Document:

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                                                                   Exhibit 10.21

                               AGERE SYSTEMS INC.
                        2001 EMPLOYEE STOCK PURCHASE PLAN

         The Agere Systems Inc. 2001 Employee Stock Purchase Plan shall become
effective as of the Effective Date. The purpose of the Plan is to provide an
opportunity for Eligible Employees to purchase Stock pursuant to a plan which is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended, and, therefore, to have an
additional incentive to contribute to the success of the Company.

         It is intended that:

         -     the Plan be implemented by consecutive offering periods with the
first offering period expected to begin on the date of the Company's Initial
Public Offering and to end on April 30, 2003, and with subsequent offering
periods generally running for 24 months beginning May 1 of every other year.

         -     each offering period will consist of four purchase periods, with
the first purchase period expected to begin on the date of the Company's Initial
Public Offering and subsequent purchase periods generally beginning on either
May 1 or November 1 and lasting six months.

1.       DEFINITIONS

         Whenever any of the following terms is used in the Plan with the first
letter or letters capitalized, it shall have the following meaning unless the
context clearly indicates to the contrary (such definitions to be equally
applicable to both the singular and plural forms of the terms defined).

         (a) "Class A Stock" means the Class A common stock, par value $.01 per
share , of the Company.

         (b) "Class B Stock" means the Class B common stock, par value $.01 per
share, of the Company.

         (c) "Code" means the Internal Revenue Code of 1986, as amended.

         (d) "Committee" means the committee appointed to administer the Plan
pursuant to Section 13.

         (e) "Company" means Agere Systems Inc., a Delaware corporation.

         (f) "Disability" means termination of employment under circumstances
where the Participant qualifies for and receives payments under a long-term
disability pay plan maintained by the Company or any Subsidiary or as required
by or available under applicable local law.

         (g) "Effective Date" means the effective date of the registration
statement under the Securities Act of 1933 for the Initial Public Offering.
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              AGERE SYSTEMS INC. 2001 EMPLOYEE STOCK PURCHASE PLAN

         (h) "Eligible Compensation" means total cash compensation received from
the Company or a Participating Subsidiary as regular compensation during a
Purchase Period. By way of illustration, and not by way of limitation, Eligible
Compensation includes regular compensation such as salary, wages, overtime,
shift differentials, bonuses, commissions and incentive compensation, but
excludes relocation expense reimbursements, foreign service premiums, tuition
and other reimbursements and income realized as a result of participation in any
stock option, stock purchase, or similar plan of the Company, any Participating
Subsidiary or any Parent.

         (i) "Eligible Employee" means an individual classified as an employee
(within the meaning of Code Section 3401(c) and the regulations thereunder) by
the Company or a Participating Subsidiary on the Company's or Participating
Subsidiary's payroll records during the relevant participation period. In no
event shall an Eligible Employee include an employee who, immediately after the
Option is granted, owns (within the meaning of Code Sections 423(b)(3) and
424(d)) stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of a Parent or
Subsidiary.

         (j) "Entry Date" means, with respect to any Offering Period, the first
Trading Day of the Offering Period or, for an Eligible Employee who becomes a
Participant after the first Trading Day of the Offering Period (including a
Participant who withdraws from the Plan under Section 5 and subsequently
re-enrolls), the first Trading Day of the first Purchase Period that begins
after he or she elects to enroll (or re-enroll) in the Plan.

         (k) "Fair Market Value" means (i) as of any date other than the
Effective Date, the average of the high and low price of a share of Stock on the
New York Stock Exchange on such date, and (ii) as of the Effective Date, the
"price to the public" (or equivalent) set forth on the cover page for the final
prospectus relating to the Company's Initial Public Offering.

         (l) "Initial Offering Period" means the Offering Period commencing on
the Effective Date.

         (m) "Initial Public Offering" means the first underwritten, firm
commitment public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale by the
Company of its Stock.

         (n) "Initial Purchase Period" means the Purchase Period commencing on
the Effective Date.

         (o) "Offering Period" means, in the case of the Initial Offering
Period, the period beginning on the Effective Date and ending on April 30, 2003,
and in the case of subsequent Offering Periods, the period of approximately
twenty-four (24) months beginning on the first Trading Day on or after the May 1
immediately following the end of the preceding Offering Period and ending on the
last Trading Day in April in the second succeeding calendar year. No Offering
Period may be longer than twenty-seven (27) months. The duration and timing of
Offering Periods may be changed or modified by the Committee.

         (p) "Option" means an option granted under the Plan to an Eligible
Employee to purchase shares of Stock.

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              AGERE SYSTEMS INC. 2001 EMPLOYEE STOCK PURCHASE PLAN

         (q) "Parent" means a "parent corporation" with respect to the Company,
as defined in Code Section 424(e).

         (r) "Participant" means an Eligible Employee who has complied with the
provisions of Section 3.

         (s) "Participating Subsidiary" means any present or future Subsidiary
that the Committee designates to be eligible to participate in the Plan, and
that elects to participate in the Plan.

         (t) "Periodic Deposit Account" means the bookkeeping account
established and maintained by the Company to which shall be credited, pursuant
to Section 4, amounts received from Participants for the purchase of Stock under
the Plan.

         (u) "Plan" means this Agere Systems Inc. 2001 Employee Stock Purchase
Plan.

         (v) "Purchase Date" means the last Trading Day of each Purchase Period.

         (w) "Purchase Limit" means 1,250. The Purchase Limit may be changed
from time to time by the Committee, effective with the first Offering Period
beginning after the change.

         (x) "Purchase Period" means, in the case of the Initial Purchase
Period, the period beginning on the Effective Date and ending on October 31,
2001 unless extended by the Committee, and thereafter, the period beginning on
the first day of the month following the preceding Purchase Date and ending on
the last day of the fifth calendar month following the month in which the
Purchase Period begins. The duration and timing of Purchase Periods may be
changed or modified by the Committee.

         (y) "Retirement" means termination of the employment of a Participant
with the Company or any Subsidiary under circumstances where: (i) the
Participant is entitled to a Service Pension under the Agere Retirement Income
Plan or the Agere Systems Inc. Pension Plan or any similar plan of any Parent;
(ii) the Participant is eligible to receive a similar benefit under a comparable
plan or arrangement with the Company or a Subsidiary; or (iii) the sum of the
Participant's years of service with the Company and attained age at termination
equals or exceeds seventy five (75). Any determination with respect to these
matters shall be made by the Committee in its sole discretion.

         (z) "Stock" means Class A Stock or Class B Stock. For purposes of
provisions of the Plan that contain price determinations, the term Stock shall
be deemed to be the type of securities that may be purchased upon exercise of
the Option for which the price is being determined.

         (aa) "Stock Purchase Account" means the account established with a
broker designated by the Company to which shall be credited, pursuant to Section
7, Stock purchased upon exercise of an Option under the Plan.

         (bb) "Subsidiary" means any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company, if at the time of the
granting of the Option, each of the corporations, other than the last
corporation, in the unbroken chain owns stock

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              AGERE SYSTEMS INC. 2001 EMPLOYEE STOCK PURCHASE PLAN

possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

         (cc) "Trading Day" means a day on which the New York Stock Exchange is
open for trading.

2.       STOCK SUBJECT TO PLAN

         Subject to the provisions of Section 11, up to 85 million shares of
Stock may be sold under the Plan, and such Stock may be newly issued shares,
treasury shares or shares acquired in the market or otherwise.

3.       PARTICIPATION

         (a) Each Eligible Employee on the Effective Date shall be deemed to be
a Participant at such time. Any Eligible Employee who is not a Participant may
elect to become a Participant by following procedures adopted by the Committee.
Elections to become a Participant shall be effective as of the beginning of the
first Purchase Period beginning after the election is made.

         (b) At the time he or she elects to become a Participant, each
Participant must authorize payroll deductions in a whole percentage amount
equaling at least 1%, and not exceeding 10%, of his or her Eligible Compensation
to be deposited periodically in his or her Periodic Deposit Account under
Section 4. If an Eligible Employee is deemed to be a Participant pursuant to the
first sentence of this Section 3, he or she shall be deemed not to have
authorized payroll deductions and shall not purchase any Stock hereunder unless
he or she thereafter authorizes payroll deductions complying with the preceding
sentence. If such a Participant does not authorize payroll deductions by the end
of the Initial Purchase Period, such Participant will be deemed to have
withdrawn from the Plan.

         (c) Payroll deduction elections may be changed from time to time within
the limits described above. Any change in election will become effective at the
earliest practicable time, as determined by the Committee, but not before the
beginning of the month following the month in which the change is made or, if
later, the beginning of the Participant's first pay period after making the
change.

         (d) Except as provided elsewhere in the Plan, a Participant's election
to participate in the Plan and payroll deduction election shall continue in
effect until the Participant withdraws from the Plan or terminates employment.

         (e) All Participants shall have the same rights and privileges under
the Plan, except for differences that may be mandated by local law and that are
consistent with Code Section 423(b)(5); provided, however, that Participants
participating in a sub-plan adopted pursuant to Section 15 which is not designed
to qualify under Code Section 423 need not have the same rights and privileges
as Participants participating in the Plan but not that sub-plan.

         (f) To comply with Code Section 423(b)(8), the Committee may reduce a
Participant's payroll deductions to zero percent (0%) at any time during a
Purchase Period.

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              AGERE SYSTEMS INC. 2001 EMPLOYEE STOCK PURCHASE PLAN

4.       PERIODIC DEPOSIT ACCOUNTS

         The Company shall maintain a Periodic Deposit Account for each
Participant and shall credit to that account in U.S. dollars all amounts
received under the Plan from the Participant. No interest will be paid to any
Participant or credited to his or her Periodic Deposit Account under the Plan
with respect to such funds. Except as otherwise set forth herein, all amounts
credited to a Participant's Periodic Deposit Account shall be used to exercise
under Section 7 the Participant's Option. Any balance remaining in a
Participant's Periodic Deposit Account at the end of a Purchase Period, after
the exercise of the Participant's Option, will be refunded to the Participant.

5.       WITHDRAWAL

         A Participant may withdraw all but not less than all amounts credited
to his or her Periodic Deposit Account and not yet used to exercise his or her
Option under the Plan by following procedures established by the Committee. All
amounts credited to such Participant's Periodic Deposit Account shall be paid to
such Participant thereafter. Upon any such withdrawal, the Participant shall be
deemed to have elected to make no further contributions to purchase Stock under
the Plan (i.e., his or her contribution designation will become zero) and to
have withdrawn from the Plan. The Committee may establish rules limiting the
frequency with which Participants may withdraw and re-enroll in the Plan and may
impose a waiting period on Participants wishing to re-enroll following
withdrawal.

6.       GRANT OF OPTION

         (a) Each Participant shall be granted on each Entry Date for such
Participant an Option to purchase on each subsequent Purchase Date in the
relevant Offering Period a number of shares of Stock equal to the Purchase
Limit. Such Stock shall be Class A Stock or Class B Stock, as determined by the
Committee prior to the commencement of the relevant Offering Period. Unless
otherwise determined by the Committee, Options shall be granted with respect to
Class A Stock.

         (b) Notwithstanding Section 6(a), no Participant shall be granted an
Option which permits his or her rights to purchase stock under the Plan or under
any other employee stock purchase plan of the Company or of any Parent or
Subsidiary which is intended to qualify under Code Section 423, to accrue at a
rate which exceeds $25,000 in fair market value of such stock (determined at the
time the Option is granted) for each calendar year in which the Option is
outstanding at any time. The foregoing sentence shall be interpreted so as to
comply with Code Section 423(b)(8). In addition, no Participant may purchase in
any Purchase Period a number of shares of Stock greater than the Purchase Limit,
unless otherwise determined by the Committee.

         (c) The purchase price to be paid on each Purchase Date under an Option
shall be the lower of

         (1)      a percentage (not less than eighty-five percent (85%))
                  established by the Committee ("Designated Percentage") of the
                  Fair Market Value of a share of Stock on the Entry Date on
                  which an Option is granted, or

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              AGERE SYSTEMS INC. 2001 EMPLOYEE STOCK PURCHASE PLAN

         (2)      the Designated Percentage of the Fair Market Value of a share
                  of Stock on the Purchase Date.

         (d) The Committee may change the Designated Percentage with respect to
any future Offering Period, but not below eighty-five percent (85%), and the
Committee may determine with respect to any prospective Offering Period that the
purchase price shall be the Designated Percentage of the Fair Market Value of a
share of Stock on the Purchase Date. Unless and until changed by the Committee,
the Designated Percentage shall be 85%.

7.       PURCHASE OF STOCK; STOCK PURCHASE ACCOUNTS

         (a) On each Purchase Date, a Participant's Option shall be exercised
automatically for the purchase of that number of whole, and if permitted by the
Committee fractional, shares of Stock which the accumulated payroll deductions
credited to the Participant's Periodic Deposit Account at that time shall
purchase at the applicable price specified in Section 6. Notwithstanding the
foregoing, the Company or its designee may make such provisions and take such
action as it deems necessary or appropriate for the withholding of taxes and/or
social insurance which the Company or any Subsidiary is required by law or
regulation of any governmental authority to withhold. Each Participant, however,
shall be responsible for payment of all individual tax liabilities arising under
the Plan. Until a contrary determination shall be made by the Committee,
Participants shall not be permitted to purchase fractional shares of Stock upon
exercise of Options.

         (b) Following exercise of an Option by a Participant pursuant to this
Section 7, the Company shall deliver to the Participant's Stock Purchase Account
the shares of Stock purchased at that time. If necessary to comply with
transaction requirements outside the United States, the Company may issue a
certificate for the number of full shares purchased under the Plan by a
Participant and return any remaining payroll deductions rather than delivering
shares to a Stock Purchase Account. Prior to the commencement of any Offering
Period, the Committee may require that Stock purchased during that Offering
Period be retained for a designated period of time in the Stock Purchase Account
of the Participant purchasing the Stock.

         (c) Notwithstanding the foregoing, if the Committee determines that, on
a given Purchase Date, the number of shares of Stock with respect to which
Options are to be exercised may exceed (1) the number of shares that were
available for sale under the Plan on the earliest Entry Date of the applicable
Offering Period, or (2) the number of shares available for sale under the Plan
on such Purchase Date, the Committee may, in its sole discretion, provide (x)
that the Company shall make a pro rata allocation of the shares of Stock
available for purchase on such Entry Date or Purchase Date, as applicable, in as
uniform a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all Participants exercising Options on such
Purchase Date, and continue the Plan as then in effect, or (y) that the Company
shall make a pro rata allocation of the shares available for purchase on such
Entry Date or Purchase Date, as applicable, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be equitable
among all Participants, and terminate the Plan. The Company may make one of the
allocations described in the preceding sentence notwithstanding the
authorization of additional shares for issuance under the Plan by the Company's
stockholders subsequent to the applicable Entry Date.

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              AGERE SYSTEMS INC. 2001 EMPLOYEE STOCK PURCHASE PLAN

8.       RIGHTS ON DEATH, RETIREMENT, TERMINATION OF EMPLOYMENT

         (a) Except as provided in Section 8(c), if a Participant dies or
terminates employment under circumstances constituting Retirement or Disability,
all amounts credited to that Participant's Periodic Deposit Account shall be
used on the next Purchase Date to purchase Stock under Section 7.

         (b) If a Participant terminates employment for any reason other than
death, Retirement or Disability, or if the corporation that employs a
Participant ceases to be a Participating Subsidiary, then to the extent
practicable, no further amounts shall be credited to the Participant's Periodic
Deposit Account after such event, and all amounts credited to the Participant's
Periodic Deposit Account shall be returned to the individual.

         (c) Notwithstanding anything in this Plan to the contrary and except to
the extent permitted under Code Section 423(a), a Participant's Option shall not
be exercisable more than three months after the Participant retires or otherwise
ceases to be employed by the Company or a Subsidiary including without
limitation as a result of the corporation that employs the Participant ceasing
to be a Subsidiary.

9.       RESTRICTION UPON ASSIGNMENT

         An Option granted under the Plan shall not be transferable otherwise
than by will or the laws of descent and distribution, and shall be exercisable
during the Participant's lifetime only by the Participant. The Company will not
recognize and shall be under no duty to recognize any assignment or purported
assignment by a Participant, other than by will or the laws of descent and
distribution, of the Participant's interest in the Plan or of his or her Option
or of any rights under his or her Option.

10.      NO RIGHTS OF STOCKHOLDER UNTIL EXERCISE OF OPTION AND ISSUANCE OF STOCK

         A Participant shall not be deemed to be a stockholder of the Company,
nor have any rights or privileges of a stockholder, with respect to the number
of shares of Stock subject to an Option. A Participant shall have the rights and
privileges of a stockholder of the Company when, but not until, the
Participant's Option is exercised pursuant to Section 7 and the Stock purchased
by the Participant at that time has been credited to the Participant's Stock
Purchase Account.

11.      ADJUSTMENTS FOLLOWING CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS

         (a) If, while any Options are outstanding, the outstanding shares of
Stock have increased or decreased, or have changed into or been exchanged for a
different number or kind of shares or securities of the Company, or there has
been any other change in the capitalization of the Company, in each case as a
result of a reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, spin-off or similar transaction, appropriate
and proportionate adjustments may be made by the Committee in the number and/or
kind of shares of Stock that may be purchased under the Plan, in the number
and/or kind of shares which are subject to purchase under outstanding Options
and to the purchase price or prices applicable to such outstanding Options.

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              AGERE SYSTEMS INC. 2001 EMPLOYEE STOCK PURCHASE PLAN

         (b) In the event of the proposed liquidation or dissolution of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed transaction, unless otherwise provided by the
Committee in its sole discretion, and all outstanding Options shall
automatically terminate and the amounts of all payroll deductions will be
refunded without interest to the Participants.

         (c) In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger or consolidation of the Company with or
into another corporation, then in the sole discretion of the Committee, (1) each
Option shall be assumed or an equivalent option shall be substituted by the
successor corporation or parent or subsidiary of such successor corporation, (2)
a date established by the Committee on or before the date of consummation of
such merger, consolidation or sale shall be treated as a Purchase Date, and all
outstanding Options shall be exercised on such date, or (3) all outstanding
Options shall terminate and the accumulated payroll deductions will be refunded
without interest to the Participants.

12.      USE OF FUNDS; REPURCHASE OF STOCK

         All funds received or held by the Company under the Plan will be
included in the general funds of the Company free of any trust or other
restriction and may be used for any corporate purpose. The Company shall not be
required to repurchase from any person shares of Stock which such person has
acquired under the Plan.

13.      ADMINISTRATION BY COMMITTEE

(a) The board of directors of the Company, or its delegate, shall appoint a
Committee, which shall be composed of one or more members, to administer the
Plan on behalf of the Company. Each member of the Committee shall serve for a
term commencing on the date specified by the board of directors of the Company,
or its delegate, and continuing until he or she dies or resigns or is removed
from office by such board of directors, or its delegate. Unless and until the
board of directors shall make a different appointment, the Corporate Governance
and Compensation Committee of the board of directors shall be the Committee.

         (b) It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to:

                  (i) determine when the initial and subsequent Offering Periods
         and Purchase Periods will commence;

                  (ii) interpret the Plan and the Options;

                  (iii) adopt such rules for the administration, interpretation,
         and application of the Plan as are consistent with the Plan and Code
         Section 423; and

                  (iv) interpret, amend, or revoke any such rules.

         (c) In its absolute discretion, the board of directors of the Company
may at any time and from time to time exercise any and all rights and duties of
the Committee under the Plan.

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              AGERE SYSTEMS INC. 2001 EMPLOYEE STOCK PURCHASE PLAN

The Committee may delegate any of its responsibilities under the Plan by
designating in writing other persons to carry out any or all of such
responsibilities.

         (d) All actions taken and all interpretations and determinations made
by the Committee shall be final and binding upon all Participants, the Company
and all other interested persons.

14.      NO RIGHTS AS AN EMPLOYEE

         Nothing in this Plan nor any Option shall be construed to give any
person (including any Eligible Employee or Participant) the right to remain in
the employ of the Company or a Subsidiary or to affect the right of the Company
and Subsidiaries to terminate the employment of any person (including any
Eligible Employee or Participant) at any time with or without cause, to the
extent otherwise permitted under law.

15.      FOREIGN JURISDICTIONS

         The Committee may adopt rules or procedures relating to the operation
and administration of the Plan to accommodate the specific requirements of local
laws and procedures. Without limiting the generality of the foregoing, the
Committee is specifically authorized to adopt rules and procedures regarding
handling of payroll deductions, payment of interest, conversion of local
currency, payroll tax, withholding procedures and handling of stock certificates
which vary with local requirements.

         The Committee may also adopt sub-plans applicable to particular
Subsidiaries or locations, which sub-plans may be designed to be outside the
scope of Code Section 423. The rules of such sub-plans may take precedence over
other provisions of this Plan, with the exception of Section 2, but unless
otherwise superseded by the terms of such sub-plan, the provisions of this Plan
shall govern the operation of such sub-plan.

16.      SECURITIES LAWS REQUIREMENTS

         The Company shall not be under any obligation to issue Stock upon the
exercise of any Option unless and until the Company has determined that: (i) it
has taken all actions required to register the Stock under the Securities Act of
1933; (ii) any applicable listing requirement of any stock exchange on which the
Stock is listed has been satisfied; and (iii) all other applicable provisions of
state, federal and applicable foreign law have been satisfied.

17.      AMENDMENT OF THE PLAN

         The board of directors of the Company, or its delegate, may amend,
suspend, or terminate the Plan at any time; provided that approval by the vote
of the holders of more than 50% of the shares of the Stock present or
represented by proxy and entitled to vote shall be required to increase the
number of shares of Stock reserved for the Options under the Plan.

18.      TERM OF PLAN

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              AGERE SYSTEMS INC. 2001 EMPLOYEE STOCK PURCHASE PLAN

         Unless earlier terminated by the board of directors of the Company, the
Plan shall continue until no further shares of Stock are available for purchase
hereunder, at which time the Plan and any outstanding Options shall terminate.

19.      EFFECT UPON OTHER PLANS

         The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary, except to
the extent required by Section 6(b) or applicable law. Nothing in the Plan shall
be construed to limit the right of the Company or any Subsidiary (a) to
establish any other forms of incentives or compensation for employees of the
Company or any Subsidiary or (b) to grant or assume options otherwise than under
this Plan in connection with any proper corporate purpose, including, but not by
way of limitation, the grant or assumption of options in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.

20.      GOVERNING LAW.

         The Plan shall be governed by Delaware law, without regard to that
State's conflicts of law rules.

21.      TITLES

         Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan.

                                       10<PAGE>   1
                                                                   Exhibit 10(r)

                                 ITT INDUSTRIES

                           DEFERRED COMPENSATION PLAN

                         Effective as of January 1, 1995
                  including amendments through November 1, 2000
<PAGE>   2
                    ITT INDUSTRIES DEFERRED COMPENSATION PLAN

The ITT Deferred Compensation Plan (the "Plan") was established by ITT
Corporation, a Delaware corporation ("Former ITT"), effective January 1, 1995.
The purpose of the Plan is to provide each Participant with a means of deferring
compensation in accordance with the terms of the Plan.

Effective as of December 19, 1995, Former ITT split into three separate
companies -- ITT Hartford Group, Inc., ITT Corporation, a Nevada corporation,
and ITT Industries, Inc. an Indiana corporation (the "Corporation"), which is
the successor to Former ITT.

Under the Employee Benefits Service and Liability Agreement dated November 1,
1995 (the "Agreement") the Corporation agreed to continue the Plan for eligible
employees of the Corporation or of any of its subsidiaries and to transfer the
liabilities attributable to participants who become employees of ITT
Corporation, a Nevada corporation, on December 19, 1995 to ITT Corporation.

Effective as of January 1, 1996, the Plan was amended to accept the liabilities
under the ITT Industries Excess Savings Plan attributable to salary deferrals,
excess matching contributions, and excess floor contributions credited with
respect to Base Salary deferred under this Plan and hold such amounts hereunder
in accordance with the provisions of the ITT Industries Excess Savings Plan as
set forth in Appendix A, attached hereto and made part hereof.

Effective as of October 1, 1997, January 1, 1998, April 1, 1998, January 1,
1999, and November 1, 2000, the Plan was further amended to make certain
administration changes and to unify the form and timing of Plan distributions,
respectively.

All benefits payable under this Plan, which constitutes a nonqualified, unfunded
deferred compensation plan for a select group of management or
highly-compensated employees under Title I of ERISA, shall be paid out of the
general assets of the Company.
<PAGE>   3
                    ITT INDUSTRIES DEFERRED COMPENSATION PLAN

                                TABLE OF CONTENTS

                                                                           Page
ARTICLE I.  DEFINITIONS..................................................    1

ARTICLE 2.  PARTICIPATION................................................    4

ARTICLE 3.  DEFERRALS....................................................    5

ARTICLE 4.  MAINTENANCE OF ACCOUNTS......................................    8

ARTICLE 5.  PAYMENT OF BENEFITS..........................................   10

ARTICLE 6.  AMENDMENT OR TERMINATION.....................................   14

ARTICLE 7.  GENERAL PROVISIONS...........................................   15

ARTICLE 8.  ADMINISTRATION...............................................   19

APPENDIX A
<PAGE>   4
                             ARTICLE 1. DEFINITIONS

1.01     "ACCELERATION EVENT" shall mean an event which shall occur if:

(a)      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 Corporation or a
         subsidiary of the Corporation or any employee benefit plan sponsored by
         the Corporation or a subsidiary of the Corporation, is the beneficial
         owner directly or indirectly of twenty percent or more of the
         outstanding common stock of the Corporation;

(b)      any person (within the meaning of Section 13(d) of the Act), other than
         the Corporation or a subsidiary of the Corporation or any employee
         benefit plan sponsored by the Corporation or a subsidiary of the
         Corporation, shall purchase shares pursuant to a tender offer or
         exchange offer to acquire any common stock of the Corporation (or
         securities convertible into such common 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 fifteen
         percent or more of the outstanding common stock of the Corporation
         (calculated as provided in paragraph (d) of Rule 13d-3 under the Act in
         the case of rights to acquire common stock);

(c)      the stockholders of the Corporation shall approve (i) any consolidation
         or merger of the Corporation in which the Corporation is not the
         continuing or surviving corporation or pursuant to which shares of
         common stock of the Corporation would be converted into cash,
         securities or other property, other than a merger of the Corporation in
         which holders of common stock of the Corporation 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 (ii) 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 Corporation; or

(d)      there shall have been a change in a majority of the members of the
         Board of Directors of the Corporation within a 12-month period, unless
         the election or nomination for election by the Corporation'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.

1.02     "ADMINISTRATIVE COMMITTEE" shall mean the person or persons appointed
         to administer the Plan as provided in Section 8.01.

1.03     "ASSOCIATED COMPANY" shall mean any division, subsidiary or affiliated
         company of the Corporation which is an Associated Company, as defined
         in the ITT Industries Salaried Retirement Plan (formerly known as the
         Retirement Plan for Salaried Employees of ITT Corporation).

1.04     "BASE SALARY" shall mean the annual base fixed compensation paid
         periodically during the calendar year, determined prior to any pre-tax
         contributions under a "qualified cash or deferred arrangement" (as
         defined under Code Section 401(k) and its applicable regulations) or
         under a
<PAGE>   5
                                                                          Page 2

         "cafeteria plan" (as defined under Code Section 125 and its applicable
         regulations) and any deferrals under Article 3, Appendix A or another
         unfunded deferred compensation plan maintained by the Corporation, but
         excluding any overtime, bonuses, foreign service allowances or any
         other form of compensation, except to the extent otherwise deemed "Base
         Salary" for purposes of the Plan under rules as are adopted by the
         Compensation and Personnel Committee.

1.05     "BENEFICIARY" shall mean the person or persons designated by a
         Participant pursuant to the provisions of Section 5.07 in a time and
         manner determined by the Administrative Committee to receive the
         amounts, if any, payable under the Plan upon the death of the
         Participant.

1.06     "BONUS" shall mean the cash amount, if any, awarded to an employee of
         the Company under the Company's executive bonus program, or other
         compensation program designated by the Compensation and Personnel
         Committee as a bonus hereunder.

1.07     "BOARD OF DIRECTORS" OR "BOARD" shall mean the Board of Directors of
         the Corporation.

1.08     "CODE" shall mean the Internal Revenue Code of 1986, as amended from
         time to time.

1.09     "COMPANY" shall mean the Corporation, and any successor thereto, with
         respect to its employees and any Associated Company authorized by the
         Compensation and Personnel Committee to participate in the Plan, with
         respect to their employees.

1.10     "COMPENSATION AND PERSONNEL COMMITTEE" shall mean the Compensation and
         Personnel Committee of the Board of Directors.

1.11     "CORPORATION" shall mean ITT Industries, Inc., an Indiana corporation
         (successor to ITT Corporation, a Delaware corporation), or any
         successor by merger, purchase, or otherwise.

1.12     "DEFERRAL ACCOUNT" shall mean the bookkeeping account maintained for
         each Participant to record the amount of Bonus and/or Base Salary such
         Participant has elected to defer in accordance with Article 3, adjusted
         pursuant to Article 4.

1.13     "DEFERRAL AGREEMENT" shall mean the completed agreement, including any
         amendments, attachments and appendices thereto, in such form approved
         by the Administrative Committee, between an Eligible Executive and the
         Company, under which the Eligible Executive agrees to defer a portion
         of his Bonus and/or his Base Salary.

1.14     "DEFERRALS" shall mean the amount of deferrals credited to a
         Participant pursuant to Section 3.02.

1.15     "EFFECTIVE DATE" shall mean January 1, 1995.

1.16     "ELIGIBLE EXECUTIVE" shall mean an Employee who is eligible to
         participate in the Plan as provided in Section 2.01.

1.17     "EMPLOYEE" shall mean a person who is employed by the Company.
<PAGE>   6
                                                                          Page 3

1.18     "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
         as amended from time to time.

1.19     "PARTICIPANT" shall mean, except as otherwise provided in Article 2,
         each Eligible Executive who has executed a Deferral Agreement pursuant
         to the requirements of Section 2.02 and is credited with an amount
         under Section 3.03.

1.20     "PLAN" shall mean the ITT Industries Deferred Compensation Plan (which
         was formerly known as the ITT Deferred Compensation Plan for 1995, the
         ITT Industries Deferred Compensation Plan for 1996, and the ITT
         Industries Deferred Compensation Plan for 1997) as set forth in this
         document and the appendices and schedules thereto, as it may be amended
         from time to time.

1.21     "PLAN YEAR" shall mean the calendar year.

1.22     "REPORTING DATE" shall mean the last business day of each calendar
         month following the Effective Date, or such other day as the
         Administrative Committee may determine. For this purpose, a "business
         day" is any day on which the New York Stock Exchange is open.

1.23     "RETIREMENT" shall mean (i) with respect to an Eligible Executive, any
         termination of employment by an Eligible Executive after the date the
         Eligible Executive is eligible for an early, normal or late retirement
         benefit under the ITT Industries Salaried Retirement Plan (formerly
         known as the ITT Corporation Retirement Plan for Salaried Employees),
         or would have been eligible had he been a participant in such Plan.
<PAGE>   7
                                                                          Page 4

                            ARTICLE 2. PARTICIPATION

2.01     ELIGIBILITY

(a)      With respect to Plan Years commencing prior to January 1, 2001, an
         Eligible Executive shall be an Employee designated as eligible to
         participate in this Plan by the Compensation and Personnel Committee or
         its delegate.

(b)      Effective as of November 1, 2000, an Employee whose Base Salary as of
         October 31 of a calendar year equals or exceeds $200,000 shall be an
         Eligible Executive with respect to the Plan Year following such
         calendar year and thereby eligible to participate in this Plan and
         execute a Deferral Agreement under this Plan with respect to Bonus
         and/or Base Salary which would be payable in the Plan Year following
         such October 31.

2.02     IN GENERAL

(a)      An individual who is determined to be an Eligible Executive with
         respect to a Plan Year and who desires to have deferrals credited on
         his behalf pursuant to Article 3 for such Plan Year must execute a
         Deferral Agreement with the Administrative Committee authorizing
         Deferrals under this Plan for such year in accordance with the
         provisions of Sections 3.01 and 3.02.

(b)      The Deferral Agreement shall be in writing and be properly completed
         upon a form approved by the Administrative Committee, which shall be
         the sole judge of the proper completion thereof. Such Deferral
         Agreement shall provide, subject to the provisions of Section 3.02, for
         the deferral of a portion of the Eligible Executive's Bonus and/or Base
         Salary earned after the effective date of the election and shall
         include such other provisions as the Administrative Committee deems
         appropriate.

2.03     TERMINATION OF PARTICIPATION

(a)      Participation shall cease when all benefits to which a Participant is
         entitled to hereunder are distributed to him.

(b)      If a former Participant who has terminated employment with the Company
         and whose participation in the Plan ceased under Section 2.03(a) is
         reemployed as an Eligible Executive, the former Participant may again
         become a Participant in accordance with the provisions of Section 2.02.
<PAGE>   8
                                                                          Page 5

                              ARTICLE 3. DEFERRALS

3.01     FILING REQUIREMENTS

(a)      Prior to the close of business on the date or dates specified by the
         Administrative Committee in a Plan Year and except as otherwise
         provided below, an Eligible Executive may elect, subject to Section
         3.02(a), to defer a portion of his Bonus payable in the next calendar
         year and/or a portion of his Base Salary that is otherwise earned and
         payable in the next calendar year by filing a Deferral Agreement with
         the Administrative Committee.

(b)      A Participant's election to defer a portion of his Bonus or Base Salary
         for any calendar year shall become irrevocable on the last day the
         deferral of such Bonus or Base Salary may be elected under Section
         3.01(a), except as otherwise provided in Section 3.02(c) or 3.05. A
         Participant may revoke or change his election to defer a portion of
         Bonus or Base Salary at any time prior to the date the election becomes
         irrevocable. Any such revocation or change shall be made in a form and
         manner determined by the Administrative Committee.

(c)      A Participant's Deferral Agreement shall only apply to a Bonus
         determined after the Deferral Agreement is filed with the
         Administrative Committee under Section 3.01(a). A Participant's
         Deferral Agreement shall apply only with respect to Base Salary earned
         in the calendar year following the Plan Year in which the Deferral
         Agreement is filed with the Administrative Committee under Section
         3.01(a). Subject to the provisions of Section 3.02, an Eligible
         Executive must file, in accordance with the provisions of Section
         3.01(a), a new Deferral Agreement for each calendar year the Eligible
         Executive is eligible for and elects to defer a portion of his Bonus or
         Base Salary.

(d)      If a Participant ceases to be an Eligible Executive but continues to be
         employed by the Company, he shall continue to be a Participant and his
         Deferral Agreement currently in effect for the Plan Year shall remain
         in force for the remainder of such Plan Year, but such Participant
         shall not be eligible to defer any portion of his Bonus or Base Salary
         earned in a subsequent Plan Year until such time as he shall once again
         become an Eligible Executive.

(e)      Notwithstanding the foregoing, effective as of January 1, 1999, an
         Eligible Executive shall not be permitted under the provisions of this
         Plan to make an election to defer Base Salary earned on or after
         January 1, 1999.

3.02     AMOUNT OF DEFERRAL

(a)      (i)      The Compensation and Personnel Committee or its delegate
                  may determine prior to October 31 of a calendar year that an
                  Eligible Executive may defer all or a portion of his Bonus
                  that is otherwise payable in the next Plan Year. An Eligible
                  Executive shall be given written notice of the opportunity to
                  defer all or a portion of his Bonus at least ten business days
                  prior to the date the Deferral Agreement for the applicable
                  Plan Year must be submitted to the Administrative Committee.

         (ii)     With respect to calendar years commencing prior to January 1,
                  1999, the Compensation and Personnel Committee or its delegate
                  may determine prior to October 31 of a calendar
<PAGE>   9
                                                                          Page 6

                  year that an Eligible Executive may defer a portion of his
                  Base Salary that is otherwise earned and payable in the next
                  Plan Year. An Eligible Executive shall be given written notice
                  of the opportunity to defer a portion of his Base Salary at
                  least ten business days prior to the date the Deferral
                  Agreement for the applicable Plan Year must be submitted to
                  the Administrative Committee. Notwithstanding any Plan
                  provisions to the contrary, effective as of January 1, 1999,
                  deferrals of Base Salary earned on or after January 1, 1999
                  shall not be permitted under the provisions of this Plan.

(b)      The Administrative Committee may establish maximum or minimum limits on
         the amount of any Bonus or Base Salary which may be deferred and/or the
         timing of such deferral. Eligible Executives shall be given written
         notice of any such limits at least ten business days prior to the date
         they take effect.

(c)      Notwithstanding anything in this Plan to the contrary, if an Eligible
         Executive:

         (i)      receives a withdrawal of deferred cash contributions on
                  account of hardship from any plan which is maintained by the
                  Company or an Associated Company and which meets the
                  requirements of Code Section 401(k) (or any successor
                  thereto); and

         (ii)     is precluded from making contributions to such 401(k) plan for
                  at least 12 months after receipt of the hardship withdrawal,

         no amounts shall be deferred under this Plan under the Eligible
         Executive's Deferral Agreement with respect to Bonus or Base Salary
         until such time as the Eligible Executive is again permitted to
         contribute to such 401(k) plan. Any Bonus or Base Salary payment which
         would have been deferred pursuant to a Deferral Agreement but for the
         application of this Section 3.02(c) shall be paid to the Eligible
         Executive as if he had not entered into the Deferral Agreement.

3.03     CREDITING TO DEFERRAL ACCOUNT

         The amount of Deferrals shall be credited to such Participant's
         Deferral Account on the day such Bonus or Base Salary would have
         otherwise been paid to the Participant in the absence of a Deferral
         Agreement. Deferrals credited to a Participant's Deferral account which
         are deemed invested in a Corporation phantom stock fund will be
         credited based on the fair market value of the Corporation's common
         stock on that day.

3.04     VESTING

         A Participant shall at all times be 100% vested in his Deferral
         Account.

3.05     HARDSHIP

         Notwithstanding the foregoing provisions of this Article 3, a
         Participant may completely cease Deferrals made under all Deferral
         Agreements then in effect with respect to the Participant upon the
         Participant providing the Compensation and Personnel Committee with
         such evidence of severe financial hardship as the Compensation and
         Personnel Committee may deem appropriate. In the event the Compensation
         and Personnel Committee finds the Participant has incurred a
<PAGE>   10
                                                                          Page 7

         severe financial hardship, the Participant's Deferrals shall cease as
         of the first practicable payroll period following the Compensation and
         Personnel Committee's decision. In the event the Participant wishes to
         recommence Deferrals starting in a subsequent calendar year, the
         Participant may do so by duly completing, executing, and filing the
         appropriate Deferral Agreement with the Administrative Committee in
         accordance with Section 3.01, provided said Participant is an Eligible
         Executive at that time.
<PAGE>   11
                                                                          Page 8

                       ARTICLE 4. MAINTENANCE OF ACCOUNTS

4.01     ADJUSTMENT OF ACCOUNT

(a)      As of each Reporting Date, each Deferral Account shall be credited or
         debited with the amount of earnings or losses with which such Deferral
         Account would have been credited or debited, assuming it had been
         invested in one or more investment funds, or earned the rate of return
         of one or more indices of investment performance, designated by the
         Administrative Committee and elected by the Participant pursuant to
         Section 4.02 for purposes of measuring the investment performance of
         his Deferral Account. Any portion of a Participant's Deferral Account
         deemed invested in a Corporation phantom stock fund shall be credited
         with dividend equivalents, as and when dividends are paid on the
         Corporation's common stock, which shall be deemed invested in
         additional shares of such phantom stock.

(b)      The Administrative Committee shall designate at least one investment
         fund or index of investment performance and may designate other
         investment funds or investment indices (including a Corporation phantom
         stock fund) to be used to measure the investment performance of a
         Participant's Deferral Account. The designation of any such investment
         funds or indices shall not require the Company to invest or earmark
         their general assets in any specific manner. The Administrative
         Committee may change the designation of investment funds or indices
         from time to time, in its sole discretion, and any such change shall
         not be deemed to be an amendment affecting Participants' rights under
         Section 6.02.

4.02     INVESTMENT PERFORMANCE ELECTIONS

         In the event the Administrative Committee designates more than one
         investment fund or index of investment performance under Section 4.01,
         each Participant shall file an investment election with the
         Administrative Committee with respect to the investment of his Deferral
         Account within such time period and on such form as the Administrative
         Committee may prescribe. The election shall designate the investment
         fund or funds or index or indices of investment performance which shall
         be used to measure the investment performance of the Participant's
         Deferral Account.

4.03     CHANGING INVESTMENT ELECTIONS

         In the event the Administrative Committee designates more than one
         investment fund or index of investment performance under Section 4.01,
         a Participant may change his election of the investment fund or funds
         or index or indices of investment performance used to measure the
         future investment performance of both his future Deferrals and his
         existing account balance, by filing an appropriate written notice with
         the Administrative Committee or its delegate at least 15 days, or such
         other period as determined by the Administrative Committee, in advance
         of the date such election is effective. The election shall be effective
         as of the first business day of the calendar quarter following the
         month in which the notice is filed. Notwithstanding the foregoing,
         effective as of October 1, 1997, the election shall be effective as of
         the first business day of the last month in the calendar quarter
         following the month in which the notice is filed, or, effective as of
         May 1, 2000, such earlier date as prescribed by the Administrative
         Committee on a basis uniformly applicable to all Participants similarly
         situated.
<PAGE>   12
                                                                          Page 9

4.04     INDIVIDUAL ACCOUNTS

         The Administrative Committee shall maintain, or cause to be maintained
         on its books, records showing the individual balance of each
         Participant's Deferral Account. At least once a year each Participant
         shall be furnished with a statement setting forth the value of his
         Deferral Account.

4.05     VALUATION OF ACCOUNTS

(a)      The Administrative Committee shall value or cause to be valued each
         Participant's Deferral Account at least quarterly. On each Reporting
         Date there shall be allocated to the Deferral Account of each
         Participant the appropriate amount determined in accordance with
         Section 4.01.

(b)      Whenever an event requires a determination of the value of a
         Participant's Deferral Account, the value shall be computed as of the
         Reporting Date immediately preceding the date of the event, except as
         otherwise specified in this Plan.
<PAGE>   13
                                                                         Page 10

                         ARTICLE 5. PAYMENT OF BENEFITS

5.01     COMMENCEMENT OF PAYMENT

(a)      The following provisions shall apply with respect to an Eligible
         Executive who becomes a Participant prior to January 1, 1998:

         (i)      Except as otherwise provided in paragraph (d) below, the
                  distribution of the portion of the Participant's Deferral
                  Account attributable to deferrals of Bonus or Base Salary
                  which would otherwise be payable on or after January 1, 1998
                  shall commence, pursuant to Section 5.02, on or as soon as
                  practicable after the occurrence of any distribution event
                  made available under procedures established from time to time
                  by the Administrative Committee and as designated by the
                  Participant on his first Deferral Agreement filed with respect
                  to Bonus or Base Salary payable on and after January 1, 1998
                  ("Common Distribution Date").

         (ii)     Except as otherwise provided in paragraph (d) below, the
                  distribution of the portion of the Participant's Deferral
                  Account attributable to deferrals of Bonus or Base Salary
                  which would have otherwise been paid prior to January 1, 1998
                  shall commence on or as soon as practicable after the
                  occurrence of the distribution event designated by the
                  Participant on his Deferral Agreement applicable to each
                  particular deferral election ("Distribution Event Date(s)"),
                  unless the Participant makes an election by duly completing,
                  executing and filing with the Administrative Committee prior
                  to October 31, 1997 the appropriate forms to have the
                  deferrals made with respect to 1995, 1996 or 1997 paid on his
                  Common Distribution Date.

(b)      Except as otherwise provided in paragraph (d) below, with respect to an
         Eligible Executive who first becomes a Participant on or after January
         1, 1998, the distribution of the Participant's Deferral Account shall
         commence, pursuant to Section 5.02, on or as soon as practicable after
         the occurrence of any distribution event made available under
         procedures established from time to time by the Administrative
         Committee and as designated by the Participant on his initial Deferral
         Agreement ("Common Distribution Date").

(c)      In the event a Participant elects pursuant to paragraphs (a) or (b)
         above to defer to a specific calendar date in a specific calendar year,
         he may not elect a calendar date which occurs prior to the close of the
         calendar year following the calendar year in which he executed the
         Deferral Agreement.

(d)      Notwithstanding the foregoing, in the event a Participant terminates
         employment for reasons other than Retirement prior to his Common
         Distribution Date and/or any Distribution Event Date(s) applicable to
         deferrals made with respect to 1995, 1996, or 1997, the distribution of
         his Deferral Account shall commence, pursuant to Section 5.02, as soon
         as practicable after his termination of employment; provided, however,
         if a Participant whose employment terminates on or after April 1, 1998
         has prior to the date of his termination of employment, in accordance
         with the procedures prescribed by the Administrative Committee, made a
         special termination election, the distribution of his Deferral Account
         shall commence, pursuant to Section 5.02, as soon as practicable after
         the occurrence of the termination distribution date designated by the
         Participant on the appropriate special termination election form
         prescribed by the Administrative Committee ("Special Effective
         Termination Distribution Date"). However for a special termination
         election
<PAGE>   14
                                                                         Page 11

         to be effective it must be made in a calendar year prior to the
         calendar year in which any portion of the Participant's Deferral
         Account is first to become payable after taking this election into
         account and a full six months must pass between the date the
         Participant duly makes this election and the date on which any portion
         of the Participant's Deferral Account is first to become payable after
         taking this election into account.

(e)      A Participant shall not change his designation of the distribution
         event which entitles him to a distribution of his Deferral Account,
         except as otherwise provided in Section 5.03 below.

(f)      Notwithstanding any Plan provision to the contrary, the distribution to
         a Participant who is an "insider" (as defined in Section 16 of the Act)
         and who has elected to have any portion of his Deferral Account
         invested in the Corporation phantom stock fund, shall be subject to the
         advance approval of the Compensation and Personnel Committee.

5.02     METHOD OF PAYMENT

(a)      Except as otherwise provided in paragraphs (b) and (c) below:

         (i)      at the time a Participant makes an election of his
                  distribution event pursuant to the provisions of Sections
                  5.01(a) or (b), the Participant shall elect that the portion
                  of his Deferral Account to which such distribution event is
                  applicable shall be made payable as of such distribution event
                  under one of the following methods of payment:

                  (1)      ratable annual cash installments for a period of
                           years, not to exceed 15 years, designated by the
                           Participant on his Deferral Agreement,

                  (2)      a single lump sum cash payment, or

                  (3)      any other form of payment approved by the
                           Compensation and Personnel Committee; and

         (ii)     at the time a Participant makes an election of a Special
                  Effective Termination Distribution Date pursuant to the
                  provisions of Section 5.01(d), the Participant shall elect
                  that his Deferral Account shall be made payable as of such
                  Special Effective Termination Distribution Date under one of
                  the following methods of payment:

                  (1)      ratable annual cash installments for a period of five
                           years, or

                  (2)      a single lump sum cash payment.

         During an installment payment period, the Participant's Deferral
         Account shall continue to be credited with earnings or losses as
         described in Section 4.01. The first installment or lump sum payment
         shall be made as soon as administratively practicable following the
         Reporting Date coincident with or preceding the distribution event
         designated pursuant to Section 5.01 or 5.03. Subsequent installments,
         if any, shall be paid as soon as administratively practicable following
         the anniversary of said distribution event in the following calendar
         year and each subsequent year of the installment period. The amount of
         each installment shall equal the balance in the Participant's Deferral
         Account as of each Reporting Date of determination divided by the
         number of remaining installments (including the installment being
         determined).
<PAGE>   15
                                                                         Page 12

(b)      Notwithstanding the foregoing, in the event payment is to be made
         pursuant to Section 5.01(d) to a Participant who does not have a
         Special Effective Termination Distribution Date election in effect as
         of his date of termination of employment, a lump sum payment shall be
         made as soon as administratively practicable following the Reporting
         Date coincident with or next following the Participant's termination of
         employment.

(c)      If a Participant dies before payment of the entire balance of his
         Deferral Account, an amount equal to the unpaid portion thereof as of
         the date of his death shall be payable in one lump sum to his
         Beneficiary as soon as practicable after the Reporting Date coincident
         with or next following the Participant's date of death.

(d)      A Participant shall not change his method of payment, except as
         otherwise provided in Section 5.03.

5.03     CHANGE OF DISTRIBUTION ELECTION

         A Participant may change his elections of a Common Distribution Date or
         a Special Effective Termination Distribution Date under Section 5.01 or
         the method of payment under Section 5.02 applicable to the portion of
         his Deferral Account payable at said dates each October by duly
         completing, executing, and filing with the Administrative Committee
         prior to such distribution date a new election on an appropriate form
         designated by the Administrative Committee; provided however, that for
         any such change of election to be effective it must be made in the
         calendar year prior to the calendar year during which any portion of
         the Participant's Deferral Account is first to become payable after
         taking the change into account and a full six months must pass between
         the date the Participant duly makes the change of election and the date
         on which any portion of the Participant's Deferral Account is first to
         become payable after taking the change into account.

5.04     HARDSHIP

         Payment of a Participant's Deferral Account shall not commence prior to
         a Participant's designated distribution date, except that the
         Compensation and Personnel Committee may, if it determines a severe
         unforeseeable financial hardship exists which cannot be met from other
         sources, approve a request by the Participant for a withdrawal from his
         Deferral Account. Such request shall be made in a time and manner
         determined by the Administrative Committee. The payment made from a
         Participant's Deferral Account pursuant to the provisions of this
         Section 5.04 shall not be in excess of the amount necessary to meet
         such financial hardship of the Participant, including amounts necessary
         to pay any federal, state or local income taxes.

5.05     PAYMENT UPON THE OCCURRENCE OF AN ACCELERATION EVENT

         Notwithstanding the foregoing provisions of this Article 5, upon the
         occurrence of an Acceleration Event, every Participant who is an
         Eligible Executive or a former Eligible Executive shall automatically
         receive the entire balance of his Deferral Accounts in a single lump
         sum payment. Such lump sum payment shall be made as soon as practicable
         on or after the Acceleration Event. If such Participant dies after such
         Acceleration Event, but before receiving such payment, it shall be made
         to his Beneficiary.
<PAGE>   16
                                                                         Page 13

5.06     TAX INCREASES

         Notwithstanding the provisions of Section 5.01, in the event a
         Participant's Deferral Account is being paid in installment payments
         under Section 5.02, and during said payout period Federal personal
         income tax rates for the highest marginal tax rate are scheduled to
         increase by 5 or more percentage points, at the direction of the
         Administrative Committee, any remaining installment payments to be paid
         after the effective date of such increase shall be paid in one lump sum
         prior to said effective date.

5.07     DESIGNATION OF BENEFICIARY

         Each Participant shall file with the Administrative Committee a written
         designation of one or more persons as the Beneficiary who shall be
         entitled to receive the amount, if any, payable under the Plan upon his
         death pursuant to Section 5.02(b) or 5.05. A Participant may, from time
         to time, revoke or change his Beneficiary designation without the
         consent of any prior Beneficiary by filing a new designation with the
         Administrative Committee. The last such designation received by the
         Administrative Committee shall be controlling; provided, however, that
         no designation, or change or revocation thereof, shall be effective
         unless received by the Administrative Committee prior to the
         Participant's death, and in no event shall it be effective as of a date
         prior to such receipt. If no such Beneficiary designation is in effect
         at the time of a Participant's death, or if no designated Beneficiary
         survives the Participant, the Participant's surviving spouse, if any,
         shall be his Beneficiary, otherwise the person designated as
         beneficiary by the Participant under the ITT Industries Salaried Group
         Life Insurance Plan shall be his Beneficiary, and shall receive the
         payment of the amount, if any, payable under the Plan upon his death;
         provided, however, that if the life insurance benefit has been
         assigned, the Beneficiary shall be the Participant's estate.

5.08     DEBITING ACCOUNTS

         Any amounts debited from a Participant's Deferral Account by reason of
         a distribution, withdrawal, or otherwise under this Article 5, shall be
         debited from the Participant's Deferral Account and the investment
         options under which such amount is credited, and such other accounts,
         subaccounts, options, or other allocations in the same proportion that
         the Participant's entire Deferral Account is credited at the time such
         debit is made, as determined by the Administrative Committee.
<PAGE>   17
                                                                         Page 14

                       ARTICLE 6. AMENDMENT OR TERMINATION

6.01     RIGHT TO TERMINATE

         Notwithstanding any Plan provision to the contrary, the Corporation
         may, by action of the Board of Directors, terminate this Plan and the
         related Deferral Agreements at any time. In the event the Plan and
         related Deferral Agreements are terminated, each Participant or
         Beneficiary shall receive a single sum payment in cash equal to the
         balance of the Participant's Deferral Account. The single sum payment
         shall be made as soon as practicable following the date the Plan is
         terminated and shall be in lieu of any other benefit which may be
         payable to the Participant or Beneficiary under this Plan.

6.02     RIGHT TO AMEND

         The Compensation and Personnel Committee or its delegate may amend or
         modify this Plan and the related Deferral Agreements in any way either
         retroactively or prospectively. However, except that without the
         consent of the Participant or Beneficiary, if applicable, no amendment
         or modification shall reduce or diminish such person's right to receive
         any benefit accrued hereunder prior to the date of such amendment or
         modification, and after the occurrence of an Acceleration Event, no
         modification or amendment shall be made to Section 5.05 or Section 6.01
         under Appendix A, attached hereto and made part hereof. A change in any
         investment fund or index under Section 4.01 shall not be deemed to
         adversely affect any Participant's rights to his Deferral Account.
         Notice of an amendment or modification to the Plan shall be given in
         writing to each Participant and Beneficiary of a deceased Participant
         having an interest in the Plan.
<PAGE>   18
                                                                         Page 15

                          ARTICLE 7. GENERAL PROVISIONS

7.01     FUNDING

         All amounts payable in accordance with this Plan shall constitute a
         general unsecured obligation of the Company. Such amounts, as well as
         any administrative costs relating to the Plan, shall be paid out of the
         general assets of the Company. The Administrative Committee may decide
         that a Participant's Deferral Account may be reduced to reflect
         allocable administrative expenses.

7.02     NO CONTRACT OF EMPLOYMENT

         The Plan is not a contract of employment and the terms of employment of
         any Participant shall not be affected in any way by this Plan or
         related instruments, except as specifically provided therein. The
         establishment of the Plan shall not be construed as conferring any
         legal rights upon any person for a continuation of employment, nor
         shall it interfere with the rights of the Company to discharge any
         person and to treat him without regard to the effect which such
         treatment might have upon him under this Plan. Each Participant and all
         persons who may have or claim any right by reason of his participation
         shall be bound by the terms of this Plan and all Deferral Agreements
         entered into pursuant thereto.

7.03     UNSECURED INTEREST

         Neither the Company nor the Compensation and Personnel Committee nor
         the Administrative Committee in any way guarantees the performance of
         the investment funds or indices a Participant may designate under
         Article 4. No special or separate fund shall be established, and no
         segregation of assets shall be made, to assure the payments thereunder.
         No Participant hereunder shall have any right, title, or interest
         whatsoever in any specific assets of the Company. Nothing contained in
         this Plan and no action taken pursuant to its provisions shall create
         or be construed to create a trust of any kind or a fiduciary
         relationship between the Company and a Participant or any other person.
         To the extent that any person acquires a right to receive payments
         under this Plan, such right shall be no greater than the right of any
         unsecured creditor of the Company.

7.04     FACILITY OF PAYMENT

         In the event that the Administrative Committee shall find that a
         Participant or Beneficiary is incompetent to care for his affairs or is
         a minor, the Administrative Committee may direct that any benefit
         payment due him, unless claim shall have been made therefor by a duly
         appointed legal representative, be paid on his behalf to his spouse, a
         child, a parent or other relative, and any such payment so made shall
         thereby be a complete discharge of the liability of the Company and the
         Plan for that payment.

7.05     WITHHOLDING TAXES

         The Company shall have the right to deduct from each payment to be made
         under the Plan any required withholding taxes.
<PAGE>   19
                                                                         Page 16

7.06     NONALIENATION

         Subject to any applicable law, no benefit under the Plan shall be
         subject in any manner to anticipation, alienation, sale, transfer,
         assignment, pledge, encumbrance or charge, and any attempt to do so
         shall be void, nor shall any such benefit be in any manner liable for
         or subject to garnishment, attachment, execution or levy, or liable for
         or subject to the debts, contracts, liabilities, engagements or torts
         of a person entitled to such benefits.

7.07     TRANSFERS

(a)      Notwithstanding any Plan provision to the contrary, in the event the
         Corporation (i) sells, causes the sale of, or sold the stock or assets
         of any employing company in the controlled group of the Corporation to
         a third party or (ii) distributes or distributed to the holders of
         shares of the Corporation's common stock all of the outstanding shares
         of common stock of a subsidiary or subsidiaries of the Corporation and,
         as a result of such sale or distribution, such company or its employees
         are no longer eligible to participate hereunder, the Compensation and
         Personnel Committee, in its sole discretion, may treat such event as
         not constituting a termination of employment and direct that the
         liabilities with respect to the benefits accrued under this Plan for a
         Participant who, as a result of such sale or distribution, is no longer
         eligible to participate in this Plan, shall (with the approval of the
         new employer), be transferred to a similar plan of such new employer
         and become a liability thereunder provided that no provisions of such
         new plan or amendment thereof shall reduce the balance of the
         Participants' Deferral Accounts as of the date of such transfer, as
         adjusted for investment gains or losses. Upon such transfer (and
         acceptance thereof), the liabilities for such transferred benefits
         shall become the obligation of the new employer and the liability under
         this Plan for such benefits shall cease.

(b)      Notwithstanding any Plan provision to the contrary, at the discretion
         and direction of the Corporation, liabilities with respect to benefits
         accrued by a Participant under a plan maintained by such Participant's
         former employer may be transferred to this Plan and upon such transfer
         become the obligation of the Company.

7.08     CLAIMS PROCEDURE

(a)      Submission of Claims

         Claims for benefits under the Plan shall be submitted in writing to the
         Administrative Committee or to an individual designated by the
         Administrative Committee for this purpose.

(b)      Denial of Claim

         If any claim for benefits is wholly or partially denied, the claimant
         shall be given written notice within 90 days following the date on
         which the claim is filed, which notice shall set forth the following:

         (i)      the specific reason or reasons for the denial;

         (ii)     specific reference to pertinent Plan provisions on which the
                  denial is based;
<PAGE>   20
                                                                         Page 17

         (iii)    a description of any additional material or information
                  necessary for the claimant to perfect the claim and an
                  explanation of why such material or information is necessary;
                  and

         (iv)     an explanation of the Plan's claim review procedure.

         If special circumstances require an extension of time for processing
         the claim, written notice of an extension shall be furnished to the
         claimant prior to the end of the initial period of 90 days following
         the date on which the claim is filed. Such an extension may not exceed
         a period of 90 days beyond the end of said initial period.

         If the claim has not been granted and written notice of the denial of
         the claim or that an extension has been granted is not furnished within
         90 days following the date on which the claim is filed, the claim shall
         be deemed denied for the purpose of proceeding to the claim review
         procedure.

 (c)     Claim Review Procedure

         The claimant or his authorized representative shall have 60 days after
         receipt of written notification of denial of a claim to request a
         review of the denial by making written request to the Administrative
         Committee, and may review pertinent documents and submit issues and
         comments in writing within such 60-day period.

         Not later than 60 days after receipt of the request for review, the
         Administrative Committee shall render and furnish to the claimant a
         written decision, which shall include specific reasons for the decision
         and shall make specific references to pertinent Plan provisions on
         which it is based. If special circumstances require an extension of
         time for processing, the decision shall be rendered as soon as
         possible, but not later than 120 days after receipt of the request for
         review, provided that written notice and explanation of the delay are
         given to the claimant prior to commencement of the extension. Such
         decision by the Administrative Committee shall not be subject to
         further review. If a decision on review is not furnished to a claimant
         within the specified time period, the claim shall be deemed to have
         been denied on review.

 (d)     Exhaustion of Remedy

         No claimant shall institute any action or proceeding in any state or
         federal court of law or equity or before any administrative tribunal or
         arbitrator for a claim for benefits under the Plan until the claimant
         has first exhausted the procedures set forth in this section.

7.09     PAYMENT OF EXPENSES

         All administrative expenses of the Plan and all benefits under the Plan
         shall be paid from the general assets of the Company, except as
         otherwise may be provided herein.
<PAGE>   21
                                                                         Page 18

7.10     CONSTRUCTION

 (a)     The Plan is intended to constitute an unfunded deferred compensation
         arrangement for a select group of management or highly compensated
         employees and, therefore, is exempt from the requirements of parts 2, 3
         and 4 of Subtitle B of Title I of ERISA (pursuant to Sections 201(2),
         301(a)(3) and 401(a)(1) of ERISA), and all rights hereunder shall be
         governed by ERISA. Subject to the preceding sentence, the Plan shall be
         construed, regulated and administered in accordance with the laws of
         the State of New York, subject to the provisions of applicable federal
         laws.

 (b)     The masculine pronoun shall mean the feminine wherever appropriate.

 (c)     The illegality of any particular provision of this document shall not
         affect the other provisions, and the document shall be construed in all
         respects as if such invalid provision were omitted.
<PAGE>   22
                                                                         Page 19

                            ARTICLE 8. ADMINISTRATION

8.01

(a)      The Administrative Committee appointed from time to time by the
         Compensation and Personnel Committee to serve at the pleasure of the
         Compensation and Personnel Committee shall have the exclusive
         responsibility and complete discretionary authority to control the
         operation, management and administration of the Plan, with all powers
         necessary to enable it properly to carry out such responsibilities,
         including, but not limited to, the power to interpret the Plan and any
         related documents, to establish procedures for making any elections
         called for under the Plan, to make factual determinations regarding any
         and all matters arising hereunder, including, but not limited to, the
         right to determine eligibility for benefits, the right to construe the
         terms of the Plan, the right to remedy possible ambiguities,
         inequities, inconsistencies or omissions, and the right to resolve all
         interpretive, equitable or other questions arising under the Plan. The
         decisions of the Administrative Committee or such other party as is
         authorized under the terms of any grantor trust on all matters shall be
         final, binding and conclusive on all persons to the extent permitted by
         law.

(b)      To the extent permitted by law, all agents and representatives of the
         Administrative Committee shall be indemnified by the Corporation and
         held harmless against any claims and the expenses of defending against
         such claims, resulting from any action or conduct relating to the
         administration of the Plan, except claims arising from gross
         negligence, willful neglect or willful misconduct.
<PAGE>   23
                                   APPENDIX A

       SPECIAL PROVISIONS APPLICABLE TO CERTAIN PARTICIPANTS WHO DEFERRED
                           BASE SALARY UNDER THIS PLAN

This Appendix A is applicable only with respect to a Participant who deferred
all or a portion of his Base Salary under the provisions of this Plan and who
(i) lost matching or other employer contributions under the ITT Industries
Investment and Savings Plan for Salaried Employees (or any predecessor plan) due
to the deferral of his Base Salary under this Plan, or (ii) had salary deferrals
attributable to such Base Salary credited on his behalf to the ITT Industries
Excess Savings Plan (or a predecessor plan) prior to January 1, 1996.

SECTION 1. - DEFINITIONS

1.01     "ACCOUNTS" shall mean the Deferred Account, Floor Contribution Account
         and the Matching Contribution Account.

1.02     "DEFERRED ACCOUNT" shall mean the bookkeeping account maintained for
         each Participant covered under this Appendix A to record the portion of
         Base Salary deferred under this Plan which was credited as a Salary
         Deferral under the ITT Industries Excess Savings Plan (or any
         predecessor plan) prior to January 1, 1996.

1.03     "MATCHING CONTRIBUTION ACCOUNT" shall mean the bookkeeping account
         maintained for each Participant covered under this Appendix A to record
         the Excess Matching Contribution (as defined under the ITT Industries
         Excess Savings Plan) credited on such Participant's behalf due to his
         deferral of Base Salary under this Plan.

1.04     "FLOOR CONTRIBUTION ACCOUNT" shall mean the bookkeeping account
         maintained for each Participant covered under this Appendix A to record
         the Excess Floor Contributions (as defined under the ITT Industries
         Excess Savings Plan) credited on such Participant's behalf due to his
         deferral of Base Salary under this Plan.

SECTION 2. - INVESTMENT OF ACCOUNTS

2.01     A Participant shall have no choice or election with respect to the
         investments of his Accounts. There shall be credited or debited an
         amount of earnings or losses on the balance of the Participant's
         Accounts which would have been credited had the Participant's Accounts
         been invested in the Stable Value Fund maintained under the ITT
         Industries Investment and Savings Plan for Salaried Employees.
<PAGE>   24
                                                                          Page 2

SECTION 3. - VESTING OF ACCOUNTS

3.01     A Participant shall be fully vested in his Deferred Account and Floor
         Contribution Account. The Participant shall vest in the amounts
         credited to his Matching Contribution Account at the same rate and
         under the same conditions at which such contributions would have vested
         under the ITT Industries Investment and Savings Plan for Salaried
         Employees had they been contributed thereunder. In the event the
         Participant terminates employment prior to vesting in all or any part
         of the amount credited on his behalf to his Matching Contribution
         Account, such contributions and earnings thereon shall be forfeited and
         shall not be restored in the event the Participant is subsequently
         reemployed by the Company.

3.02     Notwithstanding any provisions of this Plan or Appendix A to the
         contrary, upon the occurrence of an Acceleration Event, (as such term
         is defined in Article I of the Plan) a Participant shall become fully
         vested in the amounts credited to his Matching Contribution Account.

SECTION 4. - COMMENCEMENT OF PAYMENT

4.01     A Participant shall be entitled to receive payment of his Deferred
         Account, Floor Contribution Account and the vested portion of his
         Matching Contribution Account, as determined under Section 3.01, upon
         his termination of employment for any reason, other than death. The
         distribution of such Accounts shall be made as soon as practicable
         following such termination of employment.

4.02.    In the event of the death of a Participant prior to the full payment of
         his Accounts, the unpaid portion of his Accounts shall be paid to his
         Beneficiary (as defined in Section 1.05 of the Plan) as soon as
         practicable following his date of death.

SECTION 5. - METHOD OF PAYMENT

5.01     Payment of a Participant's Deferred Account, Floor Contribution
         Account, and the vested portion of his Matching Contribution Account
         shall be made in a single lump sum payment.

SECTION 6. - PAYMENT UPON THE OCCURRENCE OF AN ACCELERATION EVENT

6.01     Upon the occurrence of an Acceleration Event, all Participants shall
         automatically receive the entire balance of their Accounts in a single
         lump sum payment. Such lump sum payment shall be made as soon as
         practicable on or after the Acceleration Event. If the Participant dies
         after such Acceleration Event, but before receiving such payment, it
         shall be made to his Beneficiary.

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