<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
ITT INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
1 9 9 8
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
ITT Industries Logo
<PAGE> 3
[ITT Industries Logo]
AUTOMOTIVE
DEFENSE & ELECTRONICS
FLUID TECHNOLOGY
TRAVIS ENGEN
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE
March 27, 1998
Dear Fellow Shareholders:
The Annual Meeting of ITT Industries, Inc. will be held at 10:30 a.m. on
Thursday, May 14, 1998 at Reid Hall, Manhattanville College, 2900 Purchase
Street, Purchase, New York.
The 1998 Annual Meeting will be devoted to: (1) the election of Directors of the
Company who will hold office until the next Annual Meeting, and (2) the
ratification of the appointment of Arthur Andersen LLP as the Company's
independent auditors for 1998.
Your vote is very important! Be sure that your shares are represented, whether
or not you plan to attend the Annual Meeting in person. If your ITT Industries
shares are registered in your name, you may vote your shares by completing,
signing and mailing your proxy card in the enclosed postage paid envelope. If
your shares are held in the name of your broker, bank or other record holder,
the record holder will instruct you how to vote those shares.
The Company's Annual Report, which is being sent to you along with the
accompanying Proxy Statement, contains information about the Company's
businesses and the Company's financial performance.
Be sure to visit ITT Industries' web site at http://www.ittind.com for news
about the Company, or call 1-800-IIN-INFO.
Very truly yours,
/s/ Travis Engen
<PAGE> 4
[ITT Industries Logo]
AUTOMOTIVE
DEFENSE & ELECTRONICS
FLUID TECHNOLOGY
March 27, 1998
NOTICE OF 1998 ANNUAL MEETING
The 1998 Annual Meeting of Shareholders of ITT Industries, Inc. will be held on
Thursday, May 14, 1998 at 10:30 a.m., local time, at Reid Hall, Manhattanville
College, 2900 Purchase Street, Purchase, New York.
Shareholders of record at the close of business on March 16, 1998 are entitled
to vote at the meeting.
At the meeting, shareholders will be asked to act on the following two matters:
- Election of nine Directors of the Company.
- Ratification of the appointment of Arthur Andersen LLP as the
Company's independent auditors for 1998.
/s/ Gwenn L. Carr
Gwenn L. Carr
Vice President and Secretary
<PAGE> 5
PROXY STATEMENT TABLE OF CONTENTS
<TABLE>
<S> <C>
Information about Voting.................................... 1
Record Date............................................... 1
Quorum.................................................... 1
Proxy Voting.............................................. 1
Voting by Savings Plan Participants....................... 1
Votes Required to Elect the Directors or Approve a
Proposal............................................... 1
Inspectors of Election and Confidential Voting............ 1
Proposal No. 1: Election of Directors....................... 2
Information About the Board of Directors and Board
Committees............................................. 6
Compensation of Directors................................. 7
Proposal No. 2: Ratification of Appointment of Independent
Auditors.................................................. 8
Executive Compensation...................................... 9
Report of the ITT Industries Compensation and Personnel
Committee.............................................. 9
Performance Graph......................................... 12
Summary Compensation Table................................ 13
Option Grants to ITT Industries Executive Officers in Last
Fiscal Year............................................ 14
Aggregated Option Exercises in the Last Fiscal Year and
Fiscal Year-End Option Values.......................... 14
Long-Term Incentive Plan.................................. 15
Security Ownership of Directors and Executive Officers...... 16
Security Ownership of Certain Beneficial Owners............. 17
Employment Agreement and Benefit Programs................... 17
Deadline for Submitting Shareholder Proposals............... 20
Solicitation of Proxies..................................... 20
</TABLE>
<PAGE> 6
[ITT Industries Logo]
AUTOMOTIVE
DEFENSE & ELECTRONICS
FLUID TECHNOLOGY
ITT INDUSTRIES, INC.
4 WEST RED OAK LANE
WHITE PLAINS, NY 10604
PROXY STATEMENT
This proxy statement is furnished to shareholders of ITT Industries, Inc. in
connection with the solicitation of proxies by the Board of Directors for the
1998 Annual Meeting. Proxy materials, including this proxy statement and a proxy
card, are scheduled to be mailed to shareholders on or about March 27, 1998.
------------------------
INFORMATION ABOUT VOTING
RECORD DATE. The Record Date for the 1998 Annual Meeting is March 16, 1998. As
of the Record Date, 118,452,593 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.
QUORUM. The presence at the Annual Meeting, in person or by proxy, of
shareholders holding a majority of the shares outstanding as of the Record Date
will constitute a quorum.
PROXY VOTING. If you mark your voting instructions on your proxy card and sign
and return it, the proxies, who are identified on the proxy card, will vote your
shares as you instruct. If you sign and return your proxy card, but do not
specify how your shares are to be voted, the proxies will vote your shares for
the election of the nine Director nominees and for the ratification of Arthur
Andersen LLP as the Company's independent auditors for 1998.
Other than the election of Directors and the ratification of the appointment of
auditors, the Board of Directors does not know of any other matter that may be
presented at the meeting. By signing and returning your proxy card you authorize
the proxies to exercise their discretion in voting on any other matter that may
be presented for a vote.
You may revoke your proxy at any time before it is voted by delivering to the
Secretary of ITT Industries a written revocation notice, by submitting a
subsequent valid proxy card, or by voting in person at the Annual Meeting.
VOTING BY SAVINGS PLAN PARTICIPANTS. If you participate in the ITT Industries
Investment and Savings Plan for Salaried Employees, or a savings plan for hourly
employees of certain businesses of ITT Industries, the trustee for your plan
will provide you with a proxy representing the shares you are entitled to vote
under the plan.
VOTES REQUIRED TO ELECT THE DIRECTORS OR APPROVE A PROPOSAL. The nine persons
who receive the highest number of votes will be elected the Directors of the
Company. Any other matter properly presented for a vote at the Annual Meeting
will be approved if the number of shares voted in favor exceeds the number of
shares voted in opposition.
Abstentions and broker non-votes will be counted for purposes of determining
whether there is a quorum but will not be counted as votes cast for or against a
particular proposal. Abstentions and broker non-votes therefore will have no
effect in determining the outcome of the vote on a particular matter.
INSPECTORS OF ELECTION AND CONFIDENTIAL VOTING. The Board of Directors has
appointed representatives of CT Corporation System to act as Inspectors of
Election for the 1998 Annual Meeting. The Company's By-laws provide that the
Inspectors of Election shall monitor and certify compliance with the Company's
confidential proxy voting policy.
1
<PAGE> 7
1. ELECTION OF DIRECTORS
At the 1998 Annual Meeting, nine Directors will be elected to hold office until
the 1999 Annual Meeting and until their successors have been elected and
qualified. 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.
However, 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 NINE NOMINEES, ALL OF WHOM ARE CURRENTLY SERVING AS DIRECTORS OF ITT
INDUSTRIES:
<TABLE>
<S> <C>
Engen photo TRAVIS ENGEN
Chairman, President and Chief Executive of ITT Industries,
Inc.
</TABLE>
Mr. Engen, 53, has been chairman, president and chief executive of ITT
Industries since December 1995. From January 1991 through December 19, 1995, he
was an executive vice president of ITT Corporation, the corporate predecessor of
ITT Industries. From 1987 until January 1991, he was a senior vice president of
ITT Corporation and chief executive officer of ITT Defense, Inc. Mr. Engen is a
director of Lyondell Petrochemical Company and of Alcan Aluminium Limited. He is
a member of The Business Roundtable and the Manufacturers Alliance Board of
Trustees. He also is a director of Fundacion Chile, a non-profit research
organization in Chile. 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 the
chairman of the Capital Committee.
<TABLE>
<S> <C>
Araskog photo RAND V. ARASKOG
Retired Chairman and Chief Executive of ITT Corporation,
a hotel, gaming, entertainment and information services
company
</TABLE>
Mr. Araskog, 66, was chairman and chief executive of ITT Corporation from
December 1995 until March 1998. Previously he had served as the chief executive
of the corporate predecessor of ITT Industries from 1979 and as its chairman
from 1980. He is a director of Hartford Financial Services Group, Inc., ITT
Educational Services, Inc., Alcatel Alsthom of France, Dow Jones & Company,
Inc., Rayonier Inc., and Shell Oil Company. Mr. Araskog is a member of The
Business Council and The Business Roundtable. He 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.
2
<PAGE> 8
<TABLE>
<S> <C>
Burnett photo ROBERT A. BURNETT
Retired Chairman and Chief Executive Officer of Meredith
Corporation,
a diversified media company
</TABLE>
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. He is a director of Hartford
Financial Services Group, Inc., and Whirlpool Corporation. 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 Capital, Corporate Responsibility and Nominating and
Governance Committees. He also is the chairman of the Compensation and Personnel
Committee.
<TABLE>
<S> <C>
Crawford photo CURTIS J. CRAWFORD
President and Chief Executive Officer of Zilog Inc.,
a manufacturer of integrated circuits
</TABLE>
Mr. Crawford, 50, has been president and CEO of Zilog Inc. since mid-February
1998. From 1993 until he joined Zilog Inc., he had been president of
Microelectronics, a unit of Lucent Technologies, Inc. From 1991 to 1993, he was
vice president and co-chief executive officer of Microelectronics. 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. Mr. Crawford is a director of
Lyondell Petrochemical Company, chairman of the board of i-STAT Corporation and
he has been nominated for election as a director of Dupont Corporation. Mr.
Crawford has an MA degree from Governors State University and an MBA from DePaul
University. He was awarded an honorary doctorate by Governors State University
in 1996.
Mr. Crawford has been a Director of ITT Industries since February 1996. He is a
member of the Audit, Capital and Compensation and Personnel Committees. He is
the chairman of the Corporate Responsibility Committee.
3
<PAGE> 9
<TABLE>
<S> <C>
David-Weil photo MICHEL DAVID-WEILL
Chairman and Chief Executive of Lazard Freres & Co. LLC,
investment bankers
</TABLE>
Mr. David-Weill, 65, has been chairman and chief executive 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, Instituto
Finanziario Industriale S.p.A. in Italy, Pearson plc in England, The Dannon
Company, Inc. and 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.
<TABLE>
<S> <C>
Gilbert photo S. PARKER GILBERT
Former Chairman, Morgan Stanley Group Inc.,
investment bankers
</TABLE>
Mr. Gilbert, 64, retired in 1990 from Morgan Stanley Group Inc., where he served
as chairman from 1984. From 1990 to 1997, he was chairman of Morgan Stanley
Advisory Board. Mr. Gilbert 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 Burlington Resources Inc., and Taubman Centers, Inc. He is
president, Board of Trustees of the Pierpont Morgan Library, and a member of the
Board of Trustees of the Metropolitan Museum of Art and the Alfred P. Sloan
Foundation. He is a director of the 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 Committee and chairman of the Audit Committee.
4
<PAGE> 10
<TABLE>
<S> <C>
[Gold photo] CHRISTINA A. GOLD
President and CEO of The Beaconsfield Group, Inc.,
a global business advisor
</TABLE>
Mrs. Gold, 50, was executive vice president, global direct selling development
of Avon Products, Inc. from February 1997 to March 1998. Previously she had been
senior vice president of Avon Products and president of Avon North America from
1993 to 1997. From 1989 to 1993, Mrs. Gold was president of Avon Canada. Mrs.
Gold is a director of the Conference Board, Inc. of Canada and Vice Chairman and
a Trustee of the Conference Board, Inc. in New York. She is a member of the
Advisory Council of Carleton University and a member of the board of the Direct
Selling Education Foundation. Mrs. Gold is a graduate of Carleton University,
Ottawa.
Mrs. Gold was elected a Director of ITT Industries in December 1997. She is a
member of the Capital and Corporate Responsibility Committees.
<TABLE>
<S> <C>
[Meyer photo] EDWARD C. MEYER
Chairman of Mitretek Systems,
a professional and technical services provider
</TABLE>
General Meyer, 69, retired in 1983 as chief of staff of the United States Army.
He is a director of FMC Corporation, the Brown Group, Aegon U.S.A., and GRC
International. He is a managing partner of Cilluffo Associates Limited
Partnership, 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 and 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 Capital and Compensation and Personnel Committees.
He is chairman of the Nominating and Governance Committee.
5
<PAGE> 11
<TABLE>
<S> <C>
Taurel photo SIDNEY TAUREL
President, Eli Lilly and Company,
a pharmaceutical company
</TABLE>
Mr. Taurel, 49, has been president and chief operating officer of Eli Lilly and
Company since February 1996.
Mr. Taurel joined Eli Lilly International Corporation in 1971 and, after a
series of marketing assignments in Brazil, Eastern Europe and France, was
appointed vice president of Eli Lilly European operations in 1983. In 1986, he
was named president of Eli Lilly International Corporation and became executive
vice president of the pharmaceutical division in 1991. In 1993, he became
executive vice president of Eli Lilly and Company and president of its
pharmaceutical division. Mr. Taurel is a director of Eli Lilly and Company and
The McGraw Hill Companies, Inc. He also is chairman of the Board of Directors of
the Pharmaceutical Research and Manufacturers of America and a member of the
Board of Overseers of the Columbia University Business School and the Board of
the RCA Tennis Championships. Mr. Taurel graduated from the Ecole des Hautes
Etudes Commerciales, Paris, France, in 1969. He received an MBA from Columbia
University in 1971.
Mr. Taurel has been a Director of ITT Industries since June 1996. He is a member
of the Audit, Capital, Corporate Responsibility and Nominating and Governance
Committees.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NINE
NOMINEES AS DIRECTORS OF ITT INDUSTRIES.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND BOARD COMMITTEES
There are five Standing Committees of the ITT Industries Board of Directors. The
Committees' responsibilities are as follows:
THE AUDIT COMMITTEE recommends the appointment of independent auditors, confirms
the scope of audits and reviews audit results and auditors' fees; examines the
Company's accounting and internal control policies and procedures; reviews the
Company's audited financial statements and its annual reports to shareholders;
and inspects expense accounts of senior executives and officers. Only
non-employee Directors may be members of the Audit Committee. There were four
meetings of the Audit Committee during 1997.
THE CAPITAL COMMITTEE is responsible for maximizing the effective use of the
assets of ITT Industries and its subsidiaries. This Committee reviews capital
expenditures and appropriations, and reviews and approves investments in, and
acquisitions and dispositions of, businesses. The Capital Committee met eight
times during 1997.
THE COMPENSATION AND PERSONNEL COMMITTEE oversees the compensation and benefits
of employees, evaluates management performance and establishes executive
compensation. The Committee may retain consultants from nationally recognized
independent compensation and benefits firms for expert advice. Only non-
employee Directors may be members of the Compensation and Personnel Committee.
The Committee met eight times during 1997.
THE CORPORATE RESPONSIBILITY COMMITTEE reviews and makes recommendations
concerning ITT Industries' responsibilities as a leading member of the corporate
community. This Committee reviews and considers major claims and litigation
involving ITT Industries and its subsidiaries, examines legal, regulatory, and
governmental policies as they may affect ITT Industries and its businesses, and
approves management policies and programs for effecting compliance with laws and
regulations, including environmental laws and regulations. During 1997, the
Committee met five times.
6
<PAGE> 12
THE NOMINATING AND GOVERNANCE COMMITTEE is responsible for evaluating the
current composition and governance structure of the Board of Directors and
determining future requirements so that the Board will be appropriately
constituted and organized to meet its fiduciary responsibilities to the Company
and the shareholders on an ongoing basis. The Committee makes recommendations
concerning the qualifications, compensation and retirement age of Directors,
proposes nominees for election to the Board of Directors, and establishes and
administers a Board evaluation process. The Committee also makes recommendations
to the Board of Directors concerning the appointment of Directors to Board
Committees and the selection of Board Committee Chairmen. Only non-employee
Directors may serve on the Nominating and Governance Committee. The Committee
met five times during 1997.
The Committee will consider shareholder nominations for directors that meet the
requirements of the Company's By-laws. A copy of the nomination requirements may
be obtained from the Secretary.
During 1997, there were 9 Board meetings and 30 Committee meetings. Mr.
David-Weill attended more than 70% and the other Directors attended more than
75% of the aggregate of all meetings of the Board of Directors and the
Committees on which they served.
COMPENSATION OF DIRECTORS
ANNUAL RETAINER. Non-employee Directors receive an annual retainer in shares of
restricted stock rather than cash. The number of restricted shares is determined
by dividing the "fair market value" of a share of ITT Industries Common Stock
into the amount of the annual retainer. "Fair market value" is defined as the
average of the high and low sales prices per share of ITT Industries Common
Stock on the date of the grant as reported on the New York Stock Exchange
Composite Tape. Fractional shares are paid in cash. A total of 100,000 shares
have been reserved for issuance under the Plan.
A Director's restricted shares are held in escrow until the restrictions lapse
upon the earliest of (i) the fifth anniversary of the grant date; (ii) the
retirement of the Director at normal retirement age; (iii) a "change of control"
of the Company as defined in the Plan; (iv) death; (v) the onset of disability;
or (vi) termination of a Director's Board service 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. A
Director may vote and receive dividends on the restricted shares during the
escrow period.
Effective as of the date of the 1998 Annual Meeting, the amount of the annual
retainer will be increased from $30,000 to $50,000.
ATTENDANCE FEES. Non-employee Directors also are paid attendance fees of $1,000
for each Board meeting and $750 for each Committee meeting. Attendance fees are
paid in cash.
DIRECTOR RETIREMENT POLICY. No person may be nominated for election or
re-election as a Director after reaching age 72. Non-employee Directors do not
receive pension benefits from the Company when they retire from the Board.
INSURANCE. Non-employee Directors may participate in a group life insurance
plan which provides $100,000 of non-contributory group life insurance to
participants. In addition, non-employee Directors are covered under a
non-contributory group accidental death and dismemberment program which provides
$750,000 of coverage. Both plans are available only during a Director's Board
service. Directors also may purchase additional group accidental death and
dismemberment 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 and chief
executive, performed various investment banking services for the Company in 1997
and may perform similar services during 1998. Funds organized by Lazard Freres &
Co. LLC receive investment and management fees with respect to amounts invested
by the ITT Industries Master Retirement Trust with such funds.
7
<PAGE> 13
The Company's By-laws provide for mandatory indemnification of ITT Industries
Directors and officers (including payment of their legal fees) to the fullest
extent permitted by applicable law and authorize the Company to maintain
insurance to protect its Directors and officers against liabilities whether or
not the Company would be permitted to indemnify them from such liabilities
("Insurance"). The Company provides such Insurance for which it paid $1,123,997
million in premiums in 1997. Also as permitted by the By-laws, 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 By-laws, which are subject to change.
2. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP as independent auditors
of ITT Industries for 1998, 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 the business units of
ITT Industries for many years. Its long-term knowledge of the Company has
enabled it to carry out its audits with effectiveness and efficiency, and
representatives of the firm regularly attend meetings of the Audit Committee of
the Board of Directors. 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 1997 audit of the Company totaled
approximately $2.9 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 THE INDEPENDENT AUDITORS OF ITT INDUSTRIES
FOR 1998.
8
<PAGE> 14
EXECUTIVE COMPENSATION
REPORT OF THE ITT INDUSTRIES COMPENSATION AND PERSONNEL COMMITTEE
The Compensation and Personnel Committee (the "Committee") of the Board of
Directors (the "Board") establishes executive compensation policies. This report
discusses the application of these policies to ITT Industries' executive
officers in general and the rationale for the decisions affecting the
compensation as reported for 1997 of Travis Engen, Chairman, President and Chief
Executive of ITT Industries. Additionally, this report discusses the elements of
compensation for Mr. Engen and each of the four other most highly paid executive
officers of ITT Industries for whom compensation is required to be reported. The
executive compensation programs of ITT Industries are based on the compensation
practices of competitor companies as well as on the performance measures and
policies which focus on the continued growth of shareholder value.
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, the S&P Industrials Index, and a composite index
composed of the Dow Jones Average of the three Industry Groups which are
representative of ITT Industries' businesses.
The amounts of all compensation awarded to, earned by, or paid to Travis Engen,
the chief executive, and the other executive officers of ITT Industries for whom
such compensation is required to be reported are set forth in the Summary
Compensation Table presented herein.
ITT Industries is a global, diversified manufacturing company with approximately
58,500 employees located in over 40 countries with 1997 sales of nearly $8.8
billion and assets in excess of $6.2 billion, that must attract, motivate and
retain skilled management. In establishing compensation policies and programs
for 1997 and thereafter, the Committee considered compensation provided to
executives of corporations similar to ITT Industries in terms of assets, sales
and revenues, and earnings. These corporations consisted primarily of leading
companies with sales exceeding $8.0 billion.
ITT Industries' executive compensation program has been designed to attract,
reward, and retain capable and motivated executives and to provide incentives
which vary depending upon the attainment of short-term performance objectives
and strategic long-term performance goals. The major objective of the long-term
incentive program is to provide ITT Industries executives with incentives
directly linked to appreciation in shareholder value.
THE COMMITTEE'S ROLE. The Committee's role is to oversee the administration of
ITT Industries' executive compensation program. It reviews proposed new or
amended employee benefit plans and approves individual compensation actions for
all corporate officers and senior executives. The Committee is currently
composed of the three 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
Industries' executive compensation program. It is the policy of the Board to
periodically rotate the members and the post of chairman of the Committee to
assure that fresh points of view are part of its deliberations.
The 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' 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 and has the authority to retain outside legal
counsel to provide guidance on executive compensation matters. During 1997, the
Committee sought the advice of such consulting firms and legal counsel in
establishing and reviewing the compensation programs which were effective in
1997 and will continue in 1998.
THE COMPENSATION PROGRAM. The compensation program for ITT Industries
executives consists of base salary, annual incentive, 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
9
<PAGE> 15
Industries' senior executive salaries are at competitive levels of current
practice. Salaries provide a necessary element of stability in the total pay
program and salary increases are based primarily on merit. The normal interval
between salary reviews for all executives during 1997 was twelve months.
Mr. Engen's annual salary was $900,000 effective March 1, 1997. The Committee
reviewed Mr. Engen's performance during 1997 in his position as Chief Executive
of ITT Industries and, as a result of such review and a comparison of
compensation for the chief executive of each of the comparator companies,
authorized a merit increase of $100,000 bringing his annual base salary to
$1,000,000 effective March 1, 1998.
The 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, 1998, the annual
salaries of the other named executive officers of ITT Industries were as
follows: Mr. Giuliano, $433,000; Mr. Labrecque, $390,000; and Ms. Kunz,
$413,000. Mr. Macher assumed his position of President and Chief Executive
Officer of ITT Automotive, Inc. on June 19, 1997. His annual salary as of March
1, 1998 is $545,000.
ANNUAL INCENTIVE PLAN. For 1997, Mr. Engen and the four other highest
compensated executives participated in the ITT Industries 1997 Annual Incentive
Plan for Executive Officers approved by ITT Industries shareholders in 1997.
This performance-based incentive plan is based on economic value added as the
sole performance factor. Bonus amounts paid under the plan were based on the
performance of ITT Industries during 1997 as compared to the annual performance
goals established and approved by the Committee at the beginning of the 1997
performance year. Based on 1997 Company performance, payout was at 100.82% of
target. The bonus award approved for Mr. Engen for 1997 performance was in
strict accordance with the incentive plan described herein and is shown in the
Summary Compensation Table following this report. The bonus awards for Messrs.
Giuliano and Labrecque and Ms. Kunz for 1997, shown in the Summary Compensation
Table following this report, were above the amount that would have been awarded
under the incentive plan and are in accordance with the Committee's
recommendation to more appropriately reflect their individual contributions
during 1997. The amount paid in excess of the incentive plan formula was $22,331
for Mr. Giuliano; $18,099 for Mr. Labrecque; and $18,078 for Ms. Kunz. Mr.
Macher's bonus award of $300,000 was paid in accordance with his employment
offer.
STOCK OPTION AWARDS. Stock option awards provide long-term incentives that are
directly related to the performance of ITT Industries Common Stock.
Non-qualified stock options have terms of ten years and two days and closely
align executives' interests with those of other shareholders. The stock option
tables on page 14 provide information relating to stock options held by the
individuals named in the Summary Compensation Table.
Approximately two million shares of non-qualified stock options were granted
effective January 2, 1998 to approximately 600 executives under the 1994 ITT
Industries Incentive Stock Plan. Grants to the named executive officers were as
follows: Mr. Engen, 100,000 shares; Mr. Giuliano, 32,000 shares; Ms. Kunz,
32,000 shares; Mr. Labrecque, 32,000 shares; and Mr. Macher, 32,000 shares. For
Mr. Engen and the other named executive officers, such options were granted at
an option exercise price of $31.13 per share and will become exercisable upon
the earlier of an appreciation in ITT Industries Common Stock price of 25% above
the grant price for ten consecutive trading days or nine years from the date of
grant. Mr. Macher's award was in addition to 70,000 shares granted to him on
June 19, 1997 at an option exercise price of $27.38 per share in connection with
his employment.
LONG-TERM INCENTIVE PLAN. The ITT Industries 1997 Long-Term Incentive Plan
approved by shareholders in 1997, authorizes performance awards to be made to
key employees of ITT Industries at the discretion of the Committee.
The Long-Term Incentive Plan provides that the Committee shall determine size
and frequency of awards, the performance measures, performance goals and
performance periods. The size of the awards is determined by the Committee to
meet competitive practice. Payment, if any, of target awards generally will be
made at the end of a three-year performance period and will be based on ITT
Industries' performance with respect to
10
<PAGE> 16
total shareholder return as measured against the performance of the S&P
Industrials as approved by the Committee. Payment, if any, of awards may be made
in whole or in part, at the discretion of the Committee, in the form of cash
and/or Common Stock of ITT Industries. The Long-Term Incentive Plan enables the
Committee to make adjustments to awards and increase or decrease payment values
based upon events or circumstances having a material impact on the overall
performance of ITT Industries.
On January 2, 1998, the Committee granted target awards under the Long-Term
Incentive Plan to 82 key employees, including Messrs. Engen, Giuliano, Labrecque
and Macher and Ms. Kunz. The performance period with respect to the 1998 awards
is three years beginning January 1, 1998. The 1998 target awards made to each of
the individuals named in the Summary Compensation Table are as follows: Mr.
Engen, $955,000; Mr. Giuliano, $305,600; Ms. Kunz, $305,600; Mr. Labrecque,
$305,600 and Mr. Macher $305,600. Mr. Macher also was granted a 1997 target
award of $245,000 which was made in connection with his employment. Payment, if
any, with respect to each award will be in accordance with the established
performance measurement formula. The award amounts set forth above would be the
amounts payable if the formula resulted in payment at the 100% level. The 1998
target awards are based on the Company's total shareholder return compared to
the S&P Industrials, a measurement that the Committee intends to continue to use
for the foreseeable future. To date, no payments have been made under the Plan.
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 19-20.
Under the 1996 Deferred Compensation Plan, executives with an annual base salary
of $200,000 or more may elect to defer receipt of all or a portion of their
annual incentive. ITT Industries will credit interest on the deferred
compensation based on the performance of benchmark investment funds made
available under the plan as selected by the executive.
Although the Committee believes that ITT Industries should strive to structure
its compensation program for senior executives in a manner that would permit
deductibility under the Internal Revenue Code, it realizes that the overall
performance of the senior executives cannot be reduced in all cases to a fixed
formula, and that there may be unusual situations in which the prudent use of
discretion in determining pay levels is in the best interest of ITT Industries
and its shareholders. Under some circumstances 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 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 Compensation and Personnel
Committee:
Robert A. Burnett, Chairman of the
Committee
Curtis J. Crawford
Edward C. Meyer
11
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the cumulative total return of ITT Industries
Common Stock ("ITT Industries Stock") to the cumulative total return of the S&P
500 Index, a composite index composed of the Dow Jones Average of the three
Industry Groups which are representative of ITT Industries' businesses (the
"Composite Index") and the S&P Industrials Index for the period December 15,
1995 through December 31, 1997, assuming an investment of $100 in each on
December 15, 1995.
<TABLE>
<CAPTION>
[Graph]
S&P[
Measurement Period ITT Industries S&P 500[ Composite Industrials
(Fiscal Year Covered) Stock Index Index Index
<S> <C> <C> <C> <C>
15-|Dec-95 100 100 100 100
31-|Dec-95 107 100 100 100
30-|Jun-96 113 110 112 111
31-|Dec-96 112 123 121 123
30-|Jun-97 119 148 140 148
31-|Dec-97 146 164 151 161
</TABLE>
1) THE COMPOSITE INDEX REPRESENTS A REVENUE-WEIGHTED COMPOSITE OF THE DOW JONES
AEROSPACE & DEFENSE INDEX, THE DOW JONES AUTOMOBILE PARTS & EQUIPMENT INDEX
(EXCLUDING TIRE AND RUBBER MAKERS), AND THE DOW JONES INDUSTRIAL (DIVERSIFIED)
INDEX.
12
<PAGE> 18
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ---------------------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING LONG-TERM ALL OTHER
COMPENSATION OPTIONS INCENTIVE PLAN COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(4) (#)(5) PAYOUTS($)(6) ($)(7)
--------------------------- ---- --------- -------- ------------ ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Travis Engen........................... 1997 882,692 907,380 2,799 120,000 -- 30,894
Chairman, President and Chief 1996 783,077 937,920 -- 150,000 -- 27,408
Executive -- ITT Industries 1995 700,000 611,800 17,104 321,126 1,125,000 51,292
Louis J. Giuliano...................... 1997 413,231 286,000 7,737 35,000 -- 14,360
Senior Vice President -- ITT 1996 395,769 257,928 5,278 70,000 -- 13,852
Industries &
President and Chief Executive 1995 368,539 296,000 6,820 198,028 1,000,000 40,455
Officer --
ITT Defense & Electronics
Heidi Kunz(1).......................... 1997 389,885 236,000 750 35,000 -- 13,646
Senior Vice President and Chief 1996 375,000 241,808 258,195 145,000 -- 5,250
Financial Officer -- ITT Industries 1995 21,635 250,000 -- -- -- --
Richard J. Labrecque(2)................ 1997 345,885 230,000 887 35,000 -- 12,106
Senior Vice President -- ITT 1996 317,000 209,567 -- 60,000 -- 11,096
Industries &
President and Chief Executive 1995 271,462 124,000 3,240 37,465 364,000 44,296
Officer --
ITT Fluid Technology
Frank E. Macher(3)..................... 1997 278,649 300,000 74,473 70,000 -- 7,215
Senior Vice President -- ITT
Industries &
President and Chief Executive
Officer -- ITT Automotive
</TABLE>
- ---------------
(1) Ms. Kunz was elected to her present position effective December 19, 1995.
(2) Mr. Labrecque was elected to his present position effective March 1, 1996.
(3) Mr. Macher was elected to his present position effective June 19, 1997.
(4) Amounts shown in this column for Messrs. Engen, Giuliano and Labrecque, and
Ms. Kunz are tax reimbursement allowances which are intended to offset the
inclusion in taxable income of the value of certain benefits. The amounts
included for Ms. Kunz reflect tax reimbursement allowances of $108,195
related to reimbursed relocation expense and $150,000 pursuant to her offer
of employment. The amounts included for Mr. Macher reflect tax reimbursement
allowances of $60,398 related to reimbursed relocation expense.
(5) The named executive officers do not hold any stock appreciation rights in
connection with the options shown. Mr. Macher's stock options were pursuant
to his offer of employment.
(6) All amounts shown in this column represent payments made in January 1996
with respect to the Long-Term Performance Plan of ITT Industries' corporate
predecessor.
(7) All amounts shown in this column for Messrs. Engen, Giuliano, Labrecque, and
Macher, and Ms. Kunz are company contributions under the ITT Industries
Investment and Savings Plan for Salaried Employees and the ITT Industries
Excess Savings Plan, which are defined contribution plans. ITT Industries
makes a matching contribution in an amount equal to 50% of an employee's
contribution, such matching 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 were non-recurring allocations as the ESOP
has been terminated.
13
<PAGE> 19
OPTION GRANTS TO ITT INDUSTRIES EXECUTIVE OFFICERS IN LAST FISCAL YEAR
The following table provides information on fiscal year 1997 grants of options
to the named ITT Industries executive officers. The options for Messrs. Engen,
Giuliano, and Labrecque and Ms. Kunz were granted on March 10, 1997, and Mr.
Macher's options were granted June 19, 1997 in connection with his offer of
employment. All such options become exercisable upon the earlier of (a) a 25%
increase over the option exercise price for ten consecutive trading days or (b)
nine years after the date of grant. During 1997, the price threshold condition
was met for the options granted to Messrs. Engen, Giuliano and Labrecque and Ms.
Kunz and those options are exercisable in full.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED# 1997 PRICE DATE 5% 10%
---- ---------- ------------ -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Travis Engen................ 120,000 5.1% $24.88 3-12-2007 $1,878,000 $4,758,000
Louis J. Giuliano........... 35,000 1.5% $24.88 3-12-2007 $ 547,750 $1,387,750
Heidi Kunz.................. 35,000 1.5% $24.88 3-12-2007 $ 547,750 $1,387,750
Richard J. Labrecque........ 35,000 1.5% $24.88 3-12-2007 $ 547,750 $1,387,750
Frank E. Macher............. 70,000 3.0% $27.38 6-21-2007 $1,205,400 $3,054,800
</TABLE>
- ---------------
(1) At the end of the term for the options granted on March 10, 1997, the
projected price of a share of ITT Industries Common Stock would be $40.53
and $64.53 at assumed annual appreciation rates of 5% and 10%, respectively.
The projected price of the options granted to Mr. Macher on June 19, 1997
would be $44.60 and $71.02 at assumed annual appreciation rates of 5% and
10%, respectively.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information on option exercises in 1997 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
31, 1997. The closing price of ITT Industries Common Stock on December 31, 1997
was $31.38 per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS AT IN-THE-MONEY OPTIONS HELD
SHARES FISCAL YEAR-END AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Travis Engen............. 87,758 1,853,563 1,826,686 -- 28,832,361 --
Louis J. Giuliano........ 39,006 850,565 772,456 -- 10,579,411 --
Heidi Kunz............... -- -- 180,000 -- 1,247,500 --
Richard J. Labrecque..... -- -- 160,117 12,489 1,493,547 138,128
Frank E. Macher.......... -- -- -- 70,000 -- 280,000
</TABLE>
- ---------------
(1) Based on the New York Stock Exchange consolidated trading closing price of
ITT Industries Common Stock on December 31, 1997 of $31.38 per share.
14
<PAGE> 20
LONG-TERM INCENTIVE PLAN
The following table provides information with respect to initial target awards
made under the Plan to each of the named ITT Industries executive officers
during 1997. Because 1997 was the initial phase-in of the Plan, each
participant's total award was divided into two separate, equal parts: one part
with a two-year performance period and one part with a three-year performance
period. The value of the target awards will be determined based on the Company's
total shareholder return performance measured against the S&P Industrials.
Payment, if any, will be made following the completion of the respective
performance period.
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
NUMBER OF PERFORMANCE OR UNDER NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OTHER PERIOD UNTIL -----------------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS AWARDED(#) PAYOUT ($) ($) ($)
---- ----------------- ------------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Travis Engen......... -- 1/1/97 - 12/31/98 $210,000 $420,000 $840,000
-- 1/1/97 - 12/31/99 $210,000 $420,000 $840,000
Louis J. Giuliano.... -- 1/1/97 - 12/31/98 $ 61,250 $122,500 $245,000
-- 1/1/97 - 12/31/99 $ 61,250 $122,500 $245,000
Heidi Kunz........... -- 1/1/97 - 12/31/98 $ 61,250 $122,500 $245,000
-- 1/1/97 - 12/31/99 $ 61,250 $122,500 $245,000
Richard J.
Labrecque.......... -- 1/1/97 - 12/31/98 $ 61,250 $122,500 $245,000
-- 1/1/97 - 12/31/99 $ 61,250 $122,500 $245,000
Frank E. Macher...... -- 1/1/97 - 12/31/98 $ 61,250 $122,500 $245,000
-- 1/1/97 - 12/31/99 $ 61,250 $122,500 $245,000
</TABLE>
15
<PAGE> 21
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows, as of January 31, 1998, 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 ITT Industries as a group(21):
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS(2)
------------------------ -------------------- -------------------
<S> <C> <C>
Rand V. Araskog........................................... 378,555 --
Robert A. Burnett......................................... 5,173 --
Curtis J. Crawford........................................ 2,690 --
Michel David-Weill........................................ 3,844 --
Travis Engen.............................................. 1,954,348(3) 1.6
S. Parker Gilbert......................................... 7,844 --
Christina A. Gold......................................... 1,068 --
Edward C. Meyer........................................... 5,344 --
Sidney Taurel............................................. 4,224 --
Louis J. Giuliano......................................... 777,420 --
Heidi Kunz................................................ 180,472 --
Richard J. Labrecque...................................... 160,117 --
Frank E. Macher........................................... 169 --
All Directors and Executive Officers as a Group (21)...... 4,110,317 3.5
</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, 1998, (ii)
allocated to the accounts of executive officers under the ITT Industries
Investment and Savings Plan for Salaried Employees at January 31, 1998, and
(iii) acquired by directors and executive officers under the ITT Industries
Dividend Reinvestment and Common Stock Purchase Plan through January 31,
1998, 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, 1,826,686 shares; Mr.
Giuliano, 772,456 shares; Ms. Kunz, 180,000 shares; Mr. Labrecque, 160,117
shares; and all directors and executive officers as a group, 3,508,951
shares; (ii) the following amounts were allocated under the ITT Industries
Investment and Savings Plan for Salaried Employees to the accounts of: Mr.
Engen, 1,826 shares; Mr. Giuliano, 1,446 shares; Ms. Kunz, 472 shares; Mr.
Macher, 169 shares; and all executive officers as a group, 53,084 shares;
and (iii) the following amounts were acquired under the ITT Industries
Dividend Reinvestment and Common Stock Purchase Plan for the accounts of:
Mr. Araskog, 64 shares; Mr. Burnett, 329 shares; Mr. Crawford, 58 shares;
Mr. Giuliano, 118 shares; and all directors and executive officers as a
group, 3,276 shares.
(2) Share ownership does not exceed one percent of the class so owned unless
otherwise indicated.
(3) 100 of these shares are held jointly by Mr. Engen's wife.
16
<PAGE> 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table lists all holders known by ITT Industries to own
beneficially as of March 1, 1998 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>
Vanguard/Windsor Funds, Inc. - Windsor II
P.O. Box 2600
Valley Forge, PA 19482-2600............................... 8,282,100(1) 6.99
Barrow, Hanley, Mewhinney & Strauss, Inc.
One McKinney Plaza
3232 McKinney Avenue, 15th Floor
Dallas, TX 75204-2429..................................... 9,664,800(2) 8.2
Trimark Financial Corporation
One First Canadian Place
Suite 5600, P.O. Box 487
Toronto, Ontario M5X 1E5.................................. 11,206,600(3) 9.5
</TABLE>
- ---------------
(1) As reported on a Schedule 13G dated February 9, 1998, filed with the
Securities and Exchange Commission, Vanguard/Windsor Funds, Inc. - Windsor
II has sole voting power with respect to 8,282,100 shares and shared
dispositive power with respect to 8,282,100 shares. These shares are
included in the 9,664,800 shares reported below for Barrow, Hanley,
Mewhinney & Strauss, Inc.
(2) As reported on a Schedule 13G dated February 12, 1998, filed with the
Securities and Exchange Commission, Barrow, Hanley, Mewhinney & Strauss,
Inc. has sole voting power with respect to 612,200 shares, shared voting
power with respect to 9,052,600 shares and sole dispositive power with
respect to 9,664,800 shares. These shares include the 8,282,100 shares
reported above for Vanguard/Windsor Funds, Inc. - Windsor II.
(3) As reported on a Schedule 13G dated February 11, 1998, filed with the
Securities and Exchange Commission, Trimark Financial Corporation has sole
voting power with respect to 11,206,600 shares and sole dispositive power
with respect to 11,206,600 shares.
EMPLOYMENT AGREEMENT 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 the ITT
Industries benefits plans and possible awards under the 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. An amendment to Mr. Engen's Employment Agreement provides
severance benefits of substantially the same nature and at the highest levels
described under the "Special Senior Executive Severance Pay Plan" below. Such
benefits become payable under certain circumstances of termination of employment
within two years of the occurrence of an Acceleration Event as defined in
"Change of Control Arrangements" below.
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
17
<PAGE> 23
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, Labrecque, and Macher, and Ms. Kunz participate in this plan.
SPECIAL SENIOR EXECUTIVE SEVERANCE PAY PLAN. The ITT Industries Special Senior
Executive Severance Pay Plan applies to senior executives and provides for
severance benefits for covered executives whose employment is terminated under
conditions specified in the plan within two years after the occurrence of an
Acceleration Event as defined in the "Change of Control Arrangements" below. The
plan provides two levels of benefits for covered executives based on their
position within the Company.
Under the plan, if any of the highest level of covered executives, including
Messrs. Giuliano, Labrecque, and Macher and Ms. Kunz but excluding Mr. Engen, is
terminated under certain circumstances within two years of the occurrence of an
Acceleration Event, such executive is entitled to receive severance benefits
based on three times his or her highest annual base salary rate at any time
during the three-year period immediately preceding such termination of
employment and three times his or her highest bonus paid or awarded with respect
to the three years preceding an Acceleration Event. The plan also provides for
the continuation of certain health and life insurance benefits and perquisites,
at the same coverage and levels, for a three-year period following the covered
executive's termination of employment as was provided to the covered executive
immediately prior to such termination of employment. The plan also provides for
payment to each covered executive of a lump sum which is equal to the difference
between the total lump sum value of the covered executive's pension benefits
under the Company's pension plans and the total lump sum value of the covered
executive's pension benefit under the pension plans after granting an additional
three years of age and eligibility and benefit service using the highest annual
base salary rate and bonus as determined under the plan. Each covered executive
shall also be credited with an additional three years of eligibility service
under the Company's retiree health and retiree life insurance benefits. Payment
representing three years of company contributions with respect to the ITT
Industries Investment and Savings Plan for Salaried Employees and/or the ITT
Industries Excess Savings Plan will be made to each covered executive based on
the salary rate determined under the plan. The plan provides benefits for other
levels of covered executives at somewhat lesser amounts. The plan also includes
tax gross-up of certain payments under the plan.
CHANGE OF CONTROL ARRANGEMENTS. Acceleration of the exercisability of payment
or vesting of awards or benefits is provided for under the Employment Agreement
with Mr. Engen, the ITT Industries 1986 Incentive Stock Plan, the 1994 ITT
Industries Incentive Stock Plan, the ITT Industries 1997 Annual Incentive Plan
for Executive Officers, the ITT Industries 1997 Annual Incentive Plan, the ITT
Industries 1997 Long-Term Incentive Plan, the ITT Industries Special Senior
Executive Severance Pay Plan, the ITT Industries Deferred Compensation Plan, the
ITT Industries Excess Saving Plan, and the retirement excess benefit plans upon
the occurrence of a change in corporate control, which is generally defined as
the occurrence of any of the following Acceleration 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,
18
<PAGE> 24
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.
ITT INDUSTRIES SALARIED RETIREMENT PLAN. Most of the U.S. Salaried employees of
ITT Industries participate in the ITT Industries Salaried Retirement Plan (the
"Retirement Plan"). 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 Retirement 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 Retirement 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 Retirement 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 maintains non-qualified unfunded retirement plans (the "ITT
Industries Excess Pension Plans") for payment of those benefits at retirement
that cannot be paid from the Retirement Plan. The practical effect of the ITT
Industries Excess Pension Plans is to continue calculation of retirement
benefits to all employees on a uniform basis. Benefits under the ITT Industries
Excess Pension Plans 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. A senior executive 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 employee
covered by the ITT Industries Excess Pension Plans 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
Plans).
Based on various assumptions as to remuneration and years of service, before
Social Security reductions, the table on the following page illustrates the
estimated benefits payable at retirement at age 65.
19
<PAGE> 25
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE FINAL --------------------------------------------------------
COMPENSATION 10 15 20 30 40
- ------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 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
2,000,000 400,000 600,000 800,000 1,150,000 1,450,000
2,200,000 440,000 660,000 880,000 1,265,000 1,595,000
</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 ITT
Industries Salaried Retirement Plan and the ITT Industries Excess Pension Plans.
Their respective covered years of benefit service through December 31, 1997 are
as follows: Mr. Engen, 12.73 years; Mr. Giuliano, 9.50 years; Ms. Kunz, 2.06
years; Mr. Labrecque, 15.70 years; and Mr. Macher, 0.53 years.
DEADLINE FOR SUBMITTING SHAREHOLDER PROPOSALS
Shareholder proposals intended for inclusion in the proxy materials related to
the 1999 Annual Meeting must be received by ITT Industries at its executive
offices no later than November 27, 1998. Proposals should be addressed to the
attention of the Secretary of ITT Industries.
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 27, 1998
20
<PAGE> 26
DETACH PROXY CARD HERE
ITT INDUSTRIES, INC.
4 WEST RED OAK LANE
WHITE PLAINS, NY 10604
PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF ITT INDUSTRIES, INC.
FOR THE 1998 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 1998 Annual Meeting of Shareholders of
ITT Industries to be held on May 14, 1998 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 1998 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. 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. 10203-0005
<PAGE> 27
ITT INDUSTRIES, INC.
4 WEST RED OAK LANE
WHITE PLAINS, NY 10604
Dear Shareholder:
The 1998 Annual Meeting of ITT Industries, Inc. will be held at 10:30 a.m. on
Thursday, May 14, 1998 in Reid Hall at Manhattanville College, 2900 Purchase
Street Purchase, New York. Shareholders of record at the close of business on
March 16, 1998 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
share beneficially through bank or brokerage accounts should bring with them
proof of their ownership if they wish to attend the meeting.
Your vote is important! Whether or not you plan to attend the meeting, be sure
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 --
<TABLE>
<CAPTION>
DIRECTORS RECOMMEND A VOTE FOR ITEMS 1 AND 2
<S> <C> <C> <C>
1. Election of Directors FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
listed below for all nominees listed below
</TABLE>
Nominees: Travis Engen, Rand V. Araskog, Robert A. Burnett, Curtis J. Crawford,
Michel David-Weill, S. Parker Gilbert, Christine A. Gold, Edward C. Meyer, and
Sidney Taurel.
(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
---------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
2. Ratification of auditors FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Mark this box to request Change of Address and
an admission card for or Comments Mark Here [ ]
the meeting [ ]
Note: Please add your title if you are signing as attorney,
administrator, executor, guardian,, trustee or in any other
representative capacity.
Date: 1998
--------------------------------------------------
-----------------------------------------------------------
Signature
VOTES MUST BE INDICATED X
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE. (X) IN BLACK OR BLUE INK.
</TABLE>
