Exhibit 10.1
October 4, 2011
Mr. David F. Melcher
Chief Executive Officer and President
Exelis Inc.
1650 Tysons Blvd., Suite 1700
McLean, VA 22314
Dear Dave:
The purpose of this letter is to set forth the terms and conditions of your
employment with Exelis Inc. (the “Company”), effective as of the Distribution
Date, (the Distribution Date has the meaning set forth in the Distribution
Agreement). The Company agrees to employ you as Chief Executive Officer and
President and you agree to discharge faithfully, diligently, and to the best of
your ability, your duties. You will report directly to the Board of Directors of
the Company (the “Board”). Your principal work location will be McLean, VA. You
will be an at-will employee at all times.

  1.   Compensation and Benefits.

  a.   Annual Base Salary. Your beginning annual base salary will be $930,000.
Your salary will be subject to review by the Compensation and Personnel
Committee of the Board from time to time for consideration of possible increases
based on your performance and other relevant circumstances.     b.   Target
Annual Incentive. Beginning with performance year 2012, your annual incentive
target will be set at 100% of base salary (“Target Annual Incentive”). The
amount earned by you in respect of your Target Annual Incentive is discretionary
and subject to your individual and Company performance, as determined by the
Compensation and Personnel Committee of the Board.     c.   2012 Long-Term
Incentive Awards. You are eligible to participate in the Company’s long-term
incentive program with an annual target long-term incentive compensation
opportunity. Your 2012 Long-Term Incentive Award will be set at $3,800,000,
valued using the same

 

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      methodology used to value 2012 long-term incentive awards to other senior
management of the Company generally. The forms of award will be based on the
2012 Exelis Inc. long-term incentive award program, subject to review and
approval of the Compensation and Personnel Committee of the Board. Such
long-term incentive awards will be granted under the terms of the 2011 Exelis
Inc. Omnibus Incentive Plan (or a successor plan).     d.   Founders’ Grant.
Your Founder’s Grant will be granted shortly following the spin-off of the
Company from ITT Corporation and will have a value of $5,700,000, such value
determined by the Compensation and Personnel Committee of the Board using the
same methodology used to value founders’ grants to other senior management of
the Company generally. One half of the Founder’s Grant award will be granted in
the form of nonqualified stock options, with a per-share exercise price equal to
the fair market value of a share of the Company’s stock on the date of grant and
a ten-year term. The stock options will vest in equal annual installments on the
first, second and third anniversaries of the grant date subject to your
continued employment through each such vesting date. Should your employment be
terminated by the Company other than for Cause (as defined below) before your
stock options vest in full, they will continue to vest for the period during
which you are receiving Severance Pay (as defined below), notwithstanding any
provision of the applicable award agreement to the contrary. The remaining half
of the Founder’s Grant award will be granted in the form of restricted stock
units, which will cliff vest on the third anniversary of the grant date, subject
to your continued employment through such vesting date. Upon vesting, these
units will be settled immediately in shares of common stock of the Company,
subject to satisfaction of all taxes due. Should your employment be terminated
by the Company other than for Cause before such units vest, a prorated portion
of such units will vest and be settled immediately upon your termination date,
with your termination date considered to be the Scheduled Termination Date (as
defined below), it being understood that in determining the prorated portion of
such units that will vest, you shall be deemed to have continued your employment
until the last day of the Severance Pay Period (as defined below),
notwithstanding any provision of the applicable award agreement to the contrary.
The Founder’s Grant equity award will be granted under the terms of the 2011
Exelis Inc. Omnibus Incentive Plan.     e.   Benefits. You and your eligible
dependants will be eligible to participate in the benefit programs and plans of
the Company and its subsidiaries for which you are now eligible or for which you
may become eligible in accordance with their provisions during the term of this
agreement as in effect from time to time. Nothing in this letter

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      agreement shall limit the Company’s ability to change, modify, cancel or
amend any such policies or plans.     f.   Vacation. You are entitled to 5 weeks
of paid vacation annually.

  2.   Termination of Employment.

  a.   Termination of Employment for Cause. You will not be eligible for
Severance Pay if your employment is terminated by the Company for Cause or if
you voluntarily terminate your employment for any reason (including as a result
of your retirement after reaching the Normal Retirement Date (as defined below)
or failing to return from an approved leave of absence, including a medical
leave of absence).

  i.   “Cause” shall mean action by you involving willful malfeasance or gross
negligence or your failure to act involving material nonfeasance that would tend
to have a materially adverse effect on the Company. No act or omission on your
part shall be considered “willful” unless it is done or committed in bad faith
or without reasonable belief that the action or omission was in the best
interests of the Company.     ii.   “Normal Retirement Date” shall mean the
first day of the month which coincides with or follows your 65th birthday.

  b.   Severance Pay Upon Termination of Employment Not for Cause. If the
Company terminates your employment other than for Cause and other than as a
result of your death or disability, in any case prior to your Normal Retirement
Date, you shall be provided severance pay in an amount equal to two (2) times
the sum of (x) the annual base salary in effect on the effective date of the
termination of your employment (the “Scheduled Termination Date”), and (y) your
Target Annual Incentive as of your Scheduled Termination Date (the “Severance
Pay”).

  i.   Terms and Conditions Applicable to Severance Pay. Severance Pay shall be
paid in the form of periodic payments over a period of 24 months after the
Scheduled Termination Date according to the regular payroll schedule (the
“Severance Pay Period”).

  1.   Severance Pay will, subject to your obligation to timely execute and
deliver to the Company and not revoke the Release (as defined herein), commence
on the first business day after the 60th day following the Scheduled Termination
Date, with any installments of Severance Pay that would otherwise have been paid
during the first 60 days after the Scheduled Termination Date delayed and

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      paid in a lump sum on such 60th day after the Scheduled Termination Date.
    2.   In the event of your death during the Severance Pay Period, the amount
of Severance Pay remaining shall be paid in a discounted lump sum to your spouse
or to such other beneficiary or beneficiaries designated by you in writing, or,
if you are not married and failing such designation, to your estate.     3.  
During the Severance Pay Period you must continue to be available to render to
the Company reasonable assistance, consistent with the level of your prior
position with the Company, at times and locations that are mutually acceptable.
In requesting such services, the Company will take into account any other
commitments which you may have. After the Scheduled Termination Date and normal
wind-up of your former duties pursuant to the prior two sentences, you will not
be required to perform any regular services for the Company.     4.   Severance
Pay will cease if you are rehired by the Company.

  ii.   Benefits During Severance Pay. During the Severance Pay Period, except
as provided herein, you will continue to be eligible for participation in
Company employee benefit plans in accordance with the provisions of such plans
as in effect from time to time. You will not be eligible to participate in any
Company tax qualified retirement plans, non-qualified excess or supplemental
benefit plans, short-term or long-term disability plans, the Company business
travel accident plan or any new employee benefit plan or any improvement to any
existing employee benefit plan adopted by the Company after the Scheduled
Termination Date.     iii.   Excluded Executive Compensation Plans, Programs,
Arrangements, and Perquisites. During the Severance Pay Period, you will not be
eligible to accrue any vacation or participate in or receive awards under any
(i) bonus program, (ii) special termination programs, (iii) tax or financial
advisory services, (iv) stock option or stock related plans for executives
(provided that you will be eligible to exercise any outstanding stock options in
accordance with the terms of any applicable stock option plan), (v) new or
revised executive compensation programs that may be introduced after the
Scheduled Termination Date or (vi) other executive compensation program, plan,
arrangement, practice, policy or perquisites (except as

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      provided otherwise in clause (v) above), unless specifically authorized by
the Company in writing.

  c.   Disqualifying Conduct. If during the Severance Pay Period, you (i) engage
in any activity which is inimical to the best interests of the Company; (ii)
disparage the Company, its business, employees or directors; (iii) fail to
comply with any Company Covenant Against Disclosure and Assignment of Rights to
Intellectual Property; (iv) without the Company’s prior written consent, induce
any employee of the Company to leave his or her Company employment; (v) without
the Company’s prior written consent, engage in, become affiliated with, or
become employed by any business competitive with the Company; or (vi) fail to
comply with applicable provisions of the Company’s Code of Conduct or applicable
Company Corporate Policies or any applicable Company Subsidiary Code or
policies, then the Company will have no further obligation to provide Severance
Pay.     d.   Release. The Company shall not be required to pay or continue any
installments of Severance Pay or provide any termination benefits in accordance
with this agreement unless you execute and deliver to the Company within 52 days
following the Scheduled Termination Date a release, in a form provided by the
Company, pursuant to which you discharge and release the Company, its
affiliates, and their respective directors, officers, employees and employee
benefit plans from all claims (other than for benefits to which you are entitled
under any Company employee benefit plans) arising out of your employment or
termination of employment (the “Release”), and such Release is not revoked by
you within the seven-day statutory revocation period. You will also be required
to resign your officership and any directorship upon your last day of active
service with the Company.     e.   Treatment of Severance Pay and Other
Compensation. Any Severance Pay or other compensation, including but not limited
to any equity awards provided to you under this agreement, shall be treated in a
manner consistent with the provisions of Section 409A of the Code. Coordination
of Severance Pay with any pay or benefits provided by any applicable Company
short-term or long-term disability plan shall be in accordance with the
provisions of those plans.     f.   Miscellaneous. Except as provided in this
agreement, you shall not be entitled to any notice of termination or pay in lieu
thereof.

  i.   In cases where Severance Pay is provided under this agreement, pay in
lieu of any unused current year vacation entitlement will be paid to you in a
lump sum.     ii.   Benefits under this agreement are paid for entirely by the
Company from its general assets.

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  iii.   Any outstanding long-term incentive awards will be treated in
accordance with the applicable plans and award agreements.

  3.   Termination due to an Acceleration Event. If your employment is
terminated due to a severance-qualifying termination under the terms of the
Special Senior Executive Severance Pay Plan attached to this letter as
Exhibit A, you will be entitled to receive the severance benefits provided under
the terms of the Special Senior Executive Severance Pay Plan to the extent set
forth in Section 10 of such plan.     4.   Compliance with Section 409A of the
Code. This agreement is intended to comply with Section 409A of the Code and
will be interpreted in a manner intended to comply with Section 409A of the
Code. Notwithstanding anything herein to the contrary, (i) any payments that
qualify for the “short-term deferral” exception or another exception under
Section 409A of the Code shall be paid under the applicable exception, (ii) to
the extent necessary in order to prevent any accelerated or additional tax under
Section 409A of the Code, all payments made and benefits provided upon your
termination of employment shall only be made and provided upon a “separation
from service” within the meaning of Section 409A of the Code, (iii) if at the
time of your termination of employment with the Company you are a “specified
employee” as defined in Section 409A of the Code and the deferral of the
commencement of any payments or benefits otherwise payable hereunder as a result
of such termination of employment is necessary in order to prevent any
accelerated or additional tax under Section 409A of the Code, then the Company
will defer the commencement of the payment of any such payments or benefits
hereunder (without any reduction in such payments or benefits ultimately paid or
provided to you) until the date that is six months following your termination of
employment with the Company (or the earliest date as is permitted under
Section 409A of the Code without any accelerated or additional tax under
Section 409A of the Code), at which point all payments deferred pursuant to such
six-month delay shall be paid to you in a lump sum, and (iv) if any other
payments of money or other benefits due hereunder could cause the application of
an accelerated or additional tax under Section 409A of the Code, such payments
or other benefits shall be deferred if deferral would avoid such accelerated or
additional tax under Section 409A of the Code, or otherwise such payment or
other benefits shall be restructured, to the extent possible, in a manner,
determined by the Company, that does not cause such an accelerated or additional
tax. To the extent any reimbursements or in-kind benefits due under this Plan
constitute “deferred compensation” under Section 409A of the Code, any such
reimbursements or in-kind benefits shall be paid in a manner consistent with
Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under this Plan shall
be designated as a “separate payment” within the meaning of Section 409A of the
Code. The Company shall consult with you in good faith regarding the
implementation of the provisions of this

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      section; provided that neither the Company nor any of its employees or
representatives shall have any liability to you with respect thereto.     5.  
Miscellaneous.

  a.   Notices. Notices given pursuant to this letter agreement shall be in
writing and shall be deemed received when personally delivered, or on the date
of written confirmation of receipt by (i) overnight carrier, (ii) telecopy,
(iii) registered or certified mail, return receipt requested, postage paid, or
(iv) such other method of deliver as provides a written confirmation of
delivery. Notice to the Company shall be directed to:

SVP, Chief Human Resources Officer
Exelis Inc.
1650 Tysons Blvd., Suite 1700
McLean, VA 22102

      Notices to or with respect to you will be directed to you, or in the event
of your death, your executors, personal representatives or distributes, at your
home address as set forth in the records of the Company.

  b.   Assignment of this Letter Agreement. This letter agreement is personal to
you and shall not be assignable by you without the prior written consent of the
Company. This letter agreement shall inure to the benefit of and be binding upon
the Company and its respective successors and assigns. The Company may assign
this letter agreement, without your consent, to any successor (whether directly
or indirectly, by agreement, purchase, merger, consolidation, operation of law
or otherwise) to all, substantially all or a substantial portion of the business
and/or assets of the Company, as applicable. If and to the extent that this
letter agreement is so assigned, the “Company” as used throughout this letter
agreement shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid. In the event of your death, all amounts
and benefits then payable or otherwise due to you will be paid or provided to
your estate except to the extent you have appointed a beneficiary in writing
pursuant to the terms of any particular plan, policy or arrangement.

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  c.   Merger of Terms. Except as expressly provided herein, this letter
agreement supersedes all prior discussions and agreements between you and the
Company with respect to the subject matters covered herein.

            Very truly yours,
      /s/ Linda S. Sanford       Linda S. Sanford, Chair      ITT Compensation &
Personnel Committee     

Accepted:

      /s/ David F. Melcher   October 14, 2011
David F. Melcher
  Date
Chief Executive Officer and President
   
Exelis Inc.
   

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