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