CATERPILLAR INC - Proxy Solicitation & Information Statement 2017

DEF 14A 1 cat3172421-def14a.htm DEFINITIVE PROXY STATEMENT

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. )

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Caterpillar Inc.

(Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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| Caterpillars
reputation is one of our greatest assets. We all share the responsibility
to protect it every day. We have earned our solid reputation by
developing, building and delivering great products and services, and by
acting according to the highest ethical standards. | |
| --- | --- |
| ● | Integrity The Power of Honesty |
| Integrity is the foundation of all
we do. It is a constant. Those with whom we work, live and serve can rely
on us. | |
| ● | Excellence The Power of Quality |
| The power of quality. We set and
achieve ambitious goals. The quality of our products and services reflects
the power and heritage of Caterpillar. | |
| ● | Teamwork The Power of Working Together |
| We help each other succeed. We are a
team, sharing our unique talents to help those with whom we work, live and
serve. | |
| ● | Commitment The Power of Responsibility |
| We embrace our responsibilities.
Individually and collectively we make meaningful commitments first to
each other, and then to those with whom we work, live and
serve. | |
| ● | Sustainability The Power of
Endurance |
| We are committed to building a
better world. Sustainability is part of who we are and what we do every
single day. | |

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TABLE OF CONTENTS

We are sending you these proxy materials in connection with Caterpillars solicitation of proxies, on behalf of its Board of Directors, for the 2017 Annual Meeting of Shareholders (Annual Meeting). Distribution of these materials is scheduled to begin on May 2, 2017. Please submit your vote and proxy by telephone, mobile device, Internet, or, if you received your materials by mail, you can also complete and return your proxy or voting instruction form by mail.

LETTER TO SHAREHOLDERS
PROXY SUMMARY	2
Annual Meeting
of Shareholders	2
Shareholder
Voting Matters	2
Our Director
Nominees	3
Governance
Highlights	4
2016 Performance
Highlights	4
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS	5
DIRECTORS & GOVERNANCE	6
Proposal 1 -
Election of Directors	6
Overview of Our
Board	6
Board
Attendance	6
Board Evolution
Since 2011	7
Diversity of
Skills and Expertise	7
Global
Experience	7
Director
Candidate Biographies and Qualifications	8
Director
Compensation	12
Board Election
and Leadership Structure	13
Duties and
Responsibilities of Chairman	13
Corporate
Governance Guidelines and Code of
Conduct	13
Board Evaluation
Process	14
Board
Committees	14
Boards Role in
Risk Oversight	15
Director
Nominations and Evaluations	16
Director
Independence Determinations	17
Communication
With the Board	17
Investor
Outreach	18
Awards and
Recognitions	18
Sustainability	19
Political
Contributions and Lobbying	19
Related Party
Transactions	20
AUDIT	21
Proposal 2 -
Ratification of our Independent Registered Public Accounting
Firm	21
Audit Fees and
Approval Process	21
Independent
Registered Public Accounting Firm Fee Information	21
Anonymous
Reporting of Accounting Concerns	22
Audit Committee
Report	22
COMPENSATION	23
Proposal 3 -
Advisory Vote to Approve Executive Compensation	23
COMPENSATION DISCUSSION &
ANALYSIS	24
Executive
Summary	24
Compensation
Discussion & Analysis	28
EXECUTIVE
COMPENSATION TABLES	41
2016 Summary
Compensation Table	41
2016 All Other
Compensation Table	42
Grants of
Plan-Based Awards in 2016	43
Outstanding
Equity Awards at 2016 Fiscal Year End	44
2016 Option
Exercises and Stock Vested	45
2016 Pension
Benefits	46
2016
Nonqualified Deferred Compensation	47
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN
CONTROL	48
Potential
Payments Upon Termination or Change in Control	50
Compensation
Risk	50
Proposal 4 -
Advisory Vote on the Frequency of Executive Compensation Votes	51
Proposal 5 -
Approve the Amended and Restated 2014 Long-Term Incentive Plan	51
SHAREHOLDER PROPOSALS	60
Proposal 6 -
Shareholder Proposal Provide a Report of Lobbying Activities	60
Proposal 7 -
Shareholder Proposal Decrease Percent of Ownership Required to Call
Special Shareholder Meeting	62
Proposal 8 -
Shareholder Proposal Provide a Report of Lobbying Priorities	63
Proposal 9 -
Shareholder Proposal Include Sustainability as a Performance Metric
under Executive Incentive Plans	65
Proposal 10 -
Shareholder Proposal Amend the Companys Compensation Clawback
Policy	67
Proposal 11 -
Shareholder Proposal Adopt a Permanent Policy that the Chairman be
Independent	69
OTHER IMPORTANT INFORMATION	71
Persons Owning
More Than Five Percent of Caterpillar Common Stock	71
Security
Ownership of Executive Officers and Directors	72
Section 16(a)
Beneficial Ownership Reporting Compliance	72
Matters Raised
at the Annual Meeting Not Included in This Statement	73
Shareholder
Proposals and Director Nominations for the 2018 Annual Meeting	73
Access to Form
10-K	73
Frequently Asked
Questions Regarding Meeting Attendance and Voting	74
Admission and
Ticket Request Procedure	77
EXHIBIT A - AMENDED AND RESTATED CATERPILLAR INC. 2014
LONG-TERM INCENTIVE PLAN	78

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David L. Calhoun Chairman of the Board DEAR FELLOW SHAREHOLDERS, I am honored to serve your interests as Caterpillars recently elected non-executive chairman of the board of directors. Your board has played a very active role in recent months. Following a thorough and deliberative succession planning process, the board elected Jim Umpleby as Caterpillars chief executive officer effective January 1, 2017. Jim has more than 35 years of experience at Caterpillar, most recently as group president of the Energy & Transportation business segment and a member of the executive office. Doug Oberhelman, our chairman and CEO since 2010, has retired and we want to acknowledge his enormous contributions to our company over his 41-year career. Doug led our management team through the most severe business cycle in our history. The team took extraordinary steps to optimize our manufacturing and distribution footprint, lower overhead costs, and invest in competitively differentiated technologies. Over this very challenging period we improved our competitive position, protected our financial position, and developed a very capable leadership team for the future. A leadership transition is an appropriate time to take a fresh look at our companys strategy. Jim has brought a diverse management team together to review our strategy and will report recommendations later this year. Caterpillar remains the worldwide market leader in an array of businesses with great prospects. We have a global dealer network that is the envy of our competitors. As our customers seek greater productivity than ever before, they require technology solutions to, among other things, make them more efficient, and increase safety, equipment utilization and performance. Caterpillar is committed to meeting those needs, and more, for all of our customers. Your board will be closely involved in this strategy review process to help ensure our choices create maximum long term value for shareholders. Caterpillar is also committed to good governance and compliance with all regulations and laws, and we have a very robust system in place to support and monitor our performance on this commitment, which is reviewed by the board on an annual basis and by the audit committee at its regularly scheduled meetings. Employee compliance matters are brought to our attention through the Caterpillar Office of Business Practices and audit staff reviews. Caterpillars code of conduct, known as Our Values in Action, is applied consistently across our global enterprise, acknowledged annually by all employees and benchmarked against the best in industry. Board members must also read, understand, and acknowledge our commitment to these Values every year. We regularly benchmark our corporate governance, compensation, compliance and other practices against peers and preferences of organizations such as The Council of Institutional Investors, of which we are a member. On March 2, 2017, federal law enforcement authorities executed search warrants at three of our Peoria-area facilities. The warrants, while also related to export filings, were connected in part to a matter we previously disclosed relating to our Switzerland-based subsidiary, CSARL. We take this matter very seriously, we are cooperating with the government investigation, and we have a strong team in place to manage this matter. Caterpillar has retained former U.S. Attorney General William P. Barr and Jim has asked him to review matters related to the search warrants, take a fresh look at Caterpillars disputes with the government, get all the facts, and then help bring these matters to an appropriate resolution.

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As part of our leadership transition, the board separated the roles of chairman and chief executive officer. This structure allows our new CEO to focus on running the business while, as non-executive chairman, I ensure the board is providing Jim the resources and counsel to make our company successful. We believe a strong and independent board is integral to the long term success of our company. Our move to split the chair and CEO role at this moment in time demonstrates that commitment. The board intends to review the appropriateness of this structure on a biannual basis.

We regularly review the composition and qualifications of our board, and are delighted that Ray Wilkins, a former executive of AT&T Inc., joined our board in April 2017. Ray brings a broad array of leadership and business skills, including communications and information technology expertise that will serve the emerging needs of our company and augment the Boards knowledge in these areas.

Shareholder relationships and outreach are a critical part of the boards oversight. In addition to regular investor relations engagement, we meet annually with many of our institutional shareholders.

The board of directors is honored to represent Caterpillar and our shareholders. We encourage you to vote your shares at the upcoming annual meeting.

Very truly yours,

David L. Calhoun Chairman of the Board

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PROXY SUMMARY

This summary does not contain all of the information you should consider. You should read the complete proxy statement before voting.

ANNUAL MEETING OF SHAREHOLDERS

Time & Date:	8:00 a.m. - June 14, 2017
Place:	250 Dozer Drive, Athens, Georgia
30606-0701
Record Date:	The close of business on April 17,
2017
Admission:	Please follow the instructions contained in
the Admission Procedure on page 77

SHAREHOLDER VOTING MATTERS

PROPOSAL		BOARDS VOTING RECOMMENDATION
1	Election of thirteen Directors
named in this Proxy Statement	FOR each Nominee	6
2	Ratification of our Independent
Registered Public Accounting Firm	FOR	21
3	Advisory Vote to approve Executive
Compensation	FOR	23
4	Advisory Vote on the Frequency of
Executive Compensation Votes	One Year	51
5	Approve the Amended and Restated
Caterpillar Inc. 2014 Long-Term Incentive Plan	FOR	51
6	Shareholder Proposal Provide a
Report of Lobbying Activities	AGAINST	60
7	Shareholder Proposal Decrease
Percent of Ownership Required to Call Special Shareholder
Meeting	AGAINST	62
8	Shareholder Proposal Provide a
Report of Lobbying Priorities	AGAINST	63
9	Shareholder Proposal Include
Sustainability as a Performance Measure under Executive Incentive
Plans	AGAINST	65
10	Shareholder Proposal Amend the
Companys Compensation Clawback Policy	AGAINST	67
11	Shareholder Proposal Adopt a Permanent Policy that the Chairman
be Independent	AGAINST	69

2 | 2017 Proxy Statement

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OUR DIRECTOR NOMINEES

| NOMINEE AND PRINCIPAL OCCUPATION | INDEPENDENT | AGE | DIRECTOR — SINCE | OTHER PUBLIC COMPANY
BOARDS | CAT COMMITTEES — AC | CC | PPGC |
| --- | --- | --- | --- | --- | --- | --- | --- |
| David L. Calhoun Independent Chairman Senior Managing Director of The Blackstone Group,
L.P. | Yes | 59 | 2011 | Nielsen Holdings PLC The
Boeing Company | | ● | |
| Daniel M. Dickinson Managing Partner of HCI Equity Partners | Yes | 55 | 2006 | None | ● | | |
| Juan Gallardo Former CEO of Organización CULTIBA, S.A.B. de
C.V. | Yes | 69 | 1998 | Grupo Aeroportuario del
Pacifico, S.A.B. de C.V. Grupo
Financiero Santander Mexico, S.A.B. de C.V. Organización CULTIBA, S.A.B. de C.V. | | | ● |
| Jesse J. Greene, Jr. Instructor at Columbia Business School and former Vice President of
Financial Management and Chief Financial Risk Officer of International
Business Machines Corporation | Yes | 72 | 2011 | None | | ● | |
| Jon M. Huntsman, Jr. Former United States Ambassador to China and former Governor of
Utah | Yes | 57 | 2012 | Chevron Corporation Ford Motor
Company Hilton Worldwide
Holdings Inc. | | | ● |
| Dennis A. Muilenburg Chairman, President and CEO of The Boeing Company | Yes | 53 | 2011 | The Boeing Company | ● | | |
| William A. Osborn Former Chairman and CEO of Northern Trust
Corporation | Yes | 69 | 2000 | Abbott Laboratories General Dynamics Corporation | ● | | |
| Debra L. Reed Chairman and CEO of Sempra Energy | Yes | 60 | 2015 | Halliburton
Company Sempra Energy | | ● | |
| Edward
B. Rust, Jr. Former Chairman and CEO of State Farm Mutual
Automobile Insurance Company | Yes | 66 | 2003 | Helmerich & Payne,
Inc. S&P Global Inc. | | | ● |
| Susan C. Schwab Professor at the University of Maryland School of Public Policy and
a Strategic Advisor for Mayer Brown LLP; former United States Trade
Representative | Yes | 62 | 2009 | FedEx Corporation Marriott
International, Inc. The Boeing Company | | | ● |
| Jim Umpleby CEO of Caterpillar Inc. | No | 59 | 2017 | None | | | |
| Miles D. White Chairman and CEO of Abbott Laboratories | Yes | 62 | 2011 | Abbott Laboratories McDonalds
Corporation | | ● | |
| Rayford Wilkins, Jr. Former CEO of Diversified Businesses at
AT&T | Yes | 65 | 2017 | Morgan Stanley Valero Energy Corporation | ● | | |

AC: Audit Committee CC: Compensation Committee PPGC: Public Policy and Governance Committee

Chair Member

2017 Proxy Statement | 3

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GOVERNANCE HIGHLIGHTS

Our commitment to good corporate governance stems from our belief that a strong governance framework creates long-term value for our shareholders, strengthens Board and management accountability and builds trust in the Company and its brand. Our governance framework includes the following highlights:

| BOARD AND GOVERNANCE
INFORMATION — Size of Board | 13 | BOARD AND GOVERNANCE
INFORMATION — Average Director Tenure | 7 years |
| --- | --- | --- | --- |
| Number of Independent Directors | 12 | Supermajority Voting Threshold for Mergers | No |
| Average Age of Directors | 62 | Proxy Access | Yes |
| Board Meetings Held in 2016 | 9 | Shareholder Action by Written Consent | No |
| Annual Election of Directors | Yes | Shareholder Called Special Meetings | Yes |
| Mandatory Retirement Age | 72 | Poison Pill | No |
| Women and Minority Board Members | 38% | Code of Conduct for Directors, Officers and
Employees | Yes |
| Majority Voting in Director Elections | Yes | Stock Ownership Guidelines for Directors and Executive
Officers | Yes |
| Separate Chair and CEO | Yes | Anti-Hedging and Pledging Policies | Yes |
| Independent
Chair | Yes | Compensation Recoupment
Policy | Yes |

2016 PERFORMANCE HIGHLIGHTS

| DIVIDEND
PAYMENTS | COST
REDUCTION | STRONG BALANCE
SHEET |
| --- | --- | --- |
| $1.8 billion Our dividend has remained a high
priority throughout this difficult economic cycle and in 2016 we paid $1.8 billion in dividends to
shareholders . Caterpillar has paid a cash
dividend every year since the Company was formed and has paid a quarterly
dividend since 1933. | ~$2.3 billion Period costs and variable
manufacturing costs were $2.3 billion lower in 2016 restructuring and cost reduction actions and lower
incentive pay helped mitigate the impact of lower sales. | $7.2 billion Despite significant restructuring
costs, we ended 2016 with $7.168 billion of cash on
the balance sheet and Machinery, Energy & Transportation (ME&T)
debt-to-capital ratio at 41% . |

4 | 2017 Proxy Statement

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100 NE Adams Street Peoria, Illinois 61629 Phone (309) 675-1000 www.caterpillar.com

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

| Date: | June 14,
2017 |
| --- | --- |
| Time: | 8:00
a.m. |
| Place: | 250
Dozer Drive |
| | Athens,
GA 30606-0701 |
| Record
Date: | April 17,
2017 |

| MEETING AGENDA : |
| --- |
| ● Elect thirteen director nominees named in this Proxy
Statement ● Ratify our independent registered public accounting firm for
2017 ● Approve , by non-binding vote, executive
compensation ● Approve , by non-binding vote, the frequency of executive
compensation votes ● Vote to approve the Amended and Restated 2014 Long-Term
Incentive Plan ● Vote on shareholder proposals ● Any other business that properly comes before the
meeting |

PLEASE VOTE YOUR SHARES

| We encourage shareholders to vote promptly, as this will
save the expense of additional proxy solicitation. You may vote in the
following ways: | ● | ● | ● |
| --- | --- | --- | --- |
| By Internet | By Mobile
Device | By Telephone | By
Mail |
| vote online
at www.caterpillar.com/ proxymaterials | scan this QR code to vote with
your mobile device | call the number included on
your proxy card or notice | mail your signed proxy or
voting instruction form |

By Order of the Board of Directors

Christopher M. Reitz Corporate Secretary May 2, 2017

Important Notice Regarding the Availability of Proxy Materials This Notice of Annual Meeting and Proxy Statement and the 2016 Annual Report on Form 10-K are available at www.eproxyaccess.com/cat2017.

2017 Proxy Statement | 5

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PROPOSAL 1 ELECTION OF DIRECTORS

PROPOSAL SNAPSHOT
● What am I voting on?
Shareholders are being asked to
elect thirteen director nominees named in this Proxy Statement for a
one-year term.
●	Voting Recommendation: FOR the election of each of the Boards director
nominees.

OVERVIEW OF OUR BOARD

GENDER AND DIVERSITY DIRECTOR AGE DIRECTOR TENURE

BOARD ATTENDANCE

	●	●	●	●	●	●	●	●	●	●	●	●	●
Board	9	9	9	9	9	8	9	9	9	7	9	9	8
Audit	11		11				11		11
Compensation & Human Resources	7	7			7					7			7
Public Policy & Governance	5			5		5					5	5

98% Attendance for 2016

The Boards policy is that directors should attend the annual shareholder meeting. All directors attended the 2016 shareholder meeting. The independent directors generally meet in executive session as part of each regularly scheduled Board meeting. Ed Rust, who was Caterpillars Presiding Director in 2016, presided over the executive sessions in 2016.

6 | 2017 Proxy Statement

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BOARD EVOLUTION SINCE 2011

| ✓ | Eight new directors
elected |
| --- | --- |
| ✓ | Full rotation of Board committee
chairs |
| ✓ | Independent Chairman
elected |
| ✓ | Reallocation of committee
responsibilities |
| ✓ | Expanded qualifications and
diversity represented on Board |

DIVERSITY OF SKILLS AND EXPERTISE

Our independent Board nominees offer a diverse range of skills and experience in relevant areas.

GLOBAL EXPERIENCE

As shown by the yellow highlighted areas in the map below, our independent directors have international experience that aligns with Caterpillars global presence.

2017 Proxy Statement | 7

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The Board has nominated the following individuals to stand for election for a one-year term expiring at the annual meeting of shareholders in 2018.

The number of persons comprising the Caterpillar Board of Directors is currently established as thirteen. If any of the Boards nominees should become unavailable to serve as a Director prior to the Annual Meeting, the size of the Board and number of Board nominees will be reduced accordingly.

DIRECTOR CANDIDATE BIOGRAPHIES AND QUALIFICATIONS

Directors have been in their current positions for the past five years unless otherwise noted. Information is as of April 1, 2017.

| DAVID L. CALHOUN Senior Managing Director and Head
of Private Equity Portfolio Operations of The Blackstone Group L.P.
(private equity firm) | Age 59 |
| --- | --- |
| ● Nielsen Holdings PLC ● The Boeing Company | |
| Other directorships within the last five
years | Director Since 2011 |
| ● Medtronic, Inc | |
| Caterpillar Committee | Independent Chairman of the
Board |
| ● Compensation | |
| Key Qualifications and Skills: | |
| Mr. Calhoun was previously
Executive Chair of Nielsen Holdings N.V. (marketing and media information)
(2014-2015). Prior to his position at Blackstone, Mr. Calhoun served as
Chairman of the Executive Board and Chief Executive Officer of The Nielsen
Company B.V. (2006-2013). The Board believes that Mr.
Calhoun provides valuable insight and perspective into general strategic
and business matters, stemming from his extensive executive and management
experience with Blackstone, Nielsen and GE. Mr. Calhoun also has
significant manufacturing and high-technology industry expertise as
evidenced by his leadership of GEs aircraft engines and transportation
businesses. | |

| DANIEL M. DICKINSON Managing Partner of HCI Equity
Partners (private equity firm) | Age 55 |
| --- | --- |
| ● None | |
| Other directorships within the last five
years | Director Since 2006 |
| ● Mistras Group, Inc. ● Progressive Waste Solutions Ltd. | |
| Caterpillar Committee | Independent |
| ● Audit | |
| Key Qualifications and Skills: | |
| The Board believes that Mr.
Dickinsons experience in mergers and acquisitions, private equity
business and role as an investment banker provides important insights for
evaluating investment opportunities. His significant financial experience,
both in the U.S. and internationally, contributes to the Boards
understanding and ability to analyze complex issues. His experience as a
former director of large, publicly-traded multinational corporations
enables him to provide meaningful input and guidance to the Board and the
Company. | |

| JUAN GALLARDO Former CEO of Organización
CULTIBA, S.A.B. de C.V. (beverage industry) | Age 69 |
| --- | --- |
| ● Grupo Aeroportuario del Pacifico, S.A.B. de
C.V. ● Grupo Financiero Santander Mexico, S.A.B. de
C.V. ● Organización CULTIBA, S.A.B. de C.V. | |
| Other directorships within the last five
years | Director Since 1998 |
| ● Lafarge SA | |
| Caterpillar Committee | Independent |
| ● Public Policy and Governance | |
| Key Qualifications and Skills: | |
| Mr. Gallardo retired as the CEO
of Organización CULTIBA, S.A.B. de C.V. in 2016. Mr. Gallardo resides in
Mexico where Caterpillar has a presence. The Board believes that Mr.
Gallardos international business experience, particularly in Latin
America and South America, is important for the Companys understanding of
these markets. His extensive background in trade-related issues also
contributes to the Boards expertise. In addition, his experience as a
chief executive officer and director of large, publicly-traded
multinational corporations enables him to provide meaningful input and
guidance to the Board and the Company. | |

8 | 2017 Proxy Statement

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| JESSE J. GREENE, JR. Instructor at Columbia Business
School | Age 72 |
| --- | --- |
| ● None | |
| Other directorships within the last five
years | Director Since 2011 |
| ● None | |
| Caterpillar Committee | Independent |
| ● Compensation | |
| Key Qualifications and Skills: | |
| Mr. Greene is currently an
instructor at Columbia Business School in New York City where he teaches
corporate governance, risk management and other business topics at the
graduate and executive education levels. He was formerly Vice President of
Financial Management and Chief Financial Risk Officer of International
Business Machines Corporation (computer and office equipment). The Board believes that Mr.
Greenes risk management and information technology experience provides a
unique skill set to the Board. His experience as a chief financial risk
officer and executive of a large, publicly-traded multinational
corporation enables him to provide meaningful input and guidance to the
Board and the Company. | |

| JON M. HUNTSMAN, JR. Former United States Ambassador
to China (2009- 2011) and former Governor of Utah
(2005-2009) | Age 57 |
| --- | --- |
| ● Chevron Corporation ● Ford Motor Company ● Hilton Worldwide Holdings Inc. | |
| Other directorships within the last five
years | Director Since 2012 |
| ● Huntsman Corporation | |
| Caterpillar Committee | Independent |
| ● Public Policy and Governance | |
| Key Qualifications and Skills: | |
| Caterpillar has a significant
manufacturing presence and dealer network in China. The Board believes
that Mr. Huntsmans extensive knowledge of Asia and international affairs,
operational experience gained as governor of Utah and experience as a
director of other large, publicly-traded multinational corporations
enables him to provide meaningful input and guidance to the Board and the
Company. | |

| DENNIS A. MUILENBURG Chairman, President and CEO of
The Boeing Company (aircraft and defense) | Age 53 |
| --- | --- |
| ● The Boeing Company | |
| Other directorships within the last five
years | Director Since 2011 |
| ● None | |
| Caterpillar Committee | Independent |
| ● Audit | |
| Key Qualifications and Skills: | |
| Prior to his current position,
Mr. Muilenburg was Vice Chairman, President and Chief Operating Officer of
The Boeing Company (2013-2015). Prior to that, he was Executive Vice
President of The Boeing Company and President and Chief Executive Officer
of Boeing Defense, Space & Security (2009-2013). The Board believes that Mr.
Muilenburg provides valuable insight to the Board on strategic and
business matters, stemming from his experience with large-scale product
development programs and his worldwide supply chain and manufacturing
expertise. | |

2017 Proxy Statement | 9

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| WILLIAM A. OSBORN Former Chairman and CEO of
Northern Trust Corporation and The Northern Trust Company (financial
services) | Age 69 |
| --- | --- |
| ● Abbott Laboratories ● General Dynamics Corporation | |
| Other directorships within the last five years | Director Since 2000 |
| ● Tribune Company | |
| Caterpillar Committee | Independent |
| ● Audit, Chair | |
| Key Qualifications and Skills: | |
| The Board believes that Mr.
Osborns financial expertise and experience is valuable to the Board. In
addition, his experience as a chief executive officer and director of
other large, publicly-traded corporations enables him to provide
meaningful input and guidance to the Board and the
Company. | |

| DEBRA L. REED Chairman of the Board and CEO of
Sempra Energy (energy infrastructure and utilities) | Age 60 |
| --- | --- |
| ● Halliburton Company ● Sempra Energy | |
| Other directorships within the last five years | Director Since 2015 |
| ● None | |
| Caterpillar Committee | Independent |
| ● Compensation | |
| Key Qualifications and Skills: | |
| The power, oil and gas industries
are key end-user markets for Caterpillar products. The Board believes that
Ms. Reeds background provides valuable insights into trends in these
industries. In addition, her experience as a chief executive officer and
director of other large, publicly-traded corporations enables her to
provide meaningful input and guidance to the Board and the
Company. | |

| EDWARD B. RUST, JR. Former Chairman and CEO of State
Farm Mutual Automobile Insurance Company (insurance) | Age 66 |
| --- | --- |
| ● Helmerich & Payne, Inc. ● S&P Global Inc. | |
| Other directorships within the last five years | Director Since 2003 |
| ● None | |
| Caterpillar Committee | Independent |
| ● Public Policy and Governance, Chair | |
| Key Qualifications and Skills: | |
| Mr. Rust retired as Chairman in
2017 and as Chief Executive Officer in 2016 of State Farm Mutual
Automobile Insurance Company. The Board believes that Mr.
Rusts financial and business experience is valuable to the Board. His
role as a past Chairman of the U.S. Chamber of Commerce, chief executive
officer of a major national corporation and experience as a director of
large, publicly-traded multinational corporations enables him to provide
meaningful input and guidance to the Board and the Company. In addition,
his extensive involvement in education improvement compliments the
Companys culture of social responsibility. | |

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| SUSAN C. SCHWAB Professor at the University of
Maryland School of Public Policy and a Strategic Advisor for Mayer Brown
LLP (global law firm) | Age 62 |
| --- | --- |
| ● FedEx Corporation ● Marriott International, Inc. ● The Boeing Company | |
| Other directorships within the last five
years | Director Since 2009 |
| ● None | |
| Caterpillar Committee | Independent |
| ● Public Policy and Governance | |
| Key Qualifications and Skills: | |
| Prior to her current positions,
Ambassador Schwab held various positions including United States Trade
Representative (member of the Presidents cabinet) and Deputy United
States Trade Representative. The Board believes that
Ambassador Schwab brings extensive knowledge, insight and experience on
international trade issues to the Board. Her educational experience and
role as the U.S. Trade Representative provide important insights for the
Companys global business model and long-standing support of open trade.
In addition, her experience as a director of large, publicly-traded
multinational corporations enables her to provide meaningful input and
guidance to the Board and the Company. | |

| JIM UMPLEBY CEO of Caterpillar
Inc. | Age 59 |
| --- | --- |
| ● None | |
| Other directorships within the last five
years | Director Since January 2017 |
| ● None | |
| Caterpillar Committee | Management |
| ● None | |
| Key Qualifications and Skills: | |
| Prior to his current position,
Mr. Umpleby served as a Group President of Caterpillar Inc. 2013 to 2016)
and before that served as a Vice President of Caterpillar Inc. (2010 to
2013). The Board believes that Mr.
Umplebys extensive experience and knowledge of the Company, gained in a
wide range of Caterpillar leadership positions in engineering,
manufacturing, marketing, sales and services enables him to provide
meaningful input and guidance to the Board and the
Company. | |

| MILES D. WHITE Chairman and CEO of Abbott
Laboratories (pharmaceuticals and biotechnology) | Age 62 |
| --- | --- |
| ● Abbott Laboratories ● McDonalds Corporation | |
| Other directorships within the last five
years | Director Since 2011 |
| ● None | |
| Caterpillar Committee | Independent |
| ● Compensation, Chair | |
| Key Qualifications and Skills: | |
| The Board believes that Mr.
Whites experience as the chief executive officer of a large, complex
multinational company provides important insight to the Board. His skills
include knowledge of cross-border operations, strategy and business
development, risk assessment, finance, leadership development and
succession planning, and corporate governance matters. In addition to his
role as an executive officer, his experience as a director of other large,
publicly-traded multinational corporations enables him to provide
meaningful input and guidance to the Board and the
Company. | |

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| RAYFORD WILKINS, JR. Former Chief Executive Officer of
Diversified Businesses at AT&T (telecommunications) | Age 65 |
| --- | --- |
| ● Morgan Stanley ● Valero Energy Corporation | |
| Other directorships within the last five years | Director Since April
2017 |
| ● América Móvil, S.A.B. de C.V. | |
| Caterpillar Committee | Independent |
| ● Audit | |
| Key Qualifications and Skills: | |
| The Board believes that Mr.
Wilkins expertise and oversight experience in the information technology
area is valuable to the Board. In addition, his experience as an executive
officer and director of other large, publicly-traded corporations enables
him to provide meaningful input and guidance to the Board and the Company.
Mr. Wilkins was brought to the attention of the Board through a
professional search firm. | |

DIRECTOR COMPENSATION

Compensation for non-employee directors for 2016 was comprised of the following components:

Cash Retainer:	$150,000
Restricted Stock Units (1 year
vesting)	$125,000
Stipends:
Presiding
Director	$25,000
Audit Committee
Chairman	$20,000
Compensation
Committee Chairman	$20,000

Directors are required to own Caterpillar common stock equal to five times their annual cash retainer. Directors have a five-year period from the date of their election or appointment to meet the target ownership guidelines.

Directors may defer 50 percent or more of their annual cash retainer and stipend into an interest-bearing account or an account representing phantom shares of Caterpillar stock.

Directors that joined the Board prior to 2008 also participate in a Charitable Award Program, under which a donation of up to $500,000 will be made by the Company, in the directors name, to charitable organizations selected by the director and $500,000 to the Caterpillar Foundation. Directors derive no financial benefit from the program.

| DIRECTOR COMPENSATION FOR
2016 — DIRECTOR | FEES EARNED OR PAID IN CASH | RESTRICTED STOCK UNITS 1 | ALL
OTHER COMPENSATION 2 | TOTAL |
| --- | --- | --- | --- | --- |
| David L. Calhoun | $150,000 | $125,015 | $ | $275,015 |
| Daniel M. Dickinson | $150,000 | $125,015 | $ 32,696 | $307,711 |
| Juan Gallardo | $150,000 | $125,015 | $ 13,051 | $288,066 |
| Jesse J. Greene, Jr. | $150,000 | $125,015 | $ 2,000 | $277,015 |
| Jon M. Huntsman, Jr. | $150,000 | $125,015 | $ | $275,015 |
| Dennis A. Muilenburg | $150,000 | $125,015 | $ | $275,015 |
| William A. Osborn | $170,000 | $125,015 | $ 13,051 | $308,066 |
| Debra L. Reed | $150,000 | $125,015 | $ 2,100 | $277,115 |
| Edward B. Rust, Jr. | $175,000 | $125,015 | $ 22,833 | $322,848 |
| Susan C. Schwab | $150,000 | $125,015 | $ 15,000 | $290,015 |
| Miles D. White | $170,000 | $125,015 | $ 8,000 | $303,015 |

1 As of December 30, 2016, the number of vested and non-vested options (NQs), RSUs and Phantom Shares held by each individual serving as a non-employee director during 2016 was: Mr. Calhoun: 12,197 (which consists of 1,672 RSUs and 10,525 Phantom Shares); Mr. Dickinson: 26,101 (which consists of 1,672 RSUs and 24,429 Phantom Shares); Mr. Gallardo: 34,400 (which consists of 5,833 SARs, 1,672 RSUs and 26,895 Phantom Shares); Mr. Greene: 1,672 RSUs; Mr. Huntsman: 1,672 RSUs; Mr. Muilenburg: 1,672 RSUs; Mr. Osborn: 2,036 (which consists of 1,672

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RSUs and 364 Phantom Shares); Ms. Reed: 4,897 (which consists of 1,672 RSUs and 3,225 Phantom Shares); Mr. Rust: 34,083 (which consists of 1,672 RSUs and 32,411 Phantom Shares); Ms. Schwab: 11,091 (which consists of 1,672 RSUs and 9,419 Phantom Shares); and Mr. White: 7,802 (which consists of 1,672 RSUs and 6,130 Phantom Shares). Mr. Calhoun, Mr. Dickinson, Mr. Gallardo, Ms. Reed, Mr. Rust, Ms. Schwab and Mr. White deferred 100 percent of their 2016 retainer fee into phantom stock in the Directors Deferred Compensation Plan.

2 All Other Compensation represents amounts paid in connection with the Caterpillar Foundations Directors Charitable Award Program and the Caterpillar Political Action Committee Charitable Matching Program (CATPACs PACMATCH program) and administrative fees associated with the Directors Charitable Award Program. All outside directors are eligible to participate in the Caterpillar Foundation Matching Gift Program and eligible directors may participate in the CATPACs PACMATCH program annually. The Caterpillar Foundation will match contributions to eligible two year or four year colleges or universities, arts and cultural institutions and public policy or environmental organizations, up to a maximum of $2,000 per eligible organization per calendar year. As part of CATPACs PACMATCH program, Caterpillar Inc. will contribute to two charities on behalf of eligible members of the Board of Directors. The annual CATPACs PACMATCH contribution limit is $5,000 so the match, per person, would not exceed $5,000. The amounts listed represent the matching contributions as follows: Mr. Dickinson $2,250, Mr. Greene $2,000, Ms. Reed $2,100, Mr. Rust $13,500, Ms. Schwab $15,000 and Mr. White $8,000. For directors eligible to participate in the Directors Charitable Award Program, the amounts represented include the insurance premium and administrative fees. The premium and administrative fees are as follows: Mr. Dickinson $30,446, Mr. Gallardo $13,051, Mr. Osborn $13,051 and Mr. Rust $9,333.

BOARD ELECTION AND LEADERSHIP STRUCTURE

Directors are elected at each annual meeting to serve for a one-year term. In uncontested elections, directors are elected by a majority of the votes cast for such director. If an incumbent director does not receive a greater number of for votes than against votes, then such director must tender his or her resignation to the Board. In contested elections, directors are elected by a plurality vote. Directors must retire at the end of the calendar year in which they reach the age of 72.

On January 1, 2017, Jim Umpleby, formerly Group President with responsibility for Energy & Transportation, succeeded Douglas R. Oberhelman as Chief Executive Officer and was appointed as a member of our Board of Directors. In planning for the succession of Mr. Oberhelman, the Public Policy and Governance Committee (PPGC) and the Board carefully reviewed the Boards leadership structure and determined that it would be appropriate to separate the roles of the Chairman and Chief Executive Officer and to appoint an independent Chairman. Accordingly, on April 1, 2017 David L. Calhoun became our independent Chairman.

The Board has no fixed policy on whether or not to have a non-executive chairman. The Board believes this determination should be made based on the Companys best interests in light of the circumstances at the time and experience. The PPGC and the Board believe that this leadership structure is the most appropriate one for the Company at this time, as it allows Mr. Umpleby to focus on the day-to-day management of the business and on executing our strategic priorities, while allowing Mr. Calhoun to focus on leading the Board, providing its advice and counsel to Mr. Umpleby, and facilitating the Boards independent oversight of management.

The Board believes it is important to maintain flexibility as to the Boards leadership structure. The Board will continue to regularly review its leadership structure and exercise its discretion in recommending an appropriate and effective framework on a case-by-case basis, taking into consideration the needs of the Board and the Company at such time.

DUTIES AND RESPONSIBILITIES OF CHAIRMAN

●	Presides at all meetings of the Board.
●	Encourages and facilitates active participation of all
directors.
●	Serves as a liaison between the independent directors and
the Chief Executive Officer.
●	Approves Board meeting materials for distribution.
●	Approves Board meeting schedules and agendas.
●	Has the authority to call meetings of the directors.
●	Leads the Boards annual evaluation of the Chief Executive
Officer.
●	Monitors and coordinates with management on corporate
governance issues and developments.

CORPORATE GOVERNANCE GUIDELINES AND CODE OF CONDUCT

Our Board has adopted Guidelines on Corporate Governance Issues (Corporate Governance Guidelines), which are available on our website at www.caterpillar.com/governance. The guidelines reflect the Boards commitment to oversee the effectiveness of policy and decision-making both at the Board and management level, with a view to enhancing shareholder

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value over the long-term. Caterpillars code of conduct is called Our Values in Action. Integrity, Excellence, Teamwork, Commitment and Sustainability are the core values identified in the code and are the foundation for Caterpillars corporate existence. Our Values in Action apply to all members of the Board and to management and employees worldwide. These values embody the high ethical standards that Caterpillar has upheld since its formation in 1925. Our Values in Action is available on our website at www.caterpillar.com/code.

BOARD EVALUATION PROCESS

The Board conducts an annual self-evaluation to determine whether the Board and its committees are functioning effectively. In 2016, the Presiding Director contacted each Board member to solicit their feedback. The Public Policy & Governance Committee also developed a discussion outline that was circulated to the Board members in advance of their year-end meeting. The Presiding Director then led a discussion during the Boards private session. Each of the committees of the Board followed a similar process.

BOARD COMMITTEES

The Board has three standing committees: Audit; Compensation; and Public Policy and Governance. Each committee meets periodically throughout the year, reports its actions and recommendations to the Board, receives reports from management, annually evaluates its performance and has the authority to retain outside advisors at its discretion. The current primary responsibilities of each committee are summarized below and set forth in more detail in each committees written charter, which can be found on Caterpillars website at www.caterpillar.com/governance. All committee members are independent under Company, NYSE and SEC standards applicable to Board and committee service, and the Board has determined that each member of the Audit Committee is an audit committee financial expert as defined under SEC rules.

AUDIT COMMITTEE

Committee Members: Daniel M. Dickinson Dennis A. Muilenburg Rayford Wilkins, Jr. William A. Osborn, Chair (pictured below) Number of Meetings in 2016: 11 COMMITTEE ROLES AND RESPONSIBILITIES ● Selects and oversees the independent auditors ● Involved in selecting the independent auditors lead audit partner ● Oversees our financial reporting activities, including our financial statements, annual report and accounting standards and principles ● Discusses with management the Companys risk assessment and risk management framework ● Approves audit and non-audit services provided by the independent auditors ● Reviews the organization, scope and effectiveness of the Companys internal audit function, disclosures and internal controls ● Sets parameters for and monitors the Companys hedging and derivatives practices ● Provides oversight for the Companys ethics and compliance programs ● Monitors the Companys litigation and tax compliance ● Discusses information technology systems and related security

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COMPENSATION COMMITTEE

Committee Members: David L. Calhoun Jesse J. Greene, Jr. Debra L. Reed Miles D. White, Chair (pictured below) Number of Meetings in 2016: 7 COMMITTEE ROLES AND RESPONSIBILITIES ● Recommends the CEOs compensation to the Board and establishes the compensation of other executive officers ● Establishes, oversees and administers the Companys equity compensation and employee benefit plans ● Reviews incentive compensation arrangements to ensure that incentive pay does not encourage unnecessary risk-taking and reviews and discusses the relationship between risk management policies and practices, corporate strategy and executive compensation ● Recommends to the Board the compensation of directors ● Provides oversight of the Companys diversity and immigration practices and employee relations ● Furnishes an annual Compensation Committee Report on executive compensation and approves the Compensation Discussion and Analysis section in the Companys proxy statement

PUBLIC POLICY AND GOVERNANCE COMMITTEE

Committee Members: Juan Gallardo Jon M. Huntsman, Jr. Edward B. Rust, Jr., Chair (pictured below) Susan C. Schwab Number of Meetings in 2016: 5 COMMITTEE ROLES AND RESPONSIBILITIES ● Makes recommendations to the Board regarding the size and composition of the Board and its committees, and the criteria to be used for the selection of candidates to serve on the Board ● Discusses and evaluates the qualifications of potential and incumbent directors and recommends the slate of director candidates to be nominated for election at the Annual Meeting ● Leads the Board in its annual self-evaluation process ● Oversees the Companys officer succession planning ● Oversees the Companys environmental, health and safety activities and sustainability ● Oversees the corporate governance structure ● Oversees matters of domestic and international public policy affecting the Companys business, such as trade policy and international trade negotiations and major global legislative and regulatory developments ● Annually reviews the Companys charitable and political contributions and policies ● Oversees investor and community relations

BOARDS ROLE IN RISK OVERSIGHT

The Board has oversight for risk management with a focus on the most significant risks facing the Company, including strategic, operational, financial and legal compliance risks. The Boards risk oversight process builds upon managements risk assessment and mitigation processes, which include an enterprise risk management program, regular internal management disclosure and compliance committee meetings, code of business conduct, quality standards and processes, an ethics and compliance office and comprehensive internal audit processes. The Boards risk oversight role also includes the selection and oversight of the independent auditors. The Board implements its risk oversight function both as a full Board and through delegation to Board committees, which meet regularly and report back to the full Board. The Board has delegated the oversight of specific risks to Board committees that align with their functional responsibilities.

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DIRECTOR NOMINATIONS AND EVALUATIONS

PROCESS FOR NOMINATING AND EVALUATING DIRECTORS

The Public Policy and Governance Committee (PPGC) solicits and receives recommendations for potential director candidates from shareholders, management, directors and other sources. In its assessment of each potential candidate, the PPGC considers each candidates integrity, honesty, judgment, independence, accountability, willingness to express independent thought, understanding of the Companys business and other factors that the PPGC determines are pertinent in light of the current needs of the Board. Candidates must have successful leadership experience and stature in their primary fields, with a background that demonstrates an understanding of business affairs as well as the complexities of a large, publicly-held company. In addition, candidates must have a demonstrated ability to think strategically and make decisions with a forward-looking focus and the ability to assimilate relevant information on a broad range of complex topics. Moreover, candidates must have the ability to devote the time necessary to meet a directors responsibilities and serve on no more than four public company boards in addition to the Companys Board.

DIRECTOR RECRUITMENT PROCESS

| Candidate Recommendations — from Shareholders, Management,
Directors & Other Sources | ● | PPGC — Discusses Reviews Qualifications &
expertise Board needs Regulatory requirements Cognitive
diversity Interviews Recommends
Nominees | ● | Board of
Directors — Discusses
PPGC Recommendations Analyzes Independence Selects Nominees | ● | Shareholders — Vote on Nominees at Annual Meeting |
| --- | --- | --- | --- | --- | --- | --- |

The following table summarizes certain key characteristics of the Companys businesses and the associated qualifications, skills and experience that the PPGC believes should be represented on the Board.

| BUSINESS
CHARACTERISTICS | QUALIFICATIONS, SKILLS AND
EXPERIENCE |
| --- | --- |
| ● The Company is a global manufacturer with products sold
around the world. | ● Manufacturing or logistics experience ● Broad international exposure |
| ● Technology and customer and product support services are
becoming increasingly important. | ● Technology experience ● Customer and product support
experience |
| ● The Companys businesses undertake numerous transactions
in many countries and in many currencies. | ● Diversity of race, ethnicity, gender, cultural
background or professional experience ● High level of financial literacy ● Mergers and acquisitions experience |
| ● Demand for many of the Companys products is tied to
conditions in the global commodity, energy, construction and
transportation markets. | ● Experience in the evaluation of global economic
conditions ● Knowledge of commodity, energy, construction or
transportation markets |
| ● The Companys businesses are impacted by regulatory
requirements and policies of various governmental entities around the
world. | ● Governmental and international trade
expertise |
| ● The Boards responsibilities include understanding and
overseeing the various risks facing the Company and ensuring that
appropriate policies and procedures are in place to effectively manage
risk. | ● Risk oversight/management expertise ● Relevant executive experience ● Cybersecurity
experience |

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The Board values diversity of talents, skills, abilities and experiences and believes that Board diversity of all types provides significant benefits to the Company. Although the Board has no specific diversity policy, the PPGC considers the diversity of the Board and potential director candidates in selecting new director candidates.

NOMINATIONS FROM SHAREHOLDERS

The PPGC considers unsolicited inquiries and director nominees recommended by shareholders in the same manner as nominees from all other sources. Recommendations should be sent to the Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629. Shareholders may nominate a director candidate to serve on the Board by following the procedures described in our bylaws. Deadlines for shareholder nominations for Caterpillars 2018 annual meeting of shareholders are included in the Shareholder Proposals and Director Nominations for the 2018 Annual Meeting section on page 73.

DIRECTOR INDEPENDENCE DETERMINATIONS

The Companys Corporate Governance Guidelines establish that no more than two non-independent directors may serve on the Board at any point in time. A director is independent if he or she has no direct or indirect material relationship with the Company or with senior management of the Company and their respective affiliates. Annually, the Board makes an affirmative determination regarding the independence of each director based upon the recommendation of the PPGC and in accordance with the standards in the Companys Corporate Governance Guidelines, which are available on our website at www.caterpillar.com/governance.

Applying these standards, the Board determined that each of the directors met the independence standards except Jim Umpleby, who is a current employee of the Company.

COMMUNICATION WITH THE BOARD

Shareholders, employees and all other interested parties may communicate with any of our directors, our Board as a group, our independent directors as a group or any Board committee as a group by email or regular mail:

BY EMAIL send an email to [email protected] BY MAIL mail to Caterpillar Inc. c/o Corporate Secretary 100 NE Adams Street Peoria, Illinois 61629

All communications regarding personal grievances, administrative matters, the conduct of the Companys ordinary business operations, billing issues, product or service related inquiries, order requests and similar issues will be directed to the appropriate individual within the Company. The Chairman has instructed the Corporate Secretary to consult with him if he is unsure who should receive the communication. If a legitimate communication is sent, you will receive a written acknowledgement from the Corporate Secretarys office confirming receipt of your communication.

Contacting Caterpillar. While the Board oversees management, it does not participate in day-to-day management functions or business operations. If you wish to submit questions or comments relating to these matters, please use the Contact Us form on our website at www.caterpillar.com/contact, which will help direct your message to the appropriate area of our Company.

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INVESTOR OUTREACH

We conduct an annual governance review and shareholder outreach throughout the year to ensure that management and the Board understand and consider the issues that matter most to our shareholders and reflect the insights and perspectives of our many stakeholders.

| WHO PARTICIPATES IN THE
INVESTOR OUTREACH PROGRAM? | IN WHAT TYPES OF
ENGAGEMENT DOES THE COMPANY PARTICIPATE? |
| --- | --- |
| ● Board of
Directors ● Senior
Management ● Investor
Relations ● Corporate
Secretary | ● Investor
conferences ● One-on-one
meetings ● Earnings
calls ● Investor and analyst
calls |

AWARDS AND RECOGNITIONS

Third parties regularly recognize our employees innovation, leadership and workplace satisfaction. We are pleased to highlight some of these 2016 awards here.

| SOCIAL RESPONSIBILITY AND
SUSTAINABILITY | CORPORATE REPUTATION AND
LEADERSHIP |
| --- | --- |
| ● Dow Jones
Sustainability Index World and North America ● United Way
Worldwides Global Corporate Leadership Program ● Golden Peacock Award
for Sustainability (India) ● AmCham Cares Award
American Chamber of Commerce in Singapore (Singapore) ● Top 10 Companies for
Contribution of Fortune Global 500 (China) ● 2016 China
Philanthropic Enterprise of the Year (China) ● 2016 China CSR Award
(China) ● 2016 Best Partner
Award of Foreign-Invested Enterprises (China) ● China Baosteel
Environmental Award China Environmental Protection Foundation
(China) ● Poverty Alleviation
Ambassador Award China Foundation for Poverty Alleviation
(China) | ● Worlds Most Admired
Companies Fortune Magazine ● ANNY Excellence in
Analytics Award International Institute for
Analytics ● Best Global Brands
Top 100 Interbrand ● Top 50 Best
Companies To Interview For Glassdoor ● Top 10 Employer
Woman Engineer Magazine ● Top 150 Global
Licensors Global License ● Top 25 Noteworthy
Companies DiversityInc ● Top 50 Employer
CAREERS & the disABLED Magazine ● Dedicated to STEM
Diversity Diversity in Action ● Leading Disability
Employer National Organization on Disability ● U.S. Military
Friendly ® Employer ● Best Industry to
Work For in Brazil Você S/A Magazine (Brazil) ● Top 5 Best Companies
to Work For in Brazil Época Magazine (Brazil) ● Top 10 Best
Companies to Work For in Brazil (Perkins - Brazil) ● The UKs Most
Popular Graduate Recruiters 2016/17 (United Kingdom) ● Top 100
Undergraduate Employers (United Kingdom) ● Family Friendly
Employer (Mexico) ● #2 Great Place to
Work (Panama) ● #3 Great Place to
Work (Central
America) |

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SUSTAINABILITY

Caterpillar has set aspirational goals for its operations and product stewardship. We believe these standards affirm our determination to lead our industry to a more sustainable future. You can track our progress towards achieving these goals by visiting our website www.caterpillar.com/sustainability.

POLITICAL CONTRIBUTIONS AND LOBBYING

The actions that governments take can impact the Company, our employees, customers, and shareholders. It is important for government leaders to understand the impact of such actions. For this reason, the Company participates in the political process and advocates in a responsible and constructive manner on issues that advance the Companys goals and protect shareholder value.

To promote transparency and good corporate citizenship, the Company provides voluntary disclosure relating to the political contribution activities of the Company and its political action committee, its engagement in public policy issues and global issues of importance to the Company, including detailed information on the Companys position with respect to such issues. This information is disclosed on our website

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www.caterpillar.com/contributions and includes an itemized list of organizations and individuals that received political contributions from Caterpillar or the Caterpillar Political Action Committee. It also includes a summary of some of the public policy issues important to the Company that may cause us to engage in public advocacy.

Caterpillars political and advocacy activities, at both the state and federal levels, are managed by the Vice President, Global Government & Corporate Affairs who coordinates and reviews with senior management the legislative and regulatory priorities that are significant to the Companys business and shareholders, as well as related advocacy activities. To ensure appropriate Board oversight of political activities, the Boards Public Policy and Governance Committee receives regular briefings on the Companys legislative and regulatory priorities, the Companys political spending and trade association expenditures as well as the activities of Caterpillars Political Action Committee.

RELATED PARTY TRANSACTIONS

Caterpillar has a written process governing the approval of transactions with the Company that are expected to exceed $120,000 in any calendar year in which any director, executive officer or their immediate family members will have a material interest. Under the process, all such transactions must be approved in advance by the PPGC.

Prior to entering into such a transaction, the director or officer must submit the details of the proposed transaction to the Companys Chief Legal Officer, including whether the related person or his or her immediate family member has or will have a direct or indirect interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of an entity involved in the transaction). The Chief Legal Officer will then submit the matter to the PPGC for its consideration.

The Board concluded that each director, other than Mr. Umpleby, is independent. In reaching this determination the Board considered, with respect to Ms. Reed, ordinary course business between Sempra Energy and Caterpillar involving the purchase or sale of equipment, engines and energy.

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PROPOSAL 2 RATIFICATION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PROPOSAL SNAPSHOT
● What am I voting on?
The Board seeks an indication
from shareholders of their approval or disapproval of the Audit
Committees appointment of PricewaterhouseCoopers as the Companys
independent auditor for 2017.
●	Voting
Recommendation: FOR the
ratification of our independent registered public accounting
firm.

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Companys independent auditor. PricewaterhouseCoopers has been our independent auditor since 1925. The Audit Committee believes that the retention of PricewaterhouseCoopers to serve as the Companys independent auditor is in the best interests of the Company and its shareholders. If the appointment of PricewaterhouseCoopers is not approved by the shareholders, the Audit Committee will consider whether it is appropriate to select another independent auditor.

Representatives of PricewaterhouseCoopers will be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. The representatives will also be available to respond to questions at the meeting.

AUDIT FEES AND APPROVAL PROCESS

The Audit Committee pre-approves all audit and non-audit services to be performed by the independent auditors in compliance with the Sarbanes-Oxley Act and the SEC rules regarding auditor independence. The policies and procedures are detailed as to the particular service and do not delegate the Audit Committees responsibility to management. The policies and procedures address any service provided by the independent auditors and any audit or audit-related services to be provided by any other audit service provider. The pre-approval process includes an annual and interim component.

Annually, not later than February of each year, management and the independent auditors jointly submit a service matrix of the types of audit and non-audit services that management may wish to have the independent auditor perform for the year. The service matrix categorizes the types of services by audit, audit-related, tax and all other services. Management and the independent auditors jointly submit an annual pre-approval limits request. The request lists aggregate pre-approval limits by service category. The request also lists known or anticipated services and associated fees. The Audit Committee approves or rejects the pre-approval limits and each of the listed services on the service matrix.

During the course of the year, the Audit Committee chairman has the authority to pre-approve requests for services that were not approved in the annual pre-approval process. However, all services, regardless of fee amounts, are subject to restrictions on the services allowable under the Sarbanes-Oxley Act and SEC rules regarding auditor independence. In addition, all fees are subject to ongoing monitoring by the Audit Committee.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEE INFORMATION

Fees for professional services provided by our independent auditor included the following (in millions):

	2016	2015
Audit Fees 1	$ 33.3	$ 32.0
Audit-Related Fees 2	1.2	1.3
Tax Compliance Fees 3	0.4	0.4
Tax Planning And Consulting Fees 4	0.1	0.2
All Other Fees 5	0.1	19.8
TOTAL	$ 35.1	$ 53.7

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1 Audit Fees principally includes audit and review of financial statements (including internal control over financial reporting), statutory and subsidiary audits, SEC registration statements, comfort letters and consents. 2 Audit-Related Fees principally includes attestation services requested by management, accounting consultations, pre- or post- implementation reviews of processes or systems and audits of employee benefit plan financial statements. Total fees paid directly by the benefit plans, and not by the Company, were $0.6 million in 2016 and $1.0 million in 2015 and are not included in the amounts shown above. 3 Tax Compliance Fees includes, among other things, statutory tax return preparation and review and advice on the impact of changes in local tax laws. 4 Tax Planning and Consulting Fees includes, among other things, tax planning and advice and assistance with respect to transfer pricing issues. 5 All Other Fees consist principally of strategy consulting services provided by Booz & Company, which was acquired by PricewaterhouseCoopers in 2014 and renamed Strategy&. The Company stopped engaging Strategy& in 2015.

ANONYMOUS REPORTING OF ACCOUNTING CONCERNS

The Audit Committee has established a means for the anonymous reporting (where permitted by law) of (i) suspected or actual violations of the code of conduct, our enterprise policies or applicable laws, including those related to accounting practices, internal controls or auditing matters and procedures; (ii) theft or fraud of any amount; (iii) insider trading; (iv) performance and execution of contracts; (v) conflicts of interest; (vi) violations of securities and antitrust laws; and (vii) violations of the Foreign Corrupt Practices Act.

Any employee, supplier, customer, shareholder or other interested party can submit a report via the following methods:

● Direct Telephone: 309-494-4393 (English only)

● Call Collect Helpline: 770-582-5275 (language translation available)

● Confidential Fax: 309-494-4818

● Email: [email protected]

● Internet: www.caterpillar.com/obp

AUDIT COMMITTEE REPORT

The Audit Committee is composed of four directors, all of whom meet the independence standards contained in the NYSE Listed Company rules, SEC rules and Caterpillars Guidelines on Corporate Governance Issues, and operates under a written charter adopted by the Board of Directors.

Management is responsible for the Companys internal controls and the financial reporting process. PricewaterhouseCoopers, acting as independent auditor, is responsible for performing an independent audit of the Companys consolidated financial statements and internal control over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board (PCAOB).

The Audit Committee has discussed with the Companys independent auditor the overall scope and execution of the independent audit and has reviewed and discussed the audited financial statements with management. The Audit Committee also discussed with the independent auditors other matters required by PCAOB auditing standards.

The independent auditors provided to the Audit Committee the written communications required by applicable standards of the PCAOB regarding the independent accountants communications with the Audit Committee concerning independence, and the Audit Committee discussed the independent auditors independence with management and the auditors. The Audit Committee also considered whether the provision of other non-audit services by the Companys independent auditors to the Company is compatible with maintaining independence.

The Audit Committee concluded that the independent auditors independence had not been impaired.

Based on the reviews and discussion referred to above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2016.

By the members of the Audit Committee as of April 1, 2017 consisting of:

●	●	●
Daniel M. Dickinson	William A. Osborn	Dennis A. Muilenburg
	(Chairman)

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PROPOSAL 3 ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

PROPOSAL SNAPSHOT
● What am I voting on?
Shareholders are being asked to
approve, on an advisory basis, the compensation of named executive
officers as disclosed in this proxy statement.
●	Voting
Recommendation: FOR proposal

On an annual basis, and in compliance with Section 14A of the Securities Exchange Act of 1934, shareholders are being asked to vote on the following advisory resolution:

RESOLVED, that the compensation of Caterpillars named executive officers as described under Compensation Discussion and Analysis, the compensation tables and the narrative discussion associated with the compensation tables in Caterpillars proxy statement for its 2017 Annual Meeting of Shareholders is hereby APPROVED.

This vote is advisory and therefore not binding on Caterpillar, the Compensation Committee (Committee) or the Board. The Board and the Committee value the opinion of Caterpillars shareholders, and to the extent there is any significant vote against Caterpillars named executive officer compensation, the Board will consider the reasons for such a vote, and the Committee will evaluate whether any actions are necessary to address those concerns.

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COMPENSATION DISCUSSION & ANALYSIS

EXECUTIVE SUMMARY

| I. | Governance and Pay for
Performance Philosophy |
| --- | --- |
| II. | Compensation Program
Structure |
| III. | Business Performance and
Results |
| IV. | Pay Outcomes Demonstrate
Alignment with Company Performance |

I. GOVERNANCE AND PAY FOR PERFORMANCE PHILOSOPHY

The Compensation and Human Resources Committee (the Committee) believes the executive compensation program at Caterpillar should be structured to align the interests of executives and shareholders. The program should seek to reward value creation at all stages of our business cycle, and provide an increasing percentage of performance-based compensation at higher levels of executive responsibility.

Beginning in 2015, we significantly expanded our ongoing shareholder outreach program. The feedback received through this engagement led us to make changes to our executive compensation program for our senior leadership team including the following:

Annual Incentive	Long-Term Incentive
● The maximum payout
opportunity of awards in the Annual Incentive Plan (AIP) for Named
Executive Officers (NEOs) decreased from 200 percent of target to 150
percent of target. ● In years
when the Companys forecasted operating profit is below prior years
actual results:
(i) NEO annual incentive opportunity is reduced, and (ii) AIP payouts are
capped at target.	● The proportion of Performance-Based Restricted Stock Units
(PRSUs) increased from 1/3 to 1/2 of the total long-term target incentive
value. ● The
sizing of long-term incentive grant values is based on relative 1, 3 and
5-year Total Shareholder Return (TSR) as compared to the S&P
Industrials, Compensation Peer Group and Competitor Peer Group that the
Committee has determined compete directly with the
Company.

| These changes were well
received by our shareholders, and support for our advisory vote on our
executive compensation at our 2016 Annual Meeting, commonly referred to as
the say on pay vote, was approximately 93%, up from 65% support in the
prior year. After considering the 2016 say on pay results, the Committee
determined that the Companys executive compensation philosophy,
compensation objectives and compensation elements continued to be
appropriate and did not make any specific changes to the Companys
executive compensation program in response to the 2016 say on pay
vote. — 93% | 65% | 96% |
| --- | --- | --- |
| 2016 | 2015 | 2014 |

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In 2016, we continued our shareholder outreach effort, reaching out to the holders of approximately half of our outstanding shares, to discuss various matters including governance, executive compensation, sustainability and operational performance. In these meetings, our shareholders generally expressed a continued positive view with respect to our executive compensation program.

The Committee engages in an ongoing review of the Companys executive compensation program to evaluate whether the program supports the Companys compensation philosophy and objectives, and is closely aligned with the Companys business objectives. In connection with this ongoing review, and based on feedback received through our shareholder outreach program, the Committee continues to implement and maintain what it believes are best practices for executive compensation, each of which reinforces the Companys compensation philosophy. Below is a summary of those practices.

Robust stock ownership and retention guidelines (6x base salary for our CEO and 3x base salary for each of the other NEOs) Robust benchmarking process Rigorous Committee oversight of incentive metrics, goals and pay/performance relationship Clawback Policy Limited executive perquisites Strict anti-hedging and anti-pledging policies Independent compensation consultant No individual change-in-control agreements No tax gross-ups on change-in-control benefits No backdating, re-pricing or granting of option awards retroactively

II. COMPENSATION PROGRAM STRUCTURE

We are committed to developing and implementing an executive compensation program that directly aligns the interests of the NEOs with the long-term interests of shareholders. To that end, the objectives of the Companys executive compensation program are to attract and retain talented executive officers and to incent NEOs to improve Company performance and provide strategic leadership over the long term. The majority of targeted annual compensation for our NEOs is equity-based, vests over multiple years and is tied directly to long-term value creation for shareholders. NEO compensation is comprised of three primary components:

		Long-Term Incentive
	Annual Incentive
Base
Salary
Competitive pay to attract and
retain talented executives	An opportunity to earn an annual
cash award based on the Companys financial performance and high-priority
business initiatives	A mix of PRSUs and stock options to
align management with long-term shareholder interests

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Approximately 91 percent of our CEOs 2016 targeted annual total compensation was variable and/or at-risk compensation, including 50 percent of long-term incentives in the form of PRSUs.

CEO Compensation Elements

| 9 % | 91 % of total compensation is variable and
at-risk — 16 % | 37.5 % | 37.5 % |
| --- | --- | --- | --- |
| Salary | AIP | Options | PRSUs |
| | | | 50% of long-term incentives have
performance-based vesting
conditions |

III. BUSINESS PERFORMANCE AND RESULTS

Our key financial and business results for 2016 included the following :

Cost Structure
●	● In 2016, Machinery, Energy &
Transportation (ME&T) period costs and variable manufacturing costs
were $2.3 billion less than 2015.
Strong Balance Sheet and Cash
Flow
●	● In 2016, ME&T operating cash
flow was $3.9 billion and we maintained positive cash flow after capital
expenditures (CAPEX) and dividends. ● Enterprise cash on hand at the
end of the year was $7.2 billion. ● ME&T debt-to-capital ratio
was 41 percent, within the targeted range of 30 to 45 percent.

| Sales and Revenues | 2016 Sales and Revenues By
Segment |
| --- | --- |
| ($ in millions) | |
| ● | ● |

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IV. PAY OUTCOMES DEMONSTRATE ALIGNMENT WITH COMPANY PERFORMANCE

In addition to the financial highlights noted above, the Companys stock price increased 36.5% in 2016 and TSR for 2016 was 42%. Notwithstanding this increase in shareholder value and the accomplishments noted above, it was a challenging year for our business due to, among other things, continued weak global commodity prices and economic weakness in many countries. The challenges in our business were reflected in the resulting pay decisions made for our CEO and the other NEOs, consistent with the Committees pay-for-performance philosophy. Compensation outcomes for 2016 included the following items which adversely affected the compensation of our NEOs:

| ● | ● No adjustments were made to NEO base salaries in
2016 |
| --- | --- |
| ● | ● Because 2016 planned operating profit was below 2015 actual
operating profit, the Committee determined that 2016 was a down year for
purposes of 2016 AIP design. ● Each NEOs annual incentive opportunity was reduced by 20.9 percent
in 2016, to reflect the same proportionate reduction in planned 2016
operating profit versus 2015 actual operating profit
results. ● Payouts for 2016 AIP were capped at the target level with no
upside opportunity. ● Actual annual incentive awards for 2016 paid out, on average, at
less than 30% of target. |
| ● | ● Based on the Committees review of the Companys 1, 3 and 5-year
relative TSR in early 2016, the 2016 equity grants to the NEOs were sized
at approximately the 25 th percentile of the compensation peer
group. ● The long-term cash incentive award for the 2014-2016 cycle paid out
at approximately 56% of target. ● None of the PRSUs granted for the 2015-2017 performance period
vested in 2016 and, based on aggregate performance in 2015 and 2016, are
trending significantly below target. |

In 2016, our CEOs compensation was substantially below target level in the aggregate as well as for each component of compensation other than base salary. This reduction reflects the very weak market conditions that the Company faced in 2016 and not an operating shortfall in the judgement of the Committee.

CEO Compensation

** Target Value Includes: Salary of $1,600,008, annual incentive of $2,800,000; and LTI grant of $9,273,300. Total Target value: $13,673,308. *** Actual Value Includes: Salary of $1,600,008, annual incentive of $518,000; and LTI grant of $8,268,000. Total Actual value: $10,386,008.

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COMPENSATION DISCUSSION & ANALYSIS

2016 NAMED EXECUTIVE OFFICERS

| Douglas R.
Oberhelman Chairman and Chief Executive Officer
(CEO) | Douglas R. Oberhelman retired from
the role of CEO on December 31, 2016 and remained the Executive Chairman
until his retirement from the Company on March 31, 2017. In 2016, Mr.
Oberhelman improved the operational execution of the Company by continuing
to focus on: ● Cost Management: ME&T period costs and variable
manufacturing costs were $2.3 billion lower than 2015 ● Employee Safety: sixth consecutive year of improving
employee safety ● Product Quality: improved product quality and
reliability metrics for machines ● Market Position: machine market share saw gains over the
previous 2 years |
| --- | --- |
| Bradley M.
Halverson Group President,
Corporate Services and Chief Financial Officer (CFO) | Bradley M. Halverson is Group
President and Chief Financial Officer with responsibilities for Corporate
Services and Financial Products Division. In 2016, Mr.
Halverson: ● Maintained a strong financial position for the Company
through the continuing cyclical decline in key end markets ● Provided strategic leadership in connection with the
Companys cost reduction actions ● Delivered Return On Equity in line with plan for the
Companys captive finance company, Caterpillar Financial
Services ● Managed credit metrics within long-term ranges despite
weak end markets |
| Robert B.
Charter Group President, Customer
& Dealer Support | Robert B. Charter is Group
President with responsibility for Customer & Dealer Support. In 2016
Mr. Charter: ● Led Caterpillars growing aftermarket business in
partnership with the various business units and dealers ● Maintained aftermarket performance despite challenging
end markets such as oil and gas and mining ● Improved inventory management including deploying
systems utilized across the Global Caterpillar Dealer
network |
| Jim Umpleby Group President, Energy &
Transportation | Jim Umpleby became CEO on January
1, 2017. Prior to his role as CEO, Mr. Umpleby was Group President with
responsibility for Energy & Transportation. In a challenging year with
declining sales in key end markets, Energy & Transportation delivered
the following results: ● Achieved strong profit pull through and cash flow due to
aggressive cost management ● Made key acquisitions in 2016 in both Oil & Gas and
Rail businesses focusing on digital technologies and customer
connectivity ● Improved quality and safety in 2016 |
| David P.
Bozeman Senior Vice
President, Caterpillar Enterprise System Group | David P. Bozeman served as Senior
Vice President of the Caterpillar Enterprise System Group until his
departure on December 31, 2016. Under Mr. Bozemans leadership,
Caterpillar strengthened critical order-to-delivery processes while
empowering enterprise support groups to improve the Companys worldwide
manufacturing and supply chain capabilities. During his tenure, the
Company: ● Executed the global deployment of Lean
Transformation ● Established the Engineered Value Chain
methodology ● Reinforced foundation capabilities of Product Source
Planning, Sales & Operations Planning, Global Supply Network, Capacity
Planning and New Production Introduction |

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THE COMPENSATION PROCESS

THE COMPENSATION COMMITTEE

The Committee is responsible for the executive compensation program design and decision-making process for NEO compensation. The Committee regularly reviews the Companys executive compensation practices, including the methodologies for setting NEO total compensation, the goals of the program and the underlying compensation philosophy. The Committee also considers the recommendations and market data provided by its independent compensation consultant and makes decisions, as it deems appropriate, on executive compensation based on its assessment of performance and achievement of Company goals. The Committee also exercises its judgment as to what is in the best interests of the Company and its shareholders. The responsibilities of the Committee are described more fully in its charter, which is available at www.caterpillar.com/governance.

COMPENSATION CONSIDERATIONS

The Committee, with the support of management and the independent compensation consultant, considers many aspects of the Companys financial and operational performance when making executive compensation decisions.

In setting compensation levels for 2016, the Committee considered many factors including, but not limited to:

● Long-term shareholder value creation ● The cyclical nature of the business ● Performance relative to financial guidance provided throughout the year ● Enterprise and Business Unit operational performance ● Performance relative to peers and competitors ● Historic absolute and relative performance ● Key areas management can influence over the short and long term ● Retention of management talent ● Skills, experience and tenure of executive incumbents

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INDEPENDENT COMPENSATION CONSULTANT

The Committee retained Meridian Compensation Partners, LLC as its independent compensation consultant. Meridian provides executive and director compensation consulting services to the Committee, including advice regarding the design and implementation of compensation programs, market information, regulatory updates and analyses and trends on executive compensation and benefits. Interactions between Meridian and management are generally limited to discussions on behalf of the Committee or as required to compile information at the Committees direction. During 2016, Meridian did not provide any other services to the Company. Based on these factors, its own evaluation of Meridians independence pursuant to the requirements approved and adopted by the SEC and NYSE, and information provided by Meridian, the Committee has determined that the work performed by Meridian does not raise any conflicts of interest.

BENCHMARKING COMPENSATION TO PEERS

2016 Compensation Peer Group The Committee regularly assesses the market competitiveness of the Companys executive compensation programs based on peer group data. The 2016 Compensation Peer Group was established based on the following criteria:

| ● | Total revenue and market
capitalization of the peer companies relative to
Caterpillar; |
| --- | --- |
| ● | Competitors and industry
segment; |
| ● | Global presence with a significant
portion of revenue coming from non-U.S.
operations; |
| ● | Geographic
footprint |

| 2016 COMPENSATION PEER
GROUP* — 3M Company | E.I. du Pont de Nemours
and Company | Honeywell International
Inc. |
| --- | --- | --- |
| Archer-Daniels-Midland
Company | Emerson Electric
Co. | Intel
Corporation |
| Alcoa Inc. | FedEx
Corporation | Johnson Controls,
Inc. |
| The Boeing
Company | Fluor
Corporation | Paccar Inc. |
| Cisco Systems,
Inc. | Ford Motor
Company | Procter & Gamble
Company |
| Coca-Cola
Company | General Dynamics
Corporation | Raytheon
Company |
| Cummins Inc. | General Electric
Company | United Technologies
Corporation |
| Deere &
Company | Halliburton
Company | |

** The 2016 peer group was modified from 2015 to add Paccar Inc. and remove Parker-Hannifin Corporation and Illinois Tool Works, Inc.*

Benchmarking Methodology To account for differences in the size of the compensation peer group companies, market data is statistically adjusted, using a regression analysis, by the Committees independent compensation consultant allowing for a comparison of the compensation levels to similarly-sized companies. Each element of our NEOs compensation is then targeted to the median of the peer group. To the extent an NEOs total actual compensation exceeds the peer group median, it is due to outstanding performance, critical skills, experience and tenure. If an NEOs compensation is below the median, it is generally due to underperformance against relevant metrics or reflective of an individual who is newer in his or her role.

2016 Competitor Peer Group For 2016, the Committee also assessed the market competitiveness of the Companys executive compensation programs against a group of competitors that it deems to compete directly with the Company. The Committee noted that although the Companys peer group described above is an appropriate benchmark for executive compensation at other similarly sized companies, the peer group data does not always provide useful comparisons to other companies that might be experiencing similar business conditions. To that end, and consistent with its pay-for-performance philosophy, the Committee further sought to compare the Companys business performance with that of its competitors by establishing a Competitor Peer Group.

The Committee formed the 2016 Competitor Peer Group (along with the 2016 Compensation Peer Group) to assess relative performance when sizing long-term incentive awards. The 2016 Competitor Peer Group was established based on the following criteria:

| ● | Compete in the same markets as the
Company; |
| --- | --- |
| ● | Offer similar products and services
as the Company; or |
| ● | Serve the same, or similar,
industries and end-users as the Company |

2016 COMPETITOR PEER GROUP
Cummins Inc.
Deere &
Company
Hitachi Construction
Machinery Co., Ltd.
Joy Global
Inc.
Komatsu Ltd.
Sany Heavy Equipment
International Holdings Company Limited
Volvo AB

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ROLE OF EXECUTIVE OFFICERS IN DETERMINING EXECUTIVE COMPENSATION

The Board, excluding the CEO, all of whom are independent directors, annually conducts the CEOs performance evaluation. Prior to the Boards evaluation of the CEOs performance and its approval of CEO compensation, the Committee makes a preliminary compensation recommendation to the Board based on the Committees initial evaluation and performance review of the CEO. Additionally, for each NEO, the CEO presents a performance evaluation and makes compensation recommendations to the Committee.

On December 31, 2016, Mr. Oberhelman retired from the role of CEO and remained the Executive Chairman until his retirement on March 31, 2017. Mr. Umpleby was promoted to the position of CEO effective January 1, 2017. In early 2017, NEO performance was reviewed and discussed by the Compensation Committee with Mr. Umpleby. These performance evaluations factored into the compensation decisions made by the Committee and, in the case of Messrs. Oberhelman and Umpleby, by the independent members of the Board.

EXECUTIVE COMPENSATION AND RISK MANAGEMENT

Each year, the Committee assesses the Companys risk profile relative to the executive compensation program and confirms that the Companys compensation programs and policies do not create or encourage excessive risks that are reasonably likely to have a material adverse impact on the Company. Also, the Committee has concluded that the total compensation structure for senior leadership does not inappropriately emphasize short-term stock price performance at the expense of longer-term value creation. In particular, long-term incentive awards, as a significant portion of total compensation, and stock ownership guidelines which NEOs are required to maintain pre- and post-retirement (6x base salary for our CEO and 3x base salary for each of the other NEOs), are structured to align managements compensation with principles of risk management by maintaining a focus on the long term performance of the Company.

COMPONENTS OF EXECUTIVE COMPENSATION

NEOs receive a mix of fixed and variable compensation with a focus on long-term and performance-based components.

CEO

9 %	16 %	75 %
Salary	Annual
Incentive*	Long-term
Incentive*

Average of Other NEOs

13 %	15 %	72 %
Salary	Annual
Incentive*	Long-term
Incentive*

** At target*

BASE SALARY

Base salary is the only fixed component of NEO compensation. The Committee targets the base salary midpoint at the size-adjusted median level of the peer group. Each NEOs base salary is determined by the individuals level of responsibility and historic performance with reference to the market median. Annual increases, if any, are based on achievement of individual and Company objectives, contributions to Caterpillars performance and culture, leadership accomplishments and a comparison to those in comparable positions at peer companies.

Mr. Oberhelmans base salary had not increased since 2012 and remained in line with the median base salary of CEOs in the Companys 2016 compensation peer group. Additionally, there were no changes to salary levels for any of the NEOs in 2016. Upon his promotion to the position of CEO, Mr. Umplebys 2017 salary was set at $1.2 million which

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is below the peer group median. In setting Mr. Umplebys base salary, the Board took into consideration several factors including market data of other recently appointed CEOs relative to peer group medians. Other NEOs base salaries are at or below the peer group median primarily due to the relatively recent promotions of some of these individuals to their current roles.

ANNUAL INCENTIVE

2016 ANNUAL INCENTIVE PLAN DESIGN

The Companys AIP is designed to provide each NEO with an annual cash payout based on the short-term performance of the Company and each NEOs respective businesses. The AIP places the majority of each NEOs target annual cash compensation at risk and aligns the interests of executives and shareholders.

The 2016 AIP design provided that an incentive pool would be funded based on the Companys profit after taxes, with actual payouts based on achieving financial and operational performance measures that were established by the Committee in February 2016. Also, beginning in 2016, the Committee modified the AIP design to more closely align pay outcomes with business performance by comparing the Companys annual forecasted operating profit to the prior years actual operating profit. Based on this comparison, the Committee annually determines whether the current year will be an up year or down year versus the prior years actual operating profit results.

| Up Year If the operating profit forecast is above the prior
years actual operating profit results | Threshold performance level will be set at no less than 87 percent of the operating
profit target. | Business Plan | ● | The payout for achievement of the
maximum performance level will be capped
at 150 percent of the target award
opportunity, down from 200 percent in prior years. |
| --- | --- | --- | --- | --- |
| | | | ● | Achievement of the target level
operating profit performance goal will result in a payout of 100 percent of the target award opportunity. |
| | | | ● | Performance at threshold will
result in a payout of 50
percent of the target award opportunity
for the year. Performance below threshold will
result in no annual incentive
payout under the program with respect
to this measure. |
| Down Year If the operating profit forecast
is below the prior years actual operating profit results, target incentive
award opportunity for each NEO will be reduced in proportion to the
decline in the operating profit | Threshold
performance level will be set at no
less than 87 percent of the operating profit target. | Business Plan | ● | In a down year, there will be no upside opportunity above the target level. |
| | | | ● | Performance at threshold will
result in a payout of 50 percent of the reduced target award opportunity
for the year. Performance below threshold will
result in no annual incentive
payout under the program with respect
to this
measure. |

In addition to operating profit performance, a portion of each NEOs annual incentive will be based on operational performance measures related to their responsibilities, such as cost reduction, machine PINS (market position), aftermarket parts sales, Financial Products Division Return on Equity (FPD ROE) and inventory performance, all of which are subject to the same design above.

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Consistent with this design process, after reviewing the Companys 2016 business plan, the Committee determined that 2016 would be a down year, as operating profit was forecasted to be 20.9% below 2015 actual operating profit. As a result, each NEOs target AIP opportunity was reduced by 20.9% and the AIP payout was capped at target with no additional upside.

2016 ANNUAL INCENTIVE PERFORMANCE MEASURES

At its February 2016 meeting, the Committee approved the performance measures described below to be used for determining actual payouts under the AIP. For all NEOs, the largest portion (ranging from 50 percent to 80 percent) of their 2016 AIP opportunity was based on Enterprise Operating Profit and the Operating Profit After Capital Charge (OPACC) of each NEOs respective businesses. The remaining portion of each NEOs annual incentive award opportunity was determined based on the achievement of specific operational goals, such as cost reduction, Percent of Industry Sales (PINS), aftermarket parts sales, FPD ROE and inventory performance.

When establishing the performance targets for 2016, the Committee reviewed the Companys business plan and historical performance, management recommendations and feedback provided by the Committees independent compensation consultant. The Committee set the targets for each of the performance measures at levels that were designed to be reasonably achievable with strong management performance. Maximum performance levels were designed to be difficult to achieve in light of historical performance and the Companys business forecast at the time the measures were approved. The performance measures were also weighted according to the Companys business priorities and the responsibilities of each NEO. The chart below summarizes the performance measures, weightings and results for the 2016 AIP for each NEO.

In early 2017, the results for each performance measure noted above were converted into a performance factor and reviewed by the Committee. Each performance factor was multiplied by the respective weightings for each NEO to obtain a final weighted performance factor which was then used to determine actual incentive payments for each of the NEOs.

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Description of Performance Measures

	DEFINITION	RATIONALE
●
Enterprise Operating
Profit	Operating Profit measures the
overall profitability of all of Caterpillars operations (including
ME&T and Financial Products) before taxes, interest and other
non-operating items. For AIP purposes, the Enterprise Operating Profit
metric will be calculated as Caterpillar Consolidated Operating Profit
excluding restructuring.	The Committee approved Operating
Profit as the primary corporate performance measure in order to incent
management with respect to the overall profitability of the Company. The
Committee believes that Operating Profit is an important corporate metric
for shareholders to be able to assess the financial health of the Company
and track its progress towards profit targets, particularly in a declining
revenue environment.
Operating Profit After Capital
Charge (OPACC)	For each reportable segment,
OPACC is calculated as operating profit (excluding short-term incentive
compensation expense and restructuring costs) less the capital charge. In
2016, the capital charge was calculated as the average monthly net
accountable assets multiplied by a pre-tax capital charge rate of 13
percent.	OPACC is designed to measure how
productively and efficiently the Companys assets are being utilized by
examining the relationship between the value of the Companys assets and
the operating profit that those assets generate. An increase in OPACC
means that the Companys management is utilizing assets more efficiently
to generate shareholder value, which the Committee views as key to
Caterpillars long-term success.
Financial Products Division
Return on Equity (FPD ROE)	FPD ROE is calculated by dividing
the full year profit (after tax) by the average of the monthly accountable
equity balances, excluding the impact of interest costs and equity changes
associated with differences in planned vs. actual dividends. Dividends are
payments of retained earnings from Caterpillar Financial Services
Corporation and Caterpillar Financial Insurance Services, the Companys
wholly owned finance and insurance subsidiaries, to Caterpillar.	The Committee approved this
measure to drive accountability for and performance of Caterpillars
Financial Products Division, including appropriate oversight of risk
management, portfolio quality and financial return
expectations.
●
Percent of Industry Sales
(PINS)	PINS capture dealer sales
(including deliveries to dealer rental operations) as a percentage of
industry sales. Due to the competitively sensitive nature of this measure,
the threshold, target and result levels have all been indexed and reported
as such.	The Committee approved PINS as a
performance measure in order to incent improvements in the Companys
competitive position in the markets it serves.
Parts Sales	Parts Sales is measured using
Caterpillar branded parts orders. This metric uses actual Caterpillar
branded parts orders (at actual price levels), as reported from the Dealer
Parts Orders Reporting System as compared to plan (at price levels when
the plan was finalized). The metric is based on, and reported as, a
percentage above or below plan. Due to the competitively sensitive nature
of this measure, the threshold, target and result levels have all been
indexed and reported as such.	The Committee approved this
measure because increasing Caterpillar branded parts sales is an important
aspect of the corporate strategy. Aftermarket support is important to our
customers and parts are a material component of that support. Aftermarket
support is one of the main reasons why customers buy Caterpillar products
and is a key differentiator in the global market.
●
Cost
Reduction	Cost reduction is calculated as
2015 ME&T total period costs less 2016 ME&T total period costs.
Total period costs include the sum of ME&T period cost of sales,
selling general & administrative (SG&A) expenses and Research
& Development expenses and excludes restructuring charges,
mark-to-market losses for pension and postemployment benefits and the
year-over-year impact of changes in currency rates.	The Committee approved Cost
Reduction as a performance measure in order to focus management on
reducing costs during a period of significant and sustained revenue
decline. The Committee believes that a focus on cost reduction is
important for the current profitability of the Company as well as
positioning the Company for improved profitability in the future.
Net Inventory Days on
Hand	Total Enterprise Net Inventory
Days on Hand for the sum of Production and Finished, Aftermarket Parts and
Expanded Mining Parts, as reported in the Board reporting scorecard. Net
Inventory Days on Hand will be calculated as 360 days divided by
annualized rolling inventory turns, with inventory levels calculated net
of customer advance payments.	During this period of sustained
revenue decline, the Committee wanted a greater emphasis placed on
improvement of inventory turns and the positive cash flow impact that such
an improvement would drive across the enterprise.

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2016 ANNUAL INCENTIVE PAYMENTS

As described above, the 2016 AIP design provided that an incentive pool would be funded based on the Company’s profit after taxes, with actual payouts based on achieving the financial and operational performance measures established by the Committee in February 2016. Based on the Company’s 2016 reported profit after tax, the incentive pool did not fund, in part due to the impact of several significant items on profit (including restructuring costs, mark-to-market losses for pension and other postemployment benefits, a goodwill impairment charge and a state deferred tax valuation allowance). In order to more adequately reflect the Company’s core operating performance, the Committee, consistent with its authority, exercised its discretion to exclude these items and based on this adjusted profit after tax performance, approved the 2016 incentive payments as follows:

Oberhelman	TARGET OPPORTUNITY — 175%	-	DOWN YEAR REDUCTION — 20.9%	=	REVISED OPPORTUNITY — 138.4%	X	SALARY — $ 1,600,008	X	WEIGHTED PERFORMANCE FACTOR — 0.2339	=	PAYOUT — $518,126
Halverson	115%	-	20.9%	=	91.0%	X	$ 786,312	X	0.3000	=	$214,592
Charter	115%	-	20.9%	=	91.0%	X	$ 729,768	X	0.4357	=	$289,258
Umpleby	115%	-	20.9%	=	91.0%	X	$ 825,636	X	0.2926	=	$219,773
Bozeman	100%	-	20.9%	=	79.1%	X	$ 698,904	X	0.1000	=	$ 55,283

LONG-TERM INCENTIVE

2016 DESIGN AND SIZING OF GRANT

Beginning in 2015, NEO long-term incentive (LTI) awards were comprised of two forms of equity PRSUs and time-vested non-qualified stock options (Options). Consistent with its pay-for-performance philosophy and in order to further align executives with shareholders, in 2016, the Committee revised the weighting of these elements to deliver one-half of the total LTI value in PRSUs and one-half in Options. For the 2016 grant, the Committee selected ROE as the PRSU performance measure as it aligns management with shareholders by measuring and rewarding profitability relative to shareholders investment in the business. The ROE target level was designed to be reasonably achievable with strong management performance. The PRSUs cliff vest at the end of the 2016-2018 performance period based on average ROE over the full three-year period.

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In February 2016, the Committee granted LTI awards that were initially sized at the 25th percentile of the benchmarked LTI values for the Companys compensation peer group. The Committee viewed this level of LTI sizing as appropriate in view of the Companys 1, 3 and 5-year relative TSR and financial performance at the end of 2015. The Committee further adjusted the LTI awards to reflect the individual performance of each NEO. The Committees process for sizing LTI grant values for NEOs is as follows:

| 1 | Benchmarking the median LTI value for
the Companys compensation peer group. |
| --- | --- |
| 2 | Review and consideration of financial
results; 1, 3 and 5-year TSR (vs the S&P Industrials, Compensation
Peer Group and Competitor Peer Group); operational performance;
market conditions and strategy execution. |
| 3 | Adjust award values to reflect
individual performance including consistency of performance against goals,
leadership contributions, time in role and other relevant factors. |

2015 2017 PRSUs

Beginning in 2015, the Committee elected to award NEOs a portion of their LTI grant in the form of PRSUs, the vesting of which is determined over a three-year performance period. For the 2015 grant, one-third of the PRSUs are eligible to vest annually based on three annual 18% ROE hurdles. In addition, any PRSUs that do not vest based on the annual performance hurdle have the opportunity to vest based on the achievement of a three-year average ROE of 18% during the performance period. In setting this ROE hurdle, the Committee considered the Companys historical ROE performance, current business conditions and long-term business outlook which accounted for several financial and operational factors, including share repurchases.

In each of 2015 and 2016, the Company failed to achieve the 18% ROE performance hurdle and, accordingly, none of the PRSUs have vested to date. In light of these results during the first two years of the performance period, the Company believes that the likelihood of achieving a three-year average ROE of 18% or greater has substantially decreased. Beginning in 2016, the Committee adjusted the vesting terms of future PRSU grants to remove the annual vesting feature and instead to provide for cliff vesting of the entire grant at the end of the three-year performance period subject to achieving the applicable ROE hurdle.

STRATEGIC PERFORMANCE PLAN (SPP)

Prior to 2015, NEOs received cash awards under the Companys SPP, with the ultimate amounts determined based on a three-year performance cycle. The 2014 2016 SPP performance cycle was the final SPP cycle in which the current NEOs participated. For the 2014 2016 SPP cycle, the Committee established threshold, target and maximum payout levels as well as the two performance measures noted below. The Committee also established the target opportunity for each NEO at the time the performance cycle was established.

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2014 2016 PERFORMANCE PERIOD

The 2014-2016 performance period concluded in 2016 with a weighted-average performance factor well below target at 0.5551. The measures in this performance cycle were established in February 2014 and were comprised of two components Earnings Per Share (EPS) and Relative TSR (versus S&P Industrials). Performance with respect to both measures was well below target. In its evaluation of the 2014 2016 SPP performance measures and results, the Committee noted the impact of a goodwill impairment charge and the effect of an accounting principle change impacting the accounting for pension and other postemployment benefits. The Committee viewed the goodwill impairment charge as neither indicative of the Companys underlying performance nor that of the NEOs and acknowledged the impact of the accounting change was not contemplated when the 2014-2016 SPP was developed. Accordingly, the Committee excluded the impact of these expenses from EPS when evaluating and certifying the results below. Had the Committee not excluded these items, the overall payout factor for the 2014 2016 performance period would have been 0.4449, still substantially below target.

| PERFORMANCE
MEASURE | WEIGHTING | THRESHOLD (30%
PAYOUT) | TARGET (100%
PAYOUT) | MAXIMUM (200%
PAYOUT) | RESULTS | PAYOUT FACTOR |
| --- | --- | --- | --- | --- | --- | --- |
| EPS 1 | 75% | $3.50 | $5.85 | $7.02 | $4.52 | 0.6028 |
| Relative TSR vs. S&P Industrials | 25% | 25th Percentile | 55th Percentile | 75th Percentile | 30th Percentile | 0.4120 |
| | | | | Overall Weighted Factor: | | 0.5551 |

1 Average of 2014-2016 actual EPS excluding restructuring and goodwill impairment. Results exclude the effect of an accounting principle change effective January 1, 2016 impacting the accounting for pension and other postemployment benefits.

2014 2016 PERFORMANCE PERIOD PAYMENTS

NEO	TARGET OPPORTUNITY		FINAL FACTOR		PAYOUT
Oberhelman	$4,275,000	X	0.5551	=	$2,373,053
Halverson	$1,150,000	X	0.5551	=	$638,365
Charter 1	$953,435	X	0.5551	=	$529,252
Umpleby	$1,150,000	X	0.5551	=	$638,365
Bozeman	$750,000	X	0.5551	=	$416,325

1 Mr. Charter was a Vice President during the first year of the performance period with a target opportunity of 90% of his base salary. For 2015 and 2016 Mr. Charter was a Group President with a target opportunity expressed as a flat dollar amount of $1,150,000. Mr. Charters blended target opportunity is reflected in the chart above.

OTHER COMPENSATION, BENEFITS AND CONSIDERATIONS

2017 CEO COMPENSATION

Jim Umpleby became Chief Executive Officer on January 1, 2017. Douglas R. Oberhelman retired from the role of CEO on December 31, 2016 but remained the Executive Chairman until his retirement from the Company on March 31, 2017. Mr. Umplebys 2017 base salary, AIP target opportunity and LTI award value were set below that of Mr. Oberhelman in recognition of Mr. Oberhelmans tenure in the role. The following chart shows Mr. Umplebys compensation effective January 1, 2017. Additionally, Mr. Umpleby will participate in generally the same perquisites and benefit plans as Mr. Oberhelman as described in more detail below. Mr. Oberhelman was paid his current salary until his retirement on March 31, 2017. Mr. Oberhelman is not eligible for AIP or LTI in 2017 as Executive Chairman.

| COMPENSATION
COMPONENT | 2017 VALUE |
| --- | --- |
| Salary | $1,200,000 |
| Annual Incentive | 150% of salary |
| Long-Term
Incentive | Approximately 80% of the peer group
median |

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DEPARTURE OF DAVID P. BOZEMAN

Mr. Bozeman served as an executive officer of the company through December 31, 2016. Mr. Bozemans position was eliminated in connection with the Companys ongoing restructuring efforts, and in consideration for his service to the Company, as well as a release of claims in favor of the Company, Mr. Bozeman was provided a severance payment of $2,300,000. In addition, the Committee approved the accelerated, pro-rata vesting of 666 shares of restricted stock units and 96,359 stock options previously granted to Mr. Bozeman and a 12-month post-separation exercise period. The Committee also approved continued, pro-rata vesting of his outstanding 2015-2017 and 2016-2018 PRSUs, with the level determined based on actual performance during the respective performance periods.

TRANSITION PAYMENT FOR ROBERT B. CHARTER

To assist with the continued costs associated with Mr. Charters relocation from Singapore to the United States and to help ensure that Mr. Charter remains in the same approximate financial position as he would have been absent his required international relocation, the Committee approved a transition payment of $500,000, which was paid to Mr. Charter in 2016. In approving this payment, the Committee considered the adverse income tax consequences to Mr. Charter, an Australian citizen, associated with his required relocation as well as the benefit programs in which Mr. Charter was previously eligible to participate as compared to the Companys other NEOs. The Committee also noted that providing this final payment was more cost effective to the Company than placing Mr. Charter as an International Service Employee in Peoria, Illinois which customarily includes housing, mobility premiums, home leave and tax allowances.

POST-TERMINATION AND CHANGE IN CONTROL BENEFITS

The Companys change in control provisions are subject to a double trigger, and when both a change in control and involuntary termination of employment without cause occur, provide accelerated vesting and maximum payouts under the incentive plans, as described further below.

Except for customary provisions in employee benefit plans and as required by applicable law, the NEOs do not have any pre-existing executive severance packages or contracts; however, the Committee will consider the particular facts and circumstances of an NEOs separation to determine whether payment of any severance or other benefit to such NEO is appropriate. Change in control benefits are provided under the Companys long-term and annual incentive plans and represent customary provisions for these types of plans and have no direct correlation with other compensation decisions. There is no cash severance or other benefits for a termination related to change in control beyond what is provided for under the long-term and annual incentive plans. Additional information is disclosed in the Potential Payments Upon Termination or Change in Control section on page 48 of this proxy statement.

In the event of a qualifying termination of employment following a change in control, maximum payouts are provided under the long-term incentive plan and annual incentive plan.

| ● | The long-term plan allows for the
maximum performance level to be paid under each open plan cycle of the
long-term cash plan. |
| --- | --- |
| ● | All unvested stock options, stock
appreciation rights, PRSUs and restricted stock units vest
immediately. |
| ● | Stock options and stock
appreciation rights remain exercisable over the normal life of the
grant. |
| ● | The annual incentive plan allows
for the target award opportunity, prorated based on the individuals time
of employment from the beginning of the performance period through the
later of: (1) the change in control or (2) termination of employment. |

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RETIREMENT AND OTHER BENEFITS

In addition to the annual and long-term components of compensation, NEOs participate in health and welfare benefit plans generally available to employees to provide competitive benefits.

The defined contribution and defined benefit retirement plans available to the NEOs are also available to many U.S. Caterpillar management and salaried employees. Under the defined benefit pension plans, the benefit is calculated based on years of service and final average monthly earnings. All of the NEOs participate in the U.S. retirement plans described in the following table, except as otherwise provided below.

PLAN TYPE	TITLE	DESCRIPTION
PENSION	Retirement Income Plan
(RIP)	Defined benefit pension plan
under which benefit amounts are not offset for any Social Security
benefits. RIP was closed to new entrants, effective January 1, 2011. All
U.S.-based NEOs, except Mr. Charter who participates in the Companys
Australian-based defined benefit pension plan, participate in this plan
and, except for Mr. Bozeman, subject to the Companys right to amend or
terminate the plan, continue to earn benefits under RIP until the earlier
of separation or December 31, 2019. Based on his hire date, Mr. Bozemans
RIP benefit was frozen effective January 1, 2011.
	Supplemental Retirement Plan
(SERP)	Non-qualified defined benefit
pension plan that works in tandem with RIP. SERP provides additional
pension benefits if the NEOs benefit is limited due to the compensation
and annual benefit limits imposed on RIP by the tax code. SERP also pays a
benefit that would otherwise have been paid under RIP but for (1) the
NEOs deferral of compensation under SDCP, SEIP or DEIP and (2) exclusions
of lump sum discretionary awards and variable base pay from RIP earnings.
As with RIP, SERP was closed to new entrants effective January 1, 2011.
Subject to the Companys right to amend or terminate the plan, all
U.S.-based NEOs, except Messrs. Bozeman and Umpleby, continue to earn SERP
benefits until the earlier of separation or December 31, 2019. Based on
Mr. Bozemans hire date, his SERP benefit was frozen effective January 1,
2011. Mr. Umpleby participates in a Solar Turbines Incorporated sponsored
non-qualified defined benefit pension plan, which is similar to SERP.
Subject to the Companys right to amend or terminate the plan, Mr. Umpleby
continues to earn benefits until the earlier of separation or December 31,
2019.
SAVINGS	Caterpillar 401(k) Plans	All U.S.-based NEOs, except for
Mr. Bozeman, are eligible to participate in the Caterpillar 401(k) Savings
Plan under which the Company matches 50 percent of the first 6 percent of
the NEOs eligible pay contributed to the savings plan. Prior to his
separation from the Company and based on his hire date, Mr. Bozeman
participated in the Caterpillar 401(k) Retirement Plan, under which the
Company matches 100 percent of the first 6 percent of eligible pay
contributed to the retirement plan, and the Company makes an annual
non-elective contribution equal to 3%, 4% or 5% of eligible pay based on
the employees age and years of service with the Company.
	Supplemental
Deferred Compensation Plan (SDCP)	All U.S.-based NEOs who are
eligible to participate in a Caterpillar 401(k) plan are eligible to
participate in SDCP, which provides the opportunity to make deferrals of
base salary in excess of the limits imposed on the 401(k) Savings Plan and
the 401(k) Retirement Plan by the Internal Revenue Code and to elect
deferrals from the AIP and the SPP. Under the terms of SDCP, participants
are eligible to earn matching contributions and annual non-elective
contributions based on formulas applicable to them in the Caterpillar
401(k) plans.
	Supplemental (SEIP) and
Deferred (DEIP) Employees Investment Plan	All U.S.-based NEOs hired prior
to March 25, 2007 were previously eligible to participate in SEIP and
DEIP. These plans were closed in March 2007. Compensation deferred into
SEIP and DEIP prior to January 1, 2005, remains in these
plans.

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LIMITED PERQUISITES

The Company provides NEOs a limited number of perquisites that the Committee believes are reasonable and consistent with the overall compensation program and those commonly provided in the marketplace. The Committee annually reviews the levels of perquisites provided to the NEOs which include, among other things, home security systems and (in the case of the CEO) limited personal use of the Company aircraft and ground transportation. These perquisites are provided to attract and retain talented executive officers, to provide for adequate security and safety of our executives and to allow the NEOs to devote additional time to Caterpillar business. Costs associated with these perquisites are included in the 2016 All Other Compensation Table on page 42.

At the discretion of the Committee, certain benefits may be continued for the CEO upon retirement. On December 13, 2016, the Committee approved the following retirement benefits for Mr. Oberhelman effective April 1, 2017: (1) office space and related IT, administrative and travel agent support at the Companys facility located in Edwards, Illinois; and (2) continued home security for a period not to exceed five years from the date of Mr. Oberhelmans retirement.

CLAWBACK POLICY

Under the Companys compensation clawback policy, the Board may require reimbursement of any bonus or incentive compensation awarded to an officer or cancel unvested restricted or deferred stock awards previously granted to the officer if all of the following apply:

| ● | The amount of the bonus,
incentive compensation or stock award was calculated based on the
achievement of certain financial results that were subsequently the
subject of a restatement; |
| --- | --- |
| ● | The officer engaged in
intentional misconduct that caused or partially caused the need for the
restatement; and |
| ● | The amount of the bonus,
incentive compensation or stock award that would have been awarded to the
officer had the financial results been properly reported would have been
lower than the amount actually awarded. |

TAX IMPLICATIONS: DEDUCTIBILITY OF NEO COMPENSATION

Under Section 162(m) of the Internal Revenue Code, generally NEO compensation over $1.0 million for any year is not deductible for United States income tax purposes. However, performance-based compensation is exempt from the deduction limit if certain requirements are met. One of the goals of the Committee is to structure compensation to take advantage of this exemption under Section 162(m) to the extent practicable. However, the Committee may elect to provide compensation outside those requirements when necessary to achieve its compensation objectives.

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion & Analysis (CD&A) included in this proxy statement with management and is satisfied that the CD&A fairly and completely represents the philosophy, intent and actions of the Committee with regard to executive compensation. Based on such review and discussion, we recommend to the Board that the CD&A be included in this proxy statement and the Companys Annual Report on Form 10-K for filing with the SEC.

By the members of the Compensation Committee consisting of:

Miles D. White (Chairman) David L. Calhoun Jesse J. Greene, Jr. Debra L. Reed

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EXECUTIVE COMPENSATION TABLES

In years before 2015, long-term incentive compensation design was based on two components a rolling three-year cash plan and market based stock option grants. Beginning in 2015, the Committee revised the long-term incentive plan, eliminating the cash portion and replacing it with PRSUs.

While the Committee believes PRSUs are better aligned with shareholder interests going forward, NEOs pay in 2016 includes results of the legacy 2014-2016 performance-based cash plan as well as PRSUs granted in 2016. SEC executive compensation disclosure rules require the grant date fair value of PRSUs to be reported in the year of grant in the Stock Awards column below, rather than after the completion of the three-year performance period that commenced in 2016. Because the payment for the 2014-2016 performance-based cash plan is also included in the Non-Equity Incentive Plan Compensation column, the Summary Compensation Table in effect double counts the NEOs long-term incentive compensation for 2016. This is the final year for this legacy performance-based cash plan for the NEOs listed below.

2016 SUMMARY COMPENSATION TABLE

| NAME AND PRINCIPAL POSITION | YEAR | SALARY | BONUS 1 | STOCK AWARDS 2 | | OPTION AWARDS 3 | | | | | | SEC TOTAL | SEC TOTAL WITHOUT CHANGE
IN PENSION VALUE 7 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Douglas R.
Oberhelman | 2016 | $ 1,600,008 | $ | $ 3,577,816 | | $ 7,218,819 | | $ 2,891,179 | $ 3,658 | | $ 181,034 | $ 15,472,514 | $ 15,468,856 |
| Chairman & CEO | 2015 | $ 1,600,008 | $ | $ 3,031,479 | | $ 9,959,588 | | $ 822,804 | $ 2,091,814 | | $ 398,144 | $ 17,903,837 | $ 15,812,023 |
| | 2014 | $ 1,600,008 | $ | $ | | $ 8,377,481 | | $ 4,913,288 | $ 1,998,805 | | $ 241,866 | $ 17,131,448 | $ 15,132,643 |
| Bradley M.
Halverson | 2016 | $ 786,312 | $ | $ 1,080,269 | | $ 2,179,625 | | $ 852,957 | $ 231,289 | | $ 96,250 | $ 5,226,702 | $ 4,995,413 |
| Group President &
CFO | 2015 | $ 786,312 | $ | $ 1,127,963 | | $ 3,705,673 | | $ 244,440 | $ 2,293,173 | | $ 90,933 | $ 8,248,494 | $ 5,955,321 |
| | 2014 | $ 755,202 | $ | $ | | $ 2,392,921 | | $ 1,501,537 | $ 595,014 | | $ 42,294 | $ 5,286,968 | $ 4,691,954 |
| Robert B. Charter | 2016 | $ 729,768 | $ 500,000 | $ 984,692 | | $ 1,986,744 | | $ 818,510 | $ 189,327 | 8 | $ 247,311 | $ 5,456,352 | $ 5,267,025 |
| Group President | 2015 | $ 729,768 | $ 300,000 | $ 1,046,232 | | $ 3,437,148 | | $ 190,994 | $ 845,918 | | $ 541,566 | $ 7,091,626 | $ 6,245,708 |
| Jim Umpleby | 2016 | $ 825,636 | $ | $ 1,166,657 | | $ 2,353,971 | | $ 858,138 | $ 62,688 | | $ 27,097 | $ 5,294,187 | $ 5,231,499 |
| Group President | 2015 | $ 815,805 | $ | $ 1,264,698 | | $ 4,154,987 | | $ 247,726 | $ 2,582,073 | | $ 83,085 | $ 9,148,374 | $ 6,566,301 |
| | 2014 | $ 755,202 | $ | $ | | $ 2,527,089 | | $ 1,847,136 | $ 1,484,122 | | $ 57,772 | $ 6,671,321 | $ 5,187,199 |
| David P. Bozeman | 2016 | $ 698,904 | $ | $ 1,412,362 | 9 | $ 2,324,923 | 10 | $ 471,608 | $ | | $ 2,393,163 | $ 7,300,960 | $ 7,300,960 |
| Senior Vice President | | | | | | | | | | | | | |

1 The amount reported for 2016 represents a lump sum discretionary bonus authorized by the Committee relating to Mr. Charters required relocation from Singapore to the United States. 2 The amounts reported in this column represent PRSUs granted in 2016 under the Caterpillar Inc. 2014 Long-Term Incentive Plan (LTIP) and are valued based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, assuming the highest level of performance is achieved for the PRSUs, which at the time of grant reflected the probable level of achievement. Assumptions made in the calculation of these amounts are included in Note 2 Stock-based compensation to the Companys consolidated financial statements for the fiscal year ended December 31, 2016, included in the Companys Form 10-K filed with the SEC on February 15, 2017. 3 The amounts reported in this column represent Non-qualified Stock Options (NQs) granted under the LTIP that are valued based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Assumptions made in the calculation of these amounts are included in Note 2 Stock-based compensation to the Companys consolidated financial statements for the fiscal year ended December 31, 2016, included in the Companys Form 10-K filed with the SEC on February 15, 2017. 4 The amounts in this column reflect the following cash annual incentive payments for 2016: Mr. Oberhelman $518,126; Mr. Halverson $214,592; Mr. Charter $289,258; Mr. Umpleby $219,773; Mr. Bozeman $55,283 ; and the following cash incentive payments for the 2014-2016 performance cycle: Mr. Oberhelman $2,373,053; Mr. Halverson $638,365; Mr. Charter $529,252; Mr. Umpleby $638,365; and Mr. Bozeman $416,325. 5 Because NEOs do not receive preferred or above market earnings on compensation deferred into SDCP, SEIP and/or DEIP, the amount shown represents only the change between the actuarial present value of each NEOs total accumulated pension benefit between December 31, 2015 and December 31, 2016. The amount assumes the pension benefit is payable at each NEOs earliest unreduced retirement age based upon the NEOs current pensionable earnings.

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6 All Other Compensation for 2016 is detailed in a separate table appearing below. 7 To demonstrate how year over year changes in pension value impact total compensation, as determined under SEC rules, we have included this column to show total compensation without pension value changes. The amounts reported in this column are calculated by subtracting the change in pension value reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column, from the amounts reported in the SEC Total column. The amounts reported in this column differ from, and are not a substitute for, the amounts reported in the SEC Total column. 8 The amount reported for Mr. Charter has been converted to U.S. dollars using the exchange rate in effect on December 31, 2016 (1 Australian dollar = 0.72355 U.S. dollar). 9 For Mr. Bozeman this amount also includes the incremental fair value associated with modifications to his outstanding restricted stock unit and performance-based restricted stock unit awards in 2016 totaling $732,778. As noted in the Compensation Discussion & Analysis, in 2016, the vesting terms of certain equity awards were modified in connection with his separation from the Company. 10 For Mr. Bozeman this amount also includes the incremental fair value associated with modifications to his outstanding stock option awards in 2016 totaling $953,725. As noted in the Compensation Discussion & Analysis, in 2016, the vesting terms of certain equity awards were modified in connection with his separation from the Company.

2016 ALL OTHER COMPENSATION TABLE

NAME — Douglas R. Oberhelman	$ 7,950	$ 40,050	$ 87,125	$ 45,909	OTHER — $		$ 181,034
Bradley M. Halverson	$ 7,950	$ 15,639	$ 8,742	$ 63,919	$		$ 96,250
Robert B. Charter	$ 7,950	$ 13,943	$ 9,652	$ 2,353	$ 213,413	3	$ 247,311
Jim Umpleby	$ 7,872	$ 16,819	$	$ 2,406	$		$ 27,097
David P. Bozeman	$ 15,817	$ 76,803	$	$ 543	$ 2,300,000	4	$ 2,393,163

1 The value of personal aircraft usage reported above is based on Caterpillars incremental cost per flight hour, including the weighted average variable operating cost of fuel, oil, aircraft maintenance, landing and parking fees, related ground transportation, catering and other smaller variable costs. Mr. Oberhelman and the Company have a time-sharing lease agreement, pursuant to which certain costs associated with personal flights are reimbursed by Mr. Oberhelman to the Company in accordance with the agreement. 2 Amounts reported for home security represent the cost provided by an outside security provider for hardware and monitoring service. The incremental cost associated with the home security services is determined based upon the amounts paid to the outside service provider. 3 Mr. Charter was previously an International Service Employee (ISE) based in Singapore. The amount reported represents Company paid taxes pursuant to the Companys tax equalization policy for ISEs. This policy is intended to ensure the Companys ISEs are in the same approximate financial position as they would have been if they lived in their home country during the time of their international service. 4 The amount reported represents a severance payment authorized by the Committee in connection with Mr. Bozemans separation from service from the Company.

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GRANTS OF PLAN-BASED AWARDS IN 2016

| NAME | GRANT DATE | ESTIMATED FUTURE
PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS 1 — THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS 2 — TARGET (#) | ALL
OTHER STOCK AWARDS: NUMBER OF SHARES OF STOCK
OR UNITS (#) | ALL OTHER OPTION
AWARDS: NUMBER OF SECURITIES UNDERLYING OPTIONS 3 (#) | | GRANT DATE FAIR VALUE OF
STOCK AND OPTION AWARDS
($) 4 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Douglas R. Oberhelman | 03/07/2016 | | | | 55,290 | | | $ | $ 3,577,816 |
| | 03/07/2016 | | | | | | 349,749 | $ 74.77 | $ 7,218,819 |
| | AIP 5 | $ 1,107,406 | $ 2,214,811 | $ 2,214,811 | | | | $ | $ |
| Bradley M. Halverson | 03/07/2016 | | | | 16,694 | | | $ | $ 1,080,269 |
| | 03/07/2016 | | | | | | 105,602 | $ 74.77 | $ 2,179,625 |
| | AIP 5 | $ 357,634 | $ 715,269 | $ 715,269 | | | | $ | $ |
| Robert B. Charter | 03/07/2016 | | | | 15,217 | | | $ | $ 984,692 |
| | 03/07/2016 | | | | | | 96,257 | $ 74.77 | $ 1,986,744 |
| | AIP 5 | $ 331,917 | $ 663,833 | $ 663,833 | | | | $ | $ |
| Jim Umpleby | 03/07/2016 | | | | 18,029 | | | $ | $ 1,166,657 |
| | 03/07/2016 | | | | | | 114,049 | $ 74.77 | $ 2,353,971 |
| | AIP 5 | $ 371,049 | $ 742,097 | $ 742,097 | | | | $ | $ |
| David P. Bozeman | 03/07/2016 | | | | 10,502 | | | $ | $ 679,584 |
| | 03/07/2016 | | | | | | 66,434 | $ 74.77 | $ 1,371,198 |
| | | | | | 10,502 | | | | $ 732,778 6 |
| | | | | | | | 66,434 | | $ 953,725 7 |
| | AIP 5 | $ 138,208 | $ 276,417 | $ 276,417 | | | | $ | $ |

1 The amounts reported in this column represent estimated potential awards under the 2016 AIP. There was no maximum payout opportunity as the 2016 AIP design capped potential payments at target. 2 The amounts reported in this column represent estimated potential awards under the LTIP. PRSUs were granted on March 7, 2016 under the LTIP for the 2016-2018 performance period. PRSUs vest over a three-year performance period with 100 percent of the grant to vest on the third anniversary of the grant date, subject to the Companys achievement of an average ROE performance hurdle during the three-year performance period. The amounts reported in the target column reflect the number of PRSUs that would vest if the Companys average ROE performance during the three-year performance period meets or exceeds the ROE performance hurdle. There is no threshold or maximum payout opportunity with respect to these PRSUs. 3 Amounts reported represent stock options granted under the LTIP. The exercise price for all stock options granted to the NEOs is the closing price of Caterpillar stock on the grant date ($74.77). All stock options granted to the NEOs will vest in one-third increments on each of the first through third year anniversaries of the date of grant. The actual realizable value of the options will depend on the fair market value of Caterpillar stock at the time of exercise. 4 The amounts shown do not reflect realized compensation by the NEO. As reported in this column, the value of PRSUs granted in 2016 under the LTIP are based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718, assuming the highest level of performance is achieved for the PRSUs, which at the time of the grant reflected the probable level of achievement. 5 The 2016 AIP estimates are based upon each executives base salary for 2016. The actual payout was based on the achievement of corporate and business unit performance metrics. Please refer to page 33 of the CD&A for a detailed explanation of the various performance metrics. For the 2016 AIP, the threshold amount was earned if at least 50 percent of the targeted performance level was achieved. The target amount was earned if at least 100 percent or greater of the targeted performance level was achieved, with a plan cap set at $15 million. The cash payouts for the 2016 plan year are included in the column Non-Equity Incentive Plan Compensation of the 2016 Summary Compensation Table. 6 This amount represents the value of the modification to outstanding restricted stock unit and performance-based restricted stock unit awards in connection with Mr. Bozemans separation from the Company and does not reflect a new equity grant. 7 This amount represents the value of the modification to outstanding stock options in connection with Mr. Bozemans separation from the Company and does not reflect a new equity grant.

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OUTSTANDING EQUITY AWARDS AT 2016 FISCAL YEAR END

| | | OPTION AWARDS — NUMBER OF
SECURITIES UNDERLYING UNEXERCISED SARs/OPTIONS | SAR
/ OPTION EXERCISE PRICE | | SAR
/ OPTION EXPIRATION DATE 1 | STOCK
AWARDS — NUMBER OF SHARES
OR UNITS OF STOCK THAT
HAVE NOT VESTED 2 | MARKET VALUE OF
SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED 3 | | EQUITY INCENTIVE PLAN
AWARDS: | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| NAME | GRANT DATE | EXERCISABLE | UNEXERCISABLE | | | | | | NUMBER
OF UNEARNED SHARES, UNITS
OR OTHER RIGHTS THAT
HAVE NOT VESTED 4 | MARKET OR PAYOUT VALUE
OF UNEARNED SHARES, UNITS
OR OTHER RIGHTS THAT
HAVE NOT VESTED 5 | |
| Douglas R. Oberhelman | 03/03/2008 | 60,000 | | $ 73.20 | 03/03/2018 | | | $ | | | $ |
| | 03/02/2009 | 166,252 | | $ 22.17 | 03/02/2019 | | | $ | | | $ |
| | 03/01/2010 | 272,282 | | $ 57.85 | 03/01/2020 | | | $ | | | $ |
| | 03/07/2011 | 226,224 | | $ 102.13 | 03/07/2021 | | | $ | | | $ |
| | 03/05/2012 | 275,000 | | $ 110.09 | 03/05/2022 | | | $ | | | $ |
| | 03/04/2013 | 281,090 | | $ 89.75 | 03/04/2023 | | | $ | | | $ |
| | 03/03/2014 | | 283,790 | $ 96.31 | 03/03/2024 | | | $ | | | $ |
| | 02/27/2015 | | | $ | | | | $ | 39,131 | 6 | $ 3,629,009 |
| | 03/02/2015 | 137,926 | 275,850 | $ 83.00 | 03/02/2025 | | | $ | | | $ |
| | 03/07/2016 | | | $ | | | | $ | 55,290 | 7 | $ 5,127,595 |
| | 03/07/2016 | | 349,749 | $ 74.77 | 03/07/2026 | | | $ | | | $ |
| Bradley M. Halverson | 03/07/2011 | 22,696 | | $ 102.13 | 03/07/2021 | | | $ | | | $ |
| | 03/05/2012 | 21,416 | | $ 110.09 | 03/05/2022 | | | $ | | | $ |
| | 03/04/2013 | 79,976 | | $ 89.75 | 03/04/2023 | | | $ | | | $ |
| | 03/03/2014 | | 81,061 | $ 96.31 | 03/03/2024 | | | $ | | | $ |
| | 02/27/2015 | | | $ | | | | $ | 14,560 | 6 | $ 1,350,294 |
| | 03/02/2015 | 51,318 | 102,636 | $ 83.00 | 03/02/2025 | | | $ | | | $ |
| | 03/07/2016 | | | $ | | | | $ | 16,694 | 7 | $ 1,548,202 |
| | 03/07/2016 | | 105,602 | $ 74.77 | 03/07/2026 | | | $ | | | $ |
| | | | | $ | | 832 | 8 | $ 77,160 | | | $ |
| Robert B. Charter | 03/07/2011 | 23,379 | | $ 102.13 | 03/07/2021 | | | $ | | | $ |
| | 03/05/2012 | 20,534 | | $ 110.09 | 03/05/2022 | | | $ | | | $ |
| | 03/04/2013 | 25,369 | | $ 89.75 | 03/04/2023 | | | $ | | | $ |
| | 03/03/2014 | | 27,045 | $ 96.31 | 03/03/2024 | | | $ | | | $ |
| | 02/27/2015 | | | $ | | | | $ | 13,505 | 6 | $ 1,252,454 |
| | 03/02/2015 | 47,600 | 95,198 | $ 83.00 | 03/02/2025 | | | $ | | | $ |
| | 03/07/2016 | | | $ | | | | $ | 15,217 | 7 | $ 1,411,225 |
| | 03/07/2016 | | 96,257 | $ 74.77 | 03/07/2026 | | | $ | | | $ |
| Jim Umpleby | 03/01/2010 | 6,781 | | $ 57.85 | 03/01/2020 | | | $ | | | $ |
| | 03/07/2011 | 22,696 | | $ 102.13 | 03/07/2021 | | | $ | | | $ |
| | 03/05/2012 | 21,416 | | $ 110.09 | 03/05/2022 | | | $ | | | $ |
| | 03/04/2013 | 79,976 | | $ 89.75 | 03/04/2023 | | | $ | | | $ |
| | 03/03/2014 | | 85,606 | $ 96.31 | 03/03/2024 | | | $ | | | $ |
| | 02/27/2015 | | | $ | | | | $ | 16,325 | 6 | $ 1,513,981 |
| | 03/02/2015 | 57,541 | 115,080 | $ 83.00 | 03/02/2025 | | | $ | | | $ |
| | 03/07/2016 | | | $ | | | | $ | 18,029 | 7 | $ 1,672,009 |
| | 03/07/2016 | | 114,049 | $ 74.77 | 03/07/2026 | | | $ | | | $ |
| | | | | $ | | 832 | 8 | $ 77,160 | | | $ |

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1 Stock options granted in 2014 are exercisable three years after the grant date. Stock options granted in 2015 and 2016 are exercisable in one-third increments on each of the first through third year anniversaries of the date of grant. Stock options expire 10 years from the grant date for an active employee. 2 The amounts shown include the portion of any prior RSU grants that were not vested as of December 31, 2016. 3 The market value of the non-vested RSUs is calculated using the closing price of Caterpillar common stock on December 30, 2016 ($92.74 per share). 4 The amounts shown include the portion of any prior PRSU grants that were not vested as of December 31, 2016. 5 The market value of the non-vested PRSUs is calculated using the closing price of Caterpillar common stock on December 30, 2016 ($92.74 per share). 6 Represents the PRSUs that are scheduled to vest in one-third increments on February 27, 2016, February 27, 2017 and February 27, 2018 based on the Companys achievement of an annual ROE performance hurdle or, PRSUs that do not vest based on the annual performance hurdle, but may vest based on the achievement of an average ROE performance hurdle over the three-year performance cycle. For 2016, the Company did not achieve the ROE performance hurdle and, accordingly, none of the PRSUs vested based on 2016 performance. The number of PRSUs reported in this table assumes the aggregate ROE performance hurdle is achieved for the three-year performance cycle. 7 Represents the PRSUs that are scheduled to vest on March 7, 2019 based on the Companys achievement of an average ROE performance hurdle over the three-year performance period. The number of PRSUs reported in this table assumes the aggregate ROE performance hurdle is achieved for the three-year performance period. 8 These RSUs are scheduled to vest on May 1, 2017.

2016 OPTION EXERCISES AND STOCK VESTED

| NAME | OPTION
AWARDS 1 — NUMBER OF SHARES ACQUIRED ON
EXERCISE | VALUE REALIZED ON
EXERCISE | STOCK AWARDS 2 — NUMBER OF SHARES ACQUIRED ON
VESTING | VALUE REALIZED ON
VESTING |
| --- | --- | --- | --- | --- |
| Douglas R. Oberhelman | 30,570 | $ 2,497,520 | | $ |
| Bradley M. Halverson | 3,912 | $ 323,402 | 834 | $ 64,506 |
| Robert B. Charter | | $ | | $ |
| Jim Umpleby | 6,722 | $ 622,996 | 834 | $ 64,506 |
| David P. Bozeman | | $ | 1,000 | $ 77,345 |

1 Upon exercise, option holders may surrender shares to pay the option exercise price and satisfy income tax withholding requirements. The amounts shown are gross amounts. 2 Upon vesting of the RSUs, shares are surrendered to satisfy income tax withholding requirements. The amounts shown are gross amounts.

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2016 PENSION BENEFITS

| NAME — Douglas R. Oberhelman | PLAN
NAME 1 — RIP | 35.00 | $ 3,033,881 |
| --- | --- | --- | --- |
| | SERP | 35.00 | $ 24,220,406 |
| Bradley M. Halverson | RIP | 28.83 | $ 2,086,918 |
| | SERP | 28.83 | $ 4,581,907 |
| Robert B. Charter | CatSuper Plan | 27.67 | $ 3,529,420 |
| Jim Umpleby | RIP | 25.00 | $ 1,817,177 |
| | Solar MRO | 25.00 | $ 11,018,453 |
| David P. Bozeman | RIP | 2.17 | $ 46,008 |
| | SERP | 2.17 | $ 20,915 |

1 Caterpillar Inc. Retirement Income Plan (RIP) is a noncontributory U.S. qualified defined benefit pension plan and the Supplemental Retirement Plan (SERP) is a U.S. non-qualified pension plan. The total benefit formula across both plans is 1.5 percent for each year of service (capped at 35 years) multiplied by the final average earnings during the highest five of the final ten years of employment. Final average earnings include base salary and annual incentive compensation, including amounts deferred. The employees annual retirement income benefit under the qualified plan is restricted by the Internal Revenue Code limitations, and the excess benefits are paid from SERP. SERP is not funded. Mr. Charter participates in the Caterpillar of Australia PTY LTD Retirement Plan (CatSuper Plan), a defined benefit plan. The total benefit formula in the plan is 17.5 percent for each year of service multiplied by final average salary during the highest three of the final ten years of employment. Final average salary for this plan includes base salary and annual incentive compensation, including amounts deferred, without any limitation on the dollar amounts covered. The plan formula produces a lump sum amount. Mr. Umpleby participated in the Solar Turbines Incorporated Retirement Plan (Solar RP) through December 31, 2014, and participates in the Solar Turbines Incorporated Managerial Retirement Objective Plan (Solar MRO) because he was originally hired by Solar Turbines Incorporated, a wholly owned subsidiary of Caterpillar. The Solar RP was merged into RIP as of January 1, 2015; however, all benefit and eligibility provisions of Solar RP remain unchanged. The Solar RP is a noncontributory U.S. qualified defined benefit pension plan and the Solar MRO is a U.S. non-qualified pension plan. The total benefit formula for the Solar RP is 60 percent of final average salary prorated for years of service less than 25 minus 65 percent of the monthly Social Security benefit. Final average salary is the average base salary for the highest consecutive 36 month period during the 120 month period prior to retirement. Amounts payable under both Solar RP and Solar MRO are based upon a maximum of 25 years of service. Mr. Umpleby meets the early retirement eligibility requirement of age 55. The Solar MRO provides a benefit under the same benefit formula and includes base salary and annual incentive pay. The employees annual retirement income benefit under the Solar RP is restricted by the Internal Revenue Code limitations and the excess benefits are paid from the Solar MRO. The Solar MRO is not funded. Mr. Bozeman participates in RIP and SERP calculated based on the Pension Equity Formula which produces a single lump sum benefit based on salary and service. The employees annual retirement income benefit under the qualified plan is restricted by the Internal Revenue Code limitations, and the excess benefits are paid from SERP. SERP is not funded. 2 Mr. Oberhelman, Mr. Halverson and Mr. Bozeman participate in RIP and SERP. Mr. Oberhelman has more than 35 years of service with the Company. Amounts payable under both RIP and SERP are based upon a maximum of 35 years of service. All RIP participants may receive their benefit immediately following termination of employment after reaching early retirement eligibility, or may defer benefit payments until any time between early retirement age and normal retirement age. SERP and Solar MRO participants receive their benefit six months after their retirement date. Normal retirement age is defined as age 65 with five years of service. For RIP and SERP participants, early retirement is defined as: any age with 30 years of service, age 55 with 15 years of service or age 60 with 10 years of service. If a participant elects early retirement, benefits are reduced by four percent per year, before age 62. In 2015, Mr. Oberhelman and the Company agreed to amend the Companys SERP to provide that if Mr. Oberhelman terminates employment prior to age 65, his benefit under the SERP will be reduced for early retirement. Prior to the amendment, Mr. Oberhelman was entitled to an unreduced benefit under the SERP for any retirement after attainment of age 62. As current RIP and SERP participants, Mr. Oberhelman is eligible for early retirement, with a four percent reduction per year under age 65 in SERP and a four percent reduction per year under age 62 in RIP, while Mr. Halverson is eligible for early retirement, with a four percent reduction per year under age 62 in both plans. Mr. Charter, who participates in the CatSuper Plan, is currently vested in a benefit attributable to 18.75 years of his service. He also has a benefit under the same plan formula based on an additional 8.92 years of service which will vest if he remains employed with the Company until age 55. This additional benefit would result in a $1,626,317 increase in his accumulated pension value once fully vested. Normal retirement in the CatSuper Plan is defined as age 65 and early retirement is available at age 55, with no reduction to the lump sum earned. Mr. Umpleby, who participates in the Solar RP and Solar MRO, has more than 25 years of service with the Company and meets the early retirement eligibility requirement of age 55 with at least 10 years of service. Early retirement benefits paid under Solar RP and Solar MRO have a three percent reduction per year under age 62. The Solar RP was merged into RIP as of January 1, 2015; however, all benefit and eligibility provisions of Solar RP remain unchanged. Mr. Bozeman participates in RIP and SERP calculated based on the Pension Equity Formula (PEP) which produces a single lump sum benefit based on salary and service. The lump sum benefit is equal to Final Average Monthly Earnings, annualized and multiplied by the sum of percentages from a table based on credited service and vesting service. Multipliers range from 4% times years and months of credited service for 0-5 years of vesting service to 9% times years and months of credited service for vesting service in excess of 20 years. Following separation from service, a PEP participant may elect immediate distribution of the benefit, as a single lump sum or monthly annuity actuarially equivalent in amount to the single lump sum determined by formula. 3 The amount in this column represents the actuarial present value for each NEOs accumulated pension benefit on December 31, 2016. For each NEO, it assumes benefits are payable at each NEOs earliest unreduced retirement age based upon current level of pensionable income. Present value factors use an interest rate of 3.97 percent and the RP-2014 separate annuitant and non-annuitant mortality table adjusted with a load factor of 99.4 percent using Projection Scale MP-2014 prior to 2006 then Scale MP-2016 in years 2006 and beyond which are SERPs year-end disclosure assumptions at December 31, 2016. The amount reported for Mr. Charter has been converted to U.S. dollars using the exchange rate in effect on December 31, 2016 (1 Australian dollar = 0.72355 U.S. dollar).

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2016 NONQUALIFIED DEFERRED COMPENSATION

| NAME — Douglas R.
Oberhelman | PLAN NAME 1 — SDCP | $ 80,100 | $ 40,050 | $ 1,239,978 | $ 4,308,984 |
| --- | --- | --- | --- | --- | --- |
| | SEIP | $ | $ | $ 287,494 | $ 980,618 |
| | DEIP | $ | $ | $ 539,682 | $ 1,951,822 |
| Bradley M.
Halverson | SDCP | $ 31,279 | $ 15,639 | $ 367,585 | $ 1,287,511 |
| | SEIP | $ | $ | $ 1,337 | $ 4,559 |
| | DEIP | $ | $ | $ 25,296 | $ 86,291 |
| Robert B. Charter | SDCP | $ 27,886 | $ 13,943 | $ 1,132 | $ 42,961 |
| Jim Umpleby | SDCP | $ 33,638 | $ 16,819 | $ 484,167 | $ 2,384,883 |
| | SEIP | $ | $ | $ 2,353 | $ 32,591 |
| | DEIP | $ | $ | $ 306,161 | $ 2,665,759 |
| David P. Bozeman | SDCP | $ 15,551 | $ 76,803 | $ 166,201 | $ 1,015,649 |

1 The Supplemental Deferred Compensation Plan (SDCP) is a non-qualified deferred compensation plan adopted in March 2007 with a retroactive effective date of January 1, 2005, which effectively replaced the Supplemental Employees Investment Plan (SEIP) and Deferred Employees Investment Plan (DEIP). 2 SDCP allows eligible U.S. employees, including all NEOs, to voluntarily defer a portion of their base salary and annual incentive pay into the plan and receive a Company matching contribution. SPP pay may also be deferred, but does not qualify for any Company matching contributions. Amounts deferred by executives in 2016 for base salary, annual incentive pay and/or long-term cash incentive payouts are included in the 2016 Summary Compensation Table. Matching and/or annual non-elective contributions in non-qualified deferred compensation plans made by Caterpillar in 2016 are also included in the 2016 All Other Compensation Table under the Matching Contributions SDCP column. SDCP participants may elect a lump sum payment, or an installment distribution payable for up to 15 years after separation. 3 Aggregate earnings comprise interest, dividends, capital gains and appreciation/depreciation of investment results. The investment choices available to the participant mirror those of the Companys 401(k) plan. 4 Amounts in this column include the following amounts that were previously reported in the Summary Compensation Table for the years 20142016 as follows: Mr. Oberhelman $829,791; Mr. Halverson $301,690; Mr. Charter $41,829; Mr. Umpleby $354,520 and Mr. Bozeman $92,354.

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

Except for customary provisions in employee compensation plans and as required by law, there are no pre-existing severance or change in control agreements with the NEOs.

The following is a summary of the compensation that would become payable under the existing compensation plans if an NEOs employment had terminated on December 31, 2016 in each of the following scenarios:

| ● | Voluntary Separation, including
retirement that does not qualify as Long-Service
Separation |
| --- | --- |
| ● | Long-Service Separation
(separation after age 55 with 5 or more years of Company service effective
with the 2011 equity grant, and age 55 with 10 or more years of service
for prior year grants) |
| ● | Termination for
Cause |
| ● | Termination without Cause or for
Good Reason within one year following a change in control (Termination
following CIC) |

| EQUITY AWARDS — Voluntary Separation | ● | Stock Options and SARs: Vested awards are exercisable
until the earlier of the expiration date or 60 days from the separation
date; unvested awards are forfeited |
| --- | --- | --- |
| | ● | PRSUs and RSUs: Unvested awards are
forfeited |
| Long-Service Separation | ● | Stock Options and SARs granted prior to 2016: Vest and
are exercisable until the earlier of the expiration date or 60 months from
the separation date |
| | ● | Stock Options and SARs granted in 2016: Vest and become
immediately exercisable for the remaining term of the award |
| | ● | RSUs: Accelerated vesting; Chairmans RSU Awards granted
prior to May 2014 are not eligible for Long-Service Separation
treatment |
| | ● | PRSUs: Remain outstanding and vest if and to
the extent performance goals are achieved |
| Termination for Cause | ● | Stock Options and SARs: Vested but unexercised awards and
unvested awards are forfeited |
| | ● | PRSUs and RSUs: Unvested awards are
forfeited |
| Termination following CIC | ● | Stock Options and SARs: Vest and become immediately
exercisable for remaining term of the award |
| | ● | PRSUs and RSUs: Accelerated vesting of outstanding
awards |
| ANNUAL INCENTIVE
PLAN | | |
| Voluntary Separation | ● | Payment is forfeited |
| Long-Service Separation | ● | Payment for a pro-rated service period based
on actual results |
| Termination for Cause | ● | Payment is forfeited |
| Termination following CIC | ● | Payment for a pro-rated service period assuming
achievement of target opportunity |
| STRATEGIC PERFORMANCE
PLAN | | |
| Voluntary Separation | ● | Payment is forfeited |
| Long-Service Separation | ● | Payment for a pro-rated service period based
on actual results |
| Termination for Cause | ● | Payment is forfeited |
| Termination following CIC | ● | Payment for entire performance period assuming
achievement of maximum opportunity |

DEFERRED COMPENSATION

The 2016 Nonqualified Deferred Compensation table on page 47 describes unfunded, non-qualified deferred compensation plans that permit the deferral of salary, bonus and short-term cash performance awards by NEOs. These plans also provide for matching and/or annual non-elective contributions by the Company. NEOs are eligible to receive the amount in their deferred compensation accounts following termination under any termination scenario unless the NEO elected to further defer the payment as permitted by the plans.

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SEVERANCE PAY

The Company is not obligated to provide any special severance payments to any NEOs.

DEPARTURE OF DAVID P. BOZEMAN

Mr. Bozeman served as an executive officer of the company through December 31, 2016. Mr. Bozemans position was eliminated in connection with the Companys ongoing restructuring efforts, and in consideration of his service to the Company, as well as a release of claims in favor of the Company, Mr. Bozeman was provided a severance payment of $2,300,000. In addition, the Committee approved the accelerated, pro-rata vesting of 666 shares of restricted stock units and 96,359 stock options previously granted to Mr. Bozeman and a 12-month post-separation exercise period. The Committee also approved continued, pro-rata vesting of his outstanding 2015-2017 and 2016-2018 PRSUs, with the level determined based on actual performance during the respective performance periods.

POST RETIREMENT BENEFITS FOR DOUGLAS R. OBERHELMAN

TERMS AND POTENTIAL PAYMENTS CHANGE IN CONTROL

The following tabular information quantifies certain payments that would become payable under existing plans and arrangements if the NEOs employment had terminated on December 31, 2016. The information is provided relative to the NEOs compensation and service levels as of the date specified. If applicable, they are based on the Companys closing stock price on December 30, 2016.

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

| NAME | TERMINATION
SCENARIO | EQUITY AWARDS — STOCK OPTIONS/ SARS 1 | PRSUs/RSUs 2 | INCENTIVE — SHORT-TERM INCENTIVE 3 | LONG-TERM INCENTIVE 4 | POST TERMINATION BENEFITS | TOTAL |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Douglas R. Oberhelman | Voluntary Separation | $ | $ | $ | $ | | $ |
| | Long-Service Separation | $ 10,315,168 | $ 5,127,595 | $ 2,800,014 | $ | | $ 18,242,777 |
| | Termination for Cause | $ | $ | $ | $ | | $ |
| | Termination following
CIC | $ 10,315,168 | $ 5,127,595 | $ 5,600,028 | $ | | $ 21,042,791 |
| Bradley M. Halverson | Voluntary Separation | $ | $ | $ | $ | | $ |
| | Long-Service Separation | $ 3,397,180 | $ 1,625,361 | $ 904,259 | $ | | $ 5,926,800 |
| | Termination for Cause | $ | $ | $ | $ | | $ |
| | Termination following
CIC | $ 3,397,180 | $ 1,625,361 | $ 1,808,518 | $ | | $ 6,831,059 |
| Robert B. Charter | Voluntary Separation | $ | $ | $ | $ | | $ |
| | Long-Service Separation | $ | $ | $ | $ | | $ |
| | Termination for Cause | $ | $ | $ | $ | | $ |
| | Termination following
CIC | $ 3,120,591 | $ 1,411,225 | $ 1,678,466 | $ | | $ 6,210,282 |
| Jim Umpleby | Voluntary Separation | $ | $ | $ | $ | | $ |
| | Long-Service Separation | $ 3,730,789 | $ 1,749,169 | $ 938,176 | $ | | $ 6,418,134 |
| | Termination for Cause | $ | $ | $ | $ | | $ |
| | Termination following
CIC | $ 3,730,789 | $ 1,749,169 | $ 1,876,352 | $ | | $ 7,356,310 |
| David P. Bozeman | Voluntary Separation | $ | $ | $ | $ | | $ |
| | Long-Service Separation | $ | $ | $ | $ | | $ |
| | Termination for Cause | $ | $ | $ | $ | | $ |
| | Termination following CIC | $ 2,141,726 | $ 1,035,720 | $ 698,904 | $ | | $ 3,876,350 |

1 For valuation purposes, as of December 30, 2016, when the closing price of Caterpillar common stock was $92.74, the 2015 and 2016 grants were in the money while the 2014 option exercise price was higher than the year-end closing price thus the 2014 grant was underwater. The 2014, 2015 and 2016 grants were not fully vested as of December 31, 2016. 2 The valuation shown is based upon the number of PRSUs and RSUs that would vest multiplied by the closing price of Caterpillar common stock on December 30, 2016, which was $92.74 per share. 3 The plan provisions limit the payout to a maximum of $15.0 million in any single year. Amounts shown for Termination following CIC represent the maximum payout available under AIP for all NEOs. 4 In years before 2015, long-term incentive compensation design was based on two components a rolling three-year cash plan and market-based stock option grants. Beginning in 2015, the Committee revised the long-term incentive plan, eliminating the cash portion for NEOs and replacing it with stock-settled PRSUs. There are no amounts shown for termination following CIC as there are no longer any outstanding rolling three-year cash plan performance periods for the NEOs listed.

COMPENSATION RISK

The Compensation Committee regularly reviews the Companys compensation policies and practices, including the risks created by the Companys compensation plans. In addition, the Company also conducted a review of its compensation plans and related risks to the Company. The Company reviewed its analysis with the Committee and the Committees independent compensation consultant, and the Committee concluded the compensation plans reflected the appropriate compensation goals and philosophy. Based on this review and analysis, the Company has concluded that any risks arising from the Companys compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

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PROPOSAL 4 ADVISORY VOTE ON THE FREQUENCY OF EXECUTIVE COMPENSATION VOTES

PROPOSAL SNAPSHOT
● What am I voting on?
Shareholders are being asked to
indicate whether they prefer an advisory vote on executive compensation
every one, two or three years.
●	Voting Recommendation: ONE
YEAR

The Dodd-Frank Act requires Caterpillar shareholders to vote, on an advisory or non-binding basis, on how frequently they would like to cast an advisory vote on the compensation of the Companys named executive officers. By voting on this proposal, shareholders may indicate whether they would prefer an advisory vote on named executive officer compensation once every one, two or three years.

The Board believes that conducting advisory vote on executive compensation on an annual basis is appropriate for Caterpillar and its shareholders at this time. However, the Board intends to hold say-on-pay votes in the future in accordance with the alternative that receives the most shareholder support.

PROPOSAL 5 APPROVE THE AMENDED AND RESTATED 2014 LONG-TERM INCENTIVE PLAN

PROPOSAL SNAPSHOT
● What am I voting on?
Shareholders are being asked to
approve changes to the long-term incentive plan, including increasing the
number of shares authorized for issuance under the plan.
●	Voting Recommendation: FOR proposal

INTRODUCTION

On April 12, 2017, the Board approved an amendment and restatement of the Caterpillar Inc. 2014 Long-Term Incentive Plan (as amended and restated, the 2014 LTIP) The amendment and restatement increases the total number of shares available for issuance under the 2014 LTIP from 38,800,000 to 74,800,000, modifies the permitted performance measures and increases the annual award limits applicable to non-employee directors. The Board approved the 2014 LTIP subject to approval by the Companys shareholders. If the 2014 LTIP is not approved by shareholders, the Company will continue to operate the 2014 LTIP pursuant to its current provisions.

Purpose of the amendment and restatement. The Board approved the 2014 LTIP to increase the number of shares available for future issuances and approve the other changes described above.

As of March 31, 2017, 11,434,997 shares of the Companys common stock remained available for issuance under the 2014 LTIP. The amendment and restatement increases the aggregate number of shares reserved for issuance under the 2014 LTIP from 38,800,000 to 74,800,000. Accordingly, if the 2014 LTIP is approved, approximately 47,434,997 shares of the Companys Common Stock will be available for issuance under the 2014 LTIP. Under the terms of the 2014 LTIP, this number may be increased to the extent that shares subject

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to awards previously granted under the 2014 LTIP are not issued because of the expiration, termination, cancellation of forfeiture of an award or the settlement of an award in cash.

Given the limited number of shares that currently remain available under the 2014 LTIP, our Board and management believe it is important that the 2014 LTIP be approved in order to maintain the Companys ability to attract and retain key personnel and continue to provide them with strong incentives to contribute to the Companys future success.

Approval of the 2014 LTIP will also constitute re-approval, for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (Code), of the material terms of the performance measures contained in the 2014 LTIP (described below) that are to be used in connection with awards under the 2014 LTIP that are intended to qualify as performance-based compensation for purposes of Section 162(m). One of the conditions for compensation to be considered performance-based under Section 162(m) is that the material terms under which such compensation will be paid (the class of eligible employees, performance criteria and the per-person maximums) be disclosed to and approved by shareholders every five years.

The 2014 LTIP allows us to grant equity and cash incentive awards to our executive officers, employees, non-employee Board members and other service providers. We believe that a comprehensive incentive compensation program serves as a necessary and significant tool to attract and retain key employees, encourage participants to contribute materially to the growth of Caterpillar and align the interests of our participants with those of our shareholders.

As of March 31, 2017:

| Total Stock Options and Stock Appreciation Rights
Outstanding | 32,582,965 |
| --- | --- |
| Total Restricted Stock Units Outstanding | 2,617,032 |
| Total Performance-Based Restricted Stock Units
Outstanding | 1,162,951 |
| Weighted-Average Exercise Price of Stock Options and Stock
Appreciation Rights Outstanding | $84.73 |
| Total Shares Available for Grant under the 2014 Long Term
Incentive Plan | 11,434,997 |
| Weighted-Average Remaining
Term of Stock Options and Stock Appreciation Rights Outstanding | 6.34
years |

As of the record date, April 17, 2017, total common stock outstanding was 589,157,050.

PRINCIPAL FEATURES OF THE 2014 LTIP

The 2014 LTIP includes features that take into account our shareholders interests, including:

| ● | The 2014 LTIP provides for a
variety of equity and equity-based awards, including stock options, stock
appreciation rights, stock, restricted stock, restricted stock units, and
stock- or cash-based performance awards. The breadth of awards available
under the 2014 LTIP provides the Compensation and Human Resources
Committee (Committee) the flexibility to structure appropriate incentives
and respond to market-competitive changes in compensation
practices. |
| --- | --- |
| ● | The 2014 LTIP uses fungible
share counting, that is, for each share of stock issued in connection
with a stock award, restricted stock award, restricted stock unit,
performance share or other similar full-value award, we will reduce the
number of shares available for future issuance by 2.75 shares, and for
each share of stock issued in connection with an option or stock-settled
stock appreciation right, by one share. |
| ● | There is no evergreen
provision. |
| ● | There are limitations on the number of shares
and the value of any cash-based award that may be granted or paid to any participant under the 2014 LTIP in any
fiscal year or performance period. |
| ● | Repricing of options and stock
appreciation rights is prohibited without shareholder
approval. |
| ● | Discounted options and stock
appreciation rights are prohibited. |
| ● | Shares repurchased on the open
market with proceeds from the exercise of stock options will not be
returned to the share reserve. |
| ● | There is no single trigger
vesting for awards that continue or are assumed in connection with a
change in control. However, upon a participants qualifying termination of
employment within two years following a change in control, outstanding
awards will vest in full (i.e. double trigger). |
| ● | Awards are subject to forfeiture
upon violation of non-solicitation and confidentiality
provisions. |
| ● | Awards are subject to forfeiture
and clawback in connection with misconduct that results in a restatement
of financial statements. |
| ● | No dividends or dividend
equivalents will be paid on performance-based awards unless the
performance goals are satisfied. |

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● The 2014 LTIP includes a series of performance criteria which the Committee may use in establishing specific targets to be attained as a condition to the vesting of restricted stock awards, restricted stock units, performance shares or other stock-based or cash-based incentive awards under the plan so as to qualify the compensation attributable to those awards as performance-based compensation for purposes of Section 162(m) of the Code. This statutory provision generally disallows an income tax deduction to publicly held companies for compensation which exceeds $1 million per individual within a designated executive officer group, unless that compensation is tied to the attainment of certain performance milestones established by an independent compensation committee under a shareholder-approved plan. Shareholder approval of the 2014 LTIP will also be considered approval of the material terms of the performance criteria under the 2014 LTIP. The Committee will retain discretion to determine the structure of all awards made pursuant the 2014 LTIP, including whether such awards comply with the applicable requirements for performance-based compensation under Section 162(m) of the Code.

SUMMARY DESCRIPTION OF 2014 LTIP

The following is a summary of the principal features of the 2014 LTIP. The summary, however, is not a complete description of all the terms of the 2014 LTIP and is qualified in its entirety by reference to the complete text of the 2014 LTIP attached to this Proxy Statement as Appendix A. To the extent there is a conflict between this summary and the actual terms of the 2014 LTIP, the terms of the 2014 LTIP will govern. Awards to be made under the 2014 LTIP will be entirely in the discretion of the Committee and are therefore not currently determinable.

| Administration | The Committee has the exclusive
authority to administer the 2014 LTIP with respect to awards made to our
executive officers. The Committee also has the authority to make awards to
all other eligible individuals. The Committee may at any time
appoint a secondary committee of one or more directors to have separate
but concurrent authority with the Committee to make awards to such other
eligible individuals. The Committee may also delegate authority to one or
more officers of Caterpillar with respect to awards to such other
individuals. The term plan administrator, as used in this summary,
means the Committee and any delegates, to the extent they are acting
within the scope of their administrative authority under the 2014
LTIP. |
| --- | --- |
| Eligibility | Persons that are or are expected
to become officers or employees, non-employee directors, consultants and
independent contractors of the Company or one of our subsidiaries are
eligible to participate in the 2014 LTIP. Historically, the Committee has
selected only management level employees to receive equity grants. Our
twelve non-employee directors receive equity grants pursuant to our
director compensation program. Approximately 2,100 management-level
employees received equity grants in the 2017 annual equity grant cycle,
which occurred on March 6, 2017. |
| Share Reserve | Subject to capitalization
adjustments described below, approximately 47,434,997 million shares of
common stock will initially be reserved for issuance under the 2014 LTIP.
The shares of common stock issuable under the 2014 LTIP may be drawn from
shares of our authorized but unissued common stock or from treasury shares
(including shares of our common stock that we purchase on the open market
or in private transactions). |
| Fungible Share
Counting | The number of shares of common
stock reserved for issuance under the 2014 LTIP shall be reduced: (i) on a
1-for-1 basis for each share of common stock subject to an option or
stock-settled stock appreciation right, and (ii) by a fixed ratio of 2.75
shares of common stock for each share of common stock issued pursuant to a
stock award, restricted stock award, restricted stock unit, performance
share or other full-value award. |
| Individual Limits | Subject to capitalization
adjustments, no participant in the 2014 LTIP may receive: (i) options or
stock appreciation rights in any fiscal year for more than 800,000 shares
of our common stock, (ii) performance-based restricted stock, restricted
stock unit or performance awards for shares of our common stock having a
fair market value on the grant date of more than $20 million for each
12-month period in the performance period or (iii) performance-based cash
awards for more than $20 million for each 12-month period in the
performance period. |

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Reuse of Shares Shares subject to any outstanding awards under the 2014 LTIP that are not issued because of the expiration, termination, cancellation or forfeiture of an award or the settlement of an award in cash will be added back to the number of shares reserved for issuance under the 2014 LTIP and will accordingly be available for subsequent issuance as follows: ● one share for each share of common stock subject to an option or stock appreciation right and ● 2.75 shares for each share of common stock subject to a full-value award. Should the exercise price of an option or stock appreciation right or any withholding taxes upon such exercise be paid in shares of our common stock (whether by delivery or withholding of shares), then the number of shares reserved for issuance under the 2014 LTIP will be reduced by the gross number of shares for which that option or stock appreciation right is exercised (including the shares delivered or withheld in connection with the exercise), and not by the net number of new shares issued under the exercised option or stock appreciation right. Should shares of common stock be withheld by us in satisfaction of the withholding taxes incurred in connection with the exercise, issuance or vesting of a full-value award, or should the participant pay such withholding taxes by delivering shares of our common stock, then the number of shares of common stock available for issuance under the 2014 LTIP will be reduced by the net number of shares issuable pursuant to that award, as calculated after any such share withholding or delivery so that the shares withheld by us or delivered by the participant for withholding of such taxes in connection with such full-value awards will again be available for issuance under the 2014 LTIP. Shares repurchased on the open market with the proceeds of the exercise price of options will not be available for issuance under the 2014 LTIP. However, shares subject to awards settled in cash will again be available in the ratios described above.

AWARDS

Under the 2014 LTIP, eligible persons may be granted options, stock appreciation rights, stock awards, restricted stock awards, restricted stock units and stock or cash-based performance awards. One or more of these awards may also be structured as Section 162(m) awards. The plan administrator will have complete discretion to determine which eligible individuals are to receive awards, the type of awards to be granted, the time or times when those awards are to be granted, the number of shares subject to each such grant, the vesting and issuance schedule (if any) to be in effect for the grant, the exercise price or other consideration for the shares, the maximum term for which the granted option or stock appreciation right is to remain outstanding and the status of any granted option as either an incentive stock option or a nonqualified option under the federal tax laws, subject to the following provisions.

Stock Options and Stock Appreciation Rights The exercise price of a stock option will not be less than one hundred percent of the fair market value of the option shares on the grant date and no option will have a term in excess of ten years, except that the term of a nonqualified option will continue if the option would otherwise expire during a blackout period in which trading in our stock is restricted. A stock appreciation right will allow the holder to exercise that right as to a specific number of shares of common stock and receive in exchange an appreciation distribution in an amount equal to the excess of (i) the fair market value of the shares of common stock as to which the right is exercised over (ii) the aggregate base price in effect for those shares. The base price per share may not be less than the fair market value per share of common stock on the date the stock appreciation right is granted, and the right may not have a term in excess of ten years, except that the term of a stock appreciation right will continue if the stock appreciation right would otherwise expire during a blackout period in which trading in our stock is restricted. Stock appreciation rights may also be granted in tandem with options; such tandem stock appreciation rights will provide the holders with the right to surrender their options for an appreciation distribution in an amount equal to the excess of (i) the fair market value of the vested shares of common stock subject to the surrendered option over (ii) the aggregate exercise price payable for those shares. The applicable award agreement will specify whether the appreciation distribution on any exercised stock appreciation right will be paid in cash or in shares of common stock.

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| Repricing/Cash-Out | The plan administrator may not
implement any of the following repricing or cash-out programs without
obtaining shareholder approval: (i) a reduction in the exercise price or
base price of any previously granted option or stock appreciation right,
(ii) a cancellation of any previously granted option or stock appreciation
right in exchange for another option or stock appreciation right with a
lower exercise price or base price or (iii) a cancellation of any
previously granted option or stock appreciation rights in exchange for
cash or another award if the exercise price of the option or the base
price of the stock appreciation right exceeds the fair market value of a
share of our common stock on the date of such cancellation, in each case
other than in connection with a change in control or the capitalization
adjustment provisions in the 2014 LTIP. |
| --- | --- |
| Stock Awards, Restricted Stock
Awards, Restricted Stock Units and Performance Shares | Stock awards may be issued
subject to performance or service vesting requirements or as fully vested
shares. The number of fully-vested shares granted under the 2014 LTIP is
limited to (i) awards to non-employee directors, (ii) awards to newly
hired employees, (iii) awards made in lieu of a cash bonus and (iv) awards
for shares that, in the aggregate, do not exceed five percent of the total
number of shares initially available under the 2014 LTIP (2,371,750
shares). Restricted stock units will entitle an award recipient to receive
shares (or cash) upon the attainment of designated performance goals or
the completion of a prescribed service period or upon the expiration of a
designated time period following the vesting of those units. Performance awards may be
denominated and paid in shares of our common stock or in cash, with
vesting tied to the attainment of performance objectives over a specified
performance period, and any service vesting or other conditions all as
established by the plan administrator. Stock awards may provide for the
payment of dividends or dividend equivalents, provided that no dividends
or dividend equivalents will be paid on performance-based awards unless
the applicable performance goals are satisfied. |
| Section 162(m) Awards and
Performance Goals | In order to meet the requirements
of Section 162(m) of the Code, which permits compensation attributable to
certain types of awards under the 2014 LTIP to qualify as
performance-based compensation that is not subject to the $1 million
limitation on the income tax deductibility of the compensation paid to
each of our named executive officers (other than our principal financial
officer) the plan administrator may grant Section 162(m) awards so that
those awards will vest only upon the achievement of certain
pre-established performance goals on one or more of the following
criteria: (i) attainment by a share of
common stock of a specified fair market value for a specified period of
time, (ii) cash flow from operations, (iii) cash flow margin or free cash
flow, (iv) cash flow per share, (v) earnings of the Company before or
after taxes and/or interest, (vi) earnings before interest, taxes,
depreciation, and/or amortization (EBITDA), (vii) EBITDA margin, (viii)
economic value added, (ix) expense levels or cost reduction goals, (x)
gross profit or margin, (xi) increase in shareholder value, (xii) interest
expense, (xiii) inventory, (xiv) market share, (xv) net assets, (xvi) net
cash provided by operations, (xvii) net operating profits after taxes,
(xviii) operating expenses, (xix) operating income, (xx) operating margin,
(xxi) operating profit after capital charge (OPACC), (xxii) percent of
dealer deliveries (PODD), (xxiii) percent of industry sales (PINS), (xxiv)
percent of parts sales (POPS), (xxv) percent of parts sales Caterpillar
branded (POPS-C), (xxvi) pretax income, (xxvii) price-to-earnings growth,
(xxviii) price realization, (xxix) primary or fully-diluted earnings per
share or profit per share, (xxx) profit after tax, (xxxi) return on
assets, (xxxii) return on equity, (xxxiii) return on invested capital,
(xxxiv) return on investments, (xxxv) return on sales, (xxxvi) revenues,
(xxxvii) sales, (xxxviii) total cash flow, (xxxix) total shareholder
(shareholder) return and (xl) strategic business criteria consisting of
one or more objectives based on meeting specified goals relating to (A)
acquisitions or divestitures, (B) business expansion, (C) realized
production system benefits, (D) cost targets, (E) customer acquisition,
(F) customer satisfaction, (G) diversity and inclusion, (H) efficiency,
(I) inventory turns, (J) realized lean benefits, (K) management of
employment practices and employee benefits, (L) market penetration, (M)
purchasing material costs, (N) quality and quality audit scores, (O)
reductions in errors and omissions, (P) reductions in lost business, (Q)
supervision of litigation and information technology, (R) sustainability
or (S) realized 6 Sigma benefits. |

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Each such goal may be expressed on an absolute or relative basis and may include comparisons based on current internal targets, the past performance of the Company (including the performance of one or more subsidiaries, divisions, or operating units) or the past or current performance of other companies (or a combination of such past and current performance). In addition to the ratios specifically listed above, performance goals may include comparisons relating to capital (including, but not limited to, the cost of capital), shareholders equity, shares outstanding, assets or net assets, sales, or any combination thereof. The applicable performance measures may be applied on a pre- or post-tax basis and may be established or adjusted in accordance with Section 162(m) of the Code to include or exclude objectively determinable components of any performance measure, including, without limitation, special charges such as restructuring or impairment charges, debt refinancing costs, extraordinary or noncash items, unusual, nonrecurring, infrequently occurring or one-time events affecting the Company or its financial statements or changes in law or accounting principles. The Committee, in its sole discretion, may amend or adjust the performance measures or other terms and conditions of an outstanding award in recognition of any permitted adjustment events, which in the case of an award that is intended to qualify as performance-based compensation under Section 162(m) of the Code, will be exercised in accordance with the requirements of Section 162(m). The Committee has the discretion to determine the structure of all awards under the 2014 LTIP, including whether such awards comply with the applicable requirements for performance-based compensation under Section 162(m) of the Code and to grant cash-based awards outside of the 2014 LTIP that may not qualify as performance-based compensation under Section 162(m) of the Code. Shareholder approval of the 2014 LTIP will also constitute approval of the material terms of the performance criteria under the 2014 LTIP for purposes of establishing the specific vesting targets for one or more awards under the 2014 LTIP that are intended to qualify as performance-based compensation under Section 162(m) of the Code. However, not all awards granted under the 2014 LTIP may be structured to qualify as such performance-based compensation and there is no guarantee that the exemption would be available for performance-based awards granted under the 2014 LTIP in any particular circumstance. To maintain flexibility in compensating our executives, the Committee reserves the right to use its judgment to grant or approve awards or compensation that is nondeductible when the Committee believes such awards or compensation is appropriate.

GENERAL PROVISIONS APPLICABLE TO ALL AWARDS

Change in Control and Vesting Acceleration A change in control will be deemed to occur if (i) there are certain changes in the composition of our Board of Directors, (ii) any person or group of related persons becomes directly or indirectly the beneficial owner of more than twenty percent of the total combined voting power of our stock, (iii) we are acquired in a merger or (iv) our shareholders approve a complete liquidation, dissolution or sale of substantially all of our assets. If, upon a change of control, the existing awards remain outstanding or are replaced with substantially equivalent awards of a successor, then the existing or substitute awards will remain governed by their respective terms; provided, however, that if a participants service with us or a successor entity is terminated without cause or for good reason within two years following a change in control, then all awards held by such participant will vest, any restrictions will lapse and uncompleted performance measures will be deemed satisfied at the target level of performance. If, following a change in control, the existing awards do not remain outstanding or are not assumed or replaced with substantially equivalent awards, then all awards will vest, any restrictions will lapse and uncompleted performance measures will be deemed satisfied at the target level of performance. The plan administrator may further cancel (A) any option or stock appreciation right in exchange for cash equal to the excess of the aggregate fair market value of the common stock subject to the award over the exercise price and (B) restricted stock awards, restricted stock units, performance share awards or other awards denominated in shares of stock, in exchange for the cash value of the award as determined by the stock price and the actual or deemed satisfaction of the performance measures.

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| | The acceleration of vesting in
the event of a change in control may be seen as an anti-takeover provision
and may have the effect of discouraging a merger proposal, a takeover
attempt or other efforts to gain control of us. |
| --- | --- |
| Changes in
Capitalization | If an equity restructuring causes
the per share value of our common stock to change, such as by reason of a
stock dividend, extraordinary cash dividend, stock split, spinoff, rights
offering, recapitalization or otherwise, equitable adjustments will be
made to the number of shares available for issuance under the plan and to
the terms of outstanding awards in a manner designed to preclude any
dilution or enlargement of the plan and the outstanding
awards. |
| Valuation | For any award made pursuant to
the 2014 LTIP, the fair market value per share of our common stock as of
any date will be deemed to be equal to the closing price of the Companys
common stock as reported on the New York Stock Exchange on such date, or
determined pursuant to such other method as may be selected by the
Committee. |
| Shareholder Rights and
Transferability | No participant will have any
shareholder rights with respect to the shares subject to an option or
stock appreciation right until such participant has exercised the option
or stock appreciation right and paid the exercise price for the purchased
shares, and any related withholding taxes. Subject to the terms of the
applicable award agreement, a participant will have full shareholder
rights with respect to any shares of common stock issued under the 2014
LTIP, whether or not his or her interest in those shares is vested. A
participant will not have any shareholder rights with respect to the
shares of common stock subject to a restricted stock unit, performance
share or other share right award until that award vests and the shares of
common stock are actually issued thereunder. Awards are not assignable or
transferable other than by will or the laws of inheritance or a domestic
relations order. However, the plan administrator may structure one or more
awards to be transferable during a participants lifetime to one or more
members of the participants family or to an estate planning trust or
charity. |
| Withholding | The plan administrator may
provide holders of awards with the right to have us withhold cash or
portion of the shares otherwise issuable to such individuals in
satisfaction of the withholding taxes to which they become subject in
connection with the exercise, vesting or settlement of the awards.
Alternatively, the plan administrator may allow such individuals to
deliver cash or previously acquired shares of our common stock in payment
of such withholding tax liability. |
| Deferral Programs | The plan administrator may
structure one or more awards so that the participants may be provided with
an election to defer the compensation associated with those awards for
federal income tax purposes. |
| Restrictive Covenants and Clawback | Awards granted under the 2014
LTIP will be subject to forfeiture and in certain cases the participant
must return amounts received if the participant breaches non-solicitation
or confidentiality covenants or engages in any misconduct that results in
Caterpillar having to restate its financial statements. |
| Amendment and
Termination | The plan administrator will have
the discretionary authority at any time to amend or accelerate the vesting
of any and all stock options, stock appreciation rights, restricted stock
awards, restricted stock units and performance awards, unless it would
cause a performance-based award not to be deductible for income tax
purposes under Section 162(m) of the Code. The Committee may terminate,
amend or modify the 2014 LTIP at any time, subject to any shareholder
approval requirements under applicable law or regulation or pursuant to
the listing standards of the stock exchange on which our shares of common
stock are at the time primarily traded. No awards may be granted under the
2014 LTIP after June 11, 2024. |

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The following table sets forth the equity awards granted over the lifetime of the 2014 LTIP to the individuals and groups indicated, as of March 31, 2017.

NAME POSITION	NUMBER OF STOCK OPTIONS	NUMBER OF RSUs
Douglas R.
Oberhelman	763,525	94,421
Former Chairman and Chief Executive
Officer
Jim Umpleby	501,040	72,249
Chief Executive Officer
Bradley M.
Halverson	348,261	46,935
Group President and Chief Financial
Officer
Robert B.
Charter	348,458	48,061
Group President
David P. Bozeman	163,755	19,706
Former Senior Vice President
All executive officers (8 persons)	2,833,483	374,214
All non-executive directors (11 persons)		51,267
All employees (other than current executive officers)
(approximately 5,553 persons)	14,884,613	5,354,002

The closing price of our common stock on March 31, 2017 was $92.76

SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF AWARDS GRANTED UNDER THE 2014 LTIP

The following is a summary of the United States Federal income taxation treatment applicable to us and the participants who receive awards under the 2014 LTIP based on United States Federal income tax laws in effect as of the date of the filing of this proxy statement. This discussion does not address all aspects of the United States Federal income tax consequences of participating in the 2014 LTIP that may be relevant to participants in light of their personal investment or tax circumstances and does not discuss any state, local or non-United States tax consequences of participating in the 2014 LTIP. Each participant is advised to consult his or her particular tax advisor concerning the application of the United States Federal income tax laws to such participants particular situation, as well as the applicability and effect of any state, local or non-United States tax laws before taking any actions with respect to any awards.

Option Grants Options granted under the 2014 LTIP may be either incentive stock options which satisfy the requirements of Section 422 of the Code or nonqualified options which are not intended to meet such requirements. The Federal income tax treatment for the two types of options differs as follows: Incentive Stock Options. No taxable income is recognized by the participant at the time of the grant, and no taxable income is recognized for regular tax purposes at the time the option is exercised, although taxable income may arise upon exercise for alternative minimum tax purposes. The participant will recognize taxable income in the year in which the purchased shares are sold or otherwise made the subject of certain other dispositions. For Federal tax purposes, dispositions are divided into two categories: (i) qualifying, and (ii) disqualifying. A qualifying disposition occurs if the sale or other disposition is made more than two years after the date the related option was granted and more than one year after the date such option was exercised for those shares. If the sale or disposition occurs before both of these two periods are satisfied, then a disqualifying disposition will result. Upon a qualifying disposition, the participant will recognize long-term capital gain in an amount equal to the excess of (i) the amount realized upon the sale or other disposition of the purchased shares over (ii) the exercise price paid for the shares. If there is a disqualifying disposition of the shares, then the excess of (i) the fair market value of those shares on the exercise date or (if less) the amount realized upon such sale or disposition over (ii) the exercise price paid for the shares will be taxable as ordinary income to the participant. Any additional gain recognized upon the disposition will be a capital gain. We will not be entitled to any income tax deduction if the participant makes a qualifying disposition of the shares. If the participant makes a disqualifying disposition of the purchased shares, then we will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal to the amount of ordinary income recognized by the participant as a result of the disposition. We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the holder in connection with the disqualifying disposition.

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| | Nonqualified Options. No taxable income is recognized by a
participant upon the grant of a nonqualified option. The participant will
recognize ordinary income in the year in which the option is exercised,
equal to the excess of the fair market value of the purchased shares on
the exercise date over the exercise price paid for the shares (and subject
to income tax withholding in respect of an employee). We will be entitled
to an income tax deduction equal to the amount of ordinary income
recognized by the participant with respect to the exercised nonqualified
option. |
| --- | --- |
| Stock Appreciation
Rights | No taxable income is recognized
upon receipt of a stock appreciation right. The holder will recognize
ordinary income in the year in which the stock appreciation right is
exercised, in an amount equal to the fair market value of the shares
issued to the holder or the amount of the cash payment made to the holder
(and subject to income tax withholding in respect of an employee). We will
be entitled to an income tax deduction equal to the amount of ordinary
income recognized by the holder in connection with the exercise of the
stock appreciation right. |
| Restricted Stock
Awards | No taxable income is recognized
upon receipt of restricted stock, unless the participant makes an election
to be taxed at the time of grant. If such election is made, the
participant will recognize compensation taxable as ordinary income (and
subject to income tax withholding in respect of an employee) at the time
of the grant in an amount equal to the excess of the fair market value of
the shares at such time over the amount, if any, paid for those shares. If
such election is not made, the holder will recognize ordinary income when
those shares subsequently vest in an amount equal to the excess of the
fair market value of the shares on the vesting date over the amount, if
any, paid for the shares (and subject to income tax withholding in respect
of an employee). Subject to the deductibility limitations of Code Section
162(m), we will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the recipient with respect to the
restricted stock award. The deduction will be allowed for the taxable year
in which such ordinary income is recognized by the recipient. In addition,
a participant receiving dividends with respect to restricted stock for
which the above-described election has not been made and prior to the time
the restrictions lapse will recognize compensation taxable as ordinary
income (and subject to income tax withholding in respect of an employee),
rather than dividend income, in an amount equal to the dividends paid and
we will be entitled to a corresponding deduction, except to the extent the
deduction limits of Code Section 162(m) apply. |
| Restricted Stock Units or
Performance Shares | No taxable income is recognized
upon receipt of restricted stock units or performance shares. The holder
will recognize ordinary income in the year in which the shares subject to
the awards are actually issued to the holder or a dividend equivalent is
paid to the holder, in an amount equal to the fair market value of the
shares on the issuance date and the amount of any cash on the payment date
(and subject to income tax withholding in respect of an employee). Subject
to the deductibility limitations of Code Section 162(m), we will be
entitled to an income tax deduction equal to the amount of ordinary income
recognized by the holder at the time the shares are
issued. |
| Cash Awards | The payment of a cash award will
result in the recipients recognition of ordinary income equal to the
dollar amount received (and subject to income tax withholding in respect
of an employee). Subject to the deductibility limitations of Code Section
162(m), we will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the recipient. Future awards under the 2014 Plan
are in the discretion of the Committee and are therefore not determinable
at this time. |

EQUITY COMPENSATION PLAN INFORMATION (AS OF MARCH 31, 2017)

| PLAN
CATEGORY — Equity compensation plans approved by security
holders | 36,362,948 | $84.73 | 11,434,997 |
| --- | --- | --- | --- |
| Equity compensation plans not approved by security
holders | N/A | N/A | N/A |
| Total | 36,362,948 | $84.73 | 11,434,997 |

1 Excludes any cash payments in-lieu-of stock.

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SHAREHOLDER PROPOSALS

Some of the following shareholder proposals contain assertions that we believe are incorrect or do not reflect all of the facts related to these issues. We have not attempted to refute all inaccuracies.

PROPOSAL 6 SHAREHOLDER PROPOSAL PROVIDE A REPORT OF LOBBYING ACTIVITIES

●
●	Voting
Recommendation: AGAINST proposal

PROPOSAL

PROPOSAL 6 LOBBYING REPORT

Whereas , we believe in full disclosure of Caterpillars direct and indirect lobbying activities and expenditures to assess whether Caterpillars lobbying is consistent with its expressed goals and in the best interests of stockholders.

Resolved , the stockholders of Caterpillar request the preparation of a report, updated annually, disclosing:

| 1. | Company policy and procedures
governing lobbying, both direct and indirect, and grassroots lobbying
communications. |
| --- | --- |
| 2. | Payments by Caterpillar used for
(a) direct or indirect lobbying or (b) grassroots lobbying communications,
in each case including the amount of the payment and the
recipient. |
| 3. | Caterpillars membership in and
payments to any tax-exempt organization that writes and endorses model
legislation. |
| 4. | Description of managements and
the Boards decision making process and oversight for making payments
described in sections 2 and 3 above. |

For purposes of this proposal, a grassroots lobbying communication is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. Indirect lobbying is lobbying engaged in by a trade association or other organization of which Caterpillar is a member.

Both direct and indirect lobbying and grassroots lobbying communications include efforts at the local, state and federal levels.

The report shall be presented to the Audit Committee or other relevant oversight committees and posted on Caterpillars website.

SUPPORTING STATEMENT

As stockholders, we encourage transparency and accountability in Caterpillars use of corporate funds to influence legislation and regulation. Caterpillar spent $11.83 million in 2014 and 2015 on federal lobbying (opensecrets.org). These figures do not include state lobbying expenditures, where Caterpillar also lobbies. Caterpillars

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lobbying on Cuba trade has attracted media attention (Illinois Business: Lets Make a Cuba Deal, Chicago Tribune, October 16, 2016), as has its lobbying on the Export-Import Bank (Caterpillar Cranks up Lobbying to Save Ex-Im Bank, Wall Street Journal, June 26, 2014).

Caterpillar serves on the board of the Chamber of Commerce, which has spent over $1.2 billion on lobbying since 1998. Caterpillar is also a member of the National Association of Manufacturers and Business Roundtable, which together spent $63.45 million on lobbying for 2014 and 2015. Caterpillar does not disclose its payments to trade associations or the amounts used for lobbying. Nor does Caterpillar disclose its contributions to tax-exempt organizations that write and endorse model legislation, such as its support for the American Legislative Exchange Council (ALEC). Over 100 companies have publicly left ALEC, including 3M, Deere, Intel and Walgreens.

Transparent reporting would reveal whether company assets are being used for objectives contrary to Caterpillars long-term interests. For example, Caterpillar supports greenhouse gas policy change through memberships in trade and lobbying associations (Committed to Coal, World Coal, September 16, 2016), yet the Chamber has sued to block the EPA Clean Power Plan to address climate change. We are concerned that Caterpillars current lack of disclosure presents reputational risk.

COMPANY RESPONSE

The Board recommends a vote AGAINST this proposal for the reasons provided below.

Caterpillar belongs to a number of trade associations representing the interests of the manufacturing industry. These organizations work to represent the industry and advocate on major policy issues of importance to Caterpillar and its customers. Caterpillars participation as a member of any trade association comes with the understanding that we may not always agree with all of the positions of the organization or other members. Each quarter Caterpillar discloses in a publicly available report the Companys total federal lobbying expenditures for the quarter which includes the portion of all trade association payments that are used for lobbying. To provide greater transparency regarding Caterpillars trade association memberships, Caterpillar voluntarily reports on its website each trade association that engages in lobbying and other political activity that has received more than $50,000 from Caterpillar in the most recently completed year. In addition, Caterpillar makes additional voluntary website disclosures regarding its engagement in public policy issues, political contributions and global issues of importance to the Company, including detailed information on the Companys position with respect to such issues.

With a view toward providing greater transparency, the Company in 2016 updated its website disclosures relating to political activity. The Company believes its disclosures related to political activity are aligned with, and in other instances exceed, its peers.

The Board does not believe that additional detailed disclosure of these amounts as contemplated by this proposal would be beneficial to shareholders.

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PROPOSAL 7 SHAREHOLDER PROPOSAL DECREASE PERCENT OF OWNERSHIP REQUIRED TO CALL SPECIAL SHAREHOLDER MEETING

●
●	Voting
Recommendation: AGAINST proposal

PROPOSAL

PROPOSAL 7 SPECIAL SHAREOWNER MEETINGS

Resolved, Shareowners ask our board to take the steps necessary (unilaterally if possible) to amend our bylaws and each appropriate governing document to give holders in the aggregate of 15% of our outstanding common stock the power to call a special shareowner meeting. This proposal does not impact our boards current power to call a special meeting.

Dozens of Fortune 500 companies allow 10% of shares to call a special meeting and this proposal is only asking that 15% of our shares be enabled to call a special meeting. Special meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. Shareowner input on the timing of shareowner meetings is especially important when events unfold quickly and issues may become moot by the next annual meeting. This is important because there could be 15-months or more between annual meetings.

This proposal is particularly important because we do not have the opportunity to act by written consent. More than 100 Fortune 500 companies provide for shareholders to call special meetings and to act by written consent. If our management adopts this proposal it will be one sign that management values our shareholder input.

Please vote to enhance shareholder value:

Special Shareowner Meetings Proposal 7

COMPANY RESPONSE

The Board recommends a vote AGAINST this proposal for the reasons provided below.

Caterpillars bylaws currently provide that persons collectively holding at least 25 percent of the Companys common stock may call a special meeting upon written request to the Companys Corporate Secretary. The current threshold is designed to strike a balance between assuring that shareholders have the ability to call a special meeting and protecting against the risk that a small minority of shareholders, including those with special interests, could trigger the expense and distraction of a special meeting to pursue matters that are not widely viewed as requiring immediate attention or for reasons that may not be in the best interests of the Company or all of our shareholders. The Companys current threshold is well within the mainstream.

Caterpillar continues to view direct shareholder engagement as key to the Companys success. To that end, Caterpillar leaders meet regularly with shareholders to discuss our strategy, operational performance, and business practices. We also meet with shareholders throughout the year to share perspectives on corporate governance and executive compensation matters. This commitment to ongoing dialogue with our shareholders, together with practices such as annual director elections, majority voting for directors, a proxy access right for nominating directors, no supermajority voting provisions and shareholders existing right to call special meetings, protects shareholder rights without the expense and risk associated with a lower special meeting threshold.

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PROPOSAL 8 SHAREHOLDER PROPOSAL PROVIDE A REPORT OF LOBBYING PRIORITIES

●
●	Voting
Recommendation: AGAINST proposal

PROPOSAL

PROPOSAL 8 LOBBYING PRIORITIES

Whereas:

Caterpillar Inc.s primary duty is to create shareholder value. The Company should pursue legal and ethical means to achieve that goal, including identifying and advocating legislative and regulatory public policies that would advance Company interests and shareholder value.

Resolved: The proponent requests that the Board of Directors, at reasonable cost and omitting proprietary information, report to shareholders on the Companys process for identifying and prioritizing legislative and regulatory public policy advocacy activities. The report should:

| 1. | Describe the process by which the
Company identifies, evaluates and prioritizes public policy issues of
interest to the Company; |
| --- | --- |
| 2. | Identify and describe public
policy issues of interest to the Company; |
| 3. | Prioritize the issues by
importance to creating shareholder value; and |
| 4. | Explain the business rationale
for prioritization. |

SUPPORTING STATEMENT:

If the Company chooses, the Board might consider disclosing in its report what actions federal, state and local governments might take to assist the Companys ability to thrive and create value for the Company, its investors and its workforce.

Corporate America has in recently faced unprecedented challenges in the form of increased regulation and taxation combined with demands from special interest groups with little, if any, interest in creating either shareholder value or opportunities for the Company to grow, create jobs and add wealth to the communities in which the Company operates.

Todays changing political climate offers a unique opportunity for corporations to once again thrive in America. Analysts have concluded that very many newly-elected officeholders intend to make improving conditions for business growth to be a high priority of their terms of office.

The pursuit of shareholder value in a lawful manner is a social good.

Shareholders hope the Company will not be passive in the face of this opportunity. If the Company chooses, without exposing proprietary or otherwise confidential information that could make it less competitive or otherwise harm the Company, it may consider communicating to elective officials, regulators, the news media, and or the public at-large what policies would best help the Company, and through it, the communities it serves, thrive.

If it chooses, the Company might also consider developing plans to defend assaults on the Company and to defend the Companys decisions, when the Company chooses to make them, to not to be involved in political or social change campaigns that are outside the Companys interests.

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COMPANY RESPONSE

The Board recommends a vote AGAINST this proposal for the reasons provided below.

The Board believes that it is in the Companys best interests to be involved in and contribute to the legislative and regulatory process. To that end, the Company engages in lobbying and other political activities, as permitted by applicable law, to further priorities that are significant to the Companys business and shareholders. Caterpillars political and advocacy activities, at both the state and federal levels, are managed by the Vice President, Global Government & Corporate Affairs who coordinates and reviews with senior management the legislative and regulatory priorities that are significant to the Companys business and shareholders, as well as related advocacy activities. To ensure appropriate Board oversight of political activities, the Boards Public Policy and Governance Committee receives regular briefings on the Companys legislative and regulatory priorities.

Each quarter Caterpillar discloses in a publicly available report the Companys total federal lobbying expenditures for the quarter which includes a description of the issues addressed by these lobbying activities. Caterpillar also identifies on its website global issues of importance to the Company and has provided detailed information on the Companys position with respect to some of these issues. Accordingly, much of the information requested by the proponent is already publicly available.

The proponent requests that the proposed report not only disclose the public policies of interest to the Company, but also the priority of such policies and the business rationale for such priority. Because parties with interests adverse to us also lobby for legislative and regulatory changes, the unilateral disclosure of this information could benefit these parties and our competitors and cause strategic harm to us.

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PROPOSAL 9 SHAREHOLDER PROPOSAL INCLUDE SUSTAINABILITY AS A PERFORMANCE METRIC UNDER EXECUTIVE INCENTIVE PLANS

●
●	Voting
Recommendation: AGAINST proposal

PROPOSAL

PROPOSAL 9 SUSTAINABILITY PERFORMANCE METRIC

RESOLVED: That the shareholders of Caterpillar request the Boards Compensation Committee, when setting senior executive compensation, include sustainability as one of the performance measures for senior executives under the Companys incentive plans. Sustainability is defined as how environmental and social considerations, and related financial impacts, are integrated into corporate strategy over the long term.

SUPPORTING STATEMENT: We believe that the long-term interests of shareholders, as well as other important constituents, are best served by companies that operate their businesses in a sustainable manner focused on long-term value creation. As the recent financial crisis demonstrates, those boards of directors and management that operate their companies with integrity and a focus on the long term are much more likely to prosper than ones that are dominated by a short-term focus.

The best means of demonstrating a companys commitment to the concept of sustainability is through incorporating it as a performance measure in the Companys annual and/or long-term incentive plans. We believe that the current failure to do so represents a serious shortcoming.

While the compensation committee has the discretion to choose the specific metrics, sustainability metrics may include evaluation of how company activities and products are affecting environmental pollution, natural resource exploitation, indigenous rights of access and control of land, other human rights considerations, and other appropriate issues of corporate social responsibility and sustainability.

In support of the principle that the integration of sustainability standards into corporate strategies serves the long-term interests of shareholders, we note the following findings:

| ● | A 2012 Harvard Business School
study concluded that firms that adopted social and environmental policies
significantly outperformed counterparts over the long-term, in terms of
stock market and accounting performance. |
| --- | --- |
| ● | The Glass Lewis report In Depth:
Linking Executive Pay to Sustainability (2016), finds a mounting body of
research showing that firms that operate in a more responsible manner may
perform better financially.... Moreover, these companies were also more
likely to tie top executive incentives to sustainability
metrics. |

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COMPANY RESPONSE

The Board recommends a vote AGAINST this proposal for the reasons provided below.

The Board agrees that the interests of shareholders are best served by companies that operate their business in a sustainable manner. Indeed, sustainability is one of Caterpillars five core values. Caterpillar was named to the Dow Jones Sustainability Indices in 2016, recognizing Caterpillars sustainability performance to be in the top ten percent of our industry.

The Compensation Committee of our Board has crafted an incentive compensation program structured around financial and operational performance measures that the committee believes are most important in driving the responsible, long-term growth of our business. Achievement of these performance measures is enhanced by reducing environmental impacts of operations, providing customers with products with best-in-class fuel efficiency and productivity and further strengthening our positive corporate image. Requiring the Compensation Committee to include a specific sustainability performance measure is unnecessary and interferes with the Compensation Committees discretion to design and monitor an effective executive compensation program that is responsive to business goals and market conditions.

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PROPOSAL 10 SHAREHOLDER PROPOSAL AMEND THE COMPANYS COMPENSATION CLAWBACK POLICY

●
●	Voting
Recommendation: AGAINST proposal

PROPOSAL

PROPOSAL 10 AMEND CLAWBACK POLICY

RESOLVED, that shareholders of Caterpillar Inc. (the Company) urge the Compensation and Human Resource Committee of the Board of Directors (the Committee) to amend the Companys clawback policy to provide that the Committee will (a) review, and determine whether to seek recoupment of, incentive compensation paid, granted or awarded to a senior executive if, in the Committees judgment, (i) there has been conduct resulting in a material violation of law or Company policy that causes significant financial or reputational harm to Company, and (ii) the senior executive engaged in such conduct or failed in his or her responsibility to manage or monitor conduct or risks; and (b) disclose the circumstances of any recoupment if (i) required by law or regulation or (ii) the Committee determines that disclosure is in the best interests of Company and its shareholders.

Recoupment is (a) recovery of compensation already paid and (b) forfeiture, recapture, reduction or cancellation of amounts awarded or granted over which Valeant retains control. These amendments should operate prospectively and be implemented so as not to violate any contract, compensation plan, law or regulation.

SUPPORTING STATEMENT

As long-term shareholders, we believe that compensation policies should promote sustainable value creation. We agree with former GE general counsel Ben Heineman Jr. that recoupment policies are a powerful mechanism for holding senior leadership accountable to the fundamental mission of the corporation: proper risk taking balanced with proper risk management and the robust fusion of high performance with high integrity. (http//:blogs.law. harvard.edu/corpgov/20 10/08/1 3/making-sense-out-of-clawbacks/)

Caterpillar has adopted a policy allowing recoupment of certain incentive pay from a corporate officer as a result of a restatement of financial results, taking into account, among other things, whether the incentive award would have been lower based on the restated results. In our view, providing for recoupment only for accounting and financial reporting noncompliance is too narrow. We believe that recoupment is an important remedy for other kinds of conduct that may not cause a restatement, but may harm Caterpillars reputation and prospects. As well, it may be appropriate to hold accountable a senior executive who did not commit misconduct but who failed in his or her management or monitoring responsibility.

Recent legal settlements underscore the need for a stronger policy in this area, notably Caterpillars agreement to pay over $2.5 million in 2011 to settle alleged Clean Air Act violations for shipping more than 590,000 highway and non-road diesel engines without the correct emissions controls and alleged failure to comply with emission control reporting and engine-labeling requirements (http://latimesblogs.latimes.com/greenspace/2011/08/caterpillar-inc-us-environmental-protection-agency-pentality-fine-clean-air-act.html). The Company also recently finalized a $60 million class action settlement related to possible defects in the Companys emission control system for certain heavy duty diesel

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engines. (http://www.pjstar.com/news/20161202/caterpillar-settles-truck-engine-suit-for-60-million). Such lawsuits have the potential to harm the Companys reputation and goodwill, however, there is no indication that the Company scrutinized these issues and whether a recoupment of incentive compensation by the senior officers involved is warranted.

COMPANY RESPONSE

The Board recommends a vote AGAINST this proposal for the reasons provided below.

This proposal is unnecessary because the Company has already adopted a customary and robust executive compensation clawback policy. Our current clawback policy allows the Compensation Committee to recoup cash and equity incentive compensation from officers if their conduct contributed to an accounting restatement. The policy provides the Compensation Committee with discretion to ensure that recoupment would be in the best interests of the Company, but avoids the vague and subjective standards advocated by this proposal. The Companys current compensation structure and recoupment tools strike the right balance to motivate executives to deliver long-term results, while at the same time discouraging inappropriate behavior.

The proponents amendment would introduce vague and imprecise standards into the recoupment process by requiring recoupment if there has been conduct resulting in a violation of law or Company policy that causes significant financial or reputational harm to the Company or if he or she failed in his or her responsibility to manage or monitor conduct or risks. There is no definition or measurable standard for what conduct qualifies or for calculating the recoupment amount resulting from such harm. The proposed amendment would undermine the effectiveness of our performance-based compensation by introducing the type of discretionary, subjective evaluations that we have sought to avoid under our performance-based programs.

Requiring public disclosure of all recoupment action could be harmful. SEC rules already require disclosure of recoupment action taken against our CEO, CFO and other named executive officers. Disclosure of recoupment action impacting other officers should be at the Boards discretion in order to balance investors interest in receiving the information with applicable legal, commercial and privacy concerns.

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PROPOSAL 11 SHAREHOLDER PROPOSAL ADOPT A PERMANENT POLICY THAT THE CHAIRMAN BE INDEPENDENT

●
●	Voting
Recommendation: AGAINST proposal

PROPOSAL

PROPOSAL 11 INDEPENDENT BOARD CHAIRMAN

Shareholders request our Board of Directors to adopt as permanent policy, and amend our governing documents as necessary, to require the Chair of the Board of Directors, whenever possible, to be an independent member of the Board. The Board would have the discretion to phase in this policy for the next CEO transition, implemented so it does not violate any existing agreement. If the Board determines that a Chair who was independent when selected is no longer independent, the Board shall select a new Chair who satisfies the requirements of the policy within a reasonable amount of time. Compliance with this policy is waived if no independent director is available and willing to serve as Chair. This proposal requests that all the necessary steps be taken to accomplish the above.

Caterpillar reversed itself by temporarily naming an independent board chairman in October 2016. Caterpillar had opposed a shareholder proposal for an independent board chairman as recently as its June 2016 annual meeting. Wells Fargo also reversed itself and named an independent board chairman in October 2016.

According to Institutional Shareholder Services 53% of the Standard & Poors 1,500 firms separate these 2 positions 2015 Board Practices, April 12, 2015. This proposal topic won 50%-plus support at 5 major U.S. companies in 2013 including 73%-support at Netflix.

It is the responsibility of the Board of Directors to protect shareholders long-term interests by providing independent oversight of management. By setting agendas, priorities and procedures, the Chairman is critical in shaping the work of the Board.

Having a board chairman who is independent of management is a practice that will promote greater management accountability to shareholders and lead to a more objective evaluation of management.

A number of institutional investors said that a strong, objective board leader can best provide the necessary oversight of management. Thus, the California Public Employees Retirement Systems Global Principles of Accountable Corporate Governance recommends that a companys board should be chaired by an independent director, as does the Council of Institutional Investors. An independent director serving as chairman can help ensure the functioning of an effective board.

Please vote to enhance shareholder value:

Independent Board Chairman Proposal 11

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COMPANY RESPONSE

The Board recommends a vote AGAINST this proposal for the reasons provided below.

In recent times, the role of Caterpillars Chairman has been filled by an independent director, the current CEO and a former CEO. In each case, the decision was made by the independent directors based on all relevant factors. The Boards Guidelines on Corporate Governance Issues provide that the Board will regularly evaluate the Board leadership structure. Currently the Chairman is an independent director. The Board believes that it should choose a Board leadership structure based on the facts and circumstances at any particular time. The Boards guidelines provide that if the Chairman is not an independent director, then an independent director will serve as the Presiding Director with the following duties and responsibilities: (i) presiding at all meetings of the Board at which the Chairman is not present; (ii) serving as a liaison between the CEO and the independent directors; (iii) approving information sent to the Board; (iv) approving meeting agendas for the Board; (v) approving meeting schedules to assure that there is sufficient time for discussion; (vi) authority to call meetings of the independent directors; and (vii) being available for consultation and direct communication with major shareholders.

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OTHER IMPORTANT INFORMATION

PERSONS OWNING MORE THAN FIVE PERCENT OF CATERPILLAR COMMON STOCK

The following table lists those persons or groups (based on a review of Schedule 13Gs filed with the SEC) who beneficially own more than five percent of Caterpillar common stock as of December 31, 2016.

| NAME AND ADDRESS | VOTING
AUTHORITY — SOLE | SHARED | DISPOSITIVE
AUTHORITY — SOLE | SHARED | TOTAL AMOUNT OF
BENEFICIAL OWNERSHIP | PERCENT OF
CLASS |
| --- | --- | --- | --- | --- | --- | --- |
| State Street Corporation and various direct and
indirect subsidiaries 1 State Street Financial Center One
Lincoln Street Boston, MA 02111 | 0 | 32,314,408 | 0 | 53,605,278 | 53,605,278 | 9.16 |
| The Vanguard Group 2 100 Vanguard
Blvd. Malvern, PA 19355 | 916,786 | 111,306 | 36,483,391 | 1,021,177 | 37,504,568 | 6.41 |
| BlackRock, Inc. 55 East
52 nd Street New York, NY 10055 | 30,324,917 | 26,872 | 35,155,354 | 26,872 | 35,182,226 | 6.00 |

1 State Street Bank and Trust Company serves as investment manager for certain Caterpillar defined contribution plans (21,290,870 shares). 2 Beneficial ownership includes 751,995 shares for which Vanguard Fiduciary Trust Company (VFTC), a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner, as a result of serving as investment manager of collective trust accounts. VFTC directs the voting of these shares. Beneficial ownership also includes 433,973 shares for which Vanguard Investments Australia, Ltd. (VIA), a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner as a result of its serving as investment manager of Australian investment offerings.

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SECURITY OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS

Security ownership of Caterpillars Executive Officers, Board of Directors and Nominees to the Board of Directors (as of December 31, 2016) is included in the following table.

David P. Bozeman	COMMON STOCK 1 — 23,790	166,910	0	PERCENT OF CLASS — *
David L. Calhoun	31,320	0	1,672	*
Robert B. Charter	25,966	116,882	0	*
Daniel M. Dickinson	11,272	0	1,672	*
Juan Gallardo	268,583	5,833	1,672	*
Jesse J. Greene, Jr.	11,960	0	1,672	*
Bradley M. Halverson	20,068	175,406	290,131	*
Jon M. Huntsman, Jr.	3,919	0	0	*
Dennis A. Muilenburg	7,886	0	0	*
Douglas R.
Oberhelman	232,820	1,418,774	909,389	*
William A. Osborn	55,272	0	1,672	*
Debra L. Reed	2,075	0	0	*
Edward B. Rust, Jr.	28,052	0	1,672	*
Susan C. Schwab	13,121	0	1,672	*
Jim Umpleby	36,792	188,410	315,567	*
Miles D. White	4,334	0	1,672	*
Rayford Wilkins,
Jr. 3	0	0	0	*
All directors and
executive officers as a group 4 (20 persons)	841,852	2,437,846	1,742,526	*

1 Common stock that is directly or indirectly beneficially owned, including stock that is individually or jointly owned and shares over which the individual has either sole or shared investment or voting authority. 2 SARs or RSUs that are not presently exercisable within 60 days but that would become immediately exercisable if such individual was eligible to retire and elected to retire pursuant to long-service separation. 3 Mr. Wilkins joined the Board in April 2017. 4 None of the shares held by the group has been pledged. * Less than 1 percent.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC and the NYSE, and to furnish Caterpillar with copies of such forms. Based on our review of the forms we have received, or written representations from reporting persons, we believe that, during 2016, each of our executive officers and directors complied with all such filing requirements, with the exception of one late Form 4 filing by David P. Bozeman disclosing one transaction, which was filed late due to an administrative error.

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MATTERS RAISED AT THE ANNUAL MEETING NOT INCLUDED IN THIS STATEMENT

We do not know of any matters to be acted upon at the Annual Meeting other than those discussed in this statement. If any other matter is properly presented, proxy holders will vote on the matter in their discretion.

SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR THE 2018 ANNUAL MEETING

A proposal for action or the nomination of a director to be presented by any shareholder at the 2018 annual meeting of shareholders will be acted on only:

| ● | If the proposal is to be included
in our proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, the proposal is received at the office of the
Corporate Secretary on or before January 2, 2018; |
| --- | --- |
| ● | If the proposal or the nomination
of a director is not to be included in the proxy statement, the proposal
is received at the office of the Corporate Secretary no earlier than
February 14, 2018, and no later than April 15, 2018. |
| ● | If the proposal is for the
nomination of directors to be included in our proxy statement pursuant to
proxy access under Article II, Section 4 of Caterpillars bylaws, the
proposal is received at the office of the Corporate Secretary no earlier
than December 3, 2017, and no later than January 2,
2018. |

In each case, your proposal or nomination must be delivered in the manner and accompanied by the information required in our bylaws. You may request a copy of the bylaws by writing to Caterpillar Inc. c/o Corporate Secretary at our principal executive offices. Our bylaws are also available on our website at www.caterpillar.com/governance. As of the date of this proxy statement, our principal executive offices are located at 100 NE Adams Street, Peoria, Illinois 61629, but we have announced plans to establish our principal executive offices in the Chicago, Illinois area by the end of 2017. The location of our new principal executive offices will be reflected in our future filings with the SEC and, upon the change in the location of our principal executive offices, shareholder proposals, director nominations and requests for copies of our bylaws should be delivered to that address. Additionally, we request that you send a copy to the following facsimile number: 309-675-6620.

ACCESS TO FORM 10-K

On written request, we will provide, without charge to each record or beneficial holder of Caterpillar common stock as of April 17, 2017, a copy of our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC, including the financial statements and schedules. Written requests should be directed to Caterpillar Inc. c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629.

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FREQUENTLY ASKED QUESTIONS REGARDING MEETING ATTENDANCE AND VOTING

Q: Why am I receiving these proxy materials?

A: You have received these proxy materials because you are a Caterpillar shareholder and Caterpillars Board of Directors is soliciting your authority (or proxy) to vote your shares at the Annual Meeting. This proxy statement includes information that we are required to provide to you under SEC rules and is designed to assist you in voting your shares.

Q: How do I obtain an admission ticket to attend the Annual Meeting?

A: Anyone wishing to attend the Annual Meeting must have an admission ticket. Admission is limited to:

| ● | Shareholders on April 17, 2017, together with
one immediate family member; |
| --- | --- |
| ● | Authorized proxy holders of Shareholders on
April 17, 2017; or |
| ● | An authorized representative of a registered
shareholder who has been designated to present a shareholder
proposal. |

You must provide evidence of your ownership of shares with your ticket request and follow the requirements for obtaining an admission ticket specified in the Admission and Ticket Request Procedure on page 77. Accredited members of the media and analysts are also permitted to attend the Annual Meeting by following the directions provided in the Admission and Ticket Request Procedure on page 77.

Q: What is the difference between a registered shareholder and a street name holder?

A: A registered shareholder is a shareholder whose ownership of Caterpillar common stock is reflected directly on the books and records of our transfer agent, Computershare Shareowner Services LLC. If you hold stock through a bank, broker or other intermediary, you hold your shares in street name and are not a registered shareholder. For shares held in street name, the registered shareholder is a bank, broker or other intermediary. Caterpillar only has access to ownership records for registered shareholders.

Q: When was the record date and who is entitled to vote?

A: The Board set April 17, 2017 as the record date for the Annual Meeting. Holders of Caterpillar common stock as of the record date are entitled to one vote per share. As of April 17, 2017, there were 589,157,050 shares of Caterpillar common stock outstanding. A list of all registered shareholders as of the record date will be available for examination by shareholders during normal business hours at 100 NE Adams Street, Peoria, Illinois 61629 at least ten days prior to the Annual Meeting and will also be available for examination at the Annual Meeting.

Q: How do I vote?

A: You may vote by any of the following methods:

| ● | In Person Shareholders that obtain an admission ticket and
attend the Annual Meeting will receive a ballot for voting. If you hold
shares in street name, you must also obtain a legal proxy from your broker
to vote in person and submit the proxy along with your ballot at the
meeting. |
| --- | --- |
| ● | By Mail Complete, sign and return the proxy and/or voting
instruction card provided. |
| ● | By Mobile
Device Scan this QR code and follow
the voting links. |
| ● | By Phone Follow the instructions on your Internet Notice,
proxy and/or voting instruction card or email notice. |
| ● | By Internet Follow the instructions on your Internet Notice, proxy
and/or voting instruction card or email notice. |

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If you vote by phone, mobile device or the Internet, please have your Internet Notice, proxy and/or voting instruction card or email notice available. The control number appearing on your Internet Notice, proxy and/or voting instruction card or email notice is necessary to process your vote. A mobile device, phone or Internet vote authorizes the named proxies in the same manner as if you marked, signed and returned the card by mail.

Q: How do I vote my 401(k) or savings plan shares?

A: If you participate in a 401(k) or savings plan sponsored by Caterpillar or one of its subsidiaries that includes a Caterpillar stock investment fund, you may give voting instructions to the plan trustee with respect to the shares of Caterpillar common stock in that fund that are associated with your plan account. The plan trustee will follow your voting instructions unless it determines that to do so would be contrary to law. If you do not provide voting instructions, the plan trustee will act in accordance with the employee benefit plan documents. In general, the plan documents specify that the trustee will vote the shares for which it does not receive instructions in the same proportion that it votes shares for which it received timely instructions, unless it determines that to do so would be contrary to law. You may revoke previously given voting instructions by following the instructions provided by the trustee.

Q: What are broker non-votes and why is it important that I submit my voting instructions for shares I hold in street name?

A: Under the rules of the New York Stock Exchange (NYSE), if a broker or other financial institution holds your shares in its name and you do not provide your voting instructions to them, that firms discretion to vote your shares for you is very limited. For this Annual Meeting, in the absence of your voting instructions, your broker only has discretion to vote on Proposal 2, the ratification of the appointment of our independent registered public accounting firm. It does not have discretion to vote your shares for any of the other proposals expected to be presented at the Annual Meeting. If you do not provide voting instructions and your broker elects to vote your shares on Proposal 2, the missing votes for each of the other proposals are considered broker non-votes. Whether or not you plan to attend the Annual Meeting, we encourage you to vote your shares promptly.

Q: How can I authorize someone else to attend the Annual Meeting or vote for me?

A: Registered shareholders can authorize someone other than the individual(s) named on the proxy and/or voting instruction card to attend the meeting or vote on their behalf by crossing out the individual(s) named on the card and inserting the name of the individual being authorized or by providing a written authorization to the individual being authorized. Street name holders can authorize someone other than the individual(s) named on the legal proxy obtained from their broker to attend the meeting or vote on their behalf by providing a written authorization to the individual being authorized along with the legal proxy. To obtain an admission ticket for an authorized proxy representative, see the requirements specified in the Admission and Ticket Request Procedure on page 77.

Q: How can I change or revoke my proxy?

A: Registered shareholders: You may change or revoke your proxy by submitting a written notice of revocation to Caterpillar Inc. c/o Corporate Secretary at 100 NE Adams Street, Peoria, Illinois 61629 before the Annual Meeting or by attending the Annual Meeting and voting in person. For all methods of voting, the last vote cast will supersede all previous votes.

Holders in street name: You may change or revoke your voting instructions by following the specific directions provided to you by your bank or broker.

Q: What is the quorum requirement for the Annual Meeting?

A: A quorum of shareholders is necessary to hold a valid meeting. Holders of at least one-third of all Caterpillar common stock must be present in person or by proxy at the Annual Meeting to constitute a quorum. Abstentions and broker non-votes are counted as present for establishing a quorum.

Q: What vote is necessary for action to be taken on proposals?

A: In uncontested elections, director nominees are elected by a majority vote of the shares cast, meaning that each director nominee must receive a greater number of shares voted for such director than shares voted against such director. If an incumbent director does not receive a greater number of shares voted for such director than shares voted against such director, then such director must tender his or her resignation to the Board of Directors.

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In a contested election, director nominees are elected by a plurality of the votes cast, meaning that the nominees with the most affirmative votes are elected to fill the available seats. All other actions presented for a vote of the shareholders at the Annual Meeting require an affirmative vote of the majority of shares present in person or by proxy and entitled to vote on the subject matter, except for the advisory vote on the frequency of executive compensation (Proposal 4), where the alternative receiving the most votes will be considered to be the expressed preference of the shareholders, even if those votes do not constitute a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting. Abstentions will have no effect on director elections. Abstentions will have the effect of a vote against all other proposals. Broker non-votes will not have an effect on any of the proposals presented for your vote. Votes submitted by mail, telephone, mobile device or Internet will be voted by the individuals named on the card (or the individual properly authorized) in the manner indicated. If you do not specify how you want your shares voted, they will be voted in accordance with the Boards recommendations. If you hold shares in more than one account, you must vote each proxy and/or voting instruction card you receive to ensure that all shares you own are voted.

Q: What does it mean if I receive more than one proxy card?

A: Whenever possible, registered shares and plan shares for multiple accounts with the same registration will be combined into the same proxy card. Shares with different registrations cannot be combined and as a result, you may receive more than one proxy card. For example, shares held in your individual account will not be combined on the same proxy card as shares held in a joint account with your spouse. Street shares are not combined with registered or plan shares and may result in your receipt of more than one proxy card. For example, shares held by a broker for your account will not be combined with shares registered directly in your name. If you hold shares in more than one form, you must vote separately for each notice, proxy and/or voting instruction card or email notification you receive that has a unique control number to ensure that all shares you own are voted. If you receive more than one proxy card for accounts that you believe could be combined because the registration is the same, contact our transfer agent (for registered shares) or your broker (for street shares) to request that the accounts be combined for future mailings.

Q: Who pays for the solicitation of proxies?

A: Caterpillar pays the cost of soliciting proxies on behalf of the Board. This solicitation is being made by mail and through the Internet, but also may be made by telephone or in person. We have hired Innisfree to assist in the solicitation. We will pay Innisfree a fee of $15,000 for these services and will reimburse their out-of-pocket expenses. We will reimburse brokerage firms and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for sending proxy materials to shareholders and obtaining their votes. Proxies also may be solicited on behalf of the Board by directors, officers or employees of Caterpillar by telephone or in person, or by mail or through the Internet. No additional compensation will be paid to such directors, officers, or employees for soliciting proxies.

Q: Where can I find voting results of the Annual Meeting?

A: We will announce preliminary voting results at the Annual Meeting and publish the results in a Form 8-K filed with the SEC within four business days after the Annual Meeting.

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ADMISSION AND TICKET REQUEST PROCEDURE

ADMISSION

Admission is limited to shareholders on April 17, 2017 and one immediate family member, or one individual designated as a shareholders authorized proxy holder or one representative designated in writing to present a shareholder proposal. In each case, the individual must have an admission ticket and valid government issued photo identification to be admitted to the Annual Meeting. In addition, share ownership will be verified by one of the following methods:

REGISTERED SHAREHOLDERS	STREET NAME HOLDERS
Option A ● A copy of your proxy
card or notice showing shareholder name and address Option B ● Name(s) of
shareholder, ● Address, ● Phone number,
and ● Social security
number or shareholder account ID; or Also include: ● Name of immediate
family member guest, if not a shareholder ● Name of authorized
proxy representative, if applicable ● Address where
tickets should be mailed and phone number	One of the
following: ● A copy of your April
brokerage account statement showing Caterpillar stock ownership as of
April 17, 2017; or ● A letter from your
broker, bank or other nominee verifying your ownership as of April 17,
2017; or ● A copy of your
brokerage account voting instruction card showing shareholder name and
address Also include: ● Name of immediate
family member guest, if not a shareholder ● Name of authorized
proxy representative, if applicable ● Address where
tickets should be mailed and phone number

TICKET REQUEST DEADLINE

Ticket requests must include all information specified in the applicable table above and be submitted in writing and received by Caterpillar on or before May 31, 2017. No requests will be processed after that date.

TO SUBMIT A REQUEST

Submit ticket requests by email to [email protected] or by mail to Caterpillar Inc. c/o Corporate Secretary, 100 NE Adams Street, Peoria, Illinois 61629-7310. Ticket requests by telephone will not be accepted.

AUTHORIZED PROXY REPRESENTATIVE

A shareholder may appoint a representative to attend the Annual Meeting and/or vote on his/her behalf. The admission ticket must be requested by the shareholder but will be issued in the name of the authorized representative. Individuals holding admission tickets that are not issued in their name will not be admitted to the Annual Meeting. The shareholder information specified above and a written proxy authorization must accompany the ticket request.

PROPONENT OF A SHAREHOLDER PROPOSAL

For each shareholder proposal included in this proxy statement, the shareholder sponsor should notify the Company in writing of the individual authorized to present the proposal on behalf of the shareholder at the Annual Meeting. One admission ticket will be issued for the designated representative.

MEDIA

Accredited members of the media must register with the Company prior to the Annual Meeting. To register, please contact Rachel Potts by phone 309-675-6892 or email ([email protected]).

ANALYSTS

Analysts must register with the Company prior to the Annual Meeting. To register, please contact Amy Campbell, Director of Investor Relations, by phone 309-675-4549 or email ([email protected]).

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EXHIBIT A - AMENDED AND RESTATED CATERPILLAR INC. 2014 LONG-TERM INCENTIVE PLAN

CATERPILLAR INC. 2014 LONG-TERM INCENTIVE PLAN (AS AMENDED AND RESTATED, EFFECTIVE AS OF JUNE 14, 2017)

I. INTRODUCTION

1.1 Purposes . The purposes of the Caterpillar Inc. 2014 Long-Term Incentive Plan (this Plan ) are (i) to align the interests of the Companys stockholders and the recipients of awards under this Plan by increasing the proprietary interest of such recipients in the Companys growth and success, (ii) to advance the interests of the Company by attracting and retaining officers, other employees, Non-Employee Directors, consultants and independent contractors and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders. The Plan has been amended and restated, as set forth herein, effective June 14, 2017.

1.2 Certain Definitions .

| (a) | Award Gain shall mean
(a) with respect to a given Option exercise, the product of (X) the excess
of the Fair Market Value of a share of Common Stock on the date of
exercise over the grant price per share of Common Stock of such Option
times (Y) the number of shares purchased pursuant to the exercise of such
Option, and (b) with respect to any other settlement of an award granted
to the participant, the Fair Market Value of the cash or shares of Common
Stock paid or payable to the participant (regardless of any elective
deferral pursuant to Section 5.10 ) less any cash or the Fair Market Value
of any shares of Common Stock or property (other than an award that would
have itself then been forfeitable hereunder and excluding any payment of
tax withholding) paid by the participant to the Company as a condition of
or in connection with such settlement. |
| --- | --- |
| (b) | Award Notice shall mean the written or electronic
notice evidencing an award hereunder. |
| (c) | Blackout Period shall
have the meaning set forth in Section 2.1(b). |
| (d) | Board shall mean the
Board of Directors of the Company. |

| (e) | Business Combination
shall have the meaning set forth in Section 5.9(b) . |
| --- | --- |
| (f) | Cause shall have the
meaning set forth in Section 5.9(c) . |
| (g) | Change in Control shall
have the meaning set forth in Section 5.9(b) . |
| (h) | Code shall mean the
Internal Revenue Code of 1986, as amended. |
| (i) | Committee shall mean the
Compensation and Human Resources Committee of the Board, or any successor
or subcommittee thereof, consisting of two or more members of the Board,
each of whom is intended to be (i) a Non-Employee Director within the
meaning of Rule 16b-3 under the Exchange Act, (ii) an outside director
within the meaning of Section 162(m) of the Code and (iii) independent
within the meaning of the rules of the New York Stock Exchange or, if the
Common Stock is not listed on the New York Stock Exchange, within the
meaning of the rules of the principal stock exchange on which the Common
Stock is then traded. |
| (j) | Common Stock shall mean
the common stock of the Company, and all rights appurtenant
thereto. |
| (k) | Company shall mean
Caterpillar Inc., a Delaware corporation, or any successor
thereto. |
| (l) | Company Voting Securities shall have the meaning set forth in Section
5.9(b)(ii). |
| (m) | Exchange Act shall mean
the Securities Exchange Act of 1934, as amended. |
| (n) | Fair Market Value shall
mean, as of any given date, the fair market value of a share of Common
Stock on a particular date determined by such methods or procedures as may
be established from time to time |

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| | by the Committee. Unless otherwise determined by the
Committee, the Fair Market Value of a share of Common Stock as of any date
shall be the closing transaction price of a share of Common Stock as
reported on the New York Stock Exchange for that date or, if no closing
price is reported for that date, the closing price on the next preceding
date for which transactions were reported. Notwithstanding the foregoing,
unless otherwise determined by the Committee, for purposes of clause (D)
of Section 2.1(c) of the Plan, Fair Market Value means the actual price at
which the shares of Common Stock used to acquire the shares of Common
Stock are sold. |
| --- | --- |
| (o) | Forfeiture
Event shall have the meaning set forth
in Section 5.16(a) . |
| (p) | Free-Standing
SAR shall mean an SAR which is not
granted in tandem with, or by reference to, an Option, which entitles the
holder thereof to receive, upon exercise, shares of Common Stock (which
may be Restricted Stock) or, to the extent provided in the applicable
Award Notice, cash or a combination thereof, with an aggregate value equal
to the excess of the Fair Market Value of one share of Common Stock on the
date of exercise over the base price of such SAR, multiplied by the number
of such SARs which are exercised. |
| (q) | Good
Reason shall have the meaning set
forth in Section 5.9(d) . |
| (r) | Incentive Stock
Option shall mean an option to
purchase shares of Common Stock that meets the requirements of Section 422
of the Code, or any successor provision, which is intended by the
Committee to constitute an Incentive Stock Option. |
| (s) | Incumbent
Directors shall have the meaning set
forth in Section 5.9(b)(i) . |
| (t) | Non-Employee
Director shall mean any director of
the Company who is not an officer or employee of the Company or any
Subsidiary. |
| (u) | Nonqualified Stock
Option shall mean an option to
purchase shares of Common Stock which is not an Incentive Stock
Option. |
| (v) | Option shall mean an Incentive
Stock Option or a Nonqualified Stock Option granted under this
Plan. |

| (w) | Performance Award
shall mean a right to receive an amount of cash, Common Stock, or a
combination of both, contingent upon the attainment of specified
Performance Measures within a specified Performance Period. |
| --- | --- |
| (x) | Performance Measures
shall mean the criteria and objectives, established by the Committee,
which shall be satisfied or met (i) as a condition to the grant or
exercisability of all or a portion of an Option or SAR or (ii) during the
applicable Restriction Period or Performance Period as a condition to the
vesting of the holders interest, in the case of a Restricted Stock Award,
of the shares of Common Stock subject to such award, or, in the case of a
Restricted Stock Unit Award or Performance Award, to the holders receipt
of the shares of Common Stock subject to such award or of payment with
respect to such award. To the extent necessary for an award to be
qualified performance- based compensation under Section 162(m) of the Code
and the regulations thereunder, such criteria and objectives shall be one
or more of the following corporate-wide or subsidiary, division, operating
unit or individual measures: (i) attainment by a share of Common Stock of
a specified Fair Market Value for a specified period of time, (ii) cash
flow from operations, (iii) cash flow margin or free cash flow, (iv) cash
flow per share, (v) earnings of the Company before or after taxes and/or
interest, (vi) earnings before interest, taxes, depreciation, and/or
amortization (EBITDA), (vii) EBITDA margin, (viii) economic value added,
(ix) expense levels or cost reduction goals, (x) gross profit or margin,
(xi) increase in stockholder value, (xii) interest expense, (xiii)
inventory, (xiv) market share, (xv) net assets, (xvi) net cash provided by
operations, (xvii) net operating profits after taxes, (xviii) operating
expenses, (xix) operating income, (xx) operating margin, (xxi) operating
profit after capital charge (OPACC), (xxii) percent of dealer deliveries
(PODD), (xxiii) percent of industry sales (PINS), (xxiv) percent of
parts sales (POPS), (xxv) percent of parts sales Caterpillar branded
(POPS-C), (xxvi) pretax income, (xxvii) price-to-earnings growth,
(xxviii) price realization, (xxix) primary or fully-diluted earnings per
share or profit per share, (xxx) profit after tax, (xxxi) return on
assets, (xxxii) return on equity, (xxxiii) return on invested capital,
(xxxiv) return on investments, (xxxv) return on sales, (xxxvi) revenues,
(xxxvii) sales, (xxxviii) total cash flow, (xxxix) total stockholder
(shareholder) return and (xl) strategic business criteria consisting of
one or more objectives based on meeting specified goals relating to (A)
acquisitions or divestitures, (B) business expansion, (C) realized
production system benefits, (D) cost
targets, |

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| | (E) customer acquisition, (F)
customer satisfaction, (G) diversity and inclusion, (H) efficiency, (I)
inventory turns, (J) realized lean benefits, (K) management of employment
practices and employee benefits, (L) market penetration, (M) purchasing
material costs, (N) quality and quality audit scores, (O) reductions in
errors and omissions, (P) reductions in lost business, (Q) supervision of
litigation and information technology, (R) sustainability or (S) realized
6 Sigma benefits. Each such goal may be expressed on an absolute or
relative basis and may include comparisons based on current internal
targets, the past performance of the Company (including the performance of
one or more subsidiaries, divisions, or operating units) or the past or
current performance of other companies (or a combination of such past and
current performance). In addition to the ratios specifically enumerated
above, performance goals may include comparisons relating to capital
(including, but not limited to, the cost of capital), shareholders
equity, shares outstanding, assets or net assets, sales, or any
combination thereof. The applicable performance measures may be applied on
a pre- or post-tax basis and may be established or adjusted in accordance
with Section 162(m) of the Code to include or exclude objectively
determinable components of any performance measure, including, without
limitation, special charges such as restructuring or impairment charges,
debt refinancing costs, extraordinary or noncash items, unusual,
nonrecurring, infrequently occurring or one-time events affecting the
Company or its financial statements or changes in law or accounting
principles (Adjustment Events). In the sole discretion of the Committee,
unless such action would cause a grant to a covered employee to fail to
qualify as qualified performance-based compensation under Section 162(m)
of the Code, the Committee may amend or adjust the Performance Measures or
other terms and conditions of an outstanding award in recognition of any
Adjustment Events. If the Committee determines that it is advisable to
grant awards that are not intended to qualify as performance-based
compensation under Section 162(m) of the Code, the Committee may grant
such award without satisfying the requirements of Section 162(m) of the
Code and that use Performance Measures other than those specified
herein. |
| --- | --- |
| (y) | Performance Period shall mean
any period designated by the Committee during which (i) the Performance
Measures applicable to an award shall be measured and (ii) the conditions
to vesting applicable to an award shall remain in effect. |

| (z) | Permitted Transferee shall have
the meaning set forth in Section 5.4(a) . |
| --- | --- |
| (aa) | Plan shall have the meaning set
forth in Section 1.1 . |
| (bb) | Prior Plan shall mean the
Caterpillar Inc. 2006 Long-Term Incentive Plan and each other plan
previously maintained by the Company under which equity awards remain
outstanding as of the effective date of this Plan. |
| (cc) | Restricted Stock shall mean
shares of Common Stock which are subject to a Restriction Period and which
may, in addition thereto, be subject to the attainment of specified
Performance Measures within a specified Performance Period. |
| (dd) | Restricted Stock Award shall
mean an award of Restricted Stock under this Plan. |
| (ee) | Restricted Stock Unit shall
mean a right to receive one share of Common Stock or, in lieu thereof and
to the extent provided in the applicable Award Notice, the Fair Market
Value of such share of Common Stock in cash, which shall be contingent
upon the expiration of a specified Restriction Period and which may, in
addition thereto, be contingent upon the attainment of specified
Performance Measures within a specified Performance Period. |
| (ff) | Restricted Stock Unit Award
shall mean an award of Restricted Stock Units under this
Plan. |
| (gg) | Restriction Period shall mean
any period designated by the Committee during which (i) the Common Stock
subject to a Restricted Stock Award may not be sold, transferred,
assigned, pledged, hypothecated or otherwise encumbered or disposed of,
except as provided in this Plan or the Award Notice relating to such
award, or (ii) the conditions to vesting applicable to a Restricted Stock
Unit Award shall remain in effect. |
| (hh) | SAR shall mean a stock
appreciation right which may be a Free-Standing SAR or a Tandem
SAR. |
| (ii) | Stock Award shall mean a
Restricted Stock Award, Restricted Stock Unit Award or Unrestricted Stock
Award. |
| (jj) | Subsidiary shall mean any
corporation, limited liability company, partnership, joint venture or
similar entity in which the Company owns, directly or indirectly, an
equity interest possessing more than 50% of the combined voting power of
the total outstanding equity interests of such entity or, in the case of a
partnership, |

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| | joint venture or similar entity,
the possession, directly or indirectly, of the power to direct or cause
the direction of management or policies of the controlled
entity. |
| --- | --- |
| (kk) | Substitute Award shall
mean an award granted under this Plan upon the assumption of, or in
substitution for, outstanding equity awards previously granted by a
company or other entity in connection with a corporate transaction,
including a merger, combination, consolidation or acquisition of property
or stock; provided , however , that in no event shall the term
Substitute Award be construed to refer to an award made in connection
with the cancellation and repricing of an Option or SAR. |
| (ll) | Tandem SAR shall mean an
SAR which is granted in tandem with, or by reference to, an Option
(including a Nonqualified Stock Option granted prior to the date of grant
of the SAR), which entitles the holder thereof to receive, upon exercise
of such SAR and surrender for cancellation of all or a portion of such
Option, shares of Common Stock (which may be Restricted Stock) or, to the
extent provided in the applicable Award Notice, cash or a combination
thereof, with an aggregate value equal to the excess of the Fair Market
Value of one share of Common Stock on the date of exercise over the base
price of such SAR, multiplied by the number of shares of Common Stock
subject to such Option, or portion thereof, which is
surrendered. |
| (mm) | Tax Date shall have the
meaning set forth in Section 5.5 . |
| (nn) | Ten Percent Holder shall
have the meaning set forth in Section 2.1(a) . |
| (oo) | Unrestricted Stock shall
mean shares of Common Stock which are not subject to a Restriction Period
or Performance Measures. |
| (pp) | Unrestricted Stock Award
shall mean an award of Unrestricted Stock under this
Plan. |

1.3 Administration . This Plan shall be administered by the Committee. Any one or a combination of the following awards may be made under this Plan to eligible persons: (i) Options to purchase shares of Common Stock in the form of Incentive Stock Options or Nonqualified Stock Options; (ii) SARs in the form of Tandem SARs or Free-Standing SARs; (iii) Stock Awards in the form of Restricted Stock, Restricted Stock Units or Unrestricted Stock; and (iv) Performance Awards. The Committee shall, subject to the terms of this Plan, select eligible persons for participation in this Plan and determine the form, amount and timing of each award to such persons and, if applicable, the number of shares of Common Stock subject to an award, the number of SARs, the number of Restricted Stock Units, the dollar value subject to a Performance Award, the grant price or base price associated with the award, the time and conditions of exercise or settlement of the award and all other terms and conditions of the award, including, without limitation, the form of the Award Notice evidencing the award. The Committee may, in its sole discretion and for any reason at any time, unless such action would cause a grant to a covered employee to fail to qualify under Section 162(m) of the Code and regulations thereunder as qualified performance-based compensation, take action such that (i) any or all outstanding Options and SARs shall become exercisable in part or in full, (ii) all or a portion of the Restriction Period applicable to any outstanding Restricted Stock or Restricted Stock Units shall lapse, (iii) all or a portion of the Performance Period applicable to any outstanding Restricted Stock, Restricted Stock Units or Performance Awards shall lapse and (iv) the Performance Measures (if any) applicable to any outstanding award shall be deemed to be satisfied at the target or any other level. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan and may impose, incidental to the grant of an award, conditions with respect to the award, such as limiting competitive employment or other activities. All such interpretations, rules, regulations and conditions shall be conclusive and binding on all parties.

The Committee may delegate some or all of its power and authority hereunder to the Board or, subject to applicable law, to the Chief Executive Officer or such other executive officer of the Company as the Committee deems appropriate; provided , however , that (i) the Committee may not delegate its power and authority to the Board or the Chief Executive Officer or other executive officer of the Company with regard to the grant of an award to any person who is a covered employee within the meaning of Section 162(m) of the Code or who, in the Committees judgment, is likely to be a covered employee at any time during the period an award hereunder to such employee would be outstanding and (ii) the Committee may not delegate its power and authority to the Chief Executive Officer or other executive officer of the Company with regard to the selection for participation in this Plan of an officer, director or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an award to such an officer, director or other person.

No member of the Board or Committee, and neither the Chief Executive Officer nor any other executive officer to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation,

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construction or determination made in connection with this Plan in good faith, and the members of the Board and the Committee and the Chief Executive Officer or other executive officer shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including attorneys fees) arising therefrom to the full extent permitted by law (except as otherwise may be provided in the Companys Certificate of Incorporation and/or By-laws) and under any directors and officers liability insurance that may be in effect from time to time.

1.4 Eligibility . Participants in this Plan shall consist of such officers, other employees, Non-Employee Directors, consultants, independent contractors, and persons expected to become officers, other employees, Non-Employee Directors, consultants, and independent contractors of the Company and its Subsidiaries as the Committee in its sole discretion may select from time to time; provided , that Incentive Stock Options may be granted only to employees of the Company or a Subsidiary Corporation, within the meaning of Section 424(f) of the Code. The Committees selection of a person to participate in this Plan at any time shall not require the Committee to select such person to participate in this Plan at any other time. Except as provided otherwise in an Award Notice, for purposes of this Plan, references to employment by the Company shall also mean employment by a Subsidiary, and references to employment shall include service as a Non-Employee Director, consultant or independent contractor. The extent to which a participant shall be considered employed during any periods during which such participant is on a leave of absence shall be determined in accordance with Company policy.

1.5 Shares Available . Subject to adjustment as provided in Section 5.8 and to all other limits set forth in this Section 1.5 , 38.8 million shares of Common Stock were initially available for all awards under this Plan and no more than 38.8 million shares of Common Stock in the aggregate could be issued under the Plan in connection with Incentive Stock Options. Upon and subject to stockholder approval of the amendment and restatement of the Plan pursuant to Section 5.1 , an additional 36 million shares of Common Stock shall become available for all awards under this Plan and an additional 36 million shares of Common Stock may be issued under the Plan in connection with Incentive Stock Options. To the extent the Company grants an Option or a Free-Standing SAR under the Plan, the number of shares of Common Stock that remain available for future grants under the Plan shall be reduced by an amount equal to the number of shares subject to such Option or Free-Standing SAR. To the extent the Company grants a Stock Award or settles a Performance Award in shares of Common Stock, the number of shares of Common Stock that remain available for future grants under the Plan shall be reduced by an amount equal to 2.75 times the number of shares subject to such Stock Award or Performance Award.

To the extent that shares of Common Stock subject to an outstanding Option, SAR, Stock Award or Performance Award granted under the Plan, other than Substitute Awards, are not issued or delivered by reason of (i) the expiration, termination, cancellation or forfeiture of such award (excluding shares subject to an Option cancelled upon settlement in shares of a related Tandem SAR or shares subject to a Tandem SAR cancelled upon exercise of a related Option) or (ii) the settlement of such award in cash, then such shares of Common Stock shall again be available under this Plan; provided , however , that shares of Common Stock subject to an award under this Plan shall not again be available for issuance under this Plan if such shares are (x) shares that were subject to an Option or an SAR and were not issued or delivered upon the net settlement or net exercise of such Option or SAR, (y) shares delivered to or withheld by the Company to pay the grant price or the withholding taxes related to an outstanding Option or SAR or (z) shares repurchased by the Company on the open market with the proceeds of an Option exercise. Shares delivered to or withheld by the Company to pay the withholding taxes for Stock Awards or Performance Awards granted under this Plan, but not Options or SARs, shall again be available for issuance under this Plan. The number of shares that again become available pursuant to this paragraph shall be equal to (i) one share for each share subject to an Option or Free-Standing SAR described herein and (ii) 2.75 shares for each share subject to a Stock Award or a Performance Award described herein. At the time this Plan becomes effective, none of the shares of Common Stock available for future grant under the Prior Plan shall be available for grant under this Plan and none of the shares of Common Stock subject to outstanding awards granted under the Prior Plan shall again become available for issuance under this Plan, whether upon the expiration, termination, cancellation or forfeiture of such awards or otherwise.

The number of shares of Common Stock available for awards under this Plan shall not be reduced by (i) the number of shares of Common Stock subject to Substitute Awards or (ii) available shares under a stockholder approved plan of a company or other entity which was a party to a corporate transaction with the Company (as appropriately adjusted to reflect such corporate transaction) which become subject to awards granted under this Plan (subject to applicable stock exchange requirements).

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Shares of Common Stock to be delivered under this Plan shall be made available from authorized and unissued shares of Common Stock, or authorized and issued shares of Common Stock reacquired and held as treasury shares or otherwise or a combination thereof.

1.6 Per Person Limits . To the extent necessary for an award to be qualified performance-based compensation under Section 162(m) of the Code and the regulations thereunder (i) the maximum number of shares of Common Stock with respect to which Options or SARs, or a combination thereof, may be granted during any fiscal year of the Company to any person shall be 800,000 shares, subject to adjustment as provided in Section 5.8 , (ii) with respect to Stock Awards subject to Performance Measures or Performance Awards denominated in Common Stock, which in either case are intended to qualify as performance-based awards under Section 162(m) of the Code, the maximum number of shares of Common Stock subject to such awards that may be earned by any person for each 12-month period during a Performance Period shall be the number of shares having a Fair Market Value of $20 million, determined as of the date of grant, subject to adjustment as provided in Section 5.8 , and (iii) with respect to Performance Awards denominated in cash that are intended to qualify as performance-based awards under Section 162(m) of the Code, the maximum amount that may be earned by any person for each 12-month period during a Performance Period shall be $20 million. The aggregate grant date fair value of shares of Common Stock that may be granted during any fiscal year of the Company to any Non-Employee Director shall not exceed $750,000.

II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

2.1 Stock Options . The Committee may, in its discretion, grant Options to purchase shares of Common Stock to such eligible persons as may be selected by the Committee. Each Option, or portion thereof, that is not an Incentive Stock Option shall be a Nonqualified Stock Option. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of shares of Common Stock with respect to which Options designated as Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under this Plan or any other plan of the Company, or any parent or Subsidiary) exceeds the amount (currently $100,000) established by the Code, such Options shall constitute Nonqualified Stock Options.

Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable:

| (a) | Number of Shares and Grant Price . The number of
shares of Common Stock subject to an Option and the grant price per share
of Common Stock purchasable upon exercise of the Option shall be
determined by the Committee; provided , however , that the
grant price per share of Common Stock purchasable upon exercise of an
Option shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the date of grant of such Option; provided further , that if an Incentive Stock Option shall be granted to any
person who, at the time such Option is granted, owns capital stock
possessing more than 10 percent of the total combined voting power of all
classes of capital stock of the Company (or of any parent or Subsidiary)
(a Ten Percent Holder ), the grant price per share of Common Stock
shall not be less than the price (currently 110% of Fair Market Value)
required by the Code in order to constitute an Incentive Stock Option. |
| --- | --- |
| | Notwithstanding the foregoing, in the case of an Option
that is a Substitute Award, the grant price per share of the shares
subject to such Option may be less than 100% of the Fair Market Value per
share on the date of grant, provided , that the excess of: (a) the
aggregate Fair Market Value (as of the date such Substitute Award is
granted) of the shares subject to the Substitute Award, over (b) the
aggregate purchase price thereof does not exceed the excess of: (x) the
aggregate fair market value (as of the time immediately preceding the
transaction giving rise to the Substitute Award, such fair market value to
be determined by the Committee) of the shares of the predecessor company
or other entity that were subject to the grant assumed or substituted for
by the Company, over (y) the aggregate purchase price of such
shares. |
| (b) | Option Period and Exercisability . The period
during which an Option may be exercised shall be determined by the
Committee; provided , however , that no Option shall be
exercised later than ten (10) years after its date of grant; provided further , that if an Incentive Stock Option shall be
granted to a Ten Percent Holder, such Option shall not be exercised later
than five years after its date of grant; provided , further ,
that with respect to a Nonqualified Stock Option, if the expiration date
of such Option occurs during any period when the participant is prohibited
from trading in securities of the Company |

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| | pursuant to the Companys insider trading policy or
other policy of the Company or during a period when the exercise of such
Option would violate applicable securities laws (each, a Blackout
Period ), then the period during which such Option shall be
exercisable shall continue until the date that is 30 days after the
expiration of such Blackout Period. The Committee may, in its discretion,
establish Performance Measures which shall be satisfied or met as a
condition to the grant of an Option or to the exercisability of all or a
portion of an Option. The Committee shall determine whether an Option
shall become exercisable in cumulative or non-cumulative installments and
in part or in full at any time. An exercisable Option, or portion thereof,
may be exercised only with respect to whole shares of Common Stock. Prior
to the exercise of an Option, the holder of such Option shall have no
rights as a stockholder of the Company with respect to the shares of
Common Stock subject to such Option, including the right to receive
dividends or dividend equivalents. |
| --- | --- |
| (c) | Method of Exercise . An Option may be exercised
(i) by giving written or electronic notice to the Company or its
designated agent, in accordance with procedures prescribed by the Company,
specifying the number of whole shares of Common Stock to be purchased and
paying the aggregate purchase price in full (or arrangement made for such
payment to the Companys satisfaction) either (A) in cash, (B) by delivery
(either actual delivery or by attestation procedures established by the
Company) of shares of Common Stock having a Fair Market Value, determined
as of the date of exercise, equal to the aggregate purchase price payable
by reason of such exercise, (C) authorizing the Company to withhold whole
shares of Common Stock which would otherwise be delivered having an
aggregate Fair Market Value, determined as of the date of exercise, equal
to the amount necessary to satisfy such obligation, (D) in cash by a
broker-dealer acceptable to the Company to whom the optionee has submitted
an irrevocable notice of exercise or (E) a combination of (A), (B) and
(C), in each case to the extent set forth in the Award Notice relating to
the Option, (ii) if applicable, by surrendering to the Company any Tandem
SARs which are cancelled by reason of the exercise of the Option and (iii)
by executing such documents as the Company may reasonably request. No
shares of Common Stock shall be issued and no certificate representing
shares of Common Stock shall be delivered until the full purchase price
therefor and any withholding taxes thereon, as described in Section 5.5 ,
have been paid (or arrangement made for such payment to the Companys
satisfaction). |

2.2 Stock Appreciation Rights . The Committee may, in its discretion, grant SARs to such eligible persons as may be selected by the Committee. The Award Notice relating to an SAR shall specify whether the SAR is a Tandem SAR or a Free-Standing SAR.

SARs shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable:

| (a) | Number of SARs and Base Price . The number of SARs
subject to an award shall be determined by the Committee. Any Tandem SAR
related to an Incentive Stock Option shall be granted at the same time
that such Incentive Stock Option is granted. The base price of a Tandem
SAR shall be the grant price per share of Common Stock of the related
Option. The base price of a Free-Standing SAR shall be determined by the
Committee; provided , however , that such base price shall not
be less than 100% of the Fair Market Value of a share of Common Stock on
the date of grant of such SAR (or, if earlier, the date of grant of the
Option for which the SAR is exchanged or substituted). |
| --- | --- |
| | Notwithstanding the foregoing, in the case of an SAR
that is a Substitute Award, the base price per share of the shares subject
to such SAR may be less than 100% of the Fair Market Value per share on
the date of grant, provided , that the excess of: (a) the aggregate
Fair Market Value (as of the date such Substitute Award is granted) of the
shares subject to the Substitute Award, over (b) the aggregate base price
thereof does not exceed the excess of: (x) the aggregate fair market value
(as of the time immediately preceding the transaction giving rise to the
Substitute Award, such fair market value to be determined by the
Committee) of the shares of the predecessor company or other entity that
were subject to the grant assumed or substituted for by the Company, over
(y) the aggregate base price of such shares. |
| (b) | Exercise Period and Exercisability . The period
for the exercise of an SAR shall be determined by the Committee; provided , however , that no SAR shall be exercised later than
ten (10) years after its date of grant; provided further ,
that no Tandem SAR shall be exercised later than the expiration,
cancellation, forfeiture or other termination of the related Option; provided , further , if the expiration date of an SAR occurs
during any Blackout |

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| | Period, then the period during which such SAR shall be
exercisable shall continue until the date that is 30 days after the
expiration of such Blackout Period. The Committee may, in its discretion,
establish Performance Measures which shall be satisfied or met as a
condition to the grant of an SAR or to the exercisability of all or a
portion of an SAR. The Committee shall determine whether an SAR may be
exercised in cumulative or non-cumulative installments and in part or in
full at any time. An exercisable SAR, or portion thereof, may be exercised
only with respect to whole shares of Common Stock. If an SAR is exercised
for shares of Restricted Stock, a certificate or certificates representing
such Restricted Stock shall be issued in accordance with Section
3.3(c) , or such shares shall be transferred to the holder in book
entry form with restrictions on the shares duly noted, and the holder of
such Restricted Stock shall have such rights of a stockholder of the
Company as determined pursuant to Section 3.3(d) . Prior to the
exercise of a stock-settled SAR, the holder of such SAR shall have no
rights as a stockholder of the Company with respect to the shares of
Common Stock subject to such SAR, including the right to receive dividends
or dividend equivalents. |
| --- | --- |
| (c) | Method of Exercise . A Tandem SAR may be exercised
(i) by giving written or electronic notice to the Company or its
designated agent, in accordance with procedures prescribed by the Company,
specifying the number of whole SARs which are being exercised, (ii) by
surrendering to the Company any Options which are cancelled by reason of
the exercise of the Tandem SAR and (iii) by executing such documents as
the Company may reasonably request. A Free-Standing SAR may be exercised
(A) by giving written or electronic notice to the Company, in accordance
with procedures prescribed by the Company, specifying the whole number of
SARs which are being exercised and (B) by executing such documents as the
Company may reasonably request. No shares of Common Stock shall be issued
and no certificate representing shares of Common Stock shall be delivered
until any withholding taxes thereon, as described in Section 5.5 ,
have been paid (or arrangement made for such payment to the Companys
satisfaction). |

2.3 Termination of Employment or Service . All of the terms relating to the exercise, cancellation or other disposition of an Option or SAR (i) upon a termination of employment with or service to the Company of the holder of such Option or SAR, as the case may be, whether by reason of disability, retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, shall be determined by the Committee and set forth in the applicable Award Notice.

2.4 No Repricing . The Committee shall not, without the approval of the stockholders of the Company, (i) reduce the grant price or base price of any previously granted Option or SAR, (ii) cancel any previously granted Option or SAR in exchange for another Option or SAR with a lower grant price or base price or (iii) cancel any previously granted Option or SAR in exchange for cash or another award if the grant price of such Option or the base price of such SAR exceeds the Fair Market Value of a share of Common Stock on the date of such cancellation, in each case, other than in connection with a Change in Control or the adjustment provisions set forth in Section 5.8 .

III. STOCK AWARDS

3.1 Stock Awards . The Committee may, in its discretion, grant Stock Awards to such eligible persons as may be selected by the Committee. The Award Notice relating to a Stock Award shall specify whether the Stock Award is a Restricted Stock Award, Restricted Stock Unit Award or Unrestricted Stock Award.

3.2 Terms of Unrestricted Stock Awards . The number of shares of Common Stock subject to an Unrestricted Stock Award shall be determined by the Committee. Unrestricted Stock Awards shall not be subject to any Restriction Periods or Performance Measures; provided , however , Unrestricted Stock Awards shall be limited to (i) awards to Non-Employee Directors, (ii) awards to newly hired employees, (iii) awards made in lieu of a cash bonus or (iv) awards granted under this Plan with respect to the number of shares Common Stock which, in the aggregate, does not exceed five percent (5%) of the total number of shares available for awards under this Plan. Upon the grant of an Unrestricted Stock Award, subject to the Companys right to require payment of any taxes in accordance with Section 5.5 , a certificate or certificates evidencing ownership of the requisite number of shares of Common Stock shall be delivered to the holder of such award or such shares shall be transferred to the holder in book entry form.

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3.3 Terms of Restricted Stock Awards . Restricted Stock Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable.

| (a) | Number of Shares and Other Terms . The number of
shares of Common Stock subject to a Restricted Stock Award and the
Restriction Period, Performance Period (if any) and Performance Measures
(if any) applicable to a Restricted Stock Award shall be determined by the
Committee. |
| --- | --- |
| (b) | Vesting and Forfeiture . The Award Notice relating
to a Restricted Stock Award shall provide, in the manner determined by the
Committee, in its discretion, and subject to the provisions of this Plan,
for the vesting of the shares of Common Stock subject to such award (i) if
the holder of such award remains continuously in the employment of the
Company during the specified Restriction Period and (ii) if specified
Performance Measures (if any) are satisfied or met during a specified
Performance Period, and for the forfeiture of the shares of Common Stock
subject to such award (x) if the holder of such award does not remain
continuously in the employment of the Company during the specified
Restriction Period or (y) if specified Performance Measures (if any) are
not satisfied or met during a specified Performance Period. |
| (c) | Stock Issuance . During the Restriction Period,
the shares of Restricted Stock shall be held by a custodian in book entry
form with restrictions on such shares duly noted or, alternatively, a
certificate or certificates representing a Restricted Stock Award shall be
registered in the holders name and may bear a legend, in addition to any
legend which may be required pursuant to Section 5.7 , indicating
that the ownership of the shares of Common Stock represented by such
certificate is subject to the restrictions, terms and conditions of this
Plan and the Award Notice relating to the Restricted Stock Award. All such
certificates shall be deposited with the Company, together with stock
powers or other instruments of assignment (including a power of attorney),
each endorsed in blank with a guarantee of signature if deemed necessary
or appropriate, which would permit transfer to the Company of all or a
portion of the shares of Common Stock subject to the Restricted Stock
Award in the event such award is forfeited in whole or in part. Upon
termination of any applicable Restriction Period (and the satisfaction or
attainment of applicable Performance Measures), subject to the Companys
right to require payment of any taxes in accordance with Section
5.5 , the restrictions shall be removed from the requisite number of
any shares of Common Stock that are held in book entry form, and all
certificates evidencing ownership of the requisite number of shares of
Common Stock shall be delivered to the holder of such
award. |

(d) Rights with Respect to Restricted Stock Awards . Unless otherwise set forth in the Award Notice relating to a Restricted Stock Award, and subject to the terms and conditions of a Restricted Stock Award, the holder of such award shall have all rights as a stockholder of the Company, including, but not limited to, voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all holders of Common Stock; provided , however , that (i) a distribution with respect to shares of Common Stock, other than a regular cash dividend, and (ii) a regular cash dividend with respect to shares of Common Stock that are subject to performance-based vesting conditions, in each case, shall be deposited with the Company and shall be subject to the same restrictions as the shares of Common Stock with respect to which such distribution was made.

3.4 Terms of Restricted Stock Unit Awards . Restricted Stock Unit Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable.

| (a) | Number of Shares and Other
Terms . The number of shares of Common Stock subject to a Restricted
Stock Unit Award and the Restriction Period, Performance Period (if any)
and Performance Measures (if any) applicable to a Restricted Stock Unit
Award shall be determined by the Committee. |
| --- | --- |
| (b) | Vesting and Forfeiture .
The Award Notice relating to a Restricted Stock Unit Award shall provide,
in the manner determined by the Committee, in its discretion, and subject
to the provisions of this Plan, for the vesting of such Restricted Stock
Unit Award (i) if the holder of such award remains continuously in the
employment of the Company during the specified Restriction Period and (ii)
if specified Performance Measures (if any) are satisfied or met during a
specified Performance Period, and for the forfeiture of the shares of
Common Stock subject to such award (x) if the holder of such award does
not remain continuously in the employment of the Company during the
specified Restriction Period or (y) if specified Performance Measures (if
any) are not satisfied or met during a specified Performance
Period. |

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(c) Settlement of Vested Restricted Stock Unit Awards . The Award Notice relating to a Restricted Stock Unit Award shall specify (i) whether such award may be settled in shares of Common Stock or cash or a combination thereof and (ii) whether the holder thereof shall be entitled to receive, on a current or deferred basis, dividend equivalents, and, if determined by the Committee, interest on, or the deemed reinvestment of, any deferred dividend equivalents, with respect to the number of shares of Common Stock subject to such award. Any dividend equivalents with respect to Restricted Stock Units that are subject to performance-based vesting conditions shall be subject to the same restrictions as such Restricted Stock Units. Prior to the settlement of a Restricted Stock Unit Award, the holder of such award shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such award.

3.5 Termination of Employment or Service . All of the terms relating to the satisfaction of Performance Measures and the termination of the Restriction Period or Performance Period relating to a Stock Award, or any forfeiture and cancellation of such award (i) upon a termination of employment with or service to the Company of the holder of such award, whether by reason of disability, retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, shall be determined by the Committee and set forth in the applicable Award Notice.

IV. PERFORMANCE AWARDS

4.1 Performance Awards . The Committee may, in its discretion, grant Performance Awards to such eligible persons as may be selected by the Committee.

4.2 Terms of Performance Awards . Performance Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable.

| (a) | Value of Performance Awards and Performance
Measures . The method of determining the value of the Performance Award
and the Performance Measures and Performance Period applicable to a
Performance Award shall be determined by the Committee. |
| --- | --- |
| (b) | Vesting and Forfeiture . The Award Notice relating
to a Performance Award shall provide, in the manner determined by the
Committee, in its discretion, and subject to the provisions of this Plan,
for the vesting of such Performance Award if the specified Performance
Measures are satisfied or met during the specified Performance Period and
for the forfeiture of such award if the specified Performance Measures are
not satisfied or met during the specified Performance Period. |
| (c) | Settlement of Vested Performance Awards . The
Award Notice relating to a Performance Award shall specify whether such
award may be settled in shares of Common Stock (including shares of
Restricted Stock) or cash or a combination
thereof. If a Performance Award is settled in shares of Restricted Stock,
such shares of Restricted Stock shall be issued to the holder in book
entry form or a certificate or certificates representing such Restricted
Stock shall be issued in accordance with Section 3.3(c) and the
holder of such Restricted Stock shall have such rights as a stockholder of
the Company as determined pursuant to Section 3.3(d) . Any dividends
or dividend equivalents with respect to a Performance Award shall be
subject to the same restrictions as such Performance Award. Prior to the
settlement of a Performance Award in shares of Common Stock, including
Restricted Stock, the holder of such award shall have no rights as a
stockholder of the Company. |

4.3 Termination of Employment or Service . All of the terms relating to the satisfaction of Performance Measures and the termination of the Performance Period relating to a Performance Award, or any forfeiture and cancellation of such award (i) upon a termination of employment with or service to the Company of the holder of such award, whether by reason of disability, retirement, death or any other reason, or (ii) during a paid or unpaid leave of absence, shall be determined by the Committee and set forth in the applicable Award Notice.

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V. GENERAL

5.1 Effective Date and Term of Plan . This Plan was approved by the Board on April 9, 2014, and became effective as of June 11, 2014, the date on which the Companys stockholders approved the Plan. This Plan superseded and replaced the Prior Plan; provided that the Prior Plan shall remain in effect with respect to all outstanding awards granted under the Prior Plan until such awards have been exercised, forfeited, canceled, expired or otherwise terminated in accordance with the terms of such grants. The amendment and restatement of the Plan, as set forth herein, was approved by the Board on April 12, 2017, and shall become effective as of the date the Companys stockholders approve the amendment and restatement of the Plan. The amended and restated Plan will be deemed to be approved by the stockholders if it receives the affirmative vote of the holders of a majority of the shares of stock of the Company present in person or by proxy and entitled to vote at a meeting duly held in accordance with the applicable provisions of the Certificate of Incorporation or Bylaws of the Company. In the event this amendment and restatement of the Plan is not approved by Companys stockholders, this amendment and restatement shall not take effect and the Plan as in effect on April 11, 2017 will continue. The Plan shall terminate on the tenth anniversary of the Plans effective date, June 11, 2024, unless terminated earlier by the Committee; provided that no Incentive Stock Options shall be granted later than ten (10) years after the date the Plan is adopted by the Board or the date the Plan is approved by the stockholders of the Company, whichever is earlier. Termination of this Plan shall not affect the terms or conditions of any award granted prior to termination. Awards hereunder may be made at any time prior to the termination of this Plan.

5.2 Amendments . The Committee may amend this Plan as it shall deem advisable; provided , however , that no amendment to the Plan shall be effective without the approval of the Companys stockholders if (i) stockholder approval is required by applicable law, rule or regulation, including Section 162(m) of the Code and any rule of the New York Stock Exchange, or any other stock exchange on which the Common Stock is then traded, or (ii) such amendment seeks to modify Section 2.4 hereof; provided further , that no amendment may materially impair the rights of a holder of an outstanding award without the consent of such holder.

5.3 Award Notice . Each award under this Plan shall be evidenced by an Award Notice setting forth the terms and conditions applicable to such award. No award shall be valid until an Award Notice is provided by the Company and, to the extent the Committee may, in its sole discretion, require, either executed by the recipient or accepted by the recipient by electronic means approved by the Committee within the time period specified by the Committee. Upon execution by the Company, or if required, upon such execution and delivery of the Award Notice to the Company or electronic acceptance of the Award Notice, such award shall be effective as of the effective date set forth in the Award Notice.

5.4 Non-Transferability .

| (a) | Except as provided in Section
5.4(b) , no award shall be transferable other
than by will, the laws of descent and distribution, pursuant to
beneficiary designation procedures approved by the Company, pursuant to a
domestic relations order or, to the extent expressly permitted in the
Award Notice relating to such award, to the holders family members, a
trust or entity established by the holder for estate planning purposes or
a charitable organization designated by the holder (a Permitted Transferee ), in each case, without
consideration. Except to the extent permitted by the foregoing sentence or
the Award Notice relating to an award, each award may be exercised or
settled during the holders lifetime only by the holder or the holders
legal representative, agent or similar person. Except as permitted by the
second preceding sentence, no award may be sold, transferred, assigned,
pledged, hypothecated, encumbered or otherwise disposed of (whether by
operation of law or otherwise) or be subject to execution, attachment or
similar process. Upon any attempt to so sell, transfer, assign, pledge,
hypothecate, encumber or otherwise dispose of any award, such award and
all rights thereunder shall immediately become null and
void. |
| --- | --- |
| (b) | Nonqualified Stock Options and
SARs (except for any Tandem SAR granted in tandem with an Incentive Stock
Option), whether vested or unvested, held by (A) participants who are
considered officers of the Company for purposes of Section 16 of the
Exchange Act; (B) participants who are Directors; or (C) any participants
who previously held the positions in clauses (A) and (B) may be
transferred by gift or by domestic relations order to one or more
Permitted Transferees. Nonqualified Stock Options and SARs (except for any
Tandem SAR granted in tandem with an Incentive Stock Option), whether
vested or unvested, held by all other participants and by Permitted
Transferees may be transferred by gift or by domestic relations order only
to Permitted Transferees and, in the case of transfers other than in
connection with a domestic relations order, upon the prior written
approval of the Companys Director of Compensation &
Benefits. |

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5.5 Tax Withholding . The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to an award made hereunder, payment by the holder of such award of any federal, state, local or other taxes which may be required to be withheld or paid in connection with such award. An Award Notice may provide that (i) the Company shall withhold whole shares of Common Stock which would otherwise be delivered to a holder, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with an award (the Tax Date ), or withhold an amount of cash which would otherwise be payable to a holder, in the amount necessary to satisfy any such obligation or (ii) the holder may satisfy any such obligation by any of the following means: (A) a cash payment to the Company; (B) delivery (either actual delivery or by attestation procedures established by the Company) to the Company of previously owned whole shares of Common Stock having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation; (C) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash which would otherwise be payable to a holder, equal to the amount necessary to satisfy any such obligation; (D) in the case of the exercise of an Option, a cash payment by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (E) any combination of (A), (B) and (C), in each case to the extent set forth in the Award Notice relating to the award. Shares of Common Stock to be delivered or withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate; provided , however , that if a fraction of a share of Common Stock would be required to satisfy the minimum statutory withholding taxes, then the number of shares of Common Stock to be delivered or withheld may be rounded up to the next nearest whole share of Common Stock.

5.6 Section 83(b) Election . No election under Section 83(b) of the Code (to include in gross income in the year of transfer the amounts specified in Code Section 83(b)) or under a similar provision of the laws of a jurisdiction outside the United States may be made, unless expressly permitted by the terms of the Award Notice. In any case in which a participant is permitted to make such an election in connection with an award, the participant shall notify the Company of such election within ten days of filing notice of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to regulations issued under Code Section 83(b) or other applicable provision.

5.7 Restrictions on Shares . Each award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the shares of Common Stock subject to such award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares thereunder, such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing shares of Common Stock delivered pursuant to any award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder.

5.8 Adjustment . In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 718, CompensationStock Compensation) that causes the per share value of shares of Common Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary cash dividend, the number and class of securities available under this Plan, the terms of each outstanding Option and SAR (including the number and class of securities subject to each outstanding Option or SAR and the grant price or base price per share), the terms of each outstanding Restricted Stock Award and Restricted Stock Unit Award (including the number and class of securities subject thereto), the terms of each outstanding Performance Award (including the number and class of securities subject thereto), the maximum number of securities with respect to which Options or SARs may be granted during any fiscal year of the Company to any one grantee, the maximum number of shares of Common Stock that may be awarded during any fiscal year of the Company to any one grantee pursuant to a Stock Award that is subject to Performance Measures or a Performance Award, as set forth in Section 1.6 , shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding Options and SARs in accordance with Section 409A of the Code. In the event of any other change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of the Company, such equitable adjustments described in the foregoing sentence may be made as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of participants. In either case, the decision of the Committee regarding any such adjustment shall be final, binding and conclusive.

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5.9 Change in Control .

(a)
(i)	If and to the extent that
outstanding awards under the Plan are (A) continued by the Company, (B)
assumed by the successor corporation (or affiliate thereto) or (C)
replaced with awards that preserve the existing value of the awards at the
time of the Change in Control and provide for subsequent payout in
accordance with a vesting schedule and Performance Measures, as
applicable, that are the same or more favorable to the participants than
the vesting schedule and Performance Measures applicable to the awards,
then all such awards or such substitutes therefor shall remain outstanding
and be governed by their respective terms and the provisions of the Plan
subject to Section 5.9(a)(iv) below.
(ii)	If and to the extent that
outstanding awards under the Plan are not continued, assumed or replaced
in accordance with Section 5.9(a)(i) above, then upon the Change in
Control: (A) outstanding Options and SARs shall immediately vest and
become exercisable, (B) the Restriction Period applicable to outstanding
Restricted Stock Awards and Restricted Stock Unit Awards shall immediately
lapse; and, with respect to Restricted Stock Unit Awards, shall be payable
immediately in accordance with their terms or, if later, as of the
earliest permissible date under Code Section 409A, and (C) outstanding
Performance Awards granted under the Plan shall immediately vest and shall
become immediately payable in accordance with their terms as if the target
level of the Performance Measures had been achieved or, with respect to
completed performance periods, based on the actual level of
achievement.
(iii)	If and to the extent that
outstanding awards under the Plan are not continued, assumed or replaced
in accordance with Section 5.9(a)(i) above, then the Board may, in
its sole discretion, require outstanding awards to be surrendered to the
Company by the holder, and to be immediately cancelled by the Company, and
to provide for the holder to receive a cash payment in an amount equal to
(1) in the case of an Option or an SAR, the aggregate number of shares of
Common Stock then subject to the portion of such Option or SAR surrendered
multiplied by the excess, if any, of the Fair
Market Value of a share of Common Stock as of the date of the Change in
Control, over the grant price or base price per share of Common Stock
subject to such Option or SAR, (2) in the case of a Stock Award or a
Performance Award denominated in shares of Common Stock, the aggregate
number of shares of Common Stock then subject to the portion of such award
surrendered to the extent the Performance Measures applicable to such
award have been satisfied or are deemed satisfied pursuant to Section
5.9(a)(ii) , multiplied by the Fair Market Value of a share of Common
Stock as of the date of the Change in Control, and (3) in the case of a
Performance Award denominated in cash, the value of the Performance Award
then subject to the portion of such award surrendered to the extent the
Performance Measures applicable to such award have been satisfied or are
deemed satisfied pursuant to Section
5.9(a)(ii) .
(iv)	If and to the extent that (A)
outstanding awards are continued, assumed or replaced in accordance with Section 5.9(a)(i) above and (B) a participants employment with, or
performance of services for, the Company (or the company resulting from or
succeeding to the business of the Company pursuant to such Change in
Control) is terminated by the Company for any reason other than Cause or
by such participant for Good Reason, in each case, within the 24-month
period commencing on the date of the Change in Control, then, as of the
date of such participants termination: (A) outstanding Options and SARs
shall immediately vest and become exercisable, (B) the Restriction Period
applicable to outstanding Restricted Stock Awards and Restricted Stock
Unit Awards shall immediately lapse; and, with respect to Restricted Stock
Unit Awards, shall be payable immediately in accordance with their terms
or, if later, as of the earliest permissible date under Code Section 409A,
and (C) outstanding Performance Awards granted under the Plan shall
immediately vest and shall become immediately payable in accordance with
their terms as if the target level of the Performance Measures had been
achieved or, with respect to completed performance periods, based on the
actual level of achievement.

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| | (v) | Outstanding Options or SARs that
are assumed or replaced in accordance with Section 5.9(a)(i) may be
exercised by the participant in accordance with the applicable terms and
conditions of such award as set forth in the applicable Award Notice or
elsewhere; provided, however, that Options or SARs that become exercisable
in accordance with Section 5.9(a)(iv) may be exercised until the
expiration of the original full term of such Option or SAR notwithstanding
the other original terms and conditions of such award. |
| --- | --- | --- |
| (b) | For purposes of this Plan, unless
otherwise provided in an Award Notice, Change in Control means
the occurrence of any one of the following events: | |
| | (i) | During any twenty-four (24) month
period, individuals who, as of the beginning of such period, constitute
the Board (the Incumbent Directors ) cease for any reason to
constitute at least a majority of the Board; provided that any
person becoming a director subsequent to the beginning of such period
whose election or nomination for election was approved by a vote of at
least a majority of the Incumbent Directors then on the Board (either by a
specific vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director, without written
objection to such nomination) shall be an Incumbent Director; provided , however , that no individual initially elected or
nominated as a director of the Company as a result of an actual or
threatened election contest with respect to directors or as a result of
any other actual or threatened solicitation of proxies by or on behalf of
any person other than the Board shall be deemed to be an Incumbent
Director; |
| | (ii) | Any person (as such term is
defined in the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2)
of the Exchange Act) is or becomes a beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing 20% or more of the combined voting power of
the Companys then outstanding securities eligible to vote for the
election of the Board (the Company Voting Securities ), unless the
Board, as constituted immediately prior to the date on which such person
acquires such beneficial interest, by resolution negates the effect of
this provision in a particular circumstance, deeming that resolution to be in the best interests of Company stockholders; provided , however , that the event described in this
paragraph (ii) shall not be deemed to be a Change in Control by virtue of
any of the following acquisitions: (A) by the Company or any Subsidiary;
(B) by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary; (C) by any underwriter
temporarily holding securities pursuant to an offering of such securities;
or (D) by any person of Company Voting Securities from the Company, if a
majority of the Incumbent Board approves in advance the acquisition of
beneficial ownership of 20% or more of Company Voting Securities by such
person; |
| | (iii) | The consummation of a merger,
consolidation, statutory share exchange or similar form of corporate
transaction involving the Company or any of its Subsidiaries that requires
the approval of the Companys stockholders, whether for such transaction
or the issuance of securities in the transaction (a Business
Combination ), that results in the voting securities of the Company
outstanding immediately prior thereto representing (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) less than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such Business Combination; or |
| | (iv) | The stockholders of the Company
approve a plan of complete liquidation or dissolution of the Company or
the consummation of a sale of all or substantially all of the Companys
assets. |
| Notwithstanding the foregoing, to
the extent a payment to be made pursuant to an award upon a Change in
Control constitutes deferred compensation that is subject to Section 409A
of the Code, and such Change in Control does not constitute a change in
control event, within the meaning of Treasury regulations promulgated
under Section 409A of the Code, such payment shall be paid at the time it
is otherwise scheduled to be paid, without regard to the occurrence of the
Change in Control. | | |
| (c) | For purposes of this Section 5.9 , Cause means, unless otherwise provided in an Award Notice, a willful engaging in gross misconduct materially and demonstrably injurious to the Company. For this purpose, willful means an act or omission in bad | |

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| faith and without a reasonable
belief that such act or omission was in or not opposed to the best
interests of the Company. | |
| --- | --- |
| (d) | For purposes of this Section
5.9 , Good Reason means, unless otherwise provided in an Award
Notice, the occurrence of any of the following circumstances (unless such
circumstances are fully corrected by the Company before a participants
termination of employment or the participant fails to provide written
notice of such circumstances within 30 days after the participant becomes,
or reasonably should have become, aware of such circumstances): (A) the
Companys assignment of any duties materially inconsistent with the
participants position with the Company, or which result in a material
adverse alteration in the nature or status of the responsibilities of the
participants employment; or (B) a material reduction by the Company in
the participants annual base salary, unless such reduction is part of a
compensation reduction program affecting all similarly situated management
employees. |

5.10 Deferrals . The Committee may determine that the delivery of shares of Common Stock or the payment of cash, or a combination thereof, upon the settlement of all or a portion of any award (other than awards of Incentive Stock Options, Nonqualified Stock Options and SARs) made hereunder shall be deferred, or the Committee may, in its sole discretion, approve deferral elections made by holders of awards. Deferrals shall be for such periods and upon such terms as the Committee may determine in its sole discretion, subject to the requirements of Section 409A of the Code.

5.11 No Right of Participation, Employment or Service . Unless otherwise set forth in an employment agreement, no person shall have any right to participate in this Plan. Neither this Plan nor any award made hereunder shall confer upon any person any right to continued employment by or service with the Company, any Subsidiary or any affiliate of the Company or affect in any manner the right of the Company, any Subsidiary or any affiliate of the Company to terminate the employment or service of any person at any time without liability hereunder.

5.12 Rights as Stockholder . No person shall have any right as a stockholder of the Company with respect to any shares of Common Stock or other equity security of the Company which is subject to an award hereunder unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security.

5.13 Designation of Beneficiary . To the extent permitted by the Company, a holder of an award may file with the Company a written designation of one or more persons as such holders beneficiary or beneficiaries (both primary and contingent) in the event of the holders death or incapacity. To the extent an outstanding Option or SAR granted hereunder is exercisable, such beneficiary or beneficiaries shall be entitled to exercise such Option or SAR pursuant to procedures prescribed by the Company. Each beneficiary designation shall become effective only when filed in writing with the Company during the holders lifetime on a form prescribed by the Company. The spouse of a married holder domiciled in a community property jurisdiction shall join in any designation of a beneficiary other than such spouse. The filing with the Company of a new beneficiary designation shall cancel all previously filed beneficiary designations. If a holder fails to designate a beneficiary, or if all designated beneficiaries of a holder predecease the holder, then each outstanding award held by such holder, to the extent vested or exercisable, shall be payable to or may be exercised by such holders executor, administrator, legal representative or similar person.

5.14 Governing Law . This Plan, each award hereunder and the related Award Notice, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws.

5.15 Non-U.S. Employees . Without amending this Plan, the Committee may grant awards to eligible persons who are foreign nationals and/or reside outside the U.S. on such terms and conditions different from those specified in this Plan as may in the judgment of the Committee be necessary or desirable to foster and promote achievement of the purposes of this Plan and, in furtherance of such purposes the Committee may make such modifications, amendments, procedures, subplans and the like as may be necessary or advisable to comply with provisions of laws in other countries or jurisdictions in which the Company or its Subsidiaries operates or has employees.

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5.16 Award Forfeitures .

| (a) | Forfeiture of Options and
Other Awards . Each award granted hereunder shall be subject to the
following additional forfeiture conditions, to which the participant, by
accepting an award hereunder, agrees. If any of the events specified in Section 5.16(b) occurs (a Forfeiture Event ), all of the
following forfeitures will result: | |
| --- | --- | --- |
| | (i) | The unexercised portion of any
Option, whether or not vested, and any other award not then settled
(except for an award that has not been settled solely due to an elective
deferral pursuant to Section 5.10 by the participant and otherwise
is not forfeitable in the event of any termination of service of the
participant) will be immediately forfeited and canceled upon the
occurrence of the Forfeiture Event; and |
| | (ii) | The participant will be obligated
to repay the Company, in cash, within five business days after demand is
made thereof by the Company, the total amount of Award Gain (as defined
herein) realized by the participant upon each exercise of an Option or
settlement of an award (regardless of any elective deferral pursuant to Section 5.10 ) that occurred on or after (i) the date that is 12
months before the occurrence of the Forfeiture Event, if the Forfeiture
Event occurred while the participant was employed by the Company or a
Subsidiary, or (ii) the date that is 12 months before the date the
participants employment by, or service as a Director with the Company or
a Subsidiary terminated, if the Forfeiture Event occurred after the
participant ceased to be so employed. |
| (b) | Events Triggering
Forfeiture . The forfeitures specified in Section 5.16(a) will
be triggered upon the occurrence of any one of the following Forfeiture
Events at any time during the participants employment by or service as a
Director with the Company or a Subsidiary or during the one-year period
following termination of such employment or service: | |
| | (i) | Non-Solicitation . The
participant, for his or her own benefit or for the benefit of any other
person, company or entity, directly or indirectly, (i) induces or attempts
to induce or hires or otherwise counsels, induces or attempts to induce or
hire or otherwise counsel, advise, encourage or solicit any person to
leave the employment of or the service for the Company or any Subsidiary,
(ii) hires or in any manner employs or retains the services of any
individual employed by or providing services to
the Company or any Subsidiary as of the date of his or her termination of
employment, or employed by or providing services to the Company or any
Subsidiary subsequent to such termination, (iii) solicits, pursues, calls
upon or takes away, any potential customers of the Company or any
Subsidiary, (iv) solicits, pursues, calls upon or takes away, any
potential customer of the Company or any Subsidiary that has been the
subject of a bid, offer or proposal by the Company or any Subsidiary, or
of substantial preparation with a view to making such a bid, proposal or
offer, within 12 months before such participants termination of
employment with the Company or any Subsidiary, or (v) otherwise interferes
with the business or accounts of the Company or any
Subsidiary. |
| | (ii) | Confidential Information .
The participant discloses to any person or entity or makes use of any
confidential or proprietary information (as defined below in this Section 5.16(b)(2)) for his or her own purpose or for the benefit
of any person or entity, except as may be necessary in the ordinary course
of employment with or other service to the Company or any Subsidiary. Such
confidential or proprietary information of the Company or any
Subsidiary, includes, but is not limited to, the design, development,
operation, building or manufacturing of products manufactured and supplied
by the Company and its Subsidiaries, the identity of the Companys or any
Subsidiarys customers, the identity of representatives of customers with
whom the Company or any Subsidiary has dealt, the kinds of services
provided by the Company or any Subsidiary to customers and offered to be
performed for potential customers, the manner in which such services are
performed or offered to be performed, the service needs of actual or
prospective customers, pricing information, information concerning the
creation, acquisition or disposition of products and services, customer
maintenance listings, computer software and hardware applications and
other programs, personnel information, information identifying, relating
to or concerning investors in the Company or any Subsidiary, joint venture
partners of the Company or any Subsidiary, business partners of the
Company or any Subsidiary or other entities providing financing to the
Company or any Subsidiary, real estate and leasing opportunities, |

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| (c) | Plan Does Not Prohibit
Competition or Other Participation Activities . Although the conditions set
forth in this Section 5.16 shall be deemed to be incorporated into an
award, the Plan does not thereby prohibit the participant from engaging in
any activity, including but not limited to competition with the Company
and its Subsidiaries. Rather, the non-occurrence of the Forfeiture Events
set forth in Section 5.16(b) is a condition to the participants right to
realize and retain value from his or her compensatory awards, and the
consequence under the Plan if the participant engages in an activity
giving rise to any such Forfeiture Event are the forfeitures specified
herein. This provision shall not preclude the Company and the participant
from entering into other written agreements concerning the subject matter
of Sections 5.16(a) and 5.16(b) and, to the extent any terms of this Section 5.16 are inconsistent with any express terms of such agreement,
this Section 5.16 shall not be deemed to modify or amend such
terms. |
| --- | --- |
| (d) | Committee Discretion . The
Committee may, in its sole discretion, waive in whole or in part the
Companys right to forfeiture under this Section 5.16 , but no such waiver
shall be effective unless evidenced by a writing signed by a duly
authorized officer of the Company. In addition, the Committee may impose
additional conditions on awards, by inclusion of appropriate provisions in
the Award Notice. Nothing contained herein shall require the Committee to
enforce the forfeiture provisions of this Section 5.16 . Failure to enforce
these provisions against any individual shall not be construed as a waiver
of the Companys right to forfeiture under this Section
5.16 . |

5.17 Awards Subject to Clawback . Notwithstanding any other provision of the Plan to the contrary, any participant who is an officer of the Company whose negligence, intentional or gross misconduct contributes to the Companys having to restate all or a portion of its financial statements, will be required to forfeit awards granted under this Plan and any cash payment or shares of Common Stock delivered pursuant to an award, as determined by the Board of Directors, an authorized committee, or its designee, pursuant to the Caterpillar Inc. Guidelines on Corporate Governance Issues, as adopted on December 7, 2013 and any subsequent amendments, including without limitation any such amendments which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.

5.18 Right of Setoff . The Company or any Subsidiary may, to the extent permitted by applicable law, deduct from and set off against any amounts the Company or Subsidiary may owe to the participant from time to time, including amounts payable in connection with any award, owed as wages, fringe benefits, or other compensation owed to the participant, such amounts as may be owed by the participant to the Company, although the participant shall remain liable for any part of the participants payment obligation not satisfied through such deduction and setoff. By accepting any award granted hereunder, the participant agrees to any deduction or setoff under this Section 5.18 .

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proxy

Table of Contents

Please mark your vote as in this example

| The Board of Directors
recommends a vote FOR all of the nominees for Director in Proposal 1, FOR Proposals 2, 3 and 5, and 1 YEAR on Proposal 4 | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 1. | Election of the following nominees
as directors: | | | | | | | |
| | Nominees: | FOR | AGAINST | ABSTAIN | | FOR | AGAINST | ABSTAIN |
| | 01. David L. Calhoun | ☐ | ☐ | ☐ | 08. Debra L. Reed | ☐ | ☐ | ☐ |
| | 02. Daniel M. Dickinson | ☐ | ☐ | ☐ | 09. Edward B. Rust, Jr. | ☐ | ☐ | ☐ |
| | 03. Juan Gallardo | ☐ | ☐ | ☐ | 10. Susan C. Schwab | ☐ | ☐ | ☐ |
| | 04. Jesse J. Greene, Jr. | ☐ | ☐ | ☐ | 11. Jim Umpleby | ☐ | ☐ | ☐ |
| | 05. Jon M. Huntsman, Jr. | ☐ | ☐ | ☐ | 12. Miles D. White | ☐ | ☐ | ☐ |
| | 06. Dennis A. Muilenburg | ☐ | ☐ | ☐ | 13. Rayford Wilkins,
Jr. | ☐ | ☐ | ☐ |
| | 07. William A. Osborn | ☐ | ☐ | ☐ | | | | |

| 2. | Ratify the appointment of
independent registered public accounting firm for 2017. | FOR ☐ | AGAINST ☐ | ABSTAIN ☐ | 4. | Advisory vote on
the frequency of executive compensation
votes. | 2 YEARS ☐ | 3 YEARS ☐ | ABSTAIN ☐ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 3. | Advisory vote to approve executive compensation. | FOR ☐ | AGAINST ☐ | ABSTAIN ☐ | 5. | Approve the Amended and Restated
Caterpillar Inc. 2014 Long-Term
Incentive Plan. | FOR ☐ | AGAINST ☐ | ABSTAIN ☐ |

| The Board of Directors
recommends a vote AGAINST Proposals 6-11 | | FOR | AGAINST | ABSTAIN |
| --- | --- | --- | --- | --- |
| 6. | Shareholder Proposal
Provide a report of lobbying activities. | ☐ | ☐ | ☐ |
| 7. | Shareholder Proposal Decrease percent of ownership required to
call special shareholder meeting. | ☐ | ☐ | ☐ |
| 8. | Shareholder Proposal Provide a report of lobbying
priorities. | ☐ | ☐ | ☐ |
| 9. | Shareholder Proposal Include sustainability as a performance
measure under executive incentive plans. | ☐ | ☐ | ☐ |
| 10. | Shareholder Proposal Amend the Companys compensation clawback
policy. | ☐ | ☐ | ☐ |
| 11. | Shareholder Proposal Adopt a
permanent policy that the Chairman be independent. | ☐ | ☐ | ☐ |

DATE 2017

| SIGNATURE |
| --- |
| SIGNATURE |
| NOTE: Please sign exactly as name
appears hereon. If more than one owner, each must sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full
title as such. |

▲ TO VOTE BY MAIL, PLEASE DETACH HERE ▲

YOUR VOTE IS IMPORTANT.

Please take a moment now to vote your shares of Caterpillar Inc. common stock for the upcoming Annual Meeting of Shareholders.

YOU CAN VOTE TODAY USING ONE OF THE FOLLOWING METHODS:

| ● | Vote by
Internet Please access https://www.proxyvotenow.com/cat and follow the instructions on the screen. Please note
you must type an s after http. |
| --- | --- |
| ● | Mobile Device Scan this QR code to vote with your mobile
device. |
| ● | Vote by
Telephone Please call toll-free at 1-866-257-2283 on a touch-tone
telephone and follow the recorded
instructions. Your vote will be confirmed and cast as you direct.
(Telephone voting is available for residents of the U.S. and Canada
only.) |
| ● | Vote by Mail Please complete, sign, date and return the proxy card in
the envelope provided to: Caterpillar Inc., c/o Innisfree M&A
Incorporated, FDR Station, P.O. Box 5156, New York, NY
10150-5156. |

You may vote by telephone, mobile device or Internet 24 hours a day, 7 days a week. Your telephone, mobile device or Internet vote authorizes the named proxies in the same manner as if you had marked, signed and returned a proxy card.

Table of Contents

P R O X Y A N D V O T I N G I N S T R U C T I O N

ANNUAL MEETING OF SHAREHOLDERSJUNE 14, 2017

This proxy is solicited on behalf of the Board of Directors

At the Annual Meeting of Shareholders of Caterpillar Inc. (the “Company” or “Caterpillar”) on June 14, 2017, or at any adjournments thereof, the undersigned (i) hereby appoints, Christopher M. REITZ, Chad J. WIENER and Joni J. FUNK, and each of them, proxies with power of substitution to vote the common stock of the undersigned and/or (ii) with respect to Caterpillar or subsidiary employee benefit plans (“Plan(s)”) for which THE NORTHERN TRUST COMPANY or CIBC MELLON TRUST COMPANY, each act as directed Trustee (the “Trustee” or “Trustees”) for the Plans’ Trusts, respectively, hereby directs the Trustee(s) to appoint Christopher M. REITZ, Chad J. WIENER and Joni J. FUNK, and each of them, proxies with power of substitution to vote all shares of the Company’s stock credited to the accounts of the undersigned under any Plan(s) held under the Trusts at the close of business on April 17, 2017, as directed hereon on the following matters, and, in their discretion, on any other matters that may come before the meeting. For Plan participants, if the Trustees have not received directions from the undersigned by 8:00 a.m. Eastern Time, on June 12, 2017, the Trustees will vote the shares for which they do not receive instructions (“Undirected Shares”) in the same proportion that they votes shares for which they received timely instructions, unless the Trustee(s) determines that to do so would be contrary to law. Further, under the Plan(s), participants are “named fiduciaries” as defined under ERISA to the extent of their authority to direct the voting of the shares held in their accounts and the proportionate share of Undirected Shares in the Trust(s).

You are encouraged to specify your choices by marking the appropriate boxes. However, if you wish to vote in accordance with the Board of Directors recommendations, simply sign and return this card.

This Proxy, when properly executed, will be voted in the manner you have directed. If you return a signed proxy with no direction given, it will be voted in accordance with the Board of Directors recommendations.

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SEE REVERSE SIDE FOR FOUR EASY WAYS TO VOTE.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on June 14, 2017: This Notice of Annual Meeting and Proxy Statement and the 2016 Form 10-K are available at www.eproxyaccess.com/cat2017 .

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CATERPILLAR INC Proxy Solicitation & Information Statement 2017

29780_psi_2017-04-26_aa57af08-a28f-4d91-b29d-a8dded3f797e.zip

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CATERPILLAR INC — Proxy Solicitation & Information Statement 2017

29780_psi_2017-04-26_aa57af08-a28f-4d91-b29d-a8dded3f797e.zip

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CATERPILLAR INC Proxy Solicitation & Information Statement 2017