SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(Amendment No. 37)
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
------------------------------------
ITT CORPORATION
(Name of Subject Company)
------------------------------------
ITT CORPORATION
(Name of Person(s) Filing Statement)
------------------------------------
Common Stock, no par value
(including the associated Series A
Participating Cumulative Preferred Stock Purchase Rights)
(Title of Class of Securities)
450912 10 0
(CUSIP Number of Class of Securities)
------------------------------------
------------------------------------
RICHARD S. WARD, Esq.
Executive Vice President,
General Counsel and Corporate Secretary
ITT Corporation
1330 Avenue of the Americas
New York, NY 10019-5490
(212) 258-1000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
PHILIP A. GELSTON, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
(212) 474-1000
<PAGE>
INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") originally filed on February 12, 1997, by ITT
Corporation, a Nevada corporation (the "Company"), relates to an offer by
HLT Corporation, a Delaware corporation ("HLT") and a wholly owned
subsidiary of Hilton Hotels Corporation, a Delaware corporation ("Hilton"),
to purchase 61,145,475 shares of the common stock, no par value (including
the associated Series A Participating Cumulative Preferred Stock Purchase
Rights), of the Company. All capitalized terms used herein without
definition have the respective meanings set forth in the Schedule 14D-9.
Item 8. Additional Information to Be Furnished.
The response to Item 8 is hereby amended by adding the following
after the final paragraph of Item 8:
On October 1, 1997, the Company filed preliminary proxy material
related to its 1997 annual meeting, which has been scheduled for November
12, 1997. A copy of the preliminary proxy material is filed as Exhibit 106
hereto and is incorporated herein by reference.
On September 30, 1997, the Company announced the extension, until
Monday, October 6, 1997, of its previously announced Debt Tender Offer. On
October 3, 1997, the Company announced the extension of its previously
announced Equity Tender Offer and Debt Tender Offer. The Tender Offers are
now scheduled to expire at 11:59 p.m., New York City time, on Wednesday,
November 12, 1997, unless extended. Copies of the press releases announcing
the extensions of the Tender Offers are filed as Exhibits 107 and 108
hereto, respectively, and are incorporated herein by reference.
Item 9. Exhibits.
The response to Item 9 is hereby amended by adding the following
new Exhibits:
106. ITT Corporation Preliminary Proxy Material dated October 1, 1997.
107. Text of Press Release issued by the Company dated September 30,
1997.
108. Text of Press Release issued by the Company dated October 3,
1997.
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete
and correct.
ITT CORPORATION
By /s/ RICHARD S. WARD
---------------------------
Name: Richard S. Ward
Title: Executive Vice President,
General Counsel and
Corporate Secretary
Dated as of October 3, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
(106) ITT Corporation Preliminary Proxy Material dated
October 1, 1997..................................
(107) Text of Press Release issued by the Company dated
September 30, 1997...............................
(108) Text of Press Release issued by the Company dated
October 3, 1997..................................
[Exhibit 106]
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
X Preliminary Proxy Statement
Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to 14a-11(c) or 14a-12
ITT CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x No fee required.
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 (Set forth the amount on which the
filing fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
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:
<PAGE>
Preliminary Copy
ITT
1997
Notice of
Annual Meeting
and
Proxy Statement
<PAGE>
Preliminary Copy
ITT Corporation
Rand V. Araskog
Chairman and Chief
Executive
October , 1997
Dear Fellow Stockholders:
It is my pleasure to cordially invite you to attend the second
Annual Meeting of Stockholders of ITT Corporation to be held at
10:30 am on Wednesday, November 12, 1997 in the of .
I urge you to participate in the business of the Annual Meeting
by completing and returning the enclosed blue proxy as promptly
as possible. This annual meeting is of particular importance to
all ITT stockholders because of Hilton Hotels Corporation's
(together with its subsidiaries, "Hilton") ongoing, hostile
attempt to take over your Company.
As you know, Hilton has commenced a hostile offer (the "Hilton
Offer") to acquire your shares in ITT for cash and Hilton stock.
At the Annual Meeting, Hilton is seeking to remove the existing
Board of Directors of ITT (the "Board"), including all of its
independent directors, and is seeking to install its own
hand-picked nominees to the Board. Hilton also wants you to
support several proposals that would make it easier for Hilton's
nominees to sell ITT for as little as $70 per share. Hilton has
left no doubt that its objective is to obtain control of ITT and
have its nominees dismantle ITT's stockholder protections so that
it can attempt to complete its offer for the shares of ITT
without change. We do not believe Hilton's nominees would
negotiate for a higher price or better terms for you. The Board's
unanimous view has been and continues to be that the Hilton Offer
is inadequate and not in the best interests of ITT. Accordingly
the Board unanimously recommends a vote "FOR" the Board's
nominees for director and "AGAINST" Hilton's proposals.
As you know, on July 15, 1997, your Board approved a
Comprehensive Plan, which is designed to enhance the value of
your ongoing investment in ITT. A major element of the
Comprehensive Plan consists of the separation of ITT into three
distinct publicly owned companies focused on (a) hotels and
gaming, (b) telephone directories publishing and (c)
post-secondary technical education. The separation will be
effected through the distribution or "spin-off" of all the shares
of ITT Destinations, Inc. ("Destinations"), a subsidiary formed
to hold ITT's hotels and gaming business, and ITT Educational
Services, Inc., the subsidiary that operates ITT's post-secondary
technical education business. Destinations' board of directors
will not be classified and will, therefore, come up for election
in its entirety at each annual meeting of stockholders of
Destinations. Upon their election, the Board's nominees are
expected, subject to their fiduciary duties, to remain committed
to consummating the Comprehensive Plan. Holders of ITT stock (who
have retained the stock of previously spun-off subsidiaries) for
the five years through July 1997 have seen their investment
outperform the Standard & Poor's 500 Index by more than 70% and
increase in aggregate value by approximately $15 billion during
the same period.
A blue proxy card is enclosed for your use. THE BOARD URGES YOU
TO COMPLETE, SIGN, DATE AND RETURN THE BLUE PROXY CARD IN THE
ACCOMPANYING ENVELOPE, which is postage paid if mailed in the
United States, Canada or the United Kingdom.
Your Board urges you not to sign or return any white proxy card
sent to you by Hilton. If you have previously signed a white
proxy card sent by Hilton, your Board urges you to sign, date and
promptly mail the enclosed blue proxy card, which will revoke any
earlier dated proxy cards solicited by Hilton which you may have
signed. The best way for you to support your Board is to vote
"FOR" the Board's nominees for director and "AGAINST" Hilton's
proposals on the blue proxy card sent to you by your Board.
On behalf of everyone at ITT, I thank you for your continued
support. We remain committed to acting in your best interests. If
you have any questions, please feel free to call our proxy
solicitor, Georgeson & Company, Inc., at 1-800-223-2064 toll free
in the United States) or 212-440-9800 (outside the United
States).
Sincerely yours,
Rand V. Araskog
Chairman and Chief Executive
<PAGE>
Your vote is important. Please sign, date and promptly mail your
blue proxy card in the postage prepaid envelope provided.
Remember, do not return any white proxy card sent to you by
Hilton.
If your shares are registered in the name of a broker, only your
broker can execute a proxy and vote your shares and only after
receiving your specific instructions. Please contact the person
responsible for your account and direct him or her to execute the
blue proxy on your behalf today. Again, if you have any questions
or need further assistance in voting, please contact the firm
assisting us in the solicitation of proxies:
Georgeson & Company, Inc.
Call 1-800-223-2064 (toll-free in the United States)
or 212-440-9800 (outside of the United States)
<PAGE>
Preliminary Copy
ITT Corporation
Richard S. Ward
Executive Vice President,
General Counsel and
Corporate Secretary
October , 1997
Notice of Annual Meeting
The Annual Meeting of the Stockholders of ITT
Corporation will be held in of on Wednesday, November 12, 1997 at , local
time, for the following purposes:
1. to elect directors;
2. to ratify the reappointment of Arthur Andersen LLP as
independent auditors of the Company for 1997;
3. to consider and vote upon two proposals by Hilton Hotels
Corporation, a Delaware corporation ("Hilton"), and HLT
Corporation, a Delaware corporation and a wholly owned
subsidiary of Hilton, (i) to approve a non-binding
stockholder resolution urging the Board to arrange for
the sale of the Company to Hilton or any bidder offering
a higher price for the Company; and (ii) to approve a
stockholder resolution to repeal each and every provision
of the Amended and Restated By-laws of the Company
adopted on or after July 23, 1996 and prior to the 1997
Annual Meeting; and
4. to act upon such other matters as may properly come
before the meeting.
Stockholders of record at the close of business on October 1,
1997 will be entitled to notice of and to vote at the meeting.
STOCKHOLDERS ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE, AND
RETURN THE ENCLOSED BLUE PROXY CARD IN THE SELF-ADDRESSED
ENVELOPE (WHICH IS POSTAGE-PAID FOR STOCKHOLDERS IN THE UNITED
STATES, CANADA AND THE UNITED KINGDOM) WHETHER OR NOT THEY EXPECT
TO ATTEND THE MEETING. A STOCKHOLDER MAY NEVERTHELESS VOTE IN
PERSON IF HE OR SHE DOES ATTEND.
Sincerely yours,
Richard S. Ward
Executive Vice President, General Counsel
and Corporate Secretary
<PAGE>
Preliminary Copy
ITT Corporation
1330 Avenue of the Americas
New York, New York 10019-5490
Proxy Statement
General Information
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the Board of Directors (the "Board")
of ITT Corporation ("ITT" or the "Company") to be voted at the
Annual Meeting of Stockholders of ITT to be held on Wednesday,
November 12, 1997, and at any and all adjournments or
postponements thereof (the "Annual Meeting"). The Board of
Directors has fixed the close of business on October 1, 1997 as
the record date for determining the stockholders entitled to
notice of, and to vote at, the Annual Meeting. This Proxy
Statement and the accompanying blue proxy card are first being
mailed to stockholders on or about October , 1997. The Company's
Annual Report to Stockholders for the year ended December 31,
1996, which is not a part of this Proxy Statement, has preceded
this Proxy Statement.
At the Annual Meeting, stockholders will consider and vote upon
the election of directors to hold office until the next annual
meeting and until their successors are elected and qualified. As
you know, Hilton Hotels Corporation, a Delaware corporation
("Hilton") and one of the principal competitors of the Company,
and HLT Corporation, a Delaware corporation ("HLT") and a wholly
owned subsidiary of Hilton, have commenced a proxy solicitation
to replace the eleven current directors standing for re-election
with up to 25 persons nominated by Hilton and HLT (the "Hilton
Nominees") to the Board, who have pledged to support the Hilton
Offer (as defined herein) and the Proposed Squeeze Out Merger (as
defined herein). At the Annual Meeting, stockholders will also
consider and vote upon two proposals of Hilton and HLT to (i)
approve a non-binding stockholder resolution urging the Board to
arrange for the sale of the Company to Hilton, HLT or any bidder
offering a higher price for the Company (the "Hilton Sale
Proposal"); and (ii) approve a stockholder resolution to repeal
each and every provision of the Amended and Restated By-laws of
the Company (the "By-laws") adopted on or after July 23, 1996 and
prior to the adoption of such resolution (the "Hilton By-law
Repeal Proposal" and, together with the Hilton Sale Proposal, the
"Hilton Proposals"). As of the date of this proxy statement and
since July 23, 1996, the Board has not approved any amendments to
the By-laws. Hilton's and HLT's nomination of an opposition slate
of directors and the Hilton Proposals are solely designed to
further Hilton's attempts to take over the Company by means of an
unsolicited two-tier hostile tender offer (the "Hilton Offer")
for 61,145,475 shares of the Company's common stock (the "Shares"
or the "Common Stock"), no par value (including the associated
Series A Participating Cumulative Preferred Stock Purchase Rights
(the "Rights") unless the Rights are redeemed by the Board), or
such greater number of Shares as, when added to the number of
Shares owned by HLT and its affiliates, would constitute a
majority of the total number of Shares outstanding, at $70 per
Share. Hilton has announced that, if the Hilton Offer succeeds,
Hilton intends to consummate a merger (the "Proposed Squeeze Out
Merger" and, together with the Hilton Offer, the "Hilton
Transaction") pursuant to which all Shares not tendered and
purchased pursuant to the Hilton Offer (other than Shares owned
by Hilton and its subsidiaries or held in the Company's treasury)
would be converted into the right to receive a number of shares
of Hilton common stock, par value $2.50 per share ("Hilton Common
Stock"), having a nominal value of $70 per Share, subject to
unspecified collar provisions.
At the Annual Meeting, the stockholders will also consider and
vote upon the ratification of the appointment of Arthur Andersen
LLP as the Company's independent public accountants for fiscal
year 1997 and any other business that may properly come before
the Annual Meeting.
The Board unanimously believes that the Hilton Transaction,
including the Hilton Offer, is inadequate and not in the best
interests of stockholders and the Company and has determined
that, in light of the prospects of each of ITT's businesses, the
attractiveness of the Comprehensive Plan and the other factors
described below, ITT's and its stockholders' interests would be
best served if ITT (and particularly the core business of ITT)
were to remain independent and pursue the Comprehensive Plan.
Accordingly, the Board continues to recommend unanimously that
the stockholders of the Company reject the Hilton Transaction and
not tender their Shares pursuant to the Hilton Offer or take any
other action to facilitate the Hilton Offer. The Board's
determination was based on the Board's review and consideration
of the interests of the Company's stockholders and all other
factors permitted by applicable law. THE BOARD UNANIMOUSLY
OPPOSES HILTON'S AND HLT'S SOLICITATION OF PROXIES AND URGES YOU
NOT TO SIGN OR RETURN ANY WHITE PROXY CARD SENT TO YOU BY HILTON.
WE RECOMMEND THAT YOU SUPPORT YOUR BOARD BY VOTING "FOR" THE
BOARD'S NOMINEES FOR DIRECTOR (PROPOSAL NO. 1) AND "AGAINST" THE
HILTON PROPOSALS (PROPOSALS NO. 3 AND 4).
Your vote is important, regardless of how many shares you own.
Please sign and date the accompanying blue proxy card and mail it
in the enclosed self-addressed envelope (which is postage prepaid
for stockholders in the United States, Canada and the United
Kingdom) as promptly as possible, whether or not you expect to
attend the meeting.
<PAGE>
Whether or not you have previously signed a white proxy card sent
by Hilton, your Board urges you to show your support for the
Board by signing, dating and promptly mailing the enclosed blue
proxy card. By signing and dating the blue proxy card, you will
revoke any earlier dated white proxy card solicited by Hilton
which you may have signed. Do not return any white proxy card
sent to you by Hilton. The best way to support your Board's
nominees and determinations is to vote "FOR" the Board's nominees
and "AGAINST" the Hilton Proposals on the blue proxy card.
IF YOUR SHARES ARE HELD IN THE NAME OF A BANK, BROKER OR OTHER
NOMINEE, WE URGE YOU TO CONTACT THE PARTY RESPONSIBLE FOR YOUR
ACCOUNT AND DIRECT HIM OR HER TO VOTE "FOR" YOUR BOARD'S NOMINEES
FOR DIRECTOR AND "AGAINST" THE HILTON PROPOSALS ON THE COMPANY'S
BLUE PROXY CARD.
The Comprehensive Plan
At a meeting on July 15, 1997 the Board continued its
implementation of the long-term strategic plan by approving a
comprehensive plan (the "Comprehensive Plan"). The Board reviewed
the Comprehensive Plan in depth, with the assistance of the
Company's management and its outside financial and legal
advisors. Upon their election, the Board's nominees for director
are expected, subject to their fiduciary duties, to remain
committed to consummating the Comprehensive Plan.
The Comprehensive Plan is another step in the Company's
refinement of its strategic plan to focus on hotels and gaming
and explore and exploit opportunities to enhance the value of the
Company within that focus. This initiative already has resulted
in the sale of certain of the Company's assets, a continued focus
on cost containment, continued efforts to grow the hotels and
gaming business and the pursuit of transactions that are expected
to enhance the profitability, return on assets or cash flows of
that business.
A major element of the Comprehensive Plan involves the separation
of the Company into three distinct publicly owned companies
focused on (a) hotels and gaming, (b) telephone directories
publishing and (c) post-secondary technical education. The
separation will be effected through the distribution or
"spin-off" of all the shares owned by the Company of ITT
Destinations, Inc., a new subsidiary that was formed to hold the
Company's hotels and gaming business ("Destinations"), and ITT
Educational Services, Inc., the Company's subsidiary that
operates its post-secondary technical education business ("ITT
Educational"), to stockholders of the Company (these transactions
are referred to herein as the "Distributions"). Destinations'
board of directors will not be classified and will, therefore,
come up for election in its entirety at each annual meeting of
stockholders of Destinations. After the Distributions, the
Company's only business will be its telephone directories
publishing business and it is expected that the Company will
change its name to "ITT Information Services, Inc." ("ITT ISI").
A second major element of the Comprehensive Plan involves the
repurchase through a cash tender offer of up to 30 million Shares
or approximately 25.7% of the outstanding Shares, at a price per
Share of $70 net to the Seller in cash (the "Stock Tender
Offer"). The Stock Tender Offer will provide stockholders who
wish to sell a portion of their Shares an opportunity to do so at
a premium to recent market prices and provide stockholders who
wish to increase their proportionate investment in the Company's
three businesses after the Distributions, and thus in the future
earnings and assets of such businesses, an opportunity to do so.
The equity repurchase offer will also afford to stockholders the
opportunity to dispose of Shares without the usual transaction
costs associated with a market sale.
A third element of the Comprehensive Plan is the allocation of
the indebtedness of the combined entity between the Company's
hotels and gaming business and telephone directories publishing
business in a manner that is appropriate for the credit capacity
and capitalization requirements of each business. Because the
financial responsibility standards of the U.S. Department of
Education applicable to ITT Educational limit the amount of
indebtedness ITT Educational may incur, no indebtedness will be
allocated to ITT Educational. Although the Company believes
covenants in its existing public indebtedness do not limit the
Company's ability to carry out the Distributions, as a practical
matter, a substantial amount of indebtedness must be allocated to
the hotels and gaming business if ITT ISI is to remain viable
after the Distributions. As discussed below, the Board believes
that the preferred means of making this allocation is to replace
the Company's existing indebtedness with indebtedness issued by
the entity that ultimately will be liable for such indebtedness.
Accordingly, as part of the Comprehensive Plan, the Company has
commenced a tender offer for all the publicly held debt
securities of ITT Corporation (the "Debt Tender Offer" and,
together with the Stock Tender Offer, the "Tender Offers"). The
Tender Offers will be consummated substantially concurrently with
the Distributions. The Distributions, however, are not
conditioned upon any minimum amount of Shares or indebtedness
being acquired pursuant to the Stock Tender Offer or the Debt
Tender Offer.
At the July 15, 1997 meeting, the Board also approved a
definitive agreement for a strategic investment in the Company
(the "Strategic Investment"), which will hold the telephone
directories publishing business following the Distributions, by
CDRV Acquisition, L.L.C. ("CDRV"), an affiliate of Clayton
Dubilier & Rice, Inc. Following the Distributions, CDRV will
purchase approximately 32.9% of the outstanding Common Stock of
<PAGE>
the Company and Warrants to purchase shares representing an
additional 13.7% of the outstanding Common Stock of the Company
and warrants to purchase shares representing an additional 13.7%
of the outstanding Common Stock for aggregate consideration of
$225 million. Such warrants will have a ten-year term and permit
CDRV to buy Common Stock of the Company at a 50% premium to
CDRV's initial purchase price. Consummation of the Strategic
Investment is subject to certain conditions including, among
other things, approval of the Company's stockholders. The Company
plans to hold a special meeting of stockholders for the purpose
of seeking approval of the Strategic Investment promptly after
the Annual Meeting. Completion of the Strategic Investment (the
proceeds from which are expected to be used primarily to reduce
indebtedness) is not a condition to the Distributions. Following
completion of the Distributions and the Strategic Investment, the
Company will have approximately $1.05 billion in debt, giving the
Company an initial enterprise value, based on the Strategic
Investment, of approximately $1.7 billion.
The Board believes that the business justifications for the
Comprehensive Plan, including a significant repurchase of Shares
by the Company, are compelling without regard to the Hilton Offer
and intends to pursue the plan even if Hilton withdraws its
interest in acquiring the Company. Because the Company's
telephone directories publishing and post-secondary technical
education businesses are distinct from the Company's core hotels
and gaming business, during 1996 subsequent to becoming an
independent public company, the Company began to recognize that
these businesses would eventually be separated from the Company's
core business, just as ITT's forest products, insurance and
industrial products businesses have previously become independent
publicly traded companies.
The Comprehensive Plan is intended to enhance the value of the
ongoing investment of stockholders as well as further the
interests of the Company's employees, creditors, customers, and
the economies and communities in which the Company operates. The
Company currently operates three distinct businesses with
different characteristics, competitive environments and growth
prospects. Separating the Company's businesses and allowing them
to operate independently is expected to result in, among other
things, increased strategic focus and enhanced public market
understanding and valuations of these businesses. In approving
the Comprehensive Plan, the Board took account of the tax-free
nature of spin-offs and the Company's prior positive experience
with such transactions. The Company as an independent entity can
consummate such a tax-free spin-off; an acquiror (whether by
purchase or merger) in a transaction that is taxable in whole or
in part (including the Hilton Transaction) would be unable to
undertake a tax-free distribution of Company assets for a period
of five years. Compared to a taxable sale of the Company's
telephone directories publishing business and post-secondary
technical education business, the Distributions will save the
Company in excess of $500 million in U.S. Federal income taxes.
Further, the tax-free nature of transactions such as the
Distributions is under increasing scrutiny in the Congress.
Accordingly, it is possible that in the future legislation will
be passed that might eliminate or restrict the ability of the
Company to undertake the Distributions on a tax free basis.
ITT's Prior Experience. The Company has
substantial experience with the benefits of spin-off
transactions. In 1994, the Company's predecessor
spun-off its forestry products subsidiary to create an
independent company. In addition, the Company itself is
the product of the December 1995 separation of a
conglomerate that controlled the businesses now operated
by the Company as well as ITT Industries, Inc. (a New
York Stock Exchange listed company trading under the
symbol "IIN" that manufactures a wide variety of high
technology and industrial products) and the Hartford
Financial Services Group, Inc. (formerly "ITT Hartford
Group, Inc.," a New York Stock Exchange listed company
trading under the symbol "HIG" that operates one of the
largest multiline insurance companies in the United
States). Holders of ITT stock (who have retained the
common stock of Rayonier Inc., ITT Industries, Inc. and
The Hartford Financial Services Group, Inc. previously
distributed by the Company) for the five years through
July 1997 have seen their investment outperform the
Standard & Poor's 500 Index by more than 70% and
increase in aggregate value by approximately $15 billion
during the same period. The separation of the Company's
three businesses being undertaken now is similar to the
1995 separation of the former ITT Corporation and
represents another step in the transition of the former
ITT conglomerate to a group of individually accountable,
strategically focused organizations.
Separation of Businesses. The Board believes
that the Comprehensive Plan will be beneficial to each of
the Company's existing businesses because, among other
things, it will separate businesses with distinct
financial, investment and operating characteristics so
that each business can adopt strategies and pursue
objectives more appropriate to its specific business plan
than is possible under the Company's present combined
structure and without the limitations caused by
competition for resources from the other businesses.
Separation will also allow each company to attain a
capital structure that is appropriate for its competitive
environment and financial characteristics, which may
involve increased leverage.
Optimize Focus. Following the Distributions,
each business' management will be in an improved position
to control capital funding and acquisition initiatives
and the implementation of business strategies. Management
of each independent company will be able to concentrate
its attention and financial resources wholly on
<PAGE>
its business, while responding solely to the
characteristics and competitive disciplines of its own
industries.
"Delayering" of Organizations. The
Comprehensive Plan will allow the Company to eliminate
at least one tier of corporate-level administration.
Specifically, the Distributions will permit both ITT ISI
and ITT Educational to eliminate the management
oversight and reporting functions currently performed by
ITT's world headquarters staff and release such staff
from those responsibilities. In addition, the Company
anticipates that following implementation of the
Comprehensive Plan, each of the three companies formed
by the Distributions will continue to search for
additional opportunities to rationalize the organization
and administration of their respective businesses. In
that connection, following the Distributions, the
individual businesses will be able to determine which
corporate functions they wish to perform internally and
which they wish to obtain from third-party service
providers, all of which should contribute to increased
efficiency.
Narrowly-Tailored Compensation. The
Comprehensive Plan will allow each of the businesses to
design incentive plans that relate more directly to its
own business characteristics and performance (currently
certain of ITT's incentive compensation plans, such as
stock-based compensation, are necessarily affected by
the performance of ITT as a whole, as compared to the
individual businesses of ITT). Each business will be
able to more closely tie compensation incentives for key
employees to the performance of that business.
Consequently, each company and its respective
stockholders should benefit from the positive effects of
the closer links between each business' incentive
compensation arrangements for key employees and the
performance of its business.
Enhanced Investor Understanding. Investors
ultimately should be able to evaluate better the
financial performance of each of the Company's three
businesses and their respective strategies, thereby
enhancing the likelihood that each will achieve an
appropriate market valuation. Moreover, as
narrowly-focused companies, each business should fit
more readily into traditional industry groupings, thus
attracting the attention of dedicated industry analysts
willing and able to compare each company and its
strategies to companies in the same or similar
businesses.
Increased Public Float for ITT Educational.
Approximately 16.7% of the common stock of ITT
Educational, the company that operates the Company's
post-secondary technical educational business, is
currently publicly traded. On completion of the
Comprehensive Plan, 100% of the common stock of this
business will be publicly held. This significant
increase in public float is expected to increase the
liquidity of this security and thereby raise its market
profile in the long term.
Tax-free Nature of the Distributions. Cravath,
Swaine & Moore has advised the Board that, in its
opinion, the Distributions will be tax free for U.S.
Federal income tax purposes to the Company and its
stockholders. The Company as an independent entity can
consummate such a transaction immediately. An acquiror
of the Company (whether by purchase or merger) in a
transaction that is taxable in whole or in part
(including the Hilton Transaction) would be unable to
undertake a tax-free spin-off of Company assets for a
period of five years. In contrast, a taxable sale of the
Company's remaining non-core businesses would result in
corporate-level taxation (which, given the Company's low
tax basis in those businesses, would exceed $500
million) and the distribution of the after-tax proceeds
of such sale in the form of a dividend would constitute
taxable income to the Company's stockholders.
Benefits of Telephone Directories Publishing
"Stub". Utilizing the Company's telephone directories
publishing business as the "stub" company (out of which
the Company's hotels and gaming and post secondary
technical education businesses will be distributed)
allows a substantially greater amount of debt in ITT
ISI's overseas subsidiaries, thereby more closely
matching liabilities with operating assets without the
incurrence of adverse U.S. tax consequences. The tax
laws in effect at the time the Board approved the
Comprehensive Plan permitted ITT ISI to sell up to 49.9%
of the telephone directories publishing business to new
investors, such as CDRV, without jeopardizing the
tax-free status of the Distributions compared to a limit
of 20% that applied if that business were spun- off. The
chosen structure may also encourage bondholders to
participate in the Debt Tender Offer, because holders
who fail to do so will retain obligations of ITT ISI,
which will be relatively more highly leveraged than
Destinations. Although there is no Internal Revenue
Service ruling or case law that is dispositive of these
issues, Cravath, Swaine & Moore is of the opinion that,
under existing U.S. Federal income tax laws, including
recently enacted legislation, an acquisition of
Destinations by Hilton following the Distributions
should not adversely affect the tax-free status of the
Distributions. This opinion is based on an
interpretation of tax laws, including recently enacted
legislation, rather than on binding precedent, and
accordingly is not free from doubt.
Benefits to Other Constituents. In addition to
the economic benefits to stockholders, the Comprehensive
Plan, by creating three healthy independent public
<PAGE>
companies, is expected to further the interests of the
Company's employees, creditors, customers and the
economies and communities in which the Company operates.
Why You Should Vote "FOR" The Board's Nominees for Director
and "AGAINST" the Hilton Proposals
The Board has unanimously concluded that the Hilton Transaction,
including the Hilton Offer, is inadequate and not in the best
interests of stockholders and the Company and that, in light of
the prospects of each of the Company's businesses, the
attractiveness of the Comprehensive Plan and the other factors
described herein, the Company's and its stockholders' interests
would be best served if the Company were to remain independent
and pursue the Comprehensive Plan. In making its determination,
the Board considered numerous factors, including, without
limitation, the following:
(i) the Board's belief, based on the factors further described
below and other considerations, that the Hilton Transaction,
including the Hilton Offer, does not reflect the inherent value
of ITT;
(ii) the Board's familiarity with, and management's review of,
ITT's businesses, financial condition, results of operations,
business strategy and future prospects, including the nature of
the markets in which ITT operates and ITT's position in such
markets;
(iii) a presentation by Goldman, Sachs & Co. ("Goldman Sachs")
and Lazard Freres & Co. LLC ("Lazard Freres"), financial advisors
to ITT, concerning ITT, Hilton and the financial aspects of the
Hilton Transaction, and the opinions of Goldman Sachs and Lazard
Freres to the effect that, as of August 14, 1997, the
consideration to be received by stockholders of ITT pursuant to
the Hilton Transaction, including the Hilton Offer, is
inadequate; such opinions were expressed after review of many of
the factors referred to herein and various financial criteria
used in assessing an offer, and were based on various assumptions
and subject to various limitations, which were reviewed for the
Board as part of the presentation of Goldman Sachs and Lazard
Freres;
(iv) the Board's continued belief that, in light of the prospects
of each of ITT's businesses, the pursuit of the Comprehensive
Plan and the successful implementation by the three companies of
their long-term strategic plans will produce greater value for
the stockholders of ITT and greater benefits for ITT's employees,
creditors, customers, and the economies and communities in which
ITT operates than the Hilton Transaction, including the Hilton
Offer; in that regard, the ITT Board noted that the $70 per share
of ITT Common Stock offered by ITT in the Stock Tender Offer and
offered by Hilton in the Hilton Offer are not comparable as the
Stock Tender Offer does not involve a change in control of ITT;
(v) the potential negative impact of the involvement of HFS
Incorporated ("HFS") in the Hilton Transaction on the value of
ITT's Sheraton and Four Points hotel business, the potential
disruption of hotel management contracts and franchise
arrangements of ITT (as evidenced by communications from existing
hotel owners and franchisees opposing any plan for HFS to assume
these contracts and insisting upon contractual
"change-in-control" provisions that would be triggered by the
Hilton Transaction), and the potential for competition,
cannibalization and conflicts between Hilton properties, Ladbroke
Group plc properties and Sheraton and/or Four Points properties
following any combination of Hilton and ITT; in that regard, the
ITT Board noted the additional uncertainty as to HFS's strategy
following its announced merger with CUC International and the
continuing absence of information regarding the role of HFS in
the Hilton Transaction;
(vi) the Board's belief that an acquisition of ITT by Hilton
could have an adverse effect on the business and prospects of the
combined entity as a result of Hilton's management's lack of a
proven "track record" in growing a large chain of owned, managed
or franchised full service, international hotels;
(vii) the continuing uncertainty as to the actual value of the
Proposed Squeeze Out Merger to the stockholders of ITT, resulting
from, among other things, the lack of disclosure in the Hilton
14D-1 concerning the Proposed Squeeze Out Merger, including the
manner in which the number of shares of Hilton common stock to be
issued in the Proposed Squeeze Out Merger would be determined,
the failure of Hilton to give sufficient assurance in the Hilton
14D-1 that the Proposed Squeeze Out Merger will qualify for
tax-free "reorganization" status and the concern of the Board
about possible adverse effects on the value of an investment in
Hilton securities following any combination with ITT;
(viii) the lack of sufficient disclosure in the Hilton 14D-1
regarding the proposed financing of the Hilton Offer, and the
resulting impossibility of determining if restrictive covenants
or other conditions to such financing would have an unduly
negative impact on the ability of Hilton to maintain and/or
expand the proposed combined business and the effect of the
Hilton Transaction on Hilton's capital structure and credit
ratings; in that regard, the Board noted that Hilton has
consummated two debt offerings since the commencement of the
Hilton Offer that expressly require Hilton to pay increased
interest rates on such indebtedness in the event that Hilton's
credit ratings fall below specified thresholds as a result of
significant acquisitions;
<PAGE>
(ix) the fact that, as a result of uncertainties about the actual
value of the Proposed Squeeze Out Merger and the merits of a
longer-term investment in Hilton, the Hilton Transaction is
structured as a two-tiered, front-end loaded transaction that is
intended to coerce stockholders to tender their shares of ITT
Common Stock into the Hilton Offer to avoid receiving in the
Proposed Squeeze Out Merger shares of Hilton common stock that
may or may not have a value of $70 per share;
(x) the Board's concern about the press reports of investigations
taking place into possible activities of a key Hilton executive
and concern about senior gaming executives' possible prior
activities in several gaming jurisdictions;
(xi) the Board's belief that there are undue economic
concentration and other gaming law issues relating to a
combination of ITT and Hilton, which create uncertainty as to
whether the conditions of the Hilton Offer will be met; in that
regard, the Board noted that the Hilton Offer is conditioned on
the receipt of all material consents, approvals, orders or
authorizations of, or registrations, declarations or filings
with, casino gaming regulatory authorities with jurisdiction in
respect of ITT's active gaming operations required or necessary
in connection with the Hilton Offer and the Proposed Squeeze Out
Merger;
(xii) the disruptive effect the Hilton Offer and the Proposed
Squeeze Out Merger are having on ITT;
(xiii) the commitment of the Board and the management of ITT to
protecting the best interests of the stockholders of ITT and
enhancing the value of ITT;
(xiv) the Board's belief that consummation of the Hilton
Transaction would result in a change in control of ITT
Educational under the regulations of the U.S. Department of
Education, the state educational authorities that regulate ITT
Educational's business and the accrediting commissions that
accredit each ITT Technical Institute; that an unapproved change
of control of ITT Educational could result in the suspension of
access to certain Federal financial aid funds for ITT Educational
and its students and could result in the loss of accreditation
for individual ITT Technical Institutes; and that any of the
foregoing could result in a material adverse change in the
business, financial condition and results of operations of ITT
Educational and thus could materially adversely affect students
at ITT Technical Institutes, ITT Educational's public
stockholders and ITT; in that regard, the ITT Board noted the
absence of an express condition in the Hilton Offer with respect
to obtaining required approvals from educational regulatory
authorities and the apparent absence of formal efforts on the
part of Hilton to apply for and obtain such approvals; and
(xv) the trading performance of ITT Common Stock following the
Hilton Offer.
Under ITT's By-laws, as in effect since ITT was spun off from its
predecessor, the confidential voting procedures that are used for
most meetings of stockholders will not apply to the Annual
Meeting because there is an opposing solicitation with respect to
the election or removal of directors.
Your Board believes Hilton's goal is to acquire the Company at
the lowest possible cost to Hilton and at the lowest possible
price for the Company's stockholders. This is inconsistent with
your interests as stockholders of the Company.
Voting Procedures
The Board has fixed the close of business on October 1, 1997 as
the record date (the "Record Date") for determining the
stockholders entitled to notice of, and to vote at, the Annual
Meeting. On the Record Date, there were shares of Common Stock
outstanding. The holders of the Common Stock are entitled to one
vote per Share on each matter submitted to a vote at the Annual
Meeting. Stockholders do not have the right to cumulate votes in
the election of directors. All such Shares entitled to vote at
the Annual Meeting are referred to herein as "Record Shares." The
presence in person or by proxy of stockholders holding a majority
of the Record Shares will constitute a quorum for the transaction
of business at the Annual Meeting. Shares represented by proxies
that are marked "abstain" will be counted as Record Shares
present for purposes of determining the presence of a quorum on
all matters. Proxies relating to "street name" shares that are
voted by brokers on some but not all of the matters will be
treated as Record Shares present for purposes of determining the
presence of a quorum on all matters, but they will not be treated
as shares entitled to vote at the Annual Meeting on those matters
as to which authority to vote is withheld by the broker ("broker
non-votes").
Whether or not you plan to attend the meeting, you are urged to
vote by submitting the blue proxy card. Duly executed and
unrevoked proxies received by the Company prior to the Annual
Meeting will be voted in accordance with the stockholder's
specifications marked thereon. If no specifications are marked
thereon, the blue proxies distributed by the Board will be voted
FOR the election of the Board's nominees and FOR the ratification
of the appointment of Arthur Andersen LLP as independent public
accountants and AGAINST the Hilton Proposals. Any stockholder
giving a proxy may revoke it at any time prior to voting at the
Annual Meeting by filing with the Secretary of ITT a duly
executed revocation, by submitting a later-dated proxy with
respect to the same shares or by attending the Annual
<PAGE>
Meeting and voting in person (although attendance at the Annual
Meeting will not in and of itself constitute a revocation of your
proxy).
A stockholder may, with respect to the election of directors, (i)
vote for the election of all eleven director nominees proposed by
the Board, (ii) withhold authority to vote for all such director
nominees or (iii) withhold authority to vote for any of such
director nominees by so indicating in the appropriate space on
the proxy. Stockholders who have received Hilton's proxy or who
attend the Annual Meeting will also have each of the foregoing
options in respect of the Hilton Nominees. The By-laws provide
that at each meeting of stockholders at which a quorum is
present, directors shall be elected by a plurality of votes cast
by stockholders holding shares of stock of the Company entitled
to vote for the election of directors. The eleven nominees
receiving the highest vote totals will be elected as directors of
the Company. Consequently, votes that are withheld in the
election of directors and broker non-votes will have no effect on
the election. Withholding authority to vote for the Hilton
Nominees on the white Hilton proxy card is not the same as voting
"FOR" the Board's nominees. The only way to vote by proxy "FOR"
the Board's nominees is to complete and return the blue proxy
card.
With respect to the other items submitted for stockholder
approval, a stockholder may vote for or against such matters or
abstain from voting. Pursuant to the By-laws, (i) approval of the
Hilton Sale Proposal requires the affirmative vote of a majority
in voting power of the stockholders present in person or by proxy
and entitled to vote at the Annual Meeting (assuming a quorum is
present); (ii) approval of the Hilton By-law Repeal Proposal
requires the affirmative vote of the holders of at least a
majority of the Record Shares; and (iii) each of the other items
requires the affirmative vote of a majority in voting power of
the stockholders present in person or by proxy and entitled to
vote at the Annual Meeting (assuming a quorum is present).
Consequently, an abstention or a broker non-vote on the Hilton
By-law Repeal Proposal will have the effect of a vote against the
Hilton By-law Repeal Proposal. An abstention will have no effect
on the Hilton Sale Proposal or with respect to the ratification
of Arthur Andersen LLP, and, because shares held by brokers will
not be considered entitled to vote on matters as to which the
brokers withhold authority, a broker non-vote will similarly have
no effect on such vote.
With respect to the other items submitted for stockholder
approval, a stockholder may vote for or against such matters or
abstain from voting.
You may withhold authority from the proxies named in the enclosed
blue proxy card to vote your shares in favor of an adjournment of
the Annual Meeting. If you do not withhold such authority, the
proxies named in the enclosed blue proxy card may, at the
direction of your Board, vote to adjourn the Annual Meeting to
another time or place for the purpose, among other things, of
soliciting additional proxies.
The accompanying blue proxy represents all of the shares you are
entitled to vote at the meeting. If you are a participant in the
ITT 401(k) Retirement Savings Plan or a savings plan for hourly
employees, the trustee under the plan will provide you with a
proxy representing the shares you are entitled to vote under the
plan.
The Board has appointed to act as inspectors of election
at the Annual Meeting.
Certain Litigation
On January 27, 1997, a complaint (the "Hilton Complaint")
captioned Hilton Hotels Corporation and HLT Corporation v. ITT
Corporation was filed against the Company in the U.S. District
Court for the District of Nevada (the "Court"). A description of
certain proceedings in connection with this litigation follows.
On February 26, 1997, Hilton filed a motion (the "Hilton Annual
Meeting Motion") for a preliminary injunction seeking to require
the Company to hold its 1997 annual meeting of stockholders in
May 1997. On March 13, 1997, the Company filed a memorandum in
opposition to Hilton's motion. On March 25, 1997, Hilton filed a
reply memorandum in response to the Company's memorandum in
opposition and on April 21, 1997, the Court issued an order
denying the Hilton Annual Meeting Motion. Hilton appealed the
Court's denial of the Hilton Annual Meeting Motion to the United
States Court of Appeals for the Ninth Circuit. On June 19, 1997,
the Court of Appeals issued an order affirming the Court's denial
of the Hilton Annual Meeting Motion.
On July 16, 1997, the Company filed a complaint in the Court
seeking, among other relief, a declaratory judgment that Hilton
cannot show that, in approving the Comprehensive Plan, the Board
acted outside its powers or failed to exercise its powers in good
faith with a view to the interests of the Company. On August 5,
1997, Hilton filed in the Court answers and counterclaims to
ITT's complaint, claiming, among other things, that the Board has
breached its fiduciary duties and that the Company has made
material misstatements and omissions.
On August 25, 1997, Hilton filed a motion in the Court for
injunctive and preliminary relief seeking, among other things, to
enjoin the Company from proceeding with the Comprehensive Plan.
On August 27, the Court set a hearing date for Hilton's
preliminary injunction motion of September 29, 1997. On September
29, 1997, the Court ruled that the
<PAGE>
Company may not complete the Comprehensive Plan before holding an
annual meeting where Hilton has an opportunity to nominate a
slate of directors.
Certain Regulatory Issues
Several of ITT's businesses, including its casino gaming business
and its ownership of an interest in WBIS+, are subject to
detailed regulatory requirements, including requirements that
various governmental agencies review, and give advance approval
of, an individual's qualifications as a director and/or a change
of control of such business. Based on advice of counsel, the
Board believes that a Hilton Nominee could not take office
legally until he or she had been approved as an ITT director by
the New Jersey gaming authorities and that the Hilton Offer could
not be consummated until Hilton's acquisition of control of ITT
had been approved by the Federal Communications Commission. As of
the date of this proxy statement, none of the Hilton Nominees or
Hilton's acquisition of control of ITT has been approved by any
of these regulatory agencies, and ITT understands it is uncertain
whether such approvals, if given at all, will be obtained prior
to the scheduled date for the Annual Meeting. The Company's
By-laws provide that each director shall hold office until the
next annual meeting of stockholders and until his or her
successor is elected and qualified. Any Hilton Nominee elected at
the Annual Meeting will not take office until all necessary
regulatory approvals are obtained and the incumbent directors
will continue to serve until that time.
Board of Directors
The Board of Directors is responsible for establishing broad
corporate policies and for overseeing the overall performance of
ITT. The Board reviews significant developments affecting ITT and
acts on other matters requiring Board approval.
Bette B. Anderson, Rand V. Araskog, Nolan D. Archibald, Robert A.
Bowman, Robert A. Burnett, Paul G. Kirk, Jr., Edward C. Meyer,
Benjamin F. Payton, Vin Weber, Margita E. White and Kendrick R.
Wilson III are currently directors of ITT. During 1996, there were
eight meetings of the Board of Directors.
The standing committees of the Board are the Audit, Capital,
Compensation and Personnel, Corporate Governance and Legal
Affairs, Executive and Policy, Gaming Audit, Nominating and Public
Affairs Committees.
The Audit Committee recommends the selection of independent
auditors for the Company, confirms the scope of audits to be
performed by such auditors, reviews audit results and internal
accounting and control procedures and policies, and reviews the
fees paid to the Company's independent auditors. The Committee
reviews and recommends approval of the audited financial
statements of the Company and the annual report to shareholders.
It also reviews the expense accounts of senior executives. The
Committee held five meeting during 1996. The members of the Audit
Committee are: Bette B. Anderson, Paul G. Kirk, Jr., Edward C.
Meyer, Benjamin F. Payton, Vin Weber and Kendrick R. Wilson III.
The Capital Committee is responsible for maximizing the effective
use of the assets of the Company and its subsidiaries and for
reviewing capital expenditures and appropriations. The Committee
held six meetings during 1996. The members of the Capital
Committee are: Bette B. Anderson, Rand V. Araskog, Nolan D.
Archibald, Robert A. Bowman, Robert A. Burnett, Paul G. Kirk, Jr.,
Edward C. Meyer, Benjamin F. Payton, Vin Weber, Margita E. White
and Kendrick R. Wilson III.
The Compensation and Personnel Committee, which is comprised
entirely of non-employee directors, oversees the compensation and
benefits of employees, evaluates management performance and
establishes executive compensation. In the performance of its
functions, the Committee has access to independent compensation
counsel. The Committee held seven meetings during 1996. The
members of the Compensation and Personnel Committee are: Bette B.
Anderson, Nolan D. Archibald, Robert A. Burnett, Paul G. Kirk,
Jr., Edward C. Meyer and Margita E. White.
The Corporate Governance and Legal Affairs Committee reviews and
considers major claims and litigation, and legal, regulatory and
related governmental policy matters affecting the Company and its
subsidiaries. The Committee reviews and approves management
policies and programs relating to compliance with legal and
regulatory requirements, business ethics and environmental
matters. The Committee held four meetings during 1996. The members
of the Corporate Governance and Legal Affairs Committee are: Bette
B. Anderson, Robert A. Burnett, Edward C. Meyer, Benjamin F.
Payton, Vin Weber, Margita E. White and Kendrick R. Wilson III.
The Executive and Policy Committee exercises the powers of the
Board in the management of the business and affairs of the Company
in the intervals between meetings of the Board. The Committee
reviews the long-range corporate strategies formulated by senior
management and the non-employee directors meet in executive
session to review the overall performance of the chief executive,
particularly with respect to the Company's long-range strategies.
The Committee held eight meetings during 1996. The members of the
Executive and Policy Committee are: Bette B. Anderson, Rand V.
Araskog, Nolan D. Archibald, Robert A. Burnett,
<PAGE>
Paul G. Kirk, Jr., Edward C. Meyer, Benjamin F. Payton, Vin Weber,
Margita E. White and Kendrick R. Wilson III.
The Gaming Audit Committee reviews audit results and internal
accounting, control and surveillance procedures and policies
employed in connection with the Company's casino gaming
activities. Pursuant to the requirements of certain gaming laws,
the employees primarily responsible for internal accounting and
internal surveillance at the Company's casinos report directly to
the Gaming Audit Committee. The Committee held four meetings
during 1996. The members of the Gaming Audit Committee are:
Robert A. Bowman, Benjamin F.
Payton and Margita E. White.
The Nominating Committee makes recommendations to the Board
concerning the organization, size and composition of the Board
and its Committees, proposes nominees for election to the Board
and its Committees and considers the qualifications, compensation
and retirement of directors. The Committee held three meetings
during 1996. The members of the Nominating Committee are: Bette
B. Anderson, Nolan D. Archibald, Edward C. Meyer and Benjamin F.
Payton.
The Nominating Committee will consider recommendations for
director nominees that are submitted by shareholders in writing
to the Secretary of ITT. The By-laws contain provisions relating
to nominations for director at any stockholders meeting.
The Public Affairs Committee reviews and defines the Company's
social responsibilities, including issues of significance to the
Company and to its stockholders and employees. The Committee held
four meetings during 1996. The members of the Public Affairs
Committee are: Robert A. Burnett, Paul G. Kirk, Jr., Benjamin F.
Payton, Vin Weber and Margita E. White.
There are currently 11 directors serving on the Board, all of
whom are nominees for election. If all 11 nominees for director
are elected at the Annual Meeting, the Board will consist of nine
directors who are not officers or employees of the Company or its
subsidiaries and two directors, Rand V. Araskog and Robert A.
Bowman, who are officers of the Company.
Directors' Retirement Policy
The Board has adopted a retirement policy which provides that (i)
no person may be nominated for election or reelection as a
non-employee director after reaching age 72 and (ii) no employee
of ITT or of any of its subsidiaries (other than an employee who
has served as chief executive of ITT) may be nominated for
election or reelection as a director after reaching age 65,
unless there has been a specific waiver by the Board of these age
requirements.
Directors' Compensation
Mr. Araskog and Mr. Bowman are not compensated for service on the
Board or any Committee of the Board. Non-employee directors
receive a fee of $1,000 for each meeting of the Board of
Directors attended and a $1,000 fee for each Committee meeting
attended. Members of the Board of Directors, except for Mr.
Araskog and Mr. Bowman, receive an annual retainer fee of $48,000
payable solely in restricted shares of Common Stock. See
"Restricted Stock Plan for Non-Employee Directors." Directors are
reimbursed for travel expenses incurred on behalf of the Company.
The non-employee directors of the Company who also serve on the
Board of Directors of ITT Educational receive an annual retainer
fee of $18,000 and an attendance fee of $750 for each meeting of
the Board of Directors of ITT Educational and an attendance fee
of $500 for each ITT Educational Committee meeting attended.
The Company maintains an unfunded retirement plan to provide
benefits accrued as of December 19, 1995 for its non-employee
directors who were directors of Old ITT on December 18, 1995. No
future benefits are accruing under the plan. The benefits are
payable upon retirement from the Board at or after age 65 after
completing at least five years of service on the Board, counting
service on the Board of Directors of Old ITT. Under the plan,
directors may indicate a preference, subject to certain
conditions, to receive any accrued benefit in the form of a single
(discounted) lump sum payment immediately payable upon such
director's retirement. The Company has agreed to pay the affected
directors, Mrs. Anderson, Mr. Archibald, Mr. Burnett, Mr. Kirk,
Gen. Meyer, Dr. Payton and Mrs. White, accrued benefits due them
which presently have a total value of $1,431,000 in the aggregate.
Non-employee directors may participate in a group life insurance
plan that has been established for their benefit. The plan
provides $100,000 of non-contributory group life insurance to
participating non-employee directors during their service on the
Board.
The non-employee directors are covered under a non-contributory
group accidental death and dismemberment program which provides
each of them $750,000 of coverage during their service on the
Board. Additional benefits also may be purchased.
Restricted Stock Plan for Non-Employee Directors
In 1995, the Board adopted the 1996 Restricted Stock Plan for the
Non-Employee Directors (the "1996 Non-Employee Directors Plan").
The 1996 Non-Employee Directors Plan was
<PAGE>
designed to further the Company's objectives of attracting and
retaining individuals of ability as directors and providing the
directors with a closer identity with the interests of the ITT
stockholders.
Directors who are not employees of the Company or any of its
subsidiaries automatically participate in the 1996 Non-Employee
Directors Plan. There are presently nine directors who are
eligible to participate in the 1996 Non-Employee Directors Plan.
The plan is administered by the Compensation and Personnel
Committee of the Board. The Committee has the responsibility of
interpreting the plan and establishing the rules appropriate for
the administration of the plan.
Under the 1996 Non-Employee Directors Plan, grants of restricted
stock will be made automatically on the date of each Annual
Meeting of Stockholders to each non-employee director elected at
the meeting or continuing in office following the meeting. The
amount of the award shall equal (and be in lieu of) the annual
retainer in effect for the calendar year within which the award
date falls, divided by the fair market value of Common Stock.
"Annual retainer" is defined as the amount payable to a director
for service on the Board during the calendar year and does not
include meeting attendance fees. The annual retainer is presently
set at $48,000. "Fair market value" is defined as the average of
the high and low sales price per share of Common Stock on the
date of the Annual Meeting, as reported on the New York Stock
Exchange Composite Tape. A total of 120,000 shares are reserved
for issuance under the 1996 Non-Employee Directors Plan. The
shares to be issued may be treasury shares or newly issued shares
of Common Stock. The shares of Common Stock that are granted
under the 1996 Non-Employee Directors Plan are held in escrow by
the Company during the restriction period. The restriction period
commences on the grant date and ends on the earliest of (i) the
fifth anniversary of the grant date, (ii) upon retirement at age
72, (iii) upon a "change of control" (as defined) of the Company,
(iv) death, (v) the onset of disability or (vi) resignation in
certain cases of ill health, relocation or entering into any
governmental, diplomatic or other service or employment or under
circumstances which, in the opinion of outside counsel, could
reasonably be expected to result in a conflict with law or public
policy. Except as provided above, any resignation from the Board
within the restriction period will result in forfeiture of the
shares. Shares of Common Stock granted to a director under the
1996 Non-Employee Directors Plan may not be sold, assigned,
transferred, pledged or otherwise disposed of during the
restriction period. Until such risk of forfeiture lapses or the
shares are forfeited, a director will have the right to vote and
to receive dividends on the shares granted under the 1996 Non-
Employee Directors Plan.
The 1996 Non-Employee Directors Plan became effective as of
December 19, 1995 and was scheduled to terminate on December 31,
2005. Grants of restricted stock made prior to the termination of
the plan may vest following such termination in accordance with
their terms and the discontinuance of the 1996 Non-Employee
Directors Plan will not impair a director's right under a
restricted stock award previously granted without his or her
consent.
During 1996, 7,165 shares of Restricted Stock were granted to
non-employee directors under the 1996 Non-Employee Directors
Plan.
Item No. 1
Election of Directors
At the Annual Meeting, 11 directors are to be elected to hold
office until the next Annual Meeting of Stockholders and until
their successors are elected and qualified. If elected, the
Board's nominees will, subject to their duties to the Company's
stockholders, implement the Comprehensive Plan. Unless directed
to the contrary, the Shares represented by blue proxies will be
voted for the election of all 11 nominees.
The Board has no reason to believe that any of its nominees will
be unable to serve as a director. If for any reason any of its
nominees should become unable to serve, the Shares represented by
valid blue proxies will be voted for the election of such other
person as the Board may recommend or the Board may reduce the
number of directors to eliminate the vacancy.
THE BOARD STRONGLY RECOMMENDS THAT YOU VOTE "FOR" THE BOARD'S
NOMINEES AS DIRECTORS OF THE COMPANY.
Hilton is seeking the election of a slate of directors that is
committed to supporting Hilton's hostile takeover attempt. The
Board believes that the election of Hilton's handpicked
representatives to the Company's Board would conflict with the
best interests of the stockholders. The Board opposes the Hilton
Nominees for several reasons. First, the Board, with the advice
of the Company's financial advisors, Lazard Freres and Goldman
Sachs, has determined that the Hilton Transaction, including the
Hilton Offer, is inadequate. The Board also determined that, in
light of the prospects of each of the Company's businesses, the
attractiveness of the Comprehensive Plan and the other factors
described herein, the Company's and its stockholders' interests
would be best served if the Company were to remain independent
and pursue the Comprehensive Plan. The Board believes the Hilton
Nominees, who have pledged to support the sale of the Company to
Hilton and, therefore, presumably have determined that $70 is an
adequate price for the Common Stock, would be hindered in
objectively considering opportunities other than selling the
Company
<PAGE>
at $70 per Share. Hilton officers have testified that the Hilton
Nominees are not expected to seek alternative offers for ITT or
to negotiate a higher price from Hilton for the Hilton Offer. In
addition, the Company and Hilton are fierce competitors. The
Board believes that installing directors on the Board that are
loyal to Hilton and its takeover attempt may jeopardize the
confidentiality of the Company's business plans and seriously
compromise the business and prospects of the Company. As
described under "Certain Regulatory Issues" above, counsel to the
Company has advised that a Hilton Nominee, even if elected, could
not take office until certain advance regulatory approvals are
given. Pending receipt of such approvals, the incumbent directors
would continue to serve. The Board believes that the uncertainty
that would exist during the time after an Annual Meeting where
Hilton Nominees had been elected but before they could take
office could potentially be extremely damaging to ITT and your
investment in ITT.
ITT was formed under the laws of the State of Nevada in June 1995
as a wholly owned subsidiary of a Delaware corporation known as
ITT Corporation (referred to herein as "Old ITT"). On December
19, 1995, Old ITT distributed (the "1995 Distribution") to its
stockholders all of the shares of common stock of ITT. Old ITT
has been reincorporated in Indiana and has changed its name to
ITT Industries, Inc. From the time of its formation until
December 19, 1995, Robert A. Bowman was the sole director of ITT.
A brief summary of each of the Board's nominee's principal
occupation, business affiliations and other information follows:
BETTE B. ANDERSON
Principal occupation--
Vice Chairman of Kelly, Anderson, Pethick &
Associates, Inc.,
Consultants
Director since 1995
(Director of Old ITT 1981-1995)
Mrs. Anderson, 68, joined Kelly, Anderson, Pethick & Associates,
Inc., a Washington-based management firm, in 1990, was elected
president in 1991 and was elected Vice Chairman in 1995. She had
previously been executive vice president of the firm. Mrs.
Anderson was formerly a partner in the public affairs company of
Anderson, Benjamin, Read & Haney. She was Undersecretary of the
Treasury from 1977 to 1981. Mrs. Anderson was affiliated for 27
years with the Citizens and Southern National Bank of Savannah,
having served as a vice president until she assumed the Treasury
post. Mrs. Anderson is a director of ITT Educational, a
subsidiary of ITT, The Hartford Financial Services Group, Inc.,
American Banknote Corp., United Payors & United Providers Inc.,
the Miller Foundation and the University of Virginia.
RAND V. ARASKOG
Principal occupation--
Chairman and Chief Executive of ITT
Director since 1995
(Director of Old ITT 1977-1995)
Mr. Araskog, 65, became chairman and chief executive of ITT in
December 1995. In December 1996, Mr. Araskog became chairman of
ITT Sheraton Corporation and Caesars World, Inc. Prior thereto,
since 1966, he served with Old ITT as chief executive from 1979,
chairman from 1980 and president from 1991. He is a director of
ITT Sheraton Corporation, Caesars World, Inc. and ITT Educational,
each of which is a subsidiary of ITT. Mr. Araskog is also a
director of Alcatel Alsthom of France, Dow Jones & Company, Inc.,
The Hartford Financial Services Group, Inc., ITT Industries, Inc.,
Rayonier Inc. and Shell Oil Company.
NOLAN D. ARCHIBALD
Principal occupation--
Chairman, President and
Chief Executive Officer of
The Black & Decker Corporation,
Consumer and Commercial
Products Company
Director since 1995
(Director of Old ITT 1986-1988 and 1991-1995)
Mr. Archibald, 54, joined Black & Decker in 1985 as president and
chief operating officer and since that time has been elected
chief executive officer and chairman. Prior to joining Black &
Decker, he was senior vice president and president of the
Consumer and Commercial Products Group of the Beatrice Companies,
Inc. and held various executive and marketing positions with the
Beatrice Companies, Inc. during the period 1977 to 1985.
Mr. Archibald is a director of Brunswick Corporation.
<PAGE>
ROBERT A. BOWMAN
Principal occupation--
President and Chief Operating
Officer of ITT
Director since 1995
Mr. Bowman, 42, became president and chief operating officer of
ITT in December 1995. Prior thereto, he served with Old ITT as
executive vice president and chief financial officer since
September 1992. From April 1991 to September 1992, Mr. Bowman
served as executive vice president and chief financial officer of
ITT Sheraton Corporation. Mr. Bowman was Treasurer of the State
of Michigan from 1983 until December 1990. He is also a director
of ITT Sheraton Corporation, Caesars World, Inc. and ITT
Educational, each of which is a subsidiary of ITT, a trustee of
the Rockefeller Foundation and a member of the National Advisory
Board of Chase Manhattan Corporation and the Wharton Graduate
Executive Board.
ROBERT A. BURNETT
Principal occupation--
Chairman and CEO (Retired)
of Meredith Corporation,
Diversified Media Company
Director since 1995
(Director of Old ITT 1985-1995)
Mr. Burnett, 70, served as chairman of Meredith Corporation from
1988 until his retirement in 1992. He served as president and
chief executive officer from 1977 and relinquished the latter
office in 1989. Mr. Burnett is a director of The Hartford
Financial Services Group, Inc., ITT Industries, Inc., Meredith
Corporation, Whirlpool Corporation and MidAmerican Energy Holdings
Corp.
PAUL G. KIRK, JR.
Principal occupation--
of Counsel to
Sullivan & Worcester,
Law Firm
Director since 1995
(Director of Old ITT 1989-1995)
Mr. Kirk, 59, became a partner in the law firm of Sullivan &
Worcester in 1977 and is presently of Counsel to the firm. He
served as chairman of the Democratic National Committee from 1985
to 1989 and as treasurer from 1983 to 1985. Following his
resignation in 1989 as chairman of the Democratic National
Committee, he returned to Sullivan & Worcester as a partner in
general corporate practice at the firm's Boston and Washington
offices. Mr. Kirk is a director of Kirk-Sheppard & Co., Inc., of
which he also is chairman and treasurer. He is also a director of
Bradley Real Estate Corporation, The Hartford Financial Services
Group, Inc. and Rayonier Inc.
EDWARD C. MEYER
Principal occupation--
Chairman of Mitretek Systems,
Professional and Technical Services Provider
Director since 1995
(Director of Old ITT 1986-1995)
General Meyer, 68, retired in 1983 as chief of staff of the
United States Army. He is a director of FMC Corporation and its
joint venture company in Turkey, Savunma Sanayii A.S., Aegon USA,
the Brown Group and GRC International. General Meyer is also a
director of ITT Industries, Inc. He is a managing partner of
Cilluffo Associates Limited Partnership, which owns approximately
20% of GRC International.
BENJAMIN F. PAYTON
Principal occupation--
President of Tuskegee
University
Director since 1995
(Director of Old ITT 1987-1995)
Dr. Payton, 64, has been president of Tuskegee University in
Alabama since 1981. Previously he had served as president of
Benedict College and as program officer, education and public
policy, of the Ford Foundation. Dr. Payton is a director of
Amsouth Bancorporation, the Liberty Corporation, Praxair
Corporation, SONAT Inc., Morrisons, Inc., Ruby Tuesday, Inc., the
Southern Regional Council and the Alabama Shakespeare Festival.
<PAGE>
VIN WEBER
Principal occupation--
Partner at Clark & Weinstock, Inc.,
Public Relations Firm
Director since February 1996
Mr. Weber, 45, is a partner at Clark & Weinstock, Inc., a
Washington-based public relations firm. He is vice chairman and
co-founder of Empower America, a public interest group. He is also
a senior fellow at the University of Minnesota's Humphrey
Institute of Public Affairs and co-director of the Institute's
Policy Forum. Mr. Weber served in the U.S. House of
Representatives from 1980 to 1992, representing Minnesota's 2nd
district. He is a director of Department 56, Inc., ITT
Educational, a subsidiary of ITT, Mark Centers Trust, Inc.,
OneLink Communications, Inc. (formerly MarketLink, Inc.) and TCF
Financial Corporation.
MARGITA E. WHITE
Principal occupation--
President of the Association
for Maximum Service
Television, Inc.,
Television Trade Association
Director since 1995
(Director of Old ITT 1980-1995)
Mrs. White, 60, has been President of the Association for Maximum
Service Television, Inc. since 1987. She served in the federal
government as a member of the Federal Communications Commission
and as a director of the White House Office of Communications,
Assistant Press Secretary to President Ford, and Assistant
Director of the U.S. Information Agency. She is a director of ITT
Educational, The Growth Fund of Washington, Leitch Technology
Corp., Washington Mutual Investors Fund and a trustee of Mitretek
Systems.
KENDRICK R. WILSON III
Principal occupation--
Managing Director of
Lazard Freres & Co. LLC,
Investment Bankers
Director since February 1996
Mr. Wilson, 50, joined Lazard Freres & Co. LLC in 1989 after
serving as founder and president of Ranieri Wilson & Co., a
merchant banking firm. Prior thereto, he was senior executive vice
president and a director of E.F. Hutton & Co. and managing
director in the financial institutions group of Salomon Brothers
Inc. Mr. Wilson is a director of American Buildings Company, Inc.,
American Marine Holdings, Inc., Bank United and Meigher
Communications, Inc. He is also a trustee of BlackRock Asset
Investors.
Item No. 2
Ratification of the Reappointment
of Independent Auditors
In accordance with the recommendation of the Audit Committee, the
Board has reappointed Arthur Andersen LLP as independent auditors
of the Company for 1997, subject to ratification by the
stockholders. If the stockholders do not ratify the reappointment
of Arthur Andersen LLP, the selection of other independent
auditors will be considered by the Audit Committee and the Board.
Arthur Andersen LLP served as independent auditors of Old ITT and
most of its subsidiaries for many years, and its long-term
knowledge of ITT has enabled it to carry out its audits with
effectiveness and efficiency. In keeping with the established
policy of Arthur Andersen LLP, partners and employees of the firm
engaged in auditing ITT are periodically rotated, thus giving ITT
the benefit of new expertise and experience. Arthur Andersen LLP
personnel regularly attend meetings of the Audit Committee.
Arthur Andersen LLP's fees for the 1996 audit of ITT totaled
approximately $ million.
Representatives of Arthur Andersen LLP will attend the Annual
Meeting, will have the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate
questions.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
REAPPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS OF
THE COMPANY.
<PAGE>
Item No. 3
Hilton Sale Proposal
"RESOLVED, that the stockholders of ITT Corporation ("ITT") urge
the ITT Board of Directors to arrange for the sale of ITT to
Hilton Hotels Corporation ("Hilton") or to any bidder offering a
higher price, and if there be no higher bidder, to take all
necessary action to permit the tender offer of Hilton and HLT
Corporation ("HLT") and the proposed merger of ITT with Hilton,
HLT or a subsidiary of Hilton to proceed, including, without
limitation, action to satisfy the Rights Condition, the Control
Share Condition and the Business Combination Condition set forth
in HLT's Offer to Purchase dated January 31, 1997 (as such offer
may be amended)."
THE BOARD STRONGLY RECOMMENDS THAT YOU VOTE "AGAINST" THE HILTON
SALE PROPOSAL.
The Board recognizes that a decision to end the corporate
independence of ITT would be one of the most significant actions
the Board could take. The directors would approve such a
transaction only if they concluded it served the best interests
of ITT stockholders and the interests that are to be considered
under Nevada law. As described above, under "Why You Should Vote
'For' Your Board's Nominees for Director and 'Against' the Hilton
Proposals," in connection with its review of the unsolicited
Hilton Offer, the Board carefully considered all of these, and
the other permissible factors and determined that it would be in
the best interests of stockholders and the Company and all its
constituencies for ITT to remain independent and pursue the
Comprehensive Plan. Among the most important factors the Board
believes support this decision are the short-term and long-term
value of the Company represented by the Comprehensive Plan. The
Board believes that as a result of the ongoing implementation of
the Company's strategic plan, including the Comprehensive Plan,
this value will be reflected in the share price of the three
public company's resulting from the Comprehensive Plan, without
the need for stockholders to "cash in", as would occur with a
sale of the Company. Therefore, upon their election, the Board's
nominees for director are expected, subject to their fiduciary
duties to ITT's stockholders, to proceed with the Comprehensive
Plan.
Of course, the Directors recognize their continuing obligations
to ITT's stockholders and the need to take into account new
circumstances. The Directors will review any improvement to the
Hilton Offer and any other proposal to acquire ITT carefully and
objectively. The Board recognizes that if ITT were to receive an
acquisition proposal that fully compensated ITT's stockholders
for the short-term and long-term prospects of the Company and
provided an appropriate additional premium and that adequately
protected the other constituencies whose interests are to be
considered under Nevada law, it would be appropriate for the
Board to reconsider the desirability of ITT's continued
independence. However, the Board does not believe that Hilton's
inadequate proposal meets these standards.
If the stockholders adopt the Hilton Sale Proposal, the directors
will review their position on the Hilton Offer and take that
expression of views into account. The directors, however, believe
that under Nevada law they are obligated to make the business
judgment to sell ITT themselves and will not necessarily seek to
sell ITT even if the Hilton Sale Proposal is adopted.
Item No. 4
Hilton By-law Repeal Proposal
"RESOLVED, that each and every provision of the Amended and
Restated By-laws of ITT Corporation adopted on or after July 23,
1996 and prior to the adoption of this resolution is hereby
repealed."
THE BOARD STRONGLY RECOMMENDS THAT YOU VOTE AGAINST THE HILTON
BY-LAW REPEAL PROPOSAL.
The Company has not amended its By-laws since July 23, 1996.
Accordingly, the Hilton By-law Repeal Proposal would not cause
the repeal of any By-law of the Company existing at this time.
The effect of the Hilton By-law Repeal Proposal would be to
prevent the Company from amending the By-laws in any way prior to
the Annual Meeting, irrespective of whether such change might be
desirable. The Board believes that this limitation on its
discretion would be unwise and potentially damaging to your
interest as a stockholder. The Board also believes that the
Hilton By-law Repeal Proposal may be invalid as a matter of law
because it does not specify precisely which By-laws are being
repealed and, in effect, strips the Board of its power to amend
the By-Laws. If the Hilton By-law Repeal Proposal is approved,
the existing directors, if still in office, intend to take
appropriate action, including seeking a court order, to determine
the validity of the proposal.
ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "AGAINST"
BOTH OF THE HILTON PROPOSALS.
<PAGE>
Item No. 5
Other Matters
As of the date of this Proxy Statement, the Board has no
knowledge of any business which will be presented for
consideration at the Annual Meeting other than that described
above. As to such other business, if any, that may properly come
before the meeting, the persons named as proxies will vote in
accordance with their judgment.
Stockholder Proposals for 1998 Annual Meeting
Proposals submitted by stockholders for inclusion in the Proxy
Statement for next year's annual meeting must be received by ITT
no later than the close of business on December , 1997. Address
your proposals to Secretary, ITT Corporation, 1330 Avenue of the
Americas, New York, New York 10019-5490. Please note that
proposals must comply with all of the requirements of Rule 14a-8
under the Securities Exchange Act of 1934 as well as the
requirements set forth in the By-laws. A copy of the By-laws may
be obtained from the Secretary of ITT upon request.
Report of the Compensation
and Personnel Committee
The ITT executive compensation program is designed to attract,
reward and retain skilled executives and to provide incentives
which vary depending upon the attainment of short-term operating
performance objectives and strategic long-term performance goals.
The major objective of the long-term incentive program is to
provide ITT executives with incentives directly linked to the
creation of stockholder value. The program overall is intended to
be highly leveraged so that when performance goals are exceeded,
executives can earn better than average compensation and,
conversely, when such goals are not achieved, compensation will
be below competitive levels.
This report sets forth the executive compensation policies of the
Committee of the Board with respect to ITT's executive officers
in general and the rationale for the specific decisions affecting
the 1996 compensation of Rand V. Araskog, ITT's chief executive.
Following this report is a performance graph which compares the
cumulative return on the Company's Common Stock to the cumulative
total return of the Standard & Poor's 500 Index and the peer
index of large capitalization hotel and gaming companies
(assuming the investment of $100 in (a) the Common Stock, (b) the
Standard & Poor's 500 Index and (c) the peer index for the period
from December 20, 1995 through March 31, 1997).
The amounts of all compensation awarded to, earned by, or paid to
the chief executive officer and the other four most highly
compensated executive officers who were serving as executive
officers at the end of the 1996 fiscal year are set forth on the
Summary Compensation Table following the performance graph.
The Committee's Role
The Compensation and Personnel Committee is responsible for the
administration of the executive compensation program, and it
reviews all proposed new or amended employee benefit plans. The
Committee is currently composed of the six non-employee directors
named at the end of this report, none of whom is eligible to
participate in any of the plans which make up ITT's executive
compensation program. It is the policy of the Board to
periodically rotate the members and chairperson of the Committee
to assure that fresh points of view are part of the Committee's
deliberations.
The Committee may select consultants from nationally recognized
independent compensation and benefits consulting firms to provide
expert advice on any aspect of the ITT executive compensation
program. The Committee may request written reports or hold
private meetings with such consultants in order to get
independent opinions on compensation proposals. The Committee may
meet in executive session which is not attended by any ITT
executives or managers. The Committee regularly reports its
activities to the Executive and Policy Committee of the Board.
The Compensation Program
General. The compensation program for ITT executives presently
consists of base salary, annual incentive bonus, long-term
incentives and employee benefits. It is the intent of the
Committee that incentives based upon long-term performance should
be the major compensation component for senior executives.
Base Salary. Salaries are set and administered to reflect the
value of the job in the marketplace and individual contribution
and performance. Salaries provide a necessary element of
stability in the total pay program and, as such, are not subject
to significant variability. Salary increases are based primarily
on merit. During 1996, ITT executive salaries were evaluated in
relation to a competitive annualized merit increase guideline of
4% for expected levels of individual performance. Actual
increases can vary from the guideline depending primarily on
individual performance. The normal interval between salary
reviews for senior executives is 18 months.
Mr. Araskog's base salary was not increased during 1996.
<PAGE>
Among the other named officers, Mr. Bowman's salary was raised to
$800,000 effective August 1, 1996, an increase of $100,000 after
12 months. Mr. Weadock's annual salary was increased from
$525,000 to $600,000 on November 1, 1996 after an interval of 18
months. Mr. Boynton's annual salary was increased from $650,000
to $725,000 during 1996. Ms. Reese's annual salary was increased
from $400,000 to $460,000 effective December 1, 1996 after 12
months.
Annual Incentive Bonus. Under ITT's Annual Incentive Bonus Plan
and the ITT Corporation Annual Performance-Based Plan for
Executive Officers, the amounts of annual bonus awards are based
upon corporate financial performance for the year compared to
annual performance goals established by the Committee at the
beginning of the year. For 1996, such performance goal for ITT
was based on EBITDA. Under a leveraged performance/payout
schedule, the performance factor generated a standard bonus
adjustment factor of 113%. The calculated bonus amounts for 1996
performance for Messrs. Araskog and Bowman and for Ms. Reese are
shown in the Summary Compensation Table following this report and
were determined strictly in accordance with the above described
formula and standard bonus adjustment factor. The bonus factor
for Mr. Weadock reflects the performance measurement formula
applicable to ITT Sheraton Corporation; the bonus amount for Mr.
Boynton reflects the performance measurement formula applicable
to Caesars World, Inc. The bonus amounts paid to Messrs. Araskog,
Bowman, Weadock, and Boynton and Ms. Reese were reviewed and
approved by the Committee prior to payment.
Stock Option Awards. Stock option awards provide long-term
incentives which are directly related to the performance of ITT
Common Stock. Options generally have a 10-year term and closely
align the executive's interests with those of other stockholders.
Outstanding stock options in respect of common stock of Old ITT
were adjusted to reflect the effects of the 1995 Distribution on
December 19, 1995.
During 1996, ITT awarded stock options to the named executive
officers as shown in the table under "Option Grants on ITT Common
Stock to ITT Executives in Last Fiscal Year" below. These options
are exercisable at the earliest of the following events: (a) when
the price of the Common Stock reaches $69.85 (125% of grant
price) at which time the options will become exercisable as to
two-thirds; (b) when the price of the Common Stock reaches $78.23
(140% of the grant price) at which time the options will become
fully exercisable; or (c) the ninth anniversary of the grant or
February 6, 2005, at which time the options will become fully
exercisable. The Committee believes that the requirement for
significant stock price appreciation for senior officers' stock
option exercisability underscores the primary objective of
building stockholder value. In determining the size of option
grants, the Committee relied on surveys of competitive practice
and its assessment of each individual's performance in carrying
out ITT's strategy.
Employee Benefits. Executives also participate in ITT's
broad-based employee benefits program which includes a pension
program, a 401(k) retirement savings plan, group medical and
dental coverage, group life insurance and other benefit plans.
Further details on the pension plans in which Messrs. Araskog,
Bowman, Weadock, and Boynton and Ms. Reese participate are
provided under "Pension Plans" below.
In 1996, ITT adopted the 1997 ITT Deferred Compensation Plan.
Under this plan, executives with a base salary of $200,000 or
more may elect to defer receipt of all or a portion of their 1996
bonus. ITT will credit interest on the deferred compensation
based upon the performance of benchmark investment funds made
available under the plan and selected by the executive.
Discussion of the Committee's Policy Regarding
Qualifying Compensation for Deductibility Under
Section 162(m) of the Internal Revenue Code
Tax legislation known as the Omnibus Budget Reconciliation Act of
1993 ("OBRA") was passed by Congress and signed into law by the
President in August 1993. Under OBRA, which created Code
subsection 162(m), the allowable deduction for compensation paid
or accrued with respect to the chief executive officer and each
of the four most highly compensated executive officers of a
publicly held corporation is limited to no more than $1 million
per year for taxable years beginning on or after January 1, 1994.
Certain types of compensation are exempted from this deduction
limitation, including payments subject to: (a) the attainment of
an objective performance goal or goals; (b) an outside director
requirement; and (c) a stockholder approval requirement. Proposed
regulations issued by the Internal Revenue Service in 1993 and
1994 provided broad guidance to companies, but were not intended
to be comprehensive.
It is the policy of the Committee to establish a competitive
executive compensation program and to design and administer
incentive plans which relate rewards directly to the overall
performance of the Company and the individual executive's
specific contribution. To qualify pay for exemption from Section
162(m) as "performance-based compensation," the requirements of
OBRA and the proposed regulations generally preclude the use of
discretion in determining specific amounts of compensation.
Accordingly, base salaries are subject to the $1 million limit on
deductible compensation as are annual bonus amounts where
discretion is used to increase an executive's payment above an
amount determined strictly by an objective formula.
<PAGE>
In light of OBRA, it is the policy of the Committee to modify
where practicable the executive incentive plans so as to maximize
the tax deductibility of compensation paid to its top executive
officers. Accordingly, the ITT Corporation Annual
Performance-Based Incentive Plan for Executive Officers, as
approved by stockholders in 1996, will qualify annual bonuses
under that plan as "performance-based compensation".
The Committee believes that the overall performance of its most
senior executives cannot in all cases be reduced to a fixed
formula and that the prudent use of discretion in determining pay
levels is in the best interest of the Company and its
stockholders. Under some circumstances (other than in the context
of the ITT Corporation Annual Performance- Based Incentive Plan
for Executive Officers), the Committee's use of discretion in
determining appropriate amounts of compensation may be essential.
In those situations where discretion is available to the
Committee, compensation may not be fully deductible. The
Committee does not believe that such loss of deductibility will
have any material impact on the financial condition of the
Company.
This report is furnished by the members of the Compensation and
Personnel Committee. The members of the Compensation and
Personnel Committee are listed below.
Bette B. Anderson
Nolan D. Archibald
Robert A. Burnett
Paul G. Kirk, Jr., Chairman
Edward C. Meyer
Margita E. White
Corporate Performance Graph
The Common Stock commenced "regular way" trading on the New York
Stock Exchange on December 20, 1995, the first business day
following the 1995 Distribution.
The following graph shows the cumulative total return to
stockholders for the period from December 20, 1995 (the first
business day following the 1995 Distribution) through March 31,
1997 on an assumed investment of $100 on December 20, 1995 in
ITT, the Standard & Poor's S&P 500 Index and a peer index of
large capitalization hotel and gaming companies. The peer group
returns are weighted by market capitalization at December 20,
1995. The peer group is comprised of common stocks of the
following hotel and gaming corporations: Hilton Hotels
Corporation, Host Marriott Corporation, Marriott International,
Inc., Circus Circus Enterprises, Inc., Mirage Resorts, Inc.,
Harrah's Entertainment, Inc. and ITT (the "Peer Group"). The Peer
Group was selected to reflect ITT's current mix of hotel and
gaming businesses and ITT's current major publicly-traded
competitors.
The Common Stock traded "regular way" on the New York Stock
Exchange for only six days during 1995. In an effort to present
stockholders meaningful information to evaluate the compensation
paid to executives for the year ended December 31, 1995, the
Company's Proxy Statement for the 1996 Annual Meeting of
Stockholders included a performance graph for Old ITT for the
five fiscal years ended December 31, 1995 on an assumed
investment of $100 on December 31, 1990 in Old ITT, the Standard
& Poor's S&P 500 Index and the Standard & Poor's Conglomerate
Index. That graph assumed that the holders of the common stock of
Old ITT continued to hold the common stock of ITT, The Hartford
Financial Services Group, Inc. and ITT Industries, Inc. for the
period from December 20, 1995 through December 31, 1995. Given
the significantly different mix of ITT's businesses following the
1995 Distribution, ITT believes that the Peer Group provides a
better index against which to compare ITT's share price
performance since the date of the 1995 Distribution. Accordingly,
ITT has provided a comparison of its share price performance
since the 1995 Distribution to the Peer Group and have not
provided a comparison to the S&P Conglomerate Index (which was
discontinued in July 1996).
<TABLE>
<CAPTION>
20-Dec-95 31-Dec-95 31-Mar-96 30-Jun-96 30-Sep-96 31-Dec-96 31-Mar-97
<S> <C> <C> <C> <C> <C> <C> <C>
ITT Corporation $100 $105 $119 $131 $ 86 $ 86 $117
S&P 500 (R) $100 $102 $107 $112 $115 $125 $128
Custom Lodging/Gaming $100 $103 $128 $144 $128 $124 $123
Source: Georgeson & Company Inc.
</TABLE>
<PAGE>
Compensation of ITT Executive Officers
The following table discloses the compensation received
by ITT's Chief Executive and the four other most highly
paid executive officers for services rendered to ITT
(including compensation received from Old ITT prior to
the Distribution) for the three fiscal years ending
December 31, 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards Payouts
Other Securities Long-Term
Annual Restricted Underlying Incentive All Other
Name and Principal Compen- Stock Options Plan Compen-
Position Year Salary($) Bonus ($) sation($)(2) Awards($) (3)(#) Payouts sation(4)($)
- -------- ---- --------- --------- ------------ --------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rand V. Araskog 1996 2,000,000 2,260,000 347,268 -- 150,000 -- 422,280
Chairman and Chief 1995 2,000,000 2,330,800 251,063 2,718,750 429,971 2,625,000 449,962
Executive 1994 1,625,000 2,405,000 219,457 -- 429,971 -- 58,656
Robert A. Bowman 1996 741,667 813,600 75,117 -- 100,000 -- 25,625
President and Chief 1995 583,333 611,800 44,942 1,087,500 143,324 900,000 37,380
Operating Officer 1994 456,250 471,750 25,534 -- 143,324 -- 13,844
Peter G. Boynton (1) 1996 682,583 15,200 694,276 -- 40,000 -- 11,705
Senior Vice President of 1995 578,117 299,776 105,288 -- 59,718 -- 14,500
ITT; President and Chief 1994 -- -- -- -- -- -- --
Executive Officer of
Caesars World, Inc.
Ann N. Reese 1996 405,000 389,900 47,910 -- 40,000 -- 14,008
Executive Vice President 1995 303,571 252,300 45,369 543,750 71,662 113,600 30,018
and Chief Financial 1994 263,333 210,000 33,738 -- 71,662 -- 10,998
Officer
Daniel P. Weadock 1996 537,500 757,300 55,287 -- 40,000 -- 18,281
Senior Vice President of 1995 516,667 398,800 433,646 -- 59,718 1,280,000 44,321
ITT; President and Chief 1994 500,000 385,000 13,408 -- 83,605 -- 17,500
Executive Officer of ITT
Sheraton Corporation
</TABLE>
(1) Mr. Boynton became an executive officer of ITT following
the January 1995 acquisition of Caesars World, Inc. As a
result, the 1994 compensation paid to Mr.
Boynton by Caesars World, Inc. has not been included.
(2) Amounts shown in this column are tax reimbursement
allowances, which are intended to offset the inclusion
in taxable income of the value of certain benefits,
except that: (a) the amounts shown for Mr. Araskog also
include $164,066, $92,224 and $128,873 in 1996, 1995 and
1994, respectively, for personal benefits including tax
and financial counseling and transportation services,
(b) the amount shown for Mr. Bowman in 1996 also
includes $40,309 for personal benefits including tax and
transportation services, and (c) the amounts shown for
Mr. Boynton include $513,463 and $41,074 in 1996 and
1995, respectively, in relocation allowance, (d) the
amounts shown for Ms. Reese also include $25,602,
$22,186 and $20,973 in 1996, 1995 and 1994,
respectively, for personal benefits including tax and
transportation services, and (e) the amount shown for
Mr. Weadock in 1995 also includes $426,597 in relocation
allowance.
(3) The named executives do not hold any stock appreciation
rights in connection with the options shown above. The
options shown for years prior to 1996 are substitute
options which replaced surrendered options originally
granted by Old ITT before the 1995 Distribution.
(4) The amounts shown in this column are contributions by
the Company under the ITT 401(k) Retirement Savings Plan
and, in the case of Messrs. Araskog, Bowman, and Weadock
and Ms. Reese, the ITT Excess Savings Plan, which are
defined contribution plans. Under such plans, the
Company makes a matching contribution in an amount equal
to 50% of an employee's contribution, such matching
contribution not to exceed two and one-half percent
(2.5%) of such employee's salary. Under these plans, the
Company also makes a non-matching contribution equal to
one percent (1%) of an employee's salary. In 1995, the
Employee Stock Ownership Plan (the "ESOP") of Old ITT
was terminated and unallocated shares remaining after
the related ESOP
<PAGE>
loan was repaid were distributed among all participants.
Except in the case of Mr. Boynton, the amounts shown for
1995 also include an allocation of certain amounts as a
result of the termination of the ESOP.
In the case of Mr. Araskog, the amount also include
$353,113 and $354,156 paid in 1996 and 1995,
respectively, by the Company for premiums on a
split-dollar life insurance policy maintained jointly
for Mr. and Mrs. Araskog. The Company is entitled to be
reimbursed for its payments with respect to such policy
upon the earlier to occur of: (i) the death of Mr.
Araskog or Mrs. Araskog, whichever occurs later, and
(ii) the date on which the cash surrender value of the
policy is sufficient to repay amounts paid by ITT and
continue to sustain the policy until the year 2035,
which is expected to occur at the end of the year 2008.
In the case of Mr. Boynton, the amount shown for 1996
includes a Company-paid life insurance premium of
$8,538.
The annual salaries of Messrs. Bowman, Boynton and
Weadock, and Ms. Reese as of March 31, 1997 were
$800,000, $725,000, $600,000 and $460,000, respectively.
Option Grants on ITT Common Stock to ITT Executives in Last
Fiscal Year
The following table provides information on fiscal year 1996
grants of options to the named executives to purchase shares
of ITT Common Stock. The stock options granted to each of the
ITT executives listed below were issued in 1996.
<TABLE>
<CAPTION>
Stock Option Grants in 1996
---------------------------
Potential Realizable
Value at Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options Appreciation for
Underlying Granted to Option Term (4)
Options Employees Exercise -----------------------
Granted(1) in Price(3) Expiration 5% 10%
Name (#) 1996(2) ($/Share) Date ($) ($)
- ---- --- ------- --------- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Rand V. Araskog(5) 150,000 8.6 55.88 2/8/06 5,271,000 13,359,000
Robert A. Bowman(5) 100,000 5.7 55.88 2/8/06 3,514,000 8,906,000
Peter G. Boynton(5) 40,000 2.3 55.88 2/8/06 1,405,600 3,562,400
Ann N. Reese(5) 40,000 2.3 55.88 2/8/06 1,405,600 3,562,400
Daniel P. Weadock(5) 40,000 2.3 55.88 2/8/06 1,405,600 3,562,400
</TABLE>
(1) The numbers in this column represent options to purchase
ITT Common Stock.
(2) Percentages indicated are based on a total of 1,741,546
options granted to 457 employees during 1996.
(3) The exercise price per share is 100% of the fair market
value of a share of ITT Common Stock on the date of
grant. The exercise price may be paid in cash or in
shares of ITT Common Stock valued at their fair market
value on the date of exercise.
Options granted on February 6, 1996 at the exercise
price of $55.88 per share are not exercisable until the
trading price of ITT Common Stock equals or exceeds
$69.85 per share for five consecutive trading days at
which time two-thirds of the options will be
exercisable; when the trading price equals or exceeds
$78.23 per share for five consecutive trading days, the
options will be fully exercisable. Notwithstanding the
above, the options will be fully exercisable after
February 6, 2005, and expire February 8, 2006.
(4) At the end of the term of the options granted on
February 6, 1996, the projected price per share of ITT
Common Stock would be $91.02 and $144.94 at an assumed
appreciation rate of 5% and 10%, respectively.
(5) Securities underlying options to purchase the Common
Stock of ITT granted in 1997 for such individuals are as
follows: Mr. Araskog, 162,500 options; Mr. Bowman,
108,300 options; Mr. Weadock, 43,300 options; Mr.
Boynton, 43,300 options; and Ms. Reese, 43,300 options.
These options granted on February 4, 1997 are not
exercisable until the trading price of the Common Stock
of ITT equals or exceeds $70.94 per share for five
consecutive trading days, at which two-thirds of these
options will be exercisable. When the trading price of
the Common Stock of ITT equals or exceeds $79.45 for
five consecutive trading days, these options will be
fully exercisable.
<PAGE>
Aggregated Option Exercises in the Last Fiscal Year and
Fiscal Year End Option Value
The following table provides information on option exercises
in 1996 by the named executives and the value of each such
executive's unexercised options to acquire ITT Common Stock
at December 31, 1996.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Value of Unexercised,
Shares Underlying Unexercised In-the-Money
Acquired Value Options at Options Held at
On Exercise Realized Fiscal Year-End(#) Fiscal Year-End($)(1)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --- --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rand V. Araskog -- -- 1,251,617 150,000 6,718,105 --
Robert A. Bowman -- -- 521,653 100,000 4,357,947 --
Peter G. Boynton -- -- 59,718 40,000 -- --
Ann N. Reese -- -- 236,544 40,000 1,797,819 --
Daniel P. Weadock -- -- 322,186 40,000 3,569,868 --
</TABLE>
(1) Based on the New York Stock Exchange consolidated
trading closing price of ITT Common Stock on December
31, 1996 of $43.375.
Severance Pay Plan
Following the Hilton Offer, the Board considered the
recommendations of the Company's human resources consultants,
Towers Perrin, and reviewed industry practices concerning
change-in-control severance benefits. In view of the need to
minimize employee distraction and to retain employee loyalty
and dedication to the Company and to assure their attention
to the Company's performance pending resolution of the Hilton
Offer, the Compensation and Personnel Committee unanimously
voted, with the unanimous concurrence of the entire Board
(with management members of the Board abstaining), to revise
its previous policy concerning executive severance agreements
in order to provide severance payments to certain officers
and employees in the event of a change in control, which
severance arrangements it has determined are fair and
consistent with industry practices. At a meeting of the Board
held on February 11, 1997, upon the recommendation of the
Compensation and Personnel Committee, the Board authorized
the Company to amend its severance compensation arrangements
with such executives and managers. Each of the arrangements
is described below.
The Company's Senior Executive Severance Pay Plan (the "SPP")
applies to ITT senior executives who are U.S. citizens or who
are employed in the U.S., including all executive officers of
ITT other than Mr. Araskog. Under the SPP, if a participant's
employment is terminated by ITT, other than for Cause or as a
result of other occurrences specified in the plan, the
participant is entitled to severance pay in an amount up to
24 months of base salary depending upon his or her length of
service. In no event shall such severance pay exceed the
amount of base salary for the number of months remaining
between the termination of employment and the participant's
normal retirement date or two times the participant's total
annual compensation during the year immediately preceding
such termination. The plan includes offset provisions for
other compensation from ITT and requirements on the part of
executives with respect to non-competition and compliance
with the ITT Code of Corporate Conduct. Under the plan,
severance payments would ordinarily be made monthly over the
scheduled term of such payments; however, ITT has the option
to make such payments in the form of a single (discounted)
lump sum payment. As of March 1, 1996, the named executive
officers in the Summary Compensation Table set forth above
participate in this plan, except for Mr. Araskog who is
covered by an employment agreement.
With respect to approximately 60 individuals covered by the
SPP, modifications were authorized to the change in control
arrangements on February 11, 1997. As modified, the SPP
provides that, if an executive covered by the SPP is
involuntarily terminated other than for Cause or the
executive terminates for Good Reason within two years
following a Change in Control, the executive will receive
Severance consisting of (i) a lump-sum payment equal to two
times the executive's annual base salary in effect
immediately prior to the executive's termination of
employment, and, for certain designated employees, including
the executive officers covered by the SPP, two times the
highest bonus paid or awarded in respect of the three years
immediately preceding the Change in Control, (ii) continued
welfare benefits, fringe benefits and perquisites for two
years and (iii) one year of outplacement services. All
severance payable under the SPP is subject to the same
Gross-Up Payment mechanism described below with respect to
the Araskog Agreement. The executive officers covered by the
SPP are Juan C. Cappello, Ralph W. Pausig and Nicholas J.
Glakas. Consummation of the Comprehensive Plan and the
Strategic Investment will not constitute a "change in
control" under the SPP.
<PAGE>
Severance Agreement
On February 11, 1997, the Company authorized individual
severance agreements with nine individuals (the "Individual
Agreements"), including eight executive officers of ITT. Each
of the nine Individual Agreements provides that, if the
executive is involuntarily terminated other than for Cause or
such executive terminates for Good Reason within two years
following a Change in Control, the executive will receive
Severance consisting of (i) a lump-sum payment equal to the
sum of (A) two or three times the executive's annual base
salary in effect immediately prior to the executive's
termination of employment and (B) two or three times the
highest bonus paid or awarded to the executive under the
Company's executive compensation plans in respect of the
three years immediately preceding the Change in Control, (ii)
continued welfare benefits, fringe benefits and perquisites
for a number of years equal to the number by which such
executive's annual base salary is multiplied for purposes of
determining such executive's Severance and (iii) one year of
outplacement services. All Severance payable under each of
the Individual Agreements is subject to the same Gross-Up
Payment mechanism described below with respect to the Araskog
Agreement. The eight executive officers to be covered by the
Individual Agreements are Robert A. Bowman, Peter G. Boynton,
Gerald C. Crotty, Ann N. Reese, Richard S. Ward, Daniel P.
Weadock, Jon F. Danski and Elizabeth A. Tuttle. Consummation
of the Comprehensive Plan and the Strategic Investment will
not constitute a "change in control" under the Individual
Agreements.
Employment Contract
The Company has entered into an employment contract with Mr.
Araskog (the "Araskog Agreement") which provides for, among
other things: (i) a base salary of $2,000,000 per year,
entitlement to receive bonus and additional incentive
compensation each year as may be awarded in the discretion of
the Compensation and Personnel Committee of the Board,
participation in ITT's benefit plans (other than
pre-retirement and post-retirement life insurance benefits),
contractual disability and death benefits, his employment as
chairman and chief executive of ITT until October 31, 2000
(when he will have reached age 69); (ii) his service as
consultant to his successor as chief executive of ITT from
November 1, 2000 through October 31, 2003 for a fee of not
less than $400,000 per year, (iii) his nomination as a
director of ITT at each annual meeting of ITT stockholders
commencing with the annual meeting for 2001 and including the
annual meeting to be held in 2003 and, upon election, payment
to him of the usual director's fees for service in such
capacity; (iv) the provision of office space and certain
staff and transportation assistance in connection with his
service as a director and consultant subsequent to October
31, 2000; (v) certain payments in the event that (A) at any
time prior to October 31, 2000, Mr. Araskog is not re-elected
as chairman and employed as chief executive, which payments
would be made (I) in monthly installments over the term of
the contract remaining through October 31, 2000 in amounts
equal per annum to the salary received by Mr. Araskog for the
calendar year immediately preceding such event plus a
percentage of the average bonus received by Mr. Araskog with
respect to the three calendar years immediately preceding
such event and (II) in the form of a discounted lump sum
payment on or about October 31, 2000 equal to the then
present value of the consulting fee and the director's fees
referred to above, and (B) after completion of services
through October 31, 2000 in accordance with the terms of the
contract, Mr. Araskog at any time prior to October 31, 2003
is not nominated as a director of ITT, which payment would be
in the form of a discounted lump sum payment equal to the
then present value of the balance remaining of the consulting
fee and the director's fees referred to above; and (vi)
covenants by Mr. Araskog against competition with any
business actively conducted by ITT or any of its subsidiaries
and for compliance with the ITT Code of Corporate Conduct.
The Araskog Agreement was amended on February 11, 1997 and
August 14, 1997. The Araskog Agreement, as amended, provides
that, if Mr. Araskog is involuntarily terminated other than
for Cause or he terminates for Good Reason within two years
following a Change in Control, he shall receive severance
consisting of a lump-sum payment equal to the remaining
payments owed to him during the respective employment and
consulting terms set forth in the Araskog Agreement. The
Araskog Agreement provides that if any payment made under it
to Mr. Araskog would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code (the "Excise Tax"),
then Mr. Araskog shall be entitled to receive from ITT an
additional payment (the "Gross-up Payment") in an amount such
that the net amount of such payment and Gross-Up Payment
retained by Mr. Araskog, after the calculation and deduction
of all Excise Taxes (including any interest or penalties
imposed with respect to such taxes) on such payment and all
Federal, state and local income tax, employment tax and
Excise Tax (including any interest or penalties imposed with
respect to such taxes) on the Gross-Up Payment, shall be
equal to such payment. Consummation of the Comprehensive Plan
and the Strategic Investment will not constitute a "change in
control" under the Araskog Agreement.
Other Change-in-Control Arrangements
Acceleration of the exercisability, payment or vesting of
awards or benefits is provided for under the ITT Corporation
1995 Incentive Stock Plan and the retirement excess pension
and savings plans and deferred compensation plan upon the
occurrence of a "change in control" or "acceleration event,"
as applicable, which terms are generally defined in such
plans as the occurrence of any of the following events: (i) a
report on Schedule 13D shall be filed with the Securities and
Exchange Commission pursuant to Section 13(d) of
<PAGE>
the Securities Exchange Act of 1934 (the "Act") disclosing
that any person (within the meaning of Section 13(d) of the
Act), other than ITT or a subsidiary of ITT or any employee
benefit plan sponsored by ITT or a subsidiary of ITT, is the
beneficial owner directly or indirectly of twenty percent or
more of the outstanding common stock of ITT; (ii) any person
(within the meaning of Section 13(d) of the Act), other than
ITT or a subsidiary of ITT or any employee benefit plan
sponsored by ITT or a subsidiary of ITT, shall purchase
shares pursuant to a tender offer or exchange offer to
acquire any ITT Common Stock (or securities convertible into
such Common Stock) for cash, securities or any other
consideration, provided that after consummation of the offer,
the person in question is the beneficial owner (as such term
is defined in Rule 13d-3 under the Act) directly or
indirectly of fifteen percent or more of the outstanding ITT
Common Stock (calculated as provided in paragraph (d) of Rule
13d-3 under the Act in the case of rights to acquire ITT
Common Stock); (iii) the stockholders of ITT shall approve
(A) any consolidation or merger of ITT in which ITT is not
the continuing or surviving corporation or pursuant to which
shares of ITT Common Stock would be converted into cash,
securities or other property, other than a merger of ITT in
which holders of ITT Common Stock immediately prior to the
merger have the same proportionate ownership of common stock
of the surviving corporation immediately after the merger as
immediately before, or (B) any sale, lease, exchange or other
transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of ITT;
or (iv) there shall have been a change in a majority of the
members of the Board of Directors of ITT within a 12-month
period unless the election or nomination for election by
ITT's stockholders of each new director during such 12-month
period was approved by the vote of two-thirds of the
directors then still in office who were directors at the
beginning of such 12-month period. Consummation of the
Comprehensive Plan and the Strategic Investment will not
constitute a "change in control" or "acceleration event," as
applicable, under any such plan.
Pension Plans
General. ITT has adopted the ITT Sheraton Plan as the ITT
Salaried Retirement Plan and extended it to employees
formerly covered by the Old ITT Salaried Retirement Plan. The
Plan has been amended to recognize service with companies
affiliated with ITT prior to December 19, 1995 for
eligibility, vesting and benefit accrual purposes and further
provides for an offset of any benefit payable from any Old
ITT retirement plan covering the same period of service.
Messrs. Araskog, Bowman and Weadock and Ms. Reese participate
in the retirement plans maintained by ITT.
Executives of Caesars World, Inc. ("Caesars") do not
participate in the retirement plans maintained by ITT.
Accordingly, Mr. Boynton is covered by the Caesars Executive
Security Plans (collectively, the "Caesars Pension Plan").
ITT Retirement Plan. The ITT Salaried Retirement Plan covers
all eligible salaried employees of ITT, including senior
executive officers and other ITT executives.
A member's annual pension equals two percent of the member's
average final compensation for each of the first 25 years of
benefit service, plus one and one-half percent of a member's
average final compensation for each of the next 15 years of
benefit service, reduced by one and one-quarter percent of
the member's primary Social Security benefit for each year of
benefit service to a maximum of 40 years; provided that no
more than one-half of the member's primary Social Security
benefit is used for such reduction. A member's average final
compensation (including salary plus approved bonus payments)
is defined under the Plan as the total of (i) a member's
average annual base salary for the five calendar years of the
last 120 consecutive calendar months of eligibility service
affording the highest such average plus (ii) a member's
average annual compensation not including base salary for the
five calendar years of the member's last 120 consecutive
calendar months of eligibility service affording the highest
such average. The Plan also provides for undiscounted early
retirement pensions for members who retire at or after age 60
following completion of 15 years of eligibility service. A
member is vested in benefits accrued under the Plan upon
completion of five years of eligibility service.
Applicable Federal legislation limits the amount of benefits
that can be paid and compensation which may be recognized
under a tax-qualified retirement plan. ITT has adopted a
non-qualified unfunded retirement plan (the "ITT Excess
Pension Plan") for payment of those benefits at retirement
that cannot be paid from the qualified retirement plan. The
practical effect of the ITT Excess Pension Plan is to
continue calculation of retirement benefits to all employees
on a uniform basis. Benefits under the ITT Excess Pension
Plan will generally be paid directly by ITT. ITT has also
created an excess plan trust under which excess benefits
under the ITT Excess Pension Plan for certain officers of ITT
will be funded. Any such employee may indicate a preference,
subject to certain conditions, to receive any excess benefit
in the form of a single discounted lump sum payment. Any
"excess" benefit accrued to any such employee will be
immediately payable in the form of a single discounted lump
sum payment upon the occurrence of a change in corporate
control (as defined in the ITT Excess Pension Plan).
Consummation of the Comprehensive Plan and the Strategic
Investment will not constitute a "change in control" or
"acceleration event," as applicable, under the ITT Excess
Pension Plan.
Based on various assumptions as to remuneration and years of
service, before Social Security reductions, the following
table illustrates the estimated annual benefits payable
<PAGE>
from the Retirement Program at retirement at age 65 that are
paid for by ITT, subject to the offsets described above.
<TABLE>
<CAPTION>
ITT Pension Plan Table
Average
Final Years of Service
Compensation 20 25 30 35 40
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 50,000 $ 20,000 $ 25,000 $ 28,750 $ 32,500 $ 36,250
100,000 40,000 50,000 57,500 65,000 72,500
300,000 120,000 150,000 172,500 195,000 217,500
500,000 200,000 250,000 287,500 325,000 362,500
750,000 300,000 375,000 431,250 487,500 543,750
1,000,000 400,000 500,000 575,000 650,000 725,000
1,500,000 600,000 750,000 862,500 975,000 1,087,500
2,000,000 800,000 1,000,000 1,150,000 1,300,000 1,450,000
2,500,000 1,000,000 1,250,000 1,437,500 1,625,000 1,812,500
3,000,000 1,200,000 1,500,000 1,725,000 1,950,000 2,175,000
3,500,000 1,400,000 1,750,000 2,012,500 2,275,000 2,537,500
4,000,000 1,600,000 2,000,000 2,300,000 2,600,000 2,900,000
5,000,000 2,000,000 2,500,000 2,875,000 3,250,000 3,625,000
</TABLE>
The amounts shown under "Salary" and "Bonus" opposite the
names of the individuals in the Summary Compensation Table
set forth above comprise the compensation which is used for
purposes of determining "average final compensation" under
the plan. The years of service of each of the individuals for
eligibility and benefit purposes as of June 30, 1997 are as
follows: Rand V. Araskog, 30.59 years; Robert A. Bowman, 6.23
years; Ann N. Reese, 9.66 years; and Daniel P. Weadock, 35.96
years.
The Caesars Pension Plan. The Caesars Pension Plan provides
for annual pension benefits for individuals retiring at age
65 payable in the form of a straight life annuity for various
levels of compensation and years of service. Under the
Caesars Pension Plan, benefits may also be payable as a lump
sum, subject to Committee approval and other specified
conditions. The Caesars Pension Plan is a defined benefit
pension plan which is not a tax qualified plan and covers all
full time salaried officers and selected other key
executives. Benefits under the Caesars Pension Plan accrue at
the rate of two percent of average annual salary for each
year of credited service with a one-time additional 5%
accrual after completion of ten years of credited service.
Benefits vest after five years of credited service. Under
certain circumstances, benefits may be forfeited concurrent
with or following termination of employment.
Based upon various assumptions as to remuneration and years
of service, the following table illustrates the estimated
annual benefits payable from the Caesars Pension Plan at
retirement at age 65. The amounts shown in the table are not
subject to reduction for Social Security benefits or other
offset amounts and are based upon the assumption that the
Caesars Pension Plan continues in its present form.
<TABLE>
<CAPTION>
Caesars Pension Plan Table
Five Year
Average Years of Service
Salary 15 20 25 30 35
--------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 43,750 $ 56,250 $ 68,750 $ 81,250 $ 81,250
150,000 52,500 67,500 82,500 97,500 97,500
175,000 61,200 78,750 96,250 113,750 113,750
200,000 70,000 90,000 110,000 130,000 130,000
225,000 78,750 101,250 123,750 146,250 146,250
250,000 87,500 112,500 137,500 162,500 162,500
300,000 105,000 135,000 165,000 195,000 195,000
400,000 140,000 180,000 220,000 260,000 260,000
500,000 175,000 225,000 275,000 325,000 325,000
600,000 210,000 270,000 330,000 390,000 390,000
800,000 280,000 360,000 440,000 520,000 520,000
1,000,000 350,000 450,000 550,000 650,000 650,000
1,200,000 420,000 540,000 660,000 780,000 780,000
</TABLE>
The remuneration covered by the Caesars Pension Plan is the
average of the participant's highest five years of salary
earned during his last ten years of employment with Caesars.
The amount shown under "Salary" opposite the name of Mr.
Boynton in the Summary Compensation Table set forth above
will be used for determining "average annual salary" under
the plan. As of June 30, 1997, Mr. Boynton had 21.17 years of
credited service under the Caesars Pension Plan.
Compensation Committee Interlocks and Insider Participation
<PAGE>
There are no compensation committee interlocks. The members
of the Nominating Committee are Bette B. Anderson, Nolan D.
Archibald, Edward C. Meyer and Benjamin F. Payton and the
members of the Compensation and Personnel Committee are Bette
B. Anderson, Nolan D. Archibald, Robert A. Burnett, Paul G.
Kirk, Jr., Edward C. Meyer and Margita E. White.
Security Ownership of Certain Beneficial Owners, Directors,
Nominees and Executive Officers
The following table shows as of June 30, 1997 the beneficial
ownership of persons known to the Company to be the
beneficial owners of more than five percent of the Common
Stock.
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent
Owner Ownership of Class
- ----- --------- --------
Bankers Trust New York
Corporation
280 Park Avenue
New York, New York 10017 7,728,083 shares(1) 8.9%
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109 13,166,423 shares(2) 11.32%
(1) A February 14, 1997 Schedule 13G filed with the
Securities and Exchange Commission reflects that Bankers
Trust New York Corporation, through its wholly owned
subsidiaries Bankers Trust Company (as Trustee for
various trusts and employee benefit plans, and as
investment advisor) and BT Securities Corporation, and
its indirectly wholly owned subsidiary Bankers Trust
International PLC, beneficially owns 7,728,083 shares of
Common Stock. Of these shares, Bankers Trust Company is
deemed to have (1) sole power to vote or to direct the
vote with respect to 7,725,383 shares of Common Stock,
(ii) shares power to vote or to direct the vote with
respect to 2,700 shares of Common Stock, (iii) sole
power to dispose or to direct the disposition of
1,990,982 shares of Common Stock and (iv) shared power
to dispose or to direct the disposition of 16,505 shares
of Common Stock.
(2) A February 14, 1997 Schedule 13G provided to ITT
reflects that FMR Corp. ("FMR") beneficially owns
13,166,423 shares of Common Stock. Of such reported
shares, Fidelity Management & Research Company
("Fidelity"), a wholly owned subsidiary of FMR and an
investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner
of 12,437,559 shares as a result of acting as investment
adviser to several investment companies registered under
Section 8 of the Investment Company Act of 1940. Edward
C. Johnson 3d, the Chairman of FMR, FMR, through its
control of Fidelity, and the Fidelity Funds each has
sole power to dispose of the 12,437,559 shares of Common
Stock owned by the Fidelity Funds. Neither FMR nor
Edward C. Johnson 3d, Chairman of FMR, has the sole
power to vote or direct the voting of the shares owned
directly by the Fidelity Funds, which power resides with
the Funds' Boards of Trustees. Fidelity carries out the
voting of the shares under written guidelines
established by the Funds' Boards of Trustees. Fidelity
Management Trust Company ("FMTC"), a wholly owned
subsidiary of FMR, and a bank as defined in Section
3(a)(6) of the Securities Exchange Act of 1934, is the
beneficial owner of 725,464 shares of Common Stock or
0.62% of the Common Stock outstanding as a result of its
serving as investment manager of institutional accounts.
Edward C. Johnson 3d and FMR, through its control of
FMTC, has sole dispositive power over 725,464 shares and
sole power to vote or to direct the voting of 513,264
shares, and no power to vote or to direct the voting of
212,000 shares of Common Stock owned by certain
institutional accounts. Members of the Edward C. Johnson
3d family and trusts for their benefit are the
predominant owners of Class B shares of common stock of
FMR, representing approximately 49% of the voting power
of FMR. Mr. Johnson 3d owns 12% and Abigail Johnson owns
24.5% of the aggregate outstanding voting stock of FMR.
Mr. Johnson 3d is Chairman of FMR and Abigail P. Johnson
is a Director of FMR. The Johnson family group and all
other Class B stockholders have entered into a
stockholders' voting agreement under which all Class B
shares will be voted in accordance with the majority
vote of Class B shares. Accordingly, through their
ownership of voting common stock and the execution of
the stockholders' voting agreement, members of the
Johnson family may be deemed, under the Investment
Company Act of 1940, to form a controlling group with
respect to FMR. The number of shares of Common Stock
reported includes 3,400 shares owned directly by Edward
C. Johnson 3d or in trusts for the benefit of Edward C.
Johnson 3d or and Edward C. Johnson 3d family member for
which Edward C. Johnson 3d serves as trustee. Edward C.
Johnson has sole voting and dispositive power over 400
shares and shared voting and dispositive power over
3,000 shares.
<PAGE>
The following table shows as of August 31, 1997 the
beneficial ownership of shares of Common Stock by each
director and nominee, by each of the executive officers named
in the Summary Compensation Table set forth above, and by the
directors and executive officers as a group.
Amount and Nature
Name of of Beneficial Percent
Beneficial Owner Ownership(1) of Class
------------------ ------------ --------
Bette B. Anderson 2,811 shares (2) *
Rand V. Araskog 1,748,398 shares 1.5%
Nolan D. Archibald 1,811 shares *
Robert A. Bowman 550,046 shares *
Robert A. Burnett 2,981 shares *
Paul G. Kirk, Jr. 1,821 shares *
Edward C. Meyer 3,311 shares *
Benjamin F. Payton 1,303 shares *
Vin Weber 844 shares *
Margita E. White 2,811 shares *
Kendrick R. Wilson III 3,744 shares *
Peter G. Boynton 66,455 shares *
Ann N. Reese 251,068 shares *
Daniel P. Weadock 396,061 shares *
All directors and executive
officers as a group (22) 4,283,592 shares 3.7%
* Less than one percent.
(1) All shares are owned directly except as hereinafter
otherwise indicated. Pursuant to regulations of the
Securities and Exchange Commission, shares (i)
receivable by directors and executive officers upon
exercise of employee stock options exercisable within 60
days after August 31, 1997, and (ii) allocated to the
accounts of certain directors and executive officers
under the ITT 401(k) Retirement Savings Plan at August
31, 1997, are deemed to be beneficially owned by such
directors and executive officers at said date. Of the
number of shares shown above, (i) the following
represent shares that may be acquired upon exercise of
employee stock options for the accounts of: Mr. Araskog,
1,196,617 common shares; Mr. Bowman, 521,653 common
shares; Mr. Boynton, 59,718 common shares; Ms. Reese,
236,544 common shares; Mr. Weadock, 322,186 common
shares; and all present directors and executive officers
as a group, 3,483,949 common shares; and (ii) the
following amounts were allocated under the ITT 401(k)
Retirement Savings Plan to the accounts of: Mr. Araskog,
20,255 common shares; Mr. Bowman, 2,465 common shares;
Mr. Boynton, 137 common shares; Ms. Reese, 1,348 common
shares; Mr. Weadock, 52,796 common shares; and all
present directors and executive officers as a group,
114,651 common shares.
(2) An additional 83 shares of ITT Common Stock are owned by
Mrs. Anderson's husband. Mrs. Anderson disclaims
beneficial ownership in such shares.
Certain Relationships and Related Transactions
Lazard Freres, of which Mr. Kendrick R. Wilson III is a
Managing Director, performed various investment banking
services for ITT and its subsidiaries in 1996. Lazard Freres
is serving as the Company's co-financial advisor in
connection with the Hilton Offer. Mr. Wilson receives a
percentage of Lazard Freres' income, including a percentage
of any income under this engagement letter.
A By-law of ITT provides for mandatory indemnification of ITT
directors and officers (including payment of legal fees) to
the fullest extent permitted by applicable law. The By-law
also provides that ITT may maintain insurance to indemnify
its directors and officers against liabilities whether or not
ITT would be permitted to indemnify them. This type of
insurance, as well as policies under which ITT may be
reimbursed for amounts paid in indemnification of its
directors and officers, are in force. The premiums thereon,
which aggregate $1,164,755 for a twelve-month period, are
paid by ITT. As authorized by such By-law, ITT has entered
into indemnification agreements with its directors pursuant
to which ITT agrees to indemnify them against all expenses,
liabilities or losses incurred by the directors in their
capacity as such: (i) to the fullest extent permitted by
applicable law; (ii) as provided in the By-laws of ITT as in
effect on the date of such agreement; and (iii) in the event
ITT does not maintain the aforementioned insurance or
comparable coverage, to the full extent provided in the
applicable policies as in effect on January 1, 1997 (ITT's
obligations described in (ii) and (iii) being subject to
certain exceptions). Contractual rights under such
indemnification agreements are believed to provide the
directors more protection than the indemnification By-law
which is subject to change.
General
In addition to the matters described above, there will be an
address by the Chairman and Chief Executive at the Annual
Meeting of Stockholders and a general discussion period
<PAGE>
during which stockholders will have an opportunity to ask
questions about the business and operations of ITT.
Solicitation of Proxies
Proxies may be solicited by mail, advertisement, telephone or
other methods and in person. Solicitations may be made by
directors, officers, investor relations personnel and other
employees of the Company, none of whom will receive
additional compensation for such solicitations.
The Company has retained Georgeson & Company, Inc.
("Georgeson") for solicitation and advisory services in
connection with the solicitation, for which Georgeson is to
receive a fee estimated at $ , together with reimbursement
for its reasonable out-of-pocket expenses and for payments
made to brokers and other nominees for their expenses in
forwarding soliciting material. Georgeson will distribute
proxy materials to beneficial owners and solicit proxies by
personal interview, mail, telephone and telegram, and will
request brokerage houses and other custodians, nominees and
fiduciaries to forward soliciting material to the beneficial
owners of the Common Stock held on October 1, 1997 by such
person. The Company has also agreed to indemnify Georgeson
against certain liabilities and expenses. It is anticipated
that Georgeson will employ approximately persons to solicit
stockholders for the Annual Meeting. Georgeson is also acting
to assist the Company in connection with the Hilton Offer,
for which Georgeson will be paid customary compensation in
addition to reimbursement for reasonable out-of-pocket
expenses.
The Board has retained Lazard Freres and Goldman Sachs to act
as financial advisors to the Company in connection with the
Hilton Offer and other matters arising in connection
therewith, including assisting the Company in exploring
possible strategic alternatives in light of the Hilton Offer.
Pursuant to an engagement letter with Lazard Freres and
Goldman Sachs, the Company has agreed to pay each of Lazard
Freres and Goldman Sachs for their services 50% of (a) an
initial fee equal to $1,000,000 and (b) an additional
advisory fee equal to $19,000,000, payable upon the later of
September 30, 1997 and the date two business days before the
scheduled date of the 1997 Annual Meeting (the "Payment
Date"); provided, however, that if the Payment Date is later
than September 30, 1997, the Company will pay one-half of the
$19,000,000 advisory fee on September 30, 1997 and the
balance of the fee on the Payment Date. Notwithstanding the
foregoing, and except as otherwise specified in the
engagement letter, the $19,000,000 advisory fee will be
payable immediately upon a termination of the engagement
letter by the Company or if a Change of Control (as defined
below) has occurred or is imminent. The engagement letter
provides that the Company will determine in its sole
reasonable judgment when a Change of Control is imminent.
Pursuant to the engagement letter, "Change of Control" means
(i) any Person or Group (each as defined in the engagement
letter) becoming the beneficial owner (as such term is used
in Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended) of more than 15% of the Common Stock in
one or a series of transactions, by means of a tender offer,
exchange offer, merger, private or open market purchases of
stock or otherwise or if all or substantially all of the
assets of the Company are sold, liquidated or transferred (by
dividend or otherwise) in one or a series of transactions, or
(ii) a majority of the members of the Board being individuals
whose nomination for election or election to the Board was
not recommended or approved by a majority of the members of
the Board who (A) were members of the Board on February 10,
1997 or (B) whose nomination for election or election to the
Board was recommended or approved by a majority of the
members of the Board who were members of the Board on such
date.
In addition to the foregoing, in the event that the Company
sells equity or debt securities in a public offering or
private placement, Lazard Freres and Goldman Sachs will be
offered the opportunity to participate in such transaction as
an underwriter or placement agent (subject to certain
exceptions specified in the engagement letter) and will be
paid reasonable and customary fees for such services.
Pursuant to the engagement letter, among other things, (a)
Lazard Freres and Goldman Sachs have agreed to act as the
Company's co-financial advisors with regard to the
solicitation of proxies with respect to the 1997 Annual
Meeting and (b) in the event that the Company determines to
consider or undertake certain purchases or sales of assets or
securities or a recapitalization or restructuring of the
Company, Lazard Freres and Goldman Sachs will be involved and
participate in such transaction.
Pursuant to the engagement letter, no additional fee will be
paid to Lazard Freres and Goldman Sachs in connection with
their serving as co-financial advisors to the Company with
respect to the proxy solicitation by Hilton.
The Company has also agreed to reimburse Lazard Freres and
Goldman Sachs for their reasonable out-of-pocket expenses,
including fees of counsel and any sales, use or similar
taxes, and to indemnify Lazard Freres and Goldman Sachs
against certain liabilities in connection with their
engagement, including certain liabilities arising under the
Federal securities laws.
Lazard Freres and Goldman Sachs have provided financial
advisory and investment banking services to the Company from
time to time for which they have received customary
compensation. In addition, Goldman Sachs has provided
financial advisory and investment banking services to Hilton
and HFS in the past for which it has received customary
<PAGE>
compensation. In the ordinary course of business, Lazard
Freres and Goldman Sachs may from time to time effect
transactions and hold positions in securities of the Company,
Hilton and HFS.
Costs incidental to these solicitations of proxies will be
borne by the Company and include expenditures for printing,
postage, legal, accounting, public relations, soliciting,
advertising and related expenses and are expected to be
approximately $ in addition to the fees of Georgeson
described above (excluding the amount normally expended by
the Company for the solicitation of proxies at its annual
meetings). Total costs incurred to date for, in furtherance
of, or in connection with these solicitations of proxies are
approximately $ .
Certain information about the directors and executive
officers of the Company and certain employees and other
representatives of the Company who may also solicit proxies
is set forth in the attached Schedule I. Schedule II sets
forth certain information relating to shares of Common Stock
owned by such parties and certain transactions between any of
them and the Company. Schedule III sets forth certain
information with respect to Lazard Freres and Goldman Sachs.
All expenses of solicitation of proxies will be borne by ITT.
By Order of the Board of Directors,
Richard S. Ward
Executive Vice President, General
Counsel and Corporate Secretary
Dated: October , 1997
<PAGE>
SCHEDULE I
Information Concerning the Directors and Executive Officers,
and Certain Employees of the Company
The following table sets forth the name and the present principal
occupation or employment (except with respect to the directors,
whose principal occupation is set forth in the Proxy Statement),
and the name, principal business and address of any corporation or
other organization in which such employment is carried on, of (1)
the directors and executive officers of the Company and (2)
certain employees of the Company who may assist in soliciting
proxies from stockholders of the Company. Unless otherwise
indicated below, the principal business address of each such
person is 1330 Avenue of the Americas, New York, New York 10019
and such person is an employee of the Company. Directors are
indicated with a single asterisk.
Directors and Executive Officers of the Company
Name and Principal Present Office or Other Principal
Business Address Occupation or Employment
Bette B. Anderson*
Rand V. Araskog*
Nolan D. Archibald*
Robert A. Bowman*
Robert A. Burnett*
Paul G. Kirk, Jr.*
Edward C. Meyer*
Benjamin F. Payton*
Vin Weber*
Margita E. White*
Kendrick R. Wilson III*
Peter G. Boynton (age 54) is a Senior
Vice President of ITT and is President
and Chief Executive Officer of Caesars
World, Inc. From July 1995 to December
1995, he was a Senior Vice President of
Old ITT. From February 1995 to December
1995, he was also President and Chief
Operating Officer of Caesars World, Inc.
From 1982 to February 1995, he was
President and Chief Operating Officer of
Caesars Atlantic City.
Ann N. Reese (age 43) is an Executive
Vice President and Chief Financial
Officer of ITT. From September 1992 to
December 1995, she was Senior Vice
President and Treasurer of Old ITT; and
prior to that time, she was Vice
President and Treasurer of Old ITT.
Daniel P. Weadock (age 57) is a Senior
Vice President of ITT and is President
and Chief Executive Officer of ITT
Sheraton Corporation. From July 1995 to
December 1995, he was a Senior Vice
President of Old ITT. From November 1993
to December 1995, he was also the
President and Chief Operating Officer of
ITT Sheraton Corporation. Prior to that
time, he was Chairman, President and
Chief Executive Officer of ITT
Communications and Information Services,
Inc.
Certain Employees of the Company
Who May also Solicit Proxies
<PAGE>
SCHEDULE II
Shares Held by Directors, Executive Officers
and Certain Employees of the Company and
Certain Transactions Between any of them and the Company
The Shares of Common Stock held by directors and Peter G. Boynton,
Ann N. Reese and Daniel P. Weadock are set forth in the Proxy
Statement. The following executive officers of the Company own the
following shares as of August 31, 1997:
Name of Beneficial Owner Shares of Common Stock
Beneficially Owned(1)
Juan C. Cappello 235,895 shares
Gerald C. Crotty 144,481 shares
Jon F. Danski 223,304 shares
Nicholas J. Glakas 24,794 shares
Ralph W. Pausig 238,462 shares
Mark Thomas 49,059 shares
Elizabeth A. Tuttle 24,728 shares
Richard S. Ward 306,078 shares
(1) All shares are owned directly except as hereinafter otherwise
indicated. Pursuant to regulations of the Securities and
Exchange Commission, shares (i) receivable by executive
officers upon exercise of employee stock options exercisable
within 60 days after August 31, 1997, and (ii) allocated to
the accounts of certain executive officers under the ITT
401(k) Retirement Savings Plan at August 31, 1997, are deemed
to be beneficially owned by such executive officers at said
date. Of the number of shares shown above, (i) the following
represent shares that may be acquired upon exercise of
employee stock options for the accounts of: Mr. Cappello,
218,182 common shares; Mr. Crotty, 143,324 common shares; Mr.
Danski, 208,603 common shares; Mr. Glakas, 22,020 common
shares; Mr. Pausig, 218,661 common shares; Mr. Thomas, 48,565
common shares; Ms. Tuttle, 25,881 common shares; and Mr.
Ward, 261,995 common shares; and (ii) the following amounts
were allocated under the ITT 401(k) Retirement Savings Plan
to the accounts of: Mr. Cappello, 3,389 common shares; Mr.
Crotty, 1,157 common shares; Mr. Danski, 1,757 common shares;
Mr. Glakas, 936 common shares; Mr. Pausig, 7,337 common
shares; Mr. Thomas, 494 common shares; Ms. Tuttle, 2,060
common shares; and Mr. Ward, 20,520 common shares.
Purchases and Sales of Securities
The following table sets forth information concerning all
purchases and sales of securities of the Company by directors and
executive officers since December 20, 1995:
Name Date of Nature of Number of Shares
Transaction Transaction of Common Stock
Directors:
Nolan D. Archibald February 8, 1996 Sale 7,000 shares
Robert A. Burnett January 2, 1997 Purchase 1,000 shares
Vin Weber February 22, 1996 Purchase 100 shares
Kendrick R. Wilson III February 21, 1996 Purchase 2,000 shares
September 16, 1996 Purchase 1,000 shares
Name Date of Nature of Number of Shares
Transaction Transaction of Common Stock
Executive Officers:
Rand V. Araskog July 28, 1997 Purchase 5,000 shares
July 29, 1997 Purchase 50,000 shares
December 20, 1995 Purchase 1,000 shares
September 10, 1996 Purchase 10,000 shares
Robert A. Bowman September 10, 1996 Purchase 2,000 shares
<PAGE>
Jon F. Danski September 10, 1996 Purchase 500 shares
September 11, 1996 Purchase 500 shares
Nicholas J. Glakas September 11, 1996 Purchase 200 shares
Ann N. Reese September 11, 1996 Purchase 1,000 shares
Richard S. Ward September 10, 1996 Purchase 5,000 shares
Juan C. Cappello September 11, 1996 Purchase 510 shares
Gerald C. Crotty August 8, 1997 Sale 100,216 shares
Richard S. Ward and Patrick L. Donnelly have agreed to serve as
the proxies on the Company's blue proxy card.
Except as disclosed in this Schedule or in the Proxy Statement,
none of the Company, any of its directors, executive officers or
the employees of the Company named in Schedule I owns any
securities of the Company or any subsidiary of the Company,
beneficially or of record, has purchased or sold any of such
securities within the past two years or is or was within the past
year a party to any contract, arrangement or understanding with
any person with respect to any such securities. Except as
disclosed in this Schedule or in the Proxy Statement, to the best
knowledge of the Company, its directors and executive officers or
the employees of the Company named in Schedule I, none of their
associates beneficially owns, directly or indirectly, any
securities of the Company.
Other than as disclosed in this Schedule and in the Proxy
Statement, to the knowledge of the Company, none of the Company,
any of its directors, executive officers or the employees of the
Company named in Schedule I has any substantial interest, direct
or indirect, by security holdings or otherwise, in any matter to
be acted upon at the Annual Meeting.
Other than as disclosed in this Schedule and in the Proxy
Statement, to the knowledge of the Company none of the Company,
any of its directors, executive officers or the employees of the
Company named in Schedule I is, or has been within the past year,
a party to any contract, arrangement or understanding with any
person with respect to any securities of the Company, including,
but not limited to, joint ventures, loan or option arrangements,
puts or calls, guarantees against loss or guarantees of profit,
division of losses or profits, or the giving or withholding of
proxies.
Other than as set forth in this Schedule or in the Proxy
Statement, to the knowledge of the Company, none of the Company,
any of its directors, executive officers or the employees of the
Company named in Schedule I, or any of their associates, has had
or will have a direct or indirect material interest in any
transaction or series of similar transactions since the beginning
of the Company's last fiscal year or any currently proposed
transactions, or series of similar transactions, to which the
Company or any of its subsidiaries was or is to be a party in
which the amount involved exceeds $60,000.
Other than as set forth in this Schedule and in the Proxy
Statement, to the knowledge of the Company, none of the Company,
any of its directors, executive officers or the employees of the
Company named in Schedule I, or any of their associates, has any
arrangements or understandings with any person with respect to
any future employment by the Company or its affiliates or with
respect to any future transactions to which the Company or any of
its affiliates will or may be a party.
SCHEDULE III
Information Concerning Lazard Freres & Co. LLC and Goldman, Sachs & Co.
The Company has retained Goldman, Sachs & Co. ("Goldman Sachs")
and Lazard Freres & Co. LLC ("Lazard Freres") to act as financial
advisors to the Company in connection with the Hilton offer and
other matters arising in connection therewith, including
assisting the Company in exploring possible strategic
alternatives in light of the Hilton offer. Pursuant to an
engagement letter with Goldman Sachs and Lazard Freres, the
Company has agreed to pay each of Goldman Sachs and Lazard Freres
for their services 50% of (a) an initial fee equal to $1,000,000
and (b) an additional advisory fee equal to $19,000,000. The
Company has also agreed to reimburse Goldman Sachs and Lazard
Freres for their reasonable out-of-pocket expenses, including
fees of counsel and any sales, use or similar taxes, and to
indemnify Goldman Sachs and Lazard Freres against certain
liabilities in connection with their engagement, including
certain liabilities arising under the Federal securities laws. In
addition, Goldman Sachs and Lazard Freres are involved in
arranging certain financings to be incurred by ITT Destinations,
Inc., a new corporation formed to hold the Company's hotel and
gaming assets, in connection with the Comprehensive Plan and
Goldman Sachs Credit Partners L.P., an affiliate of Goldman
Sachs, is providing certain portions of such financings. Although
Goldman Sachs and Lazard Freres do not admit that they or any of
their directors, officers, employees or affiliates are a
"participant," as defined in Schedule 14A promulgated under the
Securities Exchange Act of 1934, as amended, by the Securities
and Exchange Commission, or that Schedule 14A requires the
disclosure of
<PAGE>
certain information concerning them, Robert Kaplan (Managing
Director), Cody Smith (Managing Director), William Crowley
(Managing Director), Eduardo Cruz (Vice President) and Marc
Nachmann (Associate), in each case of Goldman Sachs, and Gerald
Rosenfeld (Managing Director), Robert Hougie (Vice President) and
Antonio Weiss (Vice President), in each case of Lazard Freres
(collectively, the "Financial Advisor Participants"), may assist
the Company in the solicitation of proxies for the annual
meeting.
Goldman Sachs and Lazard Freres have provided financial
advisory and investment banking services to the Company from time
to time for which they have received customary compensation.
Kendrick R. Wilson III is a Managing Director of Lazard Freres.
In the ordinary course of their business, Goldman Sachs and
Lazard Freres may actively trade securities of the Company for
their own account and the account of their customers and,
accordingly, may at any time hold a long or short position in
such securities. Goldman Sachs has advised the Company that as of
September 29, 1997, Goldman Sachs held a net long position of
approximately 12,221 shares of Common Stock. Lazard Freres has
advised the Company that as of September 29, 1997, Lazard Freres
held a net long position of approximately 12,785 shares of Common
Stock over which Lazard Freres exercised investment discretion.
Except as set forth above, to the Company's knowledge, none of
Goldman Sachs, Lazard Freres or any of the Financial Advisor
Participants has any interest, direct or indirect, by security
holdings or otherwise, in the Company.
<PAGE>
Important
Your proxy is important. No matter how many shares of Common
Stock you own, please give the Company your proxy FOR the
election of your Board's nominees for director and AGAINST the
Hilton Proposals by signing, dating and returning the Company's
blue proxy card today in the postage prepaid envelope provided.
Do Not Return Any WHITE Proxy Cards
That You May Have Received From Hilton.
If you have already submitted a proxy to Hilton for the Annual
Meeting, you may change your vote to a vote FOR the election of
your Board's nominees and AGAINST the Hilton Proposals by
signing, dating and returning the Company's blue proxy card,
which must be dated after any proxy you may have submitted to
Hilton. Only your latest dated proxy for the Annual Meeting will
count at the meeting.
If any of your shares of Common Stock are held in the name of a
brokerage firm, bank, bank nominee or other institution, only it
can vote such shares and upon receipt of your specific
instructions. Accordingly, please contact the person responsible
for your account and instruct that person to execute the
Company's blue proxy card as soon as possible.
If you have any questions or require any additional information
or assistance, please call our proxy solicitor, Georgeson &
Company, Inc., at the number set forth below.
[GEORGESON & COMPANY, INC. LOGO]
Call Toll Free: (800) 223-2064
<PAGE>
ITT CORPORATION
PROXY CARD
Proxy For The Annual Meeting of Stockholders to be
Held on November 12, 1997.
This Proxy is Solicited on Behalf of the Board of Directors.
This undersigned hereby constitutes and appoints Richard S. Ward
and Patrick L. Donnelly, and each of them, true and lawful agents
and proxies of the undersigned, with full power of substitution,
to represent the undersigned and to vote all shares of stock
which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of ITT Corporation (the "Company") to be held on
November 12, 1997, and at any and all adjournments and
postponements thereof, on all matters before such meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE.
HOWEVER, IF NO VOTE IS SPECIFIED, THIS PROXY WILL BE VOTED "FOR"
THE ELECTION AS DIRECTORS OF THE NOMINEES LISTED ON THE REVERSE
SIDE, "FOR" THE RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS AND "AGAINST" THE
PROPOSALS OF HILTON HOTELS CORPORATION ("HILTON") TO APPROVE A
NON-BINDING STOCKHOLDER RESOLUTION URGING THE BOARD TO ARRANGE
FOR THE SALE OF THE COMPANY TO HILTON, HLT OR ANY BIDDER OFFERING
A HIGHER PRICE FOR THE COMPANY (THE "HILTON SALE PROPOSAL") AND
TO REPEAL EACH AND EVERY PROVISION OF THE COMPANY'S AMENDED AND
RESTATED BY-LAWS ADOPTED ON OR AFTER JULY 23, 1996 AND PRIOR TO
THE ANNUAL MEETING (THE "HILTON BY-LAW REPEAL PROPOSAL"), ALL OF
WHICH MATTERS ARE MORE FULLY DESCRIBED IN THE ANNUAL MEETING
PROXY STATEMENT OF WHICH THE UNDERSIGNED STOCKHOLDER ACKNOWLEDGES
RECEIPT.
THIS PROXY GRANTS DISCRETIONARY AUTHORITY (1) TO VOTE FOR A
SUBSTITUTE NOMINEE OF THE BOARD IF ANY NOMINEE FOR DIRECTOR
LISTED ON THE REVERSE SIDE IS UNABLE TO SERVE, OR FOR GOOD CAUSE
WILL NOT SERVE AS A DIRECTOR (UNLESS AUTHORITY TO VOTE FOR ALL
NOMINEES OR FOR THE PARTICULAR NOMINEE WHO HAS CEASED TO BE A
CANDIDATE IS WITHHELD) AND (2) TO VOTE ON OTHER MATTERS THAT MAY
COME BEFORE THE MEETING IN ACCORDANCE WITH THE BEST JUDGMENT OF
THE NAMED PROXIES.
PLEASE VOTE, SIGN AND DATE THIS PROXY ON THE OTHER SIDE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
This proxy is being solicited by the Board of Directors of ITT
Corporation.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS
INDICATED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1 AND 2 AND
"AGAINST" PROPOSALS 3 AND 4.
<PAGE>
[Reverse of Proxy Card]
ITT
Please mark your choice like this /x/
The 1997 Annual Meeting of ITT Corporation will be held
at a.m. on Wednesday, November 12, 1997 in the of , , .
Stockholders of record at the close of business on October 1, 1997
will be entitled to vote at the meeting and any adjournment
thereof. Stockholders of record who plan to attend the Annual
Meeting in person may request an admission card by marking the box
below. Stockholders who hold their shares beneficially through
bank or brokerage accounts should bring with them proof of their
ownership if they wish to attend the meeting.
Whether or not you plan to attend the meeting, you can
assure that your shares are represented by promptly completing,
signing, dating and returning the proxy card below.
The Board of Directors recommends a vote "FOR" Proposal 1.
1. Election of Directors:
For Withheld For All Except
/ / / / / /
Bette B. Anderson, Rand V. Araskog, Nolan D. Archibald, Robert A.
Bowman, Robert A. Burnett, Paul G. Kirk, Jr., Edward C. Meyer,
Benjamin F. Payton, Vin Weber, Margita E. White and Kendrick R.
Wilson III.
If you do not wish your shares voted "FOR" a particular nominee
or nominees, mark the "For All Except" box and strike a line
through the nominee's name(s). Your shares will be voted for the
remaining nominee(s).
The Board of Directors recommends a vote "FOR" Proposal 2.
2. Ratification of Appointment of Arthur Andersen LLP as
Independent Public Accountants
For Against Abstain
/ / / / / /
The Board of Directors recommends a vote "AGAINST" Proposals 3
and 4.
3. The Hilton Sale Proposal
For Against Abstain
/ / / / / /
4. The Hilton By-law Repeal Proposal
For Against Abstain
/ / / / / /
Please sign this proxy exactly as your name appears hereon. Joint
owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and
where more than one name appears, a majority should sign. If a
corporation, the signature should be that of an authorized
officer who should state his or her title.
Please mark, sign, date and return the proxy promptly using the
enclosed envelope.
Signature: Date:
Signature: Date:
[Exhibit 107]
[ITT Letterhead]
DATE: September 30, 1997
CONTACT: Jim Gallagher
TELEPHONE: 212-258-1261
FOR IMMEDIATE RELEASE
- -
ITT EXTENDS DEBT TENDER OFFER
NEW YORK, NY, September 30, 1997 -- ITT announced today that it has
extended the expiration date of its offer to purchase any and all of the
following ITT Corporation debt securities: (i) $700MM 6.25% Notes due
November 15, 2000; (ii) $250MM 6.75% Notes due November 15, 2003; (iii)
$450MM 6.75% Notes due November 15, 2005; (iv) $450MM 7.375% Notes due
November 15, 2015; and (v) $150MM 7.75% Notes due November 15, 2025. The
offer is now scheduled to expire at 5:00 p.m., New York City time, on
Monday, October 6, 1997, unless extended. As of the close of business
yesterday, (i) approximately $306MM principal amount of the 6.25% Notes due
November 15, 2000; (ii) approximately $183MM principal amount of the 6.75%
Notes due November 15, 2003; (iii) approximately $324MM principal amount of
the 6.75% Notes due November 15, 2005; (iv) approximately $204MM principal
amount of the 7.375% Notes due November 15, 2015; and (v) approximately
$65MM principal amount of the 7.75% Notes due November 15, 2025 have been
tendered in the offer. The terms and conditions of the offer are set forth
in ITT's Offer to Purchase dated August 11, 1997 and the related Letter of
Transmittal. Goldman, Sachs & Co. are acting as Dealer Managers for the
offer and Georgeson & Company Inc. is acting as Information Agent.
- ITT -
[Exhibit 108]
[ITT Letterhead]
DATE: October 3, 1997
CONTACT: Jim Gallagher
TELEPHONE: 212-258-1261
FOR IMMEDIATE RELEASE
ITT EXTENDS STOCK AND DEBT TENDER OFFERS
NEW YORK, NY, October 3, 1997 -- ITT Corporation (NYSE: ITT) announced
today that it has extended the expiration date of its offer to purchase up
to 30 million shares of its common stock (including the associated
preferred stock purchase rights) at $70.00 per share, net to the seller in
cash. The offer is now scheduled to expire at 11:59 p.m., New York City
time, on Wednesday, November 12, 1997, unless extended. As of the close of
business yesterday, approximately 58 million shares of ITT's common stock
have been tendered in the offer. The terms and conditions of the offer are
set forth in ITT's Offer to Purchase dated July 17, 1997, as supplemented
by the Supplement to the Offer to Purchase dated August 27, 1997, and the
related Letter of Transmittal. Goldman, Sachs & Co. and Lazard Freres & Co.
LLC are acting as Dealer Managers for the offer and Georgeson & Company
Inc. is acting as Information Agent.
ITT also announced today that it has extended the expiration date of
its offer to purchase any and all of the following ITT Corporation debt
securities: (i) $700MM 6.25% Notes due November 15, 2000; (ii) $250MM 6.75%
Notes due November 15, 2003; (iii) $450MM 6.75% Notes due November 15,
2005; (iv) $450MM 7.375% Notes due November 15, 2015; and (v) $150MM 7.75%
Notes due November 15, 2025. The offer is now scheduled to expire at 11:59
p.m., New York City time, on Wednesday, November 12, 1997, unless extended.
As of the
<PAGE>
close of business yesterday, (i) approximately $353MM principal amount of
the 6.25% Notes due November 15, 2000; (ii) approximately $194MM principal
amount of the 6.75% Notes due November 15, 2003; (iii) approximately $347MM
principal amount of the 6.75% Notes due November 15, 2005; (iv)
approximately $225MM principal amount of the 7.375% Notes due November 15,
2015; and (v) approximately $70MM principal amount of the 7.75% Notes due
November 15, 2025 have been tendered in the offer. The terms and conditions
of the offer are set forth in ITT's Offer to Purchase dated August 11, 1997
and the related Letter of Transmittal. Goldman, Sachs & Co. are acting as
Dealer Managers for the offer and Georgeson & Company Inc. is acting as
Information Agent.
- ITT -
