<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(c)(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 9
NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT
ITT Logo
<PAGE> 3
[ITT Letterhead]
Travis Engen
Chairman and Chief Executive ITT Industries
4 West Red Oak Lane
White Plains, NY
10604
March 29, 1999
Dear Fellow Shareholders:
The 1999 Annual Meeting of ITT Industries will be held at 10:30 a.m. on
Thursday, May 13, 1999 at Reid Hall, Manhattanville College, 2900 Purchase
Street, Purchase, New York.
Your vote is very important! Be sure that your shares are represented, whether
or not you plan to attend the meeting.
This year for the first time, if you are the registered owner of ITT Industries
stock, you may vote your shares by making a toll-free telephone call or using
the internet. As always, you also may vote your shares by returning your proxy
form by mail. Details of these voting options are explained in the Proxy
Statement that follows. You also can find useful instructions on the enclosed
proxy form.
If you are a beneficial owner and someone else, such as your bank or broker, is
the owner of record, they will communicate with you about how to vote your
shares.
The Annual Report and the Proxy Statement contain important information about
ITT Industries and about its Board of Directors and executive officers. Please
read these documents carefully. Throughout the year, please visit our web site
at http://www.ittind.com or call 1-800-IIN-INFO for information about current
developments at ITT Industries.
Very truly yours,
/s/ Travis Engen
<PAGE> 4
[ITT Industries Logo]
March 29, 1999
NOTICE OF 1999 ANNUAL MEETING
The 1999 Annual Meeting of ITT Industries, Inc. will be held on Thursday, May
13, 1999 at 10:30 a.m. in Reid Hall at Manhattanville College, 2900 Purchase
Street, Purchase, New York.
The purpose of the 1999 Annual Meeting is to elect nine Directors and to ratify
the Board of Directors' appointment of Arthur Andersen LLP as ITT Industries'
independent auditors for 1999.
The record date for the meeting is March 15, 1999. If you were a shareholder at
the close of business on the record date, you are entitled to vote.
By order of the Board of Directors,
/s/ Gwenn L. Carr
Gwenn L. Carr
Vice President and Secretary
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Information About Voting.................................... 1
Proposals to be Voted on at the 1999 Annual Meeting......... 4
A. Election of Directors............................... 4
B. Appointment of the Independent Auditors............. 9
Information About the Board of Directors.................... 10
Report of the Compensation and Personnel Committee.......... 16
Performance Graph........................................... 21
Compensation of Executive Officers.......................... 22
Option Grants During 1998................................... 24
Aggregated Option Exercises During 1998..................... 25
Long-Term Incentive Plan -- 1998 Awards..................... 25
Employment Agreement with the Chief Executive............... 26
Senior Executive Severance Pay Plan......................... 26
Special Senior Executive Severance Pay Plan................. 27
Change of Control Arrangements.............................. 28
Salaried Retirement Plan.................................... 29
Ownership of ITT Industries' Stock.......................... 31
Stock Ownership of Directors and Executive Officers......... 32
</TABLE>
<PAGE> 6
PROXY STATEMENT
In connection with the Board of Directors' solicitation of proxies for ITT
Industries' 1999 Annual Meeting, beginning March 29, 1999, this proxy statement
is being sent to those who were shareholders of record as of March 15, 1999.
-------------------------
INFORMATION ABOUT VOTING
WHY THE BOARD SOLICITS PROXIES FROM SHAREHOLDERS. In order to vote your
shares, you must attend the annual meeting and vote in person or appoint a proxy
to vote on your behalf. Because it would be impossible for all shareholders to
attend the meeting in person, the Board of Directors recommends that you appoint
the three people named on the accompanying proxy form to act as your proxies at
the 1999 Annual Meeting.
If you appoint the proxies, they will vote your shares in accordance with your
voting instructions. If you appoint the proxies, but do not provide voting
instructions, they will vote as recommended by the Board of Directors. The
proposals to be voted on and the Board's voting recommendations are described on
the following pages 4 through 9. If any other matters not described in this
proxy statement are properly brought before the meeting for a vote, the proxies
will use their discretion in deciding how to vote on those matters.
This proxy statement and ITT Industries' 1998 Annual Report to Shareholders
contain the information that regulations of the Securities and Exchange
Commission require the Board of Directors to provide to shareholders when their
proxies are solicited.
PROXY VOTING PROCEDURES. You may vote in any one of the following ways:
- - BY THE INTERNET, if you have internet access. To vote by the internet, follow
the internet voting instructions on the proxy form that is enclosed with this
proxy statement.
- - BY TELEPHONE, if you call from the United States or Canada. To vote by
telephone, follow the telephone voting instructions on the proxy form.
- - BY MAIL. To vote by mail, mark your voting instructions on the proxy form,
sign the form, and return it in the enclosed envelope. If you do that, the
proxies, who are named on the proxy form, will vote your shares as you have
instructed them to do. If you wish, you also may simply sign and return the
proxy form without specifying how you want your shares to be voted. If you do
that, you would be authorizing the proxies to vote your shares for the
election of the nine nominees for Director and for the ratification of the
appointment of Arthur Andersen LLP as the Company's independent auditors for
1999.
1
<PAGE> 7
DISCRETIONARY VOTING BY PROXIES. Apart from the election of Directors and the
appointment of auditors, the Board of Directors did not receive any notice
during the advance notice period that began February 13, 1999 and ended on March
5, 1999 that any other matter might be presented for a vote at the 1999 Annual
Meeting. However, if another matter were to be presented, the proxies would use
their discretion in deciding whether to vote for or against it.
REVOKING YOUR PROXY. You may revoke your proxy at any time before it is voted
by granting a new proxy or by voting in person at the 1999 Annual Meeting.
SHARES OUTSTANDING. As of the March 15, 1999 record date for the 1999 Annual
Meeting, 89,198,976 shares of the Company's common stock were outstanding. Each
of those outstanding shares is entitled to one vote on each matter to be voted
on at the 1999 Annual Meeting.
QUORUM. In order for business to be conducted at the 1999 Annual Meeting,
there must be a quorum. If the holders of a majority of ITT Industries'
outstanding shares are present in person or represented by proxies at the
meeting, there will be a quorum.
VOTES REQUIRED TO ELECT DIRECTORS OR APPROVE A PROPOSAL. Indiana law, the law
of the state in which ITT Industries is incorporated, provides that directors
are elected by a plurality of the votes cast. That means that the nine nominees
who receive the highest number of votes will be elected the Directors of ITT
Industries. Any other matter voted on at the 1999 Annual Meeting, including the
appointment of auditors, will be approved if the number of shares voted in favor
of it is larger than the number of shares voted against it.
ABSTENTIONS AND BROKER NON-VOTES. Abstentions and broker non-votes will be
counted in order to determine whether there is a quorum; however, they will not
be counted as votes for or against any matter. Therefore, abstentions and broker
non-votes will not have any effect on the outcome of the vote.
VOTING BY EMPLOYEE PARTICIPANTS IN ITT INDUSTRIES' SAVINGS PLANS. If you
participate in any of ITT Industries' savings plans for salaried or hourly
employees, your plan trustee will vote the ITT Industries shares credited to
your savings plan account in accordance with your voting instructions. The
trustee votes the shares on your behalf because you are the beneficial owner,
not the record owner of the shares credited to your account. The trustees will
vote the savings plan shares for which they do not receive voting instructions
in the same proportion as the shares for which they received voting
instructions.
If you are a participant in the savings plan for salaried employees and also are
a record owner of ITT Industries common stock, you will receive one proxy form
that reflects your savings plan shares and the other shares you own, including
any shares held in the Dividend Reinvestment Plan. The number of plan and other
shares that you own will be set out separately on the proxy form.
2
<PAGE> 8
NUMBER OF ITT INDUSTRIES SHARES HELD BY PARTICIPANTS IN THE COMPANY'S EMPLOYEE
SAVINGS PLANS. As of March 15, 1999, Bankers Trust Company held 8,179,803
shares of ITT Industries' common stock (approximately 9.17% of the outstanding
shares) as trustee of the salaried employees savings plan, and Northern Trust
Company, Inc. held approximately 231,750 shares (less than 3/10 of 1% of the
outstanding shares) as trustee for the hourly employees savings plans.
INSPECTORS OF ELECTION AND CONFIDENTIAL VOTING. Representatives of CT
Corporation System will act as the Inspectors of Election for the 1999 Annual
Meeting. They will monitor the voting and certify whether the votes of
shareholders are being kept in confidence in compliance with ITT Industries'
confidential voting policy.
COST OF THE SOLICITATION. ITT Industries has appointed Georgeson & Company
Inc. to assist with the solicitation of proxies from its registered owners for a
fee of $25,000 plus expenses. ITT Industries also will reimburse brokers,
nominees, custodians and fiduciaries for their costs of sending the proxy
materials to the beneficial owners. Directors, officers or other regular
employees of ITT Industries also may solicit proxies from shareholders in
person, or by telephone, facsimile transmission or other electronic means of
communication.
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING. Rule 14a-8 of the
Securities and Exchange Commission establishes the eligibility requirements and
the procedures that must be followed for a shareholder's proposal to be included
in a public company's proxy materials. Under the rule, if a shareholder wishes
to include a proposal in ITT Industries' proxy materials for its next annual
meeting, the proposal must be received by ITT Industries on or before November
30, 1999.
ADVANCE NOTICE PROVISIONS. An ITT Industries shareholder who wishes to present
a matter for action at ITT Industries' next annual meeting, but chooses not to
do so under SEC Rule 14a-8, must deliver to ITT Industries, on or before
November 30, 1999, a notice containing the information required by the advance
notice and other provisions of the Company's By-Laws. A copy of the By-Laws may
be obtained from the Secretary of ITT Industries.
3
<PAGE> 9
PROPOSALS TO BE VOTED ON AT THE 1999 ANNUAL MEETING
A. ELECTION OF DIRECTORS
The Board of Directors has nominated nine men and women for election as
Directors at the 1999 Annual Meeting. Each of the nominees is currently serving
as a Director of ITT Industries and has agreed to continue to serve if elected.
If unforeseen circumstances arise before the annual meeting, and a nominee
becomes unable to serve, the Board of Directors could reduce the size of the
Board or nominate someone else for election. In that situation, if the Board
nominates someone else, the proxies could use their discretion to vote for that
other person. Each Director elected at the 1999 Annual Meeting will be elected
to serve as a Director until ITT Industries' next annual meeting.
S. Parker Gilbert, who has served as a Director of ITT Industries and its
corporate predecessor since 1991, is retiring from the Board effective at the
1999 Annual Meeting. Upon his retirement, the size of the Board will be reduced
to nine Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF THE
FOLLOWING NINE NOMINEES:
<TABLE>
<S> <C>
TRAVIS ENGEN
[PHOTO] Chairman and Chief Executive of ITT Industries, Inc.
</TABLE>
Mr. Engen, 54, has been chairman and chief executive of ITT Industries since
December 1995. From December 1995 through October 27, 1998, he also was the
president of the company. From January 1991 through December 19, 1995, Mr. Engen
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 Chemical Company and 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.
4
<PAGE> 10
<TABLE>
<S> <C>
RAND V. ARASKOG
Chairman and Chief Executive of ITT Corporation (retired), a
hotel, gaming, entertainment and information services
[PHOTO] company
</TABLE>
Mr. Araskog, 67, 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 Alcatel, Dow Jones & Company, Hartford Financial
Services Group, Inc., Rayonier Inc., and Shell Oil Company. 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.
<TABLE>
<S> <C>
ROBERT A. BURNETT
Chairman and Chief Executive Officer of Meredith
[PHOTO] Corporation(retired), a diversified media company
</TABLE>
Mr. Burnett, 71, was chairman of Meredith Corporation from 1988 until his
retirement in 1992. He was president and chief executive officer of Meredith
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 and 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.
5
<PAGE> 11
<TABLE>
<S> <C>
CURTIS J. CRAWFORD
President and Chief Executive Officer of ZiLOG Inc., a
[PHOTO] manufacturer of integrated circuits
</TABLE>
Mr. Crawford, 51, has been president and chief executive of ZiLOG Inc. since
early 1998. Previously, from 1993, he was president of Microelectronics Group, a
unit of Lucent Technologies, Inc. and vice president and co-chief executive
officer of Microelectronics from 1991 to 1993. From 1988 to 1991, he was vice
president of sales, service and support at AT&T Computer Systems. From 1973 to
1988, Mr. Crawford held various positions at International Business Machines
Corporation. Mr. Crawford is a director of ZiLOG Inc. and Dupont Corporation.
Mr. Crawford has an MA degree from Governors State University and an MBA from
DePaul University. Governors State University awarded him an honorary doctorate
in 1996.
Mr. Crawford has been a Director of ITT Industries since 1996.
<TABLE>
<S> <C>
MICHEL DAVID-WEILL
Chairman and Chief Executive of Lazard Freres & Co. LLC,
[PHOTO] investment bankers
</TABLE>
Mr. David-Weill, 66, 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 in 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; 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 is a graduate
of the Institut des Sciences Politiques, Paris, France.
Mr. David-Weill has been a Director of ITT Industries or its predecessor since
1981.
6
<PAGE> 12
<TABLE>
<S> <C>
CHRISTINA A. GOLD
President and Chief Executive Officer of The Beaconsfield
[PHOTO] Group, Inc., a global business advisor
</TABLE>
Mrs. Gold, 51, formed The Beaconsfield Group in March 1998. Previously, she was
executive vice president, global direct selling development of Avon Products,
Inc. from February 1997 to March 1998, and 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. She is a director of The Torstar
Corporation. Mrs. Gold also 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 has been a Director of ITT Industries since 1997.
<TABLE>
<S> <C>
EDWARD C. MEYER
Chairman of Mitretek Systems, a professional and technical
[PHOTO] services provider
</TABLE>
General Meyer, 70, retired in 1983 as chief of staff of the United States Army.
He is a director of 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 the 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.
7
<PAGE> 13
<TABLE>
<S> <C>
LINDA S. SANFORD
General Manager, Global Industries,
International Business Machines Corporation, an information
[PHOTO] technology company
</TABLE>
Since January 1998, Mrs. Sanford, 44, has been the general manager of Global
Industries which manages relationships with IBM's large customers, develops
industry-specific applications to solve supply chain, payment and customer care
business problems and helps customers implement their business strategies
through the application of information technology. Previously, she was general
manager of IBM's S/390 Division, which develops, manufactures and markets
large-enterprise systems. Mrs. Sanford joined IBM in 1975 as an engineer in the
Typewriter Division, and since then has held a number of executive positions at
IBM. Mrs. Sanford is a member of the Women in Technology International Hall of
Fame and the National Association of Engineers. She is a graduate of St. John's
University and earned an MS degree in operations research from Rensselaer
Polytechnic Institute.
Mrs. Sanford was elected a Director of ITT Industries in July 1998.
<TABLE>
<S> <C>
SIDNEY TAUREL
Chairman, President and Chief Executive, Eli Lilly and
[PHOTO] Company, a pharmaceutical company
</TABLE>
Mr. Taurel, 50, has been chairman of Eli Lilly since January 1999, and chief
executive since July 1998. From February 1996 to 1998, he was president and
chief operating officer of Eli Lilly and executive vice president from 1993 to
1996. Mr. Taurel joined Eli Lilly International Corporation in 1971, was
appointed vice president of its European operations in 1983, and president in
1986. He was elected executive vice president of the pharmaceutical division of
Eli Lilly in 1991. In 1993, he became president of the pharmaceutical division
and executive vice president of Eli Lilly. Mr. Taurel is a director of Eli Lilly
and Company and McGraw-Hill Companies Inc. He is a member of the Board of
Overseers of the Columbia University Business School and the Board of the RCA
Tennis Championships. He also is a trustee of the Indianapolis Museum of Art.
Mr. Taurel is a graduate of the Ecole des Hautes Etudes Commerciales, Paris,
France, and received an MBA from Columbia University.
Mr. Taurel has been a Director of ITT Industries since 1996.
8
<PAGE> 14
B. APPOINTMENT OF THE INDEPENDENT AUDITORS
Subject to the shareholders' ratification, the Board of Directors has appointed
Arthur Andersen LLP as ITT Industries' independent auditors for 1999. Arthur
Andersen has served as independent auditors of the business units of ITT
Industries for many years, and this long-term knowledge enables the firm to
carry out its audits effectively and efficiently.
Representatives of the firm attend all meetings of the Audit Committee of the
Board of Directors. In keeping with Arthur Andersen's long-standing policy, the
partners and employees of the firm who conduct the audits of ITT Industries are
rotated periodically.
Representatives of Arthur Andersen will attend the annual meeting, and will be
able to make a statement at the meeting if they wish. They also 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 1999.
9
<PAGE> 15
INFORMATION ABOUT THE BOARD OF DIRECTORS
RESPONSIBILITIES OF THE BOARD OF DIRECTORS. The Board sets policy for ITT
Industries and advises and counsels the chief executive and the executive
officers who manage the company's business and affairs. The Board is responsible
for assuring
- that there is continuity in the leadership of ITT Industries;
- that management develops sound business strategies;
- that adequate capital and managerial resources are available to implement
the business strategies;
- that ITT Industries' systems of financial reporting and internal control
are adequate and properly implemented; and
- that ITT Industries' businesses are conducted in conformity with
applicable laws and regulations.
INDEPENDENT DIRECTORS. ITT Industries' By-laws require that a majority of the
Directors at all times shall be independent directors. The By-Laws also require
all members of the Audit, Compensation and Personnel, and Nominating and
Governance Committees to be independent directors. The By-laws define an
independent director as someone who
- has not been employed by ITT Industries in an executive capacity within
the past five years;
- is not, and is not affiliated with a company or a firm that is, an
advisor or consultant to ITT Industries;
- is not affiliated with a significant customer or supplier of ITT
Industries;
- does not have a personal services contract with ITT Industries;
- is not related to any of the persons described above; and
- is free of any other relationship that would interfere with the
director's exercise of independent judgment.
COMMITTEES OF THE BOARD OF DIRECTORS. The five standing Committees of the
Board that are described below perform essential corporate governance functions.
The post of Committee Chairman and the members of the Committee are rotated
periodically to assure that fresh points of view are reflected.
10
<PAGE> 16
AUDIT COMMITTEE
Members: S. Parker Gilbert, Chairman
Sidney Taurel, Chairman elect
Curtis J. Crawford
Linda S. Sanford
\Meetings in 1998: 4
Responsibilities: - Selects the independent auditors, subject to the
approval of the Board of Directors and the
ratification of the shareholders.
- Reviews and approves the annual internal and
external audit plans and monitors the progress of
the audits throughout the year.
- Reviews the annual audit results.
- Reviews and approves the audited annual financial
statements.
- Reviews the unaudited interim financial statements.
- Reviews and approves audit fees.
- Assures that ITT Industries develops and maintains
adequate internal control policies and procedures
and monitors compliance with those policies and
procedures.
- Oversees the investment of the pension plan assets.
- Inspects the expense accounts of ITT Industries'
chief executive and corporate officers.
- Meets privately with the independent auditors at
least twice a year and with the internal auditors
at least twice a year.
11
<PAGE> 17
CAPITAL COMMITTEE
Members: Travis Engen, Chairman
Rand V. Araskog
Robert A. Burnett
Curtis J. Crawford
Michel David-Weill
S. Parker Gilbert
Christina A. Gold
Edward C. Meyer
Linda S. Sanford
Sidney Taurel
Meetings in 1998: 8
Responsibilities: - Reviews and approves ITT Industries' long-term
strategies.
- Reviews ITT Industries' capital and research,
development and engineering budgets.
- Reviews and approves ITT Industries' significant
investments in new businesses, joint ventures and
partnerships.
- Reviews and approves ITT Industries' acquisitions
and dispositions of significant businesses.
COMPENSATION AND PERSONNEL COMMITTEE
Members: Robert A. Burnett, Chairman
Curtis J. Crawford
Edward C. Meyer
Meetings in 1998: 7
Responsibilities: - Approves ITT Industries' executive compensation
program and oversees the administration of the
program.
- Evaluates senior management performance and
approves individual compensation actions for the
chief executive and for all corporate officers.
- Oversees the establishment and administration of
ITT Industries' benefit programs.
- Empowered to select and retain independent
compensation and benefits consultants and other
outside counsel to provide independent advice to
the Committee about ITT Industries' current and
proposed executive compensation and employee
benefit programs. In 1998 and prior years, the
Committee sought the advice of independent
consultants and counsel about ITT Industries'
executive compensation program.
12
<PAGE> 18
CORPORATE RESPONSIBILITY COMMITTEE
Members: Curtis J. Crawford, Chairman
Robert A. Burnett
Christina A. Gold
Sidney Taurel
Meetings in 1998: 5
Responsibilities: - Reviews and makes recommendations concerning
ITT Industries' roles and responsibilities as a
corporate citizen.
- Reviews and considers major claims and litigation
involving ITT Industries and its subsidiaries.
- Examines ITT Industries' programs and policies for
effecting compliance with laws and regulations,
including environmental laws and regulations.
- Meets annually with the Corporate Compliance
Officer to assess the adequacy and effectiveness of
ITT Industries' Code of Corporate Conduct and to
review any violations of the Code.
NOMINATING AND GOVERNANCE COMMITTEE
Members: Edward C. Meyer, Chairman
Robert A. Burnett
Sidney Taurel
Meetings in 1998: 7
Responsibilities: - Evaluates and makes recommendations to the
Board of Directors about the composition and
structure of the Board.
- Makes recommendations to the Board of Directors
concerning the qualifications, compensation and
retirement age of Directors.
- Administers the Board evaluation process.
- Proposes nominees for election to the Board of
Directors.
- Makes recommendations to the Board of Directors
concerning the appointment of Directors to Board
Committees and the selection of Board Committee
Chairmen.
- The Committee will consider shareholder nominations
for directors that meet the requirements of ITT
Industries' By-laws. (A copy of the nomination
requirements may be obtained from the Secretary of
ITT Industries).
13
<PAGE> 19
During 1998, there were 8 regularly scheduled Board meetings, 4 special Board
meetings, and a total of 43 Committee meetings. All directors other than Mr.
David-Weill and Mr. Crawford attended more than 75% of the aggregate of all
meetings of the Board and the Committees on which they served. Mr. Crawford
attended 75% of all Board meetings and more than 70% of all meetings of the
Board of Directors and the Committees on which he served.
For 1999, the Board has scheduled six regular meetings. In conjunction with the
regular meetings, those Directors who are not employees of ITT Industries meet
privately at least three times a year.
COMPENSATION OF DIRECTORS. Directors other than Mr. Engen, who is an employee
of ITT Industries, are paid annual retainers of $50,000 and attendance fees of
$1,000 for each Board and Committee meeting they attend. Attendance fees are
paid in cash. The annual retainer is paid in shares of restricted stock that are
held in escrow until the restrictions lapse. The number of restricted shares is
determined by dividing into $50,000 the average of the high and low sales prices
per share of ITT Industries' common stock on the date of the annual meeting. Any
fractional share is paid in cash. Directors receive dividends on the restricted
shares and may vote the shares during the escrow period.
Each Director's restricted shares are held in escrow until one of the following
events occurs:
- the fifth anniversary of the grant of the shares;
- the Director retires from the Board at or after age 65 after having
continuously served as a Director of both ITT Industries and its
corporate predecessor;
- the Director retires at age 72;
- there is a change in control of the Company;
- the Director becomes disabled or dies; or
- the Director resigns from the Board because he or she becomes ill,
relocates, enters into government service, or is unable to continue
serving as a Director for legal reasons, as described in the 1996
Restricted Stock Plan for Non-Employee Directors.
Directors are reimbursed for the expenses they incur to travel to Board and
Committee meetings.
DIRECTOR NOMINATION POLICY. No one may be nominated for election as a Director
after he or she has reached 72 years of age.
14
<PAGE> 20
INDEMNIFICATION AND INSURANCE. As permitted by its By-laws, ITT Industries
indemnifies the Directors to the full extent permitted by law and maintains
insurance to protect the Directors from liabilities whether or not it could
otherwise indemnify them. In 1998, ITT Industries prepaid the three-year premium
of $1,896,000 for providing liability insurance for its Officers and Directors.
ITT Industries also has entered into contracts with each of the non-employee
Directors to protect them from liability including situations in which ITT
Industries may not continue the insurance. All Directors are covered under a
non-contributory group accidental death and dismemberment policy that provides
each of them with $750,000 of coverage. They may elect to purchase additional
coverage under that policy. Non-employee Directors also may elect to participate
in an optional non-contributory group life insurance plan that would provide
$100,000 of coverage.
TRANSACTIONS WITH DIRECTORS. Mr. David-Weill is chairman and chief executive
of Lazard Freres & Co. LLC, which performed various investment banking services
for ITT Industries in 1998 and may also perform similar services in 1999. In
addition, the ITT Industries Master Retirement Trust invests in funds organized
by Lazard Freres and pays fees to the firm for the investment and management
services provided to the Trust in connection with those investments.
15
<PAGE> 21
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION AND PERSONNEL COMMITTEE
The Compensation and Personnel Committee of the Board of Directors 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 1998 of Travis Engen,
Chairman 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. The elements are set
forth in the Summary Compensation Table presented herein. The executive
compensation programs of ITT Industries are based on competitive compensation
practices as well as on the performance measures and policies that focus on the
continued growth of shareholder value.
ITT Industries is a global engineering and manufacturing company with leading
positions in the markets that it serves. ITT Industries has approximately 33,000
employees located in 45 countries with 1998 sales of nearly $4.5 billion and
assets of approximately $5.05 billion. In establishing compensation policies and
programs for 1998 and thereafter, the Committee considered the effect of the
sale of the automotive Electrical Systems and Brake and Chassis businesses, and
compensation provided to executives of corporations similar to ITT Industries in
terms of assets, sales and revenues, and earnings. These corporations consisted
of leading manufacturing companies from the S&P Industrials Index.
ITT Industries' executive compensation program has been designed to attract,
reward, and retain capable and motivated executives and to provide incentives
that 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 COMPENSATION PROGRAM. The compensation for ITT Industries' executives
consists of base salary, annual incentives, stock-based programs, long-term
incentives, and employee benefits.
- - 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
at competitive levels. Salaries provide a necessary element of stability in the
total pay program. Salary increases are based primarily on merit. The normal
interval between salary reviews for all executives during 1998 was twelve
months.
16
<PAGE> 22
At their meeting on October 27, 1998, the Board of Directors approved a title
change to Chairman and Chief Executive for Mr. Engen effective on that day. The
Committee reviewed Mr. Engen's performance during 1998. As a result of such
review, as well as a comparison of competitive compensation practices, the
Committee authorized a merit increase of $50,000 for Mr. Engen, to be effective
March 1, 1999, raising his annual base salary to $1,050,000.
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, 1999, the annual
salaries of the other named executive officers of ITT Industries were as
follows: Mr. Giuliano, $550,000; Ms. Kunz, $475,000 and Mr. Labrecque, $405,600.
Mr. Giuliano was elected President and Chief Operating Officer on October 27,
1998 and his current annual base salary of $550,000 was effective November 1,
1998. Ms. Kunz's annual base salary of $475,000 was effective October 1, 1998
reflecting her additional responsibilities for the Industrial Specialty Group.
She was subsequently elected Executive Vice President on October 27, 1998. Mr.
Labrecque was elected Executive Vice President on October 27, 1998. Mr. Macher's
employment with ITT Industries terminated effective January 31, 1999 following
completion of the sale of ITT Industries' automotive Brake and Chassis and
Electrical Systems businesses.
- - ANNUAL INCENTIVE PLAN.
For 1998, 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. Bonus amounts paid
under the plan were based on the economic value added performance of ITT
Industries during 1998 as compared to the annual performance goals established
and approved by the Committee at the beginning of the 1998 performance year. The
bonus award approved for Mr. Engen for 1998 performance was in accordance with
the incentive plan described herein and is included in the amount included in
the Summary Compensation Table following this report. The bonus awards for Mr.
Giuliano, Ms. Kunz and Mr. Labrecque for 1998, shown in the Summary Compensation
Table following this report, were also in accordance with the incentive plan
described herein. Mr. Macher's bonus award of $299,750 was paid in accordance
with the approved 1998 incentive plan for ITT Automotive.
At its meeting on February 9, 1999, the Committee approved a change to the bonus
formula beginning with performance year 1999. The three-year weighted formula
with respect to the ITT Industries 1997 Annual Incentive Plan for Executive
Officers was changed to a formula based wholly on the current year's
performance. As a result, the portion of the bonus already earned for
performance in 1997 and 1998, that would otherwise be payable in 2000 and 2001,
has been accelerated and paid in 1999. With respect to Mr. Engen and
17
<PAGE> 23
the four other named executive officers in the Summary Compensation Table, such
amounts were as follows: Mr. Engen, $155,179; Mr. Giuliano, $118,167; and Ms.
Kunz, $47,575. There were no accelerated payments made to Messrs. Labrecque or
Macher.
- - STOCK-BASED PROGRAMS.
- - 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 pages 24 and 25 provide information relating to stock options held by the
individuals named in the Summary Compensation Table.
Approximately 1,700,000 shares of non-qualified stock options were granted
effective January 4, 1999 to approximately 450 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, 50,000 shares; Ms. Kunz,
35,000 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 $39.56 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 options became exercisable in full upon his
termination and will remain exercisable for a period of twenty-four months
thereafter.
- - RESTRICTED STOCK AWARDS. Following the successful completion of the sale of
ITT Industries' automotive Brake and Chassis and Electrical Systems businesses,
the Committee elected to provide a special recognition of the strong performance
of certain individuals who made substantial contributions during the strategic
review and sale process. A total of 39,000 restricted shares were awarded to
twenty-one executives under the 1994 ITT Industries Incentive Stock Plan. Of
that amount, an aggregate of 20,000 restricted shares were granted to six
executive officers, including Ms. Kunz, who received 4,000 shares. The shares
will vest in full three years after September 29, 1998. Restricted stock grants
were not made to Messrs. Engen, Giuliano, Labrecque or Macher.
- - 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 in
order to meet competitive practice. Payment, if any, of target
18
<PAGE> 24
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 total shareholder
return as measured against the performance of the other S&P Industrial companies
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,
including but not limited to acquisitions or divestitures having a material
impact on the overall performance of ITT Industries.
On January 4, 1999, the Committee granted target awards under the Long-Term
Incentive Plan to 64 key employees, including Mr. Engen, Mr. Giuliano, Ms. Kunz
and Mr. Labrecque. The performance period with respect to the 1999 awards is
three years beginning January 1, 1999. The 1999 target awards made to each of
the individuals named in the Summary Compensation Table are as follows: Mr.
Engen, $953,000; Mr. Giuliano, $476,500; Ms. Kunz, $333,600 and Mr. Labrecque,
$305,000. Mr. Macher did not receive a Long-Term Incentive award. 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 results in payment at the 100% level. The 1999
target awards are based on the Company's total shareholder return compared to
the other S&P Industrial companies, a measurement that the Committee intends to
continue to use for the foreseeable future.
Mr. Engen and the four other highest compensated executives received awards in
1997 under the ITT Industries 1997 Long-Term Incentive Plan. These awards were
subject to a two-year performance period ending December 31, 1998 and were
subject to achievement of preestablished goals as approved by the Committee in
1997 measuring ITT Industries' performance with respect to total shareholder
return as measured against the performance of the other S&P Industrial
companies. Long-Term Incentive Plan payments were made in strict accordance with
the plan as measured for the period of December 31, 1996 through December 31,
1998 and are shown in the Summary Compensation Table on page 22. Based on the
Company's performance at the 70(th) percent rank of the S&P Industrial
companies, payout was at 167.251% of target, which was in accordance with the
approved formula. The Committee determined that payment be made in a combination
of cash and shares of ITT Industries' stock. The shares were purchased on the
open market, valued at $39.75 per share, the price as of the close of the
measurement period. Payment in cash and stock is to encourage increased share
ownership among the company's senior executives.
EMPLOYEE BENEFITS. Executives also participate in ITT Industries' broad-based
employee benefits program which includes a pension program, an investment
19
<PAGE> 25
and savings plan, group medical and dental coverage, group life insurance, and
other benefit plans. Mr. Engen and the other named executive officers also
participate in certain other benefit programs that are described on pages 26
through 30.
Under the 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. 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 would 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
20
<PAGE> 26
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
S&P MANUFACTURING
ITT INDUSTRIES INC. S&P 500[ S&P INDUSTRIALS INDEX (DIVERSIFIED) INDEX
------------------- -------- --------------------- -------------------
<S> <C> <C> <C> <C>
12/15/1995 100 100 100 100
12/31/1996 112 123 123 139
12/31/1997 146 164 161 165
12/31/1998 189 211 215 191
</TABLE>
21
<PAGE> 27
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the annual and long-term compensation paid during the
three-year period ended December 31, 1998 to the chief executive and the four
other most highly paid executive officers of ITT Industries.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
----------------------------------------
<CAPTION>
ANNUAL LONG-TERM COMPENSATION
COMPENSATION
LONG-
TERM RESTRICTED
SECURITIES INCENTIVE STOCK AND
OTHER ANNUAL UNDERLYING PLAN ALL OTHER
SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(3) ($)(4) (#)(5) ($)(6) ($)(7)
<S> <C> <C> <C> <C> <C> <C> <C>
Travis Engen, 1998 982,692 1,311,179 7,114 100,000 702,454 34,394
Chairman and Chief Executive -- ITT 1997 882,692 907,380 2,799 120,000 -- 30,894
Industries 1996 783,077 937,920 -- 150,000 -- 27,408
Louis J. Giuliano, 1998 448,057 595,017 7,414 32,000 204,882 15,682
President and Chief Operating 1997 413,231 286,000 7,737 35,000 -- 14,360
Officer -- ITT Industries 1996 395,769 257,928 5,278 70,000 -- 13,852
Heidi Kunz, 1998 424,323 404,490 6,759 32,000 204,882 153,224
Executive Vice President and Chief 1997 389,885 236,000 750 35,000 -- 13,646
Financial Officer -- ITT Industries 1996 375,000 241,808 258,195 145,000 -- 5,250
Richard J. Labrecque(1), 1998 387,403 234,791 -- 32,000 204,882 13,559
Executive Vice President -- ITT 1997 345,885 230,000 887 35,000 -- 12,106
Industries & President and Chief 1996 317,000 209,567 -- 60,000 -- 11,096
Executive Officer -- ITT Fluid
Technology
Frank E. Macher(2), 1998 518,935 299,750 1,914 32,000 523,613 17,300
Senior Vice President -- ITT 1997 278,649 300,000 74,473 70,000 -- 7,215
Industries & President and Chief
Executive Officer -- ITT Automotive
</TABLE>
(1) Mr. Labrecque was elected an executive officer of ITT Industries effective
March 1, 1996.
(2) Mr. Macher was elected an executive officer of ITT Industries effective June
19, 1997. His employment with ITT Industries terminated effective January
31, 1999. In connection with his termination, Mr. Macher will receive an
aggregate amount of $1,324,000 in consideration of his execution of a two
year non-competition agreement. In addition, Mr. Macher received $1,745,000
reflecting his management role associated with the sale of the automotive
businesses and his severance following completion of those transactions.
(3) In addition to regular annual incentive payments, amounts in this column
include payments accelerated to 1999 with respect to the change to the bonus
formula described in the Report of the Compensation and Personnel Committee
as follows: Mr. Engen, $155,179; Mr. Giuliano, $118,167; Ms. Kunz, $47,575.
No payments were made to Messrs. Labrecque or Macher as a result of the
change in the bonus formula.
(4) Amounts shown in this column for Mr. Engen, Mr. Giuliano, Ms. Kunz, Mr.
Labrecque and Mr. Macher 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 during 1996 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
during 1997 reflect tax reimbursement allowances of $60,398 related to
reimbursed relocation expense.
22
<PAGE> 28
(5) The named executive officers do not hold any stock appreciation rights in
connection with the options shown. Mr. Macher's stock options granted in
1997 were pursuant to his offer of employment.
(6) Amounts shown in this column represent the aggregate payout value of the
1997 target award subject to a 2-year performance period ending December 31,
1998. Payments of the aggregate amounts were made 50% in the form of cash
and 50% in the form of shares of ITT Industries' common stock valued at
$39.75 per share, the closing price on December 31, 1998. The shares issued
to the named officers were as follows: Mr. Engen, 8,835 shares; and 2,577
shares each to Mr. Giuliano, Ms. Kunz, Mr. Labrecque and Mr. Macher. Mr.
Macher also received a cash payment of $318,731 for the balance of his 1997
target award and for his 1998 target award, which was based on a prorated
amount with respect to company performance measured as of January 31, 1999.
(7) All amounts shown in this column for all named executive officers 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. Ms.
Kunz's amount includes $138,373, representing the value of 4,000 shares of
restricted stock awarded on September 29, 1998 in connection with the
completion of the sales of ITT Industries' automotive Electrical Systems and
Brake and Chassis businesses. The shares are subject to a three-year
restriction period during which time Ms. Kunz will be entitled to dividends
paid on ITT Industries' common stock and she will have the right to vote the
shares.
23
<PAGE> 29
OPTION GRANTS DURING 1998
The following table provides information about options granted on January 2,
1998 to the chief executive and the four other most highly paid executive
officers of ITT Industries. When they were granted, the options were to become
exercisable upon the earlier of
- a 25% increase in the stock price above the option exercise price that
remains at or above such level for ten consecutive trading days or
- the ninth anniversary of the date the options were granted.
The options became exercisable on January 11, 1999.
<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 1998 PRICE DATE 5% 10%
- ---- ---------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Travis Engen......... 100,000 4.7% $31.13 1-4-2008 $1,958,000 $4,961,000
Louis J. Giuliano.... 32,000 1.5% $31.13 1-4-2008 $ 626,560 $1,587,520
Heidi Kunz........... 32,000 1.5% $31.13 1-4-2008 $ 626,560 $1,587,520
Richard J.
Labrecque.......... 32,000 1.5% $31.13 1-4-2008 $ 626,560 $1,587,520
Frank E. Macher(2)... 32,000 1.5% $31.13 1-31-2001 $ 157,020 $ 329,730
</TABLE>
- -------------------------
(1) At the end of the term for the options granted on January 2, 1998, the
projected price of a share of ITT Industries' common stock would be $50.71
and $80.74 at assumed annual appreciation rates of 5% and 10%.
(2) Mr. Macher's options will be exercisable for a period of twenty-four months
after his termination date or through January 31, 2001. Amounts shown for
Mr. Macher project potential realizable value through January 31, 2001. The
projected price of a share of ITT Industries common stock would be $36.04
and $41.43 at assumed annual appreciation rates of 5% and 10%.
24
<PAGE> 30
AGGREGATED OPTION EXERCISES DURING 1998 AND YEAR-END OPTION VALUES
The table below provides information about
- options exercised during 1998 by Mr. Engen and the other named executive
officers, and
- the value of each of their unexercised options at December 31, 1998,
calculated using the $39.75 closing price of the ITT Industries' common
stock on December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT OPTIONS HELD AT
SHARES FISCAL YEAR-END FISCAL YEAR-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Travis Engen......... -- -- 1,826,686 100,000 44,121,722 862,000
Louis J. Giuliano.... -- -- 772,456 32,000 17,044,867 275,840
Heidi Kunz........... -- -- 180,000 32,000 2,754,100 275,840
Richard J.
Labrecque.......... -- -- 172,606 32,000 3,076,387 275,840
Frank E. Macher...... -- -- 70,000 32,000 865,900 275,840
</TABLE>
LONG-TERM INCENTIVE PLAN -- 1998 AWARDS
The following table provides information about target awards made to each of the
named executive officers during 1998. The final payment value, if any, of the
target awards will be determined based on ITT Industries' total shareholder
return performance measured against the other S&P Industrial companies. Payment,
if any, would be made following the completion of the three-year performance
period.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
NUMBER OF PERFORMANCE OR PRICE-BASED PLANS
SHARES, UNITS OTHER PERIOD UNTIL ---------------------------------
OR OTHER RIGHTS MATURATION OR THRESHOLD TARGET MAXIMUM
NAME AWARDED(#) PAYOUT ($) ($) ($)
---- --------------- ------------------ --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Travis Engen......... -- 1/1/98-12/31/2000 $477,500 $955,000 $1,910,000
Louis J. Giuliano.... -- 1/1/98-12/31/2000 $152,800 $305,600 $ 611,200
Heidi Kunz........... -- 1/1/98-12/31/2000 $152,800 $305,600 $ 611,200
Richard J.
Labrecque.......... -- 1/1/98-12/31/2000 $152,800 $305,600 $ 611,200
Frank E. Macher(1)... --
</TABLE>
(1) See note (6) to the Summary Compensation Table for details of the
distribution made to Mr. Macher in connection with his 1998 award under the
Long-Term Incentive Plan.
25
<PAGE> 31
EMPLOYMENT AGREEMENT WITH THE CHIEF EXECUTIVE
ITT Industries has entered into an employment agreement with Travis Engen, the
Chief Executive, which provides that he will
- be paid a base salary of not less than $700,000 per year;
- participate in ITT Industries' benefit plans and be eligible to receive
awards under its incentive compensation plans;
- continue as Chairman and Chief Executive through December 31, 1999;
- if he is terminated without cause, be paid his base salary and receive a
decreasing percentage of the average bonus he had been paid in the three
calendar years that immediately preceded his termination. Any payments to
him would be made in equal monthly installments, and would continue until
the employment agreement expires or he is disqualified from continuing to
receive the payments. If Mr. Engen accepted other full time employment
after he had been terminated, he could, at ITT Industries' discretion, be
paid the balance of any amounts payable to him under the employment
agreement in a lump sum. As long as Mr. Engen continued to receive any
payments under the employment agreement, he would be eligible to
participate in ITT Industries' salaried retirement plan, investment and
savings plan, medical, dental and group life insurance plans and to
exercise his outstanding stock options.
- In lieu of the termination payments and benefits described above, if Mr.
Engen were entitled to receive a payment under any of ITT Industries'
severance or termination allowance plans and that payment would be
greater than the salary payable to him under the employment agreement,
then he would receive the greater amount.
- An amendment to the employment agreement provides Mr. Engen with
severance benefits that are substantially similar to and at the highest
levels of the SPECIAL SENIOR EXECUTIVE SEVERANCE PAY PLAN that is
described below. Benefits would be payable in certain circumstances where
his employment is terminated within two years of the occurrence of an
acceleration event as defined in the CHANGE OF CONTROL ARRANGEMENTS that
are described below.
SENIOR EXECUTIVE SEVERANCE PAY PLAN
Senior executives who are U. S. citizens or who are employed in the United
States are covered by the Senior Executive Severance Pay Plan. If a covered
executive is terminated by ITT Industries other than for cause, that executive
would be eligible to receive severance pay in an amount up to 24 months of his
or her base salary. The number of months of severance pay an executive would
receive would depend upon his or her length of service. The amount paid could
26
<PAGE> 32
not exceed the executive's base salary for the period remaining from the date of
termination through his or her normal retirement date, nor could the amount be
greater than two times the executive's total annual compensation during the year
immediately preceding termination. The payment of severance would be subject to
the executive's compliance with non-competition provisions of the plan and with
ITT Industries' Code of Corporate Conduct.
If a covered executive receives other compensation from ITT Industries, the
amount of that compensation could be used to offset amounts otherwise payable
under the Senior Executive Severance Pay Plan. Severance payments under this
plan ordinarily would be made monthly; however, ITT Industries has the option of
making a single lump sum payment discounted to present value.
Mr. Giuliano, Ms. Kunz and Mr. Labrecque participate in this plan. Mr. Engen is
not covered by this plan, although his employment agreement provides that he
would be entitled under similar circumstances to receive comparable benefits.
SPECIAL SENIOR EXECUTIVE SEVERANCE PAY PLAN
This plan provides 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 described below. The plan provides two levels of benefits for
covered executives, based on their position within the Company. At the highest
level of benefits, if an executive were terminated within two years of an
acceleration event, he or she would be entitled to
- three times the highest annual base salary rate and three times the
highest bonus paid or awarded to him or her during the three years
immediately preceding termination;
- continuation of health and life insurance benefits and certain
perquisites at the same levels for three years;
- payment of a lump sum equal to the difference between the total lump sum
value of his or her pension benefits under the company's pension plans
and the total lump sum value of his or her 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 pension plan;
- credit for an additional three years of eligibility service under the
retiree health and retiree life insurance benefits;
- a payment representing three year's of company's contributions to the
Investment and Savings Plan and the Excess Savings Plan; and
- tax gross-up of certain of the payments.
27
<PAGE> 33
Mr. Giuliano, Ms. Kunz, and Mr. Labrecque are covered at the highest level of
benefits. Mr. Engen is not covered by this plan, although his employment
agreement provides that he would be entitled under similar circumstances to
receive benefits comparable to those that would be paid at the highest level.
Other levels of covered executives would receive benefits at somewhat lesser
amounts.
CHANGE OF CONTROL ARRANGEMENTS
The payment or vesting of awards or benefits under the benefit plans listed
below would be accelerated upon the occurrence of a change of control of ITT
Industries. There would be a change of control if one of the following
acceleration events occurred:
1. A report on Schedule 13D would be filed with the Securities and Exchange
Commission disclosing that any person, other than ITT Industries or one of
its subsidiaries or any employee benefit plan that is sponsored by ITT
Industries or a subsidiary, had become the beneficial owner of 20% or more
of ITT Industries' outstanding stock;
2. A person other than ITT Industries or one of its subsidiaries or any
employee benefit plan that is sponsored by ITT Industries or a subsidiary
would purchase ITT Industries' shares in connection with a tender or
exchange offer, if the person purchasing the shares is the beneficial owner
of 15% or more of ITT Industries' outstanding shares;
3. the shareholders would approve
(a) any consolidation or merger of ITT Industries in which it would not be
the continuing or surviving corporation or the company's shares would be
converted into cash, securities or other property, unless the transaction
was a merger in which the shareholders of ITT Industries immediately prior
to the merger would have the same proportionate ownership of the surviving
corporation that they held immediately prior to the merger; or
(b) any sale, lease, exchange or other transfer of all or substantially all
of the company's assets; or
4. a majority of the members of the Board of Directors would change within a
12-month period, unless the election or nomination of each of the new
Directors had been approved by two-thirds of the Directors still in office
who had been Directors at the beginning of the 12-month period.
The following benefit plans have change of control provisions:
- the 1986 Incentive Stock Plan;
- the 1994 Incentive Stock Plan;
- the 1997 Annual Incentive Plan for Executive Officers;
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<PAGE> 34
- the 1997 Annual Incentive Plan;
- the 1997 Long-Term Incentive Plan;
- the Special Senior Executive Severance Pay Plan;
- the Deferred Compensation Plan;
- the Excess Saving Plan;
- the Excess Pension Plans; and
- the Salaried Retirement Plan.
SALARIED RETIREMENT PLAN
Most of ITT Industries' salaried employees who work in the United States
participate in the Salaried Retirement Plan. Under the plan, a participant's
annual pension would be the total of
- 2% of his or her average final compensation for each of the first 25
years of benefit service,
- plus 1 1/2% of his or her average final compensation for each of the next
15 years of benefit service
reduced by
- 1 1/4% of his or her primary Social Security benefit for each year of
benefit service up to a maximum of forty years, except that no more than
1/2 of the primary Social Security benefit would be taken into account to
calculate the reduction.
Average final compensation (including salary plus approved bonus
payments) is the total of
- the participant's average annual base salary for the five calendar years
of the last 120 consecutive calendar months of eligibility service that
would result in the highest average annual base salary amount, plus
- the 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 that would result in the highest
average annual compensation amount.
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<PAGE> 35
The following table illustrates estimated annual benefits (not including Social
Security reductions) that would be payable to a participant who retired at age
65:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE
AVERAGE FINAL ----------------------------------------------------------
COMPENSATION 10 15 20 25 40
- ------------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 600,000 $120,000 $180,000 $ 240,000 $ 300,000 $ 435,000
800,000 160,000 240,000 320,000 400,000 580,000
1,000,000 200,000 300,000 400,000 500,000 725,000
1,200,000 240,000 360,000 480,000 600,000 870,000
1,400,000 280,000 420,000 560,000 700,000 1,015,000
1,600,000 320,000 480,000 640,000 800,000 1,160,000
1,800,000 360,000 540,000 720,000 900,000 1,305,000
2,000,000 400,000 600,000 800,000 1,000,000 1,450,000
2,500,000 500,000 750,000 1,000,000 1,250,000 1,812,500
3,000,000 600,000 900,000 1,200,000 1,500,000 2,175,000
</TABLE>
- -------------------------
(1) Amounts shown under Salary and Bonus opposite the names of the chairman and
chief executive and the executive officers shown on the Summary Compensation
Table comprise their compensation for purposes of determining average final
compensation.
(2) The years of benefit service through December 31, 1998 are: Mr. Engen, 13.73
years; Mr. Giuliano, 10.50 years; Ms. Kunz, 3.06 years; Mr. Labrecque, 16.70
years; and Mr. Macher, 1.54 years.
Participants who retire at or after they reach 60 years of age and have
completed at least 15 years of eligibility service would receive undiscounted
early retirement pensions. Participants become vested in their accrued pension
benefits after they complete five years of eligibility service.
Federal law limits the amount of benefits that could be paid and the amount of
compensation that could be recognized under tax-qualified retirement plans. As a
consequence, ITT Industries has established and maintains non-qualified,
unfunded Excess Pension Plans to pay retirement benefits that could not be paid
from the Salaried Retirement Plan. Benefits under the Excess Pension Plans are
generally paid directly by ITT Industries. There also is an excess plan trust
under which excess benefits accrued by certain of the officers are funded.
Generally, participating officers could elect to receive their excess benefit in
a single discounted lump sum payment.
In the event of a change of control, any excess benefit would be immediately
payable and would be paid in a single discounted lump sum.
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<PAGE> 36
OWNERSHIP OF ITT INDUSTRIES' STOCK
The following table lists information reported to the Securities and Exchange
Commission by persons who owned more than 5% of ITT Industries' outstanding
common stock as of the dates of their reports.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------- ----------- ----------
<S> <C> <C>
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.(1)........... 10,699,300 10.3%
One McKinney Plaza
3232 McKinney Avenue,15th Floor
Dallas, TX 75204-2429
MERRILL LYNCH & CO., INC.(2)........................... 7,778,608 6.5%
World Financial Center
North Tower
250 Vesey Street
New York, NY 10381
OPPENHEIMER CAPITAL(3)................................. 6,755,900 5.7%
Oppenheimer Tower
World Financial Center
New York, NY 10281
TRIMARK FINANCIAL CORPORATION(4)....................... 5,145,000 5.0%
One First Canadian Place
Suite 5600, P.O. Box 487
Toronto, Ontario M5X 1E5
</TABLE>
- -------------------------
(1) As reported on a Schedule 13G dated February 12, 1999, Barrow, Hanley,
Mewhinney & Straus, Inc. have sole voting power with respect to 609,400
shares, shared voting power with respect to 10,089,900 shares, and sole
dispositive power with respect to 10,699,300 shares. The 10,699,300 shares
include 9,282,100 shares reported by Vanguard/Windsor Funds, Inc. -- Windsor
II a Schedule 13G dated February 10, 1999.
(2) As reported on a Schedule 13G dated February 14, 1999, Merrill Lynch & Co.
has shared power with Merrill Lynch Asset Management Group to vote and
dispose of their reported shares.
(3) As reported on a Schedule 13G dated February 16, 1999, Oppenheimer Capital
has shared voting and dispositive power with respect to their reported
shares.
(4) As reported on a Schedule 13G dated February 1, 1999, Trimark Financial
Corporation has sole power to vote and dispose of their reported shares.
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<PAGE> 37
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table shows, as of January 31, 1999, the beneficial ownership of
ITT Industries' common stock by each Director and by each of the executive
officers named in the Summary Compensation Table, and by all Directors and
Executive Officers as a group.
<TABLE>
<CAPTION>
OPTIONS
EXERCISABLE TOTAL SHARES
SHARES AS OF APRIL 1, BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED 1999 OWNED
<S> <C> <C> <C>
Rand V. Araskog 360,116 -- 360,116
Robert A. Burnett 11,609 -- 11,609
Curtis J. Crawford 4,086 -- 4,086
Michel David-Weill 5,180 -- 5,180
Travis Engen 139,620(1) 1,926,686 2,066,306
Christina A. Gold 2,404 -- 2,404
Edward C. Meyer 6,680 -- 6,680
Linda S. Sanford 1,058 -- 1,058
Sidney Taurel 5,560 -- 5,560
Louis J. Giuliano 9,978 804,456 814,434
Heidi Kunz 7,210 212,000 219,210
Richard J. Labrecque 16,982 204,606 221,588
Frank E. Macher 3,054 134,000 137,054
All Directors and Executive Officers as a
Group (23) 686,127 4,315,940 5,002,067
</TABLE>
(1) 100 of these shares are held jointly by Mr. Engen's wife.
The number of shares beneficially owned by each Director or Executive Officer
has been determined under rules of the Securities and Exchange Commission, which
provide that beneficial ownership includes any shares as to which a person has
sole or shared voting or dispositive power, and any shares which the person
would have the right to acquire beneficial ownership within 60 days through the
exercise of any stock option or other right (for purposes of the table above,
April 1, 1999).
Unless otherwise indicated, each director or executive officer has sole
dispositive and voting power, or shares those powers with his or her spouse.
As of January 31, 1999, Mr. Engen owned beneficially 2.2%, and all Directors and
Executive Officers as a group owned 5.4% of the shares outstanding. No
32
<PAGE> 38
other Director or Executive Officer owned in excess of one percent of the shares
outstanding.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the
Securities Exchange Act of 1934 requires Directors and Executive Officers to
file reports with the Securities and Exchange Commission concerning changes in
their ownership of ITT Industries equity securities. One director, Rand V.
Araskog, filed a late report concerning the transfer of 19,839 shares of ITT
Industries' common stock from his ITT Corporation investment and savings plan
account in connection with the acquisition of that company by an unrelated
company.
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<PAGE> 39
[ITT INDUSTRIES
LOGO]
VOTE BY TELEPHONE OR INTERNET OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
TELEPHONE
800-481-9815
Use any touch-tone telephone to vote your proxy. Have your proxy form in hand
when you call. You will be prompted to enter your control number, located in
the box below, and then follow the simple directions.
INTERNET
http://proxy.shareholder.com/iin
Use the Internet to vote your proxy. Have your proxy form in hand when you
access the website. You will be prompted to enter your control number, located
in the box below, to create an electronic ballot.
MAIL
Mark, sign and date your proxy form and return it in the postage-paid envelope
we have provided.
Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you had marked, signed and returned the proxy
form.
If you have submitted your proxy by telephone or the Internet, there is no need
for you to mail back your proxy.
CALL TOLL-FREE TO VOTE * IT'S FAST AND CONVENIENT
800-481-9815
- -----------------------------------
CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
- -----------------------------------
DETACH PROXY FORM HERE IF YOU ARE NOT
VOTING BY TELEPHONE OR INTERNET
- -------------------------------------------------------------------------------
[ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS A AND B.
? Election of Directors FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ]
listed below for all nominees listed below
*EXCEPTIONS [ ]
Nominees: 01 - Travis Engen, 02 - Rand V. Araskog, 03 - Robert A. Burnett,
04 - Curtis J. Crawford, 05 - Michel David-Weill,
06 - Christina A. Gold, 07 - Edward C. Meyer, 08 - Linda S. Sanford,
and 09 - 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
--------------------------------------------------------------------
? Arthur Andersen LLP as Independent Auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
If you do not wish to receive an Annual
Report for this account, please mark this box. [ ]
To change your address please mark
this box and correct at left. [ ]
(When signing as attorney, executor, administrator, trustee, or guardian give
full title. If more than one trustee, all should sign.)
Dated: 1999
-------------------------------------------
- ------------------------------------------------------
Signature of Share Owner(s)
- ------------------------------------------------------
Signature of Share Owner(s)
Votes Must be indicated [X]
?
Please Detach Here
* You Must Detach This Portion of the Proxy Card *
Before Returning it in the Enclosed Envelope
<PAGE> 40
[ITT INDUSTRIES
LOGO]
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ITT INDUSTRIES FOR THE
ANNUAL MEETING TO BE HELD MAY 13, 1999:
The shareholder(s) whose signature(s) appear(s) on the reverse side of this
proxy form hereby appoint(s) Robert W. Beicke, Gwenn L. Carr and Vincent A.
Maffeo, or any of them, each with full power of substitution as proxies, to
vote all shares of ITT Industries common stock that the shareholder(s) would be
entitled to vote on all matters that may properly come before the 1999 Annual
Meeting and at any adjournments or postponements. The proxies are authorized to
vote in accordance with the specifications indicated by the shareholder(s) on
the reverse side of this form. If this form is signed and returned by the
shareholder(s), and no specifications are indicated, the proxies are authorized
to vote as recommended by the Board of Directors. In either case, if this form
is signed and returned, the proxies thereby will be authorized to vote in their
discretion on any other matters that may be presented for a vote at the meeting
and at adjournments or postponements.
The nominees for election as Directors are: 01 - Travis Engen, 02 - Rand V.
Araskog, 03 - Robert A. Burnett, 04 - Curtis J. Crawford, 05 - Michel
David-Weill, 06 - Christina A. Gold, 07 - Edward C. Meyer, 08 - Linda S.
Sanford, and 09 - Sidney Taurel.
* * * * * * * * * * * * * * *
FOR PARTICIPANTS IN THE ITT INDUSTRIES SAVINGS PLANS FOR SALARIED EMPLOYEES:
The Trustee will vote the shares credited to your account in the savings plan
in accordance with the specifications that you indicate on the reverse. If you
sign and return the form, but do not indicate your voting specifications, the
Trustee will vote as recommended by the Board of Directors. The trustee will
vote the shares for which no form has been returned in the same proportion as
those shares for which it received voting specifications. The Trustee will
exercise its discretion in voting on any other matter that may be presented for
a vote at the meeting and at adjournments or postponements.
ITT INDUSTRIES
P.O. BOX 11005
NEW YORK, N.Y. 10203-0005
(Continued, and to be dated and signed on the reverse side.)
