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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ............ to ...............
Commission File Number 1-2833
RAYTHEON COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-1760395
(State or Other Jurisdiction of (I.R.S.Employer Identification No.)
Incorporation or Organization)
141 SPRING STREET, LEXINGTON, MASSACHUSETTS 02173
(Address of Principal Executive Offices) (Zip Code)
(617) 862-6600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No
--- ---
NUMBER OF COMMON SHARES OUTSTANDING AT JUNE 30, 1996: 236,361,038
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RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS (Unaudited)
June 30, 1996 Dec. 31, 1995
------------- -------------
(In thousands)
ASSETS
Cash and marketable securities $ 212,290 $ 210,284
Accounts receivable 1,170,523 926,800
Federal and foreign income taxes,
including deferred 228,049 196,711
Contracts in process, less progress payments 2,604,650 2,212,689
Inventories 1,713,488 1,502,983
Prepaid expenses 218,470 225,751
----------- -----------
Total current assets 6,147,470 5,275,218
Property, plant and equipment, net 1,712,685 1,584,035
Intangible assets 3,167,820 2,572,347
Other assets, net 592,948 409,344
----------- -----------
$11,620,923 $ 9,840,944
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current portion
of long-term debt $ 2,618,243 $ 1,216,039
Accounts payable 1,300,928 1,041,848
Advance payments, less contracts in process 358,670 343,470
Accrued expenses 1,149,207 1,089,066
----------- -----------
Total current liabilities 5,427,048 3,690,423
Accrued retiree benefits 264,251 270,025
Federal and foreign income taxes,
including deferred 96,006 100,797
Long-term debt 1,496,071 1,487,735
Stockholders' equity 4,337,547 4,291,964
----------- -----------
$11,620,923 $ 9,840,944
=========== ===========
The accompanying notes are an integral part of the financial statements.
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<TABLE>
<CAPTION>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended
June 30, 1996 July 02, 1995 June 30, 1996 July 02, 1995
------------- ------------- ------------- -------------
(In thousands except per share data)
<S> <C> <C> <C> <C>
Net Sales $3,111,894 $2,816,072 $5,881,317 $5,203,188
---------- ---------- ---------- ----------
Cost of sales 2,416,409 2,116,287 4,539,112 3,941,842
Administrative and selling expenses 262,569 284,073 527,297 514,418
Research and development expenses 90,002 89,812 177,464 164,877
---------- ---------- ---------- ----------
Total operating expenses 2,768,980 2,490,172 5,243,873 4,621,137
--------- ---------- ---------- ----------
Operating income 342,914 325,900 637,444 582,051
---------- ---------- ---------- ----------
Interest expense 60,694 50,333 114,857 73,011
Interest and dividend income (15,335) (8,457) (38,898) (16,960)
Other income, net (16,302) (13,285) (34,440) (37,123)
---------- ---------- ---------- -----------
Non-operating expense, net 29,057 28,591 41,519 18,928
---------- ----------- ---------- -----------
Income before taxes 313,857 297,309 595,925 563,123
Federal and foreign income taxes 104,460 101,815 200,042 193,693
---------- ----------- ---------- -----------
Net income $ 209,397 $ 195,494 $ 395,883 $ 369,430
========== =========== ========== ===========
Earnings per common share $0.88 $0.80 $1.66 $1.51
Average number of common shares
outstanding during period 237,474 244,870 238,783 245,606
Dividends declared per common share $0.20 $0.1875 $0.40 $0.3750
The accompanying notes are an integral part of the financial statements.
</TABLE>
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RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
June 30, 1996 July 02, 1995
------------- -------------
(In thousands)
Cash flows from operating activities:
Net income $ 395,883 369,430
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 175,600 164,619
Sale of long-term receivables 255,600 355,100
Other adjustments, net (984,337) (671,912)
---------- ------------
Net cash (used) provided by operating activities (157,254) 217,237
----------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment (203,853) (134,208)
Payment for purchase of acquired companies,
net of cash received (584,390) (2,298,493)
Proceeds from sale of operating subsidiary, net 66,551 0
Intangible and deferred assets (210,496) (62,922)
All other, net 18,288 30,046
----------- -----------
Net cash used in investing activities (913,900) (2,465,577)
----------- -----------
Cash flows from financing activities:
Change in short-term debt 1,398,236 2,121,604
Change in long-term debt (256) 370,619
Dividends (95,136) (91,870)
Purchase of treasury shares (260,261) (139,934)
Proceeds under common stock plans 25,913 29,497
All other, net 5,853 (1,793)
----------- -----------
Net cash provided by financing activities 1,074,349 2,288,123
----------- -----------
Effect of foreign exchange rates on cash (1,013) 1,852
----------- -----------
Net increase in cash and cash equivalents 2,182 41,635
Cash and cash equivalents at beginning of year 208,614 200,938
----------- -----------
Cash and cash equivalents at end of second quarter $ 210,796 $ 242,573
=========== ===========
The accompanying notes are an integral part of the financial statements.
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RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
NOTES TO FINANCIAL STATEMENTS
(1) Details of certain balance sheet accounts are as follows:
June 30, 1996 Dec. 31,1995
------------- ------------
(In thousands)
Cash and marketable securities
Cash and cash equivalents $ 210,796 $ 208,614
Marketable securities 1,494 1,670
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Total cash and marketable securities $ 212,290 $ 210,284
========== ==========
Inventories
Finished goods $ 605,499 $ 596,080
Work in process 779,709 628,786
Material and purchased parts 505,005 454,719
Excess of current cost over LIFO values (176,725) (176,602)
---------- ----------
Total Inventories $1,713,488 $1,502,983
========== ==========
Property, plant and equipment
At cost $4,366,821 $4,115,748
Accumulated depreciation and amortization (2,654,136) (2,531,713)
---------- ----------
Net property, plant and equipment $1,712,685 $1,584,035
========== ==========
Stockholders' equity
Preferred stock, no outstanding shares $ - $ -
Common stock, outstanding shares 236,361 240,690
Additional paid-in capital 277,882 258,708
Equity adjustments (15,745) 5,071
Retained earnings 3,839,049 3,787,495
---------- ----------
Total stockholders' equity $4,337,547 $4,291,964
========== ==========
(2) The company recorded in the first quarter of 1994 a restructuring
provision of $249.8 million before tax. The restructuring was driven by
the significant reductions in the defense budget and increasing
commercial competition. Approximately 65 percent of the restructuring
costs are attributable to the company's defense business and the
remainder to its commercial business. The company completed personnel
reductions of 4,400 people under this restructuring provision,
including both salaried and bargaining unit employees located in
Massachusetts and other states and in foreign locations. Through June
30, 1996, $246.8 million of restructuring costs have been incurred, of
which $103.2 million was employee related costs and $143.6 million was
related principally to asset disposals and idle facilities.
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(3) Common shares outstanding and all per share data have been restated for
the two-for-one stock split on October 23, 1995.
(4) The information furnished has been prepared from the accounts without
audit. In the opinion of managenent, the information reflects all
adjustments, which are of a normal recurring nature, necessary for a
fair presentation of the financial statements for the interim periods.
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Second Quarter 1996 versus 1995
Raytheon Company reported record second quarter earnings of $209.4 million, or
$.88 per share, on record sales of $3.112 billion. In the same period last year,
earnings were $195.5 million, or $.80 per share on sales of $2.816 billion.
The company's second quarter was led by increased overall commercial sales and
profits and the company ended the quarter with a record total backlog.
The company continued to strengthen as a diversified commercial company and
remained a top tier player in a consolidating defense industry due to the
performance of Raytheon E-Systems. During the quarter, the company acquired the
engineering and construction assets of Rust International, the aircraft
modification and defense electronics businesses of Chrysler Technologies and the
marine communication assets of Standard Radio AB of Sweden.
The Aircraft segment reported increased second quarter sales and profits versus
the second quarter of 1995 due to higher sales to commercial and U.S. government
customers.
The Engineering and Construction segment had record second quarter sales and
backlog. Earnings were down from the second quarter of 1995 due to a fee
adjustment on a major foreign project. Earnings were a record for the second
quarter before the fee adjustment.
The Major Appliances segment had record second quarter sales and increased
profits due principally to increased shipments of refrigeration and heating and
air conditioning products and improved margins.
The Electronics segment had increased second quarter sales and profits due to
the contribution of E-Systems and continuing strong returns at commercial
electronics. Sales and income were down at Raytheon Electronics Systems'
Massachusetts-based defense operations due to the continued decline in defense
procurement--however, the rate of decline slowed considerably.
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Sales to the U.S. government were $1.286 billion, an increase of $119 million
or 10.2 percent from the comparable quarter of 1995. U.S. government sales were
41.3 percent of consolidated net sales in 1996 compared with 41.4 percent in
1995.
Administration and selling expenses decreased to $262.6 million in
1996 from $284.1 million in 1995 due principally to the sale of D.C. Heath and
Xyplex.
Research and development expenses were $90.0 million and 2.9 percent of sales in
1996 versus $89.8 million and 3.2 percent of sales in 1995.
Operating income was $342.9 million and 11.0 percent of sales in 1996 versus
$325.9 million and 11.6 percent of sales in 1995. Operating income was up
5.2 percent from 1995 as earnings from the commercial operations and
strategic acquisitions more than offset the high margins earned by D. C.
Heath in the second quarter of 1995. Excluding the contribution of D.C. Heath,
which was a highly seasonal business sold in the fourth quarter of 1995, net
sales and operating income were up 12.6 percent and 12.4 percent for the second
quarter
Interest expense for 1996 increased to $60.7 million from $50.3 million in 1995.
The increase was due principally to the higher debt level from the acquisition
of E-Systems.
Interest and dividend income for 1996 increased to $15.3 million from
$8.5 million in 1995 due to accrued interest before tax on a federal income tax
refund claim.
Other income (net) for 1996 increased to $16.3 million from $13.4 million in
1995. The 1996 results include $20 million before tax from the release of a
contingency reserve associated with the recent sale of a business, partially
offset by increased goodwill amortization from the acquisition of E-Systems. The
1995 results include a gain of $6.8 million before tax on the sale of a stock
held for investment.
The 1996 effective tax rate of 33.3 percent reflects the statutory rate of 35
percent reduced principally by Foreign Sales Corporation tax credits and
incremental research and development tax credits applicable to certain
government contracts, partially offset by non-deductible amortization of
goodwill.
For reasons discussed above, net income increased by $13.9 million or 7.1
percent from 1995.
Earnings per common share increased by 10 percent to $.88 for the second quarter
of 1996 from $.80 for the second quarter of 1995.
The average number of shares outstanding during the second quarter of 1996 was
237.5 million versus 244.9 million in 1995. During the quarter, outstanding
shares were increased by approximately 299,000 due to the exercise of employee
stock options. This was offset by the repurchase of 299,000 shares in the open
market at a cost of $15.1 million. The company also repurchased an additional
2.9 million shares at a cost of $149.1 million.
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Six Months 1996 Versus 1995
Consolidated net sales during the first six months of 1996 increased by 13
percent to $5.881 billion from $5.203 billion in 1995. Sales increased in all
four business segments.
Sales to the U.S. government were $2.432 billion in the first half of 1996
versus $2.042 billion in 1995 and were 41.4 percent of consolidated net sales in
1996 versus 39.2 percent in 1995.
Operating income was $637.4 million or 10.8 percent of sales in 1996 versus
$582.1 million or 11.2 percent of sales in 1995.
Non-operating expense was $41.5 million in 1996 versus $18.9 million in 1995.
Interest expense increased to $114.9 million in 1996 versus $73.0 million in
1995 due principally to the acquisition of E-Systems. Interest and dividend
income increased to $38.9 million versus $17.0 million in 1995 due principally
to accrued interest before tax on a federal income tax refund claim. Other
income (net) was $34.4 million in 1996 versus $37.1 million in 1995.
The effective tax rate of 33.6 percent in 1996 reflects the statutory rate of 35
percent reduced principally by Foreign Sales Corporation tax credits and
incremental research and development tax credits applicable to certain
government contracts, partially offset by non-deductible amortization of
goodwill.
For reasons discussed above, net income for 1996 increased by $26.5 million or
7.2 percent to $395.9 million from 1995 net income of $369.4 million.
Earnings per share increased by 9.9 percent to $1.66 for the first six months of
1996 versus $1.51 for the comparable 1995 period. The average number of common
shares outstanding was 238.8 million for the first six months of 1996 versus
245.6 million for the comparable 1995 period. During the first six months of
1996, outstanding shares were increased by 869,000 due to the exercise of
employee stock options. This was offset by the repurchase of approximately
869,000 shares on the open market at a cost of $43.3 million. The company also
repurchased an additional 4.3 million shares at a cost of $217 million.
On February 22, 1995, the Board of Directors authorized the repurchase of up to
12 million shares of the company's common stock. There have been 9.5 million
shares purchased under this authorization through the first six months of 1996.
The book value of common shares outstanding at the end of the period was $18.35
as compared with $17.83 at December 31, 1995 and $16.88 at July 2, 1995.
All share and per share data have been restated for the two-for-one stock split
on October 23, 1995.
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Backlog consisted of the following at:
June 30, December 31, July 2,
1996 1995 1995
(In Millions)
Electronics $ 7,118 $ 7,411 $ 7,251
Engineering & Construction 2,332 2,240 1,848
Aircraft 1,355 836 1,147
Major Appliances 36 64 59
------- ------- -------
$10,841 $10,551 $10,305
U.S. Government Backlog
included above $ 5,062 $ 5,142 $ 5,145
The Electronics backlog at June 30, 1996 includes $1.1 billion related to the
SIVAM contract awarded by the government of Brazil to monitor and protect the
Amazon River rain forest. The Brazilian Senate has approved the President's
request to modify the Senate financing resolutions that were approved in
December 1994 and final terms and conditions of the contract are currently being
negotiated.
During the first six months of 1996, there was a negative cash flow from
operations of $157.3 million. Net income plus depreciation and amortization
provided a positive cash flow of $571.5 million but this was more than offset by
increases in inventories, receivables and increased contracts in process due to
higher sales volume. During the period, funds were used for additions to
property, plant and equipment of $203.9 million, dividends of $95.1 million and
for treasury share purchases of $260.3 million. Additionally, during 1996 $584.4
million was expended for acquired companies. As a result of the above,
short-term debt increased by $1.4 billion. The company expects that the cash
flow from operations and available debt financing will be sufficient to meet its
funding requirements in 1996.
Debt, net of cash and marketable securities, was $3.902 billion at June 30, 1996
as compared with $2.494 billion at December 31, 1995 and $3.350 billion at July
2, 1995. Net debt as a percentage of total capitalization was 47.4 percent at
June 30, 1996, as compared with 36.7 percent at December 31, 1995 and 44.9
percent at July 2, 1995.
Accounts receivable increased to $1.171 billion at June 30, 1996 from $926.8
million at December 31, 1995 due to the acquisitions completed during the period
and increased commercial receivables.
Contacts in process increased to $2.605 billion at June 30, 1996 from $2.213
billion at December 31, 1995 due principally to higher sales volume at the
Engineering and Construction segment.
Inventories increased to $1.713 billion at June 30, 1996 from $1.503 billion at
December 31, 1995 due to the acquisitions completed during the period and
increased commercial inventories.
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Intangible assets increased to $3.168 billion at June 30, 1996 from $2.572
billion at December 31, 1995 due principally to the goodwill arising from the
acquisitions during the period.
Capital expenditures were $203.9 million in the first six months of 1996 versus
$134.2 million in 1995 due principally to increased 1996 expenditures at the
Aircraft segment and the acquisition of E-Systems.
Dividends declared to stockholders during the first six months of 1996 were
$95.1 million versus $91.9 million in 1995. The dividend rate was $.20 per
quarter for the first two quarters of 1996 versus $.1875 per quarter for the
first two quarters of 1995.
Total employment was 76,700 at June 30, 1996 versus 73,200 at December 31, 1995
and 74,400 at July 2, 1995. The increase from December 31, 1995 is due
principally to the acquisitions made during the period.
During the second quarter of 1996, the company completed the sale of its
Xyplex, Inc. subsidiary to Whittaker Corporation.
The company recorded in the first quarter of 1994 a restructuring provision of
$249.8 million before tax. The restructuring was driven by the significant
reductions in the defense budget and increasing commercial competition.
Approximately 65 percent of the restructuring costs are attributable to the
company's defense business and the remainder to its commercial business. The
company completed personnel reductions of 4,400 people under this restructuring
provision, including both salaried and bargaining unit employees located in
Massachusetts and other states and in foreign locations. Through June 30, 1996,
$246.8 million of restructuring costs have been incurred, of which $103.2
million was employee related costs and $143.6 million was related principally to
asset disposals and idle facilities.
The company enters into interest rate swaps and locks and foreign currency
forward agreements with commercial and investment banks to reduce the impact of
changes in interest rates and foreign exchange rates on long-term debt and on
purchases, sales and financing arrangements with lenders, vendors, customers and
foreign subsidiaries. The company meets its working capital requirements mainly
with variable rate short-term financing. Interest rate swaps are primarily used
to provide purchasers of the company's products with fixed financing terms over
extended time periods. The company also enters into foreign exchange forward
contracts to minimize fluctuations in the value of payments due to international
vendors and the value of foreign currency denominated receipts. The hedges used
by the company are directly related to a particular asset, liability, or
transaction for which a firm commitment is in place. Swaps and foreign exchange
contracts are normally held to maturity and no exchange traded or
over-the-counter instruments have been purchased. The impact on the financial
position, liquidity, and results of operations from likely changes in foreign
exchange and interest rates is immaterial due to the minimizing of risk through
the hedging of transactions related to specific assets, liabilities, or
commitments.
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Recurring costs associated with the company's environmental compliance program
are not material and are expensed as incurred. Capital expenditures in
connection with environmental compliance are immaterial. The company is involved
in various stages of investigation and cleanup relative to remediation of
various sites. All appropriate costs incurred in connection therewith have been
expensed. Due to the complexity of environmental laws and regulations, the
varying costs and effectiveness of alternative cleanup methods and technologies,
the uncertainty of insurance coverage, and the unresolved extent of the
company's responsibility, it is difficult to determine the ultimate outcome of
these matters. However, in the opinion of management, any additional liability
will not have a material effect on the company's financial position, liquidity,
or results of operations after giving effect to provisions already recorded.
Statements which are not historical facts made in this report are
forward-looking statements that involve risks and uncertanties including the
effect of political and economic conditions, the results of financing efforts,
and the timing of awards and contracts.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting held on May 22, 1996, stockholders of the Company
took the following action:
1. Elected the following five directors for terms of office to expire
at the 1998 Annual Meeting, with votes as indicated opposite each
director's name and with no abstentions or broker non-votes:
Name For Withhold
Ferdinand Colloredo-Mansfeld 186,025,490 2,222,994
John R. Galvin 185,966,239 2,282,245
Barbara B. Hauptfuhrer 185,938,501 2,309,982
Richard D. Hill 185,859,297 2,389,186
Alfred M. Zeien 186,003,937 2,244,546
The following directors continued in office after the meeting: Charles F.
Adams, Francis H. Burr, Theodore L. Eliot, L.Dennis Kozlowski, James N.Land,Jr.,
A. Lowell Lawson, Thomas L. Phillips, Dennis J. Picard, Warren B. Rudman and
Joseph J. Sisco.
2. Rejected a stockholder proposal which recommended that the Company
prepare an environmental report based on the Coalition of
Environmentally Responsible Economies principles. The vote was
28,913,681 for and 132,166,823 against, with 17,512,558 abstentions and
9,655,422 broker non-votes.
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ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Raytheon Company 1976 Stock Option Plan (filed herewith)
Exhibit 10.2 Raytheon Company 1991 Stock Plan (filed herewith)
Exhibit 10.3 Form of Raytheon Company Change in Control Severance
Agreement (filed herewith)*
Exhibit 27 Financial Data Schedule (filed herewith)
* The Company has entered into Change in Control Severance Agreements in the
form of Agreement filed herewith as Exhibit 10.3 with each of the following
executives: Peter R. D'Angelo, Christoph L. Hoffmann, A. Lowell Lawson,
Charles Q. Miller, Dennis J. Picard, Robert L. Swam, William H. Swanson and
Arthur E. Wegner. The agreements are designed to provide the executive with
certain severance benefits following a termination,including, without
limitation, payment of an amount equal to three times the executive's salary and
targeted bonus and the continuation of certain employee benefits for up to three
years, all as more fully described in the form of Agreement.
The Company has entered into Change in Control Severance Agreements in
the form of Agreement filed herewith as Exhibit 10.3 with certain other
executives, but which are immaterial to the registrant. The agreements are
designed to provide the executive with certain severance benefits following a
termination, including, without limitation, payment of an amount equal to two
times the executive's salary and targeted bonus and the continuation of certain
employee benefits for up to two years, all as more fully described in the form
of Agreement.
(b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAYTHEON COMPANY (Registrant)
By:/s/ Peter R. D'Angelo
Peter R. D'Angelo
Executive Vice President and
Chief Financial Officer
August 13, 1996
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EXHIBIT 10.1
RAYTHEON COMPANY
1976 Stock Option Plan
Effective May 25, 1988
I. PURPOSE
It is the purpose of this Plan to encourage those employees of the
Company and its subsidiaries upon whom rests major responsibility for the
success of the business to remain with the Company and to put forth their
maximum efforts in its behalf, by giving them a more vital interest in the
success of the Company and a closer identity with it through stock ownership;
and, for the future, to ensure that the Company will be able to obtain the
services of exceptional management personnel in key positions.
II. SCOPE OF THE PLAN
There will be reserved for issue upon the exercise of options granted
from time to time under this Plan, an aggregate number of treasury shares of
Common Stock of the Company of the par value of $1.00* per share not to exceed
8,600,000* subject to adjustment as provided in Article XI hereof.
The aggregate number of shares as to which options given pursuant to
this Plan have been or may validly be exercised shall not, with respect to any
single employee, exceed 400,000* shares, subject to adjustment as provided in
Article XI hereof. If an option shall expire or terminate for any reason without
having been exercised in full, the shares which have not been purchased under
such option shall again become available for the purposes of the Plan. No option
shall be granted under this Plan subsequent to March 22, 1998.
III. ADMINISTRATION
The Plan shall be administered by the Policy Committee of the Board of
Directors (hereinafter referred to as the "Committee"), consisting of those
directors of the Company who are not also officers or employees of the Company.
The Committee, at any time and from time to time on or after May 26, 1976 and
prior to March 22, 1998, may grant options, which may be options that are
"incentive stock options" under the Internal Revenue Code as in effect from time
to time ("incentive options"), or which may be options that are not such
"incentive stock options:("nonqualified options") or combinations of the two
types, i.e., simultaneously granted incentive and nonqualified options either or
both of which may be exercised in whole or in part independently of the other.
Any individual may hold more than one option and may at any one time and from
time to time be granted incentive options and nonqualified options.
- --------------------
* As adjusted for 1977 and 1981 stock splits.
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2
The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan, to determine the employees to
whom, and the time or times at which, options shall be granted and the number of
shares to be subject to each option; to interpret the Plan; to prescribe, amend
and rescind rule and regulations relating to it; to determine the terms and
provisions (and amendments thereof) of the respective option agreements (which
need not be identical), including such terms and provisions (and amendments) as
shall be required in the judgment of the Committee to provide that incentive
options under the Plan will be incentive stock options under the Internal
Revenue Code of 1954, as from time to time amended and/or superseded
(hereinafter call the "Internal Revenue Code"), or to conform to any change in
any law or regulations applicable thereto; and to make all other determinations
deemed necessary or advisable for the administration of the Plan.
The Committee's determination on the foregoing matters shall be conclusive.
IV. ELIGIBILITY
Options may be granted only to key employees of the Company or its
present or future subsidiary corporations, (as defined in the Internal Revenue
Code and herein called "subsidiaries"), who are eligible under the applicable
provisions of law to receive an incentive stock option (as defined in the
Internal Revenue Code). A director of the Company or of a subsidiary who is not
also such an employee will not be eligible to receive an option. No employee
shall be eligible to receive an option if immediately after the grant of an
option he would (within the meaning of the Internal Revenue Code) own stock
possessing more than five percent (5%) of the total combined voting power or
value of all classes of stock of the Company or of a subsidiary.
A key employee to whom options may be granted is an employee occupying
an important managerial position, or other position of importance and
responsibility, who by discharging his responsibilities in an outstanding
manner, can make a significant contribution to the success of the Company. In
choosing key employees to whom to grant options the Committee shall take into
account the respective duties of the employee, his present and potential
contribution to the success of the Company and such other factors as they shall
determine to be relevant to the accomplishment of the purposes of the Plan.
V. TERMS OF OPTIONS
Each employee to whom an option is granted under the Plan shall, as
consideration therefor, remain in continuous employ of the Company, or of a
subsidiary, for twelve (12) consecutive months from the date of the granting of
such option before he can exercise any part thereof, and said options shall,
subject to the limitations on incentive stock options set forth below, be
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3
exercisable in full at the expiration of twelve (12) months from the date of
grant. When an employee to whom an option has been granted takes an authorized
leave of absence (which does not constitute a cessation of employment pursuant
to Article VIII), the period of time elapsed during such leave of absence shall
be included in computing the dates upon which any part of the option becomes
exercisable, except to the extent that the Policy Committee in its discretion
otherwise determines. The Policy Committee of the Board of Directors may, in its
sole discretion, cancel in whole or in part the unexercised portion of any
option at any time that it determines that the optionee is not performing
satisfactorily the duties to which he was assigned on the effective date of the
grant of the option to him, or duties of at least equal responsibility.
Except as otherwise provided by Articles VIII and IX hereof, no option
shall be exercised unless at the time of such exercise the holder of the option
is in the employment of the Company or one of its subsidiaries. Employees who
are on authorized leave of absence, or who are on salary continuance or vacation
subsequent to the last day worked as defined in Article VIII are not "in the
employment of the Company or one of its subsidiaries" for purposes of this
Article.
Each incentive option granted on or after January 1, 1987*, shall by
its terms provide: (a) that such option shall not be exercised after expiration
of ten (10) years from the effective date of granting such option and (b) that
the aggregate fair market value (determined at the time the option is granted)
of the stock with respect to which incentive stock options are exercisable for
the first time any individual employee during any calendar year (under all
incentive stock option plans of Raytheon Company and its subsidiary
corporations) shall not exceed $100,000. Incentive options may contain such
additional provisions as may be required in order to be "incentive stock
options" under the Internal Revenue Code.
Nonqualified options granted prior to April 9, 1984 shall not be
exercisable after expiration of ten (10) years from the effective date of grant.
Nonqualified options granted on or after April 9, 1984 shall not be exercisable
after expiration of eleven (11) years from the effective date of grant. Subject
to the foregoing, an option granted under the Plan shall be exercisable in whole
at any time at the expiration of one (1) year from date of grant or in part from
time to time thereafter but in no case may an option be exercised for a fraction
of a share.
Each option granted under this Plan shall by its terms provide that it
is not assignable or transferable otherwise than by will or the laws of descent
and distribution and an option may be exercised during the lifetime of the
holder thereof only by him. The holder of an option or his legal
representatives, legatees, or distributees, as the case may be, shall have none
of the rights of a stockholder with respect to any shares subject to such option
until such shares have been issued to him under the terms of this Plan.
<PAGE>
4
VI. PROCEDURE FOR EXERCISE
(a) An option granted pursuant to the Plan may be exercised only by
submitting to the Office of the Vice President - Human Resources a completed
copy of an exercise form preceded (except as otherwise provided by paragraph (b)
of this ARTICLE VI) by wire transfer of immediately available funds or
accompanied (except as otherwise provided by paragraph (b) of this ARTICLE VI)
by a certified or cashier's check payable to the order of the Company or shares
of the Company's common stock
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* Incentive stock options granted prior to January 1, 1987 are governed by the
terms of the Plan in effect on the date of grant.
held by the Participant for at least six months with a current fair market value
equal to the full amount of the total price of the shares for which the option
is to be exercised. The option will be deemed to have been exercised only when
the completed form with such payment has been received by the Office of the Vice
President Human Resources. A request for exercise which is received by the
Office of the Vice President - Human Resources after the expiration of such
option or after the expiration of the time within which exercise is permitted
pursuant to the Plan, whichever is earlier, shall not be a valid exercise.
Certificates for shares tendered must be endorsed or accompanied by signed stock
powers with the signature guaranteed by a U.S. commercial bank or trust company
or by a brokerage firm having membership on the New York Stock Exchange. Shares
tendered in payment will be valued at the average of the high and low trade
prices for the day preceding the date of exercise as published in The Wall
Street Journal. Any deficiency in the option exercise price shall be paid by
certified or cashier's check.
(b) In lieu of payment by wire transfer, certified or cashier's check
or other shares of the Company's common stock held by the optionee for at least
six months as described in paragraph (a) of this ARTICLE VI, an optionee may,
unless prohibited by applicable law, elect to effect payment by including with
the written notice referred to in paragraph (a) of this ARTICLE VI irrevocable
instructions to deliver for sale to a registered securities broker acceptable to
the Company a number of the shares subject to the option being exercised
sufficient, after brokerage commissions, to cover the aggregate exercise price
of such option and, if the optionee further elects, the optionee's withholding
obligations with respect to such exercise referred to in ARTICLE XIV, together
with irrevocable instructions to such broker to sell such shares and to remit
directly to the Company such aggregate exercise price and, if the optionee has
so elected, the amount of such withholding obligation. The Company shall not be
required to deliver to such securities broker any stock certificate for such
shares (which delivery may be by book-entry) until it has received from the
broker such exercise price and, if the optionee has so elected, such withholding
obligation amount."
<PAGE>
5
VII. TIME OF GRANTING OPTIONS
The granting of an option pursuant to the Plan shall be deemed to take
place at the time when the Committee shall take action authorizing the grant of
such option or at such subsequent time as the Committee shall designate,
provided, however, that all grants shall be deemed to be conditioned upon the
optionee being an employee of the Company (or of a subsidiary thereof) on the
effective date of the grant.
VIII. TERMINATION OF EMPLOYMENT
If a holder of an option shall retire, take leave of absence, or shall
cease to be employed by the Company or by a subsidiary of the Company for any
reason other than death after he shall have been continuously so employed for
twelve (12) months from and after the date of the granting of an option, he may,
but only within the period of time listed below immediately succeeding the last
day worked prior to such retirement, leave of absence or cessation, exercise
such option:
Reason for Absence Time Following Last Day Worked*
From Work Within Which Option May Be Exercised
Retirement Three Years
Medical Leave of Absence During Such Leave
Personal Leave of Absence Three Months
Discharge for cause or other severance None
of employment determined by Committee
to warrant termination of option
Layoff One Year
Quit Three Months
In no event may an option be exercised following its expiration or
cancellation.
<PAGE>
6
For purposes of this Article and Articles V and IX, "Last date worked"
means the last day on which the holder was responsible for performing his
assigned duties for the Company. Any period of accrued vacation or salary
continuance for which the holder may be eligible as of his retirement or
cessation of employment shall not extend the period in which options must be
exercised. Transfer of employment between corporations in the group comprised of
the Company and its subsidiaries shall not be deemed a cessation of employment.
Whether a leave of absence for other than medical reasons, duly authorized by
the Company shall constitute a cessation of employment for purposes of the Plan
shall be determined by the Committee, which determination unless overruled by
the Board of Directors, shall be final and conclusive. This Plan will not confer
upon a holder of an option any right with respect to continuance of employment
by the Company or by a subsidiary of the Company, nor will it interfere in any
way with his right, or his employer's right, to terminate his employment at any
time.
IX. DEATH OF HOLDER
In the event of the death of a holder of an option while in the employ
of the Company or of a subsidiary of the Company, or during a period following
the last day worked within which the option of such holder was permitted to be
exercised, the
- ---------------
* Incentive stock options are governed by the terms of the Plan in effect on the
date of grant.
Incentive stock options exercised beyond the applicable statutory period
following last day worked will be treated for tax purposes as nonqualified
options. As of August 1, 1985, the statutory periods for incentive stock options
were;
Retirement or other Termination Three Months
Disability Twelve Months
option shall be exercisable only within twelve (12)* months following such death
(but not later than the expiration date of the option) and then only (a) by his
estate or by the person or persons who acquired the right to exercise such
option by bequest or inheritance or by reason of the death of the decedent, and
(b) if and to the extent that he was entitled to exercise the option at the date
of his death.
X. OPTION PRICE
The purchase price under each option granted pursuant to the Plan shall
be not less than one hundred percent (100%) of the fair market value of such
shares at the time such option is granted.
<PAGE>
7
XI. ADJUSTMENT OF SHARES
In the event that each of the outstanding shares of $1.00* par value
Common Stock of the Company (other than shares for which appraisal rights are
perfected by objecting stockholder in the cases provided by law) shall be
changed into or exchanged for a different number or kind of stock or other
securities of the Company or another corporation (whether by reason of merger,
consolidation, recapitalization, reclassification, split-up, combination of
shares, or otherwise), then there shall be substituted, for each share of said
Common Stock of the Company which at the time of such event is subject to option
or reserved for future option pursuant hereto, the number and kind of shares of
stock or other securities into which each outstanding share of said Common Stock
of the Company (other than shares held by objecting stockholders as provided
above) shall be so changed or for which each such share shall be exchanged. In
the event that there shall be any change in the number or kind of the
outstanding shares of said Common Stock of the Company (including by reason of
stock dividend), or of any stock or other securities into which said Common
Stock shall have been changed, or for which it shall be exchanged, not covered
by the preceding sentence, then if the Board of Directors shall, in its sole
discretion, determine that such change equitably requires an adjustment in the
number, or kind, or option price of shares then subject to an option or options,
or an adjustment in the number or kind of other shares, theretofore optioned or
subject to option, such adjustments shall be made by the Board of Directors and
shall be effective and binding for all purposes.
XII. USE OF PROCEEDS
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
- --------------------
* As adjusted for 1977 and 1981 stock splits.
XIII. AMENDMENTS TO THE PLAN AND OPTIONS GRANTED THEREUNDER
The Board of Directors may from time to time make such amendments in
and to the foregoing as it in its discretion deems to be in the best interests
of the Company, without further action on the part of the stockholders of the
Company, including such modifications or amendments as it shall deem advisable
in order that the incentive options shall be incentive stock options under the
Internal Revenue Code or to conform to any change in any law or regulation
applicable thereto, provided that unless the stockholders of the Company shall
have first given their approval thereto, the maximum number of shares which may
be purchased pursuant to this Plan by all employees, or the maximum number which
may be purchased by any individual employee, shall not be increased accept as
provided in Article XI hereof; the period within which options may be exercised
shall not be changed; and no amendment shall be made which would disqualify
incentive options granted under the Plan as incentive stock options under the
Internal Revenue Code.
<PAGE>
8
XIV. REGULATION
The Company or one of its subsidiaries shall have the right to withhold
from salary or other payments or otherwise to cause an optionee or the executor
or administrator of his estate or his distributee to make payment of any
Federal, State, local or foreign taxes required to be withheld with respect to
any exercise or a stock option. An optionee may irrevocably elect to have the
withholding tax obligation satisfied by (a) having the Company or one or its
subsidiaries withhold shares otherwise deliverable to the optionee with respect
to the exercise of the stock option, or (b) delivering back to the Company
shares received upon the exercise of the stock option or delivering other shares
of common stock; provided, however, that in the case of any officer of the
Company (within the meaning of Section 16(b) of the Securities Exchange Act) any
such election shall be made either (I) during one of the window periods
described in Section (e)(3)(iii) of Rule 16b-3 promulgated under the Securities
Exchange Act, or (ii) at the time of exercise if the optionee does not make an
election under Section 83(b) of the Internal Revenue Code.
The Company may also require the holder of the option to represent in
writing to the Company that it is his then intention to acquire the stock for
investment and not with a view to the distribution thereof. In such event, no
shares shall be issued to such holder unless and until the Company is satisfied
with the correctness of such representation.
Each Grantee exercising an option hereafter granted shall agree to make
a report to the Company upon any sale of shares acquired pursuant to such option
stating the number of shares sold, the date of such sale, and the price at which
shares were sold.
<PAGE>
1
EXHIBIT 10.2
RAYTHEON COMPANY
1991 STOCK PLAN
ADOPTED MARCH 27, 1991
Section 1. Establishment and Purpose
The Raytheon Company 1991 Stock Plan (the "1991 Plan"), for eligible
employees is established effective March 27, 1991, subject to stockholder
approval at the Corporation's 1991 Annual Meeting. The purpose of the Plan is to
attract and retain the best available talent and encourage the highest level of
performance by employees in order to enhance the profitable growth of the
Corporation and otherwise to serve the best interests of the Corporation and its
shareholders. By affording eligible employees the opportunity to acquire
proprietary interests in the Corporation and by providing them incentives to put
forth maximum efforts for the success of the Corporation's business, the 1991
Plan is expected to contribute to the attainment of those objectives.
The maximum number of shares of common stock as to which awards may be
granted from time to time under the 1991 Plan shall be 2,000,000. If for any
reason, any shares as to which an option has been granted cease to be subject to
purchase thereunder or any restricted shares or restricted units are forfeited
to the Corporation, or to the extent that any awards under the 1991 Plan
denominated in shares or units are paid or settled in cash or are surrendered
upon the exercise of an option, then (unless the 1991 Plan shall have been
terminated) such shares or units and any shares received by the Corporation upon
the exercise of an option, shall become available for subsequent awards under
the 1991 Plan (to the same employee who received the original award or to a
different employee or employees); provided, however, that shares received by the
Corporation upon the exercise of an incentive stock option shall not be
available for the subsequent award of additional incentive stock options under
the 1991 Plan. Any shares issued by the Corporation in respect of the assumption
or substitution of outstanding awards from a corporation or other business
entity acquired by the Corporation shall not reduce the number of shares
available for awards under the 1991 Plan. No incentive stock option shall be
granted hereunder more than ten years after March 26, 1991. The Stock which may
be issued under the 1991 Plan may be authorized but unissued Stock or stock now
or hereafter held by the Corporation as Treasury Stock; such Stock may be
acquired, subsequently or in anticipation of the transaction, in the open market
to satisfy the requirements of the 1991 Plan.
Section 2. Definitions
The following terms, as used herein, shall have the meaning specified:
"Board of Directors" means the Board of Directors of Raytheon Company
as it may be comprised from time to time.
<PAGE>
2
"Code" shall mean the Internal Revenue Code of 1986, as the same may be
amended from time to time. Reference in the 1991 Plan to any section of the Code
shall be deemed to include any amendments or successor provision to such section
and any regulations under such section.
"Committee" shall mean the Compensation Committee of the Board of
Directors appointed to administer the Plan in accordance with Section 3.
"Corporation" means Raytheon Company including its affiliates and
subsidiaries.
"Eligible Employees" - Awards will be limited to officers and other
employees who are regular full-time employees of the Corporation. In determining
the employees to whom awards shall be granted and the number of shares or units
to be covered by each award, the Committee shall take into account the nature of
employees' duties, their present and potential contributions to the success of
the Corporation and such other factors as it shall deem relevant in connection
with accomplishing the purposes of the 1991 Plan. A director of the Corporation
or of a subsidiary who is not also a regular full-time employee will not be
eligible to receive an award.
"Option" shall mean any option granted under the 1991 Plan for the
purchase of common stock.
"Participant" means any eligible employee who is approved by the
Committee to participate in the 1991 Plan.
"Restricted Award" shall mean a Restricted Unit Award or a Restricted
Stock Award.
"Restricted Period" means the designated period of time during which
restrictions are in effect with respect to the Restricted Stock or Restricted
Units.
"Restricted Stock" means Stock contingently awarded to a Participant
under the 1991 Plan subject to the restrictions set forth in Sections 4 and 5.
"Restricted Stock Award" shall mean an award of common stock granted
under the restricted award provisions of the 1991 Plan.
"Restricted Units" are units to acquire shares of common stock (or in
the sole discretion of the Committee, cash as provided in Section 5.4) which are
restricted as provided in Section 5.
"Stock" means shares of common stock of Raytheon Company.
<PAGE>
3
Section 3. Administration of the Plan
The 1991 Plan shall be administered by the Compensation Committee of
the Board of Directors of Raytheon Company. No member of this Committee shall be
a Participant in this Plan. If any member of the Committee shall at any time not
be a "disinterested person" or shall otherwise not qualify to administer the
1991 Plan as contemplated by Rule 16b-3, as amended, or other applicable rules
under Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the 1991 Plan shall be administered by only those members of
the Committee who qualify as such disinterested persons or otherwise are so
qualified to administer the 1991 Plan in compliance with such rules.
The Committee shall have plenary authority in its discretion, subject
to and not inconsistent with the express provisions of the 1991 Plan, to grant
options, to determine the purchase price of the common stock covered by each
option, the term of each option, the employees to whom, and the time or times at
which, options shall be granted and the number of shares to be covered by each
option; to designate options as incentive stock options or nonqualified options;
to grant restricted shares and restricted units and to determine the term of the
restricted period and other conditions applicable to such shares or units, the
employees to whom, and the time or times at which, restricted shares or
restricted units shall be granted and the number of shares or units to be
covered by each grant; to interpret the 1991 Plan; to prescribe, amend and
rescind rules and regulations relating to the 1991 Plan; to determine the terms
and provisions of the option agreements and the restricted share and restricted
unit agreements (which need not be identical) entered into in connection with
awards under the 1991 Plan; and to make all other determinations deemed
necessary or advisable for the administration of the 1991 Plan. The Committee
may delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the Committee or any person
to whom it has delegated duties as aforesaid may employ one or more persons to
render advice with respect to any responsibility the Committee or such person
may have under the 1991 Plan.
The Committee may employ attorneys, consultants, accountants or other
persons and the Committee, the Corporation and its officers and directors shall
be entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all employees who have
received awards, the Corporation and all other interested persons. No member or
agent of the Committee shall be personally liable for any action, determination,
or interpretation made in good faith with respect to the 1991 Plan or awards
made thereunder, and all members and agents of the Committee shall be fully
protected by the Corporation in respect of any such action, determination or
interpretation.
<PAGE>
4
Section 4. Award and Delivery of Restricted Stock or Restricted Units
4.1 At the time a Restricted Stock Award or Restricted Unit Award is
made, the Restricted Period applicable to such Restricted Stock Award or
Restricted Unit Award shall be established and shall not be less than one year
nor more than ten years. Each Restricted Award may have a different Restricted
Period. At the time a Restricted Award is made, conditions may be specified for
the incremental lapse of restrictions during the Restricted Period and for the
termination of restrictions upon the satisfaction of other conditions in
addition to or other than the expiration of the Restricted Period, including but
not limited to provisions related to a change of control, with respect to all or
any portion of the Restricted Stock or Restricted Units.
4.2 All restrictions shall terminate with respect to all Restricted
Stock or Restricted Units upon the Participant's (i) death; or (ii) total
disability as evidenced by commencement and continuation for more than one year
of benefits under the Corporation's Long Term Disability Plan (or if not a
member of the Long Term Disability Plan the Participant would have been eligible
for benefits using Long Term Disability Plan standards); or (iii) retirement at
age 65 or later unless otherwise specified in the Restricted Award.
4.3 Each Restricted Award shall be evidenced by a written agreement
signed by the Participant and the Chief Executive Officer, or, in the case of a
Restricted Award to the Chief Executive Officer, by the Participant and by a
member of the Committee (the "award letter") which shall state the Restricted
Period and such other terms and conditions which may be applicable, including
payment by the Participant of the par value of the Restricted Stock upon
execution of the award letter (the "Purchase Price") if such payment is required
by state law.
Section 5. Restrictions
5.1 A stock certificate representing the number of shares of Restricted
Stock granted to a Participant shall be registered in the Participant's name but
shall be held in custody by the Corporation for the Participant's account. The
Participant shall generally have the rights and privileges of a stockholder as
to such Restricted Stock including the right to vote such Restricted Stock,
except that the following restrictions shall apply: (i) the Participant shall
not be entitled to delivery of the certificate until the expiration or
termination of the Restricted Period and the satisfaction of any other
conditions specified in the award letter; (ii) none of the Restricted Stock may
be sold, transferred, assigned, pledged, or otherwise encumbered or disposed of
during the Restricted Period and until the satisfaction of any other conditions
specified in the award letter; and (iii) except as set forth in Section 4 or as
set forth in the award letter executed pursuant to Section 4, all of the
Restricted Stock shall be forfeited and all rights of the Participant to such
Restricted Stock including any stock dividends on such Restricted Stock shall
terminate without further obligation on the part of the Corporation unless the
Participant has remained a regular full-time employee of the Corporation until
the expiration or termination of the Restricted Period and the satisfaction of
any other conditions specified in the award letter applicable to such Restricted
Stock.
<PAGE>
5
The Participant shall have the same rights and privileges, and be
subject to the same restrictions, with respect to any Stock received pursuant to
Section 8.
5.2 At the discretion of the Corporation, cash dividends with respect
to the Restricted Stock may be either currently paid or withheld by the
Corporation for the Participant's account, and interest shall be paid on the
amount of cash dividends withheld at a rate and subject to such terms as
determined by the Corporation. Cash dividends so withheld shall not be subject
to forfeiture. Stock dividends with respect to the Restricted Stock (if the
distribution of such does not generate federal income tax liability to the
Participant) shall be held in the Participant's account and shall be subject to
forfeiture. Stock dividends which are taxable to the Participant may, in the
discretion of the Committee, be distributed to the Participant. Upon the
forfeiture of any Restricted Stock, such forfeited Stock and any stock dividends
on such forfeited Stock held for Participant's account shall be transferred to
the Corporation without further action by the Participant and any amounts paid
by the Participant upon the issuance of the Restricted Stock shall be returned
to the Participant with interest.
5.3 Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee or at such
earlier time as provided for in Section 4 or in the award letter applicable to
such Restricted Stock, the restrictions applicable to the Restricted Stock shall
terminate and a stock certificate for the number of shares with respect to which
the restrictions have terminated shall be delivered, free of all such
restrictions, except any that may be imposed by law, to the Participant or the
Participant's beneficiary or estate, as the case may be. The Corporation shall
not be required to deliver any fractional share of common stock but will pay, in
lieu thereof, the fair market value (determined as of the date the restrictions
terminate) of such fractional share to the Participant or the Participant's
beneficiary or estate, as the case may be. No payment will be required from the
Participant upon the delivery of any Restricted Stock, except any payment of par
value which may be required by state law and except that any amount necessary to
satisfy applicable federal, state or local tax requirements shall be satisfied
by withholding an equivalent amount of Stock (valued at fair market value on the
date the restrictions terminate) or paid promptly by the Participant upon
notification of the amount due and prior to or concurrently with the delivery of
a certificate representing such Stock.
5.4 In the case of an award of Restricted Units, no shares of common
stock shall be issued at the time the award is made, and the Corporation shall
not be required to set aside a fund for the payment of any such award.
<PAGE>
6
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee or at such
earlier time as provided for in Section 4, the Corporation shall deliver to the
employee or the employee's beneficiary or estate, as the case may be, one share
of common stock for each Restricted Unit with respect to which the restrictions
have lapsed ("vested unit") and cash equal to any dividend equivalents credited
with respect to each such vested unit and the interest thereon; provided,
however, that the Committee may, in its sole discretion, elect to pay cash or
part cash and part common stock in lieu of delivering only common stock for the
vested units. If a cash payment is made in lieu of delivering common stock, the
amount of such cash payment shall be equal to the mean between the highest and
lowest sales prices of the common stock as reported in the New York Stock
Exchange Composite Tape for the date on which the Restricted Period lapsed with
respect to such vested unit, or if there are no sales on such date, on the next
preceding day on which there were sales. Upon the occurrence of change in
control (as defined in Section 11 (b), all outstanding vested units (including
Restricted Units whose restrictions have lapsed as a result of the occurrence of
such change in control) and credited dividend equivalents shall be payable as
soon as practicable but in no event later than ninety days after such change in
control in cash, in shares of common stock, or part in cash and part in common
stock, as the Committee, in its sole discretion, shall determine. To the extent
that an employee receives cash in payment for his or her vested units, such
employee shall receive an amount equal to the fair market value of the shares of
common stock he or she would have received had he or she been delivered common
stock.
Section 6. Termination of Employment
Unless otherwise determined by the Compensation Committee, or otherwise
provided in the award letter, if a Participant to whom Restricted Stock has been
granted ceases to be an employee of the Corporation prior to the end of the
Restricted Period and the satisfaction of any other conditions specified in the
award letter, for any reason other than the reasons specified in Section 4, the
Participant shall immediately forfeit all Restricted Stock and stock dividends
thereon. Nothing in the 1991 Plan or in any Restricted Award or option granted
pursuant to the 1991 Plan shall confer upon any employee any right to continue
in the employ of the Corporation or interfere in any way with the right of the
Corporation to terminate such employment at any time.
<PAGE>
7
Section 7. Options
Each employee to whom an Option is granted under the 1991 Plan shall,
as consideration therefor, remain in continuous employ of the Corporation for
twelve months from the date of the granting of such Option before the employee
can exercise any part thereof, and said options shall, subject to the
limitations on incentive stock options set forth below, be exercisable in full
at the expiration of twelve months from the date of grant. When an employee to
whom an Option has been granted takes an authorized leave of absence (which does
not constitute a cessation of employment pursuant hereto), the period of time
elapsed during such leave of absence, shall be included in computing the dates
upon which any part of the Option becomes exercisable, except to the extent that
the Committee in its discretion otherwise determines. The Committee may, in its
sole discretion, cancel in whole or in part, the unexercised portion of any
Option at any time that it determines that the optionee is not performing
satisfactorily the duties to which he or she was assigned on the effective date
of the grant of the Option to him or her, or duties of at least equal
responsibility.
Except as otherwise provided below, no option shall be exercised unless
at the time of such exercise the holder of the Option is in the employment of
the Corporation. Employees who are on authorized leave of absence or who are on
salary continuance or vacation subsequent to the last day worked as defined
herein are not "in the employment of the Corporation or one of its subsidiaries"
for purposes of this Section. Employees who retire while on vacation, leave of
absence or salary continuance, shall be deemed to have retired at the close of
business on the last day worked.
Each incentive option granted hereunder shall by its terms provide: (a)
that such Option shall not be exercised after expiration of ten years from the
effective date of granting such Option and (b) that the aggregate fair market
value (determined at the time the option is granted) of the stock with respect
to which incentive stock options are exercisable for the first time by any
individual employee during any calendar year (under all incentive stock option
plans of Raytheon Company and its subsidiary corporations) shall not exceed
$100,000. No incentive stock option shall be granted if the exercise thereof
would cause the optionee to become the holder of ten percent or more of the
Corporation's common stock. Incentive options may contain such additional
provisions as may be required in order to be "incentive stock options" under the
Code.
Nonqualified options shall not be exercisable after expiration of
eleven years from the effective date of grant. Subject to the foregoing, an
Option granted under the Plan shall be exercisable in whole or at any time at
the expiration of one year from the date of grant or in part from time to time
thereafter but in no case may an option be exercised for a fraction of a share.
Each option granted under this Plan shall by its terms provide that it
is not assignable or transferable otherwise than by will or the laws of descent
and distribution and an option may be exercised during the lifetime of the
holder thereof only by him or her. The holder of an Option or his or her legal
representatives, legatees, or distributees, as the case may be, shall have none
of the rights or a stockholder with respect to any shares subject to such Option
until such shares have been issued to him or her under the terms of this Plan.
<PAGE>
8
Notwithstanding the foregoing, in the case of Options granted under the
1991 Plan in substitution of outstanding options or awards granted by a
corporation or other business entity acquired by the Corporation (a "Substitute
Option"), the date of granting of such Substitute Option shall be deemed to be
the date of the original grant of the option being substituted (a "Substituted
Option") by the corporation or other business entity acquired by the Corporation
and an employee's service in the continuous employ of such acquired corporation
or business entity since the grant of the Substituted Option shall be included
for purposes of determining the length of said employee's service in the
continuous employ of the Corporation.
7.1 Procedure for Exercise
Any Option granted pursuant to the Plan may be exercised by submitting
to the Office of the Senior Vice President - Human Resources a completed copy of
an exercise form together with cash, a certified or cashier's check, or other
negotiable instrument acceptable to the Corporation, in the full amount of the
total price of the shares for which the Option is to be exercised. The Option
will be deemed to have been exercised only when the completed form with such
check has been received by the Office of the Senior Vice President - Human
Resources. A request for exercise which is received by the Office of the Senior
Vice President - Human Resources after the expiration of such Option or after
the expiration of the time within which exercise is permitted pursuant to the
Plan, whichever is earlier, shall not be a valid exercise.
In lieu of the check required above, the optionee may, in his or her
discretion, submit certificates for shares of the Corporation's common stock
held by the Participant for at least six months tendered as full or partial
payment of the option exercise price. Certificates for shares tendered must be
endorsed or accompanied by signed stock powers with the signature guaranteed by
a U.S. commercial bank or trust company or by a brokerage firm having membership
on the New York Stock Exchange. Shares tendered in payment will be valued at the
average of the high and low trade prices for the day preceding the date of
exercise as published in The Wall Street Journal. Any deficiency in the option
exercise price shall be paid by certified or cashier's check.
7.2 Time of Granting Options
The granting of an Option pursuant to the Plan shall be deemed to take
place at the time when the Committee shall take action authorizing the grant of
such Option or at such subsequent time as the Committee shall designate,
provided, however, that all grants shall be deemed to be conditioned upon the
optionee being an employee of the Corporation on the effective date of the
grant.
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9
7.3 Termination of Employment
If a holder of an Option shall retire, take leave of absence, or shall
cease to be employed by the Corporation for any reason other than death after he
or she shall have been continuously so employed for twelve months from and after
the date of the granting of an Option, he or she may, but only within the period
of time listed below immediately succeeding the last day worked prior to such
retirement, leave of absence or cessation, exercise such option:
Time Following Last Day
Reason for Absence Worked Within Which
from Work Option May Be Exercised
Retirement Three Years
Medical Leave of Absence During Such Leave
Personal Leave of Absence Three Months
Discharge for cause or other None
severance of employment
determined by Committee to
warrant termination of option
Layoff One Year
Quit Three Months
In no event may an Option be exercised following its expiration or
cancellation.
For purposes of the 1991 Plan, "last day worked" means the last day on
which the holder was responsible for performing his or her assigned duties for
the Corporation. Any period of accrued vacation or salary continuance for which
the holder may be eligible as of his or her retirement or cessation of
employment shall not extend the period in which options must be exercised.
Transfer of employment between corporations in the group comprised of the
Corporation and its subsidiaries shall not be deemed a cessation of employment.
Whether a leave of absence for other than medical reasons, duly authorized by
the Corporation shall constitute a cessation of employment for purposes of the
1991 Plan shall be determined by the Committee, which determination unless
overruled by the Board of Directors, shall be final and conclusive. The grant of
an Option will not confer upon a holder of an Option any right with respect to
continuance of employment by the Corporation, nor will it interfere in any way
with his or her right, or his or her employer's right, to terminate his or her
employment at any time.
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10
7.4 Death of Holder
In the event of the death of a holder of an Option while in the employ
of the Corporation, or during a period following the last day worked within
which the Option of such holder was permitted to be exercised, the Option shall
be exercisable only within twelve months following such death (but not later
than the expiration date of the Option) and then only (a) by his or her estate
or by the person or persons who acquired the right to exercise such Option by
bequest or inheritance or by reason of the death of the decedent, and (b) if and
to the extent that he or she was entitled to exercise the Option at the date of
his or her death.
7.5 Option Price
The purchase price under each incentive stock option shall be not less
than one hundred percent of the fair market value of such shares at the time
such Option is granted. Other options may be granted at such prices above or
below the fair market value of the shares as the Committee may determine.
Section 8. Changes in Capitalization
In the event of any change in the outstanding shares of Stock by reason
of a stock dividend or split, recapitalization, merger or consolidation,
reorganization, combination or exchange of shares or other similar corporate
change, the maximum aggregate number of shares available under the 1991 Plan and
the number of shares covered by each previously granted Option and Restricted
Award, if any, shall be proportionally adjusted by the Board of Directors with
such determination being conclusive.
Section 9. Effective Date
The 1991 Plan is effective as of March 27, 1991, subject to the
approval of the stockholders at the Corporation's 1991 Annual Meeting. The
Committee may, at its discretion, grant Options and Restricted Stock Awards
under the 1991 Plan subject to such stockholder approval of the 1991 Plan.
Options and Restricted Stock Awards, issuance or delivery of stock upon exercise
of options or upon expiration of restrictions on Restricted Stock shall be
expressly subject to the conditions that, to the extent required by law at the
time of exercise of Options or grant of Restricted Stock Awards, issuance or
delivery, (i) the shares of Stock shall be duly listed upon the New York Stock
Exchange; and (ii) if the Corporation deems it necessary or desirable, a
Registration Statement under the Securities Act of 1933 with respect to such
stock shall be effective.
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11
Section 10. Designation of Beneficiary
A Participant may, with the consent of the Committee, designate a
person or persons to receive Restricted Stock to which the Participant is
entitled in the event of the Participant's death. Such designation shall be made
in writing upon forms supplied by and delivered to the Committee, and may be
revoked in writing. If a Participant fails effectively to designate a
beneficiary, the Participant's Restricted Stock shall be distributed in
accordance with his will, or, if intestate, the laws of descent and
distribution.
Section 11. Lapse at Discretion of the Committee; Lapse Upon Termination
Following a Change in Control
(a) The Committee shall have the authority to accelerate the time at
which the restrictions on Restricted Stock and Restricted Units will lapse or to
remove any of such restrictions whenever it may decide in its absolute
discretion that, by reason of changes in applicable tax, securities, or other
laws or other changes in circumstances arising after the date of the Award, such
action is in the best interest of the Company, and equitable to the Participant,
his heirs, or designated beneficiaries.
(b) The restrictions on Restricted Stock and Restricted Units shall
lapse and Nonqualified Stock Options issued hereunder become exercisable
immediately upon a change in control of the Corporation. For purposes of this
paragraph, the term "change in control" shall be deemed to occur upon (1) the
approval by the shareholders of the Corporation of (A) 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 would be
converted into cash, securities or other property, other than a merger in which
the holders of common stock immediately prior to the merger will have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, (B) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or substantially all the
assets of the Corporation, or (C) adoption of any plan or proposal for the
liquidation or dissolution of the Corporation, or (2) any "person" (as defined
in Section 13(d) of the Securities Exchange Act of 1934), other than the
Corporation or subsidiary or employee benefit plan or trust maintained by the
Corporation or any of its subsidiaries, shall become the "beneficial owner" (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than twenty-five percent of the common stock outstanding at
the time, without the prior approval of the Board of Directors of the
Corporation.
The Committee shall have authority to provide with respect to any
future grants of nonqualified options under the Corporation's 1976 Stock Option
Plan, as amended, rights corresponding to those described in clause (A) and (B),
as the case may be, of the immediately preceding paragraph in the event of a
"change in control" (as defined therein).
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12
Section 12. Compliance with Securities and Exchange Commission Requirements
No certificate for shares of Stock distributed pursuant to the Plan
shall be executed and delivered until the Company shall have taken such action,
if any, as is then required to comply with the provisions of the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934, as amended, or any
other applicable laws, and the requirements of any exchange on which the Stock
may, at the time, be listed.
Section 13. Compliance with Tax Laws
To the extent required by applicable federal, state or local laws or
regulations, the Corporation may withhold from any cash to be distributed to a
Participant pursuant to the Plan or from salary or other compensation payable to
the Participant amounts sufficient to comply with the Corporation's obligations
under such laws or regulations. The Corporation may require the Participant, as
a condition to delivering shares upon exercise of nonqualified stock options
(whether for cash or stock) or as a condition to delivery of restricted stock
which becomes deliverable pursuant to the Plan, to pay to the Corporation
amounts sufficient to meet the Corporation's obligations under such laws or
regulations.
Section 14. Termination and Amendment
The Board of Directors of the Corporation may suspend, terminate,
modify or amend the 1991 Plan, provided that any amendment that would increase
the aggregate number of shares of Stock which may be issued under the 1991 Plan,
materially increase the benefits accruing to Participants under the 1991 Plan,
or materially modify the requirements as to eligibility for participation in the
1991 Plan, must be approved by the Corporation's stockholders, except that any
such increase or modification that may result from adjustments authorized by
Section 8 shall not require such approval. If the 1991 Plan is terminated, the
terms of the 1991 Plan shall, notwithstanding such termination, continue to
apply to Awards granted prior to such termination. In addition, no suspension,
termination, modification or amendment of the Plan may, without the consent of
the Participant to whom a Stock Option or Restricted Stock Award shall
theretofore have been granted, adversely affect the rights of such Participant
under such Award Stock Option or Restricted Stock Award.
Section 15. Duration
The 1991 Plan shall remain in effect until all Stock Options have been
exercised or expired and until all Restricted Stock shall have been delivered
without restrictions or forfeited under the 1991 Plan provided that no Stock
Options shall be granted and no Restricted Stock Awards shall be made under the
Plan after March 26, 2001.
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1
EXHIBIT 10.3
Raytheon Company
Change In Control Severance Agreement
Agreement by and between Raytheon Company, a Delaware corporation (the
"Company"), and ("Executive") dated as of .
The Board of Directors of Company believes it is in the best interests
of the Company and its stockholders to have the continued dedication of
Executive notwithstanding the possibility, threat or occurrence of a Change in
Control (as defined in Section 1.5); to diminish the inevitable distraction of
Executive due to personal uncertainties and risks created by a threatened or
pending Change in Control; and to provide Executive with compensation and
benefits arrangements upon a Change in Control which are competitive with those
offered by other corporations.
Therefore, the Board of Directors has caused the Company to enter into
this Agreement, and the Company and Executive agree as follows:
1 DEFINITIONS
For purposes of this Agreement, the following terms have the following meanings.
1.1 "affiliated company" means an affiliated company as defined in Rule 12b-2 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
1.2 "Base Salary" means Executive's annual base salary paid or payable
(including any base salary which has been earned but deferred) to Executive by
the Company or an affiliated company immediately preceding the date of a Change
in Control.
1.3 "Board" means the Board of Directors of the Company.
1.4 "Cause" means Executive's:
(i) willful and continued failure to perform substantially Executive's
duties with the Company or one of its affiliates as such duties are constituted
as of a Change in Control after the Company delivers to Executive written demand
for substantial performance specifically identifying the manner in which
Executive has not substantially performed Executive's duties;
(ii) conviction for a felony; or
(iii) willfully engaging in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company.
For purposes of this Section 1.4, no act or omission by Executive shall be
considered "willful" unless it is done or omitted in bad faith or without
reasonable belief that Executive's action or omission was in the best interests
of the Company. Any act or failure to act based upon (a) authority given
pursuant to a resolution duly adopted by the Board, (b) instructions of the
Chief Executive Officer or a senior officer of the Company, or (c) advice of
counsel for the Company shall be conclusively presumed to be done or omitted to
be done by Executive in good faith and in the best interests of the Company. For
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2
purposes of subsections (i) and (iii) above, Executive shall not be deemed to be
terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three quarters of the entire membership of the Board at a meeting
called and held for such purpose (after reasonable notice is provided to
Executive and Executive is given an opportunity, together with counsel, to be
heard before the Board) finding that in the good faith opinion of the Board
Executive is guilty of the conduct described in subsection (i) or (iii) above
and specifying the particulars thereof in detail.
1.5 "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 individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person"), other than those Persons
in control of the Company as of the date hereof or a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
become the beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more of
the combined voting power of the Company's then outstanding securities; or
(ii) A change in the Board such that individuals who as of the date
hereof constitute the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board; or
(iii) The stockholders of the Company approve: (a) a plan of complete
liquidation of the Company; (b) an agreement for the sale or disposition of all
or substantially all of the Company's assets; (c) a merger, consolidation or
reorganization of the Company with or involving any other corporation, other
than a merger, consolidation or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the combined voting power of
the voting securities of the Company (or such surviving entity) outstanding
immediately after such merger, consolidation or reorganization.
However, in no event shall a Change in Control be deemed to have occurred for
purposes of this Agreement if Executive is included in a Person that consummates
the Change in Control. Executive shall not be deemed to be included in a Person
by reason of ownership of (i) less than 3% of the equity in the Person or (ii)
an equity interest in the Person which is otherwise not significant as
determined prior to the Change of Control by a majority of the non-employee
continuing directors of the Company.
1.6 "Code" means the Internal Revenue Code of 1986, as amended.
1.7 "Good Reason" means any of the following acts or omissions by the Company
without Executive's express written consent:
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3
(i) assigning to Executive duties inconsistent with Executive's
position (including status, offices, titles and reporting requirements),
authority or responsibilities immediately prior to a Change in Control or any
other action by the Company which results in a diminution of Executive's
position, authority, duties or responsibilities as constituted immediately prior
to a Change in Control (excluding an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company promptly
after receipt of notice thereof if notice is given by Executive);
(ii) requiring Executive (a) to be based at any office or location in
excess of 50 miles from Executive's office or location immediately prior to a
Change in Control or (b) to travel on Company business to a substantially
greater extent than required immediately prior to a Change in Control;
(iii) reducing Executive's Base Salary;
(iv) reducing in the aggregate Executive's incentive opportunities
under the Company's or an affiliated company's short- and long-term incentive
programs as such opportunities exist immediately prior to a Change in Control;
(v) reducing Executive's targeted annualized award opportunities and/or
the degree of probability of attainment of such annualized award opportunities
as such opportunities exist immediately prior to a Change in Control;
(vi) failing to maintain Executive's amount of benefits under or
relative level of participation in the Company's or an affiliated Company's
employee benefit or retirement plans, policies, practices or arrangements in
which the Executive participates immediately prior to a Change in Control;
(vii) purportedly terminating Executive's employment otherwise than
as expressly permitted by this Agreement; or
(viii) failing to comply with and satisfy Section 8.3 hereof by
requiring any successor to the Company to assume and agree to perform the
Company's obligations hereunder.
1.8 "Qualifying Termination" means the occurrence of any of the following
events within 24 calendar months after a Change in Control:
(i) the Company terminates Executive for any reason other than for
Cause including, withou limitation, forcing Executive to retire on any date not
of Executive's choosing;
(ii) Executive terminates for Good Reason;
(iii) Executive terminates for any reason during the 30-day period
following the first anniversary of a Change in Control;
(iv) the Company fails to require a successor or a successor refuses
to assume the Company's obligations as required by Section 8 hereof: or
(v) the Company or any successor breaches any of the provisions hereof.
1.9 "Severance Benefits" means:
(i) an amount equal to the product of Executive's Base Salary
multiplied by [three/two];
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4
(ii) an amount equal to Executive's unpaid Base Salary through a
Qualifying Termination;
(iii) an amount equal to the product of the greater of (a) Executive's
annual bonus earned for the fiscal year immediately prior to a Change in Control
and (b) Executive's target annual bonus established for the plan year in which a
Qualifying Termination occurs multiplied by [three/two];
(iv) an amount equal to the product of Executive's unpaid targeted
annual bonus established for the plan year in which a Change in Control occurs
multiplied by a fraction the numerator of which is the number of days elapsed in
the current fiscal year to the Qualifying Termination and the denominator of
which is 365;
(v) an amount equal to the dollar value of Executive's accrued
vacation through a Qualifying Termination;
(vi) an amount equal to all compensation deferred by Executive
together will all interest thereon;
(vii) an amount equal to the actuarial present value of the aggregate
benefits accrued by Executive as of a Qualifying Termination under the Company's
supplemental retirement plan calculated assuming that Executive's employment
continued for [three/two] years following a Qualifying Termination; provided,
however, that for purposes of determining Executive's final average pay under
the supplemental retirement plan, Executive's actual pay history as of the
Qualifying Termination shall be used; and
(viii) fringe benefits pursuant to all welfare, benefit and retirement
plans under which Executive and Executive's family are eligible to receive
benefits or coverage as of a Change in Control including but not limited to life
insurance, hospitalization, disability, medical, dental, pension and thrift
plans.
2 QUALIFYING TERMINATION
2.1 Severance Benefits. Following a Qualifying Termination Executive shall
be entitled to all Severance Benefits.
2.2 Payment of Benefits. The Severance Benefits described in Sections 1.9 (i)
through 1.9(vii) shall be paid in cash within 30 days of a Qualifying
Termination.
2.3 Duration of Benefits. The Severance Benefits described in Section 1.9(viii)
shall be provided to Executive at the same premium cost as in effect immediately
prior to the Qualifying Termination. The welfare Severance Benefits described in
Section 1.9(viii) shall be provided following the Qualifying Termination until
the earlier of (i) the [third/second] anniversary of the Qualifying Termination
or (ii) the date Executive receives substantially equivalent welfare benefits
from a subsequent employer.
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5
3 NON-QUALIFYING TERMINATIONS
3.1 Voluntary; for Cause; Death. Following a Change in Control, if Executive's
employment is terminated (i) voluntarily by Executive without Good Reason, (ii)
involuntarily by the Company for Cause or (iii) due to death, Executive shall be
entitled to Base Salary and benefits accrued through the date of termination and
Executive's entitlement to all other benefits shall be determined in accordance
with the Company's retirement, insurance and other applicable plans, policies,
practices and arrangements. Thereafter, the Company shall have no further
obligations to Executive hereunder.
4 NOTICE OF TERMINATION
4.1 Notice by Executive or Company. Any termination by Executive for Good Reason
or by the Company for Cause shall be communicated by written notice given to the
other in accordance with Section 9.2 hereof and which:
(i) indicates the specific termination provision in this Agreement
relied upon;
(ii) sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision indicated to the
extent possible; and
(iii) specifies the termination date (which date shall not be more
than 30 days after the giving of such notice).
4.2 Failure to Give Notice. The failure by Executive or the Company to set forth
in the notice of termination required by Section 4.1 any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any right
of Executive or the Company, respectively, hereunder or preclude Executive or
the Company, respectively, from asserting such fact or circumstance in enforcing
Executive's or the Company's rights hereunder.
5 TAX PAYMENTS
5.1 Excise Tax Payments. (i) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, if it is determined that any
payment or distribution by the Company to or for the benefit of Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 5) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties are
incurred by Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Executive
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this
Subsection 5(i), if it is determined that Executive is entitled to a Gross-Up
Payment, but that Executive, after taking into account the Payments and the
Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000
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6
(taking into account both income taxes and any Excise Tax) as compared to the
net after-tax proceeds to Executive resulting from an elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount
(the "Reduced Amount") such that the receipt of Payments would not give rise to
any Excise Tax, then no Gross-Up Payment shall be made to Executive and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(ii) Subject to the provisions of Subsection 5(iii), all determinations required
to be made under this Section 5, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Coopers & Lybrand
or such other certified public accounting firm as may be designated by Executive
(the "Accounting Firm") which shall provide detailed supporting calculations
both to the Company and Executive within 15 business days of the receipt of
notice from Executive that there has been a Payment, or such earlier time as is
requested by the Company. If the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change in Control,
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 5, shall be paid by the Company to Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. If the Company exhausts its remedies
pursuant to Subsection 5(iii) and Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to or for the benefit of Executive.
(iii) Executive shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the Company of
the Gross-Up Payment. Such notification shall be given as soon as practicable
but no later than ten business days after Executive is informed in writing of
such claim and shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which
it gives such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the Company
notifies Executive in writing prior to the expiration of such period that it
desires to contest such claim, Executive shall:
(a) give the Company any information reasonable requested by the
Company relating to such claim,
(b) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
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7
(c) cooperate with the Company in good faith in order effectively
to contest such claim, and
(d) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Subsection 5(iii), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Executive to pay the tax claimed and sue for a refund or to contest the
claim in any permissible manner, and Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis, and shall indemnify and hold Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder, and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(iv) If, after the receipt by Executive of an amount advanced by the Company
pursuant to Subsection 5(iii), Executive becomes entitled to receive any refund
with respect to such claim, Executive shall (subject to the Company's complying
with the requirements of Subsection 5(iii) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If after the receipt by Executive of an amount
advanced by the Company pursuant to Subsection 5(iii), a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
5.2 Tax Withholding. The Company may withhold from any amounts payable under
this Agreement such federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
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6 EXTENT OF COMPANY'S OBLIGATIONS
6.1 No Set-Off, Etc. The Company's obligation to make the payments and perform
it obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against Executive or others. All payments by the Company hereunder shall be
final, and the Company shall not seek to recover from Executive any part of any
payment for any reason whatsoever.
6.2 No Mitigation. In no event shall Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Executive under any provision hereof, and such amounts shall not be reduced
whether or not Executive obtains other employment except to the extent
contemplated by Section 2.3 hereof.
6.3 Payment of Legal Fees and Costs. The Company agrees to pay as incurred, to
the full extent permitted by law, all legal fees and expenses which Executive
may reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, Executive or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by Executive about the
amount of payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable federal rate provided for in Section
7872(f)(2)(A) of the Code.
6.4 Arbitration. Executive shall have the right to have settled by arbitration
any dispute or controversy arising in connection herewith. Such arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association before a panel of three arbitrators sitting in a location selected
by Executive. Judgment may be entered on the award of the arbitrators in any
court having proper jurisdiction. All expenses of such arbitration shall be
borne by the Company in accordance with Section 6.3 hereof.
7 TERM
7.1 Initial Term. The term of this Agreement shall be three years from the
date hereof.
7.2 Renewal. The terms of this Agreement automatically shall be extended for
successive one-year terms unless canceled by the Company by written notice to
Executive not less than six months prior to the end of any term.
7.3 Effect of Change in Control. Notwithstanding Sections 7.1 and 7.2
to the contrary, the Company may not cancel this Agreement following a Change
in Control.
<PAGE>
9
8 SUCCESSORS
8.1 This Agreement is personal to Executive and without the prior written
consent of the Company shall not be assignable by Executive otherwise than by
will or the laws of descent and distribution. This Agreement shall be inure to
the benefit of and be enforceable by Executive's legal representatives.
Executive may from time to time designate in writing one or more persons or
entities as primary and/or contingent beneficiaries of any Severance Benefit
owing to Executive hereunder.
8.2 This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
8.3 The Company shall require any successor(whether direct or indirect by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. For purposes
hereof, "Company" means the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
9 MISCELLANEOUS
9.1 Heading. The headings are not part of the provisions hereof and shall
have no force or effect.
9.2 Notices. All notices and other communications hereunder shall be in writing
and shall be given by hand delivery or by registered or certified mail, return
receipt required, postage prepaid, addressed as follows:
if to the Company: Raytheon Company
141 Spring Street
Lexington, Massachusetts 02173
Attention: General Counsel
if to Executive:
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received.
9.3 Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision hereof.
9.4 Compliance; Waiver. Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or failure to assert any right
hereunder, including without limitation the right of Executive to terminate
employment for Good Reason pursuant to Section 2.1 hereof, shall not be deemed
to be a waiver of such provision or right or any other provision or right
hereof.
<PAGE>
10
9.5 Employment Status. Executive and Company acknowledge that except as may
otherwise be provided under any other written agreement between Executive and
the Company, the employment of Executive by the Company is "at will" and prior
to a Change in Control may be terminated at any time by Executive or the
Company. Following a Change in Control, the provisions of this Agreement shall
supersede any other agreement between the parties with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Raytheon Company
By:
Dennis J. Picard [Executive]
Chairman and Chief Executive Officer
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