CUMMINS ENGINE COMPANY, INC.
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EXHIBIT 10(q)
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THREE YEAR PERFORMANCE PLAN
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Effective as of December 8, 1992
The Three Year Performance Plan is hereby adopted by the Board of
Directors of Cummins Engine Company, Inc. (hereinafter call the
"Company"), with the objectives and upon the terms set forth herein.
1. Objectives.
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The objectives of the Plan are to:
(a) serve as a balance to the short-term compensation provided by
base salary and bonus;
(b) place emphasis on the medium-term performance of the Company
in direct relationship to its industry competitors and/or
other such measures deemed appropriate by the Compensation
Committee of the Board of Directors;
(c) strengthen the relationship between management and
shareholder interests; and
(d) encourage participants to remain with the Company through
important business cycles.
Individual plan grants are intended to reflect the varying degrees
of influence participating officers and key non-officer employees
have in their functional positions on the medium-term (3 year)
performance of the Company. Calculation of the payout is intended
to directly reflect the Company's performance based on various
measures designated by the Committee and the business judgment of
the Committee.
2. Definitions.
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(a) Award Cycle - The three (3) year period upon which a
particular year's payout is calculated. A new Award Cycle
commences with the beginning of each of the Company's fiscal
years. Payouts to Participants in any one year are based
upon actual results of the most recently completed Award
Cycle.
(b) Change of Control - The occurrence of any of the following:
(i) there shall be consummated (A) any consolidation or
merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which
shares of the Company's Common Stock would be converted in
whole or in part into cash, other securities or other
property, other than a merger of the Company in which the
holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate
ownership of common stock of the surviving corporation
immediately after the merger, or (B) any sale, lease,
exchange or transfer (in one transaction or a series of
related transactions) of all or substantially all the assets
of the Company, or (ii) the stockholders of the Company shall
approve any plan or proposal for the liquidation or
dissolution of the Company, or (iii) any "person" (as such
term is used in Section 13 (d) (3) and 14 (d) (2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than the Company or a subsidiary thereof or any
employee benefit plan sponsored by the Company or a
subsidiary thereof or a corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of
stock of the Company, shall become the beneficial owners
(within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the
election of directors ("Voting Shares"), as a result of a
tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, or (iv) at any time during
a period of two (2) consecutive years, individuals who at the
beginning of such period constituted the Board of Directors
of the Company shall cease for any reason to constitute at
least a majority thereof, unless the election or the
nomination for election by the Company's stockholders of each
new director during such 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.
(c) Committee - The Compensation Committee of the Board of
Directors of the Company which has been designated to review
compensation of officers, key non-officers, and non-employee
directors of the Company.
(d) Comparator Panel - Selected companies whose primary industry
is similar to that of the Company. Those companies are;
General Motors Dana
Ford Motor Company Arvin
Caterpillar Ingersoll Rand
Deere Paccar
Eaton Dresser
Navistar
(e) Participants - Officers or other employees designated
annually by the Committee as participants in the Plan.
(f) Payout Factor - The percentage determined by the Committee
and applied to a Target Award to determine the amount of the
award to be paid as described in Section 6 of the Plan.
(g) Plan - The Three Year Performance Plan described herein.
(h) Target Award - The amount of targeted compensation described
in Section 4 of the Plan.
3. Eligibility.
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The Committee shall determine each year the officers and other
employees of the Company who shall be Participants in the Plan.
4. Target Award.
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Participants in the Plan shall be assigned a Target Award for an
Award Cycle by the Committee, in its discretion, based on the
following criteria, and such other criteria as the Committee may
determine from time to time:
(a) Scope and breadth of the Participant's Position;
(b) Effect on the Company's medium-term performance;
(c) Work relationships.
The Target Award for an Award Cycle shall be expressed as a dollar
amount. The Target Award for a particular Award Cycle shall be
the Target Award approved for that Participant prior to the actual
payout for that Award Cycle. Therefore, Target Awards for an
Award Cycle may be changed during the course of an Award Cycle
(but prior to the payout being made for such Award Cycle) based on
the Committee's evaluation of changes in the aforementioned
criteria for each Participant.
The eligibility of new Participants and their levels of
participation, if any, in Award Cycles already begun shall be
determined by the Committee, in its discretion.
5. Payout Formula.
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The Committee will establish, at the commencement of each Award
Cycle, performance measures to be used as the guideline for
determining the Payout Factor for the Award Cycle. The
performance measures will provide guidelines; the final Payout
Factor will be determined in the judgment of the Committee,
considering performance against the established measures and such
other factors as the Committee deems appropriate.
Performance measure will generally be the Company's performance
relative to the median performance of the Comparator Panel. The
Committee may designate, but shall not be limited to, return on
the Company's stockholder equity as the measure of performance.
6. Award Payout.
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The award payout shall be determined as follows:
Target Award Award Cycle
for the X Payout Factor
Award Cycle
7. Termination of Employment.
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(a) If a Participant's employment with the Company terminates
(except through retirement, disability or death), such
Participant will not receive a payout for any Award Cycle (a
"Payout"") for which payment has not been made where such
Participant's employment and participation in the Plan was
for a period of one (1) year or less. If a Participant's
employment so terminated during the second (2nd) through the
third (3rd) years of participation in the Plan, the
Committee, in its discretion, shall determine whether the
Participant will receive a proportionate share of the Payout
at the end of each Award Cycle initiated while such employee
was a Participant in the Plan.
(b) If a Participant retires, becomes disabled or dies, the
Participant, or such Participant's estate, shall be entitled
to receive a proportionate share of the Payout at the end of
each Award Cycle based upon the number of years such employee
participated during each Award Cycle.
8. Performance Plan Payout.
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Any payout under the Plan will be made after the audit of the
Company's financial statements and after the Committee has
determined the Payout Factor resulting from the Company's
performance. In general, the Payout date will occur as soon as
practicable following the end of an Award Cycle, but not later
than June 30 following completion of such Award Cycle.
9. Change of Control.
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In the event of a Change of Control of the Company, the provisions
of this Section 9 shall supersede those of Section 5. The Target
Award for each Award Cycle in progress shall be payable in full
upon the date of the Change of Control and shall be determined for
each cycle as follows:
Award
Target Award 1.0 Payout Percent
for the X Factor X Completion
Award Cycle Factor
The Award Cycle Percent Completion Factor for each Payout Award
calculation shall be determined by dividing the number of days in
the particular cycle completed prior to the Change of Control by
the number of days in a complete cycle, one thousand ninety-five
(1095) days.
10. Notice.
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To the extent practicable, the Plan shall be communicated as early
as possible to each Participant in each Award Cycle to permit
maximum incentive to be generated by the Plan.
11. Term.
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The Plan will continue from year to year until terminated by the
Committee.