exv10w38



 




Exhibit
10.38




2002 ITT Industries Stock Option Plan
for



Non-Employee Directors




1.      Purpose



The purpose of the 2002 ITT Industries Stock Option Plan for
Non-Employee Directors is to attract, retain, motivate and
reward Directors of superior ability. In addition, the Plan is
intended to further opportunities for stock ownership by
Directors in order to increase their proprietary interest in the
Company and, as a result, their interest in the success of the
Company.



2.      Definitions



When used herein, the following terms shall have the following
meanings:



“Acceleration Event” means the occurrence of an event
defined in Section 7 of the Plan.



“Award” means an award in the form of Options granted
to any Director in accordance with the provisions of the Plan.



“Award Agreement” means the written agreement
evidencing each Award.



“Beneficiary” means the person or persons designated
pursuant to Section 8 of the Plan as being authorized to
act on behalf of a Director in the case of Death.



“Board” means the board of directors of the Company.



“Commission” means the Securities and Exchange
Commission of the United States government or any successor
agency performing the same or similar functions.



“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.



“Company” means ITT Industries, Inc., an Indiana
corporation, and its successors and assigns.



“Director” means any person who is a member of the
Board and who is not, as of the date of an Award, an employee of
the Company or any of its subsidiaries.



“Fair Market Value”, unless otherwise indicated in the
provisions of the Plan, means, as of any date, the composite
closing price for one share of Stock on the New York Stock
Exchange or, if no sales of Stock have taken place on such date,
the composite closing price on the most recent date on which
selling prices were quoted, the determination to be made in the
discretion of the Committee.


 








 




“Guardian” means the person or persons designated
pursuant to Section 8 of the Plan as being authorized to
act on behalf of a Director in the case of Total Disability.



“Option” means a non-qualified stock option awarded
under Section 5 of the Plan to purchase Stock.



“Plan” means the 2002 ITT Industries Stock Option Plan
for Non-Employee Directors, as the same may be amended,
administered or interpreted from time to time.



“Plan Year” means the calendar year.



“Retirement” means termination of service from the
Board; provided, however, that Retirement shall not include
termination for cause, including gross misconduct, fraud,
misrepresentation, embezzlement, misappropriation or conversion
of assets or opportunities of the Company or any of its
subsidiaries.



“Stock” means the common stock ($1 par value) of the
Company.



“Total Disability” means a physical or mental
impairment that leads to the complete and permanent inability of
a Director to perform his or her duties as a Director, as
reasonably determined by the Committee upon the basis of such
evidence, including independent medical reports and data, as the
Committee deems appropriate or necessary.



“1933 Act” means the Securities Act of 1933, as
amended.



“1934 Act” means the Securities Exchange Act of 1934,
as amended.



3.      Shares Subject to the
Plan



The aggregate number of shares of Stock which may be subject to
Awards under the Plan during any Plan Year shall not exceed the
greater of (i) that number of shares as shall be a multiple
of (a) the number of Directors to receive an Award as of
the date of grant times (b) the amount of the annual
retainer for such Plan Year, divided by the value of an option
to purchase one share of Stock, such value to be in accordance
with the valuation methodology as determined by the Company to
establish stock option values, plus a prorata amount with
respect to each Director elected after such date but within the
same Plan Year or (ii) .15% of the total of the issued and
outstanding shares of Stock and treasury stock as reported in
the Annual Report on Form 10-K for the Company for the
fiscal year ending immediately prior to the Plan Year, subject
to adjustment as provided in Section 11 of the Plan.



Any unused portion of the annual limit for any Plan Year shall
be carried forward and made available for Awards in succeeding
Plan Years. Subject to the above limitations, shares of Stock to
be issued under the Plan may be made available from the
authorized but unissued shares, shares held by the Company in
treasury or shares purchased in the open market or otherwise. If
any Awards under the Plan are forfeited, terminated or expire
unexercised, such shares of Stock shall again be available for
Awards under the Plan.


 








 




4.      Grant of Awards and
Award Agreements



(a) Subject to the provisions of the Plan, the Board shall
(i) authorize the granting of non-qualified stock options;
(ii) determine the number of shares of Stock subject to
each Option; (iii) determine the exercise price with
respect to each Option (which may not be less than 100% of the
fair-market value of ITT Stock on the date of grant);
(iv) determine the time or times when and the manner in
which each Option shall be exercisable and the duration of the
exercise period; and (v) determine all other terms and
conditions of each Award.



(b) Each Award granted under the Plan shall be evidenced by
a written Award Agreement. The Award Agreement shall be subject
to and incorporate the express terms and conditions, if any,
required under the Plan or required by the Board.



5.      Stock Options



(a) The exercise period for a non-qualified stock option
shall not exceed ten years and two days from the date of grant.



(b) The Option price per share shall be determined by the
Board at the time any Option is granted and shall be not less
than the Fair Market Value of one share of Stock on the date the
Option is granted.



(c) No part of any Option may be exercised until the
Director who has been granted the Award shall have remained as a
member of the Board for such period or periods after the date of
grant and all other conditions precedent to exercise as the
Board may specify shall have been satisfied.



(d) The purchase price of the shares as to which an Option
shall be exercised, along with the applicable tax withholding
obligation relating thereto, shall be paid to the Company at the
time of exercise, as agreed upon by the Committee, (i) in
United States dollars by check, bank draft or wire transfer,
(ii) by tendering shares of Stock already owned by the
Director having a total Fair Market Value equal to the required
amount, (iii) any combination of United States dollars and
Stock, (iv) by instructing the Company to withhold from the
number of shares of Stock for which the Option is being
exercised such number of shares of Stock as have a Fair Market
Value equal to the required amount, (v) through a
“cashless” exercise with an independent broker/dealer
in a procedure approved by the Committee, or (vi) by such
other methods as the Committee shall authorize. Such payments
shall be consistent with the procedures and limitations
established by the Committee from time to time.



(e) In case of termination of service from the Board, the
following provisions shall apply:



		
	 	      
        (A) If a Director who has been granted an Option shall die
        before such Option has expired, his or her Option shall become
        fully exercisable and may be exercised by the person or persons
        designated as the




 








 


		
	 	
        Beneficiary pursuant to Section 8 of the Plan or, if there
        is no such designation, the person or persons to whom the
        Director’s rights under the Option pass by will or, if no
        such person has such right, by his or her executors or
        administrators, at any time, or from time to time, within one
        year after the date of the Director’s death or within such
        other period, and subject to such terms and conditions as the
        Board may specify, but not later than the Option’s normal
        expiration date.
	 
	 	      
        (B) If the Director’s service on the Board ceases
        because of his or her Retirement or Total Disability, his or her
        Option shall become fully exercisable and may be exercised at
        any time, or from time to time, within one year after the date
        his or her service on the Board so ceases, or after such Total
        Disability as the case may be, or within such other period, and
        subject to such terms and conditions, as the Board may specify,
        but not later than the Option’s normal expiration date.
	 
	 	      
        (C) Except as provided in Section 7 of the Plan, if
        the Director is terminated for cause as determined by the
        Committee, all outstanding Options shall be cancelled as of the
        effective date of such termination.





(f) Except as otherwise specifically provided in the Plan,
no Option granted under the Plan shall be assignable or
transferable, whether directly, by operation of law or
otherwise, other than by will or by the laws of descent and
distribution. During the lifetime of the Director, an Option
shall be exercisable only by the Director or, in the case of
Total Disability, as provided for in Section 8 of the Plan.



6.      Certificates for Awards
of Stock



(a) The Company shall not be required to issue or deliver
any certificates for shares of Stock prior to (i) the
listing of such shares on any stock exchange on which the Stock
may then be listed and (ii) the completion of any
registration or qualification of such shares under any federal
or state law, or any ruling or regulation of any governmental
body which the Committee shall, in its sole discretion,
determine to be necessary or advisable. In making such
determination, the Committee may rely upon an opinion of counsel
for the Company.



(b) All certificates for shares of Stock delivered under
the Plan shall also be subject to such stop-transfer orders and
other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Commission,
any stock exchange upon which the Stock is then listed and any
applicable federal or state securities laws, and the Committee
may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
The foregoing provisions of this Section 6(b) shall not be
effective if and to the extent that the Committee determines
that application of such provisions is no longer required or
desirable. In making such determination, the Committee may rely
upon an opinion of counsel for the Company.


 








 




(c) No Director shall have any right as a stockholder with
respect to any shares of Stock covered by his or her Option
prior to the date of issuance to him or her of a certificate or
certificates for such shares.



7.   Acceleration Events



(a) For the purposes of this Plan, an Acceleration Event
shall occur if (i) a report on Schedule 13D shall be
filed with the Commission pursuant to Section 13(d) of the
1934 Act disclosing that any person (within the meaning of
Section 13(d) of the 1934 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, is the beneficial
owner directly or indirectly of twenty percent or more of the
outstanding Stock; (ii) any person (within the meaning of
Section 13(d) of the 1934 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 1934 Act), directly or indirectly, of fifteen percent
or more of the outstanding Stock (calculated as provided in
paragraph (d) of Rule 13d-3 under the 1934 Act in the
case of rights to acquire Stock); (iii) the stockholders of
the Company shall approve (A) any consolidation or merger
of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of Stock would
be converted into cash, securities or other property, other than
a merger of the Company in which holders of Stock immediately
prior to the merger have the same proportionate ownership of
common stock of the surviving corporation 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; or (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 were directors at the
beginning of such 12-month period.



(b) Notwithstanding any provisions in the Plan to the
contrary, each outstanding Option granted under the Plan shall
become immediately exercisable in full for the aggregate number
of shares covered thereby upon the occurrence of an Acceleration
Event described in this Section 7 and shall continue to be
exercisable in full for a period of 60 calendar days beginning
on the date that such Acceleration Event occurs and ending on
the 60th calendar day following that date; provided, however,
that no Option shall be exercisable beyond the expiration date
of its original term.


 








 




8.   Beneficiary/ Guardian



(a) Each Director shall file with the Company a written
designation of one or more persons as the Beneficiary who shall
be entitled to exercise the Option after his or her death and
one or more persons as Guardian to act on the Director’s
behalf in the case of his or her Total Disability. A Director
may from time to time revoke or change his or her Beneficiary or
Guardian designation without the consent of any prior
Beneficiary or Guardian by filing a new designation with the
Company. The last such designation received by the Company shall
be controlling; provided, however, that no designation, change
or revocation thereof shall be effective unless received by the
Company prior to the Director’s death or Total Disability,
as the case may be, and in no event shall it be effective as of
a date prior to such receipt.



(b) If no such Beneficiary designation is in effect at the
time of a Director’s death, or if no designated Beneficiary
survives the Director, or if such designation conflicts with
law, the Director’s estate shall be entitled to exercise
the Option after his or her death. If the Committee is in doubt
as to the right of any person to exercise such Option, whether
in the case of Death or Total Disability, the Company may retain
such Award, without liability for any interest therein, until
the Committee makes a determination with respect thereto, or the
Company may deposit such Award with any court of appropriate
jurisdiction for a determination with respect to who should be
entitled to exercise the Option, and such delivery shall be a
complete discharge of the liability of the Company therefor.



9.   Administration of the Plan



(a) Each member of the Committee shall be both a member of
the Board and a “Non-Employee Director” within the
meaning of Rule 16b-3 under the 1934 Act or successor rule
or regulation.



(b) All decisions, determinations or actions of the
Committee made or taken pursuant to the Plan shall be made or
taken in the sole discretion of the Committee and shall be
final, conclusive and binding on all persons for all purposes.



(c) The Committee shall have full power, discretion and
authority to interpret, construe and administer the Plan and any
part thereof, and its interpretations and constructions thereof
and actions taken thereunder, except as otherwise determined by
the Board, shall be final, conclusive and binding on all persons
for all purposes.



(d) The Committee’s decisions and determinations under
the Plan need not be uniform and may be made selectively among
Directors, whether or not such Directors are similarly situated.



(e) The Committee may, in its sole discretion, delegate
such of its powers as it deems appropriate.


 








 




(f) If an Acceleration Event has not occurred and if the
Committee determines that a Director has taken action inimical
to the best interests of the Company or any of its subsidiaries,
the Committee may, in its sole discretion, terminate in whole or
in part such portion of any Option as has not yet become
exercisable at the time of termination.



10.   Amendment, Extension or Termination



The Board may, at any time, amend or terminate the Plan.
However, no amendment shall, without approval by a majority of
the Company’s stockholders, (a) alter the group of
persons eligible to participate in the Plan, (b) except as
provided in Section 11 of the Plan, increase the maximum
number of shares of Stock which are available for Awards under
the Plan or (c) extend the period during which Awards may
be granted beyond December 31, 2011. If an Acceleration
Event has occurred, no amendment or termination shall impair the
rights of any person with respect to a prior Award.



11.   Adjustments in Event of Change in Common
Stock



In the event of any equity restructuring (within the meaning of
Financial Accounting Standards No. 123 (revised 2004) that
causes the per share value of shares of Stock to change, such as a
stock dividend, stock split, spin off, rights offering, or
recapitalization through a large, nonrecurring cash dividend, the
Committee shall cause there to be made an equitable adjustment to
(a) the number and, if applicable, kind of shares that may be
subject to Awards under the Plan during any Plan Year and
(b) the number and, if applicable, kind of shares subject to
(and the exercise price of) any then outstanding Awards. In the event
of any other change in corporate structure or capitalization, such as
a merger, consolidation, any reorganization (whether or not such
reorganization comes within the definition of such term in
Section 368 of the Code) or any partial or complete liquidation
of the Company, the Committee may make such adjustment described in
the foregoing sentence as the Committee deems equitable. Any
fractional shares resulting from adjustments made pursuant to this
Section 11 shall be eliminated. Any adjustment made pursuant to
this Section 11 shall be conclusive and binding for all purposes
of the Plan.



12.   Miscellaneous



(a) Except as provided in Section 7 of the Plan,
nothing in this Plan or any Award granted hereunder shall confer
upon any Director any right to continue on the Board. No
Director shall have any claim to an Award until it is actually
granted under the Plan. To the extent that any person acquires
an Option, such Option shall be deemed to include rights no
greater than the right of an unsecured general creditor of the
Company. All amounts to be delivered hereunder shall come from
the general funds of the Company and no special or separate fund
shall be established and no segregation of assets shall be made
to assure delivery of such amounts.



(b) The Committee may cause to be made, as a condition
precedent to the exercise of any Option, or otherwise,
appropriate arrangements with the Director or his or her
Beneficiary or Guardian for the payment of, or withholding with
respect to, federal, state, local or foreign taxes, which may
include arrangements for the withholding of Stock from the Award
or the tendering of Stock already owned by the Director in an
amount having a Fair Market Value equal to such taxes.


 








 




(c) The Plan and the grant of Awards shall be subject to
all applicable federal and state laws, rules, and regulations
and to such approvals by any governmental or regulatory
authority or agency as may be required.



(d) The terms of the Plan shall be binding upon the Company
and its successors and assigns.



(e) Captions preceding the sections hereof are inserted
solely as a matter of convenience and in no way define or limit
the scope or intent of any provision hereof.



13.   Effective Date, Term of Plan and
Stockholder Approval



The Plan shall become effective as of the date of its approval
by the Company’s stockholders at their 2002 Annual Meeting.
The Plan’s termination date shall be December 31,
2011. No Award shall be granted under this Plan after the
Plan’s termination date. The Plan will continue in effect
for existing Awards as long as any such Award is outstanding.