<PAGE>
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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
ITT EDUCATIONAL SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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:
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(4) Date Filed:
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<PAGE>
1999
NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
ITT EDUCATIONAL SERVICES, INC.
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
5975 CASTLE CREEK PARKWAY, N. DRIVE
P.O. BOX 50466
INDIANAPOLIS, IN 46250-0466
March 26, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to be
held at 10:30 a.m. on Tuesday, May 11, 1999, at the Sheraton Premiere Hotel at
Tysons Corner, 8661 Leesburg Pike, Vienna, VA 22182.
We urge you to participate in the business of the Annual Meeting by
completing and returning the enclosed proxy as promptly as possible. Your vote
is important.
The accompanying Notice of Annual Meeting and Proxy Statement provide
information about the matters to be acted upon by the shareholders. The Proxy
Statement also contains information about the role and responsibility of the
Board of Directors and the Committees of the Board and provides important
information about each nominee for election as Director.
<TABLE>
<S> <C>
Sincerely yours,
/s/ RENE R. CHAMPAGNE
Rene R. Champagne
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 1999
The 1999 Annual Meeting of Shareholders of ITT Educational Services, Inc.
("ESI") will be held at the Sheraton Premiere Hotel at Tysons Corner, 8661
Leesburg Pike, Vienna, VA 22182, on Tuesday, May 11, 1999, at 10:30 a.m., local
time, for the following purposes:
1. To consider and vote upon two proposals described in the accompanying
Proxy Statement providing for:
PROPOSAL ONE: Election of two Directors to serve until the 2002 Annual
Meeting of Shareholders and until their successors are
elected and have qualified.
PROPOSAL TWO: Approval of the amendment of ESI's Restated Certificate
of Incorporation to increase the number of authorized
shares of ESI common stock, $0.01 par value per share,
from 50,000,000 to 150,000,000.
2. To act upon such other matters that may properly come before the
meeting.
All shareholders of record at the close of business on March 12, 1999 will
be entitled to vote at the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. WHETHER OR
NOT YOU EXPECT TO BE PRESENT, PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED
PROXY FORM IN THE ACCOMPANYING ADDRESSED, POSTAGE-PREPAID ENVELOPE. IF YOU
ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
<TABLE>
<S> <C>
By Order of the Board of Directors,
/s/ CLARK D. ELWOOD
Clark D. Elwood
SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
March 26, 1999
</TABLE>
<PAGE>
ITT EDUCATIONAL SERVICES, INC.
5975 CASTLE CREEK PARKWAY, N. DRIVE
P.O. BOX 50466
INDIANAPOLIS, IN 46250-0466
------------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS
MAY 11, 1999
This Proxy Statement and accompanying proxy are being sent to shareholders
on or about March 26, 1999, in connection with the solicitation by the Board of
Directors of ITT Educational Services, Inc. ("ESI," "we" or "us") of proxies to
be voted at the 1999 Annual Meeting of Shareholders to be held at 10:30 a.m.,
local time, Tuesday, May 11, 1999, at the Sheraton Premiere Hotel at Tysons
Corner, 8661 Leesburg Pike, Vienna, VA 22182, for the purposes set forth in the
accompanying Notice.
The accompanying proxy represents all of the shares of ESI common stock,
$0.01 par value per share (the "ESI Common Stock"), you are entitled to vote at
the meeting. Each of the shares of ESI Common Stock outstanding at the close of
business on March 12, 1999, the record date for the meeting, are entitled to one
vote at the meeting. Shareholders holding a majority of such shares must be
present at the meeting, whether in person or by proxy, in order to constitute a
quorum for the transaction of business. As of February 15, 1999, 25,526,452
shares of ESI Common Stock were issued and outstanding.
If you execute and return the enclosed form of proxy, you may revoke it at
any time before it is exercised. You can revoke your proxy by giving us written
notice of revocation, executing a subsequently dated proxy and delivering it to
us, or attending the meeting and voting in person. Unless revoked, your proxy
will be voted at the meeting in accordance with your instructions specified on
the proxy. If your proxy does not contain any instructions, your proxy will be
voted at the meeting for the election as Directors of the nominees listed under
PROPOSAL ONE and for PROPOSAL TWO. The election of Directors will be determined
by the vote of the holders of a plurality of the shares voting on such election.
The approval of Proposal Two is subject to the affirmative vote of a majority of
the shares outstanding and entitled to vote on the matter. A proxy may indicate
that all or a portion of the shares represented by such proxy are not being
voted with respect to a specific proposal. This could occur, for example, when a
broker is not permitted to vote shares held in street name on certain proposals
in the absence of instructions from the beneficial owner. Shares that are not
voted with respect to a specific proposal will be considered as not present and
entitled to vote on such proposal, even though such shares will be considered
present for purposes of determining a quorum and voting on other proposals.
Abstentions on a specific proposal will be considered as present, but not as
voting in favor of such proposal. As a result, neither broker non-votes nor
abstentions will affect the determination of whether a nominee will be elected
under PROPOSAL ONE. With respect to PROPOSAL TWO, broker non-votes and
abstentions would have the same effect as a vote against such proposal.
Our Board of Directors is not aware of any matters, other than those
described below, which are to be voted on at the meeting. If any other matters
are properly raised at the meeting, however, the persons named in the enclosed
form of proxy intend to vote the proxy in accordance with their judgment on such
matters.
Officers, Directors and other employees of ESI may solicit proxies by
telephone, facsimile or mail, or by meetings with shareholders or their
representatives. We will reimburse brokers, banks or other custodians, nominees
and fiduciaries for their charges and expenses in forwarding proxy material to
beneficial owners. We will pay all expenses of solicitation of proxies. In
addition, we have retained Corporate Investor Communications, Inc. to assist us
in the solicitation of proxies for a fee of approximately $6,300, plus
reimbursement for its out-of-pocket expenses and for payments made to brokers
and other nominees for their expenses in forwarding soliciting material.
Corporate Investor Communications, Inc. will perform a broker search, distribute
proxy materials to beneficial owners and solicit voted proxies from banks,
brokers, nominees and intermediaries.
<PAGE>
PROPOSAL ONE: ELECTION OF DIRECTORS
Our Board of Directors currently consists of six Directors divided into
three classes. Each of the three classes contains two Directors each. The term
of one class expires each year. Generally, each Director serves until the annual
meeting of shareholders held in the year that is three years after the
Director's election and thereafter until the Director's successor is elected and
has qualified.
At the meeting, two Directors are to be elected to hold office for a
three-year term to expire at the 2002 Annual Meeting of Shareholders and until
their successors are elected and have qualified. The persons named in the
accompanying proxy intend to vote such proxy for the election to the Board of
Directors of John E. Dean and Vin Weber, the current Directors whose terms
expire this year, unless you direct them to vote otherwise.
Each of the nominees has consented to serve as a Director. If for any reason
a nominee should become unable or unwilling to accept nomination or election,
the persons named in the accompanying proxy intend to vote the proxy for the
election of such other person as our Board may recommend. Alternatively, our
Board may reduce the number of Directors to eliminate the vacancy.
A brief summary of each Director's principal occupation, business
affiliations and other information follows. Unless otherwise indicated, each
Director's principal occupation has been the same for the past five years. There
is no family relationship between any of our Directors or executive officers.
On February 23, 1998, Starwood Hotels & Resorts Worldwide, Inc., a Maryland
corporation ("Starwood, Inc."), and Starwood Hotels & Resorts, a Maryland real
estate investment trust ("Starwood Trust"), acquired ITT Corporation, a Nevada
corporation ("ITT"), and ITT became a subsidiary of Starwood, Inc. At the time
of this acquisition, ITT owned 83.3% of the outstanding shares of ESI Common
Stock. On February 25, 1998, our Board of Directors elected Tony Coelho, Robin
Josephs, Merrick R. Kleeman and Barry S. Sternlicht to the Board upon ITT's
recommendation. On June 9, 1998, ITT sold 13,050,000 shares of ESI Common Stock
in a public offering, reducing ITT's beneficial ownership of ESI to 35% (the
"June 1998 Offering"). In connection with the June 1998 Offering, we entered
into a Stockholder Agreement with ITT that covered, among other things, the
representation of ITT and its affiliates on our Board of Directors and
nominating committee. See "Certain Transactions--Agreements With Former
Shareholder." On February 1, 1999, ITT sold 7,950,000 shares of ESI Common Stock
in a public offering and we repurchased an additional 1,500,000 shares of ESI
Common Stock owned by ITT, eliminating ITT's entire beneficial ownership
interest in ESI Common Stock. On the same date, Tony Coelho, Robin Josephs,
Merrick R. Kleeman and Barry S. Sternlicht resigned their positions as Directors
on our Board. On February 16, 1999, our Board of Directors reduced the number of
Directors from ten to six in accordance with the terms of our By-Laws.
NOMINEES FOR DIRECTOR
NOMINEES FOR TERM EXPIRING AT 2002 ANNUAL MEETING.
John E. Dean, age 48, is a founding partner of the Washington, D.C. law firm
Dean Blakey & Moskowitz, established July 1995. Prior to July 1995, Mr. Dean was
a founding partner of the Clohan & Dean law firm, the predecessor to Dean Blakey
& Moskowitz. Mr. Dean has been a Director of ESI since December 1994.
Vin Weber, age 46, has been a partner at Clark & Weinstock Inc., a
Washington, D.C. public relations firm since 1994. He is vice chairman and
co-founder of Empower America, a public interest group. Mr. Weber is also a
senior fellow at the University of Minnesota's Humphrey Institute of Public
Affairs and co-director of the Institute's Policy Forum. He is also a director
of Department 56, Inc. and OneLink Communications, Inc. Mr. Weber has been a
Director of ESI since December 1994.
2
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES LISTED
ABOVE.
DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING AT 2000 ANNUAL MEETING.
Rand V. Araskog, age 67, served as chairman and chief executive of ITT from
December 1995, and chairman of ITT Sheraton Corporation, a hotel and gaming
company, and Caesar's World, Inc., a gaming company, from December 1996 until
his retirement in February 1998. Mr. Araskog served as chief executive of ITT
Corporation, formerly a Delaware corporation and now known as ITT Industries,
Inc., an Indiana corporation and ITT's former parent corporation ("Old ITT"),
from 1979 to December 1995, chairman of Old ITT from 1980 to December 1995 and
president of Old ITT from March 1991 to December 1995. He is also a director of
The Hartford Financial Services Group, Inc., ITT Industries, Inc., Alcatel
Alsthom of France, Dow Jones & Company, Inc., Rayonier, Inc. and Shell Oil
Company. Mr. Araskog has been a Director of ESI since April 1994.
Leslie Lenkowsky, age 52, has been professor of philanthropic studies and
public policy at Indiana University since September 1997. Dr. Lenkowsky served
as president of Hudson Institute, a public policy research institute, from
August 1990 through August 1997. He is also a director of American United Life
Pooled Equity Fund B and American United Life American Series Fund. Dr.
Lenkowsky has been a Director of ESI since December 1994.
TERM EXPIRING AT 2001 ANNUAL MEETING.
Rene R. Champagne, age 57, has been Chairman of ESI since October 1994,
President and Chief Executive Officer of ESI since September 1985 and a Director
of ESI since October 1985.
James D. Fowler, Jr., age 54, has served as president of Fowler &
Associates, a consulting firm based in the Washington, D.C. area, since February
1996, and as executive director and administrator of the Executive Leadership
Council and Foundation, a non-profit, non-partisan charitable and educational
organization, since October 1997. Mr. Fowler served as director of government
and community relations of Old ITT from November 1993 through January 1996. Mr.
Fowler has been a Director of ESI since April 1994.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The standing committees of the Board of Directors are the Audit and
Corporate Governance Committee, the Compensation Committee and the Nominating
Committee.
THE AUDIT AND CORPORATE GOVERNANCE COMMITTEE:
- supports the independence of our independent and internal auditors and the
objectivity of our financial statements;
- reviews our annual financial statements and our principal policies for
accounting, internal control and financial reporting;
- recommends to the Board of Directors the engagement or discharge of the
independent auditors;
- reviews with the independent auditors the plan, scope and timing of their
audit;
- reviews the independent auditors' fees and reviews with management the
independent auditors' report after completion of the audit;
- reviews and considers major claims and litigation as well as legal,
regulatory and related governmental policy matters that affect us; and
3
<PAGE>
- reviews and approves management policies and programs relating to
compliance with legal and regulatory requirements, business integrity and
ethics, conflicts of interest and environmental matters.
The Audit and Corporate Governance Committee held four meetings during 1998.
The members of the Audit and Corporate Governance Committee are John E.
Dean, Leslie Lenkowsky and Vin Weber.
THE COMPENSATION COMMITTEE:
- reviews and makes recommendations to the Board of Directors with respect
to the direct and indirect compensation and employee benefits of our
Chairman and other elected officers;
- reviews, administers and makes recommendations to the Board of Directors
with respect to any incentive plans and bonus plans that include elected
officers;
- reviews management's long-range planning for executive development and
succession; and
- performs certain other review functions relating to management
compensation and employee relations policies.
The Compensation Committee held one meeting during 1998. The members of the
Compensation Committee are John E. Dean and James D. Fowler, Jr.
THE NOMINATING COMMITTEE:
- makes recommendations concerning the organization, size and composition of
our Board of Directors and its standing committees;
- proposes nominees for election to our Board and its standing committees;
and
- considers the qualifications, compensation and retirement of our
Directors.
The Nominating Committee held one meeting during 1998. The members of the
Nominating Committee are Rand V. Araskog and Vin Weber. In considering
persons to nominate for election as Directors, the Nominating Committee will
entertain recommendations from shareholders that are submitted in writing to
ESI in accordance with the procedures set forth in the By-Laws.
During 1998, there were five regular meetings and two special meetings of
the Board of Directors. Each of the Directors attended 75% or more of the
aggregate number of meetings of the Board of Directors and the standing Board
committees on which he or she served, except for Rand V. Araskog who attended
57% of such meetings.
PROPOSAL TWO: AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
Our Board of Directors unanimously has approved an amendment to Article IV,
Section 1 of our Restated Certificate of Incorporation to increase the number of
authorized shares of ESI Common Stock from 50,000,000 to 150,000,000 (the
"Amendment"). Article IV, Section 1 of our Restated Certificate of Incorporation
presently authorizes 50,000,000 shares of ESI Common Stock and 5,000,000 shares
of preferred stock, $0.01 par value per share (the "ESI Preferred Stock"). The
Amendment would not change the number of authorized shares of ESI Preferred
Stock.
As of February 15, 1999, 25,526,452 shares of ESI Common Stock were issued
and outstanding, 393,750 shares of ESI Common Stock were reserved for issuance
under the ITT Educational Services, Inc. 1994 Stock Option Plan, 4,034,750
shares of ESI Common Stock were reserved for issuance under the 1997 ITT
Educational Services, Inc. Incentive Stock Plan, 5,000,000 shares of ESI Common
Stock
4
<PAGE>
were reserved for issuance under the ESI 401(k) Plan, 1,500,000 shares of ESI
Common Stock were held as treasury stock by ESI and 13,545,048 shares of ESI
Common Stock were authorized but unissued and unreserved.
The Amendment will ensure that shares of ESI Common Stock will be available,
if needed, for issuance in connection with stock splits, stock dividends,
acquisitions and other corporate purposes. Our Board of Directors believes that
the availability of the additional shares for such purposes without delay or the
necessity for a shareholders' meeting would be beneficial to ESI. We have no
immediate plans to issue any of the additional shares of ESI Common Stock that
would be authorized by the Amendment.
No further action by our shareholders would be necessary prior to our
issuance of the additional shares of ESI Common Stock, except as may be required
by applicable law, regulatory agencies or any stock exchange on which our
securities may then be listed. Neither the shares of ESI Common Stock presently
authorized nor the shares of ESI Common Stock to be authorized by the Amendment
have preemptive rights.
If someone attempted a hostile takeover of us, the use of the additional
authorized shares to make a counteroffer for the shares of the bidder or to sell
shares to dilute the voting power of the bidder could make the takeover attempt
more difficult. The Amendment is not part of a plan by us to adopt a series of
antitakeover amendments, and our Board of Directors presently is unaware of any
effort to accumulate shares of ESI Common Stock or to obtain control of ESI by
means of a merger, tender offer, solicitation in opposition to management or
otherwise.
Our Restated Certificate of Incorporation and By-Laws presently contain
certain provisions which could be construed as antitakeover measures. Our
Restated Certificate of Incorporation and By-Laws provide that our Board of
Directors will be divided into three classes of directors, with each class to be
as nearly equal in number as possible. The term of office of one class of
directors expires each year in rotation so that one class is elected at each
annual meeting of shareholders for a full three-year term. Directors can be
removed by shareholders only for "cause." The affirmative vote of the holders of
a majority of the outstanding shares of our capital stock entitled to vote is
required to amend the classified board of directors provisions of our Restated
Certificate of Incorporation or to remove a Director with cause prior to the
expiration of his or her term. Under the classified board of directors
provisions described above, it would take at least two elections of Directors
for anyone to gain control of our Board of Directors. Accordingly, these
provisions would tend to discourage unfriendly takeovers.
Our Restated Certificate of Incorporation and By-Laws provide that any
action taken by our shareholders may be effected only at an annual or special
meeting of shareholders and not by written consent.
Our By-Laws establish an advance notice procedure for shareholders to make
nominations of candidates for election as Directors, or to bring other business
before an annual meeting of our shareholders. Our By-Laws provide that only
persons who are nominated by, or at the direction of, our Board of Directors, or
by a shareholder who has given timely written notice to our Secretary prior to
the meeting at which Directors are to be elected, will be eligible for election
as Directors of ESI. Our By-Laws also provide that at an annual meeting only
such business may be conducted as has been brought before the meeting by, or at
the direction of, our Board of Directors or our President, or by a shareholder
who has given timely written notice to our Secretary of such shareholder's
intention to bring such business before such meeting. Under the By-Laws, a
shareholder's notice must also contain certain information specified in the
By-Laws.
We are subject to Section 203 of the Delaware General Corporation Law
("Section 203"). In general, Section 203 provides that a corporation may not
engage in a "business combination" with an "interested stockholder" for a period
of three years from the date that such person became an
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<PAGE>
interested stockholder, unless (1) the transaction that results in the person
becoming an interested stockholder or the business combination is approved by
the board of directors of the corporation before the person becomes an
interested stockholder, (2) upon consummation of the transaction which results
in the stockholder becoming an interested stockholder, the interested
stockholder owns 85% or more of the voting stock of the corporation outstanding
at the time the transaction commenced, excluding shares owned by persons who are
directors and officers, and shares owned by employee stock plans or (3) on or
after the date the person becomes an interested stockholder, the business
combination is approved by the corporation's board of directors and by holders
of at least two-thirds of the corporation's outstanding voting stock, excluding
shares owned by the interested stockholder, at a meeting of stockholders. Under
Section 203, an "interested stockholder" is defined as any person, other than
the corporation and any direct or indirect majority-owned subsidiaries, that is
(1) the owner of 15% or more of the outstanding voting stock of the corporation
or (2) an affiliate or associate of the corporation and the owner of 15% or more
of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder of (3) an affiliate
or associate of such person. Section 203 defines a "business combination" to
include, without limitation, mergers, consolidations, stock sales and asset
based transactions and other transactions resulting in a financial benefit to
the interested stockholder.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
under Section 203. Our Restated Certificate of Incorporation does not exclude us
from the restrictions imposed under Section 203. The provisions of Section 203
may encourage companies interested in acquiring us to negotiate in advance with
our Board, because the stockholder approval requirement would be avoided if a
majority of our Directors then in office approve either the business combination
or the transaction which results in the stockholder becoming an interested
stockholder. Such provisions also may have the effect of preventing changes in
our management. It is possible that such provisions could make it more difficult
to accomplish transactions which stockholders may otherwise deem to be in their
best interests.
We also have 5,000,000 shares of authorized ESI Preferred Stock which have
not been issued. Our Board of Directors (subject to applicable law or rules of
regulatory agencies and requirements of stock exchanges) has the power to issue
ESI Preferred Stock without shareholder approval, with such rights as our Board
deems advisable, including voting rights, conversion rights, redemption rights
and liquidation rights.
The overall effect of the provisions of the statutes, our Restated
Certificate of Incorporation and our By-Laws described above may be to render
more difficult or to discourage a merger, tender offer, proxy contest, the
assumption of control of ESI by a holder of a large block of ESI Common Stock or
other person, or the removal of incumbent management, even if such actions may
be beneficial to our shareholders generally.
If PROPOSAL TWO is approved, the Amendment will become effective upon the
filing of a Certificate of Amendment with the Delaware Secretary of State.
The Board of Directors recommends a vote FOR the Amendment.
6
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers and Directors, and persons who own more than 10% of ESI
Common Stock, to file reports of ownership with the Securities and Exchange
Commission. Such persons also are required to furnish us with copies of all
Section 16(a) forms they file.
Based solely on our review of copies of such forms received by us, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, we believe that, during 1998, all of our executive
officers, Directors and greater than 10% shareholders complied with all
applicable filing requirements.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Rene R. Champagne 57 Chairman, President and Chief Executive Officer
Gene A. Baugh 56 Senior Vice President and Chief Financial Officer
Clark D. Elwood 38 Senior Vice President, General Counsel and Secretary
Edward G. Hartigan 59 Senior Vice President
Thomas W. Lauer 52 Senior Vice President
</TABLE>
Rene R. Champagne has served as Chairman of ESI since October 1994,
President and Chief Executive Officer of ESI since September 1985 and a Director
of ESI since October 1985.
Gene A. Baugh has served as Chief Financial Officer of ESI since December
1996 and Senior Vice President of ESI since January 1993. From 1981 through
November 1996 he served as Treasurer and Controller of ESI.
Clark D. Elwood has served as Senior Vice President of ESI since December
1996, Secretary of ESI since October 1992 and General Counsel of ESI since May
1991. From January 1993 through November 1996, he served as Vice President of
ESI.
Edward G. Hartigan has served as Senior Vice President of ESI since January
1993.
Thomas W. Lauer has served as Senior Vice President of ESI since January
1993.
7
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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid or accrued during each of the last three fiscal years to our Chief
Executive Officer and each of our four other most highly compensated executive
officers, based on salary and bonus earned during the 1998 fiscal year (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
AWARDS
ANNUAL COMPENSATION SECURITIES PAYOUTS
-------------------- UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) PAYOUTS(3) COMPENSATION(4)
- ----------------------------------------- --------- --------- --------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Rene R. Champagne 1998 $ 315,000 $ 190,000 67,000 $ 0 $ 11,025
Chairman, President and 1997 275,000 175,000 45,000 0 5,675
Chief Executive Officer 1996 225,000 150,000 33,750 400,000 7,875
Thomas W. Lauer 1998 173,020 80,000 25,000 0 5,983
Senior Vice President 1997 161,833 80,000 18,750 0 5,266
1996 148,758 82,000 11,250 140,000 4,746
Gene A. Baugh 1998 161,963 83,000 25,000 0 5,660
Senior Vice President 1997 150,877 80,000 18,750 0 5,162
and Chief Financial 1996 144,280 80,600 11,250 140,000 4,680
Officer
Edward G. Hartigan 1998 150,622 63,000 15,000 0 5,272
Senior Vice President 1997 145,418 60,000 18,750 0 5,090
1996 136,593 70,200 11,250 140,000 4,574
Clark D. Elwood 1998 133,670 63,000 25,000 0 4,679
Senior Vice President, 1997 124,000 63,000 18,750 0 4,299
General Counsel and Secretary 1996 110,000 56,500 0 0 3,850
</TABLE>
- --------------------------
(1) Amounts shown represent bonus compensation accrued in the stated year and
paid in the subsequent year, except that the amount shown for 1997 was
accrued in 1997 and paid in November 1997.
(2) Stock options relate solely to shares of ESI Common Stock and reflect
adjustments made to these options in connection with the April and November
1996 three-for-two stock splits. None of the Named Executive Officers have
received any SARs or restricted stock from ESI.
(3) Amounts shown have been earned under the Old ITT Long-Term Performance Plan.
(4) Amounts shown represent employer contributions under (a) the ESI 401(k)
Plan, a defined contribution plan, beginning May 16, 1998, (b) the ESI
Excess Savings Plan, a non-qualified retirement plan, beginning May 16,
1998, and (c) The ITT 401k Retirement Savings Plan (formerly known as the
"ITT Investment and Savings Plan"), a defined contribution plan, prior to
May 16, 1998. Under the ESI 401(k) Plan (and previously under The ITT 401k
Retirement Savings Plan), we make a non-matching contribution equal to 1% of
an employee's salary, and we make matching contributions in an amount equal
to 50% of the employee's contribution, such matching contribution not to
exceed 2.5% of such employee's salary. From December 19, 1995 until February
23, 1998, all matching and non-matching contributions were in the form of
ITT common stock. From February 23, 1998 until May 16, 1998, all matching
and non-matching contributions were in the form of paired shares of
Starwood, Inc. common stock and Starwood Trust beneficial interest
(collectively, the "Paired Shares"). All matching and non-matching
contributions on and after May 16, 1998 are in the form of ESI Common Stock.
The ESI Excess Savings Plan enables certain employees who are precluded by
federal limitations from contributing 5% of their salary to the ESI 401(k)
Plan, a tax qualified retirement plan, to make up the shortfall through
salary deferrals and, thereby, receive the 1% non-matching company
contribution and the 2.5% matching company contribution otherwise available
under the tax-qualified plan.
8
<PAGE>
COMPENSATION OF DIRECTORS
We do not compensate any Director who is an employee of ESI or any of its
affiliates for service as a member of our Board of Directors or any committee of
our Board of Directors. Compensation for non-employee Directors consists of an
annual retainer of $18,000, a $750 fee for each Board meeting attended and a
$500 fee for each committee meeting attended. We reimburse Directors for
reasonable, out-of-pocket travel expenses incurred on behalf of ESI.
STOCK OPTIONS
1994 STOCK PLAN. The ITT Educational Services, Inc. 1994 Stock Option Plan
(the "1994 Stock Plan"), which became effective on December 27, 1994, provides
for awards of nonqualified stock options to our key employees. An aggregate of
405,000 shares (as adjusted for the April and November 1996 three-for-two stock
splits) of ESI Common Stock are reserved for issuance for option awards under
the 1994 Stock Plan (subject to further adjustment in certain events). The 1994
Stock Plan expires on December 29, 2004.
The 1994 Stock Plan is administered by the Compensation Committee. Subject
to the limitations set forth in the 1994 Stock Plan, the Compensation Committee
has the authority to select the persons to whom awards will be made, to
designate the number of shares to be covered by each award, to establish vesting
schedules and, subject to certain restrictions, to specify other terms of the
awards, including the status of awards subsequent to the termination of a
participant's employment with us. Awards of options as to which restrictions
have not lapsed are not transferable other than by will or pursuant to the laws
of descent and distribution.
The exercise price of a stock option awarded under the 1994 Stock Plan may
not be less than 100% of the fair market value of the ESI Common Stock on the
date of grant. No option may be exercised prior to one year after the date of
the grant. Subject to the discretion of the Compensation Committee, options
granted under the 1994 Stock Plan will generally expire upon the termination of
an employee's employment other than by reason of an employee's death, disability
or retirement. Notwithstanding the foregoing, the Compensation Committee has the
authority to establish different terms and conditions relating to the exercise
of an option subsequent to the termination of a participant's employment. The
maximum term of options awarded under the 1994 Stock Plan will be ten years and
two days from the date of grant. ESI Common Stock issued upon the exercise of
options under the 1994 Stock Plan may be made available from treasury shares or
authorized but unissued shares.
No individual may receive options for more than 67,500 shares of ESI Common
Stock under the 1994 Stock Plan in any given calendar year. The option price may
be paid (a) by check, (b) in ESI Common Stock, (c) through a simultaneous sale
through a broker of ESI Common Stock acquired upon the exercise of the option or
(d) by any combination of the foregoing.
During 1998, the Compensation Committee did not grant any stock options
under the 1994 Stock Plan.
1997 STOCK PLAN. The 1997 ITT Educational Services, Inc. Incentive Stock
Plan (the "1997 Stock Plan"), which became effective on May 13, 1997, provides
for the grant of stock options that are intended to qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). It also provides for the grant of nonqualified stock options, SARs,
performance shares and restricted stock, or any combination of the foregoing, as
the Compensation Committee may determine, as well as substitute stock options,
stock appreciation rights and restricted stock (collectively, including
incentive stock options, "Awards"). The 1997 Stock Plan will expire on May 15,
2007.
9
<PAGE>
Recipients of Awards under the 1997 Stock Plan must be, or have been at the
time of grant, key employees (including any officer or director who is also an
employee) whose responsibilities and decisions directly affect our performance
or the performance of any of our subsidiaries or other affiliates. We presently
have approximately 100 employees who fall within the category of key employees
and may be considered for Awards under the 1997 Stock Plan.
The 1997 Stock Plan contains a formula for establishing an annual limit on
the number of shares which may be awarded (or with respect to which non-stock
Awards may be made) in any given calendar year (the "Annual Limit"). The Annual
Limit formula is expressed as a percentage of the total issued and outstanding
ESI Common Stock as of the year end immediately preceding the year of the Awards
(the "Plan Year"). Under the Annual Limit formula, the maximum number of shares
of ESI Common Stock for which Awards may be granted in each Plan Year shall be
1.5% of the total of the issued and outstanding shares of ESI Common Stock as
reported in our Annual Report on Form 10-K for the fiscal year ending
immediately prior to any Plan Year. Any unused portion of the Annual Limit for
any Plan Year shall be carried forward and be made available for Awards in
succeeding Plan Years. In addition, in no event shall more than 4,050,000 shares
of ESI Common Stock be cumulatively available for Awards of incentive stock
options under the 1997 Stock Plan (subject to adjustments in certain events),
and provided further, that no more than 20% of the total number of shares
available on a cumulative basis shall be available for restricted stock and
performance share Awards. For any Plan Year, no individual employee may receive
stock options for more than 67,500 shares. Subject to the above limitations,
shares of ESI Common Stock issued under the 1997 Stock Plan may be made
available from the authorized but unissued ESI Common Stock, from treasury stock
or from shares purchased on the open market.
The Compensation Committee administers the 1997 Stock Plan and makes
determinations with respect to the designation of those employees who shall
receive Awards, the number of shares to be covered by options, SARs and
restricted stock awards, the exercise price of options (which may not be less
than 100% of the fair market value of ESI Common Stock on the date of grant),
other option terms and conditions and the number of performance shares to be
granted and the applicable performance objectives. The Compensation Committee
may impose such additional terms and conditions on an Award as it deems
advisable.
Incentive stock options and related SARs under the 1997 Stock Plan must
expire within ten years after grant; nonqualified stock options and related SARs
will expire not more than ten years and two days after grant. The aggregate fair
market value (determined on the date of grant) of the shares subject to
incentive stock options that become exercisable for the first time by an
employee in any calendar year may not exceed $100,000. No SAR may be exercised
until at least six months after it is granted. The exercise price for options
and SARs must be at least equal to the fair market value of the ESI Common Stock
on the date of grant. The exercise price for options must be paid to us at the
time of exercise and, in the discretion of the Compensation Committee, may be
paid in the form of cash or already-owned shares of ESI Common Stock or a
combination thereof. During the lifetime of an employee, an option may be
exercised only by the individual (or his or her estate or designated
beneficiary), no later than three months after his or her termination of
employment (or for longer periods as determined by the Compensation Committee if
termination is caused by retirement, total disability or death, but in no event
later than the expiration of the original term of the option). If an optionee
voluntarily resigns or is terminated for cause, the options and SARs are
canceled immediately.
Performance shares under the 1997 Stock Plan are contingent rights to
receive future payments based on the achievement of individual or company
performance objectives as prescribed by the Compensation Committee. The maximum
number of performance shares that may be granted to any individual employee in
any given year is 100,000. The amounts paid will be based on actual performance
over a period from two to five years, as determined by the Compensation
Committee, using one or more of the following objective criteria, as it deems
appropriate: our earnings per share, return on
10
<PAGE>
equity, cash flow or total shareholder return. Payments may be made in the form
of shares of ESI Common Stock, cash or a combination of ESI Common Stock and
cash. The ultimate payments are determined by the number of shares earned and
the price of ESI Common Stock at the end of the performance period. In the event
an employee terminates employment during such a performance period, the employee
will forfeit any right to payment. In the case of retirement, total disability,
death or cases of special circumstances, however, the employee may, in the
discretion of the Compensation Committee, be entitled to an Award prorated for
the portion of the performance period during which he or she was employed by us.
Restricted shares of ESI Common Stock awarded under the 1997 Stock Plan will
be issued subject to a restriction period set by the Compensation Committee
during which time the shares may not be sold, transferred, assigned or pledged.
In the event an employee terminates employment during a restriction period, all
such shares still subject to restrictions will be forfeited by the employee and
reacquired by us. The Compensation Committee may provide for the lapse of
restrictions in installments where deemed appropriate and it may also require
the achievement of predetermined performance objectives in order for such shares
to vest. The recipient, as owner of the awarded shares, shall have all other
rights of a shareholder, including the right to vote the shares and receive
dividends and other distributions during the restriction period. The
restrictions may be waived, in the discretion of the Compensation Committee, in
the event of the awardee's retirement, total disability, death or in cases of
special circumstances.
During 1998, the Compensation Committee granted nonqualified stock options
under the 1997 Stock Plan to purchase an aggregate of 157,000 shares of ESI
Common Stock to the Named Executive Officers at an exercise price of $21.688 per
share. A total of 248,000 nonqualified stock options were granted to other ESI
employees in 1998 under the 1997 Stock Plan at the same exercise price. No other
Awards were made in 1998 under the 1997 Stock Plan.
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth
information with respect to stock options granted by ESI under the 1997 Stock
Plan to the Named Executive Officers during 1998. No stock options were granted
under the 1994 Stock Plan during 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME GRANTED(1) FISCAL YEAR PRICE(2) DATE 5% 10%
- -------------------------------- ----------- ------------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Rene R. Champagne............... 67,000 16.54% $ 21.688 1/15/08 $ 913,813 $ 2,315,855
Thomas W. Lauer................. 25,000 6.17% 21.688 1/15/08 340,975 864,125
Gene A. Baugh................... 25,000 6.17% 21.688 1/15/08 340,975 864,125
Edward G. Hartigan.............. 15,000 3.70% 21.688 1/15/08 204,585 518,475
Clark D. Elwood................. 25,000 6.17% 21.688 1/15/08 340,975 864,125
</TABLE>
- --------------------------
(1) Numbers shown represent nonqualified stock options to purchase ESI Common
Stock.
(2) Nonqualified stock options granted at 100% of the fair market value of ESI
Common Stock on the date of grant. The options granted are exercisable in
thirds on January 13 of each of the years 1999, 2000 and 2001.
(3) The amounts shown are the result of calculations at the 5% and 10% rates set
by the Securities and Exchange Commission and, therefore, are not intended
to forecast possible future appreciation, if any, of our stock price. We did
not use an alternative formula for a grant date valuation, as we are not
aware of any formula which will determine with reasonable accuracy a present
value based on future unknown or volatile factors. At the end of the term of
the options granted on January 13, 1998, the projected price per share of
ESI Common Stock would be $35.327 and $56.253 at an assumed annual
appreciation rate of 5% and 10%, respectively.
11
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES. The following table sets forth information with respect to the exercise
of options to purchase ESI Common Stock by the Named Executive Officers during
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE ------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------- --------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Rene R. Champagne................. 0 $0 105,000 108,250 $2,637,450 $1,365,523
Thomas W. Lauer................... 0 0 36,250 41,250 891,338 512,381
Gene A. Baugh..................... 0 0 36,250 41,250 891,338 512,381
Edward G. Hartigan................ 0 0 36,250 31,250 891,338 389,261
Clark D. Elwood................... 0 0 28,750 37,500 625,935 429,675
</TABLE>
- ------------------------
(1) The closing price for ESI Common Stock on the New York Stock Exchange on
December 31, 1998 was $34.00. Value is calculated on the basis of the
difference between the option exercise price and $34.00, multiplied by the
number of "In-the-Money" shares of ESI Common Stock underlying the option.
SEVERANCE PAY PLAN
We have not entered into an employment contract with any of the Named
Executive Officers.
Rene R. Champagne is the sole participant in ESI's Senior Executive
Severance Pay Plan (the "Severance Plan"). Under this plan, Mr. Champagne will
be entitled to severance benefits, unless his employment is terminated by us:
(a) for cause; (b) on or after his normal retirement date; or (c) as a result of
acceptance of employment, or refusal of comparable employment, with a purchaser
of ESI, voluntary resignation, voluntary retirement, failure to return from an
approved leave of absence (including a medical leave of absence), death or
disability.
The severance benefits include: (a) severance pay in an amount equal to the
lower of 24 months' base salary, base salary for the number of months remaining
between the termination of employment and his normal retirement date, or two
times his total annual compensation during the year immediately preceding his
termination; and (b) continued participation in our employee benefit plans
(except for any short-term or long-term disability plans, the business travel
accident plan or any new employee benefit plan adopted by us after his
termination) during the period he receives severance pay.
The Severance Plan includes offset provisions for other compensation from us
and requirements on the part of Mr. Champagne with respect to non-competition
and compliance with our Code of Corporate Conduct. While severance payments
would ordinarily be made monthly over the scheduled term of such payments, we
have the option to make such payments in the form of a single lump-sum payment
discounted to present value.
PENSION PLAN
ITT PENSION PLAN. Prior to June 10, 1998, we participated in the Retirement
Plan for Salaried Employees of ITT Corporation (the "ITT Pension Plan"), a
non-contributory defined benefit pension plan that covered substantially all of
our eligible salaried employees, including our executive officers. We paid the
entire cost of the ITT Pension Plan with respect to our employees. Annual
amounts of normal retirement pension commencing at age 65, as of June 9, 1998,
based on average final compensation and benefit service, but before Social
Security reductions and subject to the offset described below, are illustrated
in the following table.
12
<PAGE>
ITT PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40
- -------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000............ $ 15,000 $ 20,000 $ 25,000 $ 28,750 $ 32,500 $ 36,250
100,000............ 30,000 40,000 50,000 57,500 65,000 72,500
200,000............ 60,000 80,000 100,000 115,000 130,000 145,000
300,000............ 90,000 120,000 150,000 172,500 195,000 217,500
400,000............ 120,000 160,000 200,000 230,000 260,000 290,000
500,000............ 150,000 200,000 250,000 287,500 325,000 362,500
</TABLE>
The annual pension amounts to 2% of a member's average final compensation
(as defined below) for each of the first 25 years of benefit service prior to
June 10, 1998, plus 1.5% of a member's average final compensation for each of
the next 15 years of benefit service prior to June 10, 1998, reduced by 1.25% of
the member's primary Social Security benefit for each year of benefit service to
a maximum of 40 years; provided that no more than 50% of the member's primary
Social Security benefit is used for such reduction. A member's average final
compensation (including salary plus approved bonus payments) is defined under
the ITT Pension Plan as the total of (a) a member's average annual base salary
for the five calendar years of the last 120 consecutive calendar months of
eligibility service affording the highest such average, plus (b) a member's
average annual compensation not including base salary for the five calendar
years of the member's last 120 consecutive calendar months of eligibility
service affording the highest such average. The amounts shown under "Salary" and
"Bonus" in the Summary Compensation Table are the components of the compensation
that is used for purposes of determining "average final compensation" under the
ITT Pension Plan, but annual compensation in excess of $160,000 and compensation
accrued after June 9, 1998 are not taken into account. The ITT Pension Plan also
provides for undiscounted early retirement pensions for members who retire at or
after age 60 following completion of 15 years of eligibility service. A member
is vested in benefits accrued under the ITT Pension Plan upon completion of five
years of eligibility service. Prior to December 19, 1995, we participated in the
Retirement Plan for Salaried Employees of Old ITT (the "Old Pension Plan"). The
terms of the Old Pension Plan were substantially identical to the terms of the
ITT Pension Plan. The Old Pension Plan remained with Old ITT following the
division of Old ITT's businesses among itself and two of its wholly owned
subsidiaries (including ITT) and the distribution of all the outstanding common
stock of ITT and the other subsidiary to the shareholders of Old ITT, which
occurred on December 19, 1995. Old ITT is responsible for administering the
benefits under the Old Pension Plan with respect to its own employees as well as
our retirees. As sponsor of the Old Pension Plan, Old ITT will be responsible
for all benefits accrued thereunder. To the extent the assets in the Old Pension
Plan are insufficient to satisfy the benefit liabilities thereunder, Old ITT
will be responsible, in accordance with applicable law, for satisfying those
liabilities with its own assets. The ITT Pension Plan recognizes service with
other companies that were part of Old ITT prior to December 19, 1995 for
eligibility, vesting and benefit accrual purposes and further provides for an
offset of any benefit payable from any retirement plan of such companies
covering the same period of service.
Prior to February 12, 1998, we participated in an ITT non-qualified unfunded
retirement plan (the "ITT Excess Pension Plan") for payment of those benefits at
retirement that could not be paid from the qualified ITT Pension Plan. The
practical effect of the ITT Excess Pension Plan was to continue calculation of
retirement benefits to all employees on a uniform basis. Benefits for our
employees under the ITT Excess Pension Plan were paid directly by us. The
approval by ITT's shareholders on February 12, 1998 of Starwood, Inc.'s
acquisition of ITT constituted a change in corporate control as defined in the
ITT Excess Pension Plan, which resulted in a distribution of all of the assets
of the ITT Excess Pension Plan to the participants.
13
<PAGE>
Respective years of benefit service under the ITT Pension Plan, through June
9, 1998, are as follows: Mr. Baugh--20.589; Mr. Champagne--12.692; Mr.
Elwood--14.014; Mr. Hartigan--11.375; and Mr. Lauer--29.442.
ESI PENSION PLAN. On June 9, 1998, we established the ESI Pension Plan
covering substantially all of our eligible salaried employees, including our
executive officers. The ESI Pension Plan is a cash balance defined benefit plan,
which provides a set benefit to participating employees at their retirement that
is not affected by the amount of our contributions to the ESI Pension Plan trust
or the investment gains or losses with respect to such contributions. At the end
of each plan year (I.E., January 1 through December 31, except for the first
plan year of June 9, 1998 through December 31, 1998), the ESI Pension Plan
credits a bookkeeping account associated with each participating employee with
(a) an amount based on the employee's compensation, age and years of benefit
service (the "Pay Credit") and (b) interest on the balance in the bookkeeping
account at the fixed rate of 8%, compounded annually. At retirement, the
participating employee will receive a benefit equal to the value of the
bookkeeping account associated with such employee. We pay the entire cost of the
ESI Pension Plan. The Pay Credit equals a percentage of the participating
employee's compensation (including base pay, overtime pay, bonuses and certain
commissions) for the plan year and is determined under the following schedule
according to points based on the participating employee's age and years of
benefit service:
<TABLE>
<CAPTION>
STANDARD SCHEDULE
ALLOCATION
POINTS PERCENTAGE
- --------- -------------------
<S> <C>
1-29 2.0
30-34 2.5
35-39 3.0
40-44 3.5
45-49 4.0
50-54 4.5
55-59 5.5
60-64 6.5
65-69 7.5
70-74 9.0
75-79 10.5
80+ 12.0
</TABLE>
Participating employees who meet certain age and service requirements receive
Pay Credits under the following "Transition Schedule" which is more generous at
the higher point levels:
<TABLE>
<CAPTION>
TRANSITION SCHEDULE
ALLOCATION
POINTS PERCENTAGE
- --------- -------------------
<S> <C>
1-29 2.0
30-34 2.5
35-39 3.0
40-44 3.5
45-49 4.0
50-54 4.5
55-59 5.5
60-64 7.0
65-69 8.5
70-74 10.5
75-79 13.0
80+ 16.0
</TABLE>
Mr. Elwood receives Pay Credits under the "Standard Schedule," and Messrs.
Champagne, Lauer, Baugh and Hartigan receive Pay Credits under the "Transition
Schedule."
14
<PAGE>
The participating employee's points for a plan year equal the sum of the
employee's age and years of benefit service as of the last day of the plan year.
Any benefit service and vesting service with ITT or any of its affiliated
companies that was credited to the participating employee under the ITT Pension
Plan as of June 9, 1998 is treated as benefit service and vesting service,
respectively, with us under the ESI Pension Plan. A participating employee who
has completed five or more years of vesting service (or his or her beneficiary)
is eligible to receive a distribution from the ESI Pension Plan upon the
participating employee's retirement on or after age 55, disability, death or
after the employee has both terminated employment and reached age 55. The form
and timing of the distribution may vary. Respective years of benefit service
under the ESI Pension Plan, through December 31, 1998, are as follows: Mr.
Baugh--21.150; Mr. Champagne--13.253; Mr. Elwood--14.575; Mr. Hartigan--11.931;
and Mr. Lauer--30.000. The estimated annual benefits payable upon retirement at
age 65 (assuming an annual 4.5% increase in compensation and that the form of
distribution is an annuity) for each of the Named Executive Officers is as
follows:
<TABLE>
<CAPTION>
ESTIMATED
EXECUTIVE OFFICER ANNUAL BENEFIT
- ------------------------ --------------
<S> <C>
Mr. Champagne $ 23,077
Mr. Lauer 49,929
Mr. Baugh 31,559
Mr. Hartigan 15,719
Mr. Elwood 112,531
</TABLE>
Federal legislation limits the amount of benefits that can be paid and
compensation that may be recognized under a tax-qualified retirement plan. We
have adopted a non-qualified unfunded retirement plan ("ESI Excess Pension
Plan") for payment of those benefits at retirement that cannot be paid from the
qualified ESI Pension Plan. The practical effect of the ESI Excess Pension Plan
is to continue calculation of retirement benefits to all employees on a uniform
basis. Benefits for our employees under the ESI Excess Pension Plan will
generally be paid directly by us. Any "excess" benefit accrued to any such
employee will be immediately payable in the form of a single discounted lump sum
payment upon the occurrence of a change in corporate control (as defined in the
ESI Excess Pension Plan).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From January 1, 1998 until February 23, 1998, the members of the
Compensation Committee (the "Committee") were Bette B. Anderson, Rand V. Araskog
and Margita E. White. From February 25, 1998 through February 1, 1999, the
members of the Committee were John E. Dean, James D. Fowler, Jr., Merrick R.
Kleeman and Barry S. Sternlicht. Since February 1, 1999, the members of the
Committee have been John E. Dean and James D. Fowler, Jr. Except for Rand V.
Araskog and Barry S. Sternlicht, none of the Committee members during 1998 were
involved in a relationship requiring disclosure as an interlocking executive
officer/director or under Item 404 of Regulation S-K or as an officer or
employee of ESI. Prior to February 24, 1998, Mr. Araskog was an executive
officer of ITT, which has provided certain administrative, financial, treasury,
accounting, tax and other services to us and has made available certain of its
employee benefit plans to our employees. ITT and ESI have also been parties to a
number of intercompany agreements covering matters such as corporate governance,
tax sharing arrangements, the use of the "ITT" name and registration rights. Mr.
Sternlicht is an executive officer of Starwood, Inc. which became the parent
corporation of ITT on February 23, 1998. See "Certain Transactions."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report sets forth the executive compensation policies of the Committee
with respect to ESI executive officers in general and the rationale for the
specific decisions affecting the 1998 compensation of Mr. Champagne, ESI's Chief
Executive Officer. This report also discusses the relationship between the
compensation of ESI's four other most highly compensated executive officers and
the performance of ESI.
15
<PAGE>
The Committee reviewed the compensation policies adopted and followed by the
Committee with respect to all of ESI's executive officers and confirmed the
guiding principles contained therein that executive officer compensation must be
related to ESI's performance and must emphasize increasing shareholder value.
The Committee also determined that the general components of the compensation
policies pertaining to ESI executive officers (I.E., salaries, bonuses,
long-term incentives and employee benefits) are sufficiently tied to ESI's
performance.
The Committee determined that ESI's continued success is due in part to its
skilled executives. In setting and administering ESI's compensation policies and
programs, the Committee attempts to target compensation to the median of the
range of compensation provided to executives of corporations similar to ESI in
terms of assets, sales, revenues and earnings. ESI's executive compensation
programs are designed to attract, reward and retain skilled executives and to
provide incentives which vary upon the attainment of short-term operating
performance objectives and long-term performance goals. The main objective is to
provide ESI executives with incentives directly linked to the creation of
shareholder value.
THE COMMITTEE'S ROLE. The Committee is responsible for the administration
of the executive compensation program and reviews all proposed new or amended
employee benefit plans. From January 1, 1998 through February 22, 1998, the
Committee was composed of Bette B. Anderson, Rand V. Araskog and Margita E.
White, none of whom was eligible to participate in any of the plans which make
up ESI's executive compensation program. As of February 23, 1998, Bette B.
Anderson and Margita E. White resigned from the Board of Directors and no longer
serve on the Committee. Rand V. Araskog remains a Director of ESI, but no longer
serves as a member of the Committee. From February 25, 1998 through February 1,
1999, the Committee was composed of four Directors, John E. Dean, James D.
Fowler, Jr., Merrick R. Kleeman and Barry S. Sternlicht, all of whom
participated in the deliberations concerning compensation reported in 1998.
Since February 1, 1999, the members of the Committee have been John E. Dean and
James D. Fowler, Jr.
The Committee may select consultants from nationally recognized independent
compensation and benefits consulting firms to provide expert advice on any
aspect of the ESI executive compensation program. The Committee may request
written reports or hold private meetings with such consultants in order to
obtain independent opinions on compensation proposals. The Committee has met,
and will continue to meet, in executive sessions which are not attended by any
ESI executives or managers. The Committee regularly reports its activities to
the Board of Directors.
PERFORMANCE EVALUATION. The Committee met in executive session in October
1998 to review the overall performance of the Chief Executive Officer,
particularly with respect to ESI's long range strategies and the achievement of
both financial and non-financial objectives. Paramount consideration was given
to the Chief Executive Officer's role in building shareholder value and
improving the return on the shareholders' investment.
THE COMPENSATION PROGRAM. The compensation program for ESI executives
presently consists of base salary, annual incentive bonus, long-term incentives
and employee benefits. It remains the intent of the Committee that incentives
based on long-term performance should be the major component in the pay package
for senior executives. Discussed below is each element of the compensation
program.
BASE SALARY. Salaries are set and administered to reflect the value of the
job in the marketplace and individual contribution and performance. Salaries
provide a necessary element of stability in the total pay program and, as such,
are not subject to significant variability. Salary increases are based primarily
on merit. During 1998, ESI executive salaries were evaluated in relation to a
competitive annualized merit increase guideline of 4.5% for expected levels of
individual performance. Actual increases can vary from the guideline depending
primarily on individual performance.
The Committee authorized a salary increase for Mr. Champagne effective
January 1, 1999 of $35,000, bringing his annual salary to $350,000. This merit
increase, which followed a 12-month interval since his last salary review, was
equivalent to 11.1% on an annualized basis and was based on an
16
<PAGE>
evaluation of his performance during the measurement period and a comparison of
the base salaries of the chief executive officers of companies similar in size
to ESI in terms of assets, sales, revenues and earnings.
Among the other named officers, Mr. Lauer's annual salary was increased
effective May 1, 1998 to $175,430, an increase of $7,230 or 4.3% after 12
months. Mr. Baugh's annual salary was increased effective September 1, 1998 to
$166,750, an increase of $7,180 or 4.5% after 12 months. Mr. Hartigan's annual
salary was increased effective February 1, 1998 to $151,025, an increase of
$4,825 or 3.3% after 12 months. Mr. Elwood's annual salary was increased
effective January 1, 1998 to $133,670, an increase of $9,670 or 7.8% after 12
months.
ANNUAL INCENTIVE BONUS. The amounts of annual bonus awards are based on
corporate financial performance for the year compared to an annual performance
goal established at the beginning of the year. For 1998, such performance goal
is 1998 net income compared to 1997 net income.
STOCK OPTION AWARDS. Stock option awards provide long-term incentives which
are directly related to the performance of ESI Common Stock. Options generally
have ten-year terms and closely align the executive's interests with those of
other shareholders.
In order to create performance incentives and promote equity ownership in
ESI by certain officers, stock options were granted on January 13, 1998 under
the 1997 Stock Plan to 77 employees of ESI at an option exercise price of
$21.688 per share.
EMPLOYEE BENEFITS. Executives also participate in ESI's broad-based
employee benefits program which includes a pension program, an investment and
savings plan, group medical and dental coverage and other benefit plans.
DISCUSSION OF THE COMMITTEE'S POLICY REGARDING QUALIFYING COMPENSATION FOR
DEDUCTIBILITY UNDER SECTION 162(M) OF THE INTERNAL REVENUE CODE. Tax
legislation known as the Omnibus Budget Reconciliation Act of 1993 ("OBRA")
created a new Code subsection 162(m), under which the allowable deduction for
compensation paid or accrued with respect to the chief executive officer and
each of the four most highly compensated executive officers of a publicly held
corporation is limited to no more than $1 million per year for taxable years on
or after January l, 1994. Certain types of compensation are exempted from this
deduction limitation, including payments subject to: (a) the attainment of an
objective performance goal or goals; (b) an outside director requirement; and
(c) a shareholder approval requirement.
It is the policy of the Committee to establish a competitive executive
compensation program and to design and administer incentive plans which relate
rewards directly to ESI's overall performance and the individual executive's
specific contribution.
In light of OBRA, it is the policy of the Committee to modify where
necessary the executive compensation plans so as to maximize the tax
deductibility of compensation paid to its executive officers, and the Committee
does not anticipate paying any compensation in 1999 that is not fully tax
deductible. Accordingly, the 1997 Stock Plan includes a fixed limit on the
number of options that may be granted to any individual in any given year. Any
future gains that may be realized upon the exercise of stock options granted
under the 1997 Stock Plan will qualify as "performance-based compensation" and
will be fully deductible by ESI.
This report is furnished by:
COMPENSATION COMMITTEE
JOHN E. DEAN
JAMES D. FOWLER, JR.
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<PAGE>
PERFORMANCE GRAPH
The performance graph set forth below compares the cumulative total
shareholder return on ESI Common Stock with the S&P 500 Index and an Industry
Group Index for the period from December 20, 1994 through December 31, 1998. The
industry group consists of the following companies selected on the basis of the
similar nature of their business: Apollo Group, Inc., Computer Learning Centers,
Inc., DeVry, Inc., Education Management Corp., Edutrek International, Inc.,
Quest Education Corporation, Sylvan Learning Systems, Inc. and Whitman Education
Group, Inc. (the "Industry Group"). We believe that, including ourselves, the
Industry Group represents a significant portion of the market value of publicly
traded companies whose primary business is classroom education. ESI Common Stock
commenced trading on the New York Stock Exchange on December 20, 1994. The
number of publicly traded companies involved in education has increased
dramatically over the past few years, making the composition of the Industry
Group more representative of our industry than the peer issuers previously
included in our industry group index. The former industry group included DeVry,
Inc., Sylvan Learning Systems, Inc. and The Tesseract Group, Inc. (the "Former
Industry Group").
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
<S> <C> <C> <C>
(Based on $100 invested on December 20, 1994
and
assumes the reinvestment of all dividends)
DOLLARS
ITT Educational Services,
Inc. Industry Group Index Former Industry Group Index
12/20/1994 $100.00 $100.00 $100.00
12/31/1994 $101.25 $106.52 $103.71
12/31/1995 $246.25 $253.04 $140.49
12/31/1996 $519.79 $453.29 $225.46
12/31/1997 $501.53 $648.63 $303.73
12/31/1998 $764.23 $821.19 $504.38
<CAPTION>
CUMULATIVE TOTAL RETURN
<S> <C>
(Based on $100 invested on December 20, 1994
and
assumes the reinvestment of all dividends)
DOLLARS
S&P 500 Index
12/20/1994 $100.00
12/31/1994 $100.00
12/31/1995 $137.58
12/31/1996 $169.17
12/31/1997 $225.61
12/31/1998 $290.09
</TABLE>
<TABLE>
<CAPTION>
12/20/94 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ESI......................................... 100.00 101.25 246.25 519.79 501.53 764.23
Industry Group Index........................ 100.00 106.52 253.04 453.29 648.63 821.19
Former Industry Group Index................. 100.00 103.71 140.49 225.46 303.73 504.38
S&P 500 Index............................... 100.00 100.00 137.58 169.17 225.61 290.09
</TABLE>
Notwithstanding anything to the contrary set forth in any of our previous
filings under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, that may incorporate future filings (including this
Proxy Statement, in whole or in part), the preceding Compensation Committee
Report on Executive Compensation and the stock price Performance Graph shall not
be incorporated by reference in any such filings.
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<PAGE>
INDEPENDENT AUDITORS
In accordance with the recommendation of the Audit and Corporate Governance
Committee, the Board of Directors has reappointed PricewaterhouseCoopers LLP as
our independent auditors for 1999. A representative of PricewaterhouseCoopers
LLP will attend the meeting, will have the opportunity to make a statement if he
or she desires to do so, and will be available to respond to appropriate
questions. Our Board of Directors reserves the right to replace the auditors at
any time upon the recommendation of the Audit and Corporate Governance
Committee.
SECURITY OWNERSHIP
The following table sets forth, as of February 15, 1999, the number of
shares of ESI Common Stock beneficially owned by any person (including any
group) known by management to beneficially own more than 5% of ESI Common Stock,
by each Director, by each of the Named Executive Officers and by all of our
current Directors and executive officers as a group. Unless otherwise indicated
in a footnote, each individual or group possesses sole voting and investment
power with respect to all shares indicated as beneficially owned.
<TABLE>
<CAPTION>
ESI COMMON STOCK
---------------------------------
NUMBER OF SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED(1) OF CLASS
- ------------------------------------------------------------------------ -------------------- -----------
<S> <C> <C>
Janus Capital Corporation and
Thomas H. Bailey........................................................ 2,057,970(2) 8.1
100 Filmore Street
Denver, CO 80206-4923
Baron Capital Group, Inc.,
BAMCO, Inc.,
Baron Capital Management, Inc.,
Baron Asset Fund and
Ronald Baron............................................................ 1,497,600(3) 5.9
767 Fifth Avenue
New York, NY 10153
Warburg Pincus Asset Management, Inc.................................... 1,466,577(4) 5.7
466 Lexington Avenue
New York, NY 10017
Rene R. Champagne....................................................... 176,083(5) *
Gene A. Baugh........................................................... 60,338(6) *
Clark D. Elwood......................................................... 46,123(7) *
Edward G. Hartigan...................................................... 56,162(8) *
Thomas W. Lauer......................................................... 59,017(9) *
Rand V. Araskog......................................................... 340,000 1.3
John E. Dean............................................................ 2,875(10) *
James D. Fowler, Jr..................................................... 3,750 *
Leslie Lenkowsky........................................................ 1,025 *
Vin Weber............................................................... 2,250 *
All current Directors and executive officers as a group (10)............ 747,623(11) 2.9
</TABLE>
- ------------------------
*Less than 1%.
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<PAGE>
(1) All shares of ESI Common Stock are owned directly except as otherwise
indicated. Pursuant to regulations of the Securities and Exchange
Commission, shares (a) receivable by Directors and executive officers upon
exercise of employee stock options exercisable within 60 days after February
15, 1999 or (b) allocated to the accounts of certain Directors and executive
officers under the ESI 401(k) Plan at February 15, 1999 are deemed to be
beneficially owned by such Directors and executive officers.
(2) Based solely on information in reports filed by the beneficial owners under
Section 13(d) or 13(g) of the Securities Exchange Act of 1934. Each
beneficial owner is a member of a group that possesses voting and investment
power over a total of 2,057,970 shares. Janus Capital Corporation is a
registered investment advisor. Mr. Bailey is deemed to control Janus Capital
Corporation. Janus Capital Corporation and Mr. Bailey have shared power to
(a) vote or direct the vote of 2,057,970 shares and (b) dispose or direct
the disposition of 2,057,970 shares.
(3) Based solely on information in reports filed by the beneficial owners under
Section 13(d) or 13(g) of the Securities Exchange Act of 1934. Each
beneficial owner is a member of a group that possesses voting and investment
power over a total of 1,497,600 shares. BAMCO, Inc. and Baron Capital
Management, Inc. are registered investment advisers and subsidiaries of
Baron Capital Group, Inc. Baron Asset Fund is an investment advisory client
of BAMCO, Inc. Mr. Baron owns a controlling interest in Baron Capital Group,
Inc. Baron Capital Group, Inc. and Mr. Baron have shared power to (a) vote
or direct the vote of 1,497,600 shares and (b) dispose or direct the
disposition of 1,497,600 shares. BAMCO, Inc. and Baron Asset Fund have
shared power to (a) vote or direct the vote of 1,400,000 shares and (b)
dispose or direct the disposition of 1,400,000 shares. Baron Capital
Management, Inc. has shared power to (a) vote or direct the vote of 97,600
shares and (b) dispose or direct the disposition of 97,600 shares.
(4) Based solely on information in reports filed by the beneficial owner under
Section 13(d) or 13(g) of the Securities Exchange Act of 1934. The
beneficial owner is a registered investment adviser and has sole power to
vote or direct the vote of 1,198,050 shares.
(5) This number includes 22,500 shares owned directly and 153,583 shares subject
to presently exercisable options.
(6) This number includes 5,625 shares owned directly, 130 shares owned under the
ESI 401(k) Plan and 54,583 shares subject to presently exercisable options.
(7) This number includes 600 shares owned directly, 2,190 shares owned under the
ESI 401(k) Plan and 43,333 shares subject to presently exercisable options.
(8) This number includes 1,575 shares owned directly, 3,337 shares owned under
the ESI 401(k) Plan and 51,250 shares subject to presently exercisable
options.
(9) This number includes 4,200 shares owned directly, 234 shares owned under the
ESI 401(k) Plan and 54,583 shares subject to presently exercisable options.
(10) This number includes 2,425 shares owned directly and 450 shares owned by
Mr. Dean's spouse.
(11) This number includes 5,891 shares owned under the ESI 401(k) Plan and
357,332 shares subject to presently exercisable options.
CHANGE IN CONTROL
On February 23, 1998, Starwood Trust and Starwood, Inc. (collectively
"Starwood Hotels") acquired ITT in accordance with the Amended and Restated
Agreement and Plan of Merger dated as of November 12, 1997 (the "Acquisition
Agreement") among Starwood, Inc., Chess Acquisition Corp., a Nevada corporation
and a subsidiary of Starwood, Inc. ("Chess"), Starwood Trust and ITT. Pursuant
to
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<PAGE>
the terms of the Acqusition Agreement, Chess was merged with and into ITT and
ITT became a subsidiary of Starwood, Inc. (the "Acquisition").
Under the terms of the Acquisition Agreement, each outstanding share of
common stock, no par value, of ITT ("ITT Common Stock"), together with the
associated right to purchase shares of Series A Participating Cumulative
Preferred Stock of ITT (the "Rights" and, together with the ITT Common Stock,
"ITT Shares"), other than those that were converted into cash pursuant to a cash
election by the holder (and other than ITT Shares owned directly or indirectly
by ITT or Starwood Hotels, which shares were cancelled), was converted into
1.543 Paired Shares of Starwood Hotels, each Paired Share consisting of one
share of common stock of Starwood, Inc. and one share of beneficial interest of
Starwood Trust. Pursuant to cash election procedures, 35,195,664 ITT Shares,
representing approximately 30% of the outstanding ITT Shares, were converted
into $85 in cash per share. In addition, each ITT Share was converted into
additional cash consideration in the amount of $.37493151, which amount
represents the interest that would have accrued (without compounding) on $85 at
an annual rate of 7% during the period from and including January 31, 1998 to
but excluding the date of the closing (February 23, 1998). The aggregate value
of the acquisition of ITT in cash, Paired Shares and assumed debt was
approximately $14.6 billion.
Starwood Hotels borrowed the cash portion of the consideration under a $3.1
billion credit facility co-administered by Bankers Trust Company and The Chase
Manhattan Bank and co-syndicated by Lehman Commercial Paper Inc. and Bank of
Montreal and a $2.5 billion senior secured increasing rate note facility
arranged by Lehman Commercial Paper Inc., co-syndicated by BT Alex. Brown
Incorporated and Chase Securities, Inc. and for which NationsBank, N.A. serves
as documentation agent.
As a result of the Acquisition, Starwood, Inc. also acquired control of us.
ITT held 22,500,000 shares, or 83.3%, of the outstanding ESI Common Stock, and
4,499,952 shares, or 16.7%, of the outstanding ESI Common Stock were owned by
the general public. At the time the Acquisition was consummated, four of the ten
members of our Board of Directors (Bette B. Anderson, Robert A. Bowman, Richard
S. Ward and Margita E. White, all of whom were directors and/or executive
officers of ITT prior to the Acquisition) resigned effective February 23, 1998.
On February 25, 1998, the remaining members of our Board of Directors elected
four individuals recommended by Starwood, Inc. (Tony Coelho, Robin Josephs,
Merrick R. Kleeman and Barry S. Sternlicht) to fill the vacancies caused by such
resignations and to serve as Directors for terms expiring at the 2000, 1999,
2000 and 1998 Annual Meeting of Shareholders, respectively, and until such
Director's successor is duly elected and qualified. At our 1998 Annual Meeting
of Shareholders, Mr. Sternlicht was elected to serve as a Director for a term
expiring at the 2001 Annual Meeting of Shareholders and until his successor is
duly elected and qualified. Mr. Coelho, Ms. Josephs, Mr. Kleeman and Mr.
Sternlicht each resigned on February 1, 1999. ITT no longer holds any shares of
ESI Common Stock. See "Certain Transactions-- Relationship With Former
Shareholder."
21
<PAGE>
CERTAIN TRANSACTIONS
RELATIONSHIP WITH FORMER SHAREHOLDER
Prior to June 9, 1998, ITT held 83.3% of the outstanding shares of ESI
Common Stock. From June 9, 1998 until February 1, 1999, ITT held 35% of the
outstanding shares of ESI Common Stock. In addition, prior to the Acquisition,
six of our Directors (Bette B. Anderson, Rand V. Araskog, Robert A. Bowman,
Richard S. Ward, Vin Weber and Margita E. White) were also executive officers or
directors of ITT. Mrs. Anderson, Mr. Bowman, Mr. Ward and Mrs. White resigned
from our Board of Directors, effective February 23, 1998. On February 25, 1998,
the remaining members of our Board of Directors elected four individuals
recommended by ITT (Tony Coelho, Robin Josephs, Merrick R. Kleeman and Barry S.
Sternlicht) to fill the vacancies caused by these resignations. Mr. Coelho, Ms.
Josephs, Mr. Kleeman and Mr. Sternlicht were elected for the terms expiring at
the Annual Meeting of Shareholders as follows: Mr. Coelho, 2000; Ms. Josephs,
1999; Mr. Kleeman, 2000; and Mr. Sternlicht, 1998. Mr. Sternlicht was re-elected
as a Director at the 1998 Annual Meeting of Shareholders for a term expiring at
the 2001 Annual Meeting of Shareholders. Mr. Sternlicht serves as chairman and
chief executive officer and a director of Starwood, Inc. Mr. Sternlicht is also
the general manager of Starwood Capital Group, L.L.C. ("Starwood Capital"),
which, together with its affiliates and Mr. Sternlicht, beneficially owns
approximately 5.9% of the outstanding units of Starwood, Inc. common stock and
Starwood Trust Class B Shares of beneficial interest. Mr. Kleeman is also a
managing director of Starwood Capital. Mr. Coelho and Ms. Josephs are not
affiliated with ITT, Starwood, Inc., Starwood Trust or Starwood Capital.
On June 9, 1998, we completed the June 1998 Offering, which involved a
secondary public offering of 13,050,000 shares of ESI Common Stock owned by ITT,
reducing the percentage of the outstanding shares of ESI Common Stock owned by
ITT from 83.33% to 35%, or 9,450,000 shares. On February 1, 1999, we completed a
secondary public offering of 7,950,000 shares of ESI Common Stock owned by ITT
(the "February 1999 Offering"), and we repurchased an additional 1,500,000
shares of ESI Common Stock owned by ITT, eliminating ITT's entire beneficial
ownership interest in ESI Common Stock. The four members of our Board of
Directors who were recommended by ITT (Tony Coelho, Robin Josephs, Merrick R.
Kleeman and Barry S. Sternlicht) resigned on the same date.
SERVICES PROVIDED BY FORMER SHAREHOLDER
Set forth below are descriptions of certain services ITT provided to us from
December 1994 until the June 1998 Offering. As described below and in
"--Agreements With Former Shareholder," these arrangements ended in connection
with the Acquisition and the June 1998 Offering.
TREASURY AND FINANCING SERVICES. Until February 5, 1998, ITT provided us
with centralized treasury and financing services. As part of these functions, we
remitted our surplus cash receipts to ITT, and ITT advanced cash, as necessary,
to us. From January 1, 1998 through February 5, 1998, the net amount of cash
transferred from ITT to us, exclusive of payments for the services described
below, was $94,284,000 and aggregate payments for the services described below
were $8,607,000. ITT paid interest to us on the average net cash balances held
by ITT. For the period January 1, 1998 through February 5, 1998, we received net
interest income from ITT in the amount of $549,000. We have been managing and
investing our own cash since February 5, 1998. We have not been able to obtain
the same yields on our cash balances that ITT paid. Accordingly, interest
income, net decreased in 1998.
GENERAL AND ADMINISTRATIVE SERVICES. Under agreements in place prior to the
June 1998 Offering, ITT periodically provided advice and assistance to us with
regard to certain risk management, accounting, tax and other management
services. We ceased utilizing substantially all of these services at the time of
the Acquisition. The fee for these services was $15,000 for the period in 1998
that we used these services.
22
<PAGE>
ITT PENSION PLAN. From December 19, 1995 until the June 1998 Offering, we
participated in the ITT Pension Plan, a non-contributory defined benefit pension
plan which covered substantially all of our employees. ITT determined the
aggregate amount of pension expense on a consolidated basis based on actuarial
calculations, and such expense was allocated to participating units on the basis
of compensation covered by the plan. Prior to December 19, 1995, we participated
in the Retirement Plan for Salaried Employees of Old ITT, which was
substantially identical to the terms of the ITT Pension Plan. For the period
January 1, 1998 through June 9, 1998, our pension expense under the ITT Pension
Plan was $1,858,000. Federal legislation limits the amount of benefits that can
be paid and compensation that may be recognized under a tax-qualified retirement
plan. ITT adopted a non-qualified unfunded retirement plan (the "ITT Excess
Pension Plan") for payment of those benefits at retirement that could not be
paid from the qualified ITT Pension Plan. The practical effect of the ITT Excess
Pension Plan was to continue calculation of retirement benefits to all employees
on a uniform basis. We paid directly the benefits for our employees under the
ITT Excess Pension Plan. Any "excess" benefit accrued to any such employee was
immediately payable in the form of a single discounted lump sum payment upon the
occurrence of a change in corporate control. The approval by ITT's shareholders
of the Acquisition constituted a change in corporate control as defined in the
ITT Excess Pension Plan, which resulted in a distribution of all of the accrued
benefits under the ITT Excess Pension Plan to the participants. After the June
1998 Offering, we implemented our own pension and excess pension plans.
RETIREMENT SAVINGS PLAN. Prior to May 16, 1998, we participated in The ITT
401k Retirement Savings Plan (the "ITT Savings Plan"), a defined contribution
pension plan which covered substantially all of our employees. Employees could
contribute (subject to certain Internal Revenue Service limitations) amounts
ranging from 2% to 16% of base pay. We contributed 1% of the employee's covered
pay and matched the employee's contributions at the rate of 50% up to a maximum
of 5% of covered pay, amounting to a maximum matching contribution of 2.5% of
the employee's covered pay. Our non-matching and matching contributions were,
prior to the Acquisition, in the form of common shares of ITT. After the
Acquisition and before May 16, 1998, our matching and non-matching contributions
were in the form of Paired Shares. ITT charged us the costs of our non-matching
and matching contributions. For the period January 1, 1998 through May 15, 1998,
our costs of providing this benefit (including an allocation of the
administrative costs of the plan) were $774,000. Federal legislation limited the
annual contributions which an employee could make to the ITT Savings Plan, a
tax-qualified retirement plan. Accordingly, ITT adopted, and we participated in,
prior to the Acquisition, an ITT excess savings plan (the "ITT Excess Savings
Plan"), a non-qualified retirement plan, which enabled employees who were
precluded by these limitations from contributing 5% of their salary to the
tax-qualified plan to make up the shortfall through salary deferrals and,
thereby, receive the 1% non-matching company contribution and the 2.5% matching
company contribution otherwise allowable under the tax-qualified plan. Salary
deferrals, company contributions and imputed earnings were entered into a book
reserve account maintained by ITT for each participant. The account balance
maintained on behalf of a participant was immediately payable in a single lump
sum payment upon the occurrence of a change in control (as defined in the ITT
Excess Savings Plan). The approval by ITT's shareholders of the Acquisition
constituted a change in control as defined in the ITT Excess Savings Plan, which
resulted in a distribution of all the account balances maintained under the ITT
Excess Savings Plan to participants. We adopted our own 401(k) and excess
savings plans that became effective on May 16, 1998.
GROUP MEDICAL BENEFITS. In 1998, we began providing all of our own medical
insurance benefits to our employees, but we continued to utilize ITT's services
in the administration of our indemnity medical plan. We were responsible for all
claims incurred under our indemnity plan, but in 1998 our liability for such
claims was subject to stop loss coverage for individual medical claims greater
than $50,000. We paid an allocated share of all indemnity plan claims in excess
of $50,000 for all companies affiliated with ITT that participated in this
stop-loss arrangement. We also paid our share of the
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<PAGE>
administrative and stop loss pooling expenses incurred by ITT with respect to
these services. For 1998, we made payments to ITT for these administrative
services totaling $1,615,000.
FEDERAL INCOME TAXES. Prior to the June 1998 Offering, we had been included
in the consolidated U.S. federal income tax return of ITT. Under an agreement
with ITT, income taxes were allocated among affiliates of ITT based upon the
amounts they would pay or receive if they filed a separate income tax return.
For the period January 1, 1998 through June 9, 1998, our allocated federal
income taxes were $4,345,000.
AGREEMENTS WITH FORMER SHAREHOLDER
Set forth below are descriptions of certain agreements between us and ITT
and/or its affiliates that we entered into in connection with the June 1998
Offering. Pursuant to the Stock Repurchase Agreement, certain provisions of
these agreements were amended in connection with the February 1999 Offering. See
"--Stock Repurchase Agreement."
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT. ITT's registration
rights under an Amended and Restated Registration Rights Agreement (the
"Registration Rights Agreement") ended upon the consummation of the February
1999 Offering when ITT no longer held any shares of ESI Common Stock. The
remainder of the Registration Rights Agreement terminates on June 9, 2003. The
registration rights provisions of the Registration Rights Agreement provided
that, upon request of ITT, we would register under the Securities Act of 1933
any of the shares of ESI Common Stock held by ITT for sale in accordance with
ITT's intended method of disposition thereof, and would take such other action
necessary to permit the sale of such shares in other jurisdictions. ITT had the
right to request two such registrations. We were to pay all registration
expenses (other than underwriting discounts and commissions and ITT's legal,
accounting and advisory expenses) in connection with such registrations. ITT
also had the right to include the shares of ESI Common Stock held by it in other
registrations of shares of ESI Common Stock initiated by us on our own behalf or
on behalf of any other person. We were to pay all registration expenses (other
than underwriting discounts and commissions related to the shares of ESI Common
Stock sold by ITT, ITT's legal, accounting and advisory expenses, and the filing
fees payable under the Securities Act of 1933 for the shares of ESI Common Stock
sold by ITT) in connection with each such registration. The rights of ITT under
the Registration Rights Agreement were transferable by ITT. In 1998, we incurred
$1,117,000 in costs associated with the June 1998 Offering under the predecessor
to the Registration Rights Agreement and approximately $103,000 in costs
associated with the February 1999 Offering under the Registration Rights
Agreement. We will be paying the remaining costs of the February 1999 Offering
in 1999 pursuant to the Registration Rights Agreement.
The Registration Rights Agreement prohibited the holder of any shares of ESI
Common Stock that we registered pursuant to such agreement from disposing of any
such shares if the disposition would have caused a change in control of ESI or
any of our ITT Technical Institutes, until we received all of the required prior
approvals of the DOE, Accrediting Commissions and SEAs.
TRADE NAME AND SERVICE MARK LICENSE AGREEMENT. A Trade Name and Service
Mark License Agreement (the "License Agreement"), among other things, provides
that ITT Sheraton Corporation ("Sheraton"), an ITT affiliate, grants to us for a
period of seven years from June 9, 1998 a non-exclusive, non-transferable,
worldwide, royalty-free license to use the "ITT" corporate and trade name,
service mark and trademark "ITT" (the "Licensed Mark") solely in connection with
the operation of our business and in a manner specifically identified in the
License Agreement. This period could be extended for an additional five years if
we requested an extension and we reached an agreement with Sheraton on the
amount of royalties, if any, that we would pay during such extension. The
License Agreement further provides that (1) our use of the Licensed Mark shall
be consistent with Sheraton guidelines and standards, (2) certain of our
materials bearing the Licensed Mark must contain a
24
<PAGE>
prescribed notice and (3) certain changes in control of ESI, as defined in the
License Agreement, will terminate the License Agreement. Pursuant to the Stock
Repurchase Agreement, the License Agreement was amended, effective upon the
closing of the February 1999 Offering and stock repurchase, to provide us with a
perpetual royalty-free license to use the Licensed Mark, expand the manner in
which we can use the Licensed Mark and allow us to assign our license to use the
Licensed Mark to any of our wholly-owned subsidiaries. See "--Stock Repurchase
Agreement." In 1998, we did not pay any amounts to ITT under the License
Agreement.
AMENDED AND RESTATED INCOME TAX SHARING AGREEMENT. Prior to the June 1998
Offering, we had been included in the consolidated United States federal income
tax return of ITT. We also had been included in certain state and local tax
returns of ITT or its subsidiaries. An Amended and Restated Income Tax Sharing
Agreement (the "Tax Agreement"), which became effective at the time of the June
1998 Offering, provides, among other things, for the allocation of liability for
federal, state and local taxes between us and ITT. Under the Tax Agreement, we
are responsible for all federal, state and local taxes related to our operations
before and after the June 1998 Offering, and Starwood, Inc. is responsible for
all such taxes related to our other operations of Starwood, Inc. and its
subsidiaries before and after the June 1998 Offering.
The Tax Agreement also sets forth procedures for filing returns, paying
estimated taxes, amending returns, allocating refunds, tax audits and contests
and certain tax elections. In particular, all tax refunds attributable to our
operations will be paid to us and we will pay all tax assessments, interest and
penalties attributable to our operations. Starwood, Inc. is responsible for
preparing and filing all tax returns, and any amendments to these returns,
involving our operations prior to the June 1998 Offering, and we are responsible
for preparing and filing all tax returns, and any amendments to these returns,
involving our operations following the June 1998 Offering.
STOCKHOLDER AGREEMENT. ITT's "Board Rights" under a Stockholder Agreement
(the "Stockholder Agreement") terminated upon the consummation of the February
1999 Offering. The "Board Rights" consisted of the following:
- the authorized number of directors on our Board of Directors (the "Board")
was not to exceed 10;
- the authorized number of classes of directors of the Board was not to
exceed three;
- in connection with each annual meeting of our shareholders, the Board was
to nominate and recommend such number of persons (rounded up to the next
whole number but not to exceed four) designated by ITT to be elected to
the Board so that the total number of ITT designees on the Board would be
in relative proportion to the percentage of the outstanding shares of ESI
Common Stock held by ITT and its affiliates (collectively, the "ITT
Group"); and
- the membership of our standing Nominating Committee of the Board was to be
limited to four members, two of whom were to be directors who were ITT
designees until the number of ITT designees on the Board was two, in which
event only one ITT designated director was to be on the Nominating
Committee, and if there was one ITT designee on the Board, such designee
was not required to be on the Nominating Committee.
The Board Rights were to terminate when the ITT Group held less than 7.5% of
the outstanding shares of ESI Common Stock. The ITT Group could have assigned
the Board Rights in whole, but not in part, to any one transferee from the ITT
Group of 10% or more of the outstanding shares of ESI Common Stock (the "Rights
Transferee"). The ITT designees that were on the Board in 1998 (Tony Coelho,
Robin Josephs, Merrick R. Kleeman and Barry S. Sternlicht) resigned on February
1, 1999.
The Stockholder Agreement prevented us as a result of any statutory
anti-takeover or other anti-takeover provisions adopted by us from (1)
significantly limiting or restricting the ability of the ITT
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Group or any transferee from the ITT Group of 10% or more of the outstanding
shares of ESI Common Stock to transfer or vote the ESI Common Stock held by it
or (2) significantly adversely affecting the value of the shares of ESI Common
Stock then owned by the ITT Group or any transferee from the ITT Group of 10% or
more of the outstanding shares of the ESI Common Stock. The Stockholder
Agreement also prevented us from taking any action that would have subjected any
such shares to any restriction, limitation or provision of law to which other
holders of ESI Common Stock were not subject. These restrictions ended in
February 1999 when the ITT Group held less than 10% of the outstanding shares of
ESI Common Stock.
The Stockholder Agreement prohibited the ITT Group or the Rights Transferee
from transferring any of their shares of ESI Common Stock if such transfer would
have caused a change in control of ESI or any of our ITT Technical Institutes,
until we received all of the required prior approvals of the DOE, Accrediting
Commissions and SEAs.
The Stockholder Agreement also includes reciprocal indemnifications of ITT
and ESI by the other against all losses, claims and expenses arising after June
9, 1998 from (1) any misstatements or omissions by the indemnifying party in the
Registration Statement and Prospectus for the June 1998 Offering or (2) any
current or future litigation involving the indemnifying party's operations or
business.
The Stockholder Agreement preserves our access to certain insurance policies
covering us when we were a subsidiary of ITT.
EMPLOYEE BENEFITS AGREEMENT. An Employee Benefits Agreement (the "Benefits
Agreement"), among other things, provides for the allocation and assignment of
the respective rights and obligations of ESI and ITT before and after the June
1998 Offering with respect to benefits and compensation matters pertaining to
our current and former employees. Under the terms of the Benefits Agreement,
after the June 1998 Offering we ceased participation in all ITT employee benefit
plans and programs, the services provided to us under our former Employee
Benefits and Administrative Services Agreement with ITT ceased and we became
responsible for establishing and maintaining our own employee benefit plans and
programs.
In particular, the Benefits Agreement ended participation of our employees
in the ITT Pension Plan, the ITT Excess Pension Plan, the ITT Savings Plan and
the ITT Excess Savings Plan. The ITT Pension Plan retained all assets and all
liabilities for the benefits accrued thereunder by our participating employees.
We assumed the liability for all benefits accrued under the ITT Excess Pension
Plan by each of our participating employees since the date of the Acquisition
and prior to the June 1998 Offering. The ITT Savings Plan transferred a
significant portion of the assets in such plan for the accounts of our employees
to a qualified 401(k) plan established by us, and we assumed all obligations
with respect to such transferred assets. We assumed the liability for all
benefits accrued under the ITT Excess Savings Plan by each of our participating
employees since the date of the Acquisition and prior to the June 1998 Offering.
The Benefits Agreement also provides that, during 1998, we could utilize
ITT's services in the administration of our indemnity medical plan. We were
responsible for all claims incurred under our indemnity plan, but in 1998 our
liability for such claims was subject to stop loss coverage for individual
medical claims greater than $50,000. We paid an allocated share of all indemnity
plan claims in excess of $50,000 for all companies affiliated with ITT that
participated in this stop loss arrangement. We also paid our share of the
administrative and stop loss pooling expenses incurred by ITT with respect to
these services.
In accordance with the Benefits Agreement, ITT transferred assets relating
to, and we assumed all obligations for, (1) all future post-retirement medical
plan obligations attributable to one of our employees and (2) medical and life
insurance coverage of our current and former disabled employees
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entitled to such coverage. ITT retained all assets relating to, and all
obligations to provide, (1) retiree life insurance coverage to former employees
of ESI entitled to such coverage as of December 31, 1997 and (2) disability
payments to our current and former employees who were disabled as of December
31, 1997 and are receiving disability payments under ITT's long-term disability
plan.
In addition to the other employee benefit plans and programs offered by us,
we offer our own 401(k) plan, excess savings plan, pension plan and excess
pension plan for the benefit of our employees, at a cost similar to what we paid
to participate in comparable plans offered by ITT.
STOCK REPURCHASE AGREEMENT. In connection with the February 1999 Offering,
we entered into a Stock Repurchase Agreement, pursuant to which we and ITT
agreed, among other things, to the following:
- we would repurchase from ITT in the February 1999 Offering 1,500,000
shares of ESI Common Stock at a per share price equal to the lesser of (1)
the public offering price, less underwriting discounts and commissions and
(2) $32.84;
- upon completion of the February 1999 Offering and the stock repurchase,
ITT would pay us $500,000 for administrative expenses and an additional
$500,000 for administrative expenses if certain conditions related to the
February 1999 Offering were satisfied;
- the License Agreement would be amended, effective upon the consummation of
the February 1999 Offering and the stock repurchase, and would:
- provide us with a perpetual royalty-free license to use the Licensed
Mark;
- expand the manner in which we can use the Licensed Mark; and
- allow us to assign our license to use the Licensed Mark to any of our
wholly-owned subsidiaries;
- ITT would use its best efforts to cause Tony Coelho, Robin Josephs,
Merrick R. Kleeman and Barry S. Sternlicht to resign from the Board upon
the consummation of the February 1999 Offering and the stock repurchase;
- if the underwriters' over-allotment option in the February 1999 Offering
was not exercised in full, we would file a post-effective amendment to the
registration statement for the February 1999 Offering, converting it into
a shelf registration statement covering all remaining shares of ESI Common
Stock held by ITT. In addition, ITT agreed that this shelf registration
would constitute ITT's last remaining demand registration under the
Registration Rights Agreement; and
- we and ITT will indemnify each other against certain liabilities that may
arise in connection with the February 1999 Offering, the stock repurchase
or the related transactions.
On February 1, 1999, we completed the February 1999 Offering of 7,950,000 shares
of ESI Common Stock owned by ITT (including the underwriters' over-allotment
option), and repurchased an additional 1,500,000 shares of ESI Common Stock
owned by ITT at a price of $49,087,500. On the same date, the License Agreement
was amended, ITT paid us $1,000,000 for administrative expenses related to the
February 1999 Offering, and Mr. Coelho, Ms. Josephs, Mr. Kleeman and Mr.
Sternlicht resigned from our Board of Directors.
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SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
The date by which shareholder proposals must be received by us for inclusion
in proxy materials relating to the 2000 Annual Meeting of Shareholders is
November 26, 1999.
In order to be considered at the 2000 Annual Meeting of Shareholders,
shareholder proposals must comply with the advance notice and eligibility
requirements contained in our By-Laws. Our By-Laws provide that shareholders are
required to give advance notice to us of any nomination by a shareholder of
candidates for election as Directors and of any business to be brought by a
shareholder before a shareholders' meeting. With respect to annual meetings, our
By-Laws provide that a shareholder of record entitled to vote at such meeting
may nominate one or more persons for election as Director or Directors or may
properly bring business before such meeting only if the shareholder gives
written notice thereof to the Secretary of ESI not less than 70 days nor more
than 90 days prior to the anniversary date of the immediately preceding annual
meeting. In the event the annual meeting is more than 30 days earlier or more
than 60 days later than such anniversary date, (1) notice by the shareholder of
a nomination must be delivered or received not earlier than the 90th day prior
to such annual meeting and not later than the later of the 70th day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made and (2) notice by a
shareholder of any other business must be received not later than the tenth day
following the day on which notice of the date of the meeting was mailed or
public disclosure of the date of the meeting was made, whichever occurs first.
The notice must contain specified information about each nominee or the proposed
business and the shareholder making the nomination or proposal.
The advance notice provisions in our By-Laws also provide that in the case
of a special meeting of shareholders called for the purpose of electing
Directors, to be timely, a shareholder's notice must be delivered or received
not earlier than the 90th day prior to such special meeting and not later than
the later of the 60th day prior to such special meeting or the tenth day
following the day on which public announcement of the date of the special
meeting is first made and of nominees to be elected at such meeting.
The specific requirements of these advance notice and eligibility provisions
are set forth in Article II, Section 8 and Article III, Section 2 of our
By-Laws, a copy of which is available upon request. Such requests and any
shareholder proposals should be sent to the Secretary of ESI at 5975 Castle
Creek Parkway, North Drive, P.O. Box 50466, Indianapolis, IN 46250-0466.
28
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ITT EDUCATIONAL SERVICES, INC.
5975 CASTLE CREEK PARKWAY, N. DRIVE
P.O. BOX 50466
INDIANAPOLIS, IN 46250-0466
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of ITT Educational Services, Inc. ("ESI") to be held at 10:30
a.m. on Tuesday, May 11, 1999, at the Sheraton Premiere Hotel at Tysons
Corner, 8661 Leesburg Pike, Vienna, VA 22182, for the following purposes:
1. To consider and vote upon two proposals described in the Proxy Statement
providing for:
PROPOSAL ONE: Election of two Directors to serve until the 2002 Annual
Meeting of Shareholders and until their successors are
elected and have qualified.
PROPOSAL TWO: Approval of an amendment of ESI's Restated Certificate of
Incorporation to increase the number of authorized shares of
ESI common stock, $0.01 par value per share, from
50,000,000 to 150,000,000.
2. To act upon such other matters that may properly come before the meeting.
All shareholders of record at the close of business on March 12, 1999
will be entitled to vote at the meeting.
TO BE SURE THAT YOUR VOTE IS COUNTED, PLEASE COMPLETE AND SIGN THE
PROXY/VOTING INSTRUCTION CARD BELOW, DETACH IT FROM THIS LETTER AND RETURN IT
IN THE POSTAGE PAID ENVELOPE ENCLOSED IN THIS PACKAGE. The giving of such
proxy does not affect your right to vote in person if you attend the meeting.
The prompt return of your signed proxy will help reduce the expense of
additional proxy solicitation.
If you plan to attend the Annual Meeting in person, detach and bring this
letter to the meeting as an admission ticket.
Sincerely yours,
/s/ Rene R. Champagne
Rene R. Champagne
Chairman, President
and Chief Executive Officer
DETACH PROXY CARD HERE
- -------------------------------------------------------------------------------
Directors recommend a vote FOR proposals one and two.
ONE: Election of FOR all nominees / / WITHHOLD AUTHORITY / / *EXCEPTIONS / /
Directors listed below to vote for all
nominees listed
below
Director Nominees: John E. Dean and Vin Weber.
(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 ___________________________________________________________________
TWO: Approval of the amendment of ESI's Restated Certificate of Incorporation
to increase the number of authorized shares of ESI common stock, $0.01
par value per share, from 50,000,000 to 150,000,000.
FOR / / AGAINST / / ABSTAIN / /
In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment or
postponement thereof.
Change of Address and / /
or Comments Mark Here
Note: Please add your title if you are signing for a corporation or other
business entity, or as attorney, administrator, executor, guardian, trustee
or in any other representative capacity.
Date: _____________________________, 1999
_________________________________________
Signature
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. / /
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
DETACH PROXY CARD HERE
- -------------------------------------------------------------------------------
ITT EDUCATIONAL SERVICES, INC.
5975 CASTLE CREEK PARKWAY, N. DRIVE
P.O. BOX 50466
INDIANAPOLIS, IN 46250-0466
P R O X Y
PROXY SOLICITED BY BOARD OF DIRECTORS FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Clark D. Elwood or Edward G. Hartigan or Gene
A. Baugh, as proxy, each with power to appoint his or her substitute and
hereby authorizes each of them at the annual meeting of shareholders of ITT
Educational Services, Inc. ("ESI") to be held at 10:30 a.m. on May 11, 1999
at the Sheraton Premiere Hotel at Tysons Corner, 8661 Leesburg Pike, Vienna,
VA 22182, and at any adjournments thereof to vote all shares of ESI common
stock which the undersigned could vote if personally present 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 meeting.
PLEASE SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES ON THE REVERSE
SIDE OF THIS PROXY. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS
DESIGNATED BY YOU ON THE REVERSE SIDE, OR IF NO DESIGNATION IS MADE WILL BE
VOTED FOR PROPOSALS ONE AND TWO. THE PROXY COMMITTEE CANNOT VOTE YOUR SHARES
UNLESS YOU SIGN AND RETURN THIS PROXY.
SEE REVERSE SIDE ITT EDUCATIONAL SERVICES, INC.
P.O. Box 11170
NEW YORK, NY 10203-0170
