Exhibit
10.(n)


 





 


Performance Shares Memo


 


Interoffice Memorandum


 


	
  To:

  	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Copies:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  From:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Subject:

  	
  Your

  	
  Longer-Term Grants

  	
   

  	
   

  



 


I am pleased to inform
you that you have been awarded
           Longer-Term
Grants, as authorized by the Compensation Committee of Cummins Board of
Directors.  A select group of key
employees receives these grants.  Your
grants are based on recommendations from your organization.


 


I want to inform you of
your            grants.


 


Elements of the        Grants


 


The Compensation
Committee reviewed our Executive Compensation Program, assessing how well it
supports the objectives the Committee has stated for the program, which
include:


 


·      Increase the linkage of compensation with
achieving our financial performance targets, specifically Return on Equity and
Return on Average Net Assets;


 


·      Pay for performance using a measure key
managers affect directly;


 


·      Continue the strong linkage of interests
between shareholders and managers;


 


·      Encourage managers to act like owners.


 


Since 2004 the target
Annual Grant Values have been divided approximately half Performance Cash and
half Performance Shares.


 


The
          grants retain the ratio
of approximately one-half cash and one-half stock-based target values.  The Compensation Committee
believes that this blend of cash and stock is appropriate.


 

















 


The stock-based portion is provided by a blend of Performance Shares
and Stock Options.   The ratios of target
Annual Values are:


 


	
  Performance Cash

  	
  50%

  
	
  Performance Shares

  	
  25%

  
	
  Stock Options

  	
  25%

  



 


Why a Blended Approach for the Stock-Based Grants


 


The Committee considered many factors in deciding to include Stock
Options to the Grant mix, including the current global economic recession, the
Company’s stock price performance, our financial performance targets, and our
shareholders.


 


Performance Shares and Stock Options each have distinct advantages. Both
are tied to our shareholders’ interests while providing more balanced pay for
performance opportunities.


 


The combination of Performance Shares and Stock Options provides
flexibility in how we pay for performance. Performance Shares provide value to
participants for achieving financial targets, even if the stock price declines
from the grant date. Stock Options appreciate in value only if the stock price
increases after the grant date.


 


Based on the model used to size grants, approximately
             Stock
Options are granted to provide the target value of one Performance Share this
year. This leverage inherent in Stock Option grants provides higher levels of
compensation when our stock price performs well. Exhibit II illustrates
how this works.


 


Stock Options have a longer-term focus on stock price growth - -
potentially up to their full ten-year term.


 


The blended approach of Performance Shares and Stock
Options balances pay for performance, provides more flexibility for
participants, and strengthens the linkage of interests with shareholders. 


 


2

















 


Your Longer-Term Grants
for


 


Attachment
I summarizes your
specific Longer-Term Grants for the
                  
Award Cycle. Attachment II explains how the
grants work. Attachment III is the Payout
Factor schedule, based on Cummins Return on Equity for
                        for
the Performance Cash and Performance Shares.


 


Also attached are two copies of your Stock Option
Agreement.  Please sign and return one to
                                              
and retain one for your records.


 


If you have any questions
about the administrative details of the Executive Compensation program, please
contact
                                  .


 


I believe the               Longer-Term
Grants tie our pay closely to performance we impact directly. The tools are in
place for us as a team, acting as owners, to earn or exceed our target levels
of compensation, if we perform and achieve our aggressive targets. I am
confident we will succeed. 


 


Attachments 


 


3

















 


Attachment I


 


Name:                            


 


Longer-Term
Grant Summary


 


Your Longer-Term Grants
for             
consist of the following:


 


	
  ·

  	
  Performance Cash Target
  Award:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ·

  	
  Performance Shares
  Target Award:

  	
   

  	
  shares

  
	
   

  	
   

  	
   

  
	
  ·

  	
  Stock Options

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  The proposed Annual
  Grant Value

  	
   

  	
   

  
	
  of your grants is:

  	
   

  	
  *

  



 


The Grant Date for your
Stock Options is
                      .
The Grant Price, which is the average of the high and low trading prices of
Cummins stock on the Grant Date, is
$                    .


 






* (The “Annual Grant Value”
reflects a method used to compare Longer-Term Grants to market data and to
calibrate different grant levels. It involves discounting the Target Award
values over the award period to determine a target present value. Of course,
the actual value you will receive from your grants will depend on (1) how
much of the Performance Cash and Performance Share Target Awards are actually
earned based on Cummins performance; and (2) Cummins stock price for the
Performance Shares and Stock Options.)




















 


Attachment II


 


1.     Performance Cash


·      Target Awards are expressed
as dollar amounts.


·      A Payout Factor Table is set
based on the Company’s Return on Equity performance during
                  .


·      Payout Factors range from
zero to           .


·      The actual payout would be
payable in cash in
                          .


·      The formula: Cash Payout =
(Target Award) x (Payout Factor).


·      The Compensation Committee
will determine the actual Payout Factor, using the Payout Factor Table as the
guideline.


·      The Award Cycles are rolling
two-year periods. The next award would be in
           for the
              
Award Cycle, payable in             .


 


2.     Performance Shares


·      Target Awards are stated as a number of shares of
Cummins Common Stock.


·      Shares are earned based on the same Payout Factor
Table as Performance Cash for the
                  
Award Cycle.


·      Payout Factors can range from zero to


·      Earned shares = (Target Award) x (Payout Factor for
the
              
Award Cycle).


·      Dividends are paid on shares after they become
earned.


·      Earned shares are restricted for one additional year
(until
                ).
 Earned shares are forfeited if you leave
Cummins prior to
                .


 


3.             Stock Options


·      Stock Options are the right to purchase
a specific number of shares of the Company’s Common Stock at a set price (the “Grant
Price”) for a specified period of time.


·      The Grant Price is the average of the
High and Low trading prices of Cummins stock on
                    ,
the Grant Date.


·      The Stock Options cannot be exercised
for two years (until
                  ).


·      The Stock Options would expire
in ten years
(                          ),
if not exercised.


 


Example
of Stock Option “leverage”:


 


Gross Value Provided if Future Stock Price is:


 


	
  Assumed Price at Grant:

  	
   

  	
  $

  	
  32.00

  	
   

  	
  $

  	
  40.00

  	
   

  	
  $

  	
  50.00

  	
   

  	
  $

  	
  60.00

  	
   

  	
  $

  	
  70.00

  	
   

  	
  $

  	
  80.00

  	
   

  	
  $

  	
  90.00

  	
   

  	
  $

  	
  100.00

  	
   

  
	
   

  	
   

  	
  # Granted:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Performance Shares

  	
   

  	
  160

  	
   

  	
  $

  	
  6,400

  	
   

  	
  $

  	
  8,000

  	
   

  	
  $

  	
  9,600

  	
   

  	
  $

  	
  11,200

  	
   

  	
  $

  	
  12,800

  	
   

  	
  $

  	
  14,400

  	
   

  	
  $

  	
  16,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Stock Options

  	
   

  	
  400

  	
   

  	
  $

  	
  3,200

  	
   

  	
  $

  	
  7,200

  	
   

  	
  $

  	
  11,200

  	
   

  	
  $

  	
  15,200

  	
   

  	
  $

  	
  19,200

  	
   

  	
  $

  	
  23,200

  	
   

  	
  $

  	
  27,200

  	
   

  



 


5

















 


Attachment III


 


                            
Award Cycle


Performance Cash
and Performance Shares


Payout
Factor Schedule


 


You have received Target
Awards of Performance Cash and Performance Shares payable based on Cummins
Return on Equity performance during
                      .


 


Your Performance Cash
payout would be made in
              ,
based on the formula: (Performance Cash Target Award) X (Payout Factor).


 


Performance Shares are
Earned based on the formula: (Target Award of Performance Shares) X (Payout
Factor). The Earned Shares would be restricted for one additional year (until
                ).


 


The Compensation
Committee of the Board of Directors will determine the actual Payout Factor,
using the following Schedule as a guideline:


 


	
  Payout

  Factor

  	
   

  	
  [ROE]

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  0.1

  	
   

  	
   

  	
   

  	
   

  
	
  0.2

  	
   

  	
   

  	
   

  	
   

  
	
  0.3

  	
   

  	
   

  	
   

  	
   

  
	
  0.4

  	
   

  	
   

  	
   

  	
   

  
	
  0.5

  	
   

  	
   

  	
   

  	
   

  
	
  0.6

  	
   

  	
   

  	
   

  	
   

  
	
  0.7

  	
   

  	
   

  	
   

  	
   

  
	
  0.8

  	
   

  	
   

  	
   

  	
   

  
	
  0.9

  	
   

  	
   

  	
   

  	
   

  
	
  1.0

  	
   

  	
   

  	
   

  	
   

  
	
  1.1

  	
   

  	
   

  	
   

  	
   

  
	
  1.2

  	
   

  	
   

  	
   

  	
   

  
	
  1.3

  	
   

  	
   

  	
   

  	
   

  
	
  1.4

  	
   

  	
   

  	
   

  	
   

  
	
  1.5

  	
   

  	
   

  	
   

  	
   

  
	
  1.6

  	
   

  	
   

  	
   

  	
   

  
	
  1.7

  	
   

  	
   

  	
   

  	
   

  
	
  1.8

  	
   

  	
   

  	
   

  	
   

  
	
  1.9

  	
   

  	
   

  	
   

  	
   

  
	
  2.0

  	
   

  	
   

  	
   

  	
  Cap for Performance Cash and

  Performance Shares

  



 


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