EXHIBIT 10.8
ITT INDUSTRIES, INC.
SPECIAL SENIOR EXECUTIVE SEVERANCE PAY PLAN
(AMENDED AND RESTATED AS OF JULY 13, 2004)
1. PURPOSE
The purpose of this ITT Industries Special Senior Executive Severance Pay
Plan ("Plan") is to assist in occupational transition by providing Severance
Benefits, as defined herein, for employees covered by this Plan whose employment
is terminated under conditions set forth in this Plan.
2. COVERED EMPLOYEES
Covered employees under this Plan ("Special Severance Executives") are
active full-time, regular salaried employees of ITT Industries, Inc., ("ITT
Industries") and of any subsidiary company ("ITT Industries Subsidiary")
(collectively or individually as the context requires "Company") (including
Special Severance Executives who are short term disabled as of a Potential
Acceleration Event within the meaning of the Company's short term disability
plans) (other than Special Severance Executives on periodic severance as of a
Potential Acceleration Event) who are in Band A or B or were in Band A or B at
any time within the two year period immediately preceding an Acceleration Event
and such other employees of the Company who shall be designated as covered
employees in Band A or B under the Plan by the Compensation and Personnel
Committee of ITT Industries' Board of Directors.
"Bands A and B" shall have the meaning given such terms under the
executive classification system of the ITT Industries Human Resources Department
as in effect immediately preceding an Acceleration Event. After the occurrence
of an Acceleration Event, the terms "ITT Industries", "ITT Industries
Subsidiary" and "Company" as used herein shall also include, respectively and as
the context requires, any successor company to ITT Industries or any successor
company to any ITT Industries Subsidiary and any affiliate of any such successor
company.
3. DEFINITIONS
An "Acceleration Event" shall occur if (i) a report on Schedule 13D shall
be filed with the Securities and Exchange Commission pursuant to Section 13(d)
of the Securities Exchange Act of 1934 (the "Act") disclosing that any person
(within the meaning of Section 13(d) of the Act), other than ITT Industries or a
subsidiary of ITT Industries or any employee benefit plan sponsored by ITT
Industries or a subsidiary of ITT Industries, is the beneficial owner directly
or indirectly of twenty percent (20%) or more of the outstanding Common Stock $1
par value, of ITT Industries (the "Stock"); (ii) any person (within the meaning
of Section 13(d) of the Act), other than ITT Industries or a subsidiary of ITT
Industries, or any employee benefit plan sponsored by ITT Industries or a
subsidiary of ITT Industries, shall purchase shares pursuant to a tender offer
or exchange offer to acquire any Stock of ITT Industries (or securities
convertible
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into Stock) for cash, securities or any other consideration, provided that after
consummation of the offer, the person in question is the beneficial owner (as
such term is defined in Rule 13d-3 under the Act), directly or indirectly, of
twenty percent (20%) or more of the outstanding Stock of ITT Industries
(calculated as provided in paragraph (d) of Rule 13d-3 under the Act in the case
of rights to acquire Stock); (iii) the stockholders of ITT Industries shall
approve (A) any consolidation, business combination or merger involving ITT
Industries, other than a consolidation, business combination or merger involving
ITT Industries 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 ITT Industries (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 ITT Industries (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 ITT Industries, (iv) there shall have been a change in a majority of
the members of the Board of Directors of ITT Industries within a 12-month period
unless the election or nomination for election by ITT Industries' 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 Act) (other than ITT Industries or
any subsidiary of ITT Industries or any employee benefit plan (or related trust)
sponsored by ITT Industries or a subsidiary of ITT Industries) becomes the
beneficial owner (as such term is defined in Rule 13d-3 under the Act) of twenty
percent (20%) or more of the Stock.
"Cause" shall mean action by the Special Severance Executive involving
willful malfeasance or gross negligence or the Special Severance Executive's
failure to act involving material nonfeasance that would tend to have a
materially adverse effect on the Company. No act or omission on the part of the
Special Severance Executive shall be considered "willful" unless it is done or
omitted in bad faith or without reasonable belief that the action or omission
was in the best interests of the Company.
"Good Reason" shall mean (i) without the Special Severance Executive's
express written consent and excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company or its affiliates promptly after receipt of notice
thereof given by the Special Severance Executive, (A) a reduction in the Special
Severance Executive's annual base salary (whether or not deferred) or annual
bonus (as measured by the highest bonus paid or awarded, whether or not
deferred, in respect of the three (3) calendar years preceding an Acceleration
Event) or any reduction in any material compensation or benefits arrangement,
(B) the assignment to the Special Severance Executive of any duties inconsistent
in any respect with the Special Severance Executive's position (including
status, offices, titles and reporting requirements), authority, duties or
responsibilities, or (C) any other action by the Company or its affiliates which
results in a diminution in such position, authority, duties or responsibilities;
(ii) without the Special Severance Executive's express written consent, the
Company's requiring the Special Severance Executive's work location to be
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other than within twenty-five (25) miles of the location where such Special
Severance Executive was principally working immediately prior to the
Acceleration Event; or (iii) any failure by the Company to obtain the express
written assumption of this Plan from any successor to the Company.
"Potential Acceleration Event" shall mean any execution of an agreement,
the commencement of a tender offer or any other transaction or event that if
consummated would result in an Acceleration Event.
4. SEVERANCE BENEFITS UPON TERMINATION OF EMPLOYMENT
If, a Special Severance Executive's employment with the Company is
terminated due to a Qualifying Termination, he or she shall receive the
severance benefits set forth in Section 5 hereof ("Severance Benefits"). For
purposes hereof, (i) a "Qualifying Termination" shall mean a termination of a
Special Severance Executive's employment with the Company either (x) by the
Company without Cause (A) within the two (2) year period commencing on the date
of the occurrence of an Acceleration Event or (B) prior to the occurrence of an
Acceleration Event and either (1) following the public announcement of the
transaction or event which ultimately results in such Acceleration Event or (2)
at the request of a party to, or participant in, the transaction or event which
ultimately results in an Acceleration Event; or (y) by a Special Severance
Executive for Good Reason within the two (2) year period commencing with the
date of the occurrence of an Acceleration Event and (ii) a determination by a
Special Severance Executive that he or she has "Good Reason" hereunder shall be
final and binding on the parties hereto absent a showing of bad faith on the
Special Severance Executive's part.
5. SEVERANCE BENEFITS
Band A Benefits
Severance Benefits for Special Severance Executives (i) in Band A at the
time of a Qualifying Termination or at any time during the two (2) year period
immediately preceding the Acceleration Event or (ii) designated as a covered
employee in Band A in accordance with Section 2 hereof:
- ACCRUED RIGHTS - The Special Severance Executive's base salary through
the date of termination of employment, any annual bonus earned but unpaid as of
the date of termination for any previously completed fiscal year, reimbursement
for any unreimbursed business expenses properly incurred by the Special
Severance Executive in accordance with Company policy prior to the date of the
Special Severance Executive's termination of employment and such employee
benefits, if any, as to which the Special Severance Executive may be entitled
under the employee benefit plans of the Company, including without limitation,
the payment of any accrued or unused vacation under the Company's vacation
policy.
- SEVERANCE PAY - The sum of (x) three (3) times the highest annual base
salary rate paid (whether or not deferred) to the Special Severance Executive at
any time during the three year period immediately preceding the Special
Severance Executive's termination of employment, and (y) three (3) times the
highest annual bonus paid or awarded (whether or not
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deferred) to the Special Severance Executive in respect of either (i) the three
(3) years preceding an Acceleration Event or (ii) the three (3) years preceding
the Special Severance Executive's termination of employment.
- BENEFITS AND PERQUISITES
> Continued health and life insurance benefits and perquisites
(including, without limitation, any Company-provided automobile and any tax or
financial advisory services) for a three (3) year period following the Special
Severance Executive's termination of employment at the same cost to the Special
Severance Executive, and at the same coverage levels, as provided to the Special
Severance Executive (and the Special Severance Executive's eligible dependents)
immediately prior to his or her termination of employment.
> Payment of a lump sum amount ("Pension Lump Sum Amount") equal to
the difference between (i) the total lump sum value of the Special Severance
Executive's pension benefit under the ITT Industries Salaried Retirement Plan
and, as applicable, Excess Pension Plan IA, Excess Pension Plan IB and/or Excess
Pension Plan II of the Company or any successor plan; provided that the benefits
under such successor plan is no less favorable than the benefits under the plans
set forth herein (or corresponding pension arrangements outside the United
States) ("Pension Plans") as of the Special Severance Executive's termination of
employment and (ii) the total lump sum value of the Special Severance
Executive's pension benefit under the Pension Plans after crediting an
additional three (3) years of age and three (3) years of eligibility and benefit
service to the Special Severance Executive and applying the highest annual base
salary rate and highest bonus determined above under "Severance Pay" with
respect to each of the additional three (3) years of service so credited for
purposes of determining Final Average Compensation under the Pension Plans. The
above total lump sum values shall be determined in the manner provided in the
Excess Pension Plans of the Company for determination of lump sum benefits upon
the occurrence of an Acceleration Event, as defined in said Plans. This
provision shall apply to any Special Severance Executive having a pension
benefit under any of the Pension Plans as of the Special Severance Executive's
termination of employment. An example of the calculation of benefits set forth
in this paragraph is set forth on Schedule A.
> Crediting of an additional three (3) years of age and three (3)
years of eligibility service for purposes of the Company's retiree health and
retiree life insurance benefits. This provision shall apply to any Special
Severance Executives covered under such benefits any time during the three (3)
year period immediately preceding the Special Severance Executive's termination
of employment.
> Payment of a lump sum amount ("Savings Plan Lump Sum Amount")
equal to three (3) times the following amount: the highest annual base salary
rate determined above under "Severance Pay" times the highest percentage rate of
Company Contributions (not to exceed three and on-half percent (3 1/2%)) with
respect to the Special Severance Executive under the ITT Industries Investment
and Savings Plan for Salaried Employees and/or the ITT Industries Excess Savings
Plan (or corresponding savings plan arrangements outside the United States)
("Savings
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Plans") (including matching contributions and floor contributions) at any time
during the three (3) year period immediately preceding the Special Severance
Executive's termination of employment or the three (3) year period immediately
preceding the Acceleration Event. This provision shall apply to any Special
Severance Executive who is a member of any of the Savings Plans at any time
during such three (3) year period.
- OUTPLACEMENT - Outplacement services for one (1) year.
Band B Benefits
Severance Benefits for Special Severance Executives (i) in Band B at the
time of a Qualifying Termination or at any time during the two (2) year period
immediately preceding the Acceleration Event or (ii) designated as a covered
employee in Band B in accordance with Section 2 hereof; provided, that a Special
Severance Executive who is in Band B at the time of a Qualifying Termination but
was in Band A anytime during the two (2) year period immediately preceding the
Acceleration Event shall be entitled to Severance Benefits as a Special
Severance Executive in Band A and shall not be entitled to the Severance
Benefits set forth below:
- ACCRUED RIGHTS - The Special Severance Executive's base salary through
the date of termination of employment, any annual bonus earned but unpaid as of
the date of termination for any previously completed fiscal year, reimbursement
for any unreimbursed business expenses properly incurred by the Special
Severance Executive in accordance with Company policy prior to the date of the
Special Severance Executive's termination of employment and such employee
benefits, if any, as to which the Special Severance Executive may be entitled
under the employee benefit plans of the Company, including without limitation,
the payment of any accrued or unused vacation under the Company's vacation
policy.
- SEVERANCE PAY - The sum of (x) two (2) times the highest annual base
salary rate paid (whether or not deferred) to the Special Severance Executive at
any time, during the three (3) year period immediately preceding the Special
Severance Executive's termination of employment, and (y) two (2) times the
highest annual bonus paid or awarded (whether or not deferred) to the Special
Severance Executive in respect of either (i) the three (3) years preceding an
Acceleration Event or (ii) the three (3) years preceding the Special Severance
Executive's termination of employment.
- BENEFITS AND PERQUISITES
> Continued health and life insurance benefits and perquisites
(including, without limitation, any Company provided automobile and any tax or
financial advisory services) for a two year period following the Special
Severance Executive's termination of employment at the same cost to the Special
Severance Executive, and at the same coverage levels, as provided to the Special
Severance Executive (and the Special Severance Executive's eligible dependents)
immediately prior to his or her termination of employment.
> Payment of a lump sum amount ("Pension Lump Sum Amount") equal to
the difference between (i) the total lump sum value of the Special Severance
Executive's pension
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benefit under the ITT Industries Salaried Retirement Plan and, as applicable,
Excess Pension Plan IA, Excess Pension Plan IB and/or Excess Pension Plan II of
the Company or any successor plan; provided that the benefits under such
successor plan is no less favorable than the benefits under the plans set forth
herein (or corresponding pension arrangements outside the United States)
("Pension Plans") as of the Special Severance Executive's termination of
employment and (ii) the total lump sum value of the Special Severance
Executive's pension benefit under the Pension Plans after crediting an
additional two (2) years of age and two (2) years of eligibility and benefit
service to the Special Severance Executive and applying the highest annual base
salary rate and highest bonus determined above under "Severance Pay" with
respect to each of the additional two (2) years of service so credited for
purposes of determining Final Average Compensation under the Pension Plans. The
above total lump sum values shall be determined in the manner provided in the
Excess Pension Plans of the Company for determination of lump sum benefits upon
the occurrence of an Acceleration Event, as defined in said Plans. This
provision shall apply to any Special Severance Executive having a pension
benefit under any of the Pension Plans as of the Special Severance Executive's
termination of employment. An example of the calculation of benefits set forth
in this paragraph is set forth on Schedule A.
> Crediting of an additional two (2) years of age and two (2) years
of eligibility service for purposes of the Company's retiree health and retiree
life insurance benefits. This provision shall apply to any Special Severance
Executives covered under such benefits any time during the three (3) year period
immediately preceding the Special Severance Executive's termination of
employment.
> Payment of a lump sum amount ("Savings Plan Lump Sum Amount")
equal to two (2) times the following amount: the highest annual base salary rate
determined above under "Severance Pay" times the highest percentage rate of
Company Contributions (not to exceed three and one-half percent (3 1/2%)) with
respect to the Special Severance Executive under the ITT Industries Investment
and Savings Plan for Salaried Employees and/or the ITT Industries Excess Savings
Plan (or corresponding savings plan arrangements outside the United States)
("Savings Plans") (including matching contributions and floor contributions) at
any time during either the three (3) year period immediately preceding the
Special Severance Executive's termination of employment or the three (3) year
period immediately preceding the Acceleration Event. This provision shall apply
to any Special Severance Executive who is a member of any of the Savings Plans
at any time during such three (3) year period.
- OUTPLACEMENT - Outplacement services for one year.
General
With respect to the provision of benefit and perquisites during the above
described respective three and two year periods, if, for any reason at any time
the Company is unable to treat the Special Severance Executive as being eligible
for ongoing participation in any Company employee benefit plans or perquisites
in existence immediately prior to the termination of employment of the Special
Severance Executive, and if, as a result thereof, the Special Severance
Executive does not receive a benefit or perquisite or receives a reduced benefit
or
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perquisite, the Company shall provide such benefits or perquisites by (i) direct
payment to the Special Severance Executive of the amounts the Special Severance
Executive would have received from such benefit plan or perquisite had the
Special Severance Executive continued to be eligible or (ii) at the Company's
option, making available equivalent benefits or perquisites from other sources.
6. FORM OF PAYMENT OF SEVERANCE PAY AND LUMP SUM PAYMENTS
Severance Pay shall be paid in cash, in a non-discounted lump sum within
five (5) business days after the date the employment of the Special Severance
Executive terminates. The Pension Lump Sum Amount and the Savings Plan Lump Sum
Amount shall be paid in cash within thirty (30) calendar days after the date the
employment of the Special Severance Executive terminates.
7. TERMINATION OF EMPLOYMENT - OTHER
The Severance Benefits shall only be payable upon a Special Severance
Executive's termination of employment due to a Qualifying Termination; provided,
that if, following the occurrence of an Acceleration Event, a Special Severance
Executive is terminated due to the Special Severance Executive's death or
disability (as defined in the long-term disability plan in which the Special
Severance Executive is entitled to participate (whether or not the Special
Severance Executive voluntarily participates in such plan)) and, at the time of
such termination, the Special Severance Executive had grounds to resign with
Good Reason, such termination of employment shall be deemed to be a Qualifying
Termination.
8. ADMINISTRATION OF PLAN
This Plan shall be administered by ITT Industries, who shall have the
exclusive right to interpret this Plan, adopt any rules and regulations for
carrying out this Plan as may be appropriate and decide any and all matters
arising under this Plan, including but not limited to the right to determine
appeals. Subject to applicable Federal and state law, all interpretations and
decisions by ITT Industries shall be final, conclusive and binding on all
parties affected thereby.
Notwithstanding the preceding paragraph, following an Acceleration Event,
any controversy or claim arising out of or relating to this Plan, or the breach
thereof, shall be settled by arbitration administered by the American
Arbitration Association under its Commercial Arbitration Rules and the entire
cost thereof shall be borne by the Company. The location of the arbitration
proceedings shall be reasonably acceptable to the Special Severance Executive.
Judgment on the award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof. The Company shall pay all legal fees, costs of
litigation, prejudgment interest, and other expenses which are incurred in good
faith by the Special Severance Executive as a result of the Company's refusal to
provide any of the Severance Benefits to which the Special Severance Executive
becomes entitled under this Plan, or as a result of the Company's (or any third
party's) contesting the validity, enforceability, or interpretation of this
Plan, or as a result of any conflict between the Special Severance Executive and
the Company pertaining to this Plan. The Company shall pay such fees and
expenses from the general assets of the Company.
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9. TERMINATION OR AMENDMENT
ITT Industries may terminate or amend this Plan ("Plan Change") at any
time except, that following the occurrence of (i) an Acceleration Event or (ii)
a Potential Acceleration Event, no Plan Change that would adversely affect any
Special Severance Executive may be made without the prior written consent of
such Special Severance Executive affected thereby; provided, however, that (ii)
above shall cease to apply if such Potential Acceleration Event does not result
in the occurrence of an Acceleration Event.
10. OFFSET
Any Severance Benefits provided to a Special Severance Executive under
this Plan shall be offset by reducing (x) any Severance Pay hereunder by any
severance pay, salary continuation pay, termination pay or similar pay or
allowance and (y) any other Severance Benefits hereunder by corresponding
employee benefits, perquisites or outplacement services, which the Special
Severance Executive receives or is entitled to receive, (i) under the ITT
Industries, Inc. Senior Executive Severance Pay Plan; (ii) pursuant to any other
Company policy, practice, program or arrangement; (iii) pursuant to any Company
employment agreement or other agreement with the Company; or (iv) by virtue of
any law, custom or practice excluding, however, any unemployment compensation in
the United States, unless the Special Severance Executive voluntarily expressly
waives (which the Special Severance Executive shall have the exclusive right to
do) in writing any such respective entitlement.
11. EXCISE TAX
In the event that it shall be determined that any payment or distribution
by the Company to or for the benefit of the Special Severance Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Plan or otherwise, but determined without regard to any additional payments
required under this Section 11 such payments or distributions being referred to
herein as "Payments") would give rise to liability of the Special Severance
Executive for the excise tax imposed by Section 4999 of the Internal Revenue
Code, as amended (the "Code"), or that any interest or penalties are incurred by
the Special Severance Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Special Severance Executive shall be
entitled to receive an additional payment (the "Gross-Up Payment") in an amount
such that after payment by the Special Severance Executive of all Federal, state
and local taxes (including any interest or penalties imposed with respect to
such taxes), including without limitation, any income and employment taxes (and
any interest and penalties imposed with respect to such taxes) and Excise Tax
imposed upon the Gross-Up Payment, the Special Severance Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
All determinations required to be made under this Section 11, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by a nationally recognized accounting firm mutually agreed to by
the Special Severance Executive and the Company (the "Accounting Firm") which
shall provide detailed supporting calculations both to
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the Company and the Special Severance Executive within ten (10) business days of
the receipt of notice from the Special Severance Executive that there has been a
Payment, or such earlier time as is requested by the Company; provided that for
purposes of determining the amount of any Gross-Up Payment, the Special
Severance Executive shall be deemed to pay federal income tax at the highest
marginal rates applicable to individuals in the calendar year in which any such
Gross-Up Payment is to be made and deemed to pay state and local income taxes at
the highest effective rates applicable to individuals in the state or locality
of the Special Severance Executive's residence or place of employment, whichever
is higher, in the calendar year in which any such Gross-Up Payment is to be
made. All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 11, shall
be paid by the Company to the Special Severance Executive when due. If the
Accounting Firm determines that no Excise Tax is payable by the Special
Severance Executive, it shall so indicate to the Special Severance Executive in
writing. Any determination by the Accounting Firm shall be binding upon the
Company and the Special Severance Executive. As a result of the uncertainty in
the application of Section 4999 of the Code, it is possible that the amount of
the Gross-Up Payment determined by the Accounting Firm to be due to (or on
behalf of) the Special Severance Executive was lower than the amount actually
due ("Underpayment"). In the event that the Company exhausts its remedies
pursuant to this Section 11 and the Special Severance Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Special Severance Executive.
The Special Severance Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of any Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after Special
Severance Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. Special Severance Executive shall not pay such claim prior
to the expiration of the thirty day period following the date on which it gives
such notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies
Special Severance Executive in writing prior to the expiration of such period
that it desires to contest such claim, Special Severance Executive shall (i)
give the Company any information reasonably requested by the Company relating to
such claim, (ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company, (iii) cooperate with the Company
in good faith in order to effectively contest such claim and (iv) permit the
Company to participate in any proceedings relating to such claim; provided,
however, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Special Severance Executive harmless,
on an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 11, the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Special
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Severance Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Special Severance Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, further, that if the Company directs the
Special Severance Executive to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to the Special Severance Executive, on
an interest-free basis, and shall indemnify and hold the Special Severance
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
provided, further, that if the Special Severance Executive is required to extend
the statute of limitations to enable the Company to contest such claim, the
Special Severance Executive may limit this extension solely to such contested
amount. The Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Special
Severance Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.
If, after the receipt by the Special Severance Executive of an amount paid
or advanced by the Company pursuant to this Section 11, the Special Severance
Executive becomes entitled to receive any refund with respect to a Gross-Up
Payment, the Special Severance Executive shall (subject to the Company's
complying with the requirements of Section 11) promptly pay to the Company the
amount of such refund received (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Special
Severance Executive of an amount advanced by the Company pursuant to Section 11,
a determination is made that the Special Severance Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Special Severance Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of the Gross-Up Payment required to be paid.
In the event the Gross-Up Payment shall fail to make the Special Severance
Executive whole on an after-tax basis, whether by reason of either (i) an
adjustment made by the Internal Revenue Service or state taxing authority or
(ii) because the Special Severance Executive's actual effective tax rate was
higher than the rate used by the Accounting Firm as determined pursuant to
Section 11 for the year in which the Gross-Up Payment was made, the Gross-Up
Payment shall be recalculated ("Recalculated Gross-Up Payment"), using the
Special Severance Executive's actual effective tax rate, once it is known for
the calendar year in which the Gross-Up Payment is made, and the Company shall
reimburse the Special Severance Executive for the full amount of any amount by
which the Recalculated Gross-Up Payment exceeds the Gross-Up Payment
("Additional Gross-Up Payment").
The Gross-Up Payment and any Additional Gross-Up Payment shall be paid out
of the general assets of the Company.
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12. MISCELLANEOUS
The Special Severance Executive shall not be entitled to any notice of
termination or pay in lieu thereof.
Severance Benefits under this Plan are paid entirely by the Company from
its general assets.
This Plan is not a contract of employment, does not guarantee the Special
Severance Executive employment for any specified period and does not limit the
right of the Company to terminate the employment of the Special Severance
Executive at any time.
If a Special Severance Executive should die while any amount is still
payable to the Special Severance Executive hereunder had the Special Severance
Executive continued to live, all such amounts shall be paid in accordance with
this Plan to the Special Severance Executive's designated heirs or, in the
absence of such designation, to the Special Severance Executive's estate.
The numbered section headings contained in this Plan are included solely
for convenience of reference and shall not in any way affect the meaning of any
provision of this Plan.
If, for any reason, any one or more of the provisions or part of a
provision contained in this Plan shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of this Plan not
held so invalid, illegal or unenforceable, and each other provision or part of a
provision shall to the full extent consistent with law remain in full force and
effect.
The Plan shall be governed by and construed in accordance with the laws of
the State of New York without regard to the conflicts of laws provisions
thereof.
The Plan shall be binding on all successors and assigns of the ITT
Industries and a Special Severance Executive.
13. NOTICES
Any notice and all other communication provided for in this Plan shall be
in writing and shall be deemed to have been duly given when delivered by hand or
overnight courier or three (3) days after it has been mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
12
If to the Company:
ITT Industries, Inc.
4 West Red Oak Lane
White Plains, New York 10604
Attention: General Counsel
If to Special Severance Executive:
To the most recent address of Special Severance Executive set forth
in the personnel records of ITT Industries.
14. ADOPTION DATE
This Plan was adopted by ITT Industries on March 10, 1997 ("Adoption
Date") and does not apply to any termination of employment which occurred or
which was communicated to the Special Severance Executive prior to the Adoption
Date.
SPECIAL SENIOR EXECUTIVE SEVERANCE PAY PLAN
EXAMPLE OF POTENTIAL PENSION ENHANCEMENT
BASIC INPUT DATA
Date of Event 12/31/2004
Employee Age 55
Employee Service 20
Current Salary Rate 345,000
Estimated Social Security Benefit (Mo.) 1,400
HISTORICAL EARNINGS
BASE EXECUTIVE
YEAR EARNINGS BONUS
1998 260,417 84,000
1999 273,438 106,000
2000 286,771 125,000
2001 298,167 165,000
2002 312,500 200,000
2003 327,500 185,000
2004 342,500 189,000
IMPLIED EARNINGS
Year l 345,000 200,000
Year 2 345,000 200,000
Year 3 345,000 200,000
CALCULATION OF PENSION BENEFIT
ACTUAL ENHANCED IMPROVEMENT
Final Average Pay 486,287.50 538,800.00
Age 55.00 58.00
Service 20.00 23.00
Gross Monthly Pension 16,209.58 20,654.00 4,444.42
Less: Social Security Offset (350.00) (402.50) (52.50)
Net Monthly Pension @ Age 65 15,859.58 20,251.50 4,391.92
Early Retirement Reduction Factor 75.00% 90.00%
Net Pension Payable after age 62 11,807.19 18,186.10 6,378.91
Net Pension Payable to age 62 12,157.19 18,588.60 6,431.41
Lump Sum Value of Benefit from Enhanced
Severance Pay Plan 1,406,120.12
Note: In addition to the lump sum payment shown, any portion of the actual
benefit that is payable under the Excess Pension Plan would be paid in a lump
sum