CATERPILLAR LOGO
100 NE Adams Street
Peoria, Illinois 61629
Notice of Annual Meeting of Stockholders
Wednesday, April 8, 1998
10:30 a.m., Mountain Standard Time
Loews Ventana Canyon Hotel
7000 North Resort Drive
Tucson, Arizona
February 27, 1998
Fellow stockholder:
On behalf of the Board of Directors, you are cordially invited to attend
the 1998 Caterpillar Inc. Annual Meeting of Stockholders to:
* elect directors;
* approve an amendment to our Articles of Incorporation;
* approve appointment of Price Waterhouse LLP as independent auditors
for 1998;
* act on stockholder proposals to be presented; and
* conduct other business properly brought before the meeting.
You must have an admission ticket to attend, and procedures for
requesting that ticket are enclosed with your proxy materials.
Attendance and voting is limited to stockholders of record at the
close of business on February 9, 1998.
Your vote is important. Whether you plan to attend or not, please sign,
date, and return the enclosed proxy card in the envelope provided.
If you attend the meeting and prefer to vote in person, you may do so.
I look forward to seeing you at the meeting.
Sincerely yours,
Donald V. Fites
Chairman
Table of Contents
*****************
Notice of Annual Meeting --Cover
Attendance and Voting Matters --
The Caterpillar Board of Directors --
Caterpillar Stock Owned by Officers and Directors --
Persons Owning More than Five Percent of Caterpillar Stock --
Performance Graph --
Report of the Compensation Committee on Executive Compensation --
Executive Compensation Tables --
Certain Related Transactions --
Amendment to Articles of Incorporation --
Appointment of Price Waterhouse LLP --
Stockholder Proposals and Caterpillar Responses --
Other Matters
Section 16(a) Beneficial Ownership Reporting Compliance --
Stockholder Proposals for the 1999 Annual Meeting --
Solicitation --
Stockholder List --
Revocability of Proxy --
Appendix - General and Financial Information - 1997 --
Attendance and Voting Matters
*****************************
Admission Ticket Required
- -------------------------
Anyone wishing to attend the Annual Meeting must have an admission ticket
issued in their name. Admission is limited to stockholders of record on
the record date and one guest, or a stockholder's authorized proxy holder.
The requirements for obtaining an admission ticket are specified in the
"Admission Ticket Request Procedure" enclosed with your proxy card. Share
ownership through our Employee Investment Plan is not record ownership,
as the Plan Trustee is the owner of record for all Plan shares.
Voting Methods
- --------------
You can vote on matters to come before the meeting in two ways:
* You can come to the Annual Meeting and cast your vote there; or
* You can vote by signing and returning the enclosed proxy card.
If you do so, the individuals named on the card will vote your
shares in the manner you indicate.
Each share of Caterpillar stock you own entitles you to one vote. As of
February 9, 1998, there were 366,789,375 shares of Caterpillar common
stock outstanding.
Giving your Proxy to Someone Other than Individuals Designated on the Card
- --------------------------------------------------------------------------
If you want to give your proxy to someone other than individuals named on
the proxy card:
* cross out individuals named and insert the name of the individual
you are authorizing to vote; or
* provide a written authorization to the individual you are authorizing
to vote along with your proxy card.
To obtain an admission ticket for your authorized proxy representative,
see the requirements specified in the "Admission Ticket Request Procedure"
enclosed with your proxy card.
The Quorum Requirement
- ----------------------
A quorum of stockholders is necessary to hold a valid meeting. If at
least one-third of Caterpillar stockholders are present in person or by
proxy, a quorum will exist. Abstentions and broker non-votes are counted as
present for establishing a quorum. A broker non-vote occurs when a broker
votes on some matters on the proxy card but not on others, because he does
not have the authority to do so.
Vote Necessary for Action
- -------------------------
Directors are elected by a plurality vote of shares present at the
meeting, meaning that the director nominee with the most affirmative
votes for a particular slot is elected for that slot. In an uncontested
election for directors, the plurality requirement is not a factor.
Other action, except for consideration of the proposed amendment to our
Articles of Incorporation, is by an affirmative vote of the majority of
shares present at the meeting. To be approved, the proposed amendment to
our Articles of Incorporation must receive a majority vote of outstanding
shares. Abstentions and non-votes have the effect of a no vote on matters
other than director elections.
Matters Raised at the Meeting not Included in this Statement
- ------------------------------------------------------------
We do not know of any matters to be acted upon at the meeting other than
those discussed in this statement. If any other matter is presented,
proxy holders will vote on the matter in their discretion.
The Caterpillar Board of Directors
**********************************
Structure
- ---------
Our Board of Directors is divided into three classes for purposes of
election. One class is elected at each annual meeting of stockholders to
serve for a three-year term.
Directors elected at the 1998 Annual Meeting of Stockholders will hold
office for a three-year term expiring in 2001. Other directors are not
up for election this year and will continue in office for the remainder
of their terms.
If a nominee is unavailable for election, proxy holders will vote for
another nominee proposed by the Board or, as an alternative, the Board
may reduce the number of directors to be elected at the meeting.
*****Directors Nominated This Year for Terms Expiring in 2001*****
JOHN T. DILLON, 59, Chairman and Chief Executive Officer of International
Paper (paper and forest products) since 1996. Prior to his current
position, Mr. Dillon was President and Chief Operation Officer from 1995
to 1996 and Executive Vice President - Packaging from 1987 to 1995.
Other directorships: IP Timberlands, Ltd. Mr. Dillon has been a director
of the Company since 1997.
JUAN GALLARDO T., 50, Chairman and Chief Executive Officer of Grupo
Embotelladoras Unidas S.A. de C.V. (bottling) since 1986; Chairman and
Chief Executive Officer of Grupo Azucarero Mexico, S.A. de C.V.
(sugar mills) since 1990; and Vice Chairman of Home Mart de Mexico, S.A.
de C.V. (retail trade) since 1993. Other directorships: Nacional de
Drogas; Bufete Industrial, S.A. de C.V.; Grupo Industrial Minera Mexico,
S.A. de C.V.; and Mexico Fund Inc.. Mr. Gallardo was elected a director
of the Company in February, 1998.
GORDON R. PARKER, 62, retired in 1994 as Chairman of Newmont Mining
Corporation and Newmont Gold Company (production, worldwide exploration
for, and acquisition of gold properties). Other directorships: The
Williams Companies, Inc.; Gold Fields of South Africa Ltd.; and Phelps
Dodge Corporation. Mr. Parker has been a director of the Company since
1995.
GEORGE A. SCHAEFER, 69, retired in 1990 as Chairman and Chief Executive
Officer of Caterpillar Inc. Other directorships: Aon Corporation;
Autoliv ASP, Inc.; Helmerich & Payne, Inc.; and Morton International,
Inc. Mr. Schaefer has been a director of the Company since 1983.
Your Board of Directors recommends a vote FOR these nominees.
*****Directors up for Election in 2000*****
LILYAN H. AFFINITO, 66, retired in 1991 as Vice Chairman of Maxxam Group
Inc. (forest products operations). Other directorships: Chrysler
Corporation; Jostens Inc.; and Kmart Corporation. Ms. Affinito has
been a director of the Company since 1980.
DONALD V. FITES, 64, Chairman and Chief Executive Officer of Caterpillar
Inc. (manufacture of construction, mining and agricultural machinery
and engines) since 1990. Other directorships: AT&T Corporation;
Georgia-Pacific Corporation; and Mobil Corporation. Mr. Fites has been
a director of the Company since 1986.
DAVID R. GOODE, 57, Chairman and Chief Executive Officer of Norfolk
Southern Corporation (holding company engaged principally in surface
transportation) since 1992. Other directorships: Aeroquip-Vickers, Inc.
(formerly TRINOVA Corporation); Georgia-Pacific Corporation; Norfolk
Southern Corporation; and Texas Instruments Incorporated. Mr. Goode has
been a director of the Company since 1993.
JOSHUA I. SMITH, 56, Chairman and Chief Executive Officer of The MAXIMA
Corporation (computer systems and management information products and
services) since 1978. Other directorships: Federal Express Corporation;
Inland Steel Corporation; and The Allstate Corporation. Mr. Smith has
been a director of the Company since 1993.
*****Directors up for Election in 1999*****
W. FRANK BLOUNT, 59, Chief Executive Officer of Telstra Corporation
Limited (telecommunications) since 1992. Other directorships: Entergy
Corporation; First Union National Bank of Georgia; and LXE Inc. Mr.
Blount has been a director of the Company since 1995.
JAMES P. GORTER, 68, Chairman of the Board of Baker, Fentress & Company
(mutual fund) since 1987 and Limited Partner of Goldman, Sachs & Co.
(investment bankers) since 1988. Other directorships: Consolidated-
Tomoka Land Co. Mr. Gorter has been a director of the Company since 1990.
PETER A. MAGOWAN, 55, Chairman of Safeway Inc. (supermarket chain) since
1980 and Chief Executive Officer from 1980 to 1993. Mr. Magowan is also
President and Managing General Partner of the San Francisco Giants
(baseball team). Other directorships: Chrysler Corporation. Mr. Magowan
has been a director of the Company since 1993.
CLAYTON K. YEUTTER, 67, Of Counsel to Hogan & Hartson (a Washington, D.C.
law firm) since 1993. Other directorships: B.A.T. Industries, ConAgra,
Inc., FMC Corporation, Oppenheimer Funds, and Texas Instruments
Incorporated. Mr. Yeutter has been a director of the Company since 1991.
Board Meetings and Committees
- -----------------------------
In 1997, our full Board met six times. In addition to meetings of the
full Board, directors attended meetings of individual Board committees.
For our incumbent Board as a whole, attendance in 1997 at full Board and
committee meetings exceeded 93%. All incumbent directors, except Mr.
Blount, attended at least 75% of such meetings.
Our Board has four standing committees.
The Audit Committee reviews management's independent accountant selection
and makes recommendations to the Board based on that review. The
Committee also questions management, including Caterpillar's internal
audit staff, and independent accountants on the application of accounting
and reporting standards to Caterpillar. Present members of the Committee
are Messrs. David R. Goode (chairman), W. Frank Blount, James P. Gorter,
Gordon R. Parker, and George A. Schaefer. During 1997, the Committee
held three meetings.
The Compensation Committee reviews Caterpillar's compensation practices
and approves its compensation programs and plans. Present members of the
Committee are Ms. Lilyan H. Affinito and Messrs. James P. Gorter
(chairman), John T. Dillon, David R. Goode, Peter A. Magowan, and
Clayton K. Yeutter. During 1997, the Committee held three meetings.
The Nominating Committee recommends candidates to fill Board vacancies
and for the slate to be proposed by the Board at the Annual Meeting of
Stockholders. The Nominating Committee also advises the Board on nominees
for Chairman of the Board, Chief Executive Officer, and other executive
officer positions at Caterpillar. The Committee considers director
nominees from stockholders for election at the annual stockholders'
meeting if a written nomination is received by Caterpillar's Corporate
Secretary not later than ninety days in advance of the meeting
(nomination procedures are discussed in greater detail in our bylaws
which will be provided upon written request). Present members of the
Committee are Messrs. Joshua I. Smith (chairman), W. Frank Blount,
Donald V. Fites, Gordon R. Parker, and George A. Schaefer. During 1997,
the Committee held two meetings.
The Public Policy Committee makes recommendations to the Board on public
and social policy issues impacting Caterpillar. The Committee also
oversees Caterpillar's compliance programs and reviews major litigation,
legislation and stockholder matters not within the responsibilities of
another Board committee. Present members of the Committee are Ms. Lilyan
H. Affinito and Messrs. Clayton K. Yeutter, (chairman), John T. Dillon,
Donald V. Fites, Peter A. Magowan, and Joshua I. Smith. During 1997, the
Committee held three meetings.
Director Compensation
- ---------------------
Of our current Board members, only one, Mr. Fites, is a salaried employee
of Caterpillar. Board members that are not salaried employees of
Caterpillar receive separate compensation for Board service. That
compensation includes:
Annual Retainer: $30,000
Attendance Fees: $1,000 for each Board meeting
$1,000 for each Board Committee meeting
Expenses related to attendance
Committee
Chairman Stipend: $5,000 annually
Stock Options: 4,000 shares annually
Restricted Stock: 750 shares annually (400 shares have a
restricted period of three years, while 350
shares are restricted until the director
terminates service)
Under Caterpillar's Directors' Deferred Compensation Plan, directors
may defer fifty percent or more of their annual compensation in an
interest bearing account or an account representing shares of Caterpillar
stock.
Our directors also participate in a Charitable Award Program. Beginning
in the year of a director's death, an amount is paid proportionately in
ten annual installments to charities selected by the director and to the
Caterpillar Charitable Foundation. The maximum amount payable under the
program is $1 million and is based on the director's length of service.
The program is financed through the purchase of life insurance policies,
and directors derive no financial benefit from the program.
Caterpillar Stock Owned by Officers and Directors
(As of January 31, 1998)
*************************************************
Shares
Beneficially
Owned
Lilyan H. Affinito 37,090 <F1>
Glen A. Barton 154,780 <F2>
W. Frank Blount 4,934 <F3>
John T. Dillon 1,750
Donald V. Fites 818,344 <F4>
Gerald S. Flaherty 249,540 <F5>
David R. Goode 13,300 <F6>
James P. Gorter 34,950 <F7>
Peter A. Magowan 16,500 <F8>
James W. Owens 143,324 <F9>
Gordon R. Parker 9,300 <F10>
George A. Schaefer 72,708 <F11>
Joshua I. Smith 11,400 <F12>
Richard L. Thompson 48,106 <F13>
Clayton K. Yeutter 20,000 <F14>
All directors and
executive officers as a group 3,549,230 <F15>
[FN]
<F1> Includes 24,000 shares subject to outside director stock options
exercisable within 60 days. In addition to the shares listed above, Ms.
Affinito has deferred a portion of her director compensation pursuant to
the Directors' Deferred Compensation Plan representing an equivalent
value as if such compensation had been invested on January 31, 1998 in
7,389 shares of Common Stock.
<F2> Includes 87,508 shares subject to employee stock options
exercisable within 60 days. In addition to the shares listed above,
Mr. Barton has deferred a portion of his compensation pursuant to
supplemental employees' investment plans representing an equivalent value
as if such compensation had been invested on January 31, 1998 in 4,072
shares of Common Stock.
<F3> Includes 1,334 shares subject to outside director stock options
exercisable within 60 days.
<F4> Includes 654,000 shares subject to employee stock options
exercisable within 60 days. In addition to the shares listed above,
Mr. Fites has deferred a portion of his compensation pursuant to
supplemental employees' investment plans representing an equivalent value
as if such compensation had been invested on January 31, 1998 in 11,467
shares of Common Stock.
<F5> Includes 151,198 shares subject to employee stock options
exercisable within 60 days. In addition to the shares listed above,
Mr. Flaherty has deferred a portion of his compensation pursuant to
supplemental employees' investment plans representing an equivalent
value as if such compensation had been invested on January 31, 1998
in 6,147 shares of Common Stock.
<F6> Includes 8,000 shares subject to outside director stock options
exercisable within 60 days. In addition to the shares listed above,
Mr. Goode has deferred a portion of his director compensation pursuant
to the Directors' Deferred Compensation Plan representing an equivalent
value as if such compensation had been invested on January 31, 1998 in
4,133 shares of Common Stock.
<F7> Includes 24,000 shares subject to outside director stock options
exercisable within 60 days. In addition to the shares listed above, Mr.
Gorter has deferred a portion of his director compensation pursuant to
the Directors' Deferred Compensation Plan representing an equivalent
value as if such compensation had been invested on January 31, 1998 in
3,868 shares of Common Stock.
<F8> Includes 8,000 shares subject to outside director stock options
exercisable within 60 days and 1,400 shares for which beneficial
ownership has been disclaimed.
<F9> Includes 88,398 shares subject to employee stock options
exercisable within 60 days. In addition to the shares listed above,
Mr. Owens has deferred a portion of his compensation pursuant to
supplemental employees' investment plans representing an equivalent
value as if such compensation had been invested on January 31, 1998
in 2,650 shares of Common Stock.
<F10> Includes 4,000 shares subject to outside director stock options
exercisable within 60 days.
<F11> Includes 20,000 shares subject to outside director stock options
exercisable within 60 days.
<F12> Includes 8,000 shares subject to outside director stock options
exercisable within 60 days.
<F13> In addition to the shares listed above, Mr. Thompson has deferred
a portion of his compensation pursuant to supplemental employees'
investment plans representing an equivalent value as if such compensation
had been invested on January 31, 1998 in 2,763 shares of Common Stock.
<F14> Includes 12,000 shares subject to outside director stock options
exercisable within 60 days. In addition to the shares listed above,
Mr. Yeutter has deferred a portion of his director compensation pursuant
to the Directors' Deferred Compensation Plan representing an equivalent
value as if such compensation had been invested on January 31, 1998 in
3,080 shares of Common Stock.
<F15> Includes 2,195,674 shares subject to employee and outside director
stock options exercisable within 60 days. Also includes 29,986 shares
for which voting and investment power is shared and 1,400 shares for
which beneficial ownership has been disclaimed. All directors and
executive officers as a group beneficially own less than one percent of
outstanding Common Stock.
</FN>
Persons Owning More than Five Percent of Caterpillar Stock
(As of December 31, 1997)
**********************************************************
Total
Voting Dispositive Amount of Percent
Name and Authority Authority Beneficial of
Address Sole/Shared Sole/Shared Owners Class
[INFORMATION NOT YET AVAILABLE]
Performance Graph
*****************
[Performance Graph]
December 31, 1992 1993 1994 1995 1996 1997
Caterpillar 100.00 167.38 209.07 227.36 297.38 390.53
S&P 500 100.00 110.03 111.53 153.29 188.39 251.49
S&P Machinery
(Diversified) 100.00 148.05 144.14 177.84 221.54 293.35
Report of the Compensation Committee on Executive Compensation
**************************************************************
Compensation Policies
- ---------------------
The Compensation Committee ("Committee") establishes compensation
guidelines and targets based upon the performance of Caterpillar,
business units within Caterpillar, and individual executive officers.
The Committee's goal is to establish a compensation program that:
* links the interests of management and stockholders;
* links executive compensation with long-term Caterpillar performance;
and
* attracts and retains executives of high caliber and ability.
For 1997, that program consisted of base salary, short-term incentive
compensation, stock options, and long-term incentive compensation.
The Committee believes this compensation program was a significant factor
contributing to Caterpillar's success this past year, including record
profit of $1.67 billion or $4.44 per share. As the performance graph on
page __ demonstrates, Caterpillar stock has provided holders with a
cumulative return for the past five years that significantly exceeds
the S&P 500 Composite Index and Caterpillar's peer group, the S&P
Machinery (Diversified) Index.
Special Recognition
- -------------------
We believe the following financial press recognition this past year is a
testament to the effectiveness of our compensation programs.
In October of 1997, Fortune named Caterpillar as one of the "World's Most
Admired Companies." The rating was based on innovativeness, overall
quality of management, value as a long-term investment, responsibility
to the community and the environment, ability to attract and keep
talented people, quality of products or services, financial soundness,
wise use of corporate assets, and effectiveness in doing business
globally.
In September of 1997, Industry Week selected Caterpillar as one of the
"World's 100 Best Managed Companies." The selection was based on
financial performance, corporate governance, accounting and finance,
sales and marketing, human resources, information services, manufacturing
operations, supply-chain management, distribution and logistics, global
strategy, and research and development.
In June of 1997, Worth Financial selected Caterpillar as one of the
"World's 50 Best Stocks to Own." They stated that companies selected
"dominate their markets by building superior brand names, developing
proprietary technologies, and erecting vast marketing and distribution
networks." Strong management, access to capital, and a savvy
manufacturing process were also important ingredients.
Base Salary
- -----------
Executive Officers
------------------
Each year the Committee reviews base salaries of individual executive
officers and their salary ranges. In determining adjustments to base
salary and salary ranges for a particular year, the Committee relies on
consultant surveys regarding salaries and other short-term compensation
("total short-term compensation") at comparable companies. In making
salary adjustments, the Committee also makes subjective determinations
regarding the performance of individual officers.
In setting 1997 base salaries and salary ranges for all executive
officers, including Mr. Fites, the Committee referred to the Hewitt
Survey of Core Group I Companies ("Survey"). The Survey included 25
companies, all of which are in the S&P 500 Composite Index and none of
which are in the S&P Machinery (Diversified) Index. According to the
Survey, total short-term compensation of Caterpillar executive officers
was below market average.
Based on Survey results, the Committee increased the salary ranges for
1997 by 5% for the Group President level and by 10% for the Vice
President level. The Committee also approved increases in the base
salary of all executive officers for 1997 based upon a subjective
analysis of each officer's individual performance. After these
adjustments, the total short-term compensation of executive officers as
a group remained below average according to the Survey.
Chief Executive Officer
-----------------------
For 1997 Mr. Fites' base salary was increased to $1.25 million. In
determining his base salary, the Committee used the Hewitt Survey as
a benchmark. With the increase, Mr. Fites' base salary for 1997 was
slightly higher than the average of CEOs included in the Survey, but
his total short-term compensation was slightly lower.
In setting Mr. Fites' 1997 salary, the Committee also evaluated his
performance as an executive in the prior year. Determinative factors
included his contributions to Caterpillar, his home community, and a
variety of national and international business organizations. Some of
the significant achievements considered include:
* Caterpillar continued to achieve record profits and sales;
* reengineered business processes continued to result in significant
reductions in product development time, necessary physical testing,
and product development costs;
* strategic alliances and acquisitions designed to enhance Caterpillar's
competitive position were pursued and completed; and
* Mr. Fites continued his active participation in initiatives and
organizations designed to benefit not only Caterpillar but industry
as a whole.
Short-Term Incentive Compensation
*********************************
Executive Officers
------------------
In 1997, executive officers, together with most management and salaried
employees, participated in Caterpillar's Corporate Incentive Compensation
Plan ("Corporate Plan"). Payouts under the Corporate Plan for 1997 were
based on a team award incorporating Caterpillar's pre-tax return on
assets ("ROA") for the year and an individual award based on a subjective
determination of individual performance. For 1997, a total of
approximately $215 million was earned by 47,308 Caterpillar employees
under the corporate and business unit incentive plans.
For 1997, the team award portion of the payout was calculated by
multiplying:
* annual base salary;
* a specific percentage of base salary, which increases for higher
positions within Caterpillar, placing a greater percentage of
compensation at risk for those with greater opportunity to affect
Caterpillar's performance; and
* a performance factor based upon Caterpillar's achievement of specific
levels of ROA.
Before any amount could be awarded under the Corporate Plan for 1997, a
minimum Caterpillar ROA level had to be achieved. Increasing amounts are
awarded for Caterpillar achievement up to a maximum ROA. Minimum, target,
and maximum ROA levels to be achieved for 1997 were increased from 1996.
For 1997, the target ROA level under the Corporate Plan was exceeded
(although the maximum was not achieved) and all executive officers
received a team award.
In addition to a team award, all executive officers received an
individual award under the Corporate Plan for 1997 based on a subjective
determination of individual performance. The aggregate of individual
awards to all officers cannot exceed the amount available in a
discretionary pool established for such awards. The discretionary pool
amount is a specific percentage of team awards paid to all executive
officers.
In 1997, nineteen executive officers participated in incentive plans
applicable to their business units. Caterpillar has 297 incentive plans
applicable to business units and divisions within those units. Each
business unit within Caterpillar has its own criteria for determining
incentive compensation for its employees. With the exception of seven
incentive plans, for 1997, at least 25% of the payout under a business
unit plan had to be based on Caterpillar achievement of ROA levels
applicable to the Corporate Plan. Other factors determining business
unit payout in 1997 included return on sales ("ROS") for the particular
unit, unit ROA, unit accountable profit, operating expenses, percentage
of industry sales, and customer satisfaction. The two most widely used
factors determining payouts under the business unit plans in 1997 were
unit ROA and unit accountable profit.
In 1997, executive officers participating in their respective business
unit incentive plans were eligible to receive fifty percent of the team
award amount that would have been awarded if he or she had participated
solely in the business unit plans, and fifty percent of the amount that
would have been awarded had the officer participated solely in the
Corporate Plan. All participating officers received payments based on
1997 performance of their business units.
Chief Executive Officer
-----------------------
Because Caterpillar exceeded its target ROA level under the Corporate
Plan for 1997, Mr. Fites received a team award under the Corporate Plan.
Mr. Fites also received an individual award under the Corporate Plan
for 1997.
At the beginning of 1997, Mr. Fites discussed with the Committee his
goals and expectations for the year. As discussed more fully below,
Mr. Fites met those goals with the type of leadership that resulted
in him being named one of the "Top 25 Managers of the Year" by Business
Week magazine.
Mr. Fites' Goals and Results
****************************
* Caterpillar Results - Mr. Fites set benchmarks for Caterpillar profit
before tax and return on assets. Those goals were exceeded in 1997 by
a significant margin, and Caterpillar once again set records for sales
and profits.
* Growth Initiatives - Mr. Fites established a goal of carefully
managing Caterpillar's growth initiatives in terms of timing and cost.
These initiatives include electric power generation, agricultural
products, mining systems, compact machines and further strengthening
of the Company's product support network to better link customer,
dealer, and Caterpillar operations. This goal has been met for 1997,
in that on balance all growth initiatives are on time and currently
are being implemented at below estimated cost.
* Successful Implementation of Acquisitions - Mr. Fites set a goal of
successfully implementing acquisitions completed in 1996. Mr. Fites'
success in meeting this goal in 1997 is exemplified in progress made
with our largest 1996 acquisition, MaK Motoren GmbH & Co. KG. With
excellent leadership from Caterpillar's officer team, the design,
manufacturing, and marketing strengths of MaK have been successfully
merged with Caterpillar's Large Engine Center. In addition, expansion
of MaK into the electric power generation business is underway.
* Pursuit of Additional Acquisitions - Mr. Fites established a goal of
pursuing additional acquisitions in 1997 designed to improve
Caterpillar's competitive position and enhance shareholder value.
Caterpillar's pending acquisition of Perkins Engines is a prime example
of Mr. Fites' accomplishment of this goal. This combination enhances
Caterpillar's strategic position in the worldwide engine business,
ensures the Company's ability to leverage critical engine technologies
for leadership in the future, and allows Caterpillar to compete with
other full-line engine producers.
* Contact with Core Constituencies - Mr. Fites expressed his commitment
to maintain regular contact in 1997 with financial analysts,
stockholders, dealers, customers, and employees. Mr. Fites met that
goal. He met with approximately 100 financial analysts in Boston in
July and 34 analysts in London in October. Mr. Fites also met with
representatives from Caterpillar dealers and large stockholders during
the year, and visited several major Caterpillar customers. In
addition, Mr. Fites personally visited over 15 Caterpillar facilities
outside the Peoria, Illinois area in 1997, including six overseas.
* Industry-Wide Efforts - In 1997, Mr. Fites continued his participation
in initiatives designed to benefit industry as a whole. He served as
Chairman of the Business Roundtable, providing excellent leadership to
that important group by energetically promoting public policies that
create jobs, ensure a climate for growth, and foster export strength.
He also remained active on the U.S.-Japan Business Council and the
Advisory Committee for Trade Policy and Negotiations.
* Commitment to Charities and Peoria Community - Areas of accomplishment
in which Mr. Fites should be particularly proud include his commitment
to charitable organizations and his dedication to the Peoria, Illinois
community. In 1997, Mr. Fites continued his service as Vice Chairman
of the Salvation Army National Advisory Board and was Chairman of the
Central Illinois Capital Campaign for the National Easter Seal Society,
an organization which awarded Caterpillar its Corporate Leadership
Award in 1997. Mr. Fites also continued to be very active in fund-
raising for Bradley University, serving as the national chairman of
its Centennial Campaign.
Stock Options
*************
Executive Officers
------------------
In 1997, all executive officers, as well as other key employees, were
granted incentive and non-qualified stock options under Caterpillar's
1996 Stock Option and Long-Term Incentive Plan. Incentive stock options
were granted up to the maximum number of shares which may be issued in
accordance with U.S. tax law to an individual. The portion of any option
grant not issued as an incentive stock option was issued as a non-
qualified stock option. The number of options granted to a particular
officer in 1997 depended upon that officer's position and a subjective
assessment of that officer's individual performance.
To ensure executive officers retain significant stockholdings in
Caterpillar, the Committee encourages them to own a number of shares at
least equal to the average number of shares for which they received
options in their last three option grants. For 1997, if one-hundred
percent of the minimum ownership guideline was not met, significant
progress had not been made to achieve the desired ownership level, or a
satisfactory explanation for failure to meet the guideline had not been
presented, the Committee would have reduced the number of shares included
in the officer's grant. For 1997, no officer was penalized for low share
ownership.
Chief Executive Officer
-----------------------
In 1997, Mr. Fites received an option grant covering 150,000 shares of
Caterpillar stock, as reflected in the Summary Compensation Table and
Option Grants Table. Like other executive officers, Mr. Fites received
this grant based upon his position at Caterpillar and an assessment of
his individual performance. Individual performance factors considered
by the Committee are those discussed above with respect to Mr. Fites'
individual Corporate Plan award.
Long-Term Incentive Compensation
********************************
Executive Officers
------------------
Under the long-term incentive portion of the Option Plan ("LTIP"), a
three-year performance period ("cycle") is established each year, with
participants receiving a payout (50% in cash and 50% in restricted stock)
if certain minimum, target or maximum performance thresholds are achieved
at the end of the cycle. The Committee has discretion to apply different
performance criteria for different cycles. The Committee also has
discretion during a cycle to adjust performance measures set for that
period to reflect changes in accounting principles and practices;
mergers, acquisitions or divestitures; major technical innovations; or
extraordinary, nonrecurring or unusual items.
A cycle under the LTIP's predecessor (i.e., a long-term incentive
supplement to Caterpillar's 1987 Stock Option Plan) was established at
the beginning of 1995 for the years 1995-1997, with a payout to occur in
1998. Amounts that could be paid at the end of that cycle depended upon
an executive's base salary at the end of the period, a predetermined
percentage of that salary that varied based on an executive's position,
and whether certain after-tax ROA thresholds had been achieved. For an
executive to receive any payout under the cycle established in 1995,
Caterpillar had to achieve a threshold ROA level for the cycle. If a
target ROA level was achieved, a larger amount would be received, while
attaining a certain maximum ROA level would yield the maximum amount
payable under the cycle. For the cycle established in 1995, the maximum
ROA level was exceeded and all participants, including those named in the
Summary Compensation Table, received a payout in early 1998 under that
cycle. The total value of cash and restricted stock received by 147 LTIP
participants under the cycle established in 1995 was approximately $12.1
million.
Cycles were also established under the LTIP's predecessor in 1996 and
under the LTIP in 1997 for the periods 1996-1998 and 1997-1999, with
payouts to occur, if at all, in 1999 and 2000. Like the 1995 cycle
discussed above, a payout under these cycles will depend upon an
executive's base salary at the end of the period, a predetermined
percentage of that salary that varies based on the executive's position,
and whether certain after-tax ROA levels (minimum, target, and maximum
levels) have been achieved.
Chief Executive Officer
-----------------------
Mr. Fites received a payout in 1998 under the 1995 LTIP cycle based on
the criteria discussed above. The amount received by Mr. Fites is
disclosed in the LTIP Payouts column of the Summary Compensation Table.
Mr. Fites also has the potential to receive in 1999 and 2000 a payout
under the LTIP for the 1996-1998 and 1997-1999 cycles based on the
criteria discussed above. Minimum, target, and maximum amounts that
could be received by Mr. Fites, as well as other named executive officers,
are referenced in the Long-Term Incentive Plans/Awards Table.
By the Compensation Committee consisting of:
James P. Gorter (Chairman)
Lilyan H. Affinito
John T. Dillon
David R. Goode
Peter A. Magowan
Clayton K. Yeutter
Executive Compensation Tables
*****************************
*****Summary Compensation Table*****
Long Term Compensation
Annual Compensation ----------------------
- -------------------------------- Awards Payouts
-------- -------
Other
Annual Securities LTIP All Other
Compen- Underlying Payouts Compensa-
Year Salary Bonus<F2> sation Options<F3> ($) tion<F4>
- -------------------------------- ----------- ----------- ------------
D. V. Fites - Chairman & CEO
1997 1,250,000 1,280,000 0 150,000 1,250,000<F4> 56,700
1996 1,150,000 1,151,150 0 150,000 1,000,500 55,200
1995 1,000,000 564,000 0 150,000 900,000 48,000
G. A. Barton - Group President
1997 500,000 384,000 0 50,000 375,000<F4> 24,000
1996 450,000 321,750 0 50,000 326,250 18,299
1995 400,000 188,000 0 50,000 300,000 16,000
G. S. Flaherty - Group President
1997 500,000 384,000 0 50,000 375,000<F4> 20,700
1996 450,000 321,750 0 50,000 326,250 21,600
1995 400,000 188,000 0 50,000 300,000 19,200
J. W. Owens - Group President
1997 430,000 330,240 0 50,000 322,500<F4> 12,041
1996 380,000 271,700 0 50,000 257,133 11,400
1995 330,000 155,100 0 50,000 214,500 9,900
R. L. Thompson - Group President
1997 430,000 330,240 0 50,000 322,500<F4> 12,900
1996 380,000 271,700 0 50,000 257,133 11,400
1995 330,000 155,100 0 50,000 214,500 9,901
[FN]
<F1> Consists of matching Company contributions, respectively, for the
Employees' Investment Plan (EIP) and Supplemental Employees' Investment
Plans of Messrs. Fites ($7,300/$49,400), Barton ($7,400/$16,600),
Flaherty ($7,100/$13,600), Owens ($4,841/$7,200), and Thompson
($4,625/$8,275).
<F2> Consists of cash payments made pursuant to the Corporate Incentive
Compensation Plan in 1998 with respect to 1997 performance, in 1997 with
respect to 1996 performance, and in 1996 with respect to 1995 performance.
<F3> Numbers for 1995, 1996, and 1997 have been adjusted to reflect a
two-for-one stock split effective after the 1997 grant. No options have
been granted at an option price below fair market value on the date of
the grant. Although no outstanding options have been repriced, an
exercise price adjustment was made to such options to reflect the
two-for-one stock split.
<F4> This payout was made in early 1998. Fifty percent of it was in
cash and fifty percent in restricted stock. Caterpillar's average stock
price on December 31, 1997 ($48.1563 per share) was used to determine
the restricted stock portion of the payout. As of December 31, 1997,
the number and value of restricted stock held by Messrs. Fites, Barton,
Flaherty, Owens, and Thompson was, respectively, 28,546 ($1,374,670),
9,418 ($453,536), 9,418 ($453,536), 7,048 ($339,406),and 7,048 ($339,406).
Dividends are paid on this restricted stock.
</FN>
************************Option Grants in 1997*********************
Individual Grants Potential Realizable
-------------------------------------- Value at Assumed
% of Total Annual Rates of
Options Stock Price
Number of Granted to Appreciation
Securities Employees Exercise for Option Term<F1>
Underlying In Fiscal Price Expir- -------------------
Options Year Per ation
Name Granted<F2> 1997<F3> Share Date 5% 10%
- ---------------------------------------------------------------------------
D.V.
Fites 150,000 4.25% 51.6562 6/10/2007 4,872,945 12,349,005
G.A.
Barton 50,000 1.42% 51.6562 6/10/2007 1,624,315 4,116,335
G.S.
Flaherty 50,000 1.42% 51.6562 6/10/2007 1,624,315 4,116,335
J.W.
Owens 50,000 1.42% 51.6562 6/10/2007 1,624,315 4,116,335
R.L.
Thompson 50,000 1.42% 51.6562 6/10/2007 1,624,315 4,116,335
Executive
Group 833,000 23.6% 51.6562 6/10/2007 27,061,088 68,578,141
All Stock-
holders
<F4> N/A N/A N/A N/A 12,235,882,705 31,008,143,268
Executive
Group as
% of all
stock-
holder
gain N/A N/A N/A N/A 22.1% 22.06%
[FN]
<F1> The dollar amounts under these columns reflect the 5% and 10% rates
of appreciation prescribed by the Securities and Exchange Commission.
The 5% and 10% rates of appreciation would result in per share prices of
$84.1425 and $133.9829, respectively. Caterpillar expresses no opinion
regarding whether this level of appreciation will be realized and
expressly disclaims any representation to that effect.
<F2> Options are exercisable upon completion of one full year of
employment following the grant date (except in the case of death or
retirement) and vest at the rate of one-third per year over the three
years following the grant. Upon exercise, option holders may surrender
shares to pay the option exercise price and satisfy tax withholding
requirements. Numbers have been adjusted to reflect a two-for-one stock
split effective after the date of the grant.
<F3> In 1997, options for 833,000 shares were granted to all executive
officers as a group; options for 40,000 shares were granted to all
directors who are not executive officers as a group; and options for
2,658,650 shares were granted to all employees other than executive
officers as a group.
<F4> For "All Stockholders" the potential realizable value is calculated
from $51.6562, the price of Common Stock on June 10, 1997, based on the
outstanding shares of Common Stock on that date. Numbers have been
adjusted to reflect a two-for-one stock split effective after the date
of the grant.
</FN>
*****************Aggregated Option/SAR Exercises in 1997,****************
******************and 1997 Year-End Option/SAR Values********************
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at 1997 at 1997
Acquired Year-End Year End<F2>
on Value --------------------- --------------------
Exercise Realized Exer- Unexer- Exer- Unexer-
<F1> <F2> cisable cisable cisable cisable
D.V.
Fites 0 0 654,000 300,000 17,786,086 2,485,945
G.A.
Barton 9,980 497,441 87,508 100,002 1,692,048 828,683
G.S.
Flaherty 0 0 151,198 100,002 3,641,133 828,683
J.W.
Owens 2,380 110,745 88,398 100,002 1,855,448 828,683
R.L.
Thompson 28,466 1,047,579 0 100,002 0 828,683
[FN]
<F1> Upon exercise, option holders may surrender shares to pay the
option exercise price and satisfy tax withholding requirements. The
amounts provided are gross amounts absent netting for shares surrendered.
Numbers have been adjusted to reflect a two-for-one stock split effective
after the date of the grant.
<F2> Calculated on the basis of the fair market value of the underlying
securities at the exercise date or year-end, as the case may be, minus
the exercise price.
</FN>
***************Long -Term Incentive Plans/Awards in 1997******************
Performance or Estimated future payouts under
Other Period Until non-stock price-based plans
Name Maturation or Payout Threshold Target Maximum
D.V. Fites 1997 - 1999 375,000 750,000 1,125,000
Chairman & CEO 1996 - 1998 375,000 750,000 1,125,000
G.A. Barton 1997 - 1999 125,000 250,000 375,000
Group President 1996 - 1998 125,000 250,000 375,000
G.S. Flaherty 1997 - 1999 125,000 250,000 375,000
Group President 1996 - 1998 125,000 250,000 375,000
J. W. Owens 1997 - 1999 107,500 215,000 322,500
Group President 1996 - 1998 107,500 215,000 322,500
R. L. Thompson 1997 - 1999 107,500 215,000 322,500
Group President 1996 - 1998 107,500 215,000 322,500
Payout is based upon an executive's base salary at the end of the
three-year cycle, a predetermined percentage of that salary, and
Caterpillar's achievement of specified levels of after-tax return on
assets ("ROA") over the three-year period. The target amount will be
earned if 100% of targeted ROA is achieved. The threshold amount will be
earned if 50% of targeted ROA is achieved, and the maximum award amount
will be earned at 150% of targeted ROA. Base salary levels for 1997 were
used to calculate the estimated dollar value of future payments under
both cycles.
**************************Pension Plan Table****************************
Remuneration Years of Service
15 20 25 30 35
- ------------ --------------------------------------------------------
$100,000 $22,500 $30,000 $37,500 $45,000 $52,500
$150,000 33,750 45,000 56,250 67,500 78,750
$200,000 45,000 60,000 75,000 90,000 105,000
$250,000 56,250 75,000 93,750 112,500 131,250
$300,000 67,500 90,000 112,500 135,000 157,500
$350,000 78,750 105,000 131,250 157,500 183,750
$400,000 90,000 120,000 150,000 180,000 210,000
$450,000 101,250 135,000 168,750 202,500 236,250
$500,000 112,500 150,000 187,500 225,000 262,500
$550,000 123,750 165,000 206,250 247,500 288,750
$650,000 146,250 195,000 243,750 292,500 341,250
$750,000 168,750 225,000 281,250 337,500 393,750
$850,000 191,250 255,000 318,750 382,500 446,250
$950,000 213,750 285,000 356,250 427,500 498,750
$1,100,000 247,500 330,000 412,500 495,000 577,500
$1,400,000 315,000 420,000 525,000 630,000 735,000
$1,600,000 360,000 480,000 600,000 720,000 840,000
$1,950,000 438,750 585,000 731,250 877,500 1,023,750
$2,500,000 562,500 750,000 937,500 1,125,000 1,312,500
$3,000,000 675,000 900,000 1,125,000 1,350,000 1,575,000
$3,500,000 787,500 1,050,000 1,312,500 1,575,000 1,837,500
$4,000,000 900,000 1,200,000 1,500,000 1,800,000 2,100,000
$4,500,000 1,012,500 1,350,000 1,687,500 2,025,000 2,362,500
$5,000,000 1,125,000 1,500,000 1,875,000 2,250,000 2,625,000
The compensation covered by the pension program is based on an employee's
annual salary and bonus. Amounts payable pursuant to a defined benefit
supplementary pension plan are included. As of December 31, 1997, the
persons named in the Summary Compensation Table had the following
estimated credited years of benefit service for purposes of the pension
program: D. V. Fites - 35 years*; G. A. Barton - 35 years*; G. S.
Flaherty - 35 years*; J. W. Owens - 25 years; and R. L. Thompson - 15
years. The amounts payable under the pension program are computed on the
basis of an ordinary life annuity and are not subject to deductions for
Social Security benefits or other amounts.
- --------------------
* Although having served more than 35 years with the Company, amounts
payable under the plan are based on a maximum of 35 years of service.
Certain Related Transactions
****************************
Mr. Siegfried R. Ramseyer, a Vice President of the Company, was Managing
Director of Caterpillar Overseas S.A. ("Subsidiary") until December 31,
1992, and is indebted to that Subsidiary in the amount of approximately
$302,826. The interest-free loan is for a home purchased by Mr. Ramseyer
in Switzerland and is collateralized by a mortgage on the property. The
primary purpose of the transaction was to permit Mr. Ramseyer to retain
his home in Switzerland and to purchase a home in the United States where
he had been assigned. In connection with his relocation from the United
States to Hong Kong in 1998, the loan will be repaid by Mr. Ramseyer at
the end of February, 1998.
Amendment to Articles of Incorporation
**************************************
Article FOURTH of Caterpillar's Restated Certificate of Incorporation
currently fixes our authorized capital stock at 450,000,000 shares of
common stock, $1.00 par value, and 5,000,000 shares of preferred stock,
$1.00 par value. The Board recommends an amendment to increase the
number of authorized shares of common stock to 900,000,000. No change
is being proposed to the par value of the common stock or the number of
authorized shares of preferred stock.
If the amendment is approved by the stockholders, the first paragraph of
Article FOURTH of the Restated Certificate of Incorporation would be
restated to read as follows:
"FOURTH: (a) The corporation is authorized to issue two classes of
shares to be designated, respectively, "common stock" and "preferred
stock." The total number of such shares shall be nine hundred and five
million (905,000,000), all of which shares shall have a par value of
$1.00 per share. The total number of shares of common stock authorized
to be issued shall be nine hundred million (900,000,000) and the total
number of shares of preferred stock authorized to be issued shall be
five million (5,000,000)."
The rights of additional authorized shares would be identical to shares
now authorized. Although the authorization would not, in itself, have
any effect on your rights as a stockholder, issuance of additional shares
of common stock for other than a stock split or dividend could have a
dilutive effect on earnings per share. If approved, the amendment would
allow the Board to authorize the issuance of additional shares up to the
new maximum without further shareholder approval, unless that approval
was required under applicable law or stock exchange regulations. This
proposal is not in response to any known effort to accumulate Caterpillar
common stock or obtain control of Caterpillar.
As of December 31, 1997, we had 450,000,000 shares of authorized common
stock, of which 368,010,340 shares were issued and outstanding. While
we do not have any current plans to issue additional shares of common
stock, other than under previously authorized benefit and compensation
plans, the amendment would enhance the Board's flexibility in possible
future actions, such as stock splits, stock dividends, acquisitions, and
other corporate activities involving the common stock.
Your Board of Directors recommends a vote FOR this proposal.
Appointment of Price Waterhouse LLP
***********************************
The Board of Directors seeks from the stockholders an indication of
their approval or disapproval of the Board's appointment of Price
Waterhouse LLP ("Price Waterhouse") as independent auditors for 1998.
Price Waterhouse has been our independent auditor since 1925, and no
relationship exists other than the usual relationship between independent
public accountant and client.
If the appointment of Price Waterhouse as independent auditors for 1998
is not approved by the stockholders, the adverse vote will be considered
a direction to the Board of Directors to consider other auditors for next
year. However, because of the difficulty in making any substitution of
auditors so long after the beginning of the current year, the appointment
for the year 1998 will stand, unless the Board finds other good reason
for making a change.
Representatives of Price Waterhouse will be available at the annual
meeting of stockholders to respond to questions.
Your Board of Directors recommends a vote FOR this proposal.
Stockholder Proposal re: Human Rights
and Caterpillar Response
**************************************
Mr. Seamus P. Finn, O.M.I., advises that, on behalf of The Missionary
Oblates of Mary Immaculate, the "Society of Oblate Fathers for Missions
among the Poor"("Oblate Fathers") (owners of 1,600 shares of Company
stock), he or another representative intends to present for consideration
and action at the annual meeting the following resolution. Co-sponsors
of this proposal are Ms. Nancy Finnernan, on behalf of the Sisters of
Loretto (Loretto Literary and Benevolent Institution) (owners of 600
shares of Company stock) and Rev. Joseph P. La Mar, MM, on behalf of the
Catholic Foreign Mission Society of America, Inc. (owners of 8,000 shares
of Company stock).
Resolution Proposed by Stockholder
- ----------------------------------
BE IT RESOLVED: the shareholders request the Board to review and develop
guidelines for country selection and report these guidelines to
shareholders and employees by October 1998. In its review, the Board
shall develop guidelines on maintaining investments in or withdrawing
from countries where:
* there is a pattern of ongoing and systematic violation of human rights
* a government is illegitimate
* there is a call by human rights advocates, pro-democracy organizations
or legitimately elected representatives for economic sanctions against
their country
Supporting Statement of Proponent
- ---------------------------------
WHEREAS: Levi Strauss & Co. bases its decision on whether to do business
in certain countries based on criteria that include whether:
"Brand image would be adversely affected by a country's perception or
image among our customers and/or consumers"
"Human rights environment would prevent us from conducting business
activities in a manner that is consistent with the Global Sourcing
Guidelines and other Company policies"
"Political, economic and social environment would threaten the Company's
reputation and/or commercial interests"
Nobel Peace Prize Laureate and Burmese democracy movement leader Aung
San Suu Kyi has called for economic sanctions on Burma, stating that
corporations that do business in Burma "do create jobs for some people
but what they're mainly going to do is make an already wealthy elite
wealthier, and increase its greed and strong desire to hang on to power...
these companies harm the democratic process a great deal."
Because of the Burmese military junta's large-scale repression of the
democracy movement, on May 20, 1997, President Clinton signed an
executive order banning new US investment in Burma;
Several cities, including New York and San Francisco, and the
Commonwealth of Massachusetts have enacted laws that effectively
prohibit contracts with companies that do business in Burma;
The Oil, Chemical and Atomic Workers Union (OCAW) and the AFL-CIO
support economic sanctions on Burma;
Media such as Businessweek, CNN, Economist, Los Angeles Times, New York
Times and Washington Post have published articles about the growing
pressure on companies that do business in Burma;
The New Light of Myanmar reported that a delegation led by a Burmese
military junta minister visited Caterpillar plants in the US in April,
1996;
The Delhi Financial Express reported on October 5, 1996, that Myanmar
Tractors & Trading Co Ltd, a dealer for Caterpillar in Burma, secured
orders worth $40 million from the Burmese Defense Ministry;
In its June 1996 "Foreign Economic Trends" report, the US Embassy in
Burma stated that: "In mid-1996, representatives of a U.S.-based
manufacturer indicated that their firm had recently sold US $30 million
of dual-use heavy construction equipment to the Defense Ministry's
Directorate of Procurement." (The term "dual-use" indicates equipment
that can be used for either civilian or military purposes.);
Caterpillar is active in two corporate groups, the National Association
of Manufacturers and USA*ENGAGE, both of which have taken positions
opposing to federal economic sanctions on Burma and Burma selective
purchasing laws at the municipal and state level;
Caterpillar also does business in other countries with controversial
human rights records: China and Indonesia.
Statement in Opposition to Proposal
- -----------------------------------
As a company that manufactures and distributes on a global scale,
Caterpillar competes in a world composed of differing races, religions,
cultures, customs, political philosophies, languages, economic resources,
and geography. We respect these differences and realize that neither
we nor the United States should or can impose its values on the world.
The standards suggested by the proponent for determining whether business
should be conducted in a particular country would put Caterpillar in the
business of making political decisions. We are being asked to
investigate and determine whether there is a "systematic violation of
human rights" and to decide whether "a government is illegitimate." We
believe these are decisions to be made by international entities such
as the United Nations and perhaps, governmental authorities, not
individual persons or companies.
Too often, a well-intentioned effort to deny a foreign country access to
products costs American workers their jobs without depriving the targeted
country of the product. Foreign-based competitors willingly step in to
replace America as the primary source of supply.
A study released earlier this year by the Institute for International
Economics found that in 1995 alone, between 200,000 and 250,000 U.S.
jobs were lost due to unilateral U.S. trade sanctions that reduced U.S.
exports to 26 target countries by an estimated $15 billion to $20
billion. A 1994 Council on Competitiveness report found that just eight
unilateral sanctions cost the U.S. economy $6 billion in annual sales and
120,000 export-related jobs. These figures do not take into account the
additional negatives arising from lost U.S. investment opportunities.
We firmly believe that unilateral sanctions or country selection criteria
such as those suggested by the proponent hurt American business and
American workers by undermining our nation's competitiveness in today's
global market. As a company with more than half of its sales overseas
(anticipated to be 75% by 2010) and nearly three quarters of its assets
based in the United States, Caterpillar's future is particularly tied to
its competitiveness abroad.
Unilateral sanctions and country selection criteria also have an impact
contrary to their intention. They limit our opportunity to communicate
American ideals to people in other parts of the world; communication
that may bring about positive, lasting economic and social change.
Your Board of Directors recommends a vote AGAINST this proposal.
Stockholder Proposal to Declassify Board
and Caterpillar Response
*****************************************
Mr. Richard Shoemaker advises that, on behalf of the International
Union, United Automobile, Aerospace & Agricultural Implement Workers
of America ("UAW") (owner of 72 shares of Company stock), he or another
representative of the UAW intends to present for consideration and
action at the annual meeting the following resolution:
Resolution Proposed by Stockholder
- ----------------------------------
BE IT RESOLVED: That the shareholders of Caterpillar Inc. ("Company")
urge that the Board of Directors take the necessary steps, in compliance
with Delaware state law, to declassify the Board of Directors for the
purpose of director elections. The Board declassification shall be done
in a manner that does not affect the unexpired terms of directors
previously elected.
Supporting Statement of Proponent
- ---------------------------------
The election of corporate directors is the primary avenue in the A
merican corporate governance system for shareholders to influence
corporate affairs and exert accountability on management. We strongly
believe that our Company's financial performance is closely linked to its
corporate governance policies and procedures, and the level of management
accountability they impose. Therefore, as shareholders concerned about
the value of our investment, we are very disturbed by our Company's
current system of electing only one-third of the board of directors each
year. We believe this staggering of director terms prevents shareholders
from annually registering their views on the performance of the board
collectively and each director individually.
Concerns that the annual election of all directors would leave our
Company without experienced Board members in the event that all
incumbents are voted out is unfounded. If the owners should choose to
replace the entire board, it would be obvious that the incumbent
directors' contributions were not valued. Additionally, concerns that the
annual election of all directors would expose shareholders to takeover
attempts at below full value is also unfounded in view of the various
anti-takeover mechanisms available to the company.
Most alarming is that the staggered Board can help insulate directors
and senior executives from the consequences of poor performance by
denying shareholders the opportunity to replace an entire Board which,
in the opinion of shareholders, is pursuing failed policies. We believe
that allowing shareholders to annually register their views on the
performance of the Board collectively and each director individually
is one of the best methods to insure that our Company will be managed
in the best interests of the shareholders.
Statement in Opposition to Proposal
- -----------------------------------
The proponent "strongly believe[s] that our Company's financial
performance is closely linked to its corporate governance policies and
procedures..."
We could not agree more. In 1997, Caterpillar posted record sales,
revenues, and profits for the fourth consecutive year. For the past
five years cumulatively, the proponent has seen its investment in
Caterpillar significantly exceed return on the S&P 500 and S&P Machinery
(Diversified). The proponent has also experienced two stock splits in
the last four years.
We received significant recognition in the financial press this past
year for our performance and management team quality.
* In October of 1997, Fortune named Caterpillar as one of the "World's
Most Admired Companies," focusing on, among other things, our
effectiveness in doing business globally, quality of management, and
value as a long-term investment.
* In September of 1997, Industry Week selected Caterpillar as one of the
"World's 100 Best Managed Companies," based on several factors,
including financial performance and corporate governance.
* In June of 1997, Worth Financial selected Caterpillar as one of the
"World's 50 Best Stocks to Own."
* Finally, and most recently, our Chief Executive Officer, Mr. Fites,
was named one of the "Top 25 Managers of the Year" by Business Week
magazine.
Our performance over the past five years, as well as accolades from
independent third parties regarding that performance, solidly
demonstrates that our current corporate governance structure is working.
One of the primary components of that structure, in addition to the
talent and foresight of our individual Board members, is the continuity
and stability our classified Board structure provides.
The Board of Directors recommends a vote AGAINST the proposal.
Other Matters
*************
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Based upon a review of our records, all reports required to be filed
pursuant to Section 16(a) of the Exchange Act were filed on a timely
basis.
Stockholder Proposals for the 1999 Annual Meeting
- --------------------------------------------------
If you want to submit a proposal for possible inclusion in the
Company's 1999 Proxy Statement, we must receive it on or before
October 30, 1998.
Solicitation
- ------------
Caterpillar is soliciting this proxy on behalf of its Board of Directors.
This solicitation is being made by mail but also may be made by telephone
or in person. We have hired Georgeson & Co. for $20,000, plus out-of-
pocket expenses, to assist in the solicitation.
Stockholder List
- ----------------
A stockholder list will be available for your examination during normal
business hours at the Loews Ventana Canyon Hotel, 7000 North Resort
Drive, Tucson, Arizona, at least ten days prior to the annual meeting.
Revocability of Proxy
- ---------------------
You may revoke the enclosed proxy by filing a written notice of
revocation with us or by providing a later executed proxy.
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PROXY
CATERPILLAR INC.
ANNUAL MEETING OF STOCKHOLDERS - APRIL 8, 1998
This Proxy is solicited on behalf of the Board of Directors
At the Annual Meeting of Stockholders of the Company on April 8, 1998, or
at any adjournments thereof, the undersigned hereby appoints L.H. AFFINITO and
J.I. SMITH, and each of them, proxies with power of substitution to vote the
stock of the undersigned on the following matters, and, in their discretion,
on any other matters that may come before the meeting.
Election of Directors. Nominees: J.T. Dillon, J. Gallardo T., G.R. Parker,
G.A. Schaefer
You are encouraged to specify your choices by marking the appropriate boxes,
SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. Please mark, sign,
date and return this Proxy promptly using the enclosed envelope.
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SEE REVERSE
SIDE
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. FOLD AND DETACH HERE .
<PAGE>
[X] Please mark your 1433
votes as in this
example.
Unless otherwise specified, proxies will be voted FOR the election of the
nominees for directors listed, FOR proposals 2 and 3 and AGAINST proposals
4 and 5.
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The Board of Directors recommends a vote FOR election of directors and
proposals 2 and 3.
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FOR WITHHELD
1. Election of [_] [_]
Directors
(See Reverse)
FOR, except vote withheld from the following nominee(s):
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FOR AGAINST ABSTAIN
2. Amendment to [_] [_] [_]
Articles of
Incorporation
FOR AGAINST ABSTAIN
3. Appointment of [_] [_] [_]
Independent
Auditors
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The Board of Directors recommends a vote AGAINST
stockholder proposals 4 and 5.
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FOR AGAINST ABSTAIN
4. Stockholder proposal [_] [_] [_]
FOR AGAINST ABSTAIN
5. Stockholder proposal [_] [_] [_]
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
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SIGNATURE(S) DATE
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[CAT LOGO]
Annual Meeting
of
Caterpillar Inc. Stockholders
Wednesday, April 8, 1998
10:30 a.m.
Loews Ventana Canyon Hotel
7000 North Resort Drive
Tucson, Arizona
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Agenda
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* Elect Directors
* Approve an amendment to our Articles of Incorporation
* Approve appointment of independent auditors
* Act on two stockholder proposals
* Conduct other business properly brought before the meeting
