CATERPILLAR INC — Proxy Solicitation & Information Statement 1994

Feb 24, 1994

SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [x] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 CATERPILLAR INC. ............................................................................. (Name of Registrant as Specified In Its Charter) RICHARD P. KONRATH, SECURITIES COUNSEL .............................................................................. (Name of Person(s) Filing Proxy Statement) Payment of Filing Fee (Check the appropriate box): [X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2). [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ....................................................................... 2) Aggregate number of securities to which transaction applies: ....................................................................... 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: / ....................................................................... 4) Proposed maximum aggregate value of transaction: ....................................................................... / Set forth the amount on which the filing fee is calculated and state how it was determined. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ...................................................... 2) Form, Schedule or Registration Statement No.: ...................................................... 3) Filing Party: ...................................................... 4) Date Filed: ...................................................... Notes: CATERPILLAR INC. (INCORPORATED IN DELAWARE) 100 NE Adams Street Peoria, Illinois 61629 NOTICE AND PROXY STATEMENT Annual Meeting of Stockholders April 13, 1994 To Stockholders: You are cordially invited to attend the annual meeting of stockholders of Caterpillar Inc. (the "Company") to be held at the Loews Ventana Canyon Resort, 7000 North Resort Drive, Tucson, Arizona, on Wednesday, April 13, 1994, at 10:30 a.m., for the following purposes: 1. To elect five directors comprising the class of directors of the Company to be elected for a three-year term expiring in 1997; 2. To approve the action of the Board of Directors in appointing Price Waterhouse as independent auditors for 1994; 3. To act upon three stockholder proposals which are set forth and described in the attached Proxy Statement; and 4. To transact such other business as may properly be brought before the meeting or any adjournment thereof. The close of business on February 14, 1994, has been fixed as the record date for determination of stockholders entitled to notice of, and to vote at, the annual meeting or any adjournment thereof. The transfer books will not close. PLEASE NOTE THAT ATTENDANCE AT THE MEETING WILL BE LIMITED TO STOCKHOLDERS AS OF THE RECORD DATE (OR THEIR AUTHORIZED PROXY HOLDER) HOLDING AN ADMISSION TICKET. THE ADMISSION TICKET IS LOCATED ON THE LOWER PORTION OF YOUR PROXY CARD. By Order of the Board of Directors R. RENNIE ATTERBURY III Dated: February 25, 1994 Secretary IMPORTANT Please immediately review these proxy materials and sign and return your proxy in the enclosed stamped, addressed envelope. If you attend the meeting you may, if you so desire, withdraw your proxy and vote in person. Please note that the Company's audited financial statements and certain other financial information are included as an Appendix to this Proxy Statement. THANK YOU FOR ACTING PROMPTLY TABLE OF CONTENTS

i Caterpillar Inc. 100 NE Adams Street, Peoria, Illinois 61629 February 16, 1994 PROXY STATEMENT This statement is being mailed on or about February 25, 1994, to all stockholders of record at the close of business on February 14, 1994, the record date for the determination of stockholders entitled to vote at the annual meeting of stockholders of Caterpillar Inc. (the "Company") to be held on April 13, 1994. This statement is furnished in connection with the solicitation by the Board of Directors of proxies for the annual meeting and is accompanied by the Annual Report of the Company for the year ended December 31, 1993, including certain financial information. MATTERS TO BE BROUGHT BEFORE THE MEETING The Board intends to present to the meeting the election of five directors comprising the class of directors of the Company to be elected for a three- year term expiring in 1997 or until their successors have been elected and qualified. The Board also intends to present a proposal to approve the appointment of Price Waterhouse as independent auditors for 1994. In addition, notice has been given by certain stockholders of their intention to present three proposals at the meeting, which are set forth on pages 21-25. Shares can be voted only if the stockholder is present in person or by proxy. Whether or not you plan to attend in person, you are encouraged to sign and return the enclosed proxy card. Your vote is important. If you wish to give your proxy to a person or persons other than those listed on the enclosed proxy card, a signed proxy card, with the two names listed on the card crossed out and replaced with the name or names of the other person or persons (but no more than two), must be presented by you or your authorized proxy holder at the meeting. The representation in person or by proxy of at least one-third of the outstanding shares entitled to vote is necessary to provide a quorum at the meeting. Directors are elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote. In all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Pursuant to the Company's bylaws and consistent with the laws of the State of Delaware, abstentions and "non-votes" are counted as present in determining whether the quorum requirement is satisfied. Abstentions and "non-votes" have the same effect as votes against proposals presented to stockholders except with respect to the election of directors. A "non-vote" occurs when a nominee holding shares for a beneficial owner votes on one proposal, but does not vote on another proposal because the nominee does not have discretionary voting power and has not received instructions from the beneficial owner. In accordance with the Company's confidential voting policy, all proxies, ballots and voting materials will be kept confidential except for the independent third parties engaged to receive, tabulate and certify the proxies and ballots. No vote of any stockholder will be disclosed to the Company or its employees, or to any third party, except (i) as may be required by law, (ii) as requested 1 by a particular stockholder, or (iii) in certain circumstances such as the event of a contested election or initiation of other concerted action with respect to voting at a stockholder meeting. The Board does not know of any other matter to be acted upon at the meeting. If any other matter should come before the meeting, holders of the proxies solicited hereby (the "proxy holders") will vote thereon in their discretion. The Company's bylaws prescribe that matters may be brought before the meeting by a stockholder only by giving advance written notice to the Company. For purposes of the 1994 annual meeting, such notice regarding matters other than nominations for director must be received by the Secretary at the Company address not later than March 12, 1994. VOTING RIGHTS Only holders of common stock of record at the close of business on February 14, 1994, are entitled to vote at the 1994 annual meeting. Each share of stock so held entitles the holder to one vote upon each matter to be voted upon. As of January 28, 1994, there were 102,042,810 shares of common stock of the Company (the "Common Stock") outstanding. PROPOSAL 1-ELECTION OF DIRECTORS The Board of Directors is classified into three classes whose terms are staggered to expire in different years. The term of office of one class of directors expires each year in rotation so that one class is elected at each annual meeting of stockholders for a full three-year term. The terms of five of the present directors are expiring at this annual meeting. During 1993, the Board increased the number of directors from ten to thirteen. Directors elected at the annual meeting will hold office for a three-year term expiring in 1997 or until their successors are elected and qualified. The other directors will continue in office for the remainder of their terms. If any nominee in this Proxy Statement should for any reason become unavailable for election, the proxy holders will vote for such other nominee as may be proposed by the Board of Directors or, alternatively, the Board of Directors may reduce the number of directors to be elected at the meeting. Certain information about the five nominees and the other directors continuing in office follows. 2 NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1997 PRINCIPAL OCCUPATION AND OTHER INFORMATION LILYAN H. AFFINITO, 62, retired in 1991 as Vice Chairman of Maxxam Group Inc. (formerly Simplicity Pattern Co. Inc.). Ms. Affinito joined Simplicity Pattern Co. Inc. in 1968, following a number of years with a national accounting firm. She was [PHOTO OF elected President and Treasurer in 1976 and Vice LILYAN H. AFFINITO] Chairman in 1987. She is a member of the Board of Trustees of Cornell University, the Board of Directors of the National Multiple Sclerosis Society; Mayo Foundation; and the Metropolitan Transportation Authority. Other directorships: Chrysler Corporation; Tambrands, Inc.; Jostens Inc.; Kmart Corporation; Lillian Vernon Corporation; and New York Telephone Company (a subsidiary of Nynex Corporation). Ms. Affinito has been a director of the Company since 1980. DONALD V. FITES, 60, Chairman and chief executive officer. Mr. Fites joined Caterpillar in 1956 and subsequently advanced through various management positions in marketing, residing in Africa and Europe for several years. In 1971 he was elected a director of Caterpillar Mitsubishi with responsibilities for marketing and sales. In 1976 he was named manager of Products Control Department in General Offices, and in 1979 became President of Caterpillar Brasil S.A. He was elected a Vice President of Caterpillar Tractor Co. in 1981, in charge of the Company's pricing, scheduling, product source planning, products control and economic forecasting functions. In 1985 he was elected an Executive Vice President, and effective June 1, 1989, was elected President and chief [PHOTO OF operating officer. He was elected Chairman of the DONALD V. FITES] Board and chief executive officer effective July 1, 1990. He is a trustee of the Farm Foundation and a member of The Business Council; The National Foreign Trade Council; the Advisory Committee for Trade and Policy Negotiations; and the Business Roundtable Policy Committee. He is chairman of the Equipment Manufacturers Institute and Vice Chairman of the U.S.-Japan Business Council. He is also a trustee of The Methodist Medical Center of Illinois, Peoria; a trustee of Knox College, Galesburg, Illinois; and a member of the Salvation Army Advisory Board. Other directorships: First Chicago Corporation; Georgia-Pacific Corporation; Mobil Corporation; Valparaiso University; and Keep America Beautiful. Mr. Fites has been a director of the Company since 1986. 3 NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 1997 (cont.) Principal Occupation and Other Information JOHN W. FONDAHL, 69, Civil Engineer, retired as Charles H. Leavell Professor of Civil Engineering at Stanford University, Stanford, California, in 1990. Mr. Fondahl joined the Stanford University faculty in 1955. He has served as Visiting Professor of Construction Engineering at the University of Sydney; Kyoto University; the University of Cape Town; the Swiss Federal Institute; the Technical University of Denmark; the University of the Andes in Colombia; and the Catholic University of Chile. Mr. Fondahl has been a director of the Company since 1976. [PHOTO OF JOHN W. FONDAHL] DAVID R. GOODE, 53, Chairman, President and chief executive officer of Norfolk Southern Corporation, a holding company (principal subsidiaries provide surface transportation services). Mr. Goode joined Norfolk and Western Railway Company, a predecessor of Norfolk Southern, in 1965. He was elected a Vice President in 1985, Executive Vice President in 1991, President later in 1991, and Chairman and chief executive officer in 1992. He is a director of Georgia- Pacific Corporation; Norfolk Southern Corporation; TRINOVA Corporation; Association of American Railroads; the Business Committee for the Arts, Inc.; and the Business Consortium for Arts Support; a trustee of General Douglas MacArthur Memorial Foundation; Hollins College; Norfolk Academy; and The Virginia Foundation for Independent Colleges; and a member of the Board of Visitors, Fuqua School of Business at Duke University. Mr. Goode has been a director of the Company since 1993. [PHOTO OF DAVID R. GOODE] JOSHUA I. SMITH, 52, Chairman and chief executive officer of The MAXIMA Corporation, a computer systems and management information products and services firm. Mr. Smith joined MAXIMA in 1978. He serves as chairman of the Federal Communication Commission's Small Business Advisory Committee. Other directorships include Federal Express Corporation and Inland Steel Corporation. He was appointed by former President George Bush to the U.S. Commission on Minority Business Development, where he served as chairman; the Executive Committee of the 1990 Economic Summit of Industrialized Nations; and the Board of Trustees for The John F. Kennedy Center for the Performing Arts. He has received the Man of Achievement Award from the Anti- Defamation League of B'Nai B'Rith and is chairman of the National Urban Coalition. Mr. Smith has been a director of the Company since 1993. [PHOTO OF JOSHUA I. SMITH] 4 DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1995 Principal Occupation and Other Information WALTER H. HELMERICH, III, 71, Chairman and a director of Helmerich & Payne, Inc., involved in well drilling, crude oil and natural gas production, real estate, and the manufacture of chemicals. Mr. Helmerich joined Helmerich & Payne in 1950. He is a Director of Liberty Bancorp Inc.; [PHOTO OF First National Bank and Trust Co. of Tulsa; Liberty WALTER H. HELMERICH, III] National Bank and Trust Co. of Oklahoma City; Independent Petroleum Association of America; Oklahoma Medical Research Foundation; Oklahoma Health Sciences Foundation, Inc.; Atwood Oceanics, Inc.; Natural Gas Odorizing, Inc.; and a trustee of Hillcrest Medical Center and Retina Research Foundation. Mr. Helmerich has been a director of the Company since 1982. JERRY R. JUNKINS, 56, Chairman, President and chief executive officer of Texas Instruments Incorporated, one of the world's leading high-technology companies. Mr. Junkins joined Texas Instruments in 1959. He became President and chief executive officer in 1985, and Chairman of the [PHOTO OF Board in 1988. In addition to his Texas Instruments JERRY R. JUNKINS] duties, he is a member of the Dallas Citizens Council; the Board of Trustees of Southern Methodist University; The Business Roundtable; and the Business Council. He is a presidential appointee to the Defense Policy Action Committee on Trade. He serves as a member of the Board of Directors of Procter & Gamble Company. Mr. Junkins has been a director of the Company since 1988. CHARLES F. KNIGHT, 58, Chairman of the Board, chief executive officer and a director of Emerson Electric Co., manufacturer of electrical and electronic equipment. Mr. Knight joined Emerson Electric in 1973 as Vice Chairman of the Board. He was elected Chairman and chief executive officer in 1974. Prior to joining Emerson Electric, Mr. Knight [PHOTO OF was President and chief executive officer of Lester CHARLES F. KNIGHT] B. Knight & Associates, Inc. from 1969 to 1973. He is a trustee of Missouri Botanical Garden and Olin Foundation. Other directorships include: Anheuser-Busch Companies, Inc.; The British Petroleum Company p.l.c., London, England; International Business Machines; and Southwestern Bell Corporation. Mr. Knight has been a director of the Company since 1986. 5 DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1995 (cont.) Principal Occupation and Other Information GEORGE A. SCHAEFER, 65, former Caterpillar Chairman of the Board and chief executive officer. Mr. Schaefer joined Caterpillar in 1951 and subsequently advanced through various management positions in auditing and accounting. He was named chief accountant at the San Leandro Plant in 1960 and was finance and accounting manager of Caterpillar France S.A. from 1962 to 1968. He was Manager of Corporate Accounting in General Offices in 1968 and was Manager of Manufacturing Systems Development from 1969 until being appointed Manager of the Decatur Plant in 1973. In June of 1976 he was elected Vice President in charge of the Company's financial and data processing functions. He was elected an Executive Vice President in 1981, Vice Chairman of the Board in 1984 and Chairman of the Board and chief executive officer effective February 1, 1985. Mr. Schaefer is a director of Aon Corporation; Helmerich & Payne, Inc.; McDonnell Douglas Corporation; and Morton International, Inc. Mr. Schaefer has been a director of the Company since 1983. [PHOTO OF GEORGE A. SCHAEFER] DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1996 Principal Occupation and Other Information JAMES P. GORTER, 64, joined Goldman, Sachs & Co. in 1956 and became a General Partner in 1965. He served as a member of Goldman Sachs Management Committee from 1976 to 1988 and served as Co-Head of the Investment Banking Division and Managing Partner of the Chicago office. He became a Limited Partner in 1988. He is currently Chairman of the Board of Baker, Fentress & Company; and a director of Consolidated- Tomoka Land Co. He is Chairman of the Board of Trustees of Lake Forest College and a member of the Advisory Council of the Kellogg School of Management at Northwestern University. Mr. Gorter was elected a director of the Company in 1990. [PHOTO OF JAMES P. GORTER] PETER A. MAGOWAN, 51, Chairman of Safeway Inc. and President and managing general partner of the San Francisco Giants. During his 25 years at Safeway, his responsibilities have included managing the company's international operations in Canada, the United Kingdom, West Germany and Australia. He has been chairman of Safeway since 1980. In addition to Safeway, Mr. Magowan also serves as a director of Chrysler Corporation and The Vons Companies. He is a member of the Advisory Council of the School of Advanced International Studies of Johns Hopkins University and a public member of the Hudson Institute. Mr. Magowan has been a director of the Company since 1993. [PHOTO OF PETER A. MAGOWAN] 6 DIRECTORS CONTINUING IN OFFICE IN THE CLASS OF 1996 (CONT.) Principal Occupation and Other Information JAMES W. WOGSLAND, 62, Vice Chairman of Caterpillar. Mr. Wogsland joined Caterpillar in 1957 and subsequently advanced through various management positions in finance. He transferred to Caterpillar Overseas in Geneva in 1964 and was named Secretary-Treasurer of that subsidiary in 1970. He was elected Treasurer of Caterpillar Tractor Co. in 1976, and held that position until being named Director-President of Caterpillar Brasil S.A. in Sao Paulo in 1981. He was elected an [PHOTO OF Executive Vice President in 1987 and Vice Chairman JAMES W. WOGSLAND] in 1990. Mr. Wogsland is a member of the Advisory Board of St. Francis Hospital, Peoria, Illinois; and a Trustee of Eureka College, Eureka, Illinois. Other directorships: Protection Mutual Insurance Company; CIPSCO Incorporated and Central Illinois Public Service Company, Springfield, Illinois; and First of America Bank Corporation, Kalamazoo, Michigan, and its subsidiary First of America Bank-Illinois, N.A. Mr. Wogsland has been a director of the Company since 1987. CLAYTON K. YEUTTER, 63. Most recently Mr. Yeutter served as Counselor for Domestic Affairs to President George Bush. Mr. Yeutter was appointed chairman of the Republican National Committee in 1991 after serving as Secretary of the U.S. Department of Agriculture from 1989. From 1985 to 1989, Mr. Yeutter served as U.S. Trade Representative. Prior to that, he was President and Chief Executive Officer of the Chicago Mercantile Exchange since 1978. He was a senior partner of the [PHOTO OF law firm of Nelson, Harding, Yeutter & Leonard in CLAYTON K. YEUTTER] Lincoln, Nebraska during 1977-78. He served as Deputy Special Trade Representative, Executive Office of the President from 1975 to 1977. Earlier, Mr. Yeutter held several additional positions with the Department of Agriculture and also spent several years as a faculty member of the Department of Agricultural Economics at the University of Nebraska. Other directorships: ConAgra, Texas Instruments Incorporated, Oppenheimer Funds, FMC, B.A.T. Industries and Lindsay Manufacturing Co. Mr. Yeutter was a Director of the Company from June 1991 to February 1992 and he was reelected a Director of the Company in December 1992. BOARD OF DIRECTORS' MEETINGS AND COMMITTEES During 1993, the Board of Directors held six meetings. For the incumbent Board of Directors as a whole, attendance exceeded 96% of the aggregate of (1) the total number of meetings of the Board of Directors and (2) the total number of meetings of all committees of the Board on which they served (during the periods they served). All incumbent directors, except Mr. Knight, attended at least 75% of such meetings. In addition, the Company's directors take part in the consideration of Company matters and documents and in communications with the Chairman of the Board and others wholly apart from such meetings. The Board of Directors has four standing committees: the Audit Committee, the Compensation Committee, the Nominating Committee and the Public Policy Committee. 7 The Audit Committee reviews management's recommendation for selection of the Company's independent public accountants and makes recommendations to the Board regarding retention or non-retention of the independent accountants. The Committee makes all necessary inquiries of management and the independent accountants concerning established standards of corporate conduct and performance with regard to accounting and reporting principles. The Committee also reviews with Company management, independent accountants, and director of internal audit, the Company's general internal accounting and financial reporting policies and procedures. The Committee meets periodically with the public accountants and the Company's internal audit manager to review their respective audit plans for the current year and the status of their work, including the public accountants' audit fees. Prior to public release, management and independent public accountants review with the Committee: results of audits made by the independent accountants; the Company's consolidated financial statements; and significant transactions not a normal part of the Company's operations. The Committee also reviews the Management's Discussion and Analysis ("MD&A") contained in the Company's Form 10-K to ensure it is consistent with the financial statements and adequately describes the Company's business and financial affairs. In addition, the Committee reviews management's plans to engage the Company's public accountants to perform non-audit services; evaluates the cooperation received by independent accountants during their examination; and meets periodically in private session with the public accountants, the Company's internal audit manager and other persons the Committee deems appropriate. The Committee is composed exclusively of directors who are not employees and who are, in the opinion of the Board of Directors, free from any relationship that would interfere with the exercise of independent judgment as a Committee member. Present members of the Audit Committee are Ms. Lilyan H. Affinito (who is chairperson) and Messrs. John W. Fondahl, David R. Goode, James P. Gorter, Charles F. Knight, and George A. Schaefer. During 1993, the Committee held four meetings. The Compensation Committee reviews the Company's employee and management compensation practices. The Committee also approves and recommends standards for the Company's compensation programs and plans, including, but not limited to, the Company's various incentive compensation, retirement and other similar plans. The Committee administers the Company's 1977 and 1987 Stock Option Plans, including the granting of options thereunder. Annually, the Committee establishes objectives for the CEO and meets privately to evaluate his performance. The Committee is composed exclusively of directors who are not employees or former employees of the Company ("outside directors"). Also, no officer of the Company serves on the compensation committee or as a director of a company of which a Committee member or Company director is an employee. The Committee has no authority with respect to the granting of options to directors eligible to receive stock options under the 1987 Stock Option Plan. Present members of the Committee are Messrs. James P. Gorter (who is chairman), David R. Goode, Walter H. Helmerich, III, Jerry R. Junkins, Peter A. Magowan, and Clayton K. Yeutter. During 1993, the Committee held five meetings. The Nominating Committee develops and recommends to the Board of Directors criteria for the selection of candidates for director, seeks out and receives suggestions concerning possible candidates, reviews and evaluates the qualifications of possible candidates and recommends to the Board candidates for vacancies and new director positions occurring from time to time and for the slate of directors to be proposed on behalf of the Board of Directors at the annual meeting of stockholders. The Committee also advises the Board concerning possible candidates for the position of Chairman of the Board and chief executive officer, as well as for other executive officer positions within the Company. The Committee considers nominees recommended by stockholders and procedures for the nomination of directors by stockholders are referenced on page 26. Present members of the Committee are Messrs. Walter H. Helmerich, III (who is chairman), Donald V. Fites, Peter A. Magowan, George A. Schaefer, and Joshua I. Smith. During 1993, the Committee held four meetings. The Public Policy Committee is a new committee responsible for making recommendations to the Board with respect to matters of public and social policy affecting the Company, including charitable 8 and political contributions of the Company or any political action committee or foundation affiliated with the Company, and consumer and community relations issues. The Committee also provides general oversight of the Company's Code of Worldwide Business Conduct and Operating Principles and Policy Letters, and of the Company's environmental, disclosure, Foreign Corrupt Practices Act and other specific and general programs regarding compliance with laws relating to the Company. The Committee is responsible for reviewing major litigation, legislative proposals, proposed regulations, and stockholder proposals involving matters not falling within the auspices of another committee of the Board, and Company responses to any such proposals. Present members of the Committee are Ms. Lilyan H. Affinito and Messrs. Clayton K. Yeutter (who is chairman), Donald V. Fites, John W. Fondahl, Jerry R. Junkins, and Joshua I. Smith. During 1993, the Committee held one meeting. COMPENSATION OF DIRECTORS Upon election of the nominees proposed herein, the Board of Directors will consist of thirteen members, of whom two are salaried employees of the Company. Those directors who are salaried employees receive no additional compensation for their service as directors. Directors who are not salaried employees of the Company ("non-employee directors") are paid a retainer of $30,000 per year and fee of $1,000 for each meeting of the Board of Directors and each meeting of any committee of the Board of Directors attended, together with the expenses of attendance. The chairman of each committee receives an additional annual stipend of $5,000. Non-employee directors are eligible to receive stock options pursuant to the Company's 1987 Stock Option Plan. In 1993, options for 1,000 shares of Common Stock were received by each director under the 1987 Stock Option Plan. The Board of Directors also has adopted a pension plan for non-employee directors. Under the directors' pension plan, all non-employee directors who are 70 years of age and who have served as directors for five years are eligible to retire and be paid retirement income equal to the annual retainer paid to them as directors at the time of their retirement. Fifty percent of the annual pension amount payable to a retired director shall be paid to a retired director's spouse who survives him or her. On an annual basis, each non-employee director is eligible to participate in the Directors' Deferred Compensation Plan which allows the deferral of fifty percent or more of the annual compensation (excluding expense reimbursement) payable from time to time as a result of services performed on behalf of the Company. Ms. Affinito and Messrs. Gorter and Yeutter have elected to defer their compensation for 1994. Directors participating in this Plan may elect to have the deferred compensation invested in an interest-bearing account, a share equivalent account representing the Company's common stock, or a combination of the two. The interest-bearing account accrues interest at the applicable prime rate. Deferred compensation in the share equivalent account is treated as though it were invested in Common Stock. If a participant makes a share election, dividend equivalents accrue to a participant's account quarterly and each account is adjusted to reflect share ownership changes resulting from events such as a stock split. Participants have no voting rights with respect to the share equivalent account. All distributions from accounts are made in cash. All directors of the Company participate in the Directors' Charitable Award Program ("Program"). The total amount of award payable with respect to each participant under the Program is $1 million. Payments under the Program are made in 10 annual installments and commence at the death of a director. The first five installments are paid to charities designated by the director and the last five installments are paid to the Company's Charitable Foundation. Directors derive no financial benefit from this Program since all charitable deductions accrue solely to the Company. 9 EQUITY SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER BENEFICIAL OWNERS (AS OF DECEMBER 31,1993) The following table sets forth the beneficial ownership (as defined by the rules of the Securities and Exchange Commission) of Company Common Stock by all directors (including all nominees for director), the officers named in the Summary Compensation Table on page 17, and all directors and executive officers as a group. No director beneficially owns, directly or indirectly, more than one-tenth of one percent of Company Common Stock. All directors and executive officers as a group beneficially own less than one percent of Company Common Stock. The Company has no other class of equity securities outstanding. TABLE OF EQUITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

(1) Includes 4,000 shares subject to outside director stock options exercisable within 60 days. In addition to the shares listed above, Ms. Affinito has deferred a portion of her director compensation pursuant to the Director's Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1993 in 1,125 shares of Common Stock. (2) Includes 23,137 shares subject to employee stock options exercisable within 60 days. In addition to shares listed above, Mr. Barton has deferred a portion of his compensation pursuant to a supplemental employee investment plan representing an equivalent value as if such compensation had been invested on December 31, 1993 in 257 shares of Common Stock. (3) Includes 3,333 shares subject to employee stock options exercisable within 60 days. (4) Includes 55,133 shares subject to employee stock options exercisable within 60 days. Also includes 211 shares over which Mr. Fites does not have sole voting and investment power. (5) Includes 29,900 shares subject to employee stock options exercisable within 60 days. In addition to shares listed above, Mr. Flaherty has deferred a portion of his compensation pursuant to a supplemental employee investment plan representing an equivalent value as if such compensation had been invested on December 31, 1993 in 270 shares of Common Stock. (6) Includes 4,000 shares subject to outside director stock options exercisable within 60 days. Also includes 500 shares over which Mr. Fondahl does not have sole voting and investment power. In addition to the shares listed above, Mr. Fondahl has deferred a portion of his director compensation pursuant to the Director's Deferred Compensation Plan representing an equivalent value as if such compensation had been invested on December 31, 1993 in 671 shares of Common Stock. (7) Includes 2,000 shares subject to outside director stock options exercisable within 60 days. (8) Includes 4,000 shares subject to outside director stock options exercisable within 60 days. (9) Includes 3,000 shares subject to outside director stock options exercisable within 60 days. (10) Includes 4,000 shares subject to outside director stock options exercisable within 60 days. (11) Includes 21,000 shares subject to outside director and employee stock options exercisable within 60 days. (12) Includes 18,833 shares subject to employee stock options exercisable within 60 days. In addition to shares listed above, Mr. Wogsland has deferred a portion of his compensation pursuant to a supplemental employee investment plan representing an equivalent value as if such compensation had been invested on December 31, 1993 in 670 shares of Common Stock. (13) Includes 327,765 shares subject to employee and outside director stock options exercisable within 60 days. Also includes 100 shares for which voting and investment power is shared and 1,100 shares for which beneficial ownership has been disclaimed. -10- Listed below are certain persons who, to the knowledge of the Company, own beneficially, as of December 31, 1993, more than five percent of the Company's Common Stock. TABLE OF EQUITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

REPORT OF THE COMPENSATION COMMITTEE COMPENSATION POLICIES For each year, the Compensation Committee ("Committee") establishes compensation guidelines and targets for the performance of the Company, of business units within the Company, and of individual executive officers. For purposes of this discussion, there are 23 executive officers. The Committee believes the guidelines and targets discussed below provide an executive compensation program designed to improve cost effectiveness and stockholder return. In developing compensation plans and setting compensation levels for 1993, the Committee reviewed compensation studies conducted by consultants. Consultant studies were used in determining both long and short-term compensation. Their data was based on an examination of officer compensation at 24 companies comparable to the Company in size, market capitalization and principal undertaking as manufacturers of heavy equipment ("Comparator Companies"). All companies surveyed by these consultants are included in the S&P 500 index and three companies, in addition to the Company, are included in the S&P Machinery (Diversified) Index. Compensation levels for Company executives are below average with respect to Comparator Companies. EXECUTIVE OFFICER COMPENSATION BASE SALARY Base salaries of individual executive officers are reviewed by the Committee annually. In determining adjustments to base salary for a particular year, the Committee relies on reports from consultants regarding salaries at Comparator Companies. With the assistance of the officers' superiors, the Committee also makes subjective determinations regarding the performance of individual officers. Adjustments to salary are not based upon a formulaic consideration of specified performance factors. However, Company and relevant business unit profitability are taken into consideration when evaluating individual performance and may determine whether salaries will be frozen for a particular year or subject to increase based on comparison studies and subjective analysis. For example, officer salaries were frozen for 1992 in light of anticipated Company performance for that year. Because improved performance was anticipated for 1993, effective January 1 of that year, the Committee increased officer base salaries, including the salaries of named executive officers, to bring those 11 salaries to what the Committee considered, based on consultant reports, minimally competitive levels. Despite these increases, officer base salaries still are below average with respect to Comparator Companies. INCENTIVE COMPENSATION CORPORATE INCENTIVE COMPENSATION PLAN Executive officers, together with most management and salaried employees, participate in the Company's Corporate Incentive Compensation Plan ("Incentive Plan"). The purpose of the Incentive Plan is to provide contingent benefits to employees to reflect their contribution to Company profitability and to serve as an incentive to contribute to future Company success. Payouts under the Incentive Plan are calculated by taking into account (a) annual base salary, (b) a specific percentage of base salary, which increases for higher positions within the Company, thereby placing a greater percentage of compensation at risk for those with greater responsibilities, and (c) the Company's achievement of specific levels of return on assets ("ROA"). Before any amount can be awarded under the Incentive Plan, the Company must achieve a minimum ROA level, with increasing amounts to be awarded if the Company achieves a target ROA or maximum ROA. In 1993, the target ROA level under the Incentive Plan was met and executive officers received an Incentive Plan payout, as reflected for the named executive officers in the "Bonus" column of the "Summary Compensation Table." Eighteen other officers also received an Incentive Plan payout. In addition to an Incentive Plan award based on Company ROA, an individual award may be made under the Incentive Plan to an officer by the Committee based on a subjective determination of individual performance. The aggregate of individual awards to all officers cannot exceed the amount available in a discretionary pool established for such awards. The discretionary pool amount is part of the total pool and is based on the achievement of Company ROA levels discussed above. In 1993, each named executive officer received an individual award, included in the "Bonus" column of the "Summary Compensation" table. Eighteen other officers also received an individual award. BUSINESS UNIT INCENTIVE COMPENSATION PLANS Some executive officers also participate in incentive plans applicable to their respective business units. The Company has 114 incentive compensation plans applicable to business units and divisions within those units. Each business unit within the Company has its own criteria for determining incentive compensation for its employees. With the exception of eight business unit plans, at least 25% of the payout under a business unit plan must be based on Company achievement of ROA levels applicable to the Incentive Plan. Other factors determining business unit payout include, but are not limited to, return on sales for the particular unit, unit ROA, unit profit, operating expenses, percentage of industry sales, percentage of potential sales, and customer satisfaction. In addition, units providing administrative services to other units within the Company may have a portion of their incentive compensation tied to the performance of those other units. The two most widely used factors determining payouts under the business unit plans are return on sales for the unit and unit ROA. Executive officers participating in their respective business unit incentive plans generally are eligible to receive fifty percent of the amount that would have been awarded if he or she had participated solely in the business unit plans, and fifty percent of the amount that would have been awarded had the officer participated solely in the Incentive Plan. Thirteen executive officers received payments based on the 1993 performance of their business units. Based on competitive concerns, the Company does not believe it is appropriate for purposes of this report to disclose specific performance factors applicable to each individual business unit. Because these factors reflect the Company's view regarding criteria essential for each unit's long- term 12 success, disclosure of such factors on a unit by unit basis would be detrimental to the Company and its stockholders by giving competitors a comprehensive blueprint, dissected by business unit, for attacking the Company in the marketplace. In 1993, a total of $110 million was earned by Company employees under the corporate and business unit incentive plans. That amount represents 4.9% of total wages and salaries before incentive pay for 1993. STOCK OPTIONS A stock option permits the holder to buy Company stock at a specific price during a specific time period. As the price of Company stock rises, the option increases in value. The Company has a plan permitting the Committee to award stock options to executive officers and other key employees of the Company. The intent of such awards is to provide the recipient with an incentive to perform at levels that will result in better Company performance and enhanced stock value. Whether or not an option grant is made and the size of a particular grant depend upon an individual's salary grade and the Committee's subjective evaluation of an individual's overall performance. A formulaic interpretation of particular Company performance criteria is not involved. To ensure that executive officers and key management employees retain significant stockholdings in the Company, the Committee encourages them to own a number of shares at least equal to the average number of shares for which they received options in their last three option grants. For 1993, if sixty percent of the minimum ownership guideline was not met, significant progress had not been made to achieve the desired ownership level, or a satisfactory explanation for failure to meet the guideline had not been presented, the Committee reduced the number of shares included in the officer's 1993 option grant. During 1993, executive officers, including the named executive officers, were granted stock options based on a subjective assessment of their individual performance by the Committee. In 1993, two officers were penalized for low share ownership in receiving stock options. One of the named executive officers, Vito H. Baumgartner, was so penalized. Mr. Baumgartner's reduced share ownership resulted from a liquidation of assets necessary to purchase a home in Switzerland following his return to that country from a foreign assignment with the Company. As of December 31, 1993, Mr. Baumgartner was in compliance with share ownership guidelines applicable to stock options. LONG-TERM INCENTIVE COMPENSATION Company executive officers, together with certain other senior managers, also participate in a long-term incentive supplement to the stock option plan ("LTIP"). The LTIP, adopted by stockholders at the Company's 1993 annual meeting, is designed to provide an incentive to executives to contribute to the Company's long-term goals and objectives. Under the LTIP, a three-year performance period is established each year, with participants receiving a payout (50% in cash and 50% in restricted stock) if certain minimum, target or maximum performance thresholds are achieved at the end of that period. The Committee has the discretion to apply different performance criteria for different three-year performance periods. The Committee also has the discretion during a performance period to adjust performance measures set for that period to reflect changes in accounting principles and practices; mergers, acquisitions or divestitures; major technical innovations; or extraordinary, nonrecurring or unusual items. In 1993, the Committee established a three-year performance period to end in 1995. Amounts that can be paid at the end of the period depend upon an executive's base salary, a predetermined percentage of that salary that varies based on an executive's position, and whether certain ROA thresholds have been achieved. For an executive to receive any payout under the LTIP, the Company 13 must achieve a threshold ROA level for the performance period. If a target ROA level is achieved, a larger amount would be received, while attaining a certain maximum ROA level would yield the maximum amount payable under the plan. If applicable ROA levels are achieved, the first LTIP payout would occur in 1996 after termination of the first performance period. In 1994, a new three year performance period was established for 1994 - 1996. CHIEF EXECUTIVE OFFICER COMPENSATION BASE SALARY Effective January 1, 1993, Mr. Fites' base salary was increased. In providing this increase, the Committee considered that, under Mr. Fites' first two years of leadership, the Company maintained its position as the world's leading manufacturer of construction and mining equipment. Through his efforts to complete the organizational restructuring of the Company and the Company's comprehensive factory modernization program, it was believed Mr. Fites had made good progress toward returning the Company to profitability and a more appropriate level of stockholder return. Decisive steps were taken to make the Company a stronger international competitor and better investment for stockholders by efforts to achieve annual gains in product and service quality, to develop stronger relationships with principal stockholders, dealers and employees, to improve product lines and to dispose of unproductive assets and operations, all with a view to enhancing the Company's long-term prospects, as well as his selective involvement in public policy issues of importance to the Company's worldwide competitive position. Another factor considered by the Committee was Mr. Fites' efforts to realize a labor agreement with the United Auto Workers Union that would permit the Company to remain globally competitive from a U.S. manufacturing base. The Committee believes these efforts laid the groundwork for the Company's substantially improved performance in 1993. The Committee considers its assessment of Mr. Fites' leadership to have been substantiated, in that during the past year the Company has recorded a profit of $681 million (excluding an extraordinary loss of $29 million). In addition, the Company's stock price increased approximately 66%. The Committee believes the factors serving as a basis for Mr. Fites' salary increase will continue to have a positive impact on the Company. In adjusting Mr. Fites' salary, the Committee also examined consultant reports regarding base salaries of chief executives at Comparator Companies. Based on those reports, the Committee concluded that Mr. Fites' salary did not reflect accurately his contributions to overall Company performance and the adjustment given was necessary to bring his salary to a minimally competitive level. Despite Mr. Fites' salary increase, his salary remained below average with respect to chief executives at Comparator Companies. INCENTIVE COMPENSATION Mr. Fites participates in the Incentive Plan. Because the Company achieved its target ROA level under the Incentive Plan in 1993, Mr. Fites received an Incentive Plan payout, as reflected in the "Bonus" column of the "Summary Compensation Table." That payout amount includes an individual award to Mr. Fites under the Incentive Plan. The Committee believes such award is warranted, given that Mr. Fites has provided leadership during a year in which Company profitability has improved substantially, Company market share in most lines of its business has increased, new products have been introduced, existing product quality has been retained or enhanced, and cost reductions have occurred. In addition, Mr. Fites has made significant contributions to the industry as a whole through his efforts regarding the North American Free Trade Agreement and the General Agreement on Tariffs and Trade. 14 STOCK OPTIONS During 1993, Mr. Fites received option grants covering 20,000 shares of Company stock, as reflected in the Summary Compensation Table and Option Grants in 1993 table. Like other executive officers, Mr. Fites received options in 1993 based upon a subjective analysis by the Committee of his individual performance, rather than a formulaic assessment of specific Company performance criteria. These factors reflect the contributions referenced in the discussion above on Mr. Fites' base salary and individual incentive award. Mr. Fites' option grants were not subject to the penalty described above in respect to officer share ownership. LONG-TERM INCENTIVE COMPENSATION Mr. Fites participates in the LTIP, receiving payouts based on the criteria discussed above. Specific reference to minimum, target, and maximum amounts that could be received by Mr. Fites under criteria currently applicable to the LTIP are referenced in the Long-Term Incentive Plans/Awards in 1993 table on page 19. Like other executive officers, Mr. Fites is not eligible to receive a payout under the LTIP until 1996, and then only if the minimum ROA is achieved. IMPACT OF TAX LAW CHANGES Recently, the Revenue Reconciliation Act of 1993 amended Section 162 of the Internal Revenue Code to eliminate the deductibility of certain compensation over $1 million paid to the chief executive officer and other named executive officers. The change was effective January 1, 1994. The Committee believes it is in the best interests of the Company and stockholders not to take action at this time to adjust its compensation programs to qualify for certain exceptions to the deductibility limitation. It appears that under the new tax law, payments pursuant to compensation plans that give compensation committees flexibility to adjust performance criteria for differing performance periods (e.g., the Company's LTIP) may not qualify for deductibility. The Committee believes the ability to adjust performance criteria for successive performance periods to ensure that short and long-term incentive compensation is tied to areas in which improved Company performance may be required is crucial to the success of such plans and their enhancement of stockholder value. Given the inflexibility that could result in seeking to meet the most restrictive interpretations of those changes, the cost of coming within the exceptions to the deductibility limitation would outweigh the benefits derived, given that only the compensation of Messrs. Fites and Wogsland would be expected potentially to exceed the deductibility cap at this time. The Committee notes, however, that further developments, including adoption of regulations proposed on December 15, 1993, may result in a reconsideration of this position in future years. James P. Gorter (Chairman) Clayton K. Yeutter Walter H. Helmerich, III David R. Goode Jerry R. Junkins Peter A. Magowan 15 PERFORMANCE GRAPH The following graph reflects a comparison of the cumulative total return (change in stock price plus reinvested dividends) of the Company's Common Stock for the five-year period from December 31, 1988 through December 31, 1993 with the Standard & Poor's 500 Composite Index and the Standard & Poor's Machinery (Diversified) Index. The comparisons are not intended to forecast or be indicative of possible future performance of the Company's stock. In addition, the Company's principal competitors are located outside the United States and are not included in published industry indexes.

The Company notes that from January 1, 1993 through December 31, 1993, the price of Company stock increased 66%. For that period, the value of the S&P 500 Composite Index increased 10%, while the value of the S&P Machinery (Diversified) Index increased 48%. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Present members of the Compensation Committee are Messrs. James P. Gorter (Chairman), David R. Goode, Walter H. Helmerich, III, Jerry R. Junkins, Peter A. Magowan, and Clayton K. Yeutter. Mr. Gorter also is a limited partner of Goldman, Sachs & Co. ("Goldman") which performed various investment banking services for the Company during 1993 and is anticipated to perform such services in 1994. As a limited partner, Mr. Gorter is not directly involved in the day-to-day business operations of Goldman. 16 EXECUTIVE COMPENSATION The following table summarizes all compensation paid to the Company's chief executive officer and to each of the Company's four most highly compensated executive officers other than the chief executive officer for services rendered to the Company for the years ended December 31, 1993, 1992 and 1991. SUMMARY COMPENSATION TABLE

(1) Consists of cash payments made in 1994 pursuant to the Corporate Incentive Compensation Plan with respect to 1993 performance. (2) Number of Options granted under the 1987 Stock Option Plan. (3) Consists of matching Company contributions for the Employees' Investment Plan and Supplemental Employees' Investment Plan. (4) Dollar amounts are based on compensation in Swiss Francs converted to U.S. dollars and are affected by fluctuating exchange rates. The following tables set forth certain information at December 31, 1993 and for the fiscal year then ended with respect to stock options and stock appreciation rights granted to and exercised by the individuals named in the Summary Compensation Table above. No options have been granted at an option price below fair market value on the date of grant. 17 OPTION GRANTS IN 1993

(1) The dollar amounts under these columns use the 5% and 10% rates of appreciation prescribed by the Securities and Exchange Commission. The 5% and 10% rates of appreciation would result in per share prices of $122.27 and $194.69, respectively. The Company expresses no opinion regarding whether this level of appreciation will be realized and expressly disclaims any representation to that effect. (2) Options are exercisable upon completion of one full year of employment following the grant date (except in the case of death or retirement) and vest at the rate of one-third per year over the three years following the grant. Upon exercise, option holders may surrender shares to pay the option exercise price. (3) In 1993, options for 144,860 shares were granted to all executive officers, as a group; options for 8,000 shares were granted to all directors who are not executive officers, as a group; and options for 599,280 shares were granted to all employees other than executive officers, as a group. (4) For "All Stockholders" the potential realizable value is calculated from $75.0625, the price of Common Stock on June 8, 1993, based on the outstanding shares of Common Stock on that date. AGGREGATED OPTION/SAR EXERCISES IN 1993, AND 1993 YEAR-END OPTION/SAR VALUES

(1) Calculated on the basis of the fair market value of the underlying securities at the exercise date or year-end, as the case may be, minus the exercise price. (2) Upon exercise, option holders may surrender shares to pay the option exercise price. The amounts provided are gross amounts absent netting for share surrender. 18 The following table sets forth certain information regarding estimated potential awards to named executive officers pursuant to the Long-Term Incentive Supplement to the Company's 1987 Stock Option Plan. LONG-TERM INCENTIVE PLANS/AWARDS IN 1993

The first payment under this Supplement will not be made, if at all, until 1996 based on the aggregate performance of the Company for the years of 1993, 1994 and 1995. Payment of awards is based upon a proposed percentage rate being applied to each employee's annual salary rate and is dependent upon the Company's achievement of specified levels of return on assets over the three year period. The target amount will be earned if 100% of targeted return on assets is achieved. The threshold amount will be earned if 70% of targeted return on assets is achieved, and the maximum award amount will be earned at 130% of targeted return on assets. Current salary levels were used to calculate the estimated dollar value of future payments. PENSION PROGRAM Under the Company's pension program covering officers and other management employees, annual benefits are payable upon retirement. The full cost of this pension program is paid by the Company. Officers are required to retire at age 65. Most other management employees may, under federal law, work indefinitely. Retirement prior to age 62 results in an appropriate pension reduction. The amounts shown in the following table are the estimated aggregate annual benefits for various levels of earnings and years of benefit service payable in the event of retirement after age 62 and not later than age 65. 19 PENSION PLAN TABLE

The compensation covered by the pension program is generally based on an employee's annual salary and bonus. Amounts payable pursuant to a defined benefit supplementary pension plan are included. As of December 31, 1993, the persons named in the Summary Compensation Table had the following estimated credited years of benefit service for purposes of the pension program: D. V. Fites - 35 years; J. W. Wogsland - 35 years; G. A. Barton - 33 years; G. S. Flaherty - 35 years; and V. H. Baumgartner - 29 years. The amounts payable under the pension program are computed on the basis of an ordinary life annuity and are generally not subject to deductions for Social Security benefits or other amounts. ___ *Although having served 36 years with the Company, amounts payable under the plan are based on a maximum of 35 years of service. Mr. Baumgartner is covered by the pension plan of a subsidiary of the Company which is intended to provide benefits comparable to those under the Company's pension program. There are no material differences between Mr. Baumgartner's pension plan benefits and those disclosed in the table. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For disclosure regarding a reportable relationship involving Mr. James P. Gorter, a director of the Company, see page 16, "Compensation Committee Interlocks and Insider Participation." Mr. Siegfried R. Ramseyer, a Vice President of the Company, was Managing Director of Caterpillar Overseas S.A. ("Subsidiary") until December 31, 1992, and is indebted to that Subsidiary in the amount of approximately $302,826. The loan relates to a home purchase by Mr. Ramseyer in Switzerland and is collateralized by a mortgage on the property. The primary purpose of the transaction was to permit Mr. Ramseyer to retain his home in Switzerland and to purchase a home in the United States where he has been assigned. The loan is interest free and repayable to the Subsidiary no later than December 31, 2002. If for any reason Mr. Ramseyer returns to Switzerland or ceases to act as a Vice President of the Company prior to December 31, 2002, the Subsidiary is entitled to request repayment of the loan upon giving 60 days prior written notice. During Mr. Ramseyer's assignment in the United States, the Subsidiary may lease the property and receive rental income. 20 PROPOSAL 2 - APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS The Board of Directors wishes to obtain from the stockholders an indication of their approval or disapproval of the Board's action in appointing Price Waterhouse as independent auditors of the Company for the year 1994. Price Waterhouse have been the auditors of the Company since its incorporation in 1925. No relationship exists other than the usual relationship between independent public accountant and client. In the event the appointment of Price Waterhouse as independent auditors for 1994 is not approved by the stockholders, the adverse vote will be considered as a direction to the Board of Directors to consider the selection of other auditors for the following year. However, because of the difficulty in making any substitution of auditors so long after the beginning of the current year, it is contemplated that the appointment for the year 1994 will be permitted to stand unless the Board finds other good reason for making a change. The directors recommend a vote 'FOR' the approval of the appointment of Price Waterhouse. Representatives of Price Waterhouse are expected to be present at the annual meeting of stockholders on April 13, 1994, with the opportunity to make a statement if they desire to do so. Such representatives are also expected to be available to respond to appropriate questions. PROPOSAL 3 - STOCKHOLDER PROPOSAL Mr. Bill Casstevens, Secretary-Treasurer of the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (the "UAW"), advises that, on behalf of the UAW (owner of 19 shares of Company stock), he or another representative intends to present for consideration and action at the annual meeting, the following resolution: RESOLUTION PROPOSED BY STOCKHOLDER BE IT RESOLVED: that the shareholders of Caterpillar Inc. ("Caterpillar" or "company") request the Board of Directors to take the steps necessary to amend the bylaws of the company to provide that any nominations of directors by a stockholder pursuant to Article III, Section 1(d)(ii), will be included in the proxy statement and ballot sent to stockholders, said steps to include but not be limited to revising the time period in which such nominations are to be made. SUPPORTING STATEMENT OF PROPONENT Article III, Section 1(d) of Caterpillar's bylaws appears to provide for a very open, democratic method of making nominations for the company's Board of Directors. Subsection (i) provides that the board of directors or a committee of it may make nominations. Subsection (ii) provides that a stockholder may make a nomination at a stockholder's meeting. The provision for nominations by a stockholder, however, is an empty one since they can only be made at a stockholders' meeting. The vast majority of stockholders cast their ballots by proxy weeks before a stockholders' meeting. Although a stockholder attending the meeting can change his or her ballot at that time, only a minuscule fraction of stockholders attend such meetings in person. To provide for meaningful stockholder nominations, the company's bylaws should be changed to provide that the nominations must be made early enough to be included in the proxy statement and proxy ballot that is sent to shareholders. 21 Given the company's marginal performance in recent years, it is clear that new directors willing to take the board in a fresh direction are needed. Stockholder nominations that appear in proxy materials and on the proxy ballot would be an ideal way to achieve that. Even if such nominations fail, they will increase the current board's accountability. STATEMENT IN OPPOSITION TO PROPOSAL Currently, stockholders who want to nominate their own candidates to the Company's Board of Directors have several options. They may accept the Company's invitation to attend the Annual Meeting of Stockholders and forward their director nominations at that time, as long as written notice of such nomination is received by the Secretary of the Company not later than ninety days in advance of such meeting. Indeed, the Company's proxy statement details procedures required under Company bylaws for the nomination of directors by stockholders. Other stockholders attending the annual meeting may vote for nominated directors, even if such a vote would change a vote previously submitted by proxy. Alternatively, the federal securities laws provide another mechanism. The stockholder may file with the Securities and Exchange Commission and distribute to stockholders its own proxy statement and ballot soliciting votes for its own slate of director nominees or for an individual director. These mechanisms provide stockholders ample opportunity to change the composition of the Board if they believe "new directors willing to take the board in a fresh direction are needed." It is important to note, however, that the Company's current Board provided guidance for the efforts that led to the past year's substantially improved performance. From January 1, 1993 through December 31, 1993, Company stock increased in value by approximately 66% and for 1993 the Company recorded a profit of $681 million or $6.72 per share (excluding an extraordinary loss of $29 million). In fact, the UAW's characterization of the Board, in light of recent Company performance, raises the question whether this proposal is designed to further the interests of stockholders as a whole or merely to harass the Company in an attempt to force acceptance of the international union's so-called pattern labor agreement. Adoption of this proposal would not permit inclusion of stockholder nominations in the Company's proxy materials. That would require an amendment to the Company's bylaws by stockholders at a future stockholders' meeting. Approval of the amendment by not less than 75% of the outstanding stock entitled to vote would be required at that meeting for the proponent's proposal to be implemented. The Board of Directors recommends a vote AGAINST the proposal. PROPOSAL 4 - STOCKHOLDER PROPOSAL Mr. Dana L. Wiggins, Business Representative for the Northern Nevada Carpenters Pension Trust ("Fund"), advises that, on behalf of the Fund (owner of 2,500 shares of Company stock), he or another representative of the Fund intends to present for consideration and action at the annual meeting the following resolution: RESOLUTION PROPOSED BY STOCKHOLDER BE IT RESOLVED: That the shareholders of Caterpillar Inc. ("Company") urge that the Board of Directors take the necessary steps, in compliance with Delaware state law, to declassify the Board of Directors for the purpose of director elections. The Board declassification shall be done in a manner that does not affect the unexpired terms of directors previously elected. 22 SUPPORTING STATEMENT OF PROPONENT The election of corporate directors is the primary avenue in the American corporate governance system for shareholders to influence corporate affairs and exert accountability on management. We strongly believe that our Company's financial performance is closely linked to its corporate governance policies and procedures, and the level of management accountability they impose. Therefore, as shareholders concerned about the value of our investment, we are very disturbed by our Company's current system of electing only one-third of the board of directors each year. We believe this staggering of director terms prevents shareholders from annually registering their views on the performance of the board collectively and each director individually. Concerns that the annual election of all directors would leave our Company without experienced Board members in the event that all incumbents are voted out is unfounded. If the owners should choose to replace the entire board, it would be obvious that the incumbent directors' contributions were not valued. Additionally, concerns that the annual election of all directors would expose shareholders to takeover attempts at below full value is also unfounded. Our Company's poison pill is a virtually insurmountable takeover defense which forces potential acquirers to negotiate offers with the Board. Most alarming is that the staggered Board can help insulate directors and senior executives from the consequences of poor performance by denying shareholders the opportunity to replace an entire Board which is pursuing failed policies. The performance of Caterpillar's stock since the staggered Board was implemented in 1986 emphasizes this point. According to the performance chart on 13 of the Company's 1993 proxy statement, Caterpillar has underperformed its peer group, the S&P Machinery (Diversified) Index, and the S&P 500 in 1987, 1988, 1989, 1990, 1991 and 1992 for a cumulative shareholder return of 31 percent below the peer group and 55 percent below the S&P 500. Underperformance relative to our Company's peer group is primarily attributable to mismanagement, not market forces. Additionally, Caterpillar was the 910th worst company out of 1,000 in the United Shareholders Association's 1993 ranking of the Fortune 1,000 on performance and corporate governance. On long-term performance (10 year shareholders returns measured by stock price appreciation plus dividends), Caterpillar's score was 6.6 out of 25, a score which was worse than 863 other companies. The poor performance of our Company over the previous five and ten year periods is a compelling reason to reconsider the wisdom of a staggered Board. We believe that allowing shareholders to annually register their views on the performance of the Board collectively and each director individually is one of the best methods to insure that our Company will be managed in the best interests of the shareholders. STATEMENT IN OPPOSITION TO PROPOSAL In 1986, Company stockholders voted, by a significant majority, to divide the Board of Directors into three approximately equal classes, with one class elected each year for a three-year term. Last year, stockholders affirmed their support for the classified structure by rejecting a proposal to eliminate it. Certain institutional stockholders, such as Teachers Insurance and Annuity Association -- College Retirement Equities Fund ("TIAA-CREF"), as a matter of policy do not support stockholder proposals to eliminate a classified board structure. The Board continues to believe the classified structure is in the best interests of the Company and its stockholders for the following reasons. First, the structure is designed to provide continuity and stability in the management of Company affairs, since, at any given time, a majority of the Board generally will have had prior experience as directors of the Company. At the same time, the classified 23 structure, by permitting annual elections with respect to one-third of the Board, affords stockholders a significant opportunity to express their views regarding Board performance. Second, the classified structure is designed to enhance management's ability to negotiate in the best interests of all stockholders with a person seeking control of the Company, since, absent a negotiated acquisition, at least two annual stockholder meetings would be required to effect a change in control of the Board. Contrary to the proponent's assertion, the Company's stockholder rights plan is not an "insurmountable takeover defense." In fact, the plan provides that the Company is required to redeem plan rights if requested by two-thirds of the Company's outstanding shares. Similarly, the classified structure is not an "insurmountable" takeover defense. Rather, it protects the interests of stockholders in the event of a takeover attempt. It should be noted that adoption of this proposal would not in itself eliminate Board classification. That would require the Board to submit an amendment to the Company's bylaws for action by stockholders at a future stockholders' meeting. Approval of that amendment by not less than 75% of the outstanding stock entitled to vote would be required for the 1986 stockholder vote to be reversed and the classified structure eliminated. It should also be noted that the proponent's characterization of Company performance contains an omission that renders the characterization misleading. The omitted fact is that the value of Company stock has increased approximately 66% during fiscal year 1993 and for 1993 the Company recorded a profit of $681 million or $6.72 per share (excluding an extraordinary loss of $29 million). The Board of Directors recommends a vote AGAINST the proposal. PROPOSAL 5 - STOCKHOLDER PROPOSAL Mr. Thomas P.V. Masiello, Administrator for the Massachusetts Laborers' Pension Fund ("Pension Fund"), advises that on behalf of the Pension Fund (owner of 2,000 shares of Company stock) he or another representative intends to present for consideration and action at the annual meeting, the following resolution: RESOLUTION PROPOSED BY STOCKHOLDER BE IT RESOLVED: that the stockholders of Caterpillar, Inc. ("Caterpillar" or "Company"), assembled in annual meeting in person and by proxy, hereby request the Board of Directors to take the steps necessary to provide for cumulative voting in the election of directors, which means each stockholder shall be entitled to as many votes as shall equal the number of shares he or she owns multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single candidate, or any two or more of them as he or she may see fit. SUPPORTING STATEMENT OF PROPONENT Cumulative voting is one of the few ways stockholders can attempt to elect members who they believe better represent their views. It is vitally needed at Caterpillar, where the current board has sat passively by, collecting its annual retainer of $30,000 and accruing a lifetime pension at that amount, while the company has underperformed the market and its industry group for the past five years. Cumulative voting maximizes a stockholder's voting power by allowing him or her to concentrate their votes for a single nominee or combination of nominees. 24 For example, Caterpillar has 10 directors. Without cumulative voting, the owners of 10 percent of the company's stock do not have a realistic chance of electing a director. They would only be able to cast their 10 percent for each nominee. However, with cumulative voting, those same owners would be able to actually elect a nominee by lumping all of their votes for that nominee. Even if dissedent stockholders do not have enough votes to elect nominees, cumulative voting ensures that management and the board will consider their views. Please mark your ballot in support of this proposal. STATEMENT IN OPPOSITION TO PROPOSAL In 1986, stockholders approved a Company proposal that, among other things, eliminated cumulative voting in the election of directors. Only 20% of stockholders voted against elimination. Statistics reveal that a substantial majority of public companies do not provide for cumulative voting in the election of directors. Certain large institutional holders, such as TIAA-CREF, consistently oppose proposals to institute such voting. Cumulative voting promotes special interest representation on the Board rather than representation for the benefit of all stockholders. Where cumulative voting is in effect, a minority block of stockholders may be able to elect one or more directors by giving all of their votes to those candidates. Directors so elected may be concerned with acting in the interests of the group electing them rather than stockholders as a whole. Factionalism and contention among directors could result to the disadvantage of the Company and its stockholders. The Company's current Board has represented stockholders during a period in which the groundwork was laid for a year of substantially improved performance. They have not "sat passively by ... while the company has underperformed the market and its industry group..." In fact, since January 1, 1993, stockholders have watched the value of Company stock increase by approximately 66%. The Board of Directors recommends a vote AGAINST the proposal. FILINGS PURSUANT TO SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934 Based upon a review of Company records, it appears that one executive officer, Mr. James E. Despain, failed to file one report on Form 4 in a timely manner. The report relates to one transaction involving 162 shares occurring on November 3, 1993. A Form 4 was filed with respect to that transaction on January 13, 1994. STOCKHOLDER PROPOSALS FOR THE 1995 ANNUAL MEETING Under the rules of the Securities and Exchange Commission, stockholders wishing to submit proposals for inclusion in the Company's Proxy Statement for the annual meeting of stockholders to be held in 1995 must submit such proposals so as to be received by the Company's Secretary at 100 NE Adams Street, Peoria, Illinois 61629 on or before October 25, 1994. 25 STOCKHOLDER NOMINATIONS A stockholder may also nominate an individual for election as a director at the annual meeting but, pursuant to the Company's bylaws, written notice of such nomination must be received by the Secretary of the Company at 100 NE Adams Street, Peoria, Illinois 61629, not later than ninety days in advance of such meeting. A copy of the Company's bylaws specifying the requirements for stockholder nominations will be furnished to any stockholder without charge upon written request to the Secretary. SOLICITATION The accompanying proxy is solicited by and on behalf of the Board of Directors. The cost of soliciting proxies will be borne by the Company. Such solicitation is being made by mail and may also be made by telephone or in person using the services of directors, officers and regular employees of the Company. In addition, the Company has engaged Georgeson & Co. for a fee of $20,000 plus out-of-pocket expenses to assist in the solicitation. Banks, brokerage firms and other custodians, nominees, and fiduciaries will be reimbursed by the Company for reasonable expenses incurred in sending proxy material to beneficial owners of Company Common Stock. STOCKHOLDER LIST A listing of the Company's stockholders of record will be available for examination by stockholders during normal business hours at the Loews Ventana Canyon Resort, 7000 North Resort Drive, Tucson, Arizona, at least ten days prior to the annual meeting. REVOCABILITY OF PROXY A stockholder giving the enclosed proxy may revoke it at any time before it is exercised by filing with the Company a written notice of revocation or by a duly executed and presented proxy bearing a later date or by voting in person at the meeting. Dated: February 25, 1994 26 [Caterpillar logo] APPENDIX CATERPILLAR INC. GENERAL AND FINANCIAL INFORMATION 1993 A-1 DESCRIPTION OF BUSINESS Caterpillar Inc. together with its consolidated subsidiaries (the company) operates in three principal business segments: (1) Machinery-Design, manufacture, and marketing of earthmoving, construction, and materials handling machinery - track and wheel tractors, track and wheel loaders, lift trucks, self-guided materials handling vehicles, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, and related parts. (2) Engines-Design, manufacture, and marketing of engines for earthmoving and construction machines, on-highway trucks, and locomotives; marine, petroleum, agricultural, industrial, and other applications; electric power generation systems; and related parts. Caterpillar diesel and spark-ignited engines meet power needs ranging from 54 to 8,000 horsepower. Turbines range from 1,340 to 15,000 horsepower (1,000 to 10,500 kilowatts). (3) Financial Products-Provides financing alternatives for Caterpillar and noncompetitive related equipment, and extends loans to Caterpillar customers and dealers. Also provides various forms of insurance to Caterpillar dealers and customers to help support their purchase and financing of Caterpillar equipment. The company conducts operations in the Machinery and Engines segments of its business under highly competitive conditions, including intense price competition. It places great emphasis upon the high quality and performance of its products and the service support for such products which is supplied by its dealers. Although no one competitor is believed to produce all of the same types of machines and engines produced by the company, there are numerous companies, large and small, which compete with the company in the sale of each of its products. The company's products are sold primarily under the marks "Caterpillar," "Cat," "Solar," and "Barber-Greene." Machines are distributed principally through a worldwide organization of independent full-line dealers, and one company-owned dealership, 65 located in the United States and 118 located outside the United States. Worldwide, these dealers have more than 1,250 places of business. Diesel and spark-ignited engines are sold through the worldwide dealer organization and to other manufacturers for use in products manufactured by them. Caterpillar dealers do not deal exclusively in the company's products, although in most cases sales and servicing of the company's products are the dealers' principal business. Turbines are sold through a sales force employed by Solar Turbines Incorporated, a wholly owned subsidiary, or its subsidiaries and associated companies. These employees are from time to time assisted by independent sales representatives. Financial Products consists primarily of Caterpillar Financial Services Corporation and its subsidiaries, and Caterpillar Insurance Co. Ltd. - ------------------------------------------------------------------------------ TABLE OF CONTENTS

A-2 REPORT OF MANAGEMENT CATERPILLAR INC. - -------------------------------------------------------------------------------- The management of Caterpillar Inc. has prepared the accompanying consolidated financial statements for the years ended December 31, 1993, 1992, and 1991, and is responsible for their integrity and objectivity. The statements were prepared in conformity with generally accepted accounting principles and, reflecting management's best judgment, present fairly the company's results of operations, financial position, and cash flows. Management maintains a system of internal accounting controls which has been designed to provide reasonable assurance that: transactions are executed in accordance with proper authorization, transactions are properly recorded and summarized to produce reliable financial records and reports, assets are safeguarded, and the accountability for assets is maintained. The system of internal controls includes statements of policies and business practices, widely communicated to employees, which are designed to require them to maintain high ethical standards in their conduct of company affairs. The internal controls are augmented by careful selection and training of supervisory and other management personnel, by organizational arrangements that provide for appropriate delegation of authority and division of responsibility, and by an extensive program of internal audit with management follow-up. The financial statements have been audited by Price Waterhouse, independent accountants, in accordance with generally accepted auditing standards. They have made similar annual audits since initial incorporation of the company. Their role is to render an objective, independent opinion on management's financial statements. Their report appears below. Through its Audit Committee, the board of directors reviews the company's financial and accounting policies, practices, and reports. The Audit Committee consists exclusively of five directors who are not salaried employees and who are, in the opinion of the board of directors, free from any relationship that would interfere with the exercise of independent judgment as a committee member. The Audit Committee meets several times each year with representatives of management, the internal auditing department, and the independent accountants to review the activities of each and satisfy itself that each is properly discharging its responsibilities. Both the independent accountants and the internal auditors have free access to the Audit Committee and meet with it periodically, with and without management representatives in attendance, to discuss, among other things, their opinions as to the adequacy of internal controls and to review the quality of financial reporting. [SIGNATURE] (Donald V. Fites) Chairman of the Board [SIGNATURE] (James W. Owens) Chief Financial Officer January 21, 1994 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS