Exhibit 10(j)

 

As Approved December 12, 2011

 

CUMMINS INC.
2006 EXECUTIVE RETENTION PLAN

 

(Effective as of January 1, 2006 and amended on December 12, 2011)

 

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 supersedes 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, and the
Company’s Key Employee Compensation Protection Plan, effective as of April 3,
1984.

 

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 a Tier Two Participant, one
annual bonus payment as calculated under the Bonus Plan applicable to the
Participant 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)           “Bonus Plan” shall mean the Company’s Target Bonus Plan or the
Company’s Senior Executive Target Bonus Plan, as applicable, or any successor
plans thereto, and shall not include the Company’s Longer-Term Performance Plan
or the Company’s Senior Executive Longer Term Performance Plan or any successor
plans thereto.

 

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

 

(d)           “Change of Control” shall mean the occurrence of any of the
following: (i) there shall be consummated (A) any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company’s common stock would be converted in
whole or in part into cash, other securities or other property, other than a
merger of the Company in which the holders of the Company’s common stock
immediately prior to the merger have substantially the same proportionate
ownership of common stock of the surviving corporation immediately after the
merger, or (B) any sale, lease, exchange or transfer (in one transaction or a
series of related transactions) of all or substantially all the assets of the
Company (other than a sale, lease, exchange or transfer to any Affiliate or to
an entity owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportion as their ownership of stock in the Company);
or (ii) the shareholders of the Company shall approve any plan or proposal for
the liquidation or dissolution of the Company; or (iii) any “person” (as such
term is used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), other than the Company or a subsidiary
thereof or any employee benefit plan sponsored by the Company or a subsidiary
thereof, shall become the beneficial owner (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 consecutive years, individuals who, at
the beginning of such period constituted the Board, shall cease for any reason
to constitute at least a majority thereof, unless the election or the nomination
for election by the Company’s shareholders of each new director during such
two-year period was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who were directors at the beginning of such
two-year period; or (v) any other event shall occur that would be required to be
reported in response to Item 6(e) (or any successor provision) of Schedule 14A
of Regulation 14A promulgated under the Exchange Act.

 

(e)           “Chief Executive Officer” means the Chief Executive Officer of the
Company designated as such by the Board from time to time.

 

(f)            “Chief Executive Officer’s Bonus Payment” means three annual
bonus payments as calculated under, and payable at the times contemplated in,
the Bonus Plan applicable to the Chief Executive Officer as 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 Chief Executive Officer’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.

 

(g)           “Participant” shall have the meaning given in Section 2.

 

2

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

 

(h)           “Severance Period” means (i) in the case of the Chief Executive
Officer, a period of thirty-six (36) months following the date of Termination,
(ii) in the case of a Tier One Participant, a period of twenty-four (24) months
following the date of Termination and (iii) in the case of a Tier Two
Participant, a period of twelve (12) months following the date of Termination.

 

(i)            “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.

 

(j)            “Termination for Cause” means a termination of a Participant’s
employment by the Company or a Subsidiary 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 Board or Chief Executive Officer believes that the Participant has
not substantially performed the Participant’s duties, or (ii) the Participant’s
conviction of a felony.

 

For purposes of this definition, no act or failure to act on the part of the
Participant shall be considered “willful” unless it is done, or omitted to be
done, by the Participant in bad faith or without reasonable belief that the
Participant’s action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Participant in good faith and in the best interests of the Company. The
cessation of employment of the Participant shall not be deemed to be a
termination for Cause unless and until there shall have been delivered to the
Participant a copy of a resolution duly adopted by the affirmative vote of not
less than three quarters of the entire membership of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice is provided
to the Participant and the Participant is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, the Participant is guilty of the conduct described in subparagraph
(i) or (ii) above, and specifying the particulars thereof in detail.

 

(k)           “Termination for Good Reason” means a termination of a
Participant’s employment by the Participant within 90 days following (i) the
assignment to the Participant of any duties inconsistent in any respect with the
Participant’s position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Participant, (ii) the
Company’s requiring the Participant to be based at any office or location
farther than 50 miles away from the location at which the Participant is based
on the effective date of the

 

3

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

 

Change of Control or the Company’s requiring the Participant to travel on
Company business to a substantially greater extent than required immediately
prior to the effective date of the Change of Control, (iii) a reduction in the
Participant’s annual base salary or participation level or opportunity in any
bonus or other incentive compensation plan or program of the Company, (iv) a
material reduction in the aggregate value of the pension and welfare benefits
provided to the Participant from those in effect on the effective date of the
Change of Control (other than a reduction which is proportionate to the
reductions applicable to other senior participants pursuant to a cost-saving
plan that includes all senior participants) or (v) a material breach of any
provision of this Plan by the Company.

 

For purposes of this definition, any good faith determination of “Good Reason”
made by the Participant shall be conclusive.

 

(l)            “Termination Without Cause” means any termination of the
Participant’s employment by the Company or a Subsidiary other than a Termination
for Cause.

 

(m)          “Tier One Participant” means an officer or other employee of the
Company designated as a Tier One Participant by the Board from time to time for
purposes of receiving payments and benefits under the Plan.

 

(n)           “Tier Two Participant” means an officer or other employee of the
Company designated as a Tier Two Participant by the Board from time to time for
purposes of receiving payments and benefits under the Plan.

 

(o)           “Tier One Participant’s Bonus Payment” means two annual bonus
payments as calculated under, and payable at the times contemplated in, the
Bonus Plan applicable to the Tier One Participant 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.

 

2.             Eligibility.  “Participants” in this Plan shall consist of the
Chief Executive Officer and those individuals who are from time to time
designated as Tier One Participants or Tier Two Participants by the Board.  A
Participant whom the Board determines is no longer the Chief Executive Officer,
a Tier One Participant or a Tier Two Participant for purposes of this Plan shall
cease to be a Participant in this Plan when so notified of such determination;
provided that, notwithstanding anything to the contrary herein, no such
determination, and no other change in a Participant’s designation that would
result in fewer benefits being paid under this Plan to such Participant, shall
be made, and if made shall have no effect, (a) within two years after a Change
of Control or (b) during any period in which the Company has knowledge that a
third person has taken steps reasonably calculated to effect a Change of Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change of Control.

 

4

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

 

3.             Termination Payments.  In the event of a Termination Without
Cause or a Termination for Good Reason (in either such case a “Termination”) in
connection with or following any Change of Control and before the second
anniversary of the effective date of the Change of Control, the Company shall
pay to the Participant the following:

 

(a)           a lump-sum cash payment in an amount equal to salary payments for
the number of months in the Severance Period applicable to the Participant at
the monthly rate in effect immediately prior to the date of Termination or the
effective date of the Change of Control, whichever is higher; and

 

(b)           a lump-sum cash payment in an amount equal to (i) in the case of
the Chief Executive Officer, the Chief Executive Officer’s Bonus Payment,
(ii) in the case of a Tier One Participant, the Tier One Participant’s Bonus
Payment applicable to the Participant and (iii) in the case of a Tier Two
Participant, the Bonus Payment applicable to the Participant.

 

In addition, the Participant shall receive a lump-sum cash payment equal to the
present value of the following: (i) the additional pension benefits that would
have accrued under any defined benefit pension retirement plan and supplemental
pension plan maintained by the Company or a Subsidiary if the Participant had
remained in the employ of the Company or a Subsidiary for the Severance Period
and his compensation continued to be paid at the same rate as in effect
immediately prior to such Termination or Change of Control, whichever is higher
(and on the basis of the assumption that participation and benefits under such
plans are not frozen or reduced) and (ii) the value of employee welfare benefits
coverage (including, but not limited to, coverage under any life insurance,
medical, dental, disability and financial advisory arrangements or programs) to
which the Participant would have been entitled, based on the level of coverage
in effect at Termination, under all employee benefit plans, programs, policies
or arrangements maintained by the Company at the time of the Termination or
Change of Control, whichever are more favorable to the Participant, if the
Participant had remained in its employ for the Severance Period (in each case,
with respect to the preceding clauses (i) and (ii) on an after-tax basis where
such benefits if provided through the employee benefit plan would not be taxable
to the Participant, with the after-tax basis determined on the assumption that
the Participant pays federal income taxes at the highest marginal rate of
federal income taxation in the relevant calendar year and state and local income
taxes at the highest marginal rate of taxation in the state and locality of the
Participant’s residence for the relevant calendar year, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes). For purposes hereof, present value shall be determined
using the factors specified in the Company’s qualified pension plan for
determining lump sum payments as in effect for the year the payment is to be
made.  The amounts of any lump-sum payments described in this Section 3 shall be
determined and such payments shall be made as soon as possible (but in no event
more than 90 days) following the Participant’s Termination; provided, however,
that, to the extent necessary, in the good faith determination of the Company,
to comply with Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”), if the Participant is deemed to be a “specified employee” for
purposes of Section 409A of the Code, payment under this Plan shall be made on
the first business day following the date that is six (6) months after the date
of Termination.

 

5

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

 

4.             Nonexclusivity of Rights. Nothing in this Plan shall prevent or
limit any Participant’s continuing or future participation in any plan, program,
policy or practice provided by the Company or any Affiliates and for which the
Participant may qualify, nor shall anything herein limit or otherwise affect
such rights as a Participant may have under any contract or agreement with the
Company or any Affiliates. Amounts which are vested benefits or which a
Participant is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any Affiliates at or
subsequent to a Change of Control or Termination shall be payable in accordance
with such plan, policy, practice or program or contract or agreement except as
explicitly superseded by this Plan.

 

5.             Full Settlement.  The Company’s obligation to make the payments
provided for in this Plan and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against a Participant or
others. In no event shall a Participant be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Participant under any of the provisions of this Plan and such amounts shall not
be reduced whether or not the Participant obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Participant may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Participant or
others of the validity or enforceability of, or liability under, any provision
of this Plan or any guarantee of performance hereof (including as a result of
any contest by the Participant about the amount of any payment pursuant to this
Plan), plus in each case interest on any delayed payment at the applicable
federal rate provided for in Section 1274(d) of the Code.  Such payments shall
be paid to the Participant as soon as practicable after the Participant submits
the invoices for such expenses to the Company, but in all cases no later than
the end of the calendar year following the year in which such expenses were
incurred.

 

6.             Application of Limits on Payments.

 

(a)           Determination of Cap or Payment. Effective December 12, 2011,
notwithstanding any other provision of this Plan to the contrary, if any
payments or benefits paid by the Company pursuant to this Plan (“Plan Payments”)
would cause some or all of the Plan Payments or any other payments made to or
benefits received by a Participant in connection with a Change of Control (such
payments or benefits, together with the Plan Payments, the “Total Payments”) to
be subject to the tax (“Excise Tax”) imposed by Code Section 4999 but for this
Section 6, then the Total Payments shall be delivered either (i) in full or
(ii) in an amount such that the value of the aggregate Total Payments that the
Participant is entitled to receive shall be One Dollar ($1.00) less than the
maximum amount that the Participant may receive without being subject to the
Excise Tax, whichever of (i) or (ii) results in the receipt by the Participant
of the greatest benefit on an after-tax basis (taking into account applicable
federal, state and local income taxes and the Excise Tax).

 

(b)           Procedures.

 

(i)                                     If a Participant or the Company believes
that a payment or benefit due the Participant will result in some or all of the
Total Payments being subject to

 

6

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

 

the Excise Tax, then the Company, at its expense, shall obtain the opinion
(which need not be unqualified) of nationally recognized tax counsel (“National
Tax Counsel”) selected by the Company (which may be regular outside counsel to
the Company), which opinion sets forth (A) the amount of the Base Period Income
(as defined below), (B) the amount and present value of the Total Payments,
(C) the amount and present value of any excess parachute payments determined
without regard to any reduction of Total Payments pursuant to Section 6(a)(ii),
and (D) the net after-tax proceeds to the Participant, taking into account
applicable federal, state and local income taxes and the Excise Tax if (1) the
Total Payments were delivered in accordance with Section 6(a)(i) or (2) the
Total Payments were delivered in accordance with Section 6(a)(ii).  The opinion
of National Tax Counsel shall be addressed to the Company and the Participant
and shall be binding upon the Company and the Participant. If such National Tax
Counsel opinion determines that Section 6(a)(ii) applies, then the Plan Payments
or any other payment or benefit determined by such counsel to be includable in
the Total Payments shall be reduced or eliminated so that under the bases of
calculations set forth in such opinion there will be no excess parachute
payment. In such event, payments or benefits included in the Total Payments
shall be reduced or eliminated by applying the following principles, in order:
(x) the payment or benefit with the higher ratio of the parachute payment value
to present economic value (determined using reasonable actuarial assumptions)
shall be reduced or eliminated before a payment or benefit with a lower ratio;
(y) the payment or benefit with the later possible payment date shall be reduced
or eliminated before a payment or benefit with an earlier payment date; and
(z) cash payments shall be reduced prior to non-cash benefits; provided that if
the foregoing order of reduction or elimination would violate Code Section 409A,
then the reduction shall be made pro rata among the payments or benefits
included in the Total Payments (on the basis of the relative present value of
the parachute payments).

 

(ii)                                  For purposes of this Section 6: (A) the
terms “excess parachute payment” and “parachute payments” shall have the
meanings given in Code Section 280G and such “parachute payments” shall be
valued as provided therein; (B) present value shall be calculated in accordance
with Code Section 280G(d)(4); (C) the term “Base Period Income” means an amount
equal to the Participant’s “annualized includible compensation for the base
period” as defined in Code Section 280G(d)(1); (D) for purposes of the opinion
of National Tax Counsel, the value of any noncash benefits or any deferred
payment or benefit shall be determined by the Company’s independent auditors in
accordance with the principles of Code Sections 280G(d)(3) and (4); and (E) the
Participant shall be deemed to pay federal income tax and employment taxes at
the highest marginal rate of federal income and employment taxation, and state
and local income taxes at the highest marginal rate of taxation in the state or
locality of the Participant’s

 

7

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

 

domicile, net of the maximum reduction in federal income taxes that may be
obtained from the deduction of such state and local taxes.

 

(iii)                               If National Tax Counsel so requests in
connection with the opinion required by this Section 6(b), the Company shall
obtain, at the Company’s expense, and the National Tax Counsel may rely on, the
advice of a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the Participant
solely with respect to its status under Code Section 280G.

 

(iv)                              The Company agrees to bear all costs
associated with, and to indemnify and hold harmless the National Tax Counsel
from, any and all claims, damages and expenses resulting from or relating to its
determinations pursuant to this Section 6, except for claims, damages or
expenses resulting from the gross negligence or willful misconduct of such firm.

 

(v)                                 This Section 6 shall be amended to comply
with any amendment or successor provision to Code Section 280G or Code
Section 4999. If such provisions are repealed without successor, then this
Section 6 shall be cancelled without further effect.

 

7.             Successors.

 

(a)           Benefits under this Plan are personal to the Participant and
without the prior written consent of the Company shall not be assignable by the
Participant otherwise than by will or the laws of descent and distribution. This
Plan shall inure to the benefit of and be enforceable by the Participant’s legal
representatives.

 

(b)           This Plan shall inure to the benefit of and be binding upon the
Company and its successors and assigns.

 

(c)           The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Plan in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Plan, “Company” shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Plan by operation of law, or
otherwise.  For the avoidance of doubt, no Participant shall be deemed to have
undergone a Termination solely by virtue of a transfer of his or her employment
from the Company to any such successor in connection with a succession to all or
substantially all of the assets of the Company.

 

8.             Miscellaneous.

 

(a)           This Plan shall be governed by and construed in accordance with
the laws of the State of Indiana, without reference to principles of conflict of
laws. The captions of this

 

8

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

 

Plan are not part of the provisions hereof and shall have no force or effect.
This Plan may not be amended or modified to reduce any Participant’s benefits
otherwise than with the written consent of the Participant or the Participant’s
successor or legal representative.

 

(b)           The invalidity or unenforceability of any provision of this Plan
shall not affect the validity or enforceability of any other provision of this
Plan.

 

(c)           The Company may withhold from any amounts payable under this Plan
such federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.

 

(d)           The Participant’s failure to insist upon strict compliance with
any provision of this Plan or the failure to assert any right the Participant
may have hereunder, including, without limitation, the right of the Participant
to terminate employment for Good Reason as defined in paragraph 1(k) of this
Plan, shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Plan.

 

(e)           All the foregoing severance and benefit arrangements shall be
communicated to each Participant in this Plan and shall be generally described
in filings with the Securities and Exchange Commission and to the shareholders
of the Company, all to the extent deemed necessary or desirable by the Company,
in order that each Participant shall be deemed to have continued his employment
with the Company hereafter in good faith reliance upon this Plan.

 

9

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