cumminslogoa02.jpg [cumminslogoa02.jpg]

 
 
 
 
To:
EE Name
Date:
___________
 
 
 
 
From:
T. Linebarger
 
 
 
 
 
 
Subject:
20__ Long Term Grant

I am pleased to inform you that you are one of a select group of leaders that
has been awarded a 20__ Long Term Grant.

The objectives of our Long Term Grant program are as follows:

•
We want to motivate you to help us meet our key financial and strategic
objectives;

•
We want to link your compensation to shareholder return and make you feel and
act like owners of the company; and

•
We want you to know that we see you as a critical part of our company and to
recognize your performance and potential.

Elements of Your 20__ Long Term Grant
Your Long Term Grant is made up of three equal elements:
•
Performance Cash    

•
Performance Shares    

•
Stock Options        

Performance Cash & Performance Shares
Performance cash is a cash-based award and expressed as a U.S. dollar amount.
Actual cash payout will be payable in March 20__. Performance shares are
expressed as a number of shares of Cummins Common stock. Actual shares earned
will be payable in March 20___.

Performance Cash and Performance Shares are measured on Return on Invested
Capital (ROIC) and Earnings before Interest, Taxes, Depreciation, and
Amortization (EBITDA). We believe that the combination of ROIC and EBITDA growth
metrics reinforce the importance of delivering profitable growth and high
returns of capital, the two most important drivers of shareholder return.

The plan places an 80% weighting on ROIC and a 20% weighting on EBITDA growth.
We believe that placing a higher weighting on ROIC focuses leaders on seeking
growth opportunities that deliver targeted returns.

Performance Cash and Shares are subject to the ROIC and EBITDA Payout Factor
Tables in Attachment II. The payout factor ranges from 0.0 to 2.0 and is
measured on both ROIC and EBITDA growth performance over the three year (20__ -
20__) performance period. The payout factor will be based on the Payout Factor
Table and the Company’s final ROIC and EBITDA performance. However, all payout
amounts are ultimately determined by the Compensation Committee of the Board of
Directors in its discretion.

Each metric is assessed independently and then combined into a single payout
factor. An example of the payout factor calculation is as follows:

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

Metric
Payout Factor
Weighting
Weighted Factor
ROIC
1.3
80%
1.04
EBITDA
1.0
20%
0.2
 
 
Unrounded Factor:
1.24
 
 
Final Factor:
1.2

Stock Options
The Stock Option portion of your grant is intended to link your compensation to
long-term stock price growth. Stock options are the right to purchase a specific
number of shares of the Company’s stock at a set price. The options included
with your 20__ grant will vest after three years and expire ten years after the
grant date. The grant price for your options will be the closing price of
Cummins stock on April _, 20__ (the “grant date”).

After May __, 20__, you can log onto the Morgan Stanley website
(www.stockplanconnect.com) to review and accept the terms of your performance
awards and stock options. You will not be able to exercise your options or sell
your stock until you complete this online acceptance process.

Termination Details - Performance Cash and Shares
Performance Cash and Performance Shares will be forfeited in the case of
voluntary or involuntary termination if not employed on the date of payout. In
the case of death or disability, Performance Cash and Performance Shares will be
prorated based on months of active service in the performance period. If death
or disability occurs in:
•
Year 1 of the performance period, the payout is based on a 1.0 target value, and
the payout is made at the next available payroll processing date.

•
Year 2 of the performance period, the payout factor is calculated by using the
actual year one ROIC & EBITDA and the 1.0 target ROIC & EBITDA for years two and
three, and the payout is made at the next available payroll processing date.

•
Year 3 of the performance period, the payout is processed according to the
original payout schedule, based on the actual payout factor.

Retirement of a participant in accordance with the terms of a Company retirement
plan, will result in Performance Cash and Performance Shares being prorated
based on months of active service in the performance period. The payout is
processed according to the original payout schedule, based on the actual payout
factor.

Termination Details - Stock Options
Stock options, even those which are vested, are forfeited in the case of
voluntary or involuntary termination.

Stock options vest immediately upon death, disability and at qualified
retirement, with the expiration date adjusting to the sooner of the original
expiration date or 12 months (death) or 60 months (disability or qualified
retirement).

Performance Period
Your grant will follow a three-year performance period, which encourages our
employees to focus on the sustained growth of our company.

Should you have any follow up questions regarding your grant, please discuss
with your manager. Complete details about our Long Term Grant program can be
found in the Cummins Inc. Omnibus Incentive Plan, accessible through your Morgan
Stanley account.

Thank you for your efforts and hard work over the past year. I look forward to
working together and making 20___ successful.

T. Linebarger
Chairman and Chief Executive Officer

Attachments

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

Attachment I
Name: EE Name

Long Term Grant

The following table provides the details of your 20__ Long Term Grant.
Attachment II provides additional plan detail.

Proposed Total Annual Grant Value*
 
Performance Cash Target Award
 
Performance Share Target Award
 
Stock Options (Grant Date: April __, 20__)
 

* The “Annual Grant Value” reflects a method used to compare Long Term Grants to
market data and to calibrate grant levels. This method involves discounting the
Target Award values over the award period to determine a target present value.
The actual values you will receive depends on the following: (1) Cummins ROIC &
EBITDA performance over the three-year performance period will determine your
actual Performance Cash payout and the actual number of Performance Shares you
will earn; and (2) Cummins stock price will drive the actual value of your
Performance Shares and Stock Options.

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

Attachment II

20__ - 20__ Long Term Grant Payout Factor Table

ROIC

Payout
20__/20__ ROIC
 
 
 
 
 
 
 
 
 
 
 
 
 
 

ROIC weighted at 80% of plan

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Attachment II (continued)

EBITDA

Payout
20__/20__ Cum. EBITDA
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

EBITDA weighted at 20% of plan