Document:

Exhibit 10.1

EXHIBIT
10.1

CATERPILLAR
INC.

1996
STOCK OPTION AND LONG-TERM INCENTIVE PLAN

(as Amended and
Restated effective August 18, 2004)

Section 1.
Purpose

The Caterpillar
Inc. 1996 Stock Option and Long-Term Incentive Plan (“Plan”) is designed to
attract and retain outstanding individuals as non-employee directors, officers
and key employees of Caterpillar Inc. and its subsidiaries (collectively, the
“Company”), and to furnish incentives to such individuals through awards based
upon the performance of the Company and its stock. To this end, the Plan
provides for grants of stock options, stock appreciation rights
(“SARs”), restricted stock,
restricted stock units, and performance awards, or combinations thereof, to
non-employee directors, officers and other key employees of the Company, on the
terms and subject to the conditions set forth in the Plan.

Section 2.
Shares Subject to the Plan

2.1 Shares Reserved
for Issuance

Sixty-Four Million
shares of Company common stock (“Shares”) shall be available for issuance under
the Plan either from authorized but unissued Shares or from Shares acquired by
the Company, including Shares purchased in the open market. An additional four
million Shares authorized but unissued under prior Company stock option plans
shall be available for issuance under this Plan.

2.2 Reacquired
Shares

If Shares subject
to an award under the Plan are not acquired by participants, or Shares issued
under the Plan are reacquired by the Company, because of lapse, expiration, or
termination of an award, such Shares shall again become available for issuance
under the Plan. Shares tendered upon exercise of an option by a Plan participant
may be added back and made available solely for future awards under the
Plan.

2.3 Adjustments in
Authorized Shares

In the event of any
corporate event or transaction (including, but not limited to, a change in the
shares of the Company or the capitalization of the Company) such as a merger,
consolidation, reorganization, recapitalization, separation, stock dividend,
stock split, reverse stock split, split up, spin-off, or other distribution of
stock or property of the Company, combination of Shares, exchange of Shares,
dividend in kind, or other like change in capital structure or distribution
(other than normal cash dividends) to stockholders of the Company, or any
similar corporate event or transaction, the Committee, in its sole discretion,
in order to prevent dilution or enlargement of Participants’ rights under the
Plan, shall substitute or adjust, as applicable, the number and kind of Shares
that may be issued under the Plan or under particular forms of awards, the
number and kind of Shares subject to outstanding awards, the option exercise
price or base price applicable to outstanding awards, the annual award limits,
the limits on awards set forth in Sections 5.1(a), 6.1(b) and 8.2, and other
value determinations applicable to outstanding awards.

The Committee, in
its sole discretion, may also make appropriate adjustments in the terms of any
awards under the Plan related to such changes or distributions and to modify any
other terms of outstanding awards, including modifications of performance goals
and changes in the length of Performance Periods. The determination of the
Committee as to the foregoing adjustments, if any, shall be conclusive and
binding on Participants under the Plan. 

 

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Section 3.
Administration

Unless otherwise
provided in the Plan, the Committee shall have the authority to grant awards
under the Plan to non-employee directors, officers, and other key employees 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, except to the
extent that such authority or discretion would cause an award to fail to qualify
as performance based compensation for purposes of Section 162(m) of the
Code.

The Committee shall
be composed solely of members of the Board that satisfy applicable tax,
securities and stock exchange rules, and other requirements determined to be
necessary or advisable by the Board. The Committee may delegate to one or more
of its members or to one or more officers of the Company, and/or its
Subsidiaries and Affiliates or to one or more agents or advisors such
administrative duties or powers as it may deem advisable, and the Committee or
any person to whom it has delegated duties or powers as aforesaid may employ one
or more persons to render advice with respect to any responsibility the
Committee or such person may have under the Plan.

Section 4.
Eligibility and Participation

4.1 Eligibility

Individuals
eligible to participate in this Plan include non-employee directors, officers,
and other key employees. 

4.2 Actual
Participation

Subject to the
provisions of the Plan, the Committee may, from time to time, select from all
eligible officers and key Employees those to whom awards shall be granted. The
Committee shall determine, in its sole discretion, the nature of any and all
terms (as permissible by law) and the amount of each award. Directors who are
not employees shall only receive awards in accordance with the terms set forth
in this Plan.

Section 5.
Stock Options

5.1 Company
Employees

(a) Eligibility

The Committee shall
determine Company officers and key employees to whom options shall be granted,
the timing of such grants, and the number of shares subject to the option;
provided that the maximum number of Shares upon which options may be granted to
any employee in any calendar year shall be 400,000. All Options granted under
the Plan will be evidenced by an Award Agreement.

(b) Option Exercise
Price

The exercise price
of each option shall not be less than 100% of the fair market value of Shares
underlying the option at the time the option is granted. The fair market value
for purposes of determining the exercise price shall be the mean between the
high and the low prices at which Shares are traded on the New York Stock
Exchange on the day the option is granted. In the event this method for
determining fair market value is not practicable, fair market value shall be
determined by such other reasonable method as the Committee shall
select.

 

 

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(c) Option
Exercise

Options shall be
exercisable in such installments and during such periods as may be fixed by the
Committee at the time of grant. Each Option granted to a Participant shall
expire at such time as the Committee shall determine at the time of grant;
provided, however, no Option shall be exercisable later than the tenth
(10th) anniversary date
of its grant.

Payment of the
exercise price shall be made upon exercise of all or a portion of any option.
Payment of the exercise price may be in the form of cash utilizing the exercise
method of "exercise and hold", or by tendering shares in a stock "swap"
transaction, in which the fair market value of the shares tendered must equal
100% of the exercise price. The fair market value of Shares for this purpose
shall be the mean between the high and low prices at which shares are traded on
the New York Stock Exchange on the date of exercise. When shares are immediately
exercised and sold to satisfy the option exercise price, the selling price of
the shares shall be the price at which the shares are traded on the New York
Stock Exchange at the time of exercise. Upon exercise of an option, any
applicable taxes the Company is required to withhold shall be paid to the
Company. Shares to be received upon exercise may be surrendered to satisfy
withholding obligations.

(d) Termination of
Employment

The Committee may
require a period of continued employment before an option can be exercised. That
period shall not be less than one year, except that the Committee may permit a
shorter period in the event of termination of employment by retirement or death.
An exception to the one year period other than retirement or death is applicable
only for the 2004 year grant, of which the options may be exercised as of
January 3, 2005.

Termination of
employment with the Company shall terminate remaining rights under options then
held; provided, however, that an option grant may provide that if employment
terminates after completion of a specific period, the option may be exercised
during a period of time after termination. That period may not exceed sixty
months where termination of employment is caused by retirement or death or sixty
days where termination results from any other cause provided that such period
shall not extend beyond the original maximum term of the option. If death occurs
after termination of employment but during the period of time specified, such
period may be extended to not more than sixty-six months after retirement, or
thirty-eight months after termination of employment for any other cause provided
that such period shall not extend beyond the original maximum term of the
option. In the event of termination within two years after a Change of Control
as defined in Section 10.2 of the Plan, options shall be exercisable for a
period of sixty months following the date of termination or for the maximum term
of the option, whichever is shorter. Notwithstanding the foregoing, the
Committee may change the post-termination period of exercisability of an option
provided that change does not extend the original maximum term of the
option.

(e) Transferability of
Options

(i) Except as otherwise
permitted in Section 4.1(e)(ii), options shall not be transferable other than by
will or the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or the Employee Retirement Income
Security Act. Options are exercisable during the holder’s lifetime only by the
holder, unless the holder becomes incapacitated or disabled, in which case the
option may be exercised by the holder’s authorized representative. A holder may
file with the Company a written designation of beneficiaries with the authority
to exercise options in the event of the holder’s death.

 

 

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(ii) Notwithstanding the
provisions of Section 4.1(e)(i), and in addition to the permissible transfers
under that provision, options granted to persons at the level of Vice President
and above, as well as directors of the Company and persons retired from those
positions, may be transferred to any one or more “Permitted Transferees,” as
long as those options are not incentive stock options as defined below and are
fully vested. Options granted to employees below the level of Vice President may
be transferred upon prior approval of the Company’s Director of Compensation and
Benefits pursuant to the terms of this section.

(iii) For purposes of
Section 4.1(e)(ii), the term "Permitted Transferees" shall mean the members of
the group that consists exclusively of the individual to whom the option is
granted, the spouse of the individual to whom the option is granted, the lineal
descendants of the individual to whom the option is granted, the spouses of the
lineal descendents to whom the option is granted, the lineal descendants of any
spouse or former spouse of the individual to whom the option is granted, the
spouses of the lineal descendants of any spouse or former spouse of the
individual to whom the option is granted, the estate (and any trust that serves
a distributive function of an estate) of the Permitted Transferee, all trusts
that an individual who is a Permitted Transferee can revoke and all trusts,
corporations, partnerships, limited liability companies and other entities in
which, directly or indirectly, but for the exercise of a power of appointment or
the death of the survivor of the individual who are Permitted Transferees. Each
owner of an equitable interest is an individual who is a Permitted
Transferee.

(f) Incentive Stock
Options

Incentive stock
options (“ISOs”), as defined in Section 422 of the Code, may be granted to key
employees under the Plan. The decision to grant ISOs to particular persons is
within the Committee’s discretion. An Option Award Agreement shall specify
whether the Option is intended to be an ISO or a Non-Qualified Stock Option
(“NQSO”). A NQSO is an option that does not meet the definition of an ISO. ISOs
shall not be exercisable after expiration of ten years from the date of grant.
The amount of ISOs vesting in a particular calendar year for an option recipient
under this Plan and all incentive stock option plans of the Company or any
parent or subsidiary corporation cannot exceed $100,000, based on the fair
market value of the Shares subject to the options on the date of grant; provided
that any portion of an option that cannot be exercised as an ISO because of this
limitation may be converted by the Committee to another form of option.
If any
employee or former employee shall make any disposition of Shares issued pursuant
to the exercise of an ISO under the circumstances described in Section 421(b) of
the Code (relating to certain disqualifying dispositions), such employee or
former employee shall notify the Company of such disposition within ten (10)
days thereof. The Board may amend
the Plan to comply with Section 422 of the Code or other applicable laws and to
permit options previously granted to be converted to ISOs.

5.2 Non-Employee
Directors

(a) Terms

Subject to the
share ownership requirements, options with a term of ten years are granted to
each non-employee director for 4,000 Shares, effective as of the close of each
annual meeting of stockholders at which an individual is elected a director or
following which such individual continues as a director. Options granted to
non-employee directors shall become exercisable by one-third at the end of each
of the three successive one-year periods since the date of grant. The exercise
price of each option shall be 100% of the fair market value of Shares underlying
the option on the date of grant.

 

 

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(b) Termination of
Directorship

An option awarded
to a non-employee director may be exercised any time within sixty months of
the date the director terminates such status. In the event of a director’s
death, the director’s authorized representative may exercise the option within
sixty months of the date of death, provided that if the director dies after
cessation of director status, the option is exercisable within sixty-six months
of such cessation. In no event shall an option awarded to a non-employee
director be exercisable beyond the expiration date of that option.

Section 6.
Stock Appreciation Rights

6.1 Company
Employees

(a) Types of
SARs

The Committee may
grant “tandem” and “non-tandem” SARs under the Plan. A tandem SAR shall be
granted at the same time as an option and may be exercised by the recipient as
an alternative to the option. The term of a tandem SAR, its exercisability and
any conditions or restrictions applicable to it shall be the same as its related
option, and its base price shall be equal to the exercise price of the related
option. In addition, upon the exercise of the option, the tandem SAR (or the
portion related to the exercise) shall expire and upon exercise of the tandem
SAR, the related option (or such portion) shall expire. The terms of a
non-tandem SAR shall be established by the Committee. A SAR that is not
otherwise designated but is granted at the same time as an option shall be a
tandem SAR.

(b) Eligibility

The Committee shall
determine Company officers and employees to whom SARs shall be granted, the
timing of such grants, and the number of shares subject to the SAR; provided
that the maximum number of Shares upon which non-tandem SARs may be granted to
any employee in any calendar year shall be 400,000.

(c) SAR Base
Price

The base price of
each non-tandem SAR shall not be less than one hundred percent of the fair
market value of Shares underlying the SAR at the time the SAR is granted. The
fair market value for purposes of determining the base price shall be the mean
between the high and the low prices at which Shares are traded on the New York
Stock Exchange on the day the SAR is granted. In the event this method for
determining fair market value is not practicable, fair market value shall be
determined by such other reasonable method as the Committee shall
select.

(d) SAR
Exercise

Non-tandem SARs
shall be exercisable in such installments and during such periods as may be
fixed by the Committee at the time of grant. Non-tandem SARs shall not be
exercisable after the expiration of ten years from the date of
grant.

 

 

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Upon exercise of an
SAR, the recipient shall be entitled to receive from the Company that number of
Shares having an aggregate fair market value as of the date of exercise equal to
the product of (i) the number of Shares as to which the recipient is exercising
the SAR, and (ii) the excess of the fair market value (at the date of exercise)
of a Share over the base price of the SAR, provided that the Committee may elect
to settle all or a portion of the Company's obligation arising out of the
exercise of an SAR by the payment of cash in an amount equal to the fair market
value as of the date of exercise of the Shares it would otherwise be obligated
to deliver. The fair market value of Shares for this purpose shall be the mean
between the high and low prices at which Shares are traded on the New York Stock
Exchange on the date of exercise. Upon exercise of an SAR, any applicable taxes
the Company is required to withhold shall be paid to the Company. Shares to be
received upon exercise may be surrendered to satisfy withholding
obligations.

(d) Termination of
Employment

The Committee may
require a period of continued employment before a non-tandem SAR can be
exercised. That period shall not be less than one year, except that the
Committee may permit a shorter period in the event of termination of employment
by retirement or death.

Termination of
employment with the Company shall terminate remaining rights under non-tandem
SARs then held; provided, however, that a non-tandem SAR grant may provide that
if employment terminates after completion of a specific period, the SAR may be
exercised during a period of time after termination. That period may not exceed
sixty months where termination of employment is caused by retirement or death or
sixty days where termination results from any other cause provided that such
period shall not extend beyond the original maximum term of the SAR. If death
occurs after termination of employment but during the period of time specified,
such period may be extended to not more than sixty-six months after retirement,
or thirty-eight months after termination of employment for any other cause
provided that such period shall not extend beyond the original maximum term of
the SAR. In the event of termination within two years after a Change of Control
as defined in Section 10.2 of the Plan, non-tandem SARs shall be exercisable for
a period of sixty months following the date of termination or for the maximum
term of the SAR, whichever is shorter. Notwithstanding the foregoing, the
Committee may change the post-termination period of exercisability of a
non-tandem SAR provided that change does not extend the original maximum term of
the SAR.

(f) Transferability of
SARs

(i) Except as otherwise
permitted in Section 6(f)(ii), non-tandem SARs shall not be transferable other
than by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or the Employee Retirement
Income Security Act. Non-tandem SARs are exercisable during the holder’s
lifetime only by the holder, unless the holder becomes incapacitated or
disabled, in which case the SAR may be exercised by the holder’s authorized
representative. A holder may file with the Company a written designation of
beneficiaries with the authority to exercise non-tandem SARs in the event of the
holder’s death.

(ii) Notwithstanding the
provisions of Section 6(f)(i), and in addition to the permissible transfers
under that provision, non-tandem SARs granted to persons at the level of Vice
President and above, as well as directors of this corporation and persons
retired from those positions, may be transferred to any one or more “Permitted
Transferees,” as long as those SARs are fully vested. Non-tandem SARs granted to
employees below the level of Vice President may be transferred upon prior
approval of the Company’s Director of Compensation and Benefits pursuant to the
terms of this section.

 

 

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(iii) For purposes of
Section 6(f)(ii), the term "Permitted Transferees" shall mean the members of the
group that consists exclusively of the individual to whom the non-tandem SAR is
granted, the spouse of the individual to whom the non-tandem SAR is granted, the
lineal descendants of the individual to whom the non-tandem SAR is granted, the
spouses of the lineal descendents to whom the non-tandem SAR is granted, the
lineal descendants of any spouse or former spouse of the individual to whom the
non-tandem SAR is granted, the spouses of the lineal descendants of any spouse
or former spouse of the individual to whom the non-tandem SAR is granted, the
estate (and any trust that serves a distributive function of an estate) of the
Permitted Transferee, all trusts that an individual who is a Permitted
Transferee can revoke and all trusts, corporations, partnerships, limited
liability companies and other entities in which, directly or indirectly, but for
the exercise of a power of appointment or the death of the survivor of the
individual who are Permitted Transferees. Each owner of an equitable interest is
an individual who is a Permitted Transferee.

6.2 Non-Employee
Directors

(a) Terms

The Committee may
grant SARs to non-employee directors. With respect to the grant of SARs to
non-employee directors and subject to any share ownership requirements, each
year the Committee shall determine (i) the type of such SAR grant (i.e., tandem
or non-tandem), (ii) the timing of such SAR grant and (iii) the number of shares
subject to the SAR. All SARs granted under this provision of the Plan will be
evidenced by an Award Agreement.

SARs granted to
non-employee directors shall have a term of ten years and become exercisable by
one-third at the end of each of the three successive one-year periods since the
date of grant. The base price of each SAR shall be 100% of the fair market value
of Shares underlying the SAR on the date the SAR is granted.

(b) Termination of
Directorship

A SAR granted to a
non-employee director may be exercised any time within sixty months of the
date the director terminates such status. In the event of a director’s death,
the director’s authorized representative may exercise the SAR within sixty
months of the date of death, provided that if the director dies after cessation
of director status, the authorized representative may exercise the SAR within
sixty-six months of such cessation. In no event shall a SAR granted to a
non-employee director be exercisable beyond the original expiration date of that
SAR.

Section 7.
Restricted Stock

7.1 Company
Employees

(a) Eligibility

The Committee may
determine whether restricted stock or restricted stock units shall be awarded to
Company officers and employees, the timing of award, and the conditions and
restrictions imposed on the award. Restricted stock
units are similar to restricted stock except that no Shares are actually awarded
to the employee on the date of grant. Shares are awarded only on the date of
exercise.

 

 

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(b) Terms

With respect to
restricted stock grants, during the restriction period the recipient shall have
a beneficial interest in the restricted stock and all associated rights and
privileges of a stockholder, including the right to vote and receive dividends,
subject to any restrictions imposed by the Committee at the time of grant. The
recipient shall have no voting or dividend rights with respect to any restricted
stock units granted hereunder. The Committee may grant dividend equivalents on
restricted stock units with such terms and conditions as the Committee shall
specify.

The following
restrictions will be imposed on Shares of restricted stock (and restricted stock
units where specified) until expiration of the restriction period:

(i) The recipient shall
not be entitled to delivery of the certificates for the Shares;

(ii) None of the
restricted stock units or Shares issued as
restricted stock may be transferred other than by will or by the laws of descent
and distribution; and

(iii) Restricted stock
units or Shares issued as restricted stock shall be forfeited if the recipient
terminates employment with the Company, except for termination due to retirement
after a specified age, disability, death or other special circumstances approved
by the Committee.

Shares awarded as
restricted stock will be issued subject to a restriction period set by the
Committee of no less than two nor more than ten years. The Committee, except for
restrictions specified in the preceding paragraphs, shall have the discretion to
remove any or all of the restrictions on a restricted stock award whenever it
determines such action appropriate. Except with respect to a maximum of five
percent of the Shares authorized in Section 2, any awards of restricted stock or
restricted stock units which vest on the basis of the recipient’s continued
employment with or provision of service to the Company shall not provide for
vesting which is any more rapid than annual pro rata vesting over a three year
period and any awards of restricted stock or restricted stock units which vest
upon the attainment of performance goals shall provide for a performance period
of at least twelve months. Upon expiration of the restriction period, the Shares
will be made available to the recipient, subject to satisfaction of applicable
tax withholding requirements.

7.2 Non-Employee
Directors

(a) On January 1 of
each year, 400 Shares of restricted stock shall be granted to each director who
is not currently an employee of the Company. The stock will be subject to a
restriction period of three years from the date of grant. During the restriction
period, the recipient shall have a beneficial interest in the restricted stock
and all associated rights and privileges of a stockholder, including the right
to vote and receive dividends.

The following
restrictions will be imposed on restricted stock until expiration of the
restricted period:

(i) The recipient shall
not be entitled to delivery of the Shares;

(ii) None of the Shares
issued as restricted stock may be transferred other than by will or by the laws
of descent and distribution; and

(iii) Shares issued as
restricted stock shall be forfeited if the recipient ceases to serve as a
director of the Company, except for termination due to death, disability, or
retirement under the Company’s Directors’ Retirement Plan.

 

 

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Upon expiration of
the restriction period, the Shares will be made available to the recipient,
subject to satisfaction of applicable tax withholding requirements.

(b) Each January 1st,
350 shares of restricted stock, in addition to shares described in Section
7.2(a), shall be awarded to each director who is not currently and has not been
an employee of the Company. Shares awarded under this Section 7.2(b) will be
held in escrow until the director terminates service with the Company. During
the restriction period, the recipient shall have a beneficial interest in the
restricted stock and all associated rights and privileges of a stockholder
except as discussed below.

The following
restrictions will be imposed on restricted stock awarded under this Section
7.2(b) until it is made available to the recipient:

(i) The recipient shall
not receive dividends on the shares, but an amount equal to such dividends will
be credited to the director’s stock equivalent account in the Company’s
Directors’ Deferred Compensation Plan;

(ii) The recipient shall
not be entitled to delivery of the shares;

(iii) None of the shares
awarded may be transferred other than by will or by the laws of descent and
distribution; and

(iv) The right to
receive shares shall be subordinate to the claims of general creditors of the
Company.

Upon termination of
service, restricted shares will be made available to the recipient subject to
satisfaction of applicable tax withholding requirements; provided, however, that
if the recipient has not served on the Board for at least five years at the time
of such termination, all restricted shares awarded under this Section 7.2(b)
shall be forfeited.

Pursuant to
termination of the Company’s Directors’ Retirement Plan effective December 31,
1996, each director continuing in office was awarded an amount of restricted
stock equal to the accumulated value of past pension accruals as determined by
the Company’s actuary. Those shares will be subject to the same restrictions as
shares awarded annually pursuant to this Section 7.2(b).

(c) Effective January
1, 2002, shares of restricted stock shall no longer be granted under Section
7.2(a) of the Plan or awarded under Section 7.2(b) of the Plan. Shares of
restricted stock that were granted or awarded prior to January 1, 2002, shall be
subject to the same restrictions and provisions as determined in 7.2(a) and
7.2(b).

(d) With respect to the
award of restricted stock units, the Committee in its sole discretion may
determine (i) whether restricted stock units shall be awarded to non-employee
directors, (ii) the timing of award, and (iii) the conditions and restrictions
imposed on the award.

 

 

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Section 8
Performance Awards

8.1 Eligibility and
Terms

The Committee may
grant awards to officers and other key employees (“Performance Awards”) based
upon Company performance over a period of years (“Performance Period”). The
Committee shall have sole discretion to determine persons eligible to
participate, the Performance Period, Company performance factors applicable to
the award (“Performance Measures”), and the method of Performance Award
calculation.

At the time the
Committee establishes a Performance Period for a particular award, it shall also
establish Performance Measures and targets to be attained relative to those
measures (“Performance Targets”). Performance Measures may be based on any of
the following factors, alone or in combination, as the Committee deems
appropriate: (i) return on assets; (ii) return on equity; (iii) return on sales;
(iv) total stockholder return; (v) cash flow; (vi) economic value added; (vii)
net earnings; and (viii) earnings per share relative to a peer group. The
Committee may establish the peer group referenced above and amend the peer group
as the Committee determines desirable. 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 eliminate or decrease the amount of a
Performance Award otherwise payable to a participant. Upon completion of a
Performance Period, the Committee shall determine the Company’s performance in
relation to the Performance Targets for that period and certify in writing the
extent to which Performance Targets were satisfied.

8.2 Payment of
Awards

Performance Awards
may be paid in cash, stock, restricted stock (pursuant to terms applicable to
restricted stock awarded to Company employees as described in the Plan), or a
combination thereof as determined by the Committee. Performance Awards shall be
made not later than ninety days following the end of the relevant Performance
Period. The fair market value of a Performance Award payment to any individual
employee in any calendar year shall not exceed Two Million Five Hundred Thousand
and NO/100 Dollars ($2,500,000.00). The fair market value of Shares to be
awarded shall be determined by the average of the high and low price of Shares
on the New York Stock Exchange on the last business day of the Performance
Period. Federal, state and local taxes will be withheld as
appropriate.

8.3 Termination

To receive a
Performance Award, the participant must be employed by the Company on the last
day of the Performance Period. If a participant terminates employment during the
Performance Period by reason of death, disability or retirement, a payout based
on the time of employment during the Performance Period shall be distributed.
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 participants. If the participant is
deceased at the time of Performance Award payment, the payment shall be made to
the recipient’s designated representative.

Section 9.
Election to Receive Non-Employee Director Fees in Shares

Effective April 8,
1998, non-employee directors shall have the option of receiving all or a portion
of their annual retainer fees, as well as fees for attendance at meetings of the
Board and committees of the Board (including any Committee Chairman stipend), in
the form of Shares.

 

 

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The number of
Shares that may be issued pursuant to such election shall be based on the amount
of cash compensation subject to the election divided by the fair market value of
one Share on the date such cash compensation is payable. The fair market value
shall be the mean between the high and low prices at which Shares are traded on
the New York Stock Exchange on payable date.

Shares provided
pursuant to the election shall be held in book-entry form by the Company on
behalf of the non-employee director. Upon request, the Company shall deliver
Shares so held to the non-employee director. While held in book-entry form, the
Shares shall have all associated rights and privileges, including voting rights
and the right to receive dividends.

Section 10.
Change of Control

10.1 Effect on
Grants and Awards

Unless the
Committee shall otherwise expressly provide in the agreement relating to a grant
or award under the Plan, upon the occurrence of a Change of Control as defined
below: (i) all options and SARs then outstanding under the Plan shall become
fully exercisable as of the date of the Change of Control; (ii) all terms and
conditions of restricted stock and restricted stock unit awards, and other
stock-based awards for which no performance goals have been established then
outstanding shall be deemed satisfied as of the date of the Change of Control;
and (iii) all Performance Awards or other stock-based awards for which
performance goal(s) have been established for a Performance Period not completed
at the time of the Change of Control shall be payable in an amount equal to the
product of the maximum award opportunity for the Performance Award or other
stock-based 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 (A) the date of the Change of Control or (B) the date the
participant terminates employment, and the denominator of which is the total
number of months in the Performance Period; provided, however, that if this Plan
shall remain in force after a Change of Control, a Performance Period is
completed during that time, and the participant’s employment has not terminated,
this provision (iii) shall not apply.

10.2 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 Exchange Act),
directly or indirectly, of securities of the Company representing fifteen
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 years, 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.

 

 

Page 11

Section 11.
Amendment and Termination

11.1 Amendment,
Modification, Suspension, and Termination

Subject to Section
11.3, the Committee may, at any time and from time to time, alter, amend,
modify, suspend, or terminate the Plan and any Award Agreement in whole or
in part; provided, however, that, no amendment of the Plan shall be made without
stockholder approval if stockholder approval is required by law, regulation, or
stock exchange rule.

11.2 Adjustment of
Awards Upon the Occurrence of Certain Unusual or Nonrecurring
Events

The Committee may
make adjustments in the terms and conditions of, and the criteria included in,
awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 2.3 hereof) affecting the Company or
the financial statements of the Company or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent unintended dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan. The determination of the Committee as to the foregoing
adjustments, if any, shall be conclusive and binding on Participants under the
Plan.

11.3 Awards
Previously Granted

Notwithstanding any
other provision of the Plan to the contrary, no termination, amendment,
suspension, or modification of the Plan or an Award Agreement shall adversely
affect in any material way any award previously granted under the Plan,
without the written consent of the Participant holding such award.

Section 12.
Regulatory Compliance

Notwithstanding any
other provision of the Plan, the issuance or delivery of any Shares may be
postponed for such period as may be required to comply with any applicable
requirements of any national securities exchange or any requirements under any
other law or regulation applicable to the issuance or delivery of such Shares.
The Company shall not be obligated to issue or deliver any Shares if such
issuance or delivery shall constitute a violation of any provision of any law or
regulation of any governmental authority or national securities
exchange.

Section 13.
Dividend Equivalents

Any participant
selected by the Committee may be granted dividend equivalents based on the
dividends declared of Shares that are subject to any award, to be credited as of
dividend payment dates, during the period between the date the award is granted
and the date the award is exercised, vests, or expires, as determined by the
Committee in its sole discretion. Such dividend equivalents shall be converted
to cash or additional Shares by such formula and at such time and subject to
such limitations as may be determined by the Committee in its sole
discretion.

 

 

Page 12

Section 14.
Beneficiary Designation

Each Participant
under the Plan may, from time to time, name any beneficiary or beneficiaries
(who may be named contingently or successively) to whom any benefit under the
Plan is to be paid in case of his or her death before he or she receives any or
all of such benefit. Each such designation shall revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Company during the Participant’s lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant’s death shall be paid
to the Participant’s estate.

Section 15.
Rights of Participants

15.1 Employment

Nothing in the Plan
or an Award Agreement shall interfere with or limit in any way the right of the
Company, its Affiliates, and/or its Subsidiaries, to terminate any Participant’s
employment or service on the Board at any time or for any reason not prohibited
by law, nor confer upon any Participant any right to continue his or her
employment or service as a Director for any specified period of time.

Neither an award
nor any benefits arising under this Plan shall constitute an employment contract
with the Company, its Affiliates, and/or its Subsidiaries and, accordingly,
subject to Sections 3 and 11, this Plan and the benefits hereunder may be
terminated at any time in the sole and exclusive discretion of the Committee
without giving rise to any liability on the part of the Company, its Affiliates,
and/or its Subsidiaries. 

15.2 Participation

No individual shall
have the right to be selected to receive an award under this Plan, or, having
been so selected, to be selected to receive a future award.

15.3 Rights as a
Stockholder

Except as otherwise
provided herein, a Participant shall have none of the rights of a stockholder
with respect to Shares covered by any award until the Participant becomes the
record holder of such Shares.

Section 16.
Successors

All obligations of
the Company under the Plan with respect to awards granted hereunder shall be
binding on any successor to the Company, whether the existence of such successor
is the result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of the
Company.

Section 17.
Nonexclusivity of the Plan

The adoption of
this Plan shall not be construed as creating any limitations on the power of the
Board or Committee to adopt such other compensation arrangements as it may deem
desirable for any Participant.

 

 

Page 13

 

 

Section 18.
No Constraint on Corporate Action

Nothing in this
Plan shall be construed to: (i) limit, impair, or otherwise affect the Company’s
or a Subsidiary’s or an Affiliate’s right or power to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer
all or any part of its business or assets; or, (ii) limit the right or power of
the Company or a Subsidiary or an Affiliate to take any action which such entity
deems to be necessary or appropriate.

Section 19.
Governing Law

The Plan and each
Award Agreement shall be governed by the laws of the State of Illinois,
excluding any conflicts or choice of law rule or principle that might otherwise
refer construction or interpretation of the Plan to the substantive law of
another jurisdiction. Unless otherwise provided in the Award Agreement,
recipients of an award under the Plan are deemed to submit to the exclusive
jurisdiction and venue of the federal or state courts of Illinois, to resolve
any and all issues that may arise out of or relate to the Plan or any related
Award Agreement.

Section 20.
Duration of the Plan

Unless sooner
terminated as provided herein, the Plan shall terminate ten years from the date
it was initially adopted. After the Plan is terminated, no awards may be granted
but awards previously granted shall remain outstanding in accordance with their
applicable terms and conditions and the Plan’s terms and
conditions.

Section 21.
Effective Date

This Plan
Restatement shall be effective January 1, 2004.

 

 

 

Page 14Exhibit 10.3

EXHIBIT
10.3

SUPPLEMENTAL
PENSION BENEFIT PLAN

as Amended
and Restated as of January 1, 2003

SECTION 1.
INTRODUCTION

1.1 Background. Caterpillar Inc.
has amended the Retirement Income Plan to limit the monthly amount payable to
employees, retired employees and former employees who are receiving pension
benefits under that plan so that benefits payable under that plan cannot exceed
the maximum pension benefit limitations imposed by Sections 401(a)(17) and 415
of the Internal Revenue Code of 1986, as amended (the "Code"). This Supplemental
Pension Benefit Plan (the "Plan"), as set forth in the succeeding Sections of
this document, provides additional pension benefits to persons hereinafter
described who are eligible for benefits under this Plan and supplements monthly
amounts of retirement income payable under such Retirement Income Plan. The Plan
has also been amended to provide benefits that would have accrued under the
Retirement Income Plan but for the employee’s election to defer salary or
incentive compensation under the Company’s Supplemental Employees’ Investment
Plan or Deferred Employees’ Investment Plan.

1.2 Use of
Terms. Certain terms, as
used in this Plan, are defined in Section 8 or elsewhere in this Plan, and are
capitalized, and when so used shall have the defined meanings given to them in
this Plan.

SECTION 2.
ELIGIBILITY

2.1 Eligibility for
and Accrual of Benefits. The Plan, as set
forth below, applies only to persons who from time to time are receiving, are
eligible to receive or are accruing retirement income on or after the Effective
Date under the Retirement Income Plan. An employee shall accrue benefits under
this Plan in accordance with the provisions of subsections 3.1, 3.2 and 3.4
hereof so long as he remains covered under the Retirement Income Plan and 1) his
compensation exceeds the limitation imposed by Code Section 401(a)(17), as
adjusted for cost-of-living pursuant to that Section, 2) his benefits under that
plan are limited by Code Section 415, as adjusted for cost-of-living pursuant to
that Section, or 3) he loses benefits that would have accrued under the
Retirement Income Plan but for his election to defer salary or incentive
compensation under the Company’s Supplemental Employees’ Investment Plan or
Deferred Employees’ Investment Plan.

SECTION 3.
PAYMENT OF BENEFITS

3.1 Benefit
Formula. A monthly
supplemental pension benefit will be payable under this Plan to an Eligible
Person in each month equal to the excess of (a) the amount of retirement income
that would be payable to such person for that month under the Retirement Income
Plan but for the limitations contained in subsections 4.6 and 4.8 of the
Retirement Income Plan, as amended, over (b) the amount actually paid to such
person for that month under the Retirement Income Plan.

For all purposes of
the Plan, the amount of retirement income under the Retirement Income Plan shall
be calculated as if any lump sum base salary adjustment (including any variable
base pay) or discretionary award were included in determining an Eligible
Person's Total Earnings.

 

Page 1

 

3.2 Future
Adjustments. Supplemental
pension benefit amounts payable under this Plan may be adjusted to take into
account future amendments to the Retirement Income Plan, increases in retirement
income that are granted under the Retirement Income Plan due to cost-of-living
increases or other factors and adjustments made by the Secretary of the Treasury
(in regulations or otherwise) to the limitations under Code Sections 401(a)(17)
and 415 such that the total amount payable to an Eligible Person under this Plan
and the Retirement Income Plan shall equal the monthly amount of retirement
income that would be payable under the Retirement Income Plan in the absence of
subsections 4.6 and 4.8 of the Retirement Income Plan.

3.3 Commencement of
Benefits. Benefits shall
commence under this Plan on the first day of the month on or after the Effective
Date that benefits become payable to an Eligible Person in accordance with
subsection 3.1 hereof and shall continue thereafter so long as benefits are
payable in accordance with subsections 3.1 and 3.2 hereof.

3.4 Elective
Deferrals. A monthly
supplemental pension benefit shall be payable under this Plan to an Eligible
Person in an amount equal solely to the amount of benefits that he would have
accrued under the Retirement Income Plan but for his election to defer salary or
incentive compensation under the Company’s Supplemental Employees’ Investment
Plan or Deferred Employees’ Investment Plan; provided, however, that such
benefit shall not duplicate any benefit provided pursuant to subsections 3.1 or
3.2 hereof.

SECTION 4.
OPTIONAL RETIREMENT BENEFITS

If, in lieu of
monthly normal retirement income payable under the Retirement Income Plan, an
Eligible Person receives optional retirement benefits under that plan, then
optional pension benefits (to the extent not otherwise payable under the
Retirement Income Plan because of the limitations contained in subsections 4.6
and 4.8 thereof) will also be payable in the same form under this Plan; except
that the joint and survivor annuity described in subsection 6.3 of the
Retirement Income Plan, as amended, shall be applicable solely to benefits
payable under that plan and shall not be available under this Plan.

SECTION 5.
FINANCIAL PROVISIONS

No
funding of benefits shall be required, and any benefits payable under this Plan
shall be payable by the Company.

SECTION 6.
AMENDMENT AND TERMINATION

While the Company
expects and intends to continue the Plan, it must necessarily reserve the right
to modify, amend or terminate the Plan in whole or in part, at any time.
Accordingly, the Company reserves the right to amend, modify, suspend or
terminate the Plan, in whole or in part, at any time by action of its Board of
Directors; provided, however, that the Vice-President of Human Services
Division, acting together with the Chairman of the Board of the Company, may
amend this Plan if such amendment does not involve an annual cost to the
employers under this Plan of more than $500,000 per year and if such amendment
does not change the duties and responsibilities of the committees and persons
designated to administer this Plan.

 

Page 2

 

SECTION 7.
MISCELLANEOUS PROVISIONS APPLICABLE TO THE PLAN

7.1 Vested
Rights. Any Eligible
Person who is fully vested in his retirement income benefits under the
Retirement Income Plan shall be fully vested in his right to receive his accrued
additional pension benefits under this Plan upon his retirement under the
Retirement Income Plan; and any such pension benefits so vested and accrued
shall be non-forfeitable.

7.2 Benefits Not
Assignable. Except insofar as
may be contrary to federal law or to the laws of any state and jurisdiction in
the premises and except as further provided hereunder, benefits under the Plan
are not in any way subject to the debts or other obligations of the persons
entitled to such benefits, and may not be voluntarily or involuntarily sold,
transferred or assigned; except that

(a) any person who
is entitled to benefits under this Plan may assign his benefits hereunder to the
Company for the sole purpose of repaying (in whole or in part) the amount of any
overpayment made under this Plan;

(b) any person
entitled to benefits under this Plan also may assign any portion of such
benefits otherwise due hereunder to any lawful taxing authority for the purpose
of payment of any taxes which are due or may become due on account of such
benefits; and

(c) any person
entitled to benefits under this Plan may assign such benefits to a bank for the
purpose of depositing them in his account in such bank, provided such assignment
is pursuant to and in accordance with a current applicable bank agreement
between such person and the bank and is filed with the Company.

Any assignment made
in accordance with the foregoing, except one made pursuant to paragraph (a)
above, shall be revocable at any time by the person who shall have authorized
it, and any payment pursuant to any such assignment will constitute a complete
discharge of any liability under the Plan for payment of such
amount.

7.3 Plan
Administered by Company. The Plan will be
administered by the Company, and the Company reserves the power to adopt such
rules of procedure and regulations, which shall be applied in a uniform and
nondiscriminatory manner, as it deems necessary to administer the Plan and to
determine all questions arising under the Plan; provided, however, that the
Company, by resolution of its Board of Directors, may designate any person,
committee, board or similar body to act as named fiduciary or fiduciaries under
the Plan and allocate any and all of its duties and responsibilities under the
Plan to such named fiduciary or fiduciaries. If the Board of Directors allocates
any of its duties and responsibilities under the Plan to a named fiduciary, such
named fiduciary shall be substituted for the Company wherever such term appears
under the Plan with respect to any duties and responsibilities so allocated.
Such named fiduciary or fiduciaries may designate other persons to carry out its
fiduciary responsibilities under the Plan.

7.4 Facility of
Payment. If the Company
shall receive evidence satisfactory to it (1) that a payee entitled to receive
any payment provided for in the Plan is physically or mentally incompetent to
receive such payment and to give a valid release therefor, (2) that another
person or an institution is then maintaining or has custody of such payee, and
(3) that no guardian, committee or other representative of the estate of such
payee shall have been duly appointed, the Company, in its discretion, may make
the payment to such other person or institution and the release of such other
person or institution shall be a valid and complete discharge for the payment.
In the absence of the appointment of a legal guardian, any minor's share may be
paid to such adult or adults as have, in the opinion of the Company, assumed the
custody and principal support of such minor.

 

Page 3

 

 

7.5 Company
Action. Any action (to
the extent not allocated under subsection 7.3) required or permitted to be taken
by the Company under the Plan (other than to amend or terminate the Plan) may be
taken by the Vice-President of Human Services Division or the Chairman of the
Board of the Company or any other person designated by either or both of them.
The Plan shall be amended or terminated in accordance with the provisions of
Section 6.

7.6 Small
Payments. If the monthly
amount of supplemental pension benefits to which any person is entitled under
the provisions of this Plan at any time shall be less than twenty dollars ($20)
per month but more than nine dollars and ninety-nine cents ($9.99), pension
payments may be made quarterly, each such quarterly payment to be in an amount
equal to the sum of the monthly amounts that would otherwise have been payable
during the same quarter, and to be made on the first day of the third month of
such quarter. If the monthly benefits to which any person would otherwise be
entitled under the plan at any time shall be less than ten dollars ($10) per
month, there may be paid to such person, in lieu of monthly pension payments, a
cash payment in an amount which is the actuarial equivalent (as determined by
the Actuary) of such monthly pension benefits.

SECTION 8.
DEFINITIONS

As
used herein:

	
      
	
      8.1
	
      "Actuary"
      means an actuary selected by the Company who is not an employee of the
      Company and who is a Fellow of the Society of Actuaries, or a firm of
      actuaries selected by the Company, at least one of the members or officers
      of which is a Fellow of the Society of
Actuaries.

	
      
	
      8.2
	
      “Company"
      means Caterpillar Inc. or any successor to it by merger, consolidation,
      reorganization or otherwise.

	
      
	
      8.3
	
      "Effective
      Date" means January 1, 1976.

	
      
	
      8.4
	
      "Eligible
      Person" means a person described in subsection 2.1 of the
      Plan.

	
      
	
      8.5
	
      "Plan" when
      used without any modification or qualification thereof means this
      Supplemental Pension Benefit Plan.

	
      
	
      8.6
	
      "Retirement
      Income Plan" means the Retirement Income Plan which has been adopted by
      Caterpillar Inc. and certain of its
subsidiaries.

 

Page 4

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