ex_10-5.htm


    EXHIBIT
10.5


     

    CATERPILLAR
INC.

    EXECUTIVE
SHORT-TERM INCENTIVE PLAN

     

    (Amended
and Restated as of 02/14/2007)

     

    
      	
              Section
      1.

            	
              Purpose

            


    

    
    

     

    Effective as of
January 1, 2002, Caterpillar Inc. (the “Company”) established the Caterpillar
Inc. Executive Incentive Compensation Plan to advance the interests of the
Company and its subsidiaries by providing an annual incentive bonus to be paid
to certain executive officers of the Company based on the achievement of
pre-established quantitative performance goals.  The plan was amended
and restated January 1, 2007, in its entirety and renamed the “Caterpillar Inc.
Executive Short-Term Incentive Plan” (the “Plan”).  By the execution
of this document, the Company hereby amends and restates such plan in its
entirety, effective as of February 14, 2007.

     

    The Plan is a
performance-based compensation plan as defined in Section 162(m) of the Internal
Revenue Service of 1986, as amended (“Code”) and payments under the Plan are
intended to qualify for tax deductibility under Section
162(m).  Payments under the Plan are intended to constitute
performance-based compensation, and distributions are intended to be short-term
deferrals (and, therefore, not deferred compensation), for purposes of Section
409A of the Code.

     

    
      	
              Section
    2.

            	
              Administration

            


    

    
    

     

    The Plan shall be
administered by the Compensation Committee (“Committee”) of the Board of
Directors of the Company (“Board”), which is composed solely of members of the
Board that are outside directors, as that term is defined in Section 162(m) of
the Code.  The Committee shall have the authority to grant awards
under the Plan to executive officers of the Company.  Except as
limited by the express provisions of the Plan or by resolutions adopted by the
Board, the Committee also shall have the authority and discretion to interpret
the Plan, to establish and revise rules and regulations relating to the Plan,
and to make any other determinations that it believes necessary or advisable for
administration of the Plan.

     

    
      	
              Section
    3.

            	
              Performance
      Awards

            


    

    
    

     

    
      	
              3.1.

            	
              Eligible
      Participants

            


    

     

    Individuals who
occupy the positions of Chief Executive Officer and Group President as well as
any other Company officers specifically designated by the Committee are eligible
to participate in the Plan (“Eligible Participants”).  Absent a
specific designation by the Committee, participation in the Plan will be limited
to the Chief Executive Officer and Group Presidents.

     

    
      	
              3.2.

            	
              Award
      Criteria

            


    

     

    On or prior to the
ninetieth day of each fiscal year of the Company (“Performance Period”) for
which an award (“Performance Award”) is payable hereunder, the Committee shall
establish the performance factors (“Performance Measures”) applicable to the
award for that Performance Period, the objective criteria based on those
Performance Measures pursuant to which the bonus for that Performance Period is
to be payable (“Performance Targets”) and the amounts potentially payable based
on the achievement or partial achievement of those Performance
Targets.  The Committee shall have sole discretion to determine the
Company Performance Measures and Performance Targets applicable to the
Performance Award, and the method of Performance Award
calculation.  Performance Measures may be based on any of the
following factors, alone or in combination, as the Committee deems appropriate:
(i) revenue; (ii) primary or fully-diluted earnings per share; (iii) earnings
before interest, taxes, depreciation, and/or amortization; (iv) pretax income;
(v) cash flow from operations; (vi) total cash flow; (vii) return on equity;
(viii) return on invested capital; (ix) return on assets; (x) net operating
profits after taxes; (xi) economic value added; (xii) total stockholder return;
(xiii) return on sales; (xiv) realized 6 Sigma benefits; or (xv) any individual
performance objective which is measured solely in terms of quantifiable targets
related to the Company or the Company’s business.  Performance Targets
may include a minimum, maximum and target level of performance with the size of
Performance Awards based on the level attained. Once established, Performance
Targets and Performance Measures shall not be changed during the Performance
Period; provided, however, that the Committee may, in its discretion, eliminate
or decrease the amount of a Performance Award otherwise payable to an Eligible
Participant.

     

    The maximum dollar
amount that any Eligible Participant may be paid in any single year under the
Plan may not exceed $4 million.

     

    
      	
              3.3.

            	
              Payment
      of Awards

            


    

     

    As soon as
practicable after the Company’s audited financial statements are available for
the Performance Period for which the incentive compensation will be paid, the
Committee shall determine the Company’s performance in relation to the
Performance Targets for that Performance Period.  The Committee shall
certify in writing the extent to which Performance Targets were
satisfied.

     

    The Committee may
provide, when it establishes Performance Measures under Section 3.2, that in
determining the Company’s performance in relation to the Performance Targets for
the Performance Period, adjustments shall be made in the method of calculating
attainment of performance objectives for one or more of the following reasons:
(i) to exclude the dilutive effects of acquisitions or joint ventures; (ii) to
assume that any business divested by the Company achieved performance objectives
at targeted levels during the balance of a Performance Period following such
divestiture; (iii) to exclude restructuring and/or other nonrecurring charges;
(iv) to exclude exchange rate effects, as applicable, for non-U.S. dollar
denominated net sales and operating earnings; (v) to exclude the effects of
changes to generally accepted accounting standards required by the Financial
Accounting Standards Board (FASB); (vi) to exclude the effects to any statutory
adjustments to corporate tax; (vii) to exclude the impact of any “extraordinary
items” as determined under generally accepted accounting principles (GAAP); or
(viii) to exclude the effect of any change in the outstanding shares of common
stock of the Company by reason of any stock dividend or split, stock repurchase,
reorganization, recapitalization, merger, consolidation, spin-off, combination
or exchange of shares or other similar corporate change, or any distributions to
common stockholders other than regular cash dividends; and (ix) to exclude any
other unusual, non-recurring gain or loss or other extraordinary
item.  Any adjustment provided for pursuant to the foregoing shall be
set forth in objective terms meeting the requirements for performance-based
compensation under Section 162(m) of the Code.

     

    Performance Awards
shall be paid in cash within two and one-half months after the end of the
Performance Period, or as soon as practicable thereafter, to the extent that the
delay does not cause payments to fail to be short-term deferrals for purposes of
Section 409A of the Code.  Federal, state and local taxes will be
withheld as appropriate.

     

    
      	
              3.4.

            	
              Termination
      of Employment

            


    

     

    To receive a
Performance Award, the Eligible Participant must be employed by the Company or
one of its subsidiaries on the last day of the Performance Period. If an
Eligible Participant terminates employment before such date by reason of death,
disability or retirement, a payout based on the time of employment during the
Performance Period shall be distributed.  Eligible Participants
employed on the last day of the Performance Period, but not for the entire
Performance Period, shall receive a payout prorated for that part of the
Performance Period for which they were Eligible Participants. If the Eligible
Participant is deceased at the time of a Performance Award payment for which the
Eligible Participant is eligible, the payment shall be made to the Eligible
Participant’s estate.

     

    
       

      
        	
                3.5.

              	
                Clawback
      Provisions

              


      

       

    

    Any Eligible
Participant whose negligent, intentional or gross misconduct contributes to the
Company’s having to restate all or a portion of its financial statements, shall
be required to reimburse the Company for any payments received under this Plan,
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 February 14, 2007 and any subsequent amendments
thereto.

     

    
      	
              Section
    4.

            	
              Change
      of Control

            


    

    
    

     

    
      	
              4.1.

            	
              Effect
      on Awards

            


    

     

    Unless the
Committee shall otherwise expressly provide in the agreement relating to an
award under the Plan, upon the occurrence of a Change of Control as defined
below, all Performance Awards for a Performance Period not completed at the time
of the Change of Control shall be payable to Eligible Participants in an amount
equal to the product of the maximum award opportunity for the Performance Award
and a fraction, the numerator of which is the number of months that have elapsed
since the beginning of the Performance Period through the later of (i) the date
of the Change of Control or (ii) for each Eligible Participant, the date the
Eligible Participant terminates employment, and the denominator of which is
twelve; provided, however, that if this Plan shall remain in effect after a
Change of Control, a Performance Period is completed during that time, and the
Eligible Participant’s employment has not terminated, this provision shall not
apply.

     

    
      	
              4.2.

            	
              Change
      of Control Defined

            


    

     

    For purposes of the
Plan, a “Change of Control” shall be deemed to have occurred if:

     

    (a)          Any
person becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (“Exchange Act”)), directly or indirectly, of
securities of the Company representing 15 percent or more of the combined voting
power of the Company’s then outstanding common stock, unless the Board by
resolution negates the effect of this provision in a particular circumstance,
deeming that resolution to be in the best interests of Company
stockholders;

     

    (b)          During
any period of two consecutive Performance Periods, there shall cease to be a
majority of the Board comprised of individuals who at the beginning of such
period constituted the Board;

     

    (c)          The
stockholders of the Company approve a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) less than fifty percent of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation;
or

     

    (d)          Company
stockholders approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of its assets.

     

    
      	
              Section
    5.

            	
              Amendment
      and Termination

            


    

    
    

     

    The Committee may
amend, suspend or terminate the Plan at any time in its sole and absolute
discretion.  Any amendment or termination of the Plan, however shall
not affect the right of an Eligible Participant to receive any earned but unpaid
Performance Award.  The Committee may amend the Plan without
stockholder approval, unless such approval is necessary to comply with
applicable laws, including provisions of the Exchange Act or the
Code.  However, termination shall not affect any awards previously
granted under the Plan.

     

    
      	
              Section
    6.

            	
              Section
      162(m) Compliance

            


    

    
    

     

    The Company intends
that awards made pursuant to the Plan constitute “qualified performance-based
compensation” satisfying the requirements of Section 162(m) of the
Code.  Accordingly, the Plan shall be interpreted in a manner
consistent with 162(m) of the Code.  If any provision of the Plan is
intended to but does not comply with, or is inconsistent with, the requirements
of section 162(m) of the Code, such provision shall be construed or deemed
amended to the extent necessary to conform to and comply with, Section 162(m) of
the Code.

     

    Nothing in this
Plan precludes the Company from making additional payments or special awards to
Eligible Participants outside of the Plan that may or may not qualify as
“performance-based” compensation under Section 162(m), provided that such
payment or award does not affect the qualification of any incentive compensation
payable under the Plan as “performance-based” compensation.

     

    
      	
              Section
    7.

            	
              Employment
      Rights

            


    

    
    

     

    No provision of the
Plan nor any action taken by the Committee or the Company pursuant to the Plan
shall give or be construed as giving any Eligible Participant any right to be
retained in the employ of the Company or affect or limit the right of the
Company to terminate such employment.

     

    
      	
              Section
      8.

            	
              Term

            


    

    
    

     

    
      	 
    


    

    This amendment and
restatement of the Plan applies to each of the four fiscal years of the Company
in the period commencing January 1, 2007 and ending December 31, 2010, subject
to the approval of the Plan by the Company’s stockholders.