EXHIBIT 10.5
ITT INDUSTRIES 1997 LONG-TERM INCENTIVE PLAN
(AMENDED AND RESTATED AS OF JULY 13, 2004)
1. ESTABLISHMENT AND PURPOSE
1.1 Establishment of the Plan. ITT Industries, Inc., an Indiana
corporation, hereby establishes an incentive compensation plan to be known as
the "ITT Industries 1997 Long-Term Incentive Plan" (the Plan"), as set forth in
this document. The Plan shall become effective as of January 1 1997, subject to
approval by the requisite shareholders of the Company. The Plan shall remain in
effect until terminated by the Board.
1.2 Purposes. The purposes of the Plan are to promote the achievement of
long-term objectives of the Company by tying Key Employees' long-term incentive
opportunities to preestablished goals; to attract and retain Key Employees of
outstanding competence, and to encourage teamwork among them; and to reward
performance based on the successful achievement of the preestablished
objectives. Awards will be made, at the discretion of the Committee, to Key
Employees (including officers and Directors who are also employees) whose
responsibilities and decisions directly affect the performance of any
Participating Company. All benefits payable under the Plan to the Company's
Chief Executive and the four other highest compensated executive officers whose
compensation is subject to disclosure in the Company's proxy statement is
intended to qualify as "performance-based compensation" for purposes of Section
162(m) of the Code and, therefore, to be deductible by the Company for income
tax purposes.
2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below:
(a) An "Acceleration Event" shall be deemed to have occurred if the
conditions set forth in any one or more of the following paragraphs shall
have been satisfied:
(i) a report on Schedule 13D shall be filed with the
Securities and Exchange Commission pursuant to Section 13(d) of the
Exchange Act disclosing that any person (within the meaning of
Section 13(d) of the Exchange Act), other than the Company or a
Subsidiary or any employee benefit plan sponsored by the Company or
a Subsidiary, is the Beneficial Owner directly or indirectly of
twenty percent (20%) or more of the outstanding Common Stock $1 par
value, of the Company (the "Stock");
(ii) any person (within the meaning of Section 13(d) of the
Exchange Act), other than the Company or a Subsidiary, or any
employee benefit plan sponsored by the Company or a Subsidiary,
shall purchase shares pursuant to a tender offer or exchange offer
to acquire any Stock of the Company (or securities convertible into
Stock) for cash, securities or any other consideration, provided
that after consummation of the offer, the person in question is the
Beneficial Owner, directly or indirectly, of twenty percent (20%) or
more of the outstanding
Stock of the Company (calculated as provided in paragraph (d) of
Rule 13d-3 under the Exchange Act in the case of rights to acquire
Stock);
(iii) the stockholders of the Company shall approve
(a) any consolidation, business combination or merger
involving the Company, other than a consolidation, business
combination or merger involving the Company in which holders
of Stock immediately prior to the consolidation, business
combination or merger (x) hold fifty percent (50%) or more of
the combined voting power of the Company (or the corporation
resulting from the merger or consolidation or the parent of
such corporation) after the merger and (y) have the same
proportionate ownership of common stock of the Company (or the
corporation resulting from the merger or consolidation or the
parent of such corporation), relative to other holders of
Stock immediately prior to the merger, business combination or
consolidation, immediately after the merger as immediately
before; or
(b) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Company;
(iv) there shall have been a change in a majority of the
members of the Board within a 12-month period unless the election or
nomination for election by the Company's stockholders of each new
director during such 12-month period was approved by the vote of
two-thirds of the directors then still in office who (x) were
directors at the beginning of such 12-month period or (y) whose
nomination for election or election as directors was recommended or
approved by a majority of the directors who where directors at the
beginning of such 12-month period; or
(v) any person (within the meaning of Section 13(d) of the
Exchange Act) (other than the Company or a Subsidiary or any
employee benefit plan (or related trust) sponsored by the Company or
a Subsidiary) becomes the Beneficial Owner of twenty percent (20%)
or more of the Stock.
(b) "Award" means an award granted to a Key Employee in accordance
with the provisions of the Plan and approved by the Committee.
(c) "Award Agreement" means the written agreement evidencing an
Award granted to a Key Employee under the Plan and approved by the
Committee.
(d) "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 of the general rules and regulations under the Exchange Act.
(e) "Board of Directors" or "Board" means the Board of Directors of
the Company.
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(f) "Code" means the Internal Revenue Code of 1986, as now in effect
or as hereafter amended. (All citations to sections of the Code are to
such sections as they may from time to time be amended or renumbered.)
(g) "Committee" means the Compensation and Personnel Committee of
the Board or such other committee as may be designated by the Board to
administer the Plan, all of whose members shall be "Non-Employee
Directors" under the Exchange Act and "Outside Directors" under Section
162(m) of the Code.
(h) "Company" means ITT Industries, Inc., an Indiana corporation,
and its successors and assigns.
(i) "Director" means an individual who is a member of the Board.
(j) "Disability" means the complete permanent inability of a Key
Employee to perform all of his or her duties under the terms of his or her
employment with any Participating Company, as determined by the Committee
upon the basis of such evidence, including independent medical reports and
data, as the Committee deems appropriate or necessary.
(k) "Effective Date" means the date this Plan becomes effective, as
set forth in Section 1.1 herein.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(m) "Key Employee" means an employee (including any officer or
Director who is also an employee) of any Participating Company whose
responsibilities and decisions, in the judgment of the Committee, directly
affect the performance of the Company and its Subsidiaries.
(n) "Participating Company" means the Company or any Subsidiary or
other affiliate of the Company or any corporation which at the time of
award qualifies as a "subsidiary" of the Company under Section 425(f) of
the Code.
(o) "Participant" means an employee of a Participating Company who
is a Key Employee and who has received an Award under the Plan.
(p) "Performance Goal" means one or more Performance Measures
expressed as an objective formula to be used in calculating the amount
payable, if any, with respect to a designated Award and shall be
established by the Committee within the first ninety (90) days of the
applicable Performance Period. A Performance Goal may provide for various
levels of payout depending upon the degree to which the Performance Goal
has been achieved.
(q) "Performance Measure" means one or more financial or other
objectives determined by the Committee as provided in Section 3.4 herein.
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(r) "Performance Period" means the period determined by the
Committee, which shall be in excess of one year, during which the
Performance Goal shall be achieved.
(s) "Retirement" means eligibility to receive immediate retirement
benefits under a Participating Company tax-qualified defined benefit
pension plan.
(t) "Subsidiary" means any corporation in which the Company owns
directly or indirectly through its Subsidiaries at least a majority of the
total combined voting power of all classes of stock, or any other entity
(including, but not limited to, partnerships and joint ventures) in which
the Company or its Subsidiaries own at least a majority of the combined
equity thereof.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Committee, the members of which
shall serve at the pleasure of the Board.
3.2 Authority of the Committee. Subject to the provisions herein, the
Committee shall have full power to select the Key Employees to whom Awards are
granted; to determine the size and frequency of Awards (which need not be the
same for each Participant); to determine the terms and conditions of each Award;
to establish Performance Measures, Performance Goals and Performance Periods
(which need not be the same for each Participant); to set forth guidelines
governing the amounts of Awards; to revise the amounts of Awards and/or the
Performance Measures and/or Performance Goals during a Performance Period to the
extent necessary to preserve the intent thereof, and to the extent necessary to
prevent dilution of Participants' rights; to construe and interpret the Plan and
any agreement or instrument entered into under the Plan; to establish, amend,
rescind, or waive rules and regulations for the Plan's administration; and,
subject to the provisions of Article 9 herein, to amend, modify, and/or
terminate the Plan. Further, the Committee shall have the full power to make all
other determinations which may be necessary or advisable for the administration
of the Plan, to the extent consistent with the provisions of the Plan.
As permitted by law, the Committee may delegate its authority and
responsibilities; provided, however, that the Committee may not delegate certain
of its responsibilities hereunder where such delegation may jeopardize
compliance with Section 16 of the Exchange Act or Section 162(m) of the Code,
and all rules and regulations thereunder.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive, and
binding on all persons, including the Company, its shareholders, employees,
Participants, and their estates and beneficiaries.
3.4 Performance Goals and Measures. Performance Goals shall be based on
one or more Performance Measures as established by the Committee, which may
include financial measures with respect to the Company and its Subsidiaries or
with respect to a Participating Company. Performance Measures may include
factors such as the attainment of certain target
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levels of or changes in (i) economic value added; (ii) after-tax profits; (iii)
operational cash flow; (iv) debt or other similar financial obligations; (v)
earnings; (vi) revenues; (vii) net income; (viii) return on capital; (ix)
shareholders' equity; (x) return on shareholders' equity; (xi) total shareholder
return (measured as a change in the market price of the common stock of the
Company plus dividend yield) relative to one or more indices such as the S&P 500
or the S&P Industrials; and (xii) such additional or other criteria as the
Committee may determine.
4. ELIGIBILITY AND PARTICIPATION
4.1 Eligibility and Participation. Eligibility shall be limited to Key
Employees. Participation shall be at the discretion of the Committee.
5. AWARDS
5.1 Award Timing and Frequency. The Committee shall have complete
discretion in determining the number and frequency of Awards to each
Participant. Participation in the Plan shall begin on the first day of each
Performance Period. However, the Committee, at its sole discretion, may grant an
Award to a Key Employee during any Performance Period. In such cases, the
Participant's degree of participation for such Performance Period may be pro
rated, based on whatever method the Committee shall determine.
5.2 Award Value. Each Award shall have an initial value that is
established by the Committee at the time of Award. No single Award to any
Participant shall be for an amount that exceeds the lesser of 200% of the
Participant's annual base salary as in effect at the time of the Award or
$4,000,000.
5.3 Achieving Award Value. The Committee shall establish Performance Goals
to be achieved during the Performance Period and the various percentage payouts,
if any, for each Award which are dependent upon the degree to which the
Performance Goals have been achieved, all as shall be referred to in the
individual Award Agreement.
5.4 Certification of Performance Targets. After the end of each
Performance Period, and prior to the payment for such Performance Period, the
Committee must certify in writing the degree to which the Performance Goals and
Performance Measures for the Performance Period were achieved. The Committee
shall calculate the amount of each Participant's Award for such Performance
Period based upon the Performance Measures and Performance Goals for each
Participant. In establishing Performance Targets and Performance Measures and in
calculating the degree of achievement thereof, the Committee may ignore
extraordinary items, property transactions, changes in accounting standards and
losses or gains arising from discontinued operations. The Committee shall have
no authority or discretion to increase the amount of any Participant's Award as
so determined, but it may reduce the amount or totally eliminate any Award if it
determines in its absolute and sole discretion that such action is appropriate
in order to reflect the Participant's performance or unanticipated factors
during the Performance Period.
5.5 Form and Timing of Payment of Awards. Payment with respect to earned
Awards shall be made as soon as practicable following the close of the
applicable Performance Period. Payment shall be made, in whole or in part, in
the form of cash and/or common stock of the
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Company at the sole discretion of the Committee. In no event will the aggregate
number of shares of common stock of the Company issued to Participants with
respect to any Performance Period exceed one percent (1%) of the total of the
issued and outstanding shares of such common stock, plus treasury stock, as
reported in the Annual Report on Form 10-K of the Company for the fiscal year
ending immediately prior to or simultaneous with such Performance Period.
5.6 Funding of Awards. Awards need not be funded during the Performance
Period. Any obligation of the Company to make payments with respect to Awards
shall be a general obligation of the Company with Participants to whom payment
of an Award may have been earned and due being general creditors of the Company.
5.7 Award Agreements. Each Award shall be evidenced by an Award Agreement,
which shall be approved by the Committee, signed by an officer of the Company
and by the Participant, and contain or refer to the terms and conditions that
apply to the Award, which shall include, but shall not be limited to, the amount
of the Award, the Performance Measures, the Performance Goals, the levels of
payout dependent upon the degree to which the Performance Goals have been
achieved, and the length of the Performance Period. The terms and conditions
need not be the same for each Participant, or for each Performance Period.
6. TERMINATION OF EMPLOYMENT
6.1 Termination of Employment Due to Death, Disability, or Retirement. In
the event a Participant's employment is terminated by reason of death,
Disability or Retirement, the Participant may be entitled to a pro rata payment
with respect to Awards in accordance with such rules and regulations as the
Committee shall adopt.
6.2 Termination for Reasons Other than Death, Disability, or Retirement.
In the event a Participant's employment is terminated for reasons other than
death, Disability, or Retirement, and other than that brought about by an
Acceleration Event, all rights to any Awards shall be forfeited, unless the
Committee determines otherwise.
7. ACCELERATION EVENT
7.1 Upon the occurrence of an Acceleration Event, the Performance Goals
attainable under all outstanding-Awards shall be deemed to have been fully
earned at the maximum achievement level and shall be paid out in cash upon the
effective date of the Acceleration Event.
Subject to Article 9 herein, prior to the effective date of an
Acceleration Event, the Committee shall have the authority to make any
modifications to outstanding Awards as it determines to be necessary to provide
Participants with an appropriate payout with respect to their Awards.
8. BENEFICIARY DESIGNATION
8.1 Designation of Beneficiary. Each Participant may file with the
Participating Company a written designation of one or more persons as the
beneficiary who shall be entitled to receive payout, if any, with respect to the
Award upon his or her death. The Participant may from time to time revoke or
change his or her beneficiary designation without the consent of any
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prior beneficiary by filing a new designation with the Participating Company.
The last such designation received by the Participating Company shall be
controlling; provided however, that no designation, or change or revocation
thereof, shall be effective unless received by the Participating Company prior
to the Participant's death, and in no event shall it be effective as of a date
prior to such receipt.
8.2 Death of Beneficiary. In the event that all the beneficiaries named by
a Participant pursuant to Section 8.1 herein predecease the Participant, any
amounts that would have been paid to the Participant or the Participant's
beneficiaries under the Plan shall be paid to the Participant's estate.
9. AMENDMENT, MODIFICATION, AND TERMINATION
9.1 Amendment, Modification, and Termination. The Board may terminate,
amend, or modify the Plan. However, no such termination, amendment or
modification may change the class of employees eligible to participate in the
Plan or materially increase the cost of the Plan or materially increase the
benefits to Participants without whatever approval of the stockholders of the
Company may be required by the Code, Section 16 of the Exchange Act, any
national securities exchange or system on which the Company's shades of common
stock are then listed or reported, or any regulatory body having jurisdiction
with respect hereto.
9.2 Awards Previously Granted. No termination, amendment, or modification
of the Plan shall in any manner adversely affect any outstanding Award, without
the written consent of the Participant holding such Award.
10. MISCELLANEOUS PROVISIONS
10.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company or any of its Subsidiaries.
10.2 Nontransferability. No Award may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution.
10.3 Rights to Common Stock. Awards do not give Participants any right
whatsoever with respect to shares of the Company's common stock prior to the
time, if any, when such shares of common stock are issued to such Participant.
10.4 Costs of the Plan. All costs of the Plan including, but not limited
to, payout of Awards and administrative expenses, shall be incurred as general
obligations of the Company.
10.5 Tax Withholding. The Company shall have the right to require
Participants to remit to the Company an amount sufficient to satisfy applicable
Federal, state, foreign and local withholding tax requirements, or to deduct
from all payments under the Plan amounts sufficient to satisfy all such
requirements.
10.6 Successors. All obligations of the Company under the Plan with
respect to payout of Awards shall be binding on any successor to the Company,
whether the existence of
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such successor is the result of a direct or indirect purchase, merger,
consolidation, or other acquisition of all or substantially all of the business
or assets of the Company.
10.7 Indemnification. Each person who is or shall have been a member of
the Committee or the Board shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be imposed upon
or reasonably incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a party or in which
he or she may be involved by reason of any action taken or failure to act under
the Plan and against and from any and all amounts paid by him or her in
settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding against him
or her, provided he or she shall give the Company an opportunity, at its own
expense, to handle and defend the same before he or she undertakes to handle and
defend it on his or her own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Company's Articles of Incorporation, By-laws,
insurance or other agreement or otherwise.
10.8 Notice. Any notice or filing required or permitted to be given to the
Company under the Plan shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail to the Secretary of the Company. Notice to
the Secretary of the Company, if mailed, shall be addressed to the principal
executive offices of the Company. Notice mailed to a Participant shall be at
such address as is given in the records of the Company. Notices shall be deemed
given as of the date of delivery or, if delivery is made by mail, as of the date
shown on the postmark on the receipt for registration or certification.
10.9 Severability. In the event that any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
10.10 Requirements of Law. The granting and payout of Awards shall be
subject to all applicable laws, rules, and regulations and to such approvals by
any governmental agencies or national securities exchanges as may be required.
10.11 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the State of New York.
ADMINISTRATION
The Plan is administered by a Committee of the Board of Directors of ITT
Industries, presently designated as the Compensation and Personnel Committee,
the members of which serve during the pleasure of the Board. The Committee is
composed of directors none of whom is an officer or employee of ITT Industries
and none of whom is eligible to receive any award under the Plan.
FEDERAL TAX TREATMENT
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The following is a brief summary of the current United States federal
income tax rules generally applicable to grants of Awards and payments with
respect to Awards under the Plan. As the following discussion provides only the
general rules, it is suggested that Participants consult their own tax advisors
as to the specific federal, state, local and foreign tax consequences applicable
to them.
A. UNITED STATES CITIZENS AND/OR UNITED STATES RESIDENTS
The grant or communication of an Award to a Participant is not a taxable
event for the Participant at that time. However, when such Awards are paid out,
whether taking the form of stock, cash or both, such amounts are compensation
income to the Participant for federal income tax purposes. As such, the total
amount to be received by the Participant, whether made in stock, cash or any
combination thereof, is subject to withholding which will be calculated on the
total final payment value and deducted from any cash portion of the Award. With
respect to the portion of the Awards paid in stock, the amount of compensation
to the Participant is the fair market value of the shares as determined at the
end of the Performance Period. This amount becomes the Participant's cost basis
in the shares. Upon any subsequent sale, the Participant would be subject to
federal income taxation only to the extent that the proceeds of sale exceed that
basis.
ITT Industries is entitled to a federal tax deduction at the same time and
to the same extent that the Participant realizes compensation income.
B. FOREIGN CITIZENS WHO ARE NONRESIDENTS OF THE UNITED STATES
Since any payment with respect to Awards under the Plan is compensation
income to the Participant, whether or not a foreign nonresident Participant will
be subject to taxation by the United States will depend upon where the services
for which the Award was granted were performed. In general, if a foreign
Participant receives payment with respect to an Award for a Performance Period
in which he or she did not work in the United States, the receipt of payment
with respect to such Award will not be subject to taxation by the United States.
However, such amount will most likely be subject to taxation in his or her
country of residence. If a foreign Participant worked both within the United
States and abroad for the Performance Period to which the Award relates, the
amount of compensation subject to taxation by the United States would be that
portion allocated based upon the number of days spent working in the United
States during the Performance Period. Please be advised that most income tax
treaties with the United States address compensation issues such as these and
may modify the general rules discussed herein.
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