<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 14a-11(c) or 14a-12
</TABLE>
ITT INDUSTRIES
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
ITT INDUSTRIES
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[ITT LOGO]
Dear Fellow Shareholders:
You are invited to attend the 1996 Annual Meeting of ITT Industries, Inc. to be
held beginning at 10:30 A.M. on Tuesday, May 21, 1996. The meeting will take
place in the Celeste Bartos Forum of The New York Public Library, Fifth Avenue
and 42nd Street, New York, New York.
This will be the first Annual Meeting of the Company since the distribution of
the shares of ITT Corporation and ITT Hartford Group, Inc. on December 19, 1995.
ITT Industries is comprised of three businesses: ITT Automotive, ITT Defense &
Electronics, and ITT Fluid Technology. ITT Corporation is a hotel, gaming,
entertainment, and information services company. ITT Hartford Group, Inc. is an
insurance and financial services company. As separate companies, ITT Corporation
and ITT Hartford Group, Inc. will have their own annual meetings and, if you are
a shareholder in one or both of those companies, their proxy materials will be
sent to you by them.
If you attend the ITT Industries Annual Meeting you will hear our report on our
businesses and operations. Whether or not you plan to attend, you can assure
that your shares are represented at the meeting by promptly completing, signing,
dating, and returning the accompanying proxy card.
Very truly yours,
/s/ Travis Engen
--------------------------------
Travis Engen
Chairman, President
and Chief Executive
<PAGE> 3
[ITT LOGO]
March 29, 1996
Notice of 1996 Annual Meeting:
The 1996 Annual Meeting of Shareholders of ITT Industries, Inc. will be
held on Tuesday, May 21, 1996 at 10:30 A.M., local time, at the Celeste Bartos
Forum of The New York Public Library, Fifth Avenue and 42nd Street, New York,
New York to consider and act upon such business as may properly come before the
meeting.
Management intends to present for action proposals to elect seven directors
of ITT Industries and to ratify the appointment of Arthur Andersen LLP as the
Company's independent auditors for 1996. In addition, a shareholder has notified
the Company of her intention to present the proposal set forth on page 24 of the
accompanying Proxy Statement.
Shareholders of record at the close of business on March 25, 1996 are
entitled to vote at the meeting and any adjournments.
/s/ Gwenn L. Carr
-----------------------------
Gwenn L. Carr
Vice President and Secretary
<PAGE> 4
ITT INDUSTRIES, INC.
4 West Red Oak Lane
White Plains, New York 10604
PROXY STATEMENT
INTRODUCTION
On December 19, 1995, ITT Corporation, a Delaware corporation ("ITT Delaware")
made a distribution (the "Distribution") to its shareholders consisting of all
the shares of common stock of ITT Destinations, Inc., a Nevada corporation which
held ITT Delaware's interests in the hospitality, entertainment, and information
services businesses, and all the shares of common stock of ITT Hartford Group,
Inc., a wholly-owned subsidiary which held ITT Delaware's interests in the
insurance businesses ("ITT Hartford"). Effective December 20, 1995, pursuant to
a statutory merger, ITT Delaware merged into ITT Industries, Inc., an Indiana
corporation ("ITT Industries"), with ITT Industries as the surviving corporation
(the "Company"). ITT Destinations, Inc. changed its name to ITT Corporation.
Certain of the historical information presented in this Proxy Statement concerns
ITT Delaware, which will be referred to herein as "ITT".
------------------------
This Proxy Statement is furnished to shareholders of ITT Industries in
connection with the solicitation of proxies by the Board of Directors for the
1996 Annual Meeting. Proxy materials, including this Proxy Statement and a proxy
card, are scheduled to be mailed to shareholders on or about March 29, 1996.
All shareholders of record at the close of business on March 25, 1996 will be
entitled to vote at the 1996 Annual Meeting. As of March 25, 1996, 117,708,981
shares of ITT Industries Common Stock were outstanding, each of which is
entitled to one vote on each matter to be voted upon at the Annual Meeting. The
presence in person or by proxy of shareholders holding a majority of such
outstanding shares will constitute a quorum for the transaction of business at
the meeting.
Shares represented by a properly signed and returned proxy card will be voted as
specified by the shareholder. IF A CARD IS SIGNED AND RETURNED, BUT NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES
FOR DIRECTOR; FOR THE RATIFICATION OF THE APPOINTMENT OF THE INDEPENDENT
AUDITORS; AND AGAINST THE SHAREHOLDER PROPOSAL DESCRIBED IN THIS PROXY
STATEMENT. Other than the three proposals described above, the Board of
Directors does not know of any other matter to be presented at the 1996 Annual
Meeting. If other matters are presented, it is the intention of the proxies
identified on the accompanying proxy card to vote in accordance with their
judgment on such matters.
A shareholder may revoke a proxy at any time before it is voted by delivering a
written notice of revocation to the Secretary of ITT Industries, by submitting a
proxy bearing a later date, or by voting in person at the 1996 Annual Meeting.
The affirmative vote of a majority of the shares entitled to vote which are
represented at the meeting is required for approval of matters presented to the
meeting, except for the election of Directors, in which case the persons
receiving the greatest number of votes, up to the number of directors to be
elected at the meeting, shall be elected the Directors. Abstentions and broker
non-votes will be counted for purposes of determining whether a quorum is
present but will not be counted as votes cast for or against a particular
proposal. Abstentions and broker non-votes therefore will have the same effect
as a vote against a proposal.
<PAGE> 5
If you participate in the ITT Industries Investment and Savings Plan for
Salaried Employees, or a savings plan for hourly employees of one of the
businesses of ITT Industries, the trustee for the plan will provide you with a
proxy representing the shares you are entitled to vote under the plan.
The By-laws of ITT Industries establish a policy of confidential proxy voting
and provide that the inspectors of election will monitor and certify that
confidentiality has been maintained.
I. ELECTION OF DIRECTORS
At the 1996 Annual Meeting, seven Directors are to be elected to hold office
until the 1997 Annual Meeting and until their successors have been elected and
qualified. All of the seven nominees are currently serving as Directors, and the
Board of Directors has no reason to believe that any of the nominees will be
disqualified or unable or unwilling to serve if elected. If any nominee is
unable to serve for any reason, the proxies may exercise their discretion to
vote for such other person as the current Directors may recommend to fill the
vacancy, or the Directors may reduce the size of the Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
FOLLOWING SEVEN NOMINEES AS DIRECTORS OF ITT INDUSTRIES. Unless a contrary
specification is made, the shares represented by properly signed and returned
proxy cards will be voted for the election of the seven nominees.
<TABLE>
<S> <C>
TRAVIS ENGEN
Chairman, President and Chief Executive of ITT Industries, Inc.
</TABLE>
Mr. Engen, 51, has been chairman, president and chief executive of ITT
Industries since the Distribution. He previously had been an executive vice
president of ITT since January 1991 and senior vice president of ITT and chief
executive officer of ITT Defense, Inc. from 1987 until January 1991. Mr. Engen
is a director of Lyondell Petrochemical Company and of Alcan Aluminium Limited.
He is a member of the Manufacturers Alliance Board of Trustees. Mr. Engen has a
BS degree in Aeronautics and Astronautics from the Massachusetts Institute of
Technology.
Mr. Engen has been a director of ITT Industries since December 1995. He is
chairman of the Capital Committee.
2
<PAGE> 6
<TABLE>
<S> <C>
RAND V. ARASKOG
Chairman and Chief Executive of ITT Corporation,
a hotel, gaming, entertainment and information services company
</TABLE>
Mr. Araskog, 64, had been chief executive of ITT since 1979 and chairman since
1980. Since the Distribution, he has been Chairman and Chief Executive of ITT
Corporation. He is a director of ITT Corporation; ITT Hartford; and ITT
Educational Services, Inc. He also is a director of Alcatel Alsthom of France;
Dow Jones & Company, Inc.; Dayton-Hudson Corporation; Rayonier Inc.; and Shell
Oil Company. Mr. Araskog is a member of The Business Council, The Business
Roundtable, and the Trilateral Commission. He also is a trustee of the New York
Zoological Society and of the Salk Institute. Mr. Araskog is a graduate of the
U.S. Military Academy at West Point and attended the Harvard Graduate School of
Arts and Sciences.
Mr. Araskog has been a director of ITT Industries or its predecessor since 1977.
He is a member of the Capital Committee.
<TABLE>
<S> <C>
ROBERT A. BURNETT
Retired Chairman and Chief Executive Officer of Meredith Corporation,
a diversified media company
</TABLE>
Mr. Burnett, 67, 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. He is a director of ITT Corporation;
ITT Hartford; Meredith Corporation; Whirlpool Corporation; and Mid American
Energy. He is a member of the Board of Trustees of Grinnell College, Grinnell,
Iowa. He also is a director of the Greater Des Moines Committee and the Des
Moines Art Center. Mr. Burnett has a BA degree in economics from the University
of Missouri.
Mr. Burnett has been a director of ITT Industries or its predecessor since 1985.
He is a member of the Audit, Capital, Corporate Responsibility and Nominating
Committees. He also is the chairman of the Compensation and Personnel Committee.
3
<PAGE> 7
<TABLE>
<S> <C>
CURTIS J. CRAWFORD
President, Microelectronics, a business unit of Lucent Technologies, Inc.,
a producer of components for personal computers, cellular devices,
workstations and communications products
</TABLE>
Mr. Crawford, 48, has been president of Microelectronics since 1993. From 1991
to 1993, he was vice president and co-chief executive officer of
Microelectronics, formerly a division of AT&T. From 1988 to 1991, Mr. Crawford
was vice president of sales, service and support at AT&T Computer Systems. From
1973 to 1988, he held various positions at International Business Machines. He
was vice president of marketing for the National Distribution Division of IBM
from 1986 to 1988. He is a director of Lyondell Petrochemical Company and of
i-Stat Corporation. He also is a director of the Semiconductor Industry
Association. He has an MA degree from Governors State University and an MBA from
DePaul University.
Mr. Crawford has been a director of ITT Industries since February 1996. He is a
member of the Capital, Compensation and Personnel, and Corporate Responsibility
Committees.
<TABLE>
<S> <C>
MICHEL DAVID-WEILL
Chairman of Lazard Freres & Co. LLC,
investment bankers
</TABLE>
Mr. David-Weill, 63, has been Chairman of Lazard Freres & Co. LLC since May 1,
1995 when Lazard Freres & Co., of which he had been Senior Partner since 1977,
was restructured and its name changed. He became a partner in Lazard Freres &
Co., New York, in 1961, where he served until 1965. In 1965 he became a partner
of Lazard Freres & Cie., Paris, and a director of Lazard Brothers & Co. Limited,
London. Mr. David-Weill is a director of a number of corporations, including
Groupe Danone and Publicis S.A. in France; Fiat S.p.A. in Italy; Pearson plc in
England; The Dannon Company, Inc.; the New York Stock Exchange, Inc. in the
United States; as well as other companies of which Lazard Freres & Cie., Paris,
or one of its affiliates, is the principal shareholder. He graduated from the
Institut des Sciences Politiques, Paris, France.
Mr. David-Weill has been a director of ITT Industries or its predecessor since
1981. He is a member of the Capital Committee.
4
<PAGE> 8
<TABLE>
<S> <C>
S. PARKER GILBERT
Chairman, Morgan Stanley Advisory Board,
international consultants
</TABLE>
Mr. Gilbert, 62, retired in 1990 from Morgan Stanley Group Inc., where he served
as chairman from 1984. He joined Morgan Stanley in 1960, was elected a partner
in 1969, a managing director in 1970, and president in 1983. Mr. Gilbert is a
director of Morgan Stanley Group Inc.; Burlington Resources Inc.; and Taubman
Centers, Inc. He is president, Board of Trustees, the Pierpont Morgan Library;
member, Board of Trustees, the Metropolitan Museum of Art; the Alfred P. Sloan
Foundation; and the John Simon Guggenheim Memorial Foundation; and director,
Josiah H. Macy Foundation. Mr. Gilbert is a graduate of Yale University.
Mr. Gilbert has been a director of ITT Industries or its predecessor since 1991.
He is a member of the Capital, Corporate Responsibility, and Nominating
Committees. He is chairman of the Audit Committee.
<TABLE>
<S> <C>
EDWARD C. MEYER
Chairman of GRC International,
a professional and technical services provider
</TABLE>
General Meyer, 67, retired in 1983 as chief of staff of the United States Army.
He is a director of ITT Corporation; FMC Corporation and its joint venture
company in Turkey, Savunma Sanayii A.S.; the United Defense Group; the Brown
Group; Aegon U.S.A.; and GRC International. He is a managing partner of Cilluffo
Associates Limited Partnership, which owns approximately 20% of GRC
International. He is chairman of Mitretek; a trustee of the George C. Marshall
Foundation; and a board member of the Smith Richardson Foundation. He is
president of the Army Emergency Relief Association; a member of the Board of
Overseers of the Hoover Institution; and the Board of Advisors of the Center for
Strategic and International Studies. General Meyer received a BS degree in
engineering from the U.S. Military Academy at West Point and an MS degree in
international affairs from George Washington University.
General Meyer has been a director of ITT Industries or its predecessor since
1986. He is a member of the Audit, Capital and, Compensation and Personnel
Committees. He is chairman of the Corporate Responsibility and Nominating
Committees.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE SEVEN
NOMINEES AS DIRECTORS OF ITT INDUSTRIES.
5
<PAGE> 9
INFORMATION ABOUT THE BOARD OF DIRECTORS AND BOARD COMMITTEES
There are five Standing Committees of the ITT Industries Board of Directors: the
Audit Committee, the Capital Committee, the Compensation and Personnel
Committee, the Corporate Responsibility Committee, and the Nominating Committee.
Only non-employee Directors may be members of the Audit, Compensation and
Personnel, and Nominating Committees.
AUDIT COMMITTEE. The Audit Committee recommends the selection of independent
auditors, confirms the scope of audits to be performed by such auditors, reviews
audit results and the fees paid to the independent auditors. The Audit Committee
reviews internal accounting and control procedures and policies. The Audit
Committee also reviews and recommends approval of the Company's audited
financial statements and its annual reports to shareholders. Expense accounts of
senior executives and officers are reviewed by the Audit Committee.
CAPITAL COMMITTEE. The Capital Committee is responsible for maximizing the
effective use of the assets of ITT Industries and its subsidiaries and, to that
end, reviews capital expenditures and appropriations. The Committee also reviews
and approves acquisitions and dispositions.
COMPENSATION AND PERSONNEL COMMITTEE. The Compensation and Personnel Committee
oversees the compensation and benefits of employees, evaluates management
performance, and establishes executive compensation. In connection with such
responsibilities, the Committee has access to independent compensation counsel.
CORPORATE RESPONSIBILITY COMMITTEE. The Corporate Responsibility Committee
reviews and makes recommendations concerning ITT Industries' responsibilities as
a leading member of the corporate community. It reviews and considers major
claims and litigation involving ITT Industries and its subsidiaries. The
Committee reviews legal, regulatory, and governmental policies as they may
affect ITT Industries and its businesses. The Committee also reviews and
approves management policies and programs for effecting compliance with laws and
regulations, including environmental laws and regulations.
NOMINATING COMMITTEE. The Nominating Committee makes recommendations concerning
the organization, size, and composition of the Board of Directors and its
Committees, proposes nominees for election to the Board of Directors, and makes
recommendations concerning the qualifications, compensation, and retirement age
of directors.
The Nominating Committee will consider proposals for director nominations from
shareholders. Such proposals must be submitted in writing to the Secretary of
ITT Industries and must comply with the provisions of the Company's By-laws
which establish the requirements for such nominations. A copy of the
requirements may be obtained from the Secretary.
During 1995, there were 54 Board and Committee meetings of ITT. Directors of ITT
who are now Directors of ITT Industries attended more than 75% of the aggregate
of all meetings of ITT's Board of Directors and its Board Committees on which
such Directors served, except Mr. David-Weill, who attended 67% of such
meetings.
6
<PAGE> 10
COMPENSATION OF DIRECTORS
Pursuant to the 1996 Restricted Stock Plan for Non-Employee Directors, which was
approved by shareholders in September 1995, Directors who are not also employees
of ITT Industries are granted restricted stock in lieu of an annual cash
retainer. The number of shares of restricted stock that each non-employee
Director receives is determined by dividing the "fair market value" of a share
of ITT Industries Common Stock into the amount of the current annual retainer,
now $30,000. Fractional shares are paid in cash. "Fair market value" is defined
as the average of the high and low sales price per share of ITT Industries
Common Stock on the date of the grant as reported on the New York Stock Exchange
Composite Tape. A total of 100,000 shares have been reserved for issuance under
the Plan.
Restricted shares granted to the Directors are held in escrow until the
restrictions lapse upon the earliest of (i) the fifth anniversary of the grant
date; (ii) the retirement of a Director at age 72; (iii) a "change of control"
as defined in the Plan; (iv) death; (v) the onset of disability ; or (vi)
termination of services under certain cases of ill health, relocation,
government service or circumstances of conflicts of interest and other legal
concerns as determined by outside legal counsel. Directors may vote and receive
dividends on their restricted shares unless the shares are forfeited under the
Plan.
Non-employee Directors also receive attendance fees of $1,000 for each Board
meeting attended and $750 for each Committee meeting. Such fees are paid in
cash.
Non-employee Directors may participate in a group life insurance plan which
provides $100,000 of non-contributory group life insurance to participants
during their service on the Board. Non-employee Directors also are covered under
a non-contributory group accidental death and dismemberment program which
provides $750,000 of coverage during the Director's Board service. Directors
also may purchase additional benefits.
Mr. Engen, an employee of ITT Industries, is not compensated for his service as
a Director.
CERTAIN TRANSACTIONS
Lazard Freres & Co. LLC, of which Mr. David-Weill is Chairman, performed various
investment banking services for ITT and its subsidiaries in 1995 and advised the
Board of Directors of ITT in connection with the Distribution and received
compensation for providing such advice. It is anticipated that Lazard Freres &
Co. LLC will perform investment banking services for ITT Industries and its
subsidiaries during 1996 and thereafter. In 1988, the ITT Master Retirement
Trust, Hartford Accident and Indemnity Company, and Hartford Life Insurance
Company (the "ITT Investment Vehicles") committed to invest an aggregate of $35
million in, and became limited partners of, Corporate Partners, L.P., a fund
organized by Lazard Freres & Co. With certain exceptions, such commitment
expired in 1994. Under the terms of the limited partnership agreement, the ITT
Investment Vehicles have agreed to pay Corporate Advisors, L.P., the general
partner of Corporate Partners, L.P., certain amounts in connection with their
investment. During 1995, the ITT Investment Vehicles paid Corporate Advisors,
L.P. fees aggregating $14,415.
A By-law of ITT Industries provides for mandatory indemnification of ITT
Industries directors and officers (including payment of legal fees) to the
fullest extent permitted by applicable law. The By-law also provides that ITT
Industries may maintain insurance to indemnify its directors and officers
against liabilities whether or
7
<PAGE> 11
not ITT Industries would be permitted to indemnify them. This type of insurance,
as well as policies under which ITT Industries may be reimbursed for amounts
paid in indemnification of its directors and officers, are in force. The
premiums thereon, which aggregate $1,291,950 for a nineteen-month period, are
paid by ITT Industries. As authorized by such By-law, ITT Industries has entered
into indemnification agreements with its directors pursuant to which ITT
Industries 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 Industries
as in effect on the date of such agreement; and (iii) in the event ITT
Industries does not maintain the aforementioned insurance or comparable
coverage, to the full extent provided in the applicable policies as in effect on
the date of such agreement (ITT Industries' 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.
EXECUTIVE COMPENSATION
REPORT OF THE ITT INDUSTRIES COMPENSATION AND PERSONNEL COMMITTEE
This report discusses executive compensation policies established by the
Compensation and Personnel Committee of the Board of Directors of ITT prior to
the Distribution (the "ITT Committee"). Additionally, this report discusses the
application of these policies to ITT Industries' executive officers in general
and the rationale for the specific decisions affecting the compensation as
reported for 1995 of Travis Engen, Executive Vice President of ITT prior to the
Distribution and now Chairman, President and Chief Executive of ITT Industries.
This report also discusses the specific elements of compensation for Mr. Engen
and each of the other four most highly paid executive officers of ITT Industries
as of the end of 1995. Such executive compensation policies were based on the
competitive practices of ITT and on the performance measures and guidelines of
the compensation programs that were in place at ITT prior to the Distribution.
It is anticipated that such policies will continue to be in effect at ITT
Industries through 1996 while an assessment is being conducted by the ITT
Industries Compensation and Personnel Committee (the "ITT Industries Committee")
as to what compensation policies will be implemented at ITT Industries
thereafter.
Immediately following this report is a performance graph which compares the
cumulative total return of ITT Industries Common Stock to the cumulative total
returns of the S&P 500 Index, and a composite index of corporations in the same
businesses as ITT Industries (the "Composite Index") (assuming the investment of
$100 in (a) ITT Industries Common Stock, (b) the S&P 500 Index, and (c) the
Composite Index for the period December 15, 1995 through February 29, 1996).
The amounts of all compensation awarded to, earned by, or paid to Travis Engen,
the chief executive, and the other four most highly compensated executive
officers who were serving as executive officers of ITT Industries at the end of
1995 are set forth on the Summary Compensation Table presented herein. Also set
forth is certain information with respect to Rand V. Araskog, the Chairman and
Chief Executive of ITT prior to the Distribution, and Robert A. Bowman and
Daniel P. Weadock who had been executive officers of ITT prior to the
Distribution. Messrs. Araskog, Bowman and Weadock resigned as executive officers
of ITT on the date of the Distribution.
8
<PAGE> 12
ITT Industries is a global, diversified manufacturing company with approximately
59,000 employees located in 40 countries and assets in excess of $5.8 billion,
which must attract, motivate and retain skilled management. It is anticipated
that in establishing compensation policies and programs for 1997 and thereafter
the ITT Industries Committee will consider compensation provided to executives
of corporations similar to ITT Industries in terms of assets, sales and
revenues, and earnings. These corporations will consist primarily of 15 leading
competitor companies with sales exceeding $8 billion. ITT Industries' ongoing
executive compensation program will be designed to attract, reward, and retain
capable and motivated executives and to provide incentives which vary depending
upon the attainment of short-term operating performance objectives and strategic
long-term performance goals. It is anticipated that the major objective of the
long-term incentive program, which has been substantially in the form of stock
options in recent years, will continue to provide ITT Industries executives with
incentives directly linked to appreciation in shareholder value.
THE ITT INDUSTRIES COMMITTEE'S ROLE. The ITT Industries Committee's role is to
oversee the administration of the Company's executive compensation program. It
reviews all proposed new or amended employee benefit plans and will approve
individual compensation actions for all corporate officers and senior
executives. The ITT Industries Committee is currently composed of the three
non-employee directors named below, none of whom is eligible to participate in
any of the plans which make up ITT Industries' executive compensation program.
It is the policy of the ITT Industries Board of Directors to periodically rotate
the members and the post of chairman of the ITT Industries Committee to assure
that fresh points of view are part of its deliberations.
The ITT Industries Committee has the authority to select and retain outside
compensation consultants from nationally recognized independent compensation and
benefits consulting firms for expert advice on any aspect of ITT Industries'
current or proposed executive compensation program and may request written
reports or hold private meetings with such consultants in order to receive
independent opinions on compensation proposals. It may also meet in executive
sessions which would not be attended by any ITT Industries executives or
managers and has the authority to retain outside legal counsel to provide
guidance on executive compensation matters.
THE COMPENSATION PROGRAM. The present compensation program for ITT Industries
executives consists of base salary, annual incentive bonus, long-term
incentives, and employee benefits, each of which is discussed below.
BASE SALARY. Salaries are set and administered to reflect the value of the job
in the marketplace and individual contribution and performance. Based on a
recent ITT Industries compensation survey, ITT Industries' senior executive
salaries are approximately at the 55th percentile of competitive practice.
Salaries provide a necessary element of stability in the total pay program and
are not generally subject to significant variability. Salary increases are based
primarily on merit. During 1995, ITT Industries' executive salaries, having been
established by ITT, were evaluated in relation to a competitive annualized merit
increase guideline of 4% for expected levels of individual performance. Actual
increases vary from the guideline depending primarily on individual performance.
The normal interval between salary reviews for all executives during 1996 will
be twelve months.
The ITT Industries Committee authorized a salary increase for Mr. Engen of
$100,000 effective March 1, 1996 bringing his annual salary to $800,000. This
increase, which followed a sixteen-month interval, was based
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<PAGE> 13
on the ITT Industries Committee's review of Mr. Engen's performance and his
position as Chief Executive of ITT Industries following the Distribution. The
ITT Industries Committee will continue to review and assess Mr. Engen's
performance, as well as that of all senior executives, and will authorize such
salary actions as are appropriate, commensurate with relevant competitive data
and the approved ITT Industries salary administration program. As of March 1,
1996, the annual salaries of the other named executive officers of ITT
Industries were as follows: Mr. Leuliette, $500,000; Mr. Giuliano, $400,000; and
Mr. Smith, $255,000. Effective March 1, 1996, Mr. Nilsson retired after more
than forty years of service.
ANNUAL INCENTIVE BONUS PLANS. For 1995, Mr. Engen participated in the ITT
Annual Performance-Based Incentive Plan for Executive Officers which was
approved by ITT shareholders in 1994 and amended in 1995. Amounts paid under
that plan were based on the corporate performance of ITT during 1995 as compared
to the annual performance goals established and approved by the ITT Committee at
the beginning of the 1995 performance year. For 1995, performance measurements
were earnings per share compared to budget, earnings per share compared to the
prior year, and return on equity compared to budget. These measures were
weighted 40%, 40%, and 20%, respectively. The weighted average performance
factor under the formula was calculated at 105.52%. Under a leveraged
performance/payout schedule, the performance factor generated a standard bonus
adjustment factor of 116.54%. The bonus amount for Mr. Engen calculated under
this formula was $611,800 as reflected in the Summary Compensation Table
following this report.
Bonus awards approved for Messrs. Leuliette, Giuliano, Nilsson, and Smith for
1995 performance were in accordance with the bonus programs applicable to their
respective companies. The bonus plans for ITT Automotive (Mr. Leuliette) and ITT
Defense & Electronics (Mr. Giuliano) measured actual net income, return on total
capital ("ROTC"), and operating funds flow ("OFF") compared to the approved
budgeted amounts for 1995 for each performance measure. Net income, ROTC, and
OFF performance were weighted 60%, 25%, and 15%, respectively. For ITT Fluid
Technology (Mr. Nilsson), the formula measured operating income compared to
budget, operating income compared to the prior year, controllable assets as a
percent of sales compared to the prior year, and sales compared to budget. For
ITT Fluid Technology, these measures were weighted 30%, 30%, 30%, and 10%,
respectively. ITT Sheraton's (Mr. Smith) bonus plan measured operating income
compared to budget and compared to the prior year, and these measures were
weighted 50% each. With respect to the operating company plans, the maximum
bonus pool was 150% of the aggregated standard bonus pool. Individual bonus
amounts within the authorized pool were determined on a discretionary basis
taking into account specific personal contributions during the year. The
approved performance factors for ITT Automotive, ITT Defense & Electronics, ITT
Fluid Technology, and ITT Sheraton were 91.5%, 143.1%, 110.0%, and 138.1%,
respectively. 1995 bonus awards for all executive officers of ITT Industries
were approved by the ITT Committee at its October 10, 1995 meeting.
For performance year 1996, ITT Industries will continue the Annual
Performance-Based Incentive Plan for Executive Officers in substantially the
same form as in effect for 1995. It is contemplated that senior executives will
participate in that Plan and will be subject to the same performance measures
and weightings as contained in the 1995 plan.
STOCK OPTION AWARDS. Stock option awards provide long-term incentives which are
directly related to the performance of ITT Industries Common Stock. Options
generally have 10-year terms and closely align the executive's interests with
those of other shareholders. As a result of the Distribution, pursuant to the
provisions of the plans, ITT stock options outstanding on December 19, 1995 were
adjusted in the case of employees
10
<PAGE> 14
continuing with ITT Industries. Employees of ITT Hartford and ITT Corporation
whose options were surrendered and canceled were granted substitute stock
options in their respective companies. In all cases, the adjusted or substitute
numbers of options and their exercise prices were designed to preserve the
economic value of the ITT options prior to the Distribution. The original
vesting and expiration dates and other terms of the related ITT options remain
in effect for the adjusted or substitute stock options. Reference is made to the
stock option tables on pages 17 and 18 for information relating to stock options
held by the individuals named in the Summary Compensation Table.
Mr. Engen was awarded 60,000 ITT stock options on May 9, 1995 at an exercise
price of $108.75 per share. As discussed above, these options were adjusted to
321,126 ITT Industries stock options having an adjusted exercise price of $20.32
per share. Such options became fully exercisable on March 5, 1996 after the
closing price of ITT Industries Common Stock equaled or exceeded $25.40 for ten
consecutive trading days. In total, including the May 9, 1995 option grant, as
of December 19, 1995 Mr. Engen held 311,624 ITT stock options having an average
exercise price of $72.57. After such adjustment, Mr. Engen held 1,667,843 ITT
Industries stock options having an average exercise price of $13.56.
At its March 12, 1996 meeting, the ITT Industries Committee granted
non-qualified stock options to approximately 600 executives, including Messrs.
Engen, Leuliette, Giuliano and Smith. For Mr. Engen and the other named
executive officers, such options were granted with an exercise price of $25.38
per share and will become exercisable upon the earlier of an appreciation in ITT
Industries Common Stock price of 25% above the grant price or nine years from
the date of grant.
LONG-TERM PERFORMANCE PLAN. The ITT Long-Term Performance Plan authorized
performance units to be awarded to employees of ITT and its subsidiaries. Awards
were to be made to eligible employees at the discretion of the ITT Committee.
The Plan was amended on October 8, 1991, with respect to awards made thereafter,
to enable the ITT Committee to establish new performance objectives upon which
payments, if any, would be based. The Plan was further amended on October 10,
1995 to enable the ITT Committee to increase or decrease payment values based
upon events or circumstances having a material impact on the overall performance
of ITT.
Payment under the Plan was authorized by the ITT Committee on October 10, 1995,
with such payment being made in January, 1996. The ITT Industries executive
officers named in the Cash Compensation Table received payments as follows: Mr.
Engen, $1,125,000; Mr. Leuliette, $798,000; Mr. Giuliano, $1,000,000; Mr.
Nilsson, $520,000, and Mr. Smith, $75,000. The payments for Messrs. Leuliette
and Nilsson were calculated based on the ROE performance of ITT Automotive and
ITT Fluid Technology, respectively, over the three year performance period. Each
year of the performance period carried a specific weighting: 15% for 1993, 35%
for 1994, and 50% for 1995. The approved payment factors as earned under the
plan for Messrs. Leuliette and Nilsson for their awards were 114% and 104%,
respectively. With respect to Mr. Giuliano, the approved payment factor was
based upon the ROE performance of ITT Defense during the four-year period 1992
through 1995. The performance period weightings for ITT Defense were 10% for
1992, 15% for 1993, 25% for 1994, and 50% for 1995. The approved payment factor
as earned for Mr. Giuliano's award was 200%. The overall ROE performance of ITT
produced an earned performance payout factor of 47.3% under the Plan, and ITT
Sheraton's performance did not result in a payment factor for the performance
period. The ITT Committee, in its sole discretion and based on its assessment of
the overall performance of
11
<PAGE> 15
ITT, in Mr. Engen's case, and of ITT Sheraton, in Mr. Smith's case, determined
and approved payment factors of 75% and 30%, respectively.
EMPLOYEE BENEFITS. Executives also participate in ITT Industries' broad-based
employee benefits program which includes a pension program, an investment and
savings plan, group medical and dental coverage, group life insurance, and other
benefit plans. Further details on the ITT Industries pension program are
provided on pages 22 and 23.
In 1995, the ITT Board of Directors adopted the 1996 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 1995 bonus, their Long-Term
Performance Plan payment and severance pay, if applicable. ITT Industries will
credit interest on the deferred compensation based on the performance of
benchmark investment funds made available under the plan and selected by the
executive.
Since existing compensation and benefits programs are based upon those of ITT
established and in effect prior to the Distribution, the ITT Industries
Committee believes that it is essential to conduct a comprehensive study at the
earliest possible date to assure that such programs for 1997 and thereafter
address matters relevant to the specific businesses and concerns of ITT
Industries. Until such a study is completed, the ITT Industries Committee will
look to existing practices as a guide in making compensation decisions. At its
January 9, 1996 meeting, the ITT Industries Committee began this study and
retained the services of an independent compensation and benefits consulting
firm for assistance.
The ITT Industries Committee expects that the study will include consideration
of the following issues:
- - The composition of the appropriate group of comparable companies for purposes
of assessing the competitive levels of compensation and benefits at ITT
Industries.
- - The appropriate relationship between pay levels in ITT Industries and the
selected group of comparable companies.
- - The appropriate weighting that should be given to each of the forms of
compensation (salary, annual incentive, long-term incentive, stock options,
etc.) in ITT Industries to best assure consistency with its business goals and
strategies.
- - The relationship between performance (both business and individual) and
compensation.
- - The measures of performance that should be used in each of the compensation
plans. This encompasses the role, if any, that the ITT Industries Committee's
judgment should play in determining performance and, therefore, compensation
levels.
- - The extent to which ITT Industries' compensation plans are in compliance with
Section 162(m) of the Internal Revenue Code. Failure to comply with Section
162(m) means foregoing the tax deduction otherwise available to ITT Industries
for compensation above $1 million. Compliance with Section 162(m) means
foregoing the use of discretion in determining incentive payments.
The ITT Industries Committee anticipates that, as a result of this study,
certain changes in present compensation plans may be desirable and new plans may
need to be implemented. Such actions may require approval of shareholders at
next year's annual meeting.
12
<PAGE> 16
Notwithstanding the above, the ITT Industries Committee believes that the
overall performance of the senior executives cannot be reduced in all cases to a
fixed formula and that the prudent use of discretion in determining pay levels
is in the best interest of ITT Industries and its shareholders. Under some
circumstances (other than in the context of the ITT Industries Annual
Performance-Based Incentive Plan for Executive Officers), the use of discretion
in determining appropriate amounts of compensation may be essential. In those
situations where discretion is used, compensation may not be fully deductible on
ITT Industries' tax return. However, the ITT Industries Committee does not
believe that such loss of deductibility will have any material impact on the
financial condition of ITT Industries.
This report is furnished by the members of the ITT Industries Committee:
Robert A. Burnett, Chairman of the ITT Industries Committee
Curtis J. Crawford
Edward C. Meyer
13
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the cumulative total return of ITT Industries
Common Stock to the cumulative total return of the S&P 500 Index and a composite
index composed of the Dow Jones Average of the three Industry Groups which are
representative of ITT Industries' businesses (the "Composite Index") for the
period beginning on December 15, 1995, when ITT Industries Common Stock began to
trade on the New York Stock Exchange on a when-issued basis, through February
29, 1996, assuming the investment of $100 on December 15, 1995.
[Cumulative Total Return Graph]
<TABLE>
<CAPTION>
15-DEC-95 29-DEC-95 31-JAN-96 29-FEB-96
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ITT Industries(1) $100 $107 $116 $117
S&P 500(R) $100 $100 $103 $104
Dow Jones Avg. of 3 Industry $100 $102 $105 $107
Groups(2)
</TABLE>
(1) The total return calculation for ITT Industries is based upon the Company's
when-issued closing price of $22.50 on December 15, 1995. ITT Industries
fiscal year-end is December 31.
(2) The Dow Jones Average of 3 Industry Groups represents a revenue-weighted
composite of the Dow Jones Aerospace & Defense Index, the Dow Jones Automobile
Parts & Equipment Index (excluding Tire and Rubber Makers) and the Dow Jones
Industrial (Diversified) Index.
14
<PAGE> 18
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------
------------------------------------ SECURITIES LONG-TERM
OTHER ANNUAL UNDERLYING INCENTIVE ALL OTHER
COMPENSATION OPTIONS PLAN COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1)(B) (#)(2)(A) PAYOUTS($)(3) ($)(4)(C)
- ---------------------------------------- ---- --------- --------- ------------ --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Travis Engen............................ 1995 700,000 611,800 17,104 321,126 1,125,000 51,292
Chairman, President and Chief 1994 608,333 638,250 15,991 321,126 -- 23,073
Executive -- ITT Industries 1993 541,667 731,000 13,043 292,525 -- 19,930
Timothy D. Leuliette.................... 1995 474,996 251,500 5,281 198,028 798,000 35,372
Senior Vice President -- ITT 1994 425,417 360,000 10,230 198,028 -- 16,668
Industries & President and Chief 1993 405,000 197,200 114,912 216,466 -- 15,146
Executive Officer -- ITT Automotive,
Inc.
Louis J. Giuliano....................... 1995 368,539 296,000 6,820 198,028 1,000,000 40,455
Senior Vice President -- ITT 1994 333,814 280,000 27,577 198,028 -- 13,465
Industries & President and Chief 1993 315,000 205,000 13,201 216,466 -- 11,996
Executive Officer -- ITT Defense &
Electronics, Inc.
Bertil T. Nilsson....................... 1995 343,283 204,500 2,291 176,619 520,000 29,203
Senior Vice President -- ITT 1994 327,100 190,000 9,331 176,619 -- 12,806
Industries & President and Chief 1993 315,000 152,000 16,738 193,066 -- 11,996
Executive Officer --
ITT Fluid Technology Corporation
James P. Smith, Jr. .................... 1995 233,000 107,300 282,524 26,761 75,000 36,570
Senior Vice President and Director of 1994 220,000 105,000 4,464 32,113 -- 9,481
Human Resources -- ITT Industries 1993 201,000 43,000 -- 35,104 -- 8,338
------------------------
Rand V. Araskog ........................ 1995 2,000,000 2,330,800 251,063 -- 2,625,000 449,962
Chairman, President and Chief 1994 1,625,000 2,405,000 219,457 -- -- 58,656
Executive of ITT until December 19, 1993 1,525,000 2,584,900 185,793 -- -- 54,346
1995(a)
Robert A. Bowman ....................... 1995 583,333 611,800 44,942 -- 900,000 37,380
Executive Vice President and Chief 1994 456,250 471,750 25,534 -- -- 13,844
Financial Officer of ITT until 1993 416,667 540,300 368,537 -- -- 11,388
December 19, 1995(a)
Daniel P. Weadock....................... 1995 516,667 398,800 433,646 -- 1,280,000 44,321
Senior Vice President of ITT until 1994 500,000 385,000 13,408 -- -- 17,500
December 19, 1995(a) 1993 462,689 278,000 24,468 -- -- 16,194
</TABLE>
- ---------------
(1) Amounts shown in this column for Messrs. Engen, Leuliette, Giuliano, Nilsson
and Smith are tax reimbursement allowances which are intended to offset the
inclusion in taxable income of the value of certain benefits, except that
the amount shown for Mr. Smith for 1995 includes $150,659 in relocation
expense and Mr. Leuliette's amount for 1993 includes a payment of $100,000
pursuant to his offer of employment with ITT Automotive.
(2) The named executive officers do not hold any stock appreciation rights in
connection with the options shown. The number and exercise prices of all ITT
stock options outstanding at the time of the Distribution were adjusted to
preserve the economic value of the options as a result of the Distribution.
This adjustment increased the number of options by a factor of 535.2105% and
decreased the exercise prices of the options then outstanding by a factor of
18.6842%. At the same time, ITT stock options were adjusted to become ITT
Industries stock options. The numbers of shares in this column represent the
adjusted shares.
(3) All amounts shown in this column represent payments made in January 1996
with respect to the ITT Long-Term Performance Plan.
(4) All amounts shown in this column for Messrs. Engen, Leuliette, Giuliano,
Nilsson and Smith are company contributions under the ITT Investment and
Savings Plan for Salaried Employees and the ITT Excess Savings Plan, which
are defined contribution plans, such plans having been continued by ITT
Industries after the Distribution. ITT Industries makes a matching
contribution in an amount equal to 50% of an employee's contribution, such
matching
15
<PAGE> 19
contribution not to exceed three percent (3%) of such employee's salary.
Under these plans, ITT Industries also makes a non-matching contribution
equal to one-half of one percent ( 1/2 of 1%) of an employee's salary. The
amounts shown for 1995 also include two allocations from the ESOP feature
under the Plans: a 1995 annual excess ESOP allocation and a special excess
ESOP allocation which resulted from the 1995 termination of the ESOP. These
are non-recurring allocations as the ESOP has been terminated.
------------------------
(a) Only cash compensation information is provided herein with respect to
Messrs. Araskog, Bowman, and Weadock, who resigned from their positions with
ITT effective upon the Distribution and became executive officers of ITT
Corporation. Messrs. Araskog and Bowman received restricted stock awards
and, along with Mr. Weadock, were granted stock options for the three years
presented in the table. In connection with the Distribution, such restricted
stock was surrendered in exchange for restricted stock of ITT Corporation
and such stock options were surrendered for substitute stock options of ITT
Corporation.
(b) Amounts shown in this column for Messrs. Araskog, Bowman and Weadock are tax
reimbursement allowances which are intended to offset the inclusion in
taxable income of the value of certain benefits, except that: (i) the
amounts shown for Mr. Araskog also include $92,224, $128,873, and $99,929 in
1995, 1994, and 1993, respectively, for personal benefits including tax and
financial counseling and transportation services, and (ii) the amount shown
for Mr. Bowman in 1993 also includes $205,373 in relocation allowance, and
(iii) the amount shown for Mr. Weadock in 1995 also includes $426,597 in
relocation allowance.
(c) All amounts shown in this column for Messrs. Araskog, Bowman and Weadock are
company contributions under the ITT Investment and Savings Plan for Salaried
Employees and the ITT Excess Savings Plans, which plans have been continued
by ITT Corporation after the Distribution under substantially the same
terms. The amounts shown also include the excess and special ESOP
allocations which resulted from the termination by ITT of the ESOP. In the
case of Mr. Araskog, the amount also includes $354,156 paid by ITT for
premiums on a split dollar life insurance policy maintained jointly for Mr.
and Mrs. Araskog.
16
<PAGE> 20
OPTION GRANTS TO ITT INDUSTRIES EXECUTIVE OFFICERS IN LAST FISCAL YEAR
The following table provides information on fiscal year 1995 grants of options,
as adjusted, to the named ITT Industries executive officers. In connection with
the Distribution, Mr. Engen, Mr. Leuliette, Mr. Giuliano, Mr. Nilsson, and Mr.
Smith each received adjusted ITT Industries stock options for ITT stock options
which were outstanding on December 19, 1995, which adjustment was intended to
preserve the economic value of the options outstanding at the time of
Distribution. The number of outstanding ITT stock options was adjusted by a
factor of 535.2105% and the exercise prices were adjusted by a factor of
18.6842%. The adjusted ITT Industries stock options carry the same terms and
conditions as the original ITT stock options. The options for Messrs. Engen,
Leuliette, Giuliano and Nilsson became fully exercisable on March 5, 1996 after
the closing price of ITT Industries Common Stock equaled or exceeded $25.40 for
ten consecutive trading days. Mr. Smith's options become exercisable in
one-third cumulative annual installments after the first, second, and third
anniversaries of the date of grant.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
---------------------------------------------------
NUMBER OF % OF TOTAL AT ASSUMED RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(4)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------------
NAME GRANTED#(1) 1995(2) PRICE(3) DATE 5% 10%
- ------------------------- ------------ ------------ -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Travis Engen............. 321,126 2.8% $20.32 5/11/2005 $4,103,990 $10,398,060
Timothy D. Leuliette..... 198,028 1.7% 20.32 5/11/2005 2,530,798 6,412,147
Louis J. Giuliano........ 198,028 1.7% 20.32 5/11/2005 2,530,798 6,412,147
Bertil T. Nilsson........ 176,619 1.5% 20.32 5/11/2005 2,257,191 5,718,923
James P. Smith, Jr. ..... 26,761 0.2% 20.32 5/11/2005 342,006 866,521
</TABLE>
- ---------------
(1) The numbers in the column represent options to purchase ITT Industries
Common Stock as adjusted following the Distribution.
(2) Percentages indicated are based on 1995 options granted by ITT. During 1995,
the total number of options granted were 2,148,100 (pre-adjustment) to 795
employees. The ITT options granted (pre-adjustment) were: Mr. Engen, 60,000
shares; Mr. Leuliette, 37,000 shares, Mr. Giuliano, 37,000 shares; Mr.
Nilsson, 33,000 shares; and Mr. Smith, 5,000 shares, all of which were
granted at $108.75 per share (pre-adjustment).
(3) The exercise price per share represents the adjusted exercise price
following the Distribution. The ITT options were granted at $108.75 per
share, 100% of the fair market value of a share of common stock of ITT on
the date of the award.
(4) At the end of the term of the options granted on May 9, 1995, the projected
price of a share of ITT Industries Common Stock would be $33.10 and $52.70
at assumed appreciation rates of 5% and 10%, respectively.
17
<PAGE> 21
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on option exercises in 1995 by the
named executive officers of ITT Industries and the value of each such executive
officer's unexercised options to acquire ITT Industries Common Stock at December
29, 1995. The closing price of ITT Industries Common Stock on December 29, 1995
was $24.00 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS AT IN-THE-MONEY OPTIONS HELD
SHARES FISCAL YEAR-END(1) AT FISCAL YEAR-END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Travis Engen............. 4,919 335,574 1,346,717 321,126 $16,234,990 $ 1,181,744
Timothy D. Leuliette..... 15,486 1,172,457 414,494 198,028 3,437,951 728,743
Louis J. Giuliano........ 10,505 536,700 508,434 198,028 4,863,603 728,743
Bertil T. Nilsson........ 17,308 1,242,660 369,685 176,619 3,066,290 649,958
James P. Smith, Jr. ..... 3,202 244,429 36,857 59,872 324,754 373,282
</TABLE>
- ---------------
(1) The shares and exercise price of all options outstanding at the time of the
Distribution were adjusted to preserve the economic value of the options as
a result of the Distribution. This adjustment increased the number of
options by a factor of 535.2105% and decreased the exercise prices of the
options then outstanding by a factor of 18.6842%.
(2) Based on the New York Stock Exchange consolidated trading closing price of
ITT Industries Common Stock on December 29, 1995 of $24.00 per share.
18
<PAGE> 22
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows, as of January 31, 1996, the beneficial ownership of
ITT Industries Common Stock by each Director and Nominee and by each of the
Executive Officers of ITT Industries named in the Summary Compensation Table,
and by the Directors and Executive Officers of Industries as a group(18):
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS(2)
- ---------------------------------------------------------- -------------------- -------------------
<S> <C> <C>
Rand V. Araskog........................................... 425,631 --
Robert A. Burnett......................................... 1,701 --
Curtis J. Crawford(3)..................................... 319 --
Michel David-Weill........................................ 1,531 --
Travis Engen.............................................. 1,683,882 1.4
S. Parker Gilbert......................................... 5,531 --
Edward C. Meyer........................................... 3,031 --
Louis J. Giuliano......................................... 710,869 --
Timothy D. Leuliette...................................... 613,701 --
Bertil T. Nilsson......................................... 549,192 --
James P. Smith............................................ 41,486 --
All Directors and Executive Officers as a Group (18)...... 4,183,717 3.6
</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 January 31, 1996, (ii)
allocated to the accounts of certain directors and executive officers under
the ITT Industries Investment and Savings Plan for Salaried Employees at
January 31, 1996, and (iii) acquired by directors and executive officers
under the ITT Industries Dividend Reinvestment and Common Stock Purchase
Plan through January 31, 1996, 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. Engen, 1,667,843 shares;
Mr. Giuliano, 706,462 shares; Mr. Leuliette, 612,522 shares; Mr. Nilsson,
546,304 shares; Mr. Smith, 36,857 shares; and all directors and executive
officers as a group, 3,695,611 shares; (ii) the following amounts were
allocated under the ITT Industries Investment and Savings Plan for Salaried
Employees to the accounts of: Mr. Engen, 1,360 shares; Mr. Giuliano, 1,007
shares; Mr. Leuliette, 1,179 shares; Mr. Nilsson, 521 shares; Mr. Smith,
1,684 shares; and all directors and executive officers as a group, 19,855
shares; and (iii) the following amounts were acquired under the ITT
Industries Dividend Reinvestment and Common Stock Purchase Plan for the
accounts of: Mr. Burnett, 170 shares; and all directors and executive
officers as a group, 2,752 shares.
(2) Share ownership does not exceed one percent of the class so owned, except as
noted.
(3) Mr. Crawford acquired 319 shares in February, 1996.
19
<PAGE> 23
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table lists all holders known by Industries to own beneficially
more than five percent of ITT Industries' outstanding Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- --------------------------------------------------------------- -------------------- ----------
<S> <C> <C>
Bankers Trust Company(1)....................................... 7,457,032 6.4
280 Park Avenue
New York, New York 10017
The Equitable Companies Incorporated(2)........................ 6,331,270 5.4
787 Seventh Avenue
New York, New York
</TABLE>
- ---------------
(1) As reported on a Schedule 13G for the year ended December 31, 1995 filed
with the Securities and Exchange Commission under the Securities Exchange
Act of 1934, Bankers Trust Company was the record owner of an additional
3,874,158 shares as Trustee of the ITT Industries Investment and Savings
Plan for Salaried Employees with respect to which it disclaims beneficial
ownership.
(2) As reported on a Schedule 13G dated as of January 31, 1996 filed with the
Securities and Exchange Commission under the Securities Exchange Act of
1934 jointly by five French mutual insurance companies, AXA Assurances
I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha Assurances I.A.R.D.
Mutuelle, Alpha Assurances Vie Mutuelle and Uni Europe Assurance Mutuelle,
as a group; AXA; The Equitable Companies and their subsidiaries as a group
under the Securities Exchange Act of 1934, the group has sole voting power
with respect to 5,615,840 shares, shared voting power with respect to
195,390 shares, sole dispositive power with respect to 6,326,035 shares,
and shared dispositive power with respect to 6,235 shares.
EMPLOYMENT AND BENEFIT PROGRAMS
EMPLOYMENT AGREEMENT. ITT Industries has an employment agreement with Mr. Engen
(the "Employment Agreement") which provides for, among other things: a base
salary in an amount not less than $700,000 per annum, participation in ITT
Industries benefits plans and possible awards under ITT Industries executive
incentive bonus program; the continuation of Mr. Engen's employment as chairman
and chief executive of ITT Industries through December 31, 1999; and certain
payments and benefits in the event of termination without cause, such that Mr.
Engen would receive in equal monthly installments, salary and a decreasing
percentage of the average bonus he received with respect to the three calendar
years immediately preceding such event. Payments would continue until the
earlier of the termination of the Employment Agreement or certain events of
disqualifying conduct. At ITT Industries' discretion, Mr. Engen could be paid
the balance remaining of such aggregate amount in a lump sum payment if Mr.
Engen accepts other full-time employment. As long as Mr. Engen continues to be
paid a salary as described above, he would be eligible to participate in certain
ITT Industries benefit plans and to exercise outstanding stock options. In lieu
of the payments and benefits referred to above, if Mr. Engen were entitled to
receive a termination allowance under any ITT Industries severance plan or
termination allowance plan which exceeds the amount of base salary remaining
under the Employment Agreement, Mr. Engen would receive such termination
allowance amount.
20
<PAGE> 24
SEVERANCE PAY PLAN. The ITT Industries Senior Executive Severance Pay Plan
applies to senior executives who are U.S. citizens or who are employed in the
United States. Under the plan, if a participant's employment is terminated by
ITT Industries, 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 Industries and
requirements on the part of executives with respect to non-competition and
compliance with the ITT Industries Code of Corporate Conduct. Under the plan,
severance payments would ordinarily be made monthly over the scheduled term of
such payments; however, ITT Industries has the option to make such payments in
the form of a single lump sum payment discounted to present value. Messrs.
Giuliano, Leuliette, and Smith participate in this plan.
CHANGE OF CONTROL ARRANGEMENTS. Acceleration of the exercisability of payment
or vesting of awards or benefits is provided for under the ITT Industries Stock
Option Incentive Plan (1977), the ITT Industries 1986 Incentive Stock Plan, the
1994 ITT Industries Incentive Stock Plan and the retirement excess benefit plan
upon the occurrence of a change in corporate control, which is generally defined
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 "Exchange Act") disclosing
that any person (within the meaning of Section 13(d) of the Exchange Act), other
than ITT Industries or a subsidiary of ITT Industries or any employee benefit
plan sponsored by ITT Industries or a subsidiary of ITT Industries, is the
beneficial owner directly or indirectly of 20% or more of the outstanding ITT
Industries Common Stock; (ii) any person (within the meaning of Section 13(d) of
the Exchange Act), other than ITT Industries or a subsidiary of ITT Industries
or any employee benefit plan sponsored by ITT Industries or a subsidiary of ITT
Industries, shall purchase shares pursuant to a tender offer or exchange offer
to acquire any ITT Industries 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 Exchange Act) directly or
indirectly of 15% or more of the outstanding ITT Industries Common Stock
(calculated as provided in paragraph (d) of Rule 13d-3 under the Exchange Act in
the case of rights to acquire Common Stock); (iii) the shareholders of ITT
Industries shall approve (A) any consolidation or merger of ITT Industries in
which ITT Industries is not the continuing or surviving corporation or pursuant
to which shares of ITT Industries Common Stock would be converted into cash,
securities or other property, other than a merger of ITT Industries in which
holders of ITT Industries 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 Industries; or (iv)
there shall have been a change in a majority of the members of the Board of
Directors of ITT Industries within a 12-month period unless the election or
nomination for election by ITT Industries shareholders 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.
21
<PAGE> 25
ITT INDUSTRIES SALARIED RETIREMENT PLAN. Most of the U.S. Salaried employees of
ITT Industries participate in the ITT Industries Salaried Retirement Plan. The
Plan has been amended with respect to persons employed as of the date of the
Distribution to recognize service prior to the Distribution with former units of
ITT for eligibility, vesting and benefit accrual purposes and to provide for an
offset of any benefits payable from any other retirement plan of such units
covering the same period of service, and to recognize service with ITT
Corporation and ITT Hartford after the Distribution for eligibility and vesting
purposes.
A participant's annual pension will equal two percent of the participant's
average final compensation for each of the first 25 years of benefit service,
plus one and one-half percent of a participant's average final compensation for
each of the next 15 years of benefit service, reduced by one and one-quarter
percent of the participant'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 participant's primary Social Security benefit is used for such reduction. A
participant's average final compensation (including salary plus approved bonus
payments) is defined under the Plan as the total of (i) a participant'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 participant's average annual compensation not including base salary for
the five calendar years of the participant's last 120 consecutive calendar
months of eligibility service affording the highest such average. The Plan also
provides for undiscounted early retirement pensions for participants who retire
at or after age 60 following completion of 15 years of eligibility service. A
participant will be 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 Industries will continue a non-qualified unfunded retirement plan (the "ITT
Industries Excess Pension Plan") for payment of those benefits at retirement
that cannot be paid from the ITT Industries Salaried Retirement Plan. The
practical effect of the ITT Industries Excess Pension Plan is to continue
calculation of retirement benefits to all employees on a uniform basis. Benefits
under the ITT Industries Excess Pension Plan are generally paid directly by ITT
Industries. ITT Industries also has adopted an excess plan trust under which
excess benefits accrued under the ITT Industries Excess Pension Plan for certain
officers of ITT Industries 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 Industries Excess Pension Plan).
22
<PAGE> 26
Based on various assumptions as to remuneration and years of service, before
Social Security reductions, the following table illustrates the estimated
benefits payable from the Retirement Program at retirement at age 65 that are
paid by ITT Industries.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
FINAL ----------------------------------------------------------------
COMPENSATION 10 15 20 30 40
- ------------ -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 200,000 $ 40,000 $ 60,000 $ 80,000 $ 115,000 $ 145,000
400,000 80,000 120,000 160,000 230,000 290,000
600,000 120,000 180,000 240,000 345,000 435,000
800,000 160,000 240,000 320,000 460,000 580,000
1,000,000 200,000 300,000 400,000 575,000 725,000
1,200,000 240,000 360,000 480,000 690,000 870,000
1,400,000 280,000 420,000 560,000 805,000 1,015,000
1,600,000 320,000 480,000 640,000 920,000 1,160,000
1,800,000 360,000 540,000 720,000 1,035,000 1,305,000
</TABLE>
The amounts shown under "Salary" and "Bonus" opposite the names of the
individuals in the Summary Compensation Table comprise their compensation which
is used for purposes of determining "average final compensation" under the plan.
Their respective covered years of benefit service under the plan, through
December 31, 1995, are as follows: Mr. Engen, 10.73 years; Mr. Leuliette, 4.28
years; Mr. Giuliano, 7.50 years; Mr. Smith, 22.52 years; and Mr. Nilsson, 40.00
years. In addition to his entitlement to a pension under the U.S. salaried
pension program, Mr. Nilsson is entitled to a pension provided by ITT Flygt in
Sweden, which pension will reduce his entitlement under the U.S. plan.
II. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP as independent auditors
of ITT Industries for 1996, subject to ratification by the shareholders. If the
shareholders do not ratify the appointment, the selection of other independent
auditors will be considered by the Audit Committee and the Board of Directors.
Arthur Andersen LLP has served as independent auditors of most of the business
units of ITT Industries for many years, and its long-term knowledge of the
Company has enabled it to carry out its audits with effectiveness and
efficiency. Representatives of the firm regularly attend meetings of the Audit
Committee. In keeping with its established policy, the partners and employees of
the firm who are engaged in auditing the Company are periodically rotated, thus
giving ITT Industries the benefit of new expertise and experience. Arthur
Andersen LLP's fees for the 1995 audit of those companies comprising ITT
Industries totaled approximately $3.6 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 from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS OF ITT INDUSTRIES.
23
<PAGE> 27
III. SHAREHOLDER PROPOSAL
Mrs. Evelyn Y. Davis, The Watergate Office Building, 2600 Virginia Avenue, N.W.,
Suite 215, Washington, D.C., the owner of 50 shares of Common Stock, plans to
introduce the following resolution at the forthcoming Annual Meeting:
"RESOLVED: That the shareholders recommend that the Board take the
necessary step that ITT specifically identify by name and corporate title
in all future proxy statements those executive officers, not otherwise so
identified, who are contractually entitled to receive in excess of $100,000
annually as a base salary, together with whatever other additional
compensation bonuses and other cash payments were due them.
"REASONS: In support of such proposed Resolution it is clear that the
shareholders have a right to comprehensively evaluate the management in the
manner in which the Corporation is being operated and its resources
utilized. At present only a few of the most senior executive officers are
so identified, and not the many other senior executive officers who should
contribute to the ultimate success of the Corporation.
"Through such additional identification the shareholders will then be provided
an opportunity to better evaluate the soundness and efficacy of the overall
management.
"Last year the owners of 10,410,212 shares representing approximately 12% of
shares voting, voted FOR this proposal.
"If you AGREE, please mark your proxy FOR this proposal."
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS PROPOSAL FOR THE
FOLLOWING REASONS:
Currently, the Chairman, President and Chief Executive is the only officer who
has an employment contract with ITT Industries, and all the details of his
compensation and the terms of his contract are set forth in this Proxy
Statement. In addition, detailed information about the compensation of other
executive officers of ITT Industries also is set forth herein in accordance with
the requirements of the Securities and Exchange Commission even though none of
such other executive officers has an employment agreement with the Company.
Because only one executive officer of ITT Industries is contractually entitled
to receive annual compensation in excess of $100,000, the compensation
disclosure required by the regulations of the Securities and Exchange Commission
goes beyond what is suggested by the shareholder's proposal. Listing the names,
corporate titles and compensation of every other executive officer of ITT
Industries would go beyond the requirements of the federal securities laws.
THEREFORE, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS
PROPOSAL.
SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholder proposals intended for inclusion in the proxy materials related to
the 1997 Annual Meeting must be received by ITT Industries at its executive
offices no later than November 29, 1996. Proposals should be addressed to the
attention of the Secretary of ITT Industries.
24
<PAGE> 28
SOLICITATION OF PROXIES
The cost of this solicitation will be borne by ITT Industries. Georgeson & Co.,
New York, New York, has been retained to assist in the solicitation of proxies
for a fee of $12,500 plus expenses. ITT Industries also will reimburse brokers,
nominees, custodians and fiduciaries for their expenses for sending proxy
materials to the beneficial owners of ITT Industries Common Stock. In addition
to solicitation by mail, proxies may be solicited in person or by telephone,
facsimile transmission or other means of electronic communication by directors,
officers and other regular employees of ITT Industries.
By Order of the Board of Directors.
/s/ Gwenn L. Carr
------------------------------
GWENN L. CARR
Vice President and Secretary
March 29, 1996
25
<PAGE> 29
ITT Industries, Inc.
4 West Red Oak Lane
White Plains, NY 10604
Dear Shareholder:
The 1996 Annual Meeting of ITT Industries, Inc. will be held at 10:30 a.m. on
Tuesday, May 21, 1996 in the Celeste Bartos Forum of The New York Public
Library, Fifth Avenue and 42nd Street, New York, New York. Shareholders of
record at the close of business on March 25, 1996 will be entitled to vote at
the meeting and any adjournment thereof.
Shareholders of record who plan to attend the Annual Meeting in person may
request an admission card by marking the box below. Shareholders 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.
Very truly yours,
Travis Engen
Chairman, President and
Chief Executive
* Detach Proxy Card Here *
================================================================================
DIRECTORS RECOMMEND A VOTE FOR ITEMS 1 AND 2
1. Election of Directors
FOR all nominees listed below / /
WITHHOLD AUTHORITY to vote for all nominees listed below / /
EXCEPTIONS / /
Nominees: Travis Engen, Rand V. Araskog, Robert A. Burnett, Curtis J. Crawford,
Michel David-Weill, S. Parker Gilbert, and Edward C. Meyer.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided
below.)
*Exceptions
-------------------------------------------------------------------
2. Ratification of auditors
FOR / / AGAINST / / ABSTAIN / /
DIRECTORS RECOMMEND A VOTE AGAINST ITEM 3
3. Shareholder proposal to list executives earning more than $100,000
FOR / / AGAINST / / ABSTAIN / /
Mark this box to request an admission card for the meeting / /
Change of Address and or Comments Mark Here / /
Note: Please add your title if you
are signing as attorney, administrator,
executor, guardian, trustee or in any
other representative capacity.
Date: , 1996
----------------------------
----------------------------------------
Signature
Please mark, sign, date and return this proxy promptly using the enclosed
envelope.
Votes MUST be indicated (x) in Black or Blue Ink. / /
<PAGE> 30
DETACH PROXY CARD HERE
- -------------------------------------------------------------------------------
ITT INDUSTRIES, INC.
4 WEST RED OAK LANE
WHITE PLAINS, NY 10604
P R O X Y
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF ITT INDUSTRIES, INC.
FOR THE 1996 ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Robert W. Beicke, Gwenn L. Carr and Vincent A.
Maffeo, and each of them, as proxy of the undersigned, each with power to
appoint his or her substitute, and authorizes each of them to vote all shares
of ITT Industries Common Stock, including all shares held in the ITT Industries
Dividend Reinvestment and Common Stock Purchase Plan which the undersigned
could vote if personally present at the 1996 Annual Meeting of Shareholders of
ITT Industries to be held on May 21, 1996 and at any adjournment thereof, as
designated on the reverse side of this proxy and confers discretionary
authority upon each such proxy to vote upon any other matter properly brought
before the 1996 Annual Meeting.
THE SHARES REPRESENTED BY THIS PROXY ARE TO BE VOTED AS DESIGNATED ON THE
REVERSE SIDE OF THIS PROXY. IF NO DESIGNATION IS MADE, THE PROXY IS TO BE VOTED
FOR ITEMS 1 AND 2 AND AGAINST ITEM 3. DISCRETIONARY AUTHORITY IS CONFERRED
UPON EACH PROXY TO VOTE UPON ANY OTHER MATTER WHICH MAY PROPERLY BE BROUGHT
BEFORE THE MEETING.
SEE REVERSE SIDE
ITT INDUSTRIES
P.O. BOX 11005
NEW YORK, N.Y. 10209-0005
