Preview | Employment Agreement |

EMPLOYMENT AGREEMENT (this Agreement), effective as of June 28, 2004 (the Effective Date), by and between ITT Industries, Inc., an Indiana corporation (the Company), and Steven R. Loranger (Executive).

WHEREAS, the Company desires to employ Executive and to enter into an agreement embodying the terms of such employment and considers it essential to its best interests and the best interests of its stockholders to foster the employment of Executive by the Company during the term of this Agreement;

WHEREAS, Executive desires to accept such employment with and participation in the ownership of the Company and to enter into this Agreement; and

WHEREAS, Executive is willing to accept employment on the terms hereinafter set forth in this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties hereby agree as follows:

1. Term of Employment. Subject to the provisions of Section 11, this Agreement shall be effective for a term commencing on the Effective Date and ending on the day immediately preceding the third anniversary of the Effective Date (the Initial Term); provided, however, that such term shall be automatically extended for successive twelve (12) month periods unless, no later than one hundred and eighty (180) days prior to the expiration of the Initial Term or any extension thereof, either party hereto shall provide written notice to the other party hereto of its or his desire not to extend the term hereof (the Initial Term together with any extension period shall be referred to hereinafter as the Employment Term).


	(a) Executive shall serve as the President and Chief Executive Officer of the Company. In such position, Executive shall have such authorities, responsibilities and duties customarily exercised by a person holding that position, including, without limitation, the authority and responsibility for the management, operation, strategic direction and overall conduct of the business of the Company. Executive shall report directly to the Board of Directors of the Company (the Board).

	(b) Executive shall become a member of the Board on the Effective Date. During the Employment Term, Executive will devote his time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided, however, that Executive may (i) serve as a director, trustee or officer or otherwise participate in not-for-profit educational, welfare, social, religious and civic organizations; (ii) with the prior approval of the Board, serve as a director of any for-profit business which does not compete with the Company or any of its subsidiaries or affiliates, and (iii) acquire passive investment interests in one or more entities, to the extent that such other activities do not inhibit or interfere with the performance of Executives duties under this Agreement, and do not to the knowledge of Executive conflict in any material way with the policies of the Company or any subsidiary or affiliate thereof and, to the extent such investment interests exceed 3% of the outstanding equity interests of any such entity, such entity does not compete in any material manner with the Company or any subsidiary or affiliate thereof.

3. Base Salary. During the Employment Term, the Company shall pay Executive a base salary (the Base Salary) at the annual rate of $900,000.00, payable in regular installments in accordance with the Companys usual payroll practices. The Board may from time to time review and increase Executives Base Salary in its sole discretion.

4. Annual Bonus. During the Employment Term, Executive shall be eligible to receive an annual cash bonus (the Bonus and together with the Base Salary, Compensation) in respect of each full or partial fiscal year of the Company (a Fiscal Year which, as of the Effective Date, is the period

January 1 through December 31) ending during the Employment Term, with a target bonus equal to 100% of Base Salary (Target Bonus), a minimum bonus of $0 and a maximum bonus of 200% of Base Salary (pro rated for partial Fiscal Years of employment), subject to the terms of the Companys 1997 Annual Incentive Plan for Executive Officers and based on the attainment of Company, individual, or other performance targets established by the Compensation and Personnel Committee of the Board (the Compensation Committee) for such Fiscal Year. Notwithstanding the foregoing, the Bonus for the 2004 Fiscal Year shall be no less than $900,000.00. The Bonus for each Fiscal Year shall be paid to Executive no later than the end of the first calendar quarter following the end of the Fiscal Year.


	(a) Executive shall be granted in Fiscal Year 2005 a long-term incentive award with an aggregate target value of $4,500,000.00 (the Incentive Award). $1,800,000.00 of the Incentive Award shall be granted in the form of a target award in that amount pursuant to the terms of the Companys 1997 Long-Term Incentive Plan (the LTIP) for the Performance Period (as defined in the LTIP) commencing on January 1, 2005 and ending on December 31, 2007. $450,000.00 of the Incentive Award shall be granted in the form of a long-term incentive award (not under the LTIP) with a target award of that amount, which shall be earned and payable on terms and conditions identical to those of the LTIP award described in the preceding sentence. Payment, if any, with respect to each of the awards described in the preceding two sentences shall be made on or before March 30, 2008 in the form of cash, unrestricted shares of the Companys common stock, $1.00 par value per share (Shares), or a combination of cash and Shares as determined by the Compensation Committee upon the attainment of the applicable Performance Measures (as defined in the LTIP) for such Performance Period. The other $2,250,000.00 of the Incentive Award shall be in the form of a nonqualified stock option grant made during the first quarter of Fiscal Year 2005 pursuant to the Companys 2003 Equity Incentive Plan, to purchase such number of Shares as shall be determined by the Committee as necessary for such stock option grant to have a value of $2,250,000.00, determined in a manner consistent with the valuation methodology followed for other senior executives of the Company. The stock option grant shall have such vesting, forfeiture and other terms as are applicable to stock options granted to other senior executives of the Company.

	(b) Executive shall also participate in the LTIP for the Performance Period commencing on January 1, 2003 and ending on December 31, 2005, and for the Performance Period commencing on January 1, 2004 and ending on December 31, 2006, with a target award for each such Performance Period of $1,800,000.00, and with such participation being deemed to have commenced on January 1, 2003 and January 1, 2004, respectively. In addition, Executive shall be eligible for an additional long-term incentive award (not under the LTIP) in respect of each such Performance Period, which shall have a target award of $700,000.00 and which shall be earned and payable on terms and conditions identical to those of the LTIP award described in the preceding sentence in respect of the same Performance Period.

	(c) The determination of the portions of any future long term incentive award to be delivered in cash and equity incentive shall be the same for Executive as for other senior executives of the Company.

	(d) The determination of Executives target long-term incentive awards for Performance Periods commencing after January 1, 2005 shall be established by the Compensation Committee based on its determination of Executives performance and market levels of compensation for CEOs of comparable size companies, in accordance with procedures used by the Compensation Committee to establish compensation levels for other senior executives of the Company.

	(e) For purposes of this Agreement, the $450,000.00 target long-term incentive award described in Section 5(a) and the two $700,000.00 target long-term incentive awards described in Section 5(b), and each similar future long-term incentive award which is not granted under the LTIP because of contractual limits on the level of awards thereunder, shall be collectively referred to herein as the Phantom LTIP Awards.

6. Sign-On Equity. On the Effective Date, Executive shall be granted a nonqualified stock option to purchase 125,000 Shares pursuant to the stock option agreement attached hereto as Exhibit A, and 125,000 restricted stock units pursuant to the restricted stock unit agreement attached hereto as Exhibit B.

7. Special Pension Arrangement. Upon the termination of Executives employment with the Company for any reason on or after the fifth anniversary of the Effective Date, Executive shall be entitled to receive from the Company a special pension arrangement in the form of an annual single life annuity commencing immediately following Executives termination of employment and payable on a monthly basis, calculated as the Applicable Percentage of Executives average annual Compensation for the five (5) years in which Executives Compensation was the highest (with each year for this purpose being the twelve (12) month period commencing on the Effective Date and each anniversary thereof), determined in accordance with the following schedule and without actuarial reduction (but reduced as described in the following paragraph):

The amount of the annual single life annuity computed pursuant to the preceding paragraph shall be reduced, but not below zero, by (A) the amount of annual single life annuity, computed as of the date of Executives termination of employment with the Company, equal to the actuarial equivalent of the qualified and nonqualified defined benefit pension benefits that Executive is entitled to receive from any Company and prior employer defined benefit pension arrangement (other than the nonqualified defined benefit pension arrangement of Honeywell International Inc. (Honeywell)), whether or not paid or payable prior to, on or following Executives termination of employment, and computed as the actuarial equivalent of a single life annuity commencing at age 65, reduced (if applicable) for payment commencing prior to age 65 and upon the termination of Executives employment, and (B) the amount of annual single life annuity, determined as of the date of Executives termination of employment with the Company, which is the actuarial equivalent value of $2,195,000.00 (being the lump sum payment received by Executive pursuant to the nonqualified defined benefit pension arrangement of Honeywell upon his termination of employment with Honeywell) increased by an interest factor of three percent (3%), compounded annually, from January 19, 2003(1) through the date of Executives termination of employment with the Company.

Executive also shall be entitled to receive the special pension described in this Section 7 commencing upon his termination of employment prior to the fifth anniversary of the Effective Date by the Company without Cause (including on account of Disability) or by Executive with Good Reason in accordance with Section 11(a) or 11(c), as applicable; provided that (I) the Applicable Percentage shall be the product of (X) 38% multiplied by (Y) 20% multiplied by (Z) the number of anniversaries of the Effective Date which have occurred through the date of such termination, and (II) the compensation against which the Applicable Percentage is applied shall be the Partial Period Average Compensation, as defined below, through the date of termination.

End of Preview


	Applicable
Executives Age Upon Termination	Percentage

57		38	%
58		42	%
59		46	%
60 or higher		50	%