Chairman and Chief
Executive Officer
Caterpillar
Inc.
Peoria, Illinois
61629
Dear Institutional
Investor:
These are exciting times at Caterpillar,
and we believe the future promises to be just as exciting and
rewarding. Because you are a valued investor in Caterpillar stock, I
want to personally explain our position on the stockholder proposals presented
in our 2008 Proxy Statement and ask you to vote AGAINST them if you have not already done
so.
While these types
of proposals may have merit when aimed at companies with less than stellar
histories, that is not the case with Caterpillar. We have a strong
leadership team and an impressive track record that should afford us the benefit
of individual consideration. As an investor in Caterpillar stock, you
know that we have an engaged and independent Board that effectively oversees our
management team and has worked diligently to guide the Company’s stellar
financial performance:
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2007 marked
our fifth straight year of record sales and revenues ($44.958 billion, up
8% from 2006) and fourth consecutive year of record profit (profit per
share was $5.37, up 4% from 2006);
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For the first
quarter of 2008, our sales, revenues and profit were the highest for any
first quarter in Caterpillar’s history; and
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For the 3, 5,
and 10 year periods ending in 2007, Caterpillar significantly outperformed
the S&P 500 in total cumulative stockholder
return.
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When one looks at
what has been accomplished over the past five years, the picture is very
positive. From 2002 to 2007, sales and revenues increased more than 17%
annually, profit has risen by over 34% annually and Caterpillar stock has
appreciated over 177%.
As I mentioned
above, the purpose of this letter is to address the three stockholder proposals
outlined in our 2008 Proxy Statement and to be presented at the Company’s Annual
Stockholder meeting on June 11, 2008.
Board
Declassification: The first stockholder proposal seeks to
declassify the Company’s Board by having annual elections for all directors. Our
current board structure is based on three-year classified terms to provide
stability, prevent sudden disruptive changes to the Board's composition, enhance
long-term planning and ensure that, at any given time, there are directors
serving on the Board who are intimately familiar with the Company, its
businesses and its strategic goals. This is particularly important
given the Company’s global complexity and as we work to accomplish our Vision
2020 strategic plan - a commitment that stretches over several years and one
that will best be fulfilled by continuity and a stable board.
Majority
Vote: The second stockholder proposal, which is a binding
proposal, seeks to amend the Company's bylaws to change the standard for
electing directors in uncontested elections from plurality voting to majority
voting. We believe the Company’s historical performance and practices
and its current governance policies clearly demonstrate that implementing a
majority vote standard, thereby removing all discretion from the Board with
respect to director elections, is not in the Company’s best
interests.
Caterpillar and its
stockholders have a solid history of electing, via plurality voting, a strong
and independent Board:
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Over the past
10 years, the average affirmative vote for the directors has been greater
than 96%; and
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None of our
directors has ever received less than the majority of votes
cast.
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Further, we are committed to strong
corporate governance and all of our directors are subject to a fiduciary duty to
act in the best interests of our stockholders. Consistent with these
guidelines, the
Board,
in 2007, approved the Director Resignation
Policy, which addresses the concerns expressed in this stockholder
proposal. The
Director Resignation Policy provides that any director nominee who receives a
greater number of votes "withheld" than votes "for" will tender his or her
resignation for consideration
by the Board. The Director Resignation Policy provides stockholders a
meaningful role in the election of directors and a copy of the policy can be
found in the Company’s
Guidelines on Corporate Governance, which is on the Company’s
website at www.cat.com.
Military Sales
Report: The third stockholder proposal requests that the Board
provide a comprehensive report on the Company’s foreign sales of weapons related
products, and other equipment and services related thereto. Caterpillar sells a
limited quantity of commercial equipment, as well as commercial equipment that
has been modified for military purposes, to foreign governments under, in most
cases, federally sponsored programs – namely the Foreign Military Sales Program.
However, in 2007 the revenue derived from such sales was insignificant
(approximately $3.7 million under the Foreign Military Sales Program, or 0.008%
of the Company’s 2007 gross revenues). Accordingly, it is our clear view that to
allocate the resources necessary to complete the requested report would be an
inappropriate use of the Company’s resources.
I urge you to give
these proposals particular attention and consider supporting Caterpillar, a
company with a strong history of ethical behavior, outstanding product
performance, stockholder returns and strong corporate
governance. Please vote AGAINST these three
stockholder proposals.
Thank you again for
your consideration.
Sincerely,
/s/ James W. Owens
James W. Owens
James W. Owens
Chairman &
CEO