EXHIBIT 10(o)
CUMMINS INC.
2006 EXECUTIVE RETENTION
PLAN
(Effective as of January 1,
2006)
The Board of Directors of Cummins
Inc. (the “Company”) has determined that it is in the
best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of its executives,
notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined below) of the Company. The Board of
Directors (the “Board”) believes it is imperative to
diminish the inevitable distraction of the executives by virtue of
the personal uncertainties and risks created by a pending or
threatened Change of Control and to encourage the executives’
full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to
provide the executives with updated compensation and benefits
arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the executives will be
satisfied and which are competitive with those of other major U.S.
industrial corporations. In order to accomplish these objectives,
the Board has caused the Company to adopt this Cummins Inc. 2006
Executive Retention Plan (the “Plan”).
This Plan is in addition to but
separate and distinct from and does not supersede or amend the
Company’s Key Employee Compensation Protection Plan,
effective as of April 3, 1984 (the “1984 Plan”).
Therefore, in the event of a Change of Control, amounts are payable
under the terms of the 1984 Plan and this Plan. This Plan does,
however, supersede any other severance pay or salary continuance
plan or program adopted by the Company to retain and protect its
employees in the event of a Change of Control, specifically
including the “Cummins Engine Company, Inc. Executive
Retention Plan”, effective October 10, 1995, as
amended.
1.
Definitions
. In addition to other terms defined
elsewhere herein, the following terms shall have the following
meanings, such meanings to be equally applicable to both the
singular and plural forms of the terms defined.
(a)
“Affiliate” means
(i) any entity that, directly or indirectly, is controlled by,
controls or is under common control with, the Company and/or
(ii) any entity in which the Company has a significant equity
interest, in either case as determined by the Board.
(b)
“Bonus Payment” means,
in the case of an Officer or a Key Employee, one annual bonus
payment in the amount of the Participant’s Target Bonus
payment as calculated under, and payable at the times contemplated
in, the Company’s Target Bonus Plan (“Bonus
Plan”) in effect prior to the Change of Control and adjusted
as provided in the next sentence. In making the calculations under
the Bonus Plan, the Participant’s “Base Salary”
(as defined therein) shall be the annual rate in effect immediately
prior to the date of Termination or the effective date of the
Change of Control, whichever is higher, and the applicable
“Bonus Factor” (as defined therein) in each case shall
be 1.0 without regard to the Company’s actual performance
under the performance measures during the measurement
period.
(c)
“Change of Control”
means the occurrence of any of the following: (i) there shall be
consummated (A) any merger, consolidation, statutory share exchange
or similar form of corporate transaction involving (x) the
Company or (y) any of its Subsidiaries, but in the case of this
clause (y) only if Company Voting Securities (as defined below) are
issued or issuable (each of the events referred to in this clause
(A) being hereinafter referred to as a
“Reorganization”) or (B) the sale or other
disposition of all or substantially all the assets of the Company
to an entity that is not an Affiliate (a “Sale”) if
such Reorganization or Sale requires the approval of the
Company’s stockholders under the law of the Company’s
jurisdiction of organization (whether such approval is required for
such Reorganization or Sale or for the issuance of securities of
the Company in such Reorganization or Sale), unless, immediately
following such Reorganization or Sale, all or substantially all the
individuals and entities who were the “beneficial
owners” (as such term is defined in Rule 13d-3 under the
Exchange Act (or a successor rule thereto)) of the Company’s
shares or other securities eligible to vote for the election of the
Board (“Company Voting Securities”) outstanding
immediately prior to the consummation of such Reorganization or
Sale beneficially own, directly or indirectly, more than 50% of the
combined voting power of the then outstanding voting securities of
the corporation resulting from such Reorganization or Sale
(including, without limitation, a corporation that as a result of
such transaction owns the Company or all or substantially all the
Company’s assets either directly or through one or more
subsidiaries) (the “Continuing Corporation”) in
substantially the same proportions as their ownership, immediately
prior to the consummation of such
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Reorganization or Sale, of the
outstanding Company Voting Securities (excluding any outstanding
voting securities of the Continuing Corporation that such
beneficial owners hold immediately following the consummation of
the Reorganization or Sale as a result of their ownership prior to
such consummation of voting securities of any company or other
entity involved in or forming part of such Reorganization or Sale
other than the Company); (ii) the stockholders of the Company shall
approve any plan or proposal for the complete 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’)) (each a “Person”), other than (A) the
Company, (B) a Subsidiary, (C) any employee benefit plan sponsored
by the Company or an Affiliate or (D) a company 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, 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 (the “Incumbent
Directors”) shall cease for any reason to constitute at least
a majority thereof; provided , however , that any
individual becoming a director subsequent to the first day of such
period whose election, or nomination for election, by the
Company’s stockholders was approved by a vote of at least a
majority of the Incumbent Directors shall be considered as though
such individual were an Incumbent Director, but excluding, for
purposes of this proviso, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
proxy contest with respect to election or removal of directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person, in each case other than the management of
the Company or the Board, 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.
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(d)
“Designated Officers”
means certain officers of the Company designated as such by the
Board from time-to-time for purposes of receiving payments and
benefits under the Plan.
(e)
“Designated Officers Bonus
Payment” means, in the case of a Designated Officer, two
annual bonus payments as calculated under, and payable at the times
contemplated in, the Company’s Senior Executive Bonus Plan or
Target Bonus Plan (each a “Bonus Plan”) in effect prior
to the Change of Control and adjusted as provided in the next
sentence. In making the calculations under the Bonus Plan, the
Participant’s “Base Salary” (as defined therein)
shall be the annual rate in effect immediately prior to the date of
Termination or the effective date of the Change of Control,
whichever is higher, and the applicable “Bonus Factor”
(as defined therein) in each case shall be 1.0 without regard to
the Company’s actual performance under the performance
measures during the measurement period.
(f)
“Key Employee” means an
employee of the Company or any Subsidiary whom the Committee
designates by name as a participant in this Plan and who is not an
Officer.
(g)
“Officer” means an
officer of the Company who is not a Designated Officer.
(h)
“Participant” means a
Designated Officer, Officer or Key Employee, as the context
requires.
(i)
“Severance Period” means (i) in the case of a
Designated Officer, a period of twenty-four (24) months following
the date of Termination and (ii) in the case of an Officer or a Key
Employee, a period of twelve (12) months following the date of
Termination.
(j)
“Subsidiary” means any
entity in which the Company, directly or indirectly, possesses
fifty percent (50%) or more of the total combined voting power of
all classes of stock.
(k)
“Termination for Cause”
means a termination of a Participant’s employment by the
Company due to (i) the willful and continued failure of the
Participant to perform substantially the Participant’s duties
with the Company or one of its Affiliates (other than any such
failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is
delivered to the Participant by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in
which the
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Board or Chief Executive Officer
believes that the Participant has not substantially
