EXHIBIT 10(b)

 

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DEFERRED INCENTIVE COMPENSATION PLAN

 

                                SECTION 1. ESTABLISHMENT AND PURPOSE.

 

                                The Plan was adopted by the Company on November
25, 1991, to provide certain employees with an opportunity to defer payment of
their bonuses under the Company’s year-end Incentive Compensation Program. The
Plan is also intended to establish a method of paying bonus awards that will
assist the Company in attracting and retaining employees of outstanding
achievement and ability.

 

                                SECTION 2. DEFINITIONS.

 

                (a)         “Account” means the bookkeeping account established
pursuant to Section 6 on behalf of an Executive who elects to participate in the
Plan.

 

                (b)         “Beneficiary” means the person or persons designated
by the Executive or by the Plan to receive payment of the Executive’s Income
and/or Stock Account in the event of the death of the Executive.

 

                (c)         “Board” means the Board of Directors of the Company,
as constituted from time to time.

 

                (d)           “Bonus Award” means the amount of compensation
awarded by the Company to an Executive as a bonus under the Company’s year-end
Incentive Compensation Program.

 

                (e)           “Cause” means (i) an act of embezzlement, fraud or
theft, (ii) the deliberate disregard of the rules of the Company or a
Subsidiary, (iii) any unauthorized disclosure of any of the secrets or
confidential information of the Company or a Subsidiary, (iv) any conduct which
constitutes unfair competition with the Company or a Subsidiary or (v) inducing
any customers of the Company or a Subsidiary to breach any contracts with the
Company or a Subsidiary.

 

                (f)            “Company” means PACCAR Inc, a Delaware
corporation.

 

                (g)           “Committee” means the Compensation Committee of
the Board.

 

                (h)           “Executive” means an employee of the Company or a
Subsidiary who is eligible to participate in the Plan under Section 4.

 

 

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                (i)            “Incentive Compensation Program” refers to the
incentive plan for executives of PACCAR Inc and its eligible subsidiaries who
are in grades 41 and above.

 

                (j)            “Permanent and Total Disability” is as defined
under PACCAR’s Long Term Disability Plan.

 

                (k)           “Plan” means this PACCAR Inc Deferred Incentive
Compensation Plan, as it may be amended from time to time.

 

                (l)            “Service” means employment with the Company or
any Subsidiary. A transfer among the Company and its Subsidiaries shall not be
considered a termination of Service.

 

                (m)          “Subsidiary” means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.

 

                (n)           “Year” means a calendar year.

 

                                SECTION 3. ADMINISTRATION.

 

                                The Committee shall have the authority to
administer the Plan in its sole discretion. To this end, the Committee is
authorized to construe and interpret the Plan, to promulgate, amend and rescind
rules relating to the implementation of the Plan and to make all other
determinations necessary or advisable for the administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate.
Any determination, decision or action of the Committee in connection with the
construction, interpretation or administration of the Plan shall be final,
conclusive and binding upon all persons participating in the Plan and any person
validly claiming under or through persons participating in the Plan.

 

                                SECTION 4. ELIGIBILITY.

 

                                An employee of the Company or of a Subsidiary
shall be eligible to participate in the Plan for a Year if he or she:

 

(a)           Is eligible to be considered for a bonus that will have been
earned in such Year under the Company’s Incentive Compensation Program; and

 

(b)           Has attained age 40 on or before January 1 of such Year.

 

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                                SECTION 5. ELECTION TO PARTICIPATE IN PLAN.

 

                                An Executive may elect to participate in the
Plan for a Year by filing with the Committee, on or before December 15 of such
Year, a written election to defer his or her Bonus Award earned in such Year.
The deferral election will become irrevocable after December 15. The deferral
election shall apply solely to the Bonus Award, if any, to be earned in the Year
in which the election is filed and shall specify the amount or portion of such
Bonus Award that is subject to the election (Deferred Award). The amount of the
Bonus Award earned in a given Year shall be determined by the Company in the
following year.

 

                                SECTION 6. ESTABLISHMENT AND TREATMENT OF
ACCOUNT.

 

                                In the event a Bonus Award is made to an
Executive who has filed a timely deferral election with respect to such Bonus
Award, the Company shall establish an Account for the Executive. The Account
shall be credited with an amount equal to that portion of the Bonus Award that
is not payable currently to the Executive because of the terms of the deferral
election. A separate Account shall be maintained for each Bonus Award deferred
by an Executive, except as the Company may otherwise determine.

                                Participants may elect to have their Deferred
Award allocated to one or both of the two unfunded accounts described below:

 

                                (a)           Income Account. Means a
bookkeeping entry established on behalf of the Executive who elected to
participate in the Plan. A deferred Award shall be credited to the Income
Account as of January next following the Year in which such bonus Award was
earned. Interest shall be credited on the balance in each Income Account,
commencing with the date as of which any amount is credited to the Income
Account and continuing up to the close of the calendar quarter immediately
preceding the date when the last payment from the Income Account is made. Such
interest for each calendar quarter during the deferral period shall be credited
at a rate equal to the simple combined average of the monthly Aa Industrial Bond
yield average for the immediately preceding calendar quarter, as reported in
Moody’s Bond Record. Such interest shall be compounded quarterly. Such interest
shall become a part of the Income Account and shall be paid at the same time or
times as the principal balance of the Income Account.

 

                                (b)           PACCAR Stock Account. Means a
bookkeeping entry established on behalf of the Executive who elected to
participate in the Plan. A deferred Award shall be credited to the Stock Account
as of January next following the Year in which such bonus Award was earned. The
initial account balance will be equal to the number of shares of PACCAR Common
Stock that the Deferred Award could have purchased at the average closing market
price for the first five (5) business days the market is open in January.
Thereafter, any dividends earned will be treated as if those dividends had been
invested in additional shares at the closing market price on the date the
dividends are paid. Account balances will be adjusted pursuant to Article 10 of
the Long Term Incentive Plan.

 

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                                c)             Statements. As soon as
practicable after July 1 of each Year (and after such other dates as the Company
may determine), the Company shall prepare and deliver to each participating
Executive a written statement showing the balance in his or her Income and/or
Stock Account as of the applicable date.

 

                                SECTION 7. FORM AND TIME OF PAYMENT ACCOUNT.

 

                                Distribution of the Income and/or PACCAR Stock
Accounts shall be made at such time or times and in such form as the Committee
shall determine in its sole discretion. In order to assist the Committee in
making such determinations, the following procedures are established:

 

                                (a) Request of Form and Time of Payment. An
Executive may elect to receive distribution of the Income and/or PACCAR Stock
Account at the time and in the manner described in (i) and (ii) below. For
payment to be made or commence prior to leaving the Company, a Payment election
form must be completed at the time the Deferral Election is made. Otherwise,
elections shall be made by filing the prescribed form with the Committee not
later than the earlier of (A) 30 days after the Executive’s termination of
employment with the Company or (B) December 1 of the year before the year in
which distribution is to be made or commence. Distribution will be made in
accordance with the Executive’s election unless the Committee has disapproved
the election or has determined that the distribution shall be made at some other
time.

 

(i)            Form of Payment. Payment of an Income Account shall be made in
cash, either in a lump sum or in annual installments over a period not in excess
of 15 years. The amount of any installment to be paid from an Income Account
shall be determined by dividing the balance remaining in such Income Account by
the number of installments then remaining to be distributed. Payment of the
PACCAR Stock Account will be paid in shares of PACCAR Common Stock at the end of
the deferral period. The source of shares for this plan will be the Long Term
Incentive Plan.

 

(ii)           Time of Payment. Payment of the Income and/or PACCAR Stock
Account shall occur or commence on any January, but not later than the first
January after the year in which Executive attains age 70 ½. In the event an
Executive who elects installment payments is reemployed by the Company, all
installments will be suspended until the Executive’s service ends.

 

(b)           Changing a Request. Any request that an approved method of payment
be changed, or any request subsequent to the deferral election for distribution
prior to termination is subject to approval by the Committee in its sole and
absolute discretion. Such request shall be in writing to the Committee and shall
set forth the reasons for the request.

 

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                                (c) Failing to Request. In the event that an
Executive fails to make a timely election pursuant to Section 7 (a),
distribution of the Income or Stock Account shall be made in full in the first
January following sixty (60) days after the Executive’s termination of
employment. In such case, the entire account balance in effect as of the
distribution date will be distributed to the Executive.

 

                                (d) Committee Guidelines. From time to time, the
Committee may establish guidelines for its own use in determining what election
made pursuant to Section 7 (a) or (b) above shall be disapproved, but such
guidelines shall not in any way limit the Committee’s sole discretion to
determine the terms and form of distribution of the recipient’s Income and/or
Stock Account.

 

(e)      Withholding Taxes. All payments under the Plan shall be subject to
reduction to reflect the withholding of applicable taxes.

 

                                (f) Resignation or Termination Without Cause.
Notwithstanding Section 7(a), in the event of termination of employment by
resignation of the participant or by termination by the Company without Cause as
defined in 2(e), other than termination by reason of disability or retirement,
all compensation deferred under this plan after 2001 and before December 31,
2003 will be paid as a single lump sum payment of cash from the income account
and shares of PACCAR stock from the stock account in the first January following
termination. All compensation deferred under this Plan after January 1, 2004
will be paid as a single lump sum payment of cash from the income account and
shares of PACCAR stock from the stock account in the first month following
termination, unless the Committee in its sole discretion determines that such
payment should be made at an earlier date.

 

                                SECTION 8. EFFECT OF DEATH OF EXECUTIVE.

 

                                (a)           Distribution of Account. Upon the
death of a participating Executive, the amount (if any) remaining in his or her
Income and/or Stock Account shall be distributed to his or her Beneficiary. The
distribution shall be made at the time(s) and in the form specified in the
election filed by the Executive under Section 7, unless the Committee determines
in its sole discretion that payment shall be made at an earlier date or in a
different form. If the Executive did not file an election under Section 7 prior
to his or her death, then the distribution shall be made at the time(s) and in
the form determined by the Committee in its sole discretion. If a designated
Beneficiary dies before receiving payment of his or her entire share of the
Executive’s Income and/or Stock Account, then the remaining payments shall be
made to such Beneficiary’s personal representative.

 

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                                (b)           Designation of Beneficiary. Upon
commencement of participation in the Plan, each Executive shall, by filing the
prescribed form with the Company, name a person or persons as the Beneficiary
who will receive any distribution payable under the Plan in the event of the
Executive’s death. If the Executive has not named a Beneficiary or if none of
the named Beneficiaries survives the Executive, then the Executive’s personal
representative shall be the Beneficiary. The Executive may change his or her
Beneficiary designation from time to time. Any designation of a Beneficiary (or
an amendment or revocation thereof) shall be effective only if it is made in
writing on the prescribed form and is received by the Company prior to the
Executive’s death. Any other provision of this Subsection (b) notwithstanding,
in the case of a married Executive, any designation of a person other than his
or her spouse as the sole primary Beneficiary shall be valid only if the spouse
consented to such designation in writing.

 

                                SECTION 9. FORFEITURE OF ACCOUNTS.

 

                                All of an Executive’s Income and/or Stock
Accounts shall be forfeited in the event that his or her Service ends because of
a discharge for Cause or in the event that he or she, after his or her Service
ended for any other reason, fails or refuses to provide advice or counsel to the
Company or a Subsidiary when reasonably requested to do so. The Committee’s
good-faith determination of the existence of facts justifying forfeiture shall
be conclusive.

 

                                SECTION 10. INCOMPETENCE.

 

                                If, in the opinion of the Committee, any
individual becomes unable to handle properly any amount payable to such
individual under the Plan, then the Committee may make such arrangements for
payment on such individual’s behalf as it determines will be beneficial to such
individual, including (without limitation) payment to such individual’s
guardian, conservator, spouse or dependent.

 

                                SECTION 11. EXECUTIVES’ RIGHTS UNSECURED.

 

                                The Plan is unfunded. The interest under the
Plan of any participating Executive, and such Executive’s right to receive a
distribution of his or her Income and/or Stock Account, shall be an unsecured
claim against the general assets of the Company. The Income and/or Stock
Accounts shall be bookkeeping entries only, and no Executive shall have an
interest in or claim against any specific asset of the Company pursuant to the
Plan.

 

                                SECTION 12. NONASSIGNABILITY OF INTERESTS.

 

                                The interest and property rights of any
Executive under the Plan shall not be subject to option nor be assignable either
by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor’s
process, and any act in violation of this Section 12 shall be void.

 

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                                SECTION 13. LIMITATION OF RIGHTS.

 

(a)           No Right to Bonuses. Nothing in the Plan shall be construed to
give an Executive any right to be granted a Bonus Award.

 

(b)           No Right to Employment. Neither the Plan nor the deferral of any
Bonus Award, nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company or a Subsidiary will employ an Executive for any period of time, in any
position or at any particular rate of compensation.

 

                SECTION 14. DOMESTIC RELATIONS ORDERS.

 

                The procedures established by the Company for the determination
of the qualified status of domestic relations orders and for making
distributions under qualified domestic relations orders, as provided in Section
206 (d) of ERISA, shall apply to the Plan.

 

                SECTION 15. CLAIMS AND INQUIRIES.

 

(a)           Application for Benefits. Applications for benefits and inquiries
concerning the Plan (or concerning present or future rights to benefits under
the Plan) shall be submitted to the Committee in writing. An application for
benefits shall be submitted on the prescribed form and shall be signed by the
Executive or, in the case of a benefit payable after his or her death, by the
Beneficiary.

 

(b)           Denial of Application. In the event that an application for
benefits is denied in whole or in part, the Committee shall notify the applicant
in writing of the denial and of the right to a review of the denial. The written
notice shall set forth, in a manner calculated to be understood by the
applicant, specific reasons for the denial, specific references to the
provisions of the Plan on which the denial is based, a description of any
information or material necessary for the applicant to perfect the application,
an explanation of why the material is necessary, and an explanation of the
review procedure under the Plan. The written notice shall be given to the
applicant within a reasonable period of time (not more than 90 days) after the
Committee received the application, unless special circumstances require further
time for processing and the applicant is advised of the extension. In no event
shall the notice be given more than 180 days after the Committee received the
application.

 

                (c)           Request for Review. An applicant whose application
for benefits was denied in whole or in part, or the applicant’s duly authorized
representative, may appeal the denial by submitting to the Committee a request
for a review of the application within 90 days after receiving written notice of
the denial from the Committee. The Committee shall give the applicant or his or
her representative an opportunity to review pertinent materials, other than
legally privileged documents, in preparing the request for a review. The request
for a review shall be in writing and addressed to the Committee. The request for
a review shall set forth all of the grounds on which it is based, all facts in
support of the request, and any other matters that the

 

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applicant deems pertinent. The Committee may require the applicant to submit
such additional facts, documents or other material as it may deem necessary or
appropriate in making its review.

 

                (d)           Decision on Review. The Committee shall act on
each request for an appeal within 60 days after receipt, unless special
circumstances require further time for processing and the applicant is advised
of the extension. In no event shall the decision on review be rendered more than
120 days after the Committee received the request for a review. The Committee
shall give prompt written notice of its decision to the applicant. In the event
that the Committee confirms the denial of the application for benefits in whole
or in part, the notice shall set forth, in a manner calculated to be understood
by the applicant, the specific reasons for the decision and specific references
to the provisions of the Plan on which the decision is based.

 

                (e)           Rules and Interpretations. The Committee shall
adopt such rules, procedures and interpretations of the Plan as it deems
necessary or appropriate in carrying out its responsibilities under this Section
15.

 

                (f)            Exhaustion of Remedies. No legal action for
benefits under the Plan shall be brought unless and until the claimant (i) has
submitted a written application for benefits in accordance with Subsection (a)
above, (ii) has been notified by the Committee that the application is denied,
(iii) has filed a written request for a review of the application in accordance
with Subsection (c) above and (iv) has been notified in writing that the
Committee has affirmed the denial of the application; provided, however, that
legal action may be brought after the Committee has failed to take any action on
the claim within the time prescribed by Subsections (b) and (d) above,
respectively.

 

                SECTION 16. AMENDMENT OR TERMINATION OF THE PLAN.

 

                The Board or appropriate committee thereof, may amend, suspend
or terminate the Plan at any time. In the event of a termination of the Plan,
the Income and/or Stock Accounts of participating Executives shall be paid at
the time(s) and in the form determined under Sections 7 and 8, unless the
Committee prescribes an earlier time or different form for the payment of such
Income and/or PACCAR Stock Accounts.

 

                SECTION 17. CHANGE OF CONTROL

 

                In the event of a Change of Control of the Company, as defined
in the PACCAR Supplemental Retirement Plan, each Executive shall be entitled to
the lump sum payment of his or her Income and/or Stock Account. This amount
shall be paid within 30 days of the Change of Control.

 

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                SECTION 18. CHOICE OF LAW.

 

                The validity, interpretation, construction and performance of
the Plan shall be governed by the Employee Retirement Income Security Act of
1974 and, to the extent they are not preempted, by the laws of the State of
Washington.

 

                SECTION 19. EXECUTION.

 

                To record the amendment and restatement of the Plan to read as
set forth herein, PACCAR Inc by its Chairman, Compensation Committee, has
executed this Plan on September 15, 2003.

 

 

 

 

 

PACCAR Inc

 

 

 

 

 

 

By

/s/ G. Grinstein

 

September 15, 2003

 

 

G. Grinstein

 

Date

 

 

Chairman

 

 

 

 

Compensation Committee

 

 

 

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