NORTHROP GRUMMAN CORPORATION
JANUARY 2009 CHANGE IN CONTROL SEVERANCE PLAN
NORTHROP GRUMMAN CORPORATION
JANUARY 2009 CHANGE IN CONTROL SEVERANCE PLAN
Article 1. Establishment, Term, and
Purpose
1.1.
Establishment of the Plan . Northrop Grumman Corporation
(hereinafter referred to as the “Company”) established
a change in control severance plan known as the “Northrop
Grumman Corporation January 2009 Change in Control Severance
Plan” (the “Plan”). The Plan is effective
January 1, 2009 (the “Effective Date”). The Plan
supersedes the Northrop Grumman Corporation March 1, 2004
Change-in-Control Severance Plan in its entirety.
1.2. Term of
the Plan . This Plan will commence on the Effective Date and
shall continue in effect through December 31, 2009. However,
at the end of such initial term and, if extended, at the end of
each additional year thereafter, the term of this Plan shall be
extended automatically for one (1) additional year, unless the
Committee delivers written notice at least six (6) months
prior to the end of such term, or extended term, to each
Participant that this Plan will not be extended (a
“Non-Renewal Notice”), and if such notice is timely
given this Plan will terminate at the end of the term then in
progress; provided, however, that (i) this provision for
automatic extension shall have no application following a Change in
Control of the Company and (ii) a Non-Renewal Notice shall not
be effective if delivered during the Protected Period corresponding
to a Change in Control. Delivery of a Non-Renewal Notice shall not
constitute a repudiation or breach of this Plan and shall not
trigger any Participant’s right to benefits
hereunder.
However, in the
event a Change in Control occurs during the initial or any extended
term, this Plan will remain in effect for the longer of:
(i) twenty-four (24) months beyond the month in which
such Change in Control occurred; or (ii) until all obligations
of the Company hereunder have been fulfilled, and until all
benefits required hereunder have been paid to Participants. Any
subsequent Change in Control (“Subsequent Change in
Control”) that occurs during the original or any extended
term shall also continue the term of this Plan until the later of:
(i) twenty-four (24) months beyond the month in which
such Subsequent Change in Control occurred; or (ii) until all
obligations of the Company hereunder have been fulfilled, and until
all benefits required hereunder have been paid to Participants;
provided, however, that if a Subsequent Change in Control occurs,
it shall only be considered a Change in Control under this Plan if
it occurs no later than twenty-four (24) months after the
immediately preceding Change in Control or Subsequent Change in
Control.
1.3. Purpose
of the Plan . The purpose of this Plan is to provide for
continuity in the management of the Company by offering certain key
employees of the Company employment protection and financial
security in the event of a Change in Control of the
Company.
1.4. ERISA
. This Plan is intended as (i) a pension plan within the
meaning of Section 3(2) of ERISA, and (ii) an unfunded
pension plan maintained by the Company for a select group of
management or highly compensated employees within the meaning of
Department of Labor Regulation 2520.104-23 promulgated under
ERISA, and Sections 201, 301, and 401 of ERISA.
1
Whenever used in
this Plan, the following terms shall have the meanings set forth
below and, when the meaning is intended, the initial letter of the
word is capitalized:
|
|
(a)
|
|
“Base Salary” means the
salary of record paid to a Participant by the Company as annual
salary (whether or not deferred), but excludes amounts received
under incentive or other bonus plans.
|
|
|
|
|
|
|
|
(b)
|
|
“Beneficial Owner” shall
have the meaning ascribed to such term in Rule 13d-3 of the
General Rules and Regulations under the Exchange Act.
|
|
|
|
|
|
|
|
(c)
|
|
“Beneficiary” in the
event of a Participant’s death means the Participant’s
devisee, legatee, or other designee, or if there is no such
designee, the Participant’s estate.
|
|
|
|
|
|
|
|
(d)
|
|
“Board” means the Board
of Directors of the Company.
|
|
|
|
|
|
|
|
(e)
|
|
“Cause” means the
occurrence of either or both of the following:
|
|
|
(i)
|
|
The
Participant’s conviction for committing an act of fraud,
embezzlement, theft, or other act constituting a felony (other than
traffic related offenses or as a result of vicarious liability);
or
|
|
|
|
|
|
|
|
(ii)
|
|
The
willful engaging by the Participant in misconduct that is
significantly injurious to the Company. However, no act, or failure
to act, on the Participant’s part shall be considered
“willful” unless done, or omitted to be done, by the
Participant not in good faith and without reasonable belief that
his or her action or omission was in the best interest of the
Company.
|
|
|
(f)
|
|
“Change in Control” of
the Company shall be deemed to have occurred as of the first day
that any one or more of the following conditions shall have been
satisfied:
|
|
|
(i)
|
|
Any
Person (other than those Persons in control of the Company as of
the Effective Date, or other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or
any affiliate of the Company or a successor) becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of either
(1) the then-outstanding shares of common stock of the Company
(the “Outstanding Company Common Stock”) or
(2) the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting
Securities”); provided, however, that for purposes of this
clause (i): (A) “Person” or “group” shall
not include underwriters acquiring newly issued voting securities
(or securities convertible into voting securities) directly from
the Company with a view towards distribution, (B) creditors of
the Company who become stockholders of the Company in connection
with any bankruptcy of the Company under the laws of the United
States shall not, by virtue of such bankruptcy, be deemed a
“group” or a single Person for the purposes of this
clause (i) (provided that any one of such creditors may trigger a
Change in Control pursuant to this clause (i) if
such
|
2
|
|
|
|
creditor’s ownership of
Company securities equals or exceeds the foregoing threshold), and
(C) an acquisition shall not constitute a Change in Control if
made by an entity pursuant to a transaction that is covered by and
does not otherwise constitute a Change in Control under clause
(iii) below;
|
|
|
|
|
|
|
|
(ii)
|
|
On
any day after the Effective Date (the “Measurement
Date”), Continuing Directors cease for any reason to
constitute either: (1) if the Company does not have a Parent,
a majority of the Board; or (2) if the Company has a Parent, a
majority of the Board of Directors of the Controlling Parent. A
director is a “Continuing Director” if he or she
either:
|
|
|
(1)
|
|
was
a member of the Board on the applicable Initial Date (an
“Initial Director”); or
|
|
|
|
|
|
|
|
(2)
|
|
was
elected to the Board (or the Board of Directors of the Controlling
Parent, as applicable), or was nominated for election by the
Company’s or the Controlling Parent’s stockholders, by
a vote of at least two-thirds (2/3) of the Initial Directors then
in office.
|
|
|
|
|
A
member of the Board (or Board of Directors of the Controlling
Parent, as applicable) who was not a director on the applicable
Initial Date shall be deemed to be an Initial Director for purposes
of clause (2) above if his or her election, or nomination for
election by the Company’s or the Controlling Parent’s
stockholders, was approved by a vote of at least two-thirds (2/3)
of the Initial Directors (including directors elected after the
applicable Initial Date who are deemed to be Initial Directors by
application of this provision) then in office.
|
|
|
|
|
|
|
|
|
|
“Initial Date” means the
later of (1) the Effective Date or (2) the date that is
two (2) years before the Measurement Date.
|
|
|
|
|
|
|
|
(iii)
|
|
Consummation of a reorganization,
merger, statutory share exchange or consolidation or similar
corporate transaction involving the Company or any of its
subsidiaries, a sale or other disposition of all or substantially
all of the assets of the Company, or the acquisition of assets or
stock of another entity by the Company or any of its subsidiaries
(each, a “Business Combination”), in each case unless,
following such Business Combination, (1) all or substantially
all of the individuals and entities that were the Beneficial Owners
of the Outstanding Company Common Stock and the Outstanding Company
Voting Securities immediately prior to such Business Combination
Beneficially Own, directly or indirectly, more than sixty percent
(60%) of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the entity resulting from such Business Combination
(including, without limitation, an entity that, as a result of such
transaction, is a Parent of the Company or the successor of the
Company) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities,
as the case may be, (2) no Person (excluding any entity
resulting from such Business Combination or a Parent of the Company
or any successor of the
|
3
|
|
|
|
Company or any employee benefit plan
(or related trust) of the Company or such entity resulting from
such Business Combination or a Parent of the Company or the
successor entity) Beneficially Owns, directly or indirectly,
twenty-five percent (25%) or more of, respectively, the
then-outstanding shares of common stock of the entity resulting
from such Business Combination or the combined voting power of the
then-outstanding voting securities of such entity, except to the
extent that the ownership in excess of twenty-five percent (25%)
existed prior to the Business Combination, and (3) a Change in
Control is not triggered pursuant to clause (ii) above with
respect to the Company (including any successor entity) or any
Parent of the Company (or the successor entity).
|
|
|
|
|
|
|
|
(iv)
|
|
A
complete liquidation or dissolution of the Company other than in
the context of a transaction that does not constitute a Change in
Control of the Company under clause (iii) above.
|
|
|
|
|
Notwithstanding the foregoing, in no
event shall a transaction or other event that occurred prior to the
Effective Date constitute a Change in Control. Notwithstanding
anything in clause (iii) above to the contrary, a change in
ownership of the Company resulting from creditors of the Company
becoming stockholders of the Company in connection with any
bankruptcy of the Company under the laws of the United States shall
not trigger a Change in Control pursuant to clause
(iii) above.
|
|
|
|
|
|
|
|
(g)
|
|
“Code” means the United
States Internal Revenue Code of 1986, as amended.
|
|
|
|
|
|
|
|
(h)
|
|
“Committee” means the
Compensation Committee of the Board, or any other committee
appointed by the Board to perform the functions of the Compensation
Committee.
|
|
|
|
|
|
|
|
(i)
|
|
“Company” means Northrop
Grumman Corporation, a Delaware corporation (including, for
purposes of determining whether a Participant is employed by the
Company, any and all subsidiaries specified by the Committee), or
any successor thereto as provided in Article 10.
Notwithstanding any other provision of this Plan to the contrary,
the term “Company” shall mean, for the following
purposes, the Company and any entity with respect to which the
Company, directly or indirectly, has majority voting control (the
“NGC Group”): (i) with respect to determining a
Participant’s total Base Salary, bonus and other
compensation; (ii) the Participant shall not have a
termination of employment, including a Qualifying Termination,
unless he or she is no longer employed by any member of the NGC
Group (any transfer of a Participant from one member of the NGC
Group to another member of the NGC Group shall not cause the
Participant to cease being covered by this Plan); and
(iii) with respect to any reference to a benefit or
compensation plan or program maintained by the Company.
|
|
|
|
|
|
|
|
(j)
|
|
“Controlling Parent”
means the Company’s Parent so long as a majority of the
voting stock or voting power of that Parent is not Beneficially
Owned, directly or indirectly through one or more subsidiaries, by
any other Person. In the event that the Company has more than one
“Parent,” then “Controlling Parent” shall
mean the Parent of the Company the majority of the voting stock or
voting power of which is not Beneficially Owned, directly or
indirectly through one or more subsidiaries, by any other
Person.
|
4
|
|
(k)
|
|
“Disability” with
respect to a particular Participant means disability as defined in
the Company’s long-term disability plan in which the
Participant participates at the relevant time or, if the
Participant does not participate in a Company long-term disability
plan at the relevant time, as such term is defined in the
Company’s principal long-term disability plan that generally
covers the Company’s senior-level executives at that
time.
|
|
|
|
|
|
|
|
(l)
|
|
“Effective Date” means
January 1, 2009.
|
|
|
|
|
|
|
|
(m)
|
|
“Effective Date of
Termination” means the date on which a Qualifying Termination
occurs.
|
|
|
|
|
|
|
|
(n)
|
|
“ERISA” means the
Employee Retirement Income Security Act of 1974, as
amended.
|
|
|
|
|
|
|
|
(o)
|
|
“Exchange Act” means the
United States Securities Exchange Act of 1934, as
amended.
|
|
|
|
|
|
|
|
(p)
|
|
“Good Reason” means,
without the Participant’s express written consent, the
occurrence of any one or more of the following:
|
|
|
(i)
|
|
A
material and substantial reduction in the nature or status of the
Participant’s authorities or responsibilities (when such
authorities and/or responsibilities are viewed in the aggregate)
from their level in effect on the day immediately prior to the
start of the Protected Period, other than (A) an inadvertent
act that is remedied by the Company promptly after receipt of
notice thereof given by the Participant, and/or (B) changes in
the nature or status of the Participant’s authorities or
responsibilities that, in the aggregate, would generally be viewed
by a nationally-recognized executive placement firm as resulting in
the participant having not materially and substantially fewer
authorities and responsibilities (taking into consideration the
Company’s industry) when compared to the authorities and
responsibilities applicable to the position held by the Participant
immediately prior to the start of the Protected Period. For the
purpose of the preceding test, the Participant and the Company
shall mutually agree on a nationally-recognized consulting firm;
provided that, if agreement cannot timely be reached, the Company
and the Participant shall each timely choose a nationally
recognized firm and representatives of these two firms shall
promptly choose a third firm, which third firm will make the
determination referred to in the preceding sentence. The written
opinion of the firm thus selected may be admitted in any
arbitration pursuant to Section 9.4 and shall be conclusive as
to this issue.
|
|
|
|
|
|
|
|
|
|
In
addition, if the Participant is a vice president, the
Participant’s loss of vice-president status will constitute
“Good Reason”; provided that the loss of the title of
“vice president” will not, in and of itself, constitute
Good Reason if the Participant’s lack of a vice president
title is generally consistent with the manner in which the title of
vice president is used within the Participant’s business unit
or if the loss of the title is the result of a promotion to a
higher level office. For the purposes of the preceding sentence,
the Participant’s lack of a vice-president title will only be
considered generally consistent with the manner in which such title
is used if most persons in the business unit with authorities,
duties, and responsibilities comparable to those of the Participant
immediately prior to the commencement of the Protected Period do
not have the title of vice-president.
|
5
|
|
(ii)
|
|
A
reduction by the Company in the Participant’s Base Salary as
in effect on the Effective Date or as the same shall be increased
from time to time.
|
|
|
|
|
|
|
|
(iii)
|
|
A
material reduction in the aggregate value of the
Participant’s level of participation in any of the
Company’s short and/or long-term incentive compensation plans
(excluding stock-based incentive compensation plans), employee
benefit or retirement plans, or policies, practices, or
arrangements in which the Participant participates immediately
prior to the start of the Protected Period provided; however, that
a reduction in the aggregate value shall not be deemed to be
“Good Reason” if the reduced value remains
substantially consistent with the average level of other employees
who have positions commensurate with the position held by the
Participant immediately prior to the start of the Protected
Period.
|
|
|
|
|
|
|
|
(iv)
|
|
A
material reduction in the Participant’s aggregate level of
participation in the Company’s stock-based incentive
compensation plans from the level in effect immediately prior to
the start of the Protected Period; provided, however, that a
reduction in the aggregate level of participation shall not be
deemed to be “Good Reason” if the reduced level of
participation remains substantially consistent with the average
level of participation of other employees who have positions
commensurate with the position held by the Participant immediately
prior to the start of the Protected Period.
|
|
|
|
|
|
|
|
(v)
|
|
The
failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Plan,
as required in Article 10.
|
|
|
|
|
|
|
|
(vi)
|
|
Any
purported termination by the Company of the Participant’s
employment that is not effected pursuant to a Notice of Termination
satisfying the requirements of Section 4.8 and for purposes of
this Plan, no such purported termination shall be
effective.
|
|
|
|
|
|
|
|
(vii)
|
|
The
Participant is informed by the Company that his or her principal
place of employment for the Company will be relocated to a location
that is greater than fifty (50) miles away from the
Participant’s principal place of employment for the Company
at the start of the corresponding Protected Period; provided that,
if the Company communicates an intended effective date for such
relocation, in no event shall Good Reason exist pursuant to this
clause (vii) more than ninety (90) days before such
intended effective date.
|
|
|
|
|
|
|
|
(viii)
|
|
The
Company or any successor company repudiates or breaches any of the
provisions of this Plan.
|
|
|
|
|
The
Participant’s right to terminate employment for Good Reason
shall not be affected by the Participant’s incapacity due to
physical or mental illness. The Participant’s continued
employment shall not constitute a consent to, or a waiver of rights
with respect to, any circumstances constituting Good Reason
herein.
|
6
|
|
(q)
|
|
“Key Employee” means an
employee treated as a “specified employee” as of his or
her Separation from Service under Code section 409A(a)(2)(B)(i) of
the Company or its affiliate (i.e., a key employee (as defined in
Code section 416(i) without regard to paragraph (5) thereof))
if the Company’s stock is publicly traded on an established
securities market or otherwise. The Company shall determine in
accordance with a uniform Company policy which individuals are Key
Employees as of each December 31 in accordance with IRS
regulations or other guidance under Code section 409A, provided
that in determining the compensation of individuals for this
purpose, the definition of compensation in Treas. Reg. §
1.415(c)-2(d)(3) shall be used. Such determination shall be
effective for the twelve (12) month period commencing on April
1 of the following year.
|
|
|
|
|
|
|
|
(r)
|
|
“Parent” means an entity
that Beneficially Owns a majority of the voting stock or voting
power of the Company, or all or substantially all of the
Company’s assets, directly or indirectly through one or more
subsidiaries.
|
|
|
|
|
|
|
|
(s)
|
|
“Participant” means an
employee of the Company who fulfills the eligibility and
participation requirements, as provided in
Article 3.
|
|
|
|
|
|
|
|
(t)
|
|
“Person” shall have the
meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a “group” as defined in Section 13(d)
thereof.
|
|
|
|
|
|
|
|
(u)
|
|
“Plan” means this
Northrop Grumman Corporation January 2009 Change In Control
Severance Plan.
|
|
|
|
|
|
|
|
(v)
|
|
“Qualifying Termination”
has the meaning given to such term in
Section 4.3(a).
|
|
|
|
|
|
|
|
(w)
|
|
“Separation from
Service” or “Separate from Service” means a
“separation from service” within the meaning of
Section 409A of the Code.
|
|
|
|
|
|
|
|
(x)
|
|
“Severance Benefits”
means the payments and/or benefits provided in Section
4.4.
|
3.1. Eligible
Employees . Individuals eligible to participate in this Plan
shall include such employees of the Company as may be determined by
the Committee in its sole discretion.
3.2.
Participation . Subject to the terms of this Plan, the
Committee or its delegate may, from time to time select from all
eligible employees those who shall participate in this Plan. The
Committee or its delegate also may, from time to time and by
written notice to the affected Participant(s), remove any
previously selected Participant(s) from continued participation in
this Plan; provided that any removal of a Participant shall not be
effective if it occurs after the commencement of the Protected
Period (as such term is defined in Section 4.3(b)).
Article 4. Severance
Benefits
4.1. Right to
Severance Benefits . A Participant shall be entitled to receive
from the Company Severance Benefits, as described in
Section 4.4, if the Participant has incurred a Qualifying
Termination.
7
A Participant
shall not be entitled to receive Severance Benefits if his or her
employment terminates (regardless of the reason) before the
Protected Period (as such term is defined in Section 4.3(b))
corresponding to a Change in Control of the Company or more than
twenty-four (24) months after the date of a Change in Control of
the Company.
4.2. Services
During Certain Events . In the event a Person begins a tender
or exchange offer, circulates a proxy to stockholders of the
Company, or takes other steps seeking to effect a Change in
Control, the Participant shall not voluntarily leave the employ of
the Company and shall continue to render services until the later
of (i) the date such Person has abandoned or terminated his or
her or its efforts to effect a Change in Control, and (ii) the
date that is six (6) months after a Change in Control has
occurred. Notwithstanding the foregoing, the Company may terminate
the Participant’s employment for Cause at any time, and the
Participant may terminate his or her employment at any time after
the Change in Control for Good Reason.
4.3.
Qualifying Termination .
|
|
(a)
|
|
Subject to Sections 4.3(c),
4.3(d), 4.5, 4.6 and 4.7, the occurrence of any one or more of the
following events within the Protected Period corresponding to a
Change in Control of the Company, or within twenty-four
(24) calendar months following the date of a Change in Control
of the Company shall constitute a “Qualifying
Termination”:
|
|
|
(i)
|
|
An
involuntary termination of the Participant’s employment by
the Company for reasons other than Cause; or
|
|
|
|
|
|
|
|
(ii)
|
|
A
voluntary termination of employment by the Participant for Good
Reason.
|
|
|
|
|
If
more than one of the events set forth in this Section 4.3(a)
occurs, such events shall constitute but a single Qualifying
Termination and the Participant shall be entitled to but a single
payment of the Severance Benefits.
|
|
|
|
|
|
|
|
(b)
|
|
The
“Protected Period” corresponding to a Change in Control
of the Company shall be a period of time determined in accordance
with the following:
|
|
|
(i)
|
|
If
the Change in Control is triggered by a tender offer for shares of
the Company’s stock or by the offeror’s acquisition of
shares pursuant to such a tender offer, the Protected Period shall
commence on the date of the initial tender offer and shall continue
through and including the date of the Change in Control; provided
that in no case will the Protected Period commence earlier than the
date that is six (6) months prior to the Change in
Control.
|
|
|
|
|
|
|
|
(ii)
|
|
If
the Change in Control is triggered by a merger, consolidation, or
reorganization of the Company with or involving any other
corporation, the Protected Period shall commence on the date that
serious and substantial discussions first take place to effect the
merger, consolidation, or reorganization and shall continue through
and including the date of the Change in Control; provided that in
no case will the Protected Period commence earlier than the date
that is six (6) months prior to the Change in
Control.
|
8
|
|
(iii)
|
|
In
the case of any Change in Control not described in clause (i) or
(ii) above, the Protected Period shall commence on the date
that is six (6) months prior to the Change in Control and shall
continue through and including the date of the Change in
Control.
|
|
|
(c)
|
|
Notwithstanding anything else
contained herein to the contrary, a Participant’s termination
of employment on account of reaching mandatory retirement age, as
such age may be defined from time to time in policies adopted by
the Company prior to the commencement of the Protected Period, and
consistent with applicable law, shall not be a Qualifying
Termination.
|
|
|
|
|
|
|
|
(d)
|
|
Notwithstanding anything else
contained herein to the contrary, the termination of a
Participant’s employment (or other events giving rise to Good
Reason) shall not constitute a Qualifying Termination if there is
objective evidence that, as of the commencement of the Protected
Period, the Participant had specifically been identified by the
Company as an employee whose employment would be terminated as part
of a corporate restructuring or downsizing program that commenced
prior to the Protected Period and such termination of employment
was expected at that time to occur within six
(6) months.
|
|
|
|
|
|
|
|
(e)
|
|
Notwithstanding anything else
contained herein to the contrary (other than those provisions that
contain an express exception to this Section 4.3(e)), a
Participant’s Severance Benefits under this Plan shall be
reduced by the severance benefits (including, without limitation,
any other change in control severance benefits and any other
severance benefits generally) that the Participant may be entitled
to under any other plan, program, agreement or other arrangement
with the Company (including, without limitation, any such benefits
provided for by an employment agreement, a current or any prior
Northrop Grumman Corporation Special Agreement, or under any
predecessor Northrop Grumman Corporation Change-In-Control
Severance Plan); provided that if the Participant is otherwise
entitled to receive Severance Benefits under this Plan and under a
Northrop Grumman Corporation Special Agreement (version
January 2009 or later), benefits shall be paid under the
Northrop Grumman Corporation Special Agreement rather than under
this Plan. For purposes of the foregoing, any cash severance
benefits payable to the Participant under any other plan, program,
agreement or other arrangement with the Company shall offset the
cash severance benefits otherwise payable to the Participant under
this Plan on a dollar-for-dollar basis. For purposes of the
foregoing, non-cash severa
|
|
