Dear
Fellow
Employee:
This
is a great
time for Caterpillar, and our future promises to be even more rewarding.
As an
employee, a participant in our equity program and an investor in Caterpillar
stock, you have an opportunity to take an active role in our company’s future by
voting on the proposals put forth in our 2006 proxy. Before you do so, I’d like
to personally explain our board of directors’ positions on certain proposals.
Management
Proposals
The
proxy
introduces five management proposals, and the board of directors recommends
a
vote “for” each of them. I would like to call your attention to three management
proposals in particular.
-
Approve
Caterpillar Inc. 2006 Long-Term Incentive Plan and Executive Short-Term
Incentive Plan
Incentive compensation is critical for us to
attract, retain, and motivate highly qualified people. Our former long-term
incentive plan expired on April 9, and the executive short-term incentive
plan
expires on December 31. The long-term incentive plan includes our equity
compensation program, or stock option plan as it was known in the past.
As a
recipient of an equity award, your total compensation is directly impacted
by
this proposal. Approval of the 2006 long-term incentive plan is necessary
to
enable us to continue our equity-based award program. I encourage you to
vote “for” Proposals 3 and 4.
-
Approve
Amendment to Articles of Incorporation
Another management proposal
seeks to amend our articles of incorporation to increase the amount
of
authorized shares from 900 million to 2 billion. While we do not have
plans to
issue additional shares of common stock, this amendment enhances the
board's
flexibility in possible future actions, including share splits that
help keep
our stock in an attractive price range for individual investors. Our
overall
history demonstrates a responsible and prudent use of authorized capital,
with
a long history of dividend increases, superior stock price performance,
and a
reasonable equity compensation burn rate that has been more than offset
with
our share buyback program. I encourage you to vote “for” Proposal
2.
Stockholder
Proposals
The
proxy also
introduces three stockholder proposals, and the board of directors recommends
a
vote “against” each of them. Please read the proxy for Caterpillar’s full
response to each of these proposals.
-
Annual
Election of Directors
The first stockholder proposal seeks to
declassify our board by having annual elections of all directors. Our
current
board structure is designed to provide stability, prevent sudden disruptive
changes to its composition, enhance long-term planning, and ensure that,
at
any given time, we have directors who are familiar with our company,
our
business, and our strategic goals. This is particularly important as
we
implement our new enterprise strategy, a commitment that stretches over
several years and will best be managed by a stable and continuous board.
I
encourage you to vote “against” Proposal 6.
-
Separate
CEO & Chair
The second stockholder proposal asks that we split
the CEO and Chairman roles. Such a change could cause unnecessary dilution
of
leadership authority and accountability. Our current structure has generated
outstanding results, and the board supports it. We do understand the
need for
an independent director to act as chair for executive sessions. In April,
the
board designated the chairman of our Governance Committee as the presiding
director with clearly delineated responsibilities, which are listed in
the
proxy under the Governance Committee report. I encourage you to vote
“against” Proposal 7.
-
Director
Election Majority Vote Standard
The third stockholder proposal
asks that we switch from plurality voting to majority voting. Caterpillar
has
a long history of electing, by a plurality, strong and independent boards.
In
the past 10 years, the average affirmative vote for our directors has
been
greater than 96 percent of the shares voted through the plurality process,
and
none of our directors has ever received less than a majority. We also
believe the implementation of a majority vote standard would be inappropriate
given that a number of associations, scholars, corporations, and investors
are
analyzing and evaluating alternative voting standards. At this time,
we do not
believe our current plurality vote standard should be changed, and there
is no
reason to rush to adopt a majority vote standard. I encourage you to vote
“against” Proposal 8.
I
urge you to give these proposals particular attention. You should have already
received an e-mail with information and voting instructions, and you will
receive a follow-up e-mail in a few days. Every vote is important and
strengthens our ability to continue delivering outstanding performance. Thank
you again for your consideration.
Sincerely,
/s/
James W.
Owens