<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
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ITT CORPORATION
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<PAGE> 2
[ITT Logo]
1997
NOTICE OF
ANNUAL
MEETING
AND
PROXY
STATEMENT
<PAGE> 3
[ITT LOGO] ITT CORPORATION
Rand V. Araskog
Chairman and Chief Executive
October 9, 1997
Dear Fellow Stockholder:
It is my pleasure to cordially invite you to attend the second Annual
Meeting of Stockholders of ITT Corporation to be held at 11:30 a.m. on
Wednesday, November 12, 1997 at the St. Regis Roof (20th Floor) of the St. Regis
Hotel, New York, New York.
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 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.
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 held by ITT 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.
<PAGE> 4
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,
/s/ Rand V. Araskog
RAND V. ARASKOG
Chairman and Chief Executive
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> 5
[ITT LOGO] ITT CORPORATION
Richard S. Ward
Executive Vice President,
General Counsel and
Corporate Secretary
October 9, 1997
NOTICE OF ANNUAL MEETING
The Annual Meeting of the Stockholders of ITT Corporation will be held at
the St. Regis Roof (20th Floor) of the St. Regis Hotel, Two East Fifty Fifth
Street, New York, New York, 10022 on Wednesday, November 12, 1997 at 11:30 a.m.,
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,
/s/ Richard S. Ward
RICHARD S. WARD
Executive Vice President,
General Counsel and
Corporate Secretary
<PAGE> 6
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 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 10, 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 certain 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
<PAGE> 7
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.
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
Company's 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
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<PAGE> 8
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 Stock Tender 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 $2 billion principal amount of outstanding ITT debt securities,
consisting of $700 million 6.25% Notes due November 15, 2000, $250 million 6.75%
Notes due November 15, 2003, $450 million 6.75% Notes due November 15, 2005,
$450 million 7.375% Debentures due November 15, 2015 and $150 million 7.75%
Debentures due November 15, 2025 (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. Following
the Comprehensive Plan, the hotels and gaming company will have approximately
$4.2 billion of outstanding indebtedness and the telephone directories
publishing company will have approximately $1.275 billion of outstanding
indebtedness.
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 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 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 busi-
3
<PAGE> 9
nesses 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.) 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 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
4
<PAGE> 10
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's 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 (which has agreed to purchase up to
46.6% of ITT ISI's common stock), without jeopardizing the tax-free status of
the Distributions compared to a limit of 20% that would have 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, 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 companies, is expected to further the interests of the Company's
employees, creditors, customers and the economies and communities in which the
Company operates.
5
<PAGE> 11
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 incorporated in the presentation reviewed with the
Board by Goldman Sachs and Lazard Freres, including that (a) neither
Goldman Sachs nor Lazard Freres made an independent evaluation or appraisal
of the assets of ITT or its subsidiaries and neither Goldman Sachs nor
Lazard Freres were furnished with any such evaluations or appraisals, (b)
the opinions were based upon facts and circumstances existing at the time
such opinions were given, (c) Goldman Sachs and Lazard Freres relied,
without independent verification, upon the accuracy and completeness of the
financial and other information reviewed by them or conveyed to them in
discussions with the senior management of ITT and (d) the projections
provided by ITT for the use of Goldman Sachs and Lazard Freres were
reasonably prepared on a basis reflecting the best judgments and estimates
of ITT management then available and that such projections would be
realized in the amounts and time periods contemplated thereby;
(iv) the Board's continued belief that, based on its review of the
financial 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 Hilton Offer involves a change in control of ITT but no
control premium;
(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
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"track record" in growing a large chain of owned, managed or franchised
full service, international hotels, as evidenced, in part, by the fact that
during the first nine months of 1997 Hilton has only opened six new managed
or franchised hotels;
(vii) the 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;
(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 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
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<PAGE> 13
(xv) the trading performance of the Common Stock following the Hilton
Offer, including that the Common Stock has closed above $55 (Hilton's
initial offer price) every day since the Hilton Offer was commenced and
that Hilton's current offer of $70 does not reflect an adequate control
premium.
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 117,000,925
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
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 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
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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 two officers of CT Corporation System 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 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 television station 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
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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 stockholders. It also reviews the expense
accounts of senior executives. The Committee held five meetings 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
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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, 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 stockholders 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.
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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 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 is 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.
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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 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 nominees' 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
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<PAGE> 19
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.
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.
14
<PAGE> 20
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.
15
<PAGE> 21
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 $2.4 million.
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<PAGE> 22
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.
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 companies 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.
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<PAGE> 23
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 and no By-law
amendments are currently pending. 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.
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 January 1, 1998. 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
18
<PAGE> 24
$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.
Among the other named officers, Mr. Bowman's salary was increased 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.
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<PAGE> 25
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.
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
20
<PAGE> 26
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
21
<PAGE> 27
since the 1995 Distribution to the Peer Group and has not provided a comparison
to the S&P Conglomerate Index (which was discontinued in July 1996).
[Performance Graph]
<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 Composite Index...... $ 100 $ 103 $ 128 $ 144 $ 128 $ 124 $ 123
</TABLE>
- ---------------
Source: Georgeson & Company Inc.
22
<PAGE> 28
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
----------------------------------
PAYOUTS
AWARDS ---------
ANNUAL COMPENSATION ---------------------- LONG-TERM
RESTRICTED SECURITIES INCENTIVE
--------------------- OTHER ANNUAL STOCK UNDERLYING PLAN ALL OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(2) ($) (3)(#) ($) (4)($)
- ---------------------------- ---- --------- --------- ------------ --------- ---------- --------- ------------
<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
Officer 1994 263,333 210,000 33,738 -- 71,662 -- 10,998
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,
23
<PAGE> 29
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 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 amounts 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 $460,000,
respectively.
OPTION GRANTS ON COMMON STOCK TO ITT EXECUTIVES IN LAST FISCAL YEAR
The following table provides information on fiscal year 1996 grants of
options to the named executives to purchase shares of Common Stock. The stock
options granted to each of the ITT executives listed below were issued in 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
STOCK OPTION GRANTS IN 1996 VALUE
-------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(4)
OPTIONS EMPLOYEES EXERCISE ------------------------
GRANTED(1) IN PRICE(3) EXPIRATION 5% 10%
NAME (#) 1996(2) ($/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 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
Common Stock on the date of grant. The exercise price may be paid in cash or
in shares of 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 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 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 Common Stock 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 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 equals or exceeds $79.45 for five consecutive trading days,
these options will be fully exercisable.
24
<PAGE> 30
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUE
The following table provides information on option exercises in 1996 by the
named executives and the value of each such executive's unexercised options to
acquire Common Stock at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END(#) HELD AT FISCAL
ACQUIRED ON VALUE YEAR-END($)(1)
EXERCISE REALIZED ----------------------------- -----------------------------
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
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 meetings of the Board held on February 11, 1997 and August 14,
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 on February 11, 1997, the SPP provides that, if an
executive covered by the SPP is involuntarily terminated other than for Cause or
the executive
25
<PAGE> 31
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. As further modified on
August 14, 1997, 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.
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. As modified on August 14, 1997, 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, dated as of December
19, 1995, 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) 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, Mr. Araskog would be entitled to receive payments
made (I) in monthly installments over the term of the contract remaining through
October 31, 2000 in amounts equal per annum to the sum of salary received by Mr.
Araskog for the calendar year immediately preceding such event, a percentage of
the average bonus received by Mr. Araskog with respect to the three calendar
years immediately preceding such event and the annual benefits and perquisites
to which he would be entitled 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
26
<PAGE> 32
October 31, 2003 is not nominated as a director of ITT, Mr. Araskog will receive
a lump sum payment equal to the then present value (based on Citibank N.A.'s
prime rate then in effect) of the balance remaining of the consulting fee and
the director's fees referred to in clauses (ii) and (iii) 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. Assuming Mr. Araskog's entitlement under clause (v) of the
preceding sentence were to commence on December 1, 1997, he would be entitled to
$9,817,053 on account of salary and bonus and approximately $5,700,000 on
account of consulting and director's fees and benefits and perquisites.
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 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 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
Common Stock (calculated as provided in paragraph (d) of Rule 13d-3 under the
Act in the case of rights to acquire 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 Common Stock
would be converted into cash, securities or other property, other than a merger
of ITT in which holders of 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.
27
<PAGE> 33
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. 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.
28
<PAGE> 34
Based on various assumptions as to remuneration and years of service,
before Social Security reductions, the following table illustrates the estimated
annual benefits payable from the Retirement Program at retirement at age 65 that
are paid for by ITT, subject to the offsets described above.
ITT PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
FINAL ----------------------------------------------------------------------
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.
29
<PAGE> 35
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.
CAESARS PENSION PLAN TABLE
<TABLE>
<CAPTION>
FIVE YEAR YEARS OF SERVICE
AVERAGE ------------------------------------------------------------
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 World, Inc. 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
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.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ----------------------------------------------------------------- ------------------ --------
<S> <C> <C>
Bankers Trust New York Corporation............................... 7,728,083 shares (1) 8.9%
280 Park Avenue
New York, New York 10017
FMR Corp......................................................... 13,166,423 shares (2) 11.32%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ---------------
(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
30
<PAGE> 36
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 (i) sole power to vote
or to direct the vote with respect to 7,725,383 shares of Common Stock, (ii)
shared 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 any 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.
31
<PAGE> 37
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.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ----------------------------------------------------------------- ------------------ --------
<S> <C> <C>
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%
</TABLE>
- ---------------
* 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 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
32
<PAGE> 38
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 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 $750,000, 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 50 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, dated as of February 10, 1997, 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
33
<PAGE> 39
(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 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 $5 million 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 $1.2 million.
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,
/s/ RICHARD S. WARD
RICHARD S. WARD
Executive Vice President, General
Counsel and Corporate Secretary
Dated: October 9, 1997
34
<PAGE> 40
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
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT OFFICE OR OTHER PRINCIPAL
BUSINESS ADDRESS OCCUPATION OR EMPLOYMENT
<S> <C>
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).................... Mr. Boynton 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)........................ Ms. Reese 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.
</TABLE>
1
<PAGE> 41
<TABLE>
<CAPTION>
NAME AND PRINCIPAL PRESENT OFFICE OR OTHER PRINCIPAL
BUSINESS ADDRESS OCCUPATION OR EMPLOYMENT
<S> <C>
Richard S. Ward (age 57)..................... Mr. Ward is an Executive Vice President and
General Counsel and Corporate Secretary of
ITT. From May 1994 to December 1995, he was
an Executive Vice President and General
Counsel of Old ITT. From September 1992 to
May 1994 he was a Senior Vice President and
General Counsel of Old ITT and prior to
that time he was a Vice President and
Associate General Counsel of Old ITT.
Daniel P. Weadock (age 57)................... Mr. Weadock 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.
</TABLE>
CERTAIN EMPLOYEES OF THE COMPANY
WHO MAY ALSO SOLICIT PROXIES
<TABLE>
<S> <C>
Anne Tarbell (age 39)........................ Ms. Tarbell is a Vice President and Director
of Investor Relations of ITT. From June 1995
to December 1995, Ms. Tarbell was a Vice
President and Director of Investor
Relations of Old ITT. From August 1991 to
June 1995, Ms. Tarbell was Assistant
Director of Investor Relations of Old ITT.
Patrick L. Donnelly (age 35)................. Mr. Donnelly is Vice President, Assistant
General Counsel and Assistant Secretary of
ITT. From October 1995 to June 1997 he was
Assistant General Counsel and Assistant
Secretary of ITT. Prior to that time, Mr.
Donnelly was an associate at Simpson
Thacher & Bartlett, a law firm.
</TABLE>
2
<PAGE> 42
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:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)
------------------------------------------------ ----------------------
<S> <C>
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............................. 27,941 shares
Richard S. Ward................................. 306,191 shares
</TABLE>
- ---------------
(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:
<TABLE>
<CAPTION>
DATE OF NATURE OF NUMBER OF SHARES
NAME TRANSACTION TRANSACTION OF COMMON STOCK
- -------------------------------------------- ------------------- ----------- ----------------
<S> <C> <C> <C>
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
</TABLE>
3
<PAGE> 43
<TABLE>
<CAPTION>
DATE OF NATURE OF NUMBER OF SHARES
NAME TRANSACTION TRANSACTION OF COMMON STOCK
- -------------------------------------------- ------------------- ----------- ----------------
<S> <C> <C> <C>
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
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
</TABLE>
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.
4
<PAGE> 44
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 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.
5
<PAGE> 45
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 LOGO]
CALL TOLL FREE: (800) 223-2064
<PAGE> 46
ITT CORPORATION
[ITT LOGO]
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 OF ITT
CORPORATION.
The 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, A
SUBSIDIARY OF HILTON 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> 47
[X] Please mark your
(vote as in this example) ITT CORPORATION
The 1997 Annual Meeting of ITT Corporation will be held at 11:30 a.m.
on Wednesday, November 12, 1997 at the St. Regis Roof (20th Floor) of the
St. Regis Hotel, New York, New York. 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
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).)
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 4. The Hilton By-law Repeal Proposal
[ ] AGAINST [ ] FOR [ ] ABSTAIN [ ] AGAINST [ ] FOR [ ] ABSTAIN
[ ] I PLAN TO ATTEND
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
Signature: ------------- Date: ---------
Signature: ------------- Date: ---------
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 using the enclosed envelope.
[ITT Logo]
