, 2000
10:00 a.m. Eastern Standard Time
(Note: Daylight Savings Time is not observed locally)
COLUMBUS EAST HIGH SCHOOL AUDITORIUM
230 South Marr Road
Columbus, Indiana
- --------------------------------------------------------------------------------
[LOGO] Cummins Engine Company, Inc
500 Jackson Street, Columbus, IN 47201 proxy
________________________________________________________________________________
This proxy is solicited by the Board of Directors for use at the Annual Meeting
on April 4, 2000.
If no choice is specified, the proxy will be voted "FOR" Items 1 and 2.
By signing the proxy, you revoke all prior proxies and appoint Henry B. Schacht
and Franklin A. Thomas, and each of them, with full power of substitution, to
vote your shares on the matters shown on the reverse side and any other matters
which may come before the Annual Meeting and all adjournments.
See reverse for voting instructions.
<PAGE>
--------------------
COMPANY #
CONTROL #
--------------------
There are three ways to vote your Proxy
Your telephone or Internet vote authorizes the Named Proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
. Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week,
until 12:00 p.m. on April 3, 2000.
. You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
. Follow the simple instructions the Voice provides you.
VOTE BY INTERNET -- http://www.eproxy.com/cum/ -- QUICK *** EASY *** IMMEDIATE
. Use the Internet to vote your proxy 24 hours a day, 7 days a week, until 12:00
p.m. on April 3, 2000.
. You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above to obtain your records and create an
electronic ballot.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Cummins Engine Company, Inc., c/o Shareowner
Services/SM/, P.O. Box 64873, St. Paul, MN 55164-0873.
If you vote by Phone or Internet, please do not mail your Proxy Card
. Please detach here .
The Board of Directors Recommends a Vote FOR Items 1 and 2.
1. Election of directors:
01 Robert J. Darnall 06 William I. Miller
02 John M. Deutch 07 William D. Ruckelshaus
03 Walter Y. Elisha 08 Theodore M. Solso
04 Hanna H. Gray 09 Franklin A. Thomas
05 James A. Johnson 10 J. Lawrence Wilson
[_] Vote FOR [_] Vote WITHHELD
all nominees from all nominees
(except as marked)
(Instructions: To withhold authority to vote ---------------------------
for any indicated nominee, write the number(s)
of the nominee(s) in the box provided to the right.) ---------------------------
2. Proposal to ratify Arthur Andersen LLP as independent accountants.
[_] For [_] Against [_] Abstain
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
---
Address Change? Mark Box [_]
Indicate changes below: Date ___________________
-------------------------------
-------------------------------
Signature(s) in Box
Please sign exactly as your
name(s) appear on Proxy. If
held in joint tenancy, all
persons must sign. Trustees,
administrators, etc., should
include title and authority.
Corporations should provide
full name of corporation and
title of authorized officer
signing the proxy.
