Exhibit 10.7
 
ITT Corporation Annual Incentive Plan For Executive Officers
(amended and restated as of February 15, 2008)
 

1.   Purpose

 
The purpose of this ITT Corporation Annual Incentive Plan for Executive Officers
(the “Incentive Plan”) is to provide incentive compensation in the form of a
cash award to executive officers of ITT Corporation (the “Company”) for
achieving specific pre-established performance objectives and to continue to
motivate participating executive officers to achieve their business goals, while
tying a portion of their compensation to measures affecting shareholder value.
The Incentive Plan seeks to enable the Company to continue to be competitive in
its ability to attract and retain executive officers of the highest caliber.
 
It is intended that compensation payable under the Incentive Plan will qualify
as “performance-based compensation,” within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the “Code”) and regulations
promulgated thereunder, if such qualification is desired.
 

2.   Plan Administration

 
The Compensation and Personnel Committee (the “Committee”) of the Board of
Directors (the “Board”) of the Company, as constituted by the Board from time to
time, shall be comprised completely of “outside directors” as defined under
Section 162(m) of the Code.
 
The Committee shall have full power and authority to administer, construe and
interpret the provisions of the Incentive Plan and to adopt and amend
administrative rules and regulations, agreements, guidelines and instruments for
the administration of the Incentive Plan and for the conduct of its business as
the Committee considers appropriate.
 
Except with respect to matters which under Section 162 (m) of the Code are
required to be determined in the sole and absolute discretion of the Committee,
the Committee shall have full power, to the extent permitted by law, to delegate
its authority to any officer or employee of the Company to administer and
interpret the procedural aspects of the Incentive Plan, subject to the terms of
the Incentive Plan, including adopting and enforcing rules to decide procedural
and administrative issues.
 
The Committee may rely on opinions, reports or statements of officers or
employees of the Company and of counsel to the Company (inside or retained
counsel), public accountants and other professional or expert persons.
 
The Board reserves the right to amend or terminate the Incentive Plan in whole
or in part at any time; provided, however, that except as necessary to maintain
an outstanding incentive award’s qualification as performance-based compensation
under Section 162(m) of the Code (“Performance-Based Compensation”), no
amendments shall adversely affect or impair the rights of any participant that
have previously accrued hereunder, without the written consent of the
participant. Unless otherwise prohibited by applicable law, any amendment
required to cause an incentive award to qualify as Performance-Based
Compensation may be made by the Committee. No amendment to the Incentive Plan
may be made to alter the class of individuals who are eligible to participate in
the Incentive Plan, the performance criteria specified in Section 4 hereof or
the maximum incentive award payable to any participant without shareholder
approval unless shareholder approval of the amendment is not required in order
for incentive awards paid to participants to constitute Performance-Based
Compensation.
 
No member of the Committee shall be liable for any action taken or omitted to be
taken or for any determination made by him or her in good faith with respect to
the Incentive Plan, and the Company shall indemnify and hold harmless each
member of the Committee against any cost or expense (including counsel fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Committee) arising out of any act or omission in connection with the
administration or interpretation of the Incentive Plan, unless arising out of
such person’s own fraud or bad faith.

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3.   Eligible Executives

 
Executive officers of the Company and its subsidiaries, as defined by the
Securities Exchange Act of 1934, Rule 3b-7, as that definition may be amended
from time to time, shall be eligible to participate in the Incentive Plan. The
Committee shall select from all eligible executive officers, those to whom
incentive awards shall be granted under the Incentive Plan.
 

4.   Plan Year, Performance Periods, Performance Measures and Performance
Targets

 
Each fiscal year of the Incentive Plan (the “Plan Year”) shall begin on January
1 and end on December 31. The performance period (the “Performance Period”) with
respect to which incentive awards may be payable under the Incentive Plan shall
be the Plan Year unless the Committee designates one or more different
Performance Periods.
 
The Committee shall establish the performance measures (the “Performance
Measures”) to be used which may include, one or more of the following criteria:
(i) consolidated earnings before or after taxes (including earnings before
interest, taxes, depreciation and amortization); (ii) net income;
(iii) operating income; (iv) earnings per share; (v) book value per share;
(vi) return on shareholders’ equity; (vii) expense management; (viii) return on
investment; (ix) improvements in capital structure; (x) profitability of an
identifiable business unit or product; (xi) maintenance or improvement of profit
margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales
(including organic revenue); (xv) costs; (xvi) cash flow; (xvii) working capital
(xviii) return on assets; (xix) total shareholder return; (xx) return on
invested or total capital and (xxi) economic value added.
 
In addition, to the extent consistent with Section 162(m) of the Code,
Performance Measures may be based upon other objectives such as negotiating
transactions or sales, implementation of Company policy, development of
long-term business goals or strategic plans, negotiation of significant
corporate transactions, meeting specified market penetration goals, productivity
measures, geographic business expansion goals, cost targets, customer
satisfaction or employee satisfaction goals, goals relating to merger synergies,
management of employment practices and employee benefits, or supervision of
litigation and information technology, and goals relating to acquisitions or
divestitures of subsidiaries and/or other affiliates or joint ventures; provided
however, that the measurement of any such Performance Measures must be
objectively determinable.
 
All Performance Measures shall be objectively determinable and, to the extent
they are expressed in standard accounting terms, shall be according to generally
accepted accounting principles as in existence on the date on which the
applicable Performance Period is established and without regard to any changes
in such principles after such date (unless the modification of a Performance
Measure to take into account such a change is pre-established in writing at the
time the Performance Measures are established in writing by the Committee and/or
the modification would not affect the ability of the incentive award to qualify
as Performance-Based Compensation).
 
Notwithstanding the foregoing, incentive awards that are not intended to qualify
as Performance-Based Compensation may be based on the Performance Measures
described above or such other measures as the Committee may determine.
 
The Committee shall establish the performance targets (the “Performance
Targets”) to be achieved which shall be based on one or more Performance
Measures relating to the Company as a whole or to the specific businesses of the
Company, subsidiaries, operating groups, or operating units, as determined by
the Committee. Performance Targets may be established on such terms as the
Committee may determine, in its discretion, including in absolute terms, as a
goal relative to performance in prior periods, or as a goal compared to the
performance of one or more comparable companies or an index covering multiple
companies. The Committee also shall establish with respect to each incentive
award an objective formula to be used in calculating the amount of incentive
award each participant shall be eligible to receive. There may be a sliding
scale of payment dependent upon the percentage levels of achievement of
Performance Targets.
 
The Performance Measures and Performance Targets, which may be different with
respect to each participant and each Performance Period, must be set forth in
writing by the Committee within the first ninety (90) days of the applicable
Performance Period or, if sooner, prior to the time when 25 percent of the
relevant Performance Period has elapsed.

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5.   Certification of Performance Targets and Calculation of Incentive Awards

 
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 Targets for the Performance Period were achieved, including the
specific target objective or objectives and the satisfaction of any other
material terms of the incentive award. The Committee shall calculate the amount
of each participant’s incentive award for such Performance Period based upon the
Performance Measures and Performance Targets for such 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 incentive award as so
determined to the extent such incentive award is intended to qualify as
Performance-Based Compensation, but it may reduce the amount or totally
eliminate any such incentive 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. The
Committee shall have the authority to increase or decrease the amount of an
incentive award to the extent the incentive award is not intended to qualify as
Performance-Based Compensation.
 
The maximum payment that may be made with respect to incentive awards under the
Plan to any participant in any one calendar year shall be $8,000,000; provided,
however, that this limitation shall not apply with respect to any incentive
award that is paid in a calendar year prior to the year it would ordinarily be
paid because of an Acceleration Event or other transaction or event that
provides for accelerated payment of an incentive award.
 

6.   Payment of Awards

 
Approved incentive awards shall be payable by the Company in cash to each
participant, or to the participant’s estate in the event of the participant’s
death, as soon as practicable (and in any event no later than 21/2 months) after
the end of each Performance Period. No incentive award that is intended to
qualify as Performance-Based Compensation may be paid under the Incentive Plan
until the Committee has certified in writing that the relevant Performance
Targets were achieved. If a participant is not an employee on the last day of
the Performance Period, the Committee shall have sole discretion to determine
what portion, if any, the participant shall be entitled to receive with respect
to any award for the Performance Period. The Committee shall have the authority
to adopt appropriate rules and regulations for the administration of the
Incentive Plan in such termination cases.
 
The Company retains the right to deduct from any incentive awards paid under the
Incentive Plan any Federal, state, local or foreign taxes required by law to be
withheld with respect to such payment.
 
Notwithstanding the above, no incentive awards shall be paid under the Incentive
Plan unless the Incentive Plan is approved by the requisite shareholders of the
Company.
 

7.   Other Terms and Conditions

 
Any award made under this Incentive Plan shall be subject to the discretion of
the Committee. No person shall have any legal claim to be granted an award under
the Incentive Plan and the Committee shall have no obligation to treat
participants uniformly. Except as may be otherwise required by law, incentive
awards under the Incentive Plan shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary. Incentive awards granted under the Incentive Plan shall be payable
from the general assets of the Company, and no participant shall have any claim
with respect to any specific assets of the Company.
 
Nothing contained in the Incentive Plan shall give any participant the right to
continue in the employment of the Company or affect the right of the Company to
terminate the employment of a participant.
 

8.   Acceleration Event.

 
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 the Company or a
subsidiary of the

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Company or any employee benefit plan sponsored by the Company or a subsidiary of
the Company, 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 Act),
other than the Company or a subsidiary of the Company, or any employee benefit
plan sponsored by the Company or a subsidiary of the Company, shall purchase
shares pursuant to a tender offer or exchange offer to acquire any Stock (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 (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 (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 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 Act) (other than the Company or any subsidiary
of the Company or any employee benefit plan (or related trust) sponsored by the
Company or a subsidiary of the Company) 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.
 
Upon the occurrence of such Acceleration Event, the Performance Measures for
each Performance Period with respect to which incentive awards may be payable
under the Incentive Plan shall be deemed to be achieved at the greater of
(i) the Performance Target established for such Performance Measures or (ii) the
Company’s actual achievement of such Performance Measures as of the Acceleration
Event. Payment of the incentive awards, for the full year, will be made to each
participant, in cash, within five (5) business days following such Acceleration
Event.
 

9.   Miscellaneous.

 
The Incentive Plan, as amended and restated, shall be effective February 15,
2008 subject to the approval of the requisite shareholders of the Company. Once
approved, the Incentive Plan shall remain in effect unless/until terminated by
the Board; provided, however, that if an Acceleration Event has occurred no
amendment or termination shall impair the rights of any participant with respect
to any prior award.
 
This Incentive Plan shall be construed and governed in accordance with the laws
of the State of New York.

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