Chairman
and Chief
Executive Officer
Caterpillar
Inc.
Peoria,
Illinois
61629
June
6,
2007
Dear
Institutional
Investor:
This
is a great
time for Caterpillar, and the future promises to be even more rewarding. Because
you are a valued investor in Caterpillar stock, I wanted to take a moment to
personally contact you and explain our position on the two stockholder proposals
listed in our 2007 proxy and ask you to vote AGAINST them if you have not
already done so. Further, I have provided some additional input regarding one
of
our directors up for re-election.
While
these types
of proposals may have merit when aimed at companies with less than stellar
histories or governance practices, that is not the case with Caterpillar. We
have a strong leadership team and impressive track record that should give
us
the benefit of individual consideration. As an investor in Caterpillar stock,
you know that we have a strong, independent Board that effectively oversees
our
management as demonstrated by the Company’s stellar financial and governance
performance:
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2006
marked our fourth straight year of double-digit profit
growth and third consecutive year of record sales and profit.
|
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For
the first
quarter of 2007, our sales, revenues and profit were the highest
for any
first quarter in Caterpillar’s history.
|
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Caterpillar’s
Corporate Governance Quotient scores outperformed 62% of the companies
in
the S&P 500 and 93.3% of the companies in the Capital Goods
group.
|
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For
the 3, 5,
or 10 year periods ending in 2006, Caterpillar significantly outperformed
the S&P 500 in total cumulative stockholder
return.
|
So,
let’s turn to
the stockholder proposals.
The
first
stockholder proposal asks that Caterpillar split the CEO and Chairman roles.
However, the Board agrees that the combined role of the Chairman and CEO role
promotes unified leadership and direction for the Company, and provides a
single, clear focus for the chain of command to execute the Company’s strategy
and business plans to maximize stockholder value.
Still,
we
understand the importance of having a governance structure in place to allow
the
Board to effectively work with the combined role of the CEO and Chairman. In
February 2007, the independent directors unanimously elected the Chairman of
the
Governance Committee by and from the ranks of the independent directors as
the
Presiding Director with clearly delineated responsibilities, which are listed
in
the proxy under the Governance Committee report. In addition, all of our
directors are independent, with the exception of the CEO and Chairman, and
independent directors comprise all of our Board Committees. This
governance
structure has generated outstanding results for stockholders and the Board
is
comfortable with it.
The
second
stockholder proposal asks that we switch from plurality voting to majority
voting. This proposal seeks to amend the Company's bylaws to change the standard
for electing directors in uncontested elections to majority voting. This is
a
binding proposal, and we believe that it is not in the Company's best interests
to remove all discretion from the Board in this regard.
Let
me also point
out that Caterpillar has a history of electing, by a plurality of the vote,
strong and independent Boards:
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In
the past
10 years, the average affirmative vote for the directors has been
greater
than 96% of the shares voted through the plurality process.
|
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None
of our
directors has ever received less than the majority of votes cast.
|
Yet,
we are
committed to strong corporate governance and it is our fiduciary duty to act
in
the best interests of our stockholders. In April,
the Board
determined that it was in the Company's best interests to adopt a policy
(majority
vote
policy) that
we believe
addresses the concerns expressed in this stockholder proposal.
The majority vote
policy, which is set forth in the Company's Guidelines on Corporate Governance
Issues, provides that any director nominee who receives a greater number of
votes "withheld" from his or her election than votes "for" such election will
tender his or her resignation. We believe that the majority vote policy gives
stockholders a more meaningful role in the election of directors.
Therefore,
I urge
you to give these proposals particular attention and consider supporting
Caterpillar, a Company with a strong history of ethical behavior, outstanding
product and financial market performance, and sterling corporate governance.
Please vote AGAINST
these two
stockholder proposals.
Finally,
I want to
address the ISS recommendation that votes be “withheld” from director nominee
Juan Gallardo because he sits on more than three public company boards in
addition to serving as an active CEO. I would like to note that Mr.
Gallardo’s
outside commitments have not impacted his ability to effectively serve on our
Board. His attendance record for Caterpillar Board and Board Committee meetings
is extremely high. For 2006, he attended 100% of the meetings of the full Board
and the Committees on which he served. Caterpillar believes that this excellent
attendance record demonstrates Mr. Gallardo's ability to serve as an effective
representative of the stockholders. Since he became a director in 1998, Mr.
Gallardo's attendance has never been less than 75%. More importantly, as a
leading Mexican business executive who has been a key player in global trade
liberalization, Juan brings a unique perspective to our Board table. For these
reasons, I urge you to vote FOR
Juan
Gallardo.
Thank
you again for
your consideration.
Sincerely,
/s/James
W.
Owens
James
W.
Owens
Chairman
&
CEO