<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] 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 1-5358
Sundstrand Corporation
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(Exact name of registrant as specified in its charter)
Delaware 36-1840610
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4949 Harrison Avenue, P.O. Box 7003, Rockford, IL 61125-7003
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(Address of principal executive offices and zip code)
(815) 226-6000
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(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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 24, 1998
- --------------------------------------- --------------------------------
Common Stock, par value $.50 per share 56,494,996
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SUNDSTRAND CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
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<S> <S> <C>
Part I. Financial Information
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SUNDSTRAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Amounts in millions except per share data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 490 $ 440 $ 975 $ 829
Costs, expenses, and other income:
Costs of products sold 321 291 640 548
Marketing and administration 79 75 160 147
Interest expense 8 7 16 15
Interest income (1) (1) (2) (3)
Other, net (5) 1 (5) --
----- ----- ----- -----
402 373 809 707
----- ----- ----- -----
Earnings before income taxes 88 67 166 122
Less income taxes 31 24 58 44
===== ===== ===== =====
Net earnings $ 57 $ 43 $ 108 $ 78
===== ===== ===== =====
Weighted-average number of common
shares outstanding 57.2 60.1 57.2 60.1
Weighted-average number of common
shares outstanding -- assuming dilution 57.7 60.5 57.7 60.5
Basic net earnings per share $1.00 $ .71 $1.89 $1.29
===== ===== ===== =====
Diluted net earnings per share $ .99 $ .71 $1.87 $1.29
===== ===== ===== =====
Cash dividends per common share $ .17 $ .17 $ .34 $ .34
===== ===== ===== =====
</TABLE>
3
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SUNDSTRAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(Amounts in millions) 1998 1997 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings $ 57 $ 43 $ 108 $ 78
Other comprehensive loss, net of taxes --
Foreign currency translation adjustments (1) (1) (2) (3)
---- ---- ----- ----
Comprehensive income $ 56 $ 42 $ 106 $ 75
==== ==== ===== ====
</TABLE>
4
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SUNDSTRAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------
(Amounts in millions) 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net earnings $ 108 $ 78
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation 31 30
Amortization 8 7
Deferred income taxes 1 (3)
Change in operating assets and liabilities excluding
the effects of acquisitions:
Accounts receivable (6) (14)
Inventories (6) (34)
Other assets 25 (1)
Accounts payable (12) 16
Accrued expenses (9) (1)
Other (1) (2)
----- ----
Total adjustments 31 (2)
----- ----
NET CASH PROVIDED BY OPERATING ACTIVITIES 139 76
----- ----
Cash flow from investing activities:
Cash paid for property, plant and equipment (48) (53)
Cash paid for acquisitions, net of cash acquired (37) (5)
Other investing activities 5 6
----- ----
NET CASH USED FOR INVESTING ACTIVITIES (80) (52)
----- ----
Cash flow from financing activities:
Net borrowings supported by lines of credit 45 27
Principal payments on long-term debt (4) (1)
Additional debt for Industrial acquisitions 3 --
Proceeds from stock options exercised 3 4
Purchase of treasury stock (87) (30)
Dividends paid (19) (20)
----- ----
NET CASH USED FOR FINANCING ACTIVITIES (59) (20)
----- ----
Effect of exchange rate changes on cash (1) 4
----- ----
Increase (decrease) in cash and cash equivalents (1) 8
Cash and cash equivalents at January 1 13 18
----- ----
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 12 $ 26
===== ====
Supplemental cash flow information:
Interest paid $ 16 $ 15
Income taxes paid $ 32 $ 51
</TABLE>
5
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SUNDSTRAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
(Amounts in millions) 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 12 $ 13
Accounts receivable, net 332 326
Inventories, net of progress payments 470 462
Deferred income taxes 45 49
Other current assets 17 30
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Total current assets 876 880
Property, Plant, and Equipment, net 490 472
Intangible Assets, net 291 265
Deferred Income Taxes 38 34
Other Assets 40 49
------ ------
$1,735 $1,700
====== ======
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 188 $ 143
Long-term debt due within one year 5 9
Accounts payable 113 124
Accrued salaries, wages, and commissions 32 26
Accrued postretirement benefits other than pensions 18 17
Other accrued liabilities 137 148
------ ------
Total current liabilities 493 467
Long-Term Debt 216 213
Accrued Postretirement Benefits Other Than Pensions 350 357
Other Liabilities 132 121
------ ------
1,191 1,158
------ ------
Shareholders' Equity
Common stock, at par value 38 38
Other shareholders' equity 506 504
------ ------
544 542
------ ------
$1,735 $1,700
====== ======
</TABLE>
6
<PAGE> 7
The financial information contained herein is unaudited but, in the opinion of
the management of the Registrant, includes all adjustments (all of which are
normal recurring adjustments) necessary for a fair presentation of the results
of operations for the periods indicated.
Notes to Consolidated Financial Statements
(Unaudited)
ACCOUNTING POLICIES
The financial statements should be read in conjunction with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997.
PRINCIPLES OF CONSOLIDATION provide for the inclusion of the accounts of
Sundstrand Corporation and all subsidiaries. All intercompany transactions are
eliminated in consolidation.
CASH EQUIVALENTS are considered by the Registrant to be all highly liquid debt
instruments purchased with original maturities of three months or less.
INVENTORIES
The components of inventories at June 30, 1998, and December 31, 1997, were:
<TABLE>
<CAPTION>
JUNE 30, December 31,
(Amounts in millions) 1998 1997
- ---------------------------------------------------------------
<S> <C> <C>
Raw materials $ 56 $ 59
Work in process 160 160
Finished goods and parts 282 260
---- ----
498 479
Less progress payments 28 17
---- ----
$470 $462
==== ====
</TABLE>
Prior to the application of progress payments, the inventories shown above
included costs related to long-term contracts of $92 million and $82 million, at
June 30, 1998, and December 31, 1997, respectively.
RESTRUCTURING
In December 1996, the Registrant initiated a restructuring plan related
primarily to the operations of Sullair Europe S.A. which resulted in a pretax
charge of $32 million. The restructuring was undertaken as a result of
continuing losses at this operation, weakness in the European economy, and
significant competitive pressures in the European markets. The charge included
$11 million in cash termination benefits for approximately 140 employees,
primarily consisting of workers at Sullair Europe's St. Priest, France,
facility. The charge also included $14 million for the partial write-down of
assets of Sullair Europe and $7 million (primarily cash related charges) for
disposition of the St. Priest facility and professional fees. Operations
previously at the St. Priest facility were transferred to other Sullair plant
sites in Europe and the United States. The shutdown of the St. Priest facility
and the termination or transfer of the employees was completed during 1997, and
it is anticipated that the sale of the facility will be completed by the end of
1999.
Since the charge was recorded in 1996, approximately $9 million in cash has been
paid and charged against the restructuring liability, including costs to
terminate 124 employees. Period costs related to the 1996 restructuring
were approximately $1 million in the first six months of 1998 and 1997.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The financial information for the quarter ended June 30, 1998, as compared with
the financial information for the quarter ended June 30, 1997, and the balance
sheet at December 31, 1997, is discussed below, and should be read in
conjunction with the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997, and the financial data as presented in Item 1 above.
RESULTS OF OPERATIONS
Second quarter sales increased by $50 million to $490 million in 1998 from $440
million in 1997. The increase was due primarily to higher shipments to Aerospace
commercial OEM and aftermarket customers. Net earnings in the second quarter of
1998 were $57 million, or $.99 per share, assuming dilution, compared with $43
million, or $.71 per share, assuming dilution, in 1997. This
quarter-over-quarter earnings increase was primarily attributable to the higher
sales activity and the increase in other, net which resulted from the gain
realized on the partial sale of an unconsolidated subsidiary.
Sales for the first six months of 1998 were $975 million, a $146 million
increase from sales of $829 million in the first six months of 1997. The
increase was due primarily to higher shipments to Aerospace commercial OEM and
aftermarket customers. Industrial segment sales in the first six months of 1998
were up approximately 5 percent compared with 1997. Net earnings in the first
half of 1998 were $108 million, or $1.87 per share, assuming dilution, compared
with $78 million, or $1.29 per share, assuming dilution, in the first half of
1997. The year-over-year increase stems from higher Aerospace operating profit
generated from the increased commercial sales.
ORDERS
Orders for second quarter 1998 decreased $67 million to $507 million compared
with $574 million in the second quarter of 1997, primarily as a result of lower
Aerospace commercial OEM orders. New orders for the six months ended June 30,
1998, were $1,036 million, an increase of $44 million from $992 million for the
same period last year. The increase is due to higher orders for Aerospace
commercial aftermarket and military orders, partially offset by a decrease in
commercial OEM orders. Total unfilled orders at June 30, 1998, were $1,287
million, compared with $1,130 million at June 30, 1997, and $1,226 million at
December 31, 1997.
AEROSPACE OVERVIEW
Second quarter sales for the Aerospace segment were $295 million, an increase of
$52 million or 21 percent from the second quarter of 1997 as a result of double
digit percentage increases in both commercial OEM and aftermarket sales.
Operating profit increased $23 million or 52 percent to $67 million and
operating profit margins increased to 22.7 percent during the second quarter of
1998 from the 18.1 percent achieved during the second quarter of 1997. The
increases were due primarily to higher shipments to Aerospace commercial OEM and
aftermarket customers.
Incoming orders in the second quarter were $319 million, a decrease of $69
million or 18 percent compared with the second quarter of 1997. This was largely
due to a 34 percent decrease in commercial OEM orders which were up 69 percent
in the first quarter of this year and were up 224 percent in the second quarter
of 1997 compared to the second quarter of 1996. Commercial aftermarket orders
increased 14 percent when compared with orders from the second quarter of 1997.
INDUSTRIAL OVERVIEW (EXCLUDING RESTRUCTURING PERIOD COSTS)
Second quarter 1998 sales for the Industrial segment were $195 million, a
decrease of $2 million or 1 percent compared with the second quarter of 1997.
Operating profit for the second quarter was $29 million, a decrease of $5
million or 15 percent from the second quarter of 1997. Second quarter operating
profit margin was 14.9 percent compared to the 17.3 percent achieved in the
second quarter of 1997. The decrease was due primarily to additional spending of
$2 million to $3 million on strategic initiatives such as new product
development and
8
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demand rate of manufacturing in the second quarter of 1998 compared to the
second quarter of 1997, which reduced Industrial operating profit margins by
approximately 1 to 1.5 percentage points.
Orders in the second quarter were $188 million, an increase of $2 million or 1
percent when compared with the second quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $30 million to $383 million at June 30, 1998,
compared with $413 million at December 31, 1997. The decrease was due primarily
to an increase in notes payable, resulting from the Registrant's acquisitions
and share repurchase activity, and a decrease in other assets, as benefits were
paid from a previously funded trust for incurred but not reported health care
claims.
Net cash provided by operating activities increased to $139 million for the
first half of 1998 from $76 million for the first half of 1997. The increase was
due primarily to higher net earnings and a reduction in other assets as benefits
were paid from a previously funded trust for incurred but not reported health
care claims.
In the first six months of 1998 and 1997, the Registrant used $80 million and
$52 million of cash, respectively, for investments in fixed assets and small
product-line acquisitions. During the same periods, $59 million and $20 million
of cash, respectively, was used for financing activities, primarily for the
payment of dividends and the repurchase of common stock, partially offset by
commercial paper borrowings.
The Registrant repurchased 668,200 shares of its common stock during the second
quarter and an additional 70,200 shares, through July 24, 1998, bringing the
total shares repurchased in 1998 to 1,746,200. Through July 24, 1998, the
Registrant has purchased a total of 17.6 million shares of the 30 million shares
authorized for repurchase by the Board of Directors.
On June 30, 1998, the Registrant's ratio of total debt to total capital was 42.9
percent compared with 40.2 percent at December 31, 1997.
OUTLOOK
The following discussion contains forward-looking information which is subject
to market risks and opportunities that could have a material impact on actual
results, and accordingly should be considered in conjunction with the cautionary
language set forth in the Registrant's most recent report on Form 8-K which is
on file with the Securities and Exchange Commission.
Because of the strong showing in the first six months of 1998, coupled with
continued healthy demand in the Registrant's aerospace markets, the Registrant
has increased the 1998 earnings per share projection for the second time this
year. The Registrant now expects 1998 earnings per share to be between $3.80 and
$4.05 per share, excluding any additional share repurchases. Were it not for the
continued uncertainty in Asia, the forecast range would be $.10 per share
higher. With the increase in the Registrant's earnings per share estimate,
operating cash flow after capital expenditures is now expected to be between
$175 million and $200 million.
The current outlook for 1998 is for overall Aerospace sales to grow between 20
percent and 25 percent, with commercial OEM sales increasing approximately 35
percent. The Registrant's forecast for 1998 commercial aftermarket sales remains
unchanged from the 10 percent growth rate forecasted in the first quarter.
Military OEM sales are still expected to grow between 25 percent and 30 percent
and military aftermarket growth is projected to reach 15 percent. Due to the
strength of the first six months of 1998, the Registrant now projects Aerospace
operating profit will grow between 30 percent and 35 percent, with operating
profit margins of at least 21 percent.
The Registrant's Industrial segment revenue is now projected to grow by
approximately 5 percent in 1998, including the impact of acquisitions made so
far this year. Industrial operating profit margins for the second half of 1998
are expected to average approximately 17 percent versus the 15 percent level
achieved in the first half of 1998, resulting in average operating profit
margins of approximately 16 percent for the year as a whole.
9
<PAGE> 10
IMPACT OF YEAR 2000
A detailed discussion regarding Year 2000 issues is contained in Registrant's
December 31, 1997, Annual Report on Form 10-K. The Registrant is on target to
meet the previously disclosed time table and cost estimates related to the
renovations and modifications necessary to become Year 2000 ready.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Registrant has disclosed various legal proceedings in its Annual Report on
Form 10-K for the fiscal year ended December 31, 1997. As set forth under the
heading "Income Tax Issues" in Part I, Item 2 of the Registrant's quarterly
report on Form 10-Q for the quarter ended March 31, 1998 an issue with the
Internal Revenue Service related to the deductability of $115 million in
payments, made pursuant to an agreement dated August 29, 1988 which settled the
previously disclosed government contracts dispute, has been resolved. Except as
noted above, there have been no material changes in those proceedings or other
material legal developments since that time.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of Sundstrand Corporation was
held on April 21, 1998.
(c) Stockholders voted on the election of four directors for a term of
three years. Results of said votes were as follows:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Ward Smith 48,574,597 745,119
J.P. Bolduc 48,571,462 748,254
Gerald Grinstein 48,581,318 738,398
Robert H. Jenkins 48,588,585 731,131
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10)(a) Employment Agreement date June 1, 1998, between Registrant and
Robert H. Jenkins, Registrant's Chairman of the Board,
President and Chief Executive Officer.
(10)(b) Form of Employment Agreement between Registrant and each of
Paul Donovan, Registrant's Executive Vice President and Chief
Financial Officer; Patrick L. Thomas, Registrant's Executive
Vice President and Chief Operating Officer, Industrial; Ronald
F. McKenna, Registrant's Executive Vice President and Chief
Operating Officer, Aerospace; Mary Ann Hynes, Registrant's
Vice President and General Counsel and Secretary; and DeWayne
J. Fellows, Registrant's Vice President and Controller.
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
11
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SIGNATURES
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.
Sundstrand Corporation
-------------------------------------
(Registrant)
Date: August 5, 1998 /s/ Mary Ann Hynes
-------------------------------------
Mary Ann Hynes
Vice President and General
Counsel and Secretary
Date: August 5, 1998 /s/ DeWayne J. Fellows
------------------------------------
DeWayne J. Fellows
Vice President and Controller
12
<PAGE> 1
Exhibit (10)(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
the 1st day June, 1998 between SUNDSTRAND CORPORATION, a Delaware corporation
(the "Company"), and Robert H. Jenkins ("Executive").
WHEREAS, the Board of Directors of the Company (the "Board") on
September 19, 1995, elected Executive as President and Chief Executive Officer
of the Company effective October 1, 1995;
WHEREAS, the Company desires to continue the services of Executive
as its Chairman of the Board, President and Chief Executive Officer and to enter
into an agreement embodying the terms of such continuing relationship; and
WHEREAS, the Company desires to enter into this Agreement to assure
the benefits of Executive's future services to the Company, and Executive is
willing to commit to render such services, upon the terms and conditions set
forth below.
It is therefore mutually agreed as follows:
1. Employment. The Company agrees to employ Executive as Chairman
of the Board, President and Chief Executive Officer and Executive agrees to
serve the Company, upon the terms and conditions and for the period of
employment hereinafter set forth. Throughout the Employment Period (as
hereinafter defined), unless otherwise agreed in writing by Executive and the
Company, the Company shall neither demote Executive nor assign to Executive any
duties or responsibilities that are inconsistent with his position, duties,
responsibilities and status as Chairman of the Board, President and Chief
Executive Officer.
2. Employment Period. The "Employment Period" shall commence on
June 1, 1998 and, unless otherwise terminated in accordance with the provisions
of Section 7 hereof, shall terminate on September 30, 2000; provided, however,
that on September 30, 1998 and each anniversary of such date, the Employment
Period shall automatically be extended for an additional one year unless prior
thereto either party has given written notice (a "Notice of Non-Extension") to
the other that such party does not wish to extend the Employment Period.
3. Compensation. Throughout the Employment Period, the Company
shall pay or provide Executive with the following, and Executive shall accept
the same, as compensation for the performance of his undertakings and the
services to be rendered by him under this Agreement.
(a) A salary (the "Base Salary") at an annual rate which shall not
be less than the highest annual rate of salary that Executive shall theretofore
have attained but, in no event shall the Base Salary be at an annual rate less
than seven hundred thousand dollars ($700,000). The Base Salary shall be payable
in accordance with the Company's normal payroll practices applicable to its
executives but, not less frequently than bi-weekly.
(b) Participation in all executive benefit and incentive
compensation plans now maintained or hereafter established by the Company for
the purpose of providing compensation and/or benefits to executives of the
Company including, but not limited to, the Company's 1989 Restricted Stock Plan,
the Sundstrand Corporation Stock Incentive Plan, the Officer Incentive Plan, and
any supplemental retirement, salary continuation, stock option, deferred
compensation, supplemental medical and life insurance and other bonus and
incentive compensation plans. Unless otherwise provided herein, Executive's
participation in such plans shall be on the same basis and terms as other
executive officers of the Company; provided, however, that following a Change in
Control (as defined below), Executive's participation in such plans (or with
respect any stock, stock option or other equity-based benefit plan, any
substitute plans therefor) shall in no event be on a basis less favorable in
terms of benefit levels and reward opportunities applicable to Executive than
those in effect immediately prior to the Change in Control. No additional
compensation provided under any of such plans shall be deemed to modify or
otherwise affect the terms of this Agreement or any of Executive's entitlements
hereunder.
(c) Participation in all employee benefit plans, practices and
programs maintained by the Company and made available to employees generally
including, without limitation, all pension, retirement,
<PAGE> 2
savings, medical, hospitalization, disability, dental, life and travel accident
insurance benefit plans (collectively the "Benefit Plans"). Executive's
participation in the Benefit Plans shall be on the same basis and terms as are
applicable to employees of the Company generally; provided, however, that
following a Change in Control, Executive's participation in the Benefit Plans
shall in no event be on a basis less favorable in terms of benefit levels
applicable to Executive than those in effect immediately prior to the Change in
Control. In the event Executive at any time during the Employment Period is not
eligible to participate in any Benefit Plan for which Executive was previously
eligible or the Company terminates or materially amends any Benefit Plan, the
Company shall provide to Executive benefits comparable with those benefits that
would have been received by Executive if Executive continued to participate in
such Plans.
(d) Paid vacations in accordance with the Company's vacation policy
as in effect from time to time, and all paid holidays given by the Company to
its executive officers.
(e) All fringe benefits and perquisites (e.g., physical
examinations, financial planning and tax preparation services) made available by
the Company to its executive officers; provided, however, that following a
Change in Control, Executive's entitlement to such fringe benefits and
perquisites shall in no event be on a basis less favorable in terms of benefit
and perquisite levels applicable to Executive than those in effect immediately
prior to the Change in Control.
(f) Notwithstanding anything contained in this Agreement to the
contrary, in the event that any payment (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated or proposed thereunder (the "Code")), or distribution to or for the
benefit of Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in connection with, or
arising out of, his employment with the Company (a "Payment" or "Payments"),
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, interest and penalties 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 any 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.
An initial determination shall be made as to whether a Gross-Up
Payment is required pursuant to this Section 3(f) and the amount of such
Gross-Up Payment shall be made by a national independent accounting firm
selected by Executive (the "Accounting Firm"). All fees, costs and expenses
(including, but not limited to, the cost of retaining experts) of the Accounting
Firm shall be borne by the Company and the Company shall pay such fees, costs
and expenses as they become due. The Accounting Firm shall provide detailed
supporting calculations, acceptable to Executive, both to the Company and
Executive within fifteen (15) business days of the Termination Date, if
applicable, or such other time as requested by the Company or by Executive
(provided Executive reasonably believes that any of the Payments may be subject
to the Excise Tax). The Gross-Up Payment, if any, as determined pursuant to this
Section 3(f) shall be paid by the Company to Executive within five (5) business
days of the Company's receipt of the Accounting Firm's determination. The
Accounting Firm shall furnish Executive with an unqualified opinion that no
Excise Tax will be imposed with respect to any such Payment or Payments, or that
the amount of the Excise Tax due is correct. Any such initial determination by
the Accounting Firm of the Gross-Up Payment shall be binding upon the Company
and Executive subject to the application of the paragraph set forth immediately
below.
As a result of the uncertainty in the application of Section
4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion
thereof) will be paid which should not have been paid (an "Overpayment") or a
Gross-Up Payment (or a portion thereof) which should have been paid will not
have been paid (an "Underpayment"). An Underpayment shall be deemed to have
occurred upon notice (formal or informal) to Executive from any governmental
taxing authority that the tax liability of Executive (whether in respect of the
then current taxable year of Executive or in respect of any prior taxable year
of Executive) may be increased by reason of the imposition of the Excise Tax on
a Payment or Payments with respect to which the Company has failed to make a
sufficient Gross-Up Payment. An Overpayment shall be deemed to have occurred
upon a "Final Determination" (as hereinafter defined) that the Excise Tax shall
not be imposed upon all or any portion of any Payment or Payments with respect
to which Executive had previously received a Gross-Up Payment. A Final
Determination shall be deemed to have occurred when Executive has received from
the applicable governmental taxing authority a refund of taxes or other
reduction in his tax liability by reason of the Overpayment and upon either (i)
the date a
<PAGE> 3
determination is made by, or an agreement is entered into with, the
applicable governmental taxing authority which finally and conclusively binds
Executive and such taxing authority, or in the event that a claim is brought
before a court of competent jurisdiction, the date upon which a final
determination has been made by such court and either all appeals have been taken
and finally resolved or the time for all appeals has expired or (ii) the statute
of limitations with respect to Executive's applicable tax return has expired. If
an Underpayment occurs, Executive shall promptly notify the Company and the
Company shall pay to Executive at least five (5) business days prior to the date
on which the applicable governmental taxing authority has requested payment, an
additional Gross-Up Payment equal to the amount of the Underpayment plus any
interest and penalties imposed on the Underpayment.
Notwithstanding anything contained in this Agreement to the
contrary, in the event it is determined that an Excise Tax will be imposed on
any Payment or Payments, the Company shall pay to the applicable governmental
taxing authorities as Excise Tax withholding, the amount of the Excise Tax that
the Company has actually withheld from the Payment or Payments.
4. Expenses. During the Employment Period, the Company shall
promptly pay or reimburse Executive for all reasonable expenses incurred by
Executive in the performance of duties hereunder.
5. Conditions of Employment. Throughout the Employment Period, (a)
the Company shall not require or assign duties to Executive which would require
him to move the location of his principal business office or his principal place
of residence outside the area of Rockford, Illinois (the "Rockford Area"), (b)
the Company shall not require or assign duties to Executive which would require
him to spend more than forty-five (45) normal working days away from the
Rockford Area during any consecutive twelve-month period, (c) the Company shall
provide an office to Executive, the location and furnishings of which shall be
equivalent to the offices provided to other members of the executive office of
the Company on the date of this Agreement, and (d) the Company shall provide
secretarial services and other administrative services to Executive which shall
be equivalent to the secretarial services and other administrative services
provided to other members of the executive office of the Company on the date of
this Agreement.
6. Continuation of Benefits after Company Breach.
(a) In the event that the Company shall (i) fail to observe or
perform any covenant or agreement contained in this Agreement to be observed or
performed by the Company or (ii) give Executive a Notice of Non-Extension
pursuant to Section 2 hereof (the circumstances referred to in clauses (i) and
(ii) of this Section 6(a), whether occurring before or after a Change in
Control, are each hereinafter referred to as a "Breach"), then Executive shall
be entitled to terminate the Employment Period, and from the date of such
termination until such time as the Employment Period would otherwise have
terminated pursuant to the provisions of Section 2 or clause (ii) of Section
7(a) or until a breach by the Executive of any of the provisions of Section 8 or
9 hereof, the Executive shall continue to receive all compensation and benefits
which the Company has hereinabove in Section 3 agreed to pay to, and provide
for, Executive, in each case in the amounts and at the times provided for in
Section 3 (the "Continuation Benefits"). The parties agree that, in such event,
such payments and benefits shall be deemed to constitute liquidated damages for
the Breach. However, the Continuation Benefits shall not be payable if Executive
is, because of a Breach, entitled to receive the benefits and treatment provided
for in Section 16(b) of this Agreement, in which case those benefits and
treatment set forth in Section 16(b) of this Agreement shall be deemed to
constitute liquidated damages for the Breach. Any other provision of this
Agreement notwithstanding, before any payments or benefits are provided under
this Section 6(a) or under Section 16(b) because of a Breach, Executive shall
provide the Company with written notice of his belief that a Breach has occurred
and shall afford the Company a reasonable opportunity to cure the alleged
Breach.
(b) Notwithstanding anything contained in this Agreement to the
contrary, if the Employment Period is terminated prior to a Change in Control by
Executive pursuant to Section 6(a) hereof, and Executive reasonably demonstrates
that such Breach (l) was at the request of a third party who has indicated an
intention or taken steps reasonably calculated to effect a Change in Control or
(2) otherwise occurred in connection with or in anticipation of a Change in
Control, then for all purposes of this Agreement, the Breach shall be deemed to
have occurred after the Change in Control.
<PAGE> 4
7. Termination.
(a) Notwithstanding anything contained in this Agreement to
the contrary, the Employment Period shall immediately terminate upon the
earliest to occur of any of the following:
(i) The date of death of Executive; provided,
however, that Executive's estate, heirs and
beneficiaries shall be entitled to receive the
full amount of his salary for the month in which
death occurs and all other benefits available to
them under the Company's Benefit Plans as in
effect on the date of death of Executive;
(ii) In the event that the Company elects to terminate
the Employment Period following conviction of
Executive of a felony, the date as of which
Executive's right to file an appeal after
conviction has expired, or if Executive files an
appeal after conviction, the date as of which the
appellate court fails to reverse the conviction,
and the Company shall pay Executive his full
salary through the Termination Date (as defined
below) and the Company shall have no further
obligations to Executive under this Agreement
except with respect to any rights Executive might
otherwise have under the Company's Benefit plans
as in effect on the Termination Date;
(iii) The date as of which the Company elects to
terminate the Employment Period in accordance
with Section l0;
(iv) The Termination Date specified in a Notice of
Termination (as each term is hereinafter defined)
relating to a termination of the Employment
Period as a result of Executive's Disability. For
purposes of this Agreement, "Disability" means a
physical or mental infirmity which impairs
Executive's ability to substantially perform his
duties under this Agreement, which continues for
a period of at least one hundred and eighty (180)
consecutive days or for periods totaling at least
two hundred and forty (240) days during any
period of three hundred and sixty-five (365)
consecutive days and which, in either case,
cannot be reasonably accommodated by the Company;
(v) The Termination Date specified in a Notice of
Termination reflecting an election by the Company
to terminate the Employment Period other than for
reasons described in paragraphs (ii), (iii) or
(iv) above; or
(vi) The Termination Date specified in a Notice of
Termination reflecting an election by Executive
to terminate the Employment Period pursuant to
Section 6(a).
(b) Upon a termination of the Employment Period as a result of
Executive's Disability, Executive shall be entitled to the Continuation
Benefits. Executive shall be entitled to the compensation and benefits provided
for under this Agreement for any period during the Employment Period and prior
to the establishment of Executive's Disability during which Executive is unable
to work due to a physical or mental infirmity. Notwithstanding anything
contained in this Agreement to the contrary, until the Termination Date
specified in a Notice of Termination relating to Executive's Disability,
Executive shall be entitled to return to his position with the Company as set
forth in this Agreement in which event no Disability of Executive will be deemed
to have occurred.
(c) Upon the occurrence of and following a Change in Control,
Executive may voluntarily terminate the Employment Period at any time. If
Executive voluntarily terminates the Employment Period effective as of the first
anniversary of the effective date of a Change in Control, after having given
notice to the Company during the period which commences on the effective date of
a Change in Control and ends on the date which is eight (8) months following
such date, it shall be referred to as a "Limited Period Termination."
(d) Any termination of the Employment Period by the Company or by
Executive shall be communicated to the other party by a Notice of Termination.
For purposes of this Agreement, a "Notice of Termination" shall mean a written
notice that (i) indicates the specific termination provision in this Agreement
<PAGE> 5
relied upon, (ii) sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination under the provision so indicated and
(iii) specifies the Termination Date, the setting of which shall be subject to
the terms of Section 6(a) or Section 10 to the extent that either of those
sections shall be applicable; provided, however, that in the event of a
termination of the Employment Period by Executive pursuant to Section 7(c) other
than pursuant to a Limited Period Termination, the proposed date of termination
of the Employment Period set forth in the Notice of Termination shall not be
less than thirty (30) days nor more than sixty (60) days after the date of such
Notice of Termination. No termination of the Employment Period pursuant to
Section 6(a), any of clauses (ii), (iii), (iv) or (v) of Section 7(a) or Section
7(c) shall be effective without a Notice of Termination.
(e) Notwithstanding anything contained in this Agreement to the
contrary, if the Employment Period is terminated by the Company, or by Executive
pursuant to Section 6(a) after a Breach which the Company does not cure, in
either case, prior to the effective date of a Change in Control, and Executive
reasonably demonstrates that such termination, Breach or failure to cure a
Breach, as the case may be, (i) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to effect a Change
in Control or (ii) otherwise occurred in connection with or in anticipation of a
Change in Control, then for all purposes of this Agreement, the effective date
of the Change in Control shall be the date immediately prior to the date of such
termination of the Employment Period.
(f) For purposes of this Agreement, "Termination Date" shall mean
the date on which the Employment Period shall be terminated.
8. Covenant Not to Compete. By and in consideration of the
Company's entering into this Agreement and the Base Salary and benefits to be
provided by the Company hereunder, and further in consideration of Executive's
exposure to the proprietary information of the Company, Executive agrees that
Executive will not, from and after the date hereof until one year after
expiration of the Employment Period, directly or indirectly, own, manage,
operate, join, control, be employed by, or participate in the ownership,
management, operation or control of, or be connected in any manner, including
but not limited to, holding the position of shareholder, member, director,
officer, consultant, independent contractor, executive, partner, or investor,
with any Competing Enterprise. For purposes of this paragraph, the term
"Competing Enterprise" shall mean any business entity directly engaged (in the
United States) in the manufacture and/or sale of products competitive with any
material product or product line of the Company. For purposes of this paragraph,
the term "material product or product line of the Company" shall mean any
product or product line of the Company, the gross sales of which during any
calendar year during the five (5) year period preceding Executive's undertaking
such employment were at least $50 million. Following the Termination Date, upon
request, Executive shall notify the Company of Executive's then current
employment status. Notwithstanding anything contained in this Section 8 to the
contrary, Executive shall not be prohibited from acquiring or holding up to two
percent (2%) of the common stock of an entity that is traded on a national
securities exchange or a nationally recognized over-the-counter market.
9. Unauthorized Disclosure. Executive shall not make any
Unauthorized Disclosure. For purposes of this Agreement, "Unauthorized
Disclosure" shall mean disclosure by Executive without the consent of the Board
to any person, other than an employee of the Company or a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by Executive of his duties as an executive of the Company or as may
be legally required, of any confidential information obtained by Executive while
in the employ of the Company (including, but not limited to, any confidential
information with respect to any of the Company's customers or methods of
distribution) the disclosure of which he knows or has reason to believe will be
materially injurious to the Company; provided, however, that such term shall not
include the use or disclosure by Executive, without the consent of the Board, of
any information known generally to the public (other than as a result of
disclosure by him in violation of this Section 9) or any information not
otherwise considered confidential by a reasonable person engaged in the same
business as that conducted by the Company.
10. Breach of Section 8 or Section 9. In the event of a breach by
Executive of the provisions of Section 8 or Section 9 of this Agreement, the
Company may terminate the Employment Period under Section 7(a)(iii), but only if
the Company complies with the following provisions:
(a) The Company shall provide Executive with written notice of its
belief that a breach of Section 8 or Section 9 of this Agreement has occurred
and shall afford Executive sixty (60) days or such longer period as the Company
may determine to cure the alleged breach.
<PAGE> 6
(b) In the event Executive does not cure the breach, the Company
shall be required to institute a judicial proceeding to determine whether a
breach of Section 8 or Section 9 of this Agreement has occurred and Executive
has not cured such breach.
(c) The Employment Period may then be terminated only upon a
judicial determination that Executive has breached the provisions of Section 8
or Section 9 and has failed to cure such breach; provided, however, that the
Employment Period may not be terminated until either all appellate proceedings
have been exhausted or the time within which Executive may appeal an adverse
ruling has expired.
11. Litigation Expenses. The Company shall pay to Executive all
out-of-pocket expenses, including attorneys' fees, incurred by Executive in
connection with any claim or legal action or proceeding brought under or
involving this Agreement, whether brought by Executive or by or on behalf of the
Company or by another party; provided, however, the Company shall not be
obligated to pay to Executive out-of-pocket expenses, including attorneys' fees,
incurred by Executive in any claim or legal action or proceeding involving (i) a
Breach; (ii) Section 8 hereof or (iii) Section 9 hereof, if the Company prevails
in such litigation.
12. Retirement Plans. Executive shall participate in the Sundstrand
Corporation Retirement Plan-Aerospace and the Sundstrand Corporation
Supplemental Retirement Plan (collectively, the "Retirement Plans"). For
purposes of determining the amount of Executive's accrued benefit under the
Retirement Plans, for the period commencing on September 19, 1995 and
terminating on the Termination Date, Executive shall be deemed to accrue "Years
of Service" and "Years of Participation" (as those terms are defined and used in
the Retirement Plans) in accordance with the Special Retirement Plan (as defined
below). The term "Special Retirement Plan" shall mean Executive's right to
accrue Years of Service and Years of Participation under the Retirement Plans at
the rate of two (2) months for each month (or fraction thereof) of actual
service. Notwithstanding the foregoing, in the event of a Change in Control,
Executive will immediately become fully-vested in a benefit payable from the
Retirement Plans, which benefit will be calculated as though, at the time of
such Change in Control, Executive had the greater of (i) twenty (20) Years of
Service and Years of Participation in the Retirement Plans and (ii) Executive's
Years of Service and Years of Participation in the Retirement Plans calculated
using Executive's service in accordance with the Special Retirement Plan.
13. Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(a) The acquisition (other than from the Company) by any person (as
such term is defined in Sections 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended (the "1934 Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty-five percent
(25%) or more of the combined voting power of the Company's then outstanding
voting securities;
(b) The individuals who, as of the date hereof, are members of the
Board (the "Incumbent Board"), cease for any reason to constitute a majority of
the Board, unless the election, or nomination for election by the Company
stockholders, of any new director was approved by a vote of a majority of the
Incumbent Board, and such new director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board; or
(c) (i) A merger or consolidation involving the Company (or any
direct or indirect subsidiary of the Company) or (ii) the issuance of shares of
capital stock of the Company in connection with a merger or consolidation
involving the Company (or any direct or indirect subsidiary of the Company) if,
in the case of clause (i) or clause (ii), the stockholders of the Company
immediately before such merger or consolidation, do not, as a result of such
merger or consolidation, own, directly or indirectly, immediately following such
merger or consolidation, more than sixty-seven percent (67%) of the combined
voting power of the then outstanding voting securities of the person issuing
securities in the merger or consolidation in substantially the same proportion
as their ownership of the combined voting power of the voting securities of the
Company outstanding immediately before such merger or consolidation; provided,
however, that for purposes of clause (i) and clause (ii), voting securities of
the Company issued in connection with the merger or consolidation, including
securities to cover stock options or cure "tainted" shares (whether issued in
the merger or consolidation or pursuant to a public or private offering related
thereto), shall be treated as having been issued in such merger or consolidation
and not as having been outstanding immediately prior to such merger or
consolidation or (iii) a complete liquidation or
<PAGE> 7
dissolution of the Company or consummation of the sale or other disposition of
all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur pursuant to Section 13(a), solely because twenty-five percent
(25%) or more of the combined voting power of the Company's then outstanding
voting securities is acquired by (i) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained by the Company or
any of its subsidiaries or (ii) any corporation which, immediately prior to such
acquisition, is owned directly or indirectly by the stockholders of the Company
in the same proportion as their ownership of stock in the Company immediately
prior to such acquisition.
14. Retiree Health and Life Insurance Benefits Upon a Change in
Control. Notwithstanding anything to the contrary contained in the Company's
Benefit Plans and other applicable programs and practices, upon a Change in
Control:
(a) The eligibility requirements for the Company's Retiree Health
Insurance Plan shall be waived, and commencing on the Termination Date,
Executive shall be provided with the same health care coverage as provided to
other eligible retirees; and
(b) The age 60 and 30-year requirements of the Executive Life
Insurance Program for retirees shall be waived, and commencing on the
Termination Date, Executive shall be provided with a life insurance benefit of
(i) five (5) times the Base Salary in effect on the Termination Date for the
period commencing on the Termination Date and terminating on the third
anniversary of the Termination Date and (ii) one times such Base Salary
thereafter.
15. Stock Awards Upon a Change in Control. Upon a Change in
Control, all restrictions on any stock purchased by Executive and on any awards
(including awards to Executive of restricted stock pursuant to the Company's
1989 Restricted Stock Plan, the Sundstrand Corporation Stock Incentive Plan and
any other restricted stock plan sponsored by the Company) shall immediately
lapse and all such stock and awards shall become fully (100%) vested
immediately, and, where applicable, all shares of stock shall be immediately
deliverable to Executive; all such stock shall be freely transferable by
Executive and the Company will have no right to direct or restrict the
disposition of such stock; and all stock options and stock appreciation rights
granted to Executive shall become fully (100%) vested and shall become
immediately exercisable.
16. Other Compensation Upon Termination Following a Change in
Control. Notwithstanding the provisions of any other section of this Agreement
and in addition to any other amounts or benefits payable to Executive or on his
behalf pursuant to the terms of this Agreement (other than the Continuation
Benefits), upon termination of the Employment Period following a Change in
Control, Executive shall be entitled to the following benefits and treatment:
(a) If the Employment Period shall be terminated by Executive's
death, by the Company pursuant to any of clauses (ii) through (iv) of Section
7(a) or by Executive (other than pursuant to Section 7(c) in connection with a
Limited Period Termination or Section 6(a) following a Breach which the Company
does not cure), the Company shall pay Executive all amounts earned or accrued
hereunder through the Termination Date but not paid as of the Termination Date,
including Base Salary, vacation pay, bonuses or incentive compensation and any
previous compensation which Executive has previously deferred (including any
interest earned or credited thereon) (collectively, "Accrued Compensation"). In
addition to the foregoing, if the Employment Period is terminated by reason of
Executive's death (except if Executive had previously provided to the Company a
valid Notice of Termination in connection with a Limited Period Termination or a
Breach which the Company does not cure), the Company shall pay to Executive or
his beneficiaries an amount equal to the Bonus Amount (as defined below)
multiplied by a fraction the numerator of which is the number of days in such
fiscal year through the Termination Date and the denominator of which is 365 (a
"Pro Rata Bonus"). Executive's entitlement to any other compensation or benefits
shall be determined in accordance with the Company's employee benefit plans and
other applicable programs and practices then in effect. For purposes of this
Agreement, the term "Bonus Amount" shall mean an amount equal to the greater of
(x) the cash bonus or incentive award which would have been paid or payable to
Executive in respect of the fiscal year in which the Termination Date occurs had
Executive continued in employment until the end of such fiscal year, calculated
as if the maximum bonus or incentive award payable to Executive had been earned
for such year and (y) the greatest of (i) the highest percentage of Base Salary
used to determine Executive's cash bonus or incentive award during the Three
Year Period (as defined below) multiplied
<PAGE> 8
by the Base Salary in effect immediately prior to the Termination Date, (ii) the
highest actual cash bonus or incentive award paid or payable to Executive in
respect of any of the most recent three (3) fiscal years prior to the fiscal
year in which Executive's Termination Date occurs (such three (3) year period
referred to as the "Three Year Period"), and (iii) the product of (A) the Base
Salary paid or payable to Executive in the year of termination, (B) the highest
target bonus percentage applicable to Executive in the year of termination or
during the Three Year Period and (C) the highest Bonus to Target Ratio (as
defined below) applicable to Executive during the Three Year Period, whichever
would result in the greatest "Bonus Amount". The "Bonus to Target Ratio" for a
particular year shall mean a fraction, not less than one, the numerator of which
shall be the bonus paid or payable to Executive for such year and the
denominator of which shall be the target bonus applicable to Executive for such
year.
(b) If the Employment Period shall be terminated by the
Company other than pursuant to any of clauses (ii) through (iv) of Section 7(a)
or by Executive pursuant to Section 6(a) after a Breach which the Company does
not cure or Section 7(c) in connection with a Limited Period Termination, then
Executive shall be entitled to the benefits and treatment provided below:
(i) the Company shall pay Executive all Accrued
Compensation and a Pro Rata Bonus;
(ii) the Company shall pay Executive as severance pay
and in lieu of any further salary for periods subsequent to the Termination
Date, in a single payment (subject to Section 24 hereof) an amount in cash equal
to three (3) times the sum of (A) Executive's Base Salary (including, for
calculation purposes only, any portion thereof the receipt of which has been
deferred under any plan, program, policy or arrangement of the Company providing
for the deferral of income) and (B) the Bonus Amount. Notwithstanding the
foregoing, the amount to be paid under this Subsection (ii) shall be multiplied
by a fraction (which in no event shall be greater than one (1)) the numerator of
which shall be the number of months (for this purpose any partial month shall be
considered as a whole month) remaining until Executive's 65th birthday and the
denominator of which shall be thirty-six (36);
(iii) for a number of months equal to the lesser of (A)
thirty-six (36) or (B) the number of months remaining until Executive's 65th
birthday, the Company shall at its expense continue to provide on behalf of
Executive and his dependents and beneficiaries the fringe benefits, perquisites,
life insurance, disability, medical, dental and hospitalization, travel
accident, pension, profit sharing, savings, retirement and any other employee
benefits (other than participation in stock or other equity-based plans) which
were being provided to Executive at the time Notice of Termination or Notice of
Non-Extension, as the case may be, is given (or the benefits provided to
Executive at the time of a Change in Control, if greater). The benefits provided
in this Section 16(b)(iii) shall be no less favorable to Executive, in terms of
amounts and deductibles and costs to him, than the coverage provided Executive
under the plans providing such benefits at the time Notice of Termination or
Notice of Non-Extension, as the case may be, is given (or at the time of the
Change in Control if more favorable to Executive). The Company's obligation
hereunder with respect to the foregoing benefits shall be limited to the extent
that Executive obtains any such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the coverage of any benefits
it is required to provide Executive hereunder as long as the aggregate coverage
of the combined benefit plans is no less favorable to Executive, in terms of
amounts and deductibles and costs to him, than the coverage required to be
provided hereunder. This Subsection (iii) shall not be interpreted so as to
limit any benefits to which Executive or his dependents may be entitled under
any of the Company's employee benefit plans, programs or practices following
termination of the Employment Period, including without limitation, retiree
medical and life insurance benefits; and
(iv) the Company shall pay in a single payment (subject
to Section 24 hereof) an amount in cash equal to the greater of (x) or (y) or
(z), where (x) equals three (3) times the amount of any matching contribution
made and which would have been made on behalf of Executive to the Company's
Employee Savings Plan and Supplemental Savings Account of the Deferred
Compensation Plan for the full year in which the Termination Date occurs, using
the applicable compensation amounts as defined in Section 16(b)(ii) of this
Agreement and assuming for this purpose that the matching contribution
percentage in effect on the Termination Date shall remain the same for such
year, Executive had been employed for all of such year and Executive had
continued to make contributions for the full year based upon his election in
effect on his Termination Date, (y) equals three (3) times the amount of any
matching contribution made on behalf of Executive to the Company's Employee
Savings Plan and Supplemental Savings Account of the Deferred Compensation Plan
for the year prior to the year in which the Change in Control occurs and (z)
equals the amount of any matching contribution made
<PAGE> 9
and which would have been made on behalf of Executive to the Company's Employee
Savings Plan and Supplemental Savings Account of the Deferred Compensation Plan
for the full year in which the Termination Date occurs, using the applicable
compensation amounts as defined in Section 16(b)(ii) of this Agreement and
assuming for this purpose that the matching contribution percentage in effect on
the Termination Date shall remain the same for such year, Executive had been
employed for all of such year and Executive had continued to make contributions
for the full year based upon his election in effect on the Termination Date,
plus the amount of matching contribution which would have been made on behalf of
Executive to the Company's Employee Savings Plan and Supplemental Savings
Account of the Deferred Compensation Plan for the two (2) full years following
the year in which the Termination Date occurs, assuming that any prospective
increases in the Company matching contribution percentage approved prior to the
Change in Control were in effect, Executive had been employed for the entire
two-year period, Executive had continued to make contributions based upon his
election in effect on the Termination Date, and using the applicable
compensation amounts as defined in Section 16(b)(ii) of this Agreement.
(c) Subject to Section 24 hereof, the amounts provided for in
Sections 16(a) and 16(b)(i), (ii) and (iv) shall be paid within five (5) days
after the Termination Date.
(d) Executive's death after his having given timely Notice of
Termination in connection with a Limited Period Termination or after a Breach
which the Company does not cure, in each case after a Change in Control, shall
be treated as if Executive had terminated the Employment Period on the date of
death pursuant to Section 6(a) after a Breach which the Company does not cure.
(e) A termination of the Employment Period by the Company by reason
of Executive's Disability after his having given timely Notice of Termination in
connection with a Limited Period Termination or after a Breach which the Company
does not cure, in each case after a Change in Control, shall not affect
Executive's entitlements under this Agreement as a result of such timely Notice
of Termination in connection with such Limited Period Termination or after such
Breach which the Company does not cure, as the case may be, as if the Company
had not otherwise terminated the Employment Period by reason of Executive's
Disability.
17. No Mitigation. Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to Executive in any subsequent employment.
18. Notices. Notice given pursuant to this Agreement shall be in
writing and shall be deemed given when received and if mailed shall be mailed by
United States registered or certified mail, return receipt requested, addressee
only, postage prepaid if to the Company, to the Board of Directors of Sundstrand
Corporation, Attention: Vice President and General Counsel and Secretary of the
Company, 4949 Harrison Avenue, P.O. Box 7003, Rockford, Illinois 61125, or if to
Executive, at 24868 Blue Stem Court, Barrington, Illinois 60010, or to such
other address as either party may have previously designated by notice to the
other party given in the foregoing manner.
19. Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its successors and assigns and the Company shall
require any successor or assignee to expressly assume 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 or assignment had taken place. The
term "the Company" as used herein shall include such successors and assigns. The
term "successors and assigns" as used herein shall mean a corporation or other
entity acquiring all or substantially all the assets and business of the Company
(including this Agreement) whether by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by Executive, his beneficiaries or
legal representatives, except by will or by the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
Executive's legal representative.
20. Waiver, Modification and Interpretation. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in a writing signed by Executive and an appropriate
officer of the Company empowered to sign same by the Board of Directors of the
Company. No
<PAGE> 10
waiver by either party at any time of any breach by the party of, or compliance
with, any condition or provision of this Agreement to be performed by the other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same time or at any prior or subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Illinois. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
21. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements, if
any, understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof, including, but not limited to,
the Employment Agreement, dated as of September 19, 1995, between the Company
and Executive, and any and all amendments thereto. Executive acknowledges that
he has read this Agreement carefully and has consulted counsel about the
contents of this Agreement prior to the execution hereof.
22. Gender, Tense and Headings. Whenever any words are used herein
in the masculine gender, they shall be construed as though they were also used
in the feminine gender in all cases where they would so apply. Whenever any
words used herein are in the singular form, they shall be construed as though
they were also used in the plural form in all cases where they would so apply.
The headings contained herein are solely for purposes of
reference, are not part of this Agreement and shall not in any way affect the
meaning or interpretation of this Agreement.
23. Rabbi Trust. Immediately prior to a Change in Control, the
Company shall deposit into a "rabbi trust," solely for the benefit of Executive,
which meets the requirements of Rev. Proc. 92-64, 1992-2 C.B. 422, and the terms
of which are reasonably acceptable to Executive, an amount of cash sufficient
(as determined by the Company in good faith, subject to the approval of
Executive, which approval shall not unreasonably be withheld) to fund the
anticipated payments and benefits under this Agreement, but in no event shall
such amount be less than that amount which would be required to be deposited by
assuming that Executive will terminate the Employment Period due to a Limited
Period Termination on the first anniversary of the effective date of the Change
in Control.
24. Deferral. The Company shall provide Executive the opportunity
to defer the receipt of any amounts payable under Section 16(a), 16(b)(i), (ii)
and (v) hereunder and under the Retirement Plans to such date or dates as are
reasonably chosen by Executive, such deferred amounts to appreciate at an annual
rate equal to one hundred and thirty percent (130%) of the Moody Average (as
defined below) for such year, pursuant to an election to so defer made by
Executive no later than one year prior to the date such payments would otherwise
be due or such shorter period as the Company and Executive shall reasonably
agree upon. In the event that Executive shall make an election to defer receipt
of any amount due under Section 16(a), 16(b)(i), (ii) and (iv) hereunder or
under the Retirement Plans, on the Termination Date the Company shall deposit
into a "rabbi trust" which meets the requirements of Rev. Proc. 92-64, 1992-2
C.B. 422, solely for the benefit of Executive, and the terms of which are
reasonably acceptable to Executive, an amount equal to one hundred and ten
percent (110%) of the amount so deferred. "Moody Average" shall mean the average
rate under the Moody's Long Term Corporate Bond Yield Averages for the 12-month
period ending on the last business day in September of the Company's fiscal year
preceding the year in which such rate shall be used. On each anniversary of the
initial funding of such trust, the Company shall deposit cash into the trust in
an amount sufficient so that, as of such anniversary, the value of the assets of
the trust are not less than the obligations of the Company to Executive under
this Agreement.
25. Indemnification. During the Employment Period and thereafter,
the Company shall indemnify Executive to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement and reasonable expenses
(including attorneys' fees), and advance amounts necessary to pay the foregoing
at the earliest time and to the fullest extent permitted by law, in connection
with any claim, action or proceeding (whether civil or criminal) against
Executive as a result of Executive serving as an officer or director of the
Company or in any capacity at the request of the Company, in or with regard to
any other entity, employee benefit plan or enterprise (other than arising out of
Executive's acts of willful misconduct, misappropriation of funds or fraud).
This indemnification shall be in addition to, and not in lieu of, any other
indemnification Executive shall be entitled to pursuant to the Company's
Certificate of Incorporation or By-Laws or otherwise. Following the Termination
Date, the Company shall continue to cover Executive under the Company's
directors and officers insurance for the period during which Executive may be
subject to potential liability for any claim, action or proceeding (whether
civil or
<PAGE> 11
criminal) as a result of his service as an officer or director of the Company or
in any capacity at the request of the Company, in or with regard to any other
entity, employee benefit plan or enterprise (other than arising out of
Executive's acts of willful misconduct, misappropriation of funds or fraud) at
the highest level then maintained for any then or former officer or director,
and if the Termination Date shall occur following a Change in Control, in no
event shall such coverage be on a basis less favorable in terms of coverage
applicable to Executive than that in effect immediately prior to the Change in
Control.
26. Headings. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first written above.
SUNDSTRAND CORPORATION
By: /s/ Mary Ann Hynes By: /s/ Gerald Grinstein
---------------------------- ----------------------------------
Mary Ann Hynes Gerald Grinstein
Vice President and Chairman, Compensation
General Counsel and Committee of the Sundstrand
Secretary` Corporation Board of Directors
By: /s/ Robert H. Jenkins
----------------------------------
Executive
<PAGE> 1
Exhibit (10)(b)
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of the 1st day of June, 1998 and
between Sundstrand Corporation (the "Company"), and ______________, an
individual (the "Executive") (hereinafter collectively referred to as "the
parties").
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that the possibility of a Change in Control (as hereinafter defined
in Section 8(f)) exists and that the threat of or the occurrence of a Change in
Control can result in significant distractions of its key management personnel
because of the uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the
best interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure his continued dedication and efforts in such event without undue concern
for his personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ
of the Company, particularly in the event of a threat of or the occurrence of a
Change in Control, the Company desires to enter into this Agreement with the
Executive.
NOW, THEREFORE, in consideration of the respective agreements of
the parties contained herein, it is agreed as follows:
l. Employment Term.
(a) The "Employment Term" shall commence on the first date
during the Protected Period (as defined in Section l(c) below) on which a Change
in Control occurs (the "Effective Date") and, unless otherwise terminated in
accordance with the provisions of Section 8 hereof, shall expire on the third
anniversary of the Effective Date; provided, however, that on each anniversary
of the Effective Date, the Employment Term shall automatically be extended for
one (l) year unless either the Company or the Executive shall have given written
notice to the other at least ninety (90) days prior thereto that the Employment
Term shall not be so extended; and provided, further, that the Employment Term
shall in no event extend beyond the first day of the month following the month
in which the Executive attains age sixty-five (65).
(b) Notwithstanding anything contained in this Agreement to
the contrary, if the Executive's employment is terminated prior to the Effective
Date and the Executive reasonably demonstrates that such termination (l) was at
the request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control or (2) otherwise occurred in
connection with or in anticipation of a Change in Control, then for all purposes
of this Agreement, the Effective Date shall mean the date immediately prior to
the date of such termination of the Executive's employment.
(c) For purposes of this Agreement, the "Protected Period"
shall be the two (2) year period commencing on the date hereof, provided,
however, that the Protected Period shall be automatically extended for one (l)
year on the first anniversary of the date hereof and on each anniversary of the
date hereof thereafter unless the Company shall have given written notice to the
Executive at least ninety (90) days prior thereto that the Protected Period
shall not be so extended; and provided, further, that notwithstanding any such
notice by the Company not to extend, the Protected Period shall not end if prior
to the expiration thereof any third party has indicated an intention or taken
steps reasonably calculated to effect a Change in Control, in which event the
Protected Period shall end only after such third party publicly announces that
it has abandoned all efforts to effect a Change in Control.
2. Employment.
(a) Subject to the provisions of Section 8 hereof, the
Company agrees to continue to employ the Executive and the Executive agrees to
remain in the employ of the Company during the Employment Term.
<PAGE> 2
During the Employment Term, the Executive shall be employed as Executive Vice
President and Chief Financial Officer of the Company or in such other senior
executive capacity as may be mutually agreed to in writing by the parties. The
Executive shall perform the duties, undertake the responsibilities and exercise
the authority customarily performed, undertaken and exercised by persons
situated in a similar executive capacity. He shall also promote, by
entertainment or otherwise, the business of the Company.
(b) Excluding periods of vacation and sick leave to which the
Executive is entitled, during the Employment Term the Executive agrees to devote
reasonable attention and time during usual business hours to the business and
affairs of the Company to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder. The executive may (i) serve on corporate,
civil or charitable boards or committees, (ii) manage personal investments and
(iii) deliver lectures and teach at educational institutions, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities hereunder.
3. Base Salary. During the Employment Term, the Company agrees to
pay or cause to be paid to the Executive a base salary at the rate of
$___________ per annum or such larger amount as the Company may from time to
time determine (hereinafter referred to as the "Base Salary"). Such Base Salary
shall be payable in accordance with the Company's customary practices applicable
to its executives.
4. Employee Benefits. During the Employment Term, the Executive
shall be entitled to participate in all employee benefit plans, practices and
programs maintained by the Company and made available to employees generally
including, without limitation all pension, retirement, profit sharing, savings,
medical, hospitalization, disability, dental and life, travel accident and
umbrella liability insurance and benefit plans. The Executive's participation in
such plans, practices and programs shall be on the same basis and terms as are
applicable to employees of the Company generally, but in no event on a basis
less favorable in terms of benefit levels applicable to the Executive as in
effect immediately prior to the Effective Date.
5. Executive Benefits. During the Employment Term, the Executive
shall be entitled to participate in all executive benefit or incentive
compensation plans now maintained or hereafter established by the Company for
the purpose of providing compensation and/or benefits to executives of the
Company including, but not limited to, the Company's 1989 Restricted Stock Plan,
the Sundstrand Corporation Stock Incentive Plan, the Officer Incentive Plan, and
any supplemental retirement, salary continuation, stock option, deferred
compensation, supplemental medical and life insurance and other bonus and
incentive compensation plans. Unless otherwise provided herein, the Executive's
participation in such plans, or any successor plans, shall be on the same basis
and terms as other similarly situated executives of the Company, but in no event
on a basis less favorable in terms of benefit levels or reward opportunities
applicable to the Executive as in effect immediately prior to the Effective
Date. No additional compensation provided under any of such plans shall be
deemed to modify or otherwise affect the terms of this Agreement or any of the
Executive's entitlements hereunder.
6. Other Benefits.
(a) Fringe Benefits and Perquisites. During the Employment Term,
the Executive shall be entitled to all fringe benefits and perquisites (e.g.
physical examinations, financial planning and tax preparation services) made
available by the Company to similarly situated executives, but in no event on a
basis less favorable in terms of benefit and perquisites levels applicable to
the Executive as in effect immediately prior to the Effective Date.
(b) Expenses. During the Employment Term, the Executive shall be
entitled to receive prompt reimbursement of all expenses reasonably incurred by
him in connection with the performance of his duties hereunder or for promoting,
pursuing or otherwise furthering the business or interests of the Company.
(c) As of the Effective Date, all restrictions on any
outstanding awards (including restricted stock awards) granted to the Executive
shall lapse and such awards shall become fully (100%) vested immediately, and
all stock options and stock appreciation rights granted to the Executive shall
become fully (100%) vested and shall become immediately exercisable.
7. Vacation and Sick Leave. During the Employment Term, at such
reasonable times as the Board shall in its discretion permit, the Executive
shall be entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment under this Agreement, provided that:
<PAGE> 3
(a) The Executive shall be entitled to annual vacation in
accordance with the policies as periodically established by the Board for
similarly situated executives of the Company.
(b) The Executive shall be entitled to sick leave (without loss
of pay) in accordance with the Company's policies as in effect from time to
time.
8. Termination. The Employment Term may be terminated under the
following circumstances:
(a) Death. The Employment Term shall immediately terminate upon
the Executive's death.
(b) Disability. The Company may terminate the Employment Term
after having established the Executive's Disability. For purposes of this
Agreement, "Disability" means a physical or mental infirmity which impairs the
Executive's ability to substantially perform his duties under this Agreement,
which continues for a period of at least one hundred eighty (180) consecutive
days and which cannot be reasonably accommodated by the Company. The Executive
shall be entitled to the compensation and benefits provided for under this
Agreement for any period during the Employment Term and prior to the
establishment of the Executive's Disability during which the Executive is unable
to work due to a physical or mental infirmity. Notwithstanding anything
contained in this Agreement to the contrary, until the Termination Date
specified in a Notice of Termination (as each term is hereinafter defined)
relating to the Executive's Disability, the Executive shall be entitled to
return to his position with the Company as set forth in this Agreement in which
event no Disability of the Executive will be deemed to have occurred.
(c) Cause. The Company may terminate the Employment Term for
"Cause". A termination for Cause is a termination evidenced by a resolution
adopted in good faith by a majority of the Board that the Executive (i)
willfully and continually failed to substantially perform his duties with the
Company (other than a failure resulting from the Executive's incapacity due to
physical or mental illness) which failure continued for a period of at least
thirty (30) days after a written notice of demand for substantial performance
has been delivered to the Executive specifying the manner in which the Executive
has failed to substantially perform or (ii) willfully engaged in conduct which
is demonstrably and materially injurious to the Company, monetarily or
otherwise; provided, however, that no termination of the Employment Term shall
be for Cause as set forth in clause (ii) above until (x) there shall have been
delivered to the Executive a copy of a written notice setting forth that the
Executive was guilty of the conduct set forth in clause (ii) and specifying the
particulars thereof in detail, and (y) the Executive shall have been provided an
opportunity to be heard by the Board (with the assistance of the Executive's
counsel if the Executive so desires). No act, nor failure to act, on the
Executive's part, shall be considered "willful" unless he has acted or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the contrary, no failure
to perform by the Executive after Notice of Termination is given by the
Executive shall constitute Cause for purposes of this Agreement.
(d) (l) Good Reason. The Executive may terminate the Employment
Term for Good Reason. For purposes of this Agreement, "Good Reason" shall mean
the occurrence after a Change in Control (as hereinafter defined in Section
8(f)) of any of the events or conditions described in Subsections (i) through
(vii) hereof:
(i) a change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) which,
in the Executive's reasonable judgment, does not represent a
promotion from his status, title, position or responsibilities as
in effect immediately prior thereto; the assignment to the
Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with such status,
title, position or responsibilities; or any removal of the
Executive from or failure to re-appoint or re-elect him to any of
such positions, except in connection with a termination of the
Employment Term for Disability, Cause, as a result of death or by
the Executive other than for Good Reason;
(ii) a reduction in the Executive's Base Salary or any
failure to pay the Executive any compensation or benefits to which
he is entitled within five (5) days of the date due;
<PAGE> 4
(iii) the failure by the Company to (A)
continue in effect any material compensation or benefit plan in
which the Executive was participating at the time of the Change in
Control, including, but not limited to, the Company's 1989
Restricted Stock Plan or a comparable equity-based plan, the
Sundstrand Corporation Stock Incentive Plan, and the Officer
Incentive Compensation Plan or (B) provide the Executive with
compensation and benefits at least equal (in terms of benefit
levels and/or reward opportunities) to those provided for under
each employee benefit plan, program and practice as in effect
immediately prior to the Change in Control (or as in effect
following the Change in Control, if greater);
(iv) the insolvency or the filing (by any
party, including the Company) of a petition for bankruptcy, of the
Company;
(v) any material breach by the Company of any
provision of this Agreement;
(vi) any purported termination of the
Executive's employment for Cause by the Company which does not
comply with the terms of Section 8 of this Agreement; and
(vii) the failure of the Company to obtain an
agreement, satisfactory to the Executive, from any successor or
assign of the Company to assume and agree to perform this
Agreement, as contemplated in Section 12 hereof.
(2) Any event or condition described in Section
8(d)(1)(i) through (vii) which occurs prior to the Effective Date but which the
Executive reasonably demonstrates (i) was at the request of a third party who
has indicated an intention or taken steps reasonably calculated to effect a
Change in Control or (ii) otherwise arose in connection with or in anticipation
of a Change in Control, shall constitute Good Reason for purposes of this
Agreement, notwithstanding that it occurred prior to the Effective Date and,
under the circumstances described in 2(i) and 2(ii), the Effective Date shall
mean the date immediately prior to the date of the occurrence of Good Reason.
(3) The Executive's right to terminate the Employment
Term pursuant to this Section (8)(d) shall not be affected by his incapacity due
to physical or mental illness.
(e) Voluntary Termination. The Executive may voluntarily
terminate the Employment Term at any time. If the Executive voluntarily
terminates the Employment Term for any reason or without reason effective no
earlier than one (1) year following the Effective Date, after having given
notice of the same during the period which commences on the Effective Date and
ends on the date which is eight (8) months following the Effective Date, it
shall be referred to as a "Limited Period Termination".
(f) Change in Control. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(l) The acquisition (other than from the Company) by
any person (as such term is defined in Sections 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty-five
percent (25%) or more of the combined voting power of the Company's then
outstanding voting securities;
(2) The individuals who, as of the date hereof, are
members of the Board (the "Incumbent Board"), cease for any reason to constitute
a majority of the Board, unless the election, or nomination for election by the
Company stockholders, of any new director was approved by a vote of a majority
of the Incumbent Board, and such new director shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board; or
(3) (i) A merger or consolidation involving the
Company (or any direct or indirect subsidiary of the Company) or (ii) the
issuance of shares of capital stock of the Company in connection with a merger
or consolidation involving the Company (or any direct or indirect subsidiary of
the Company) if, in the case of clause (i) or clause (ii), the stockholders of
the Company immediately before such merger or consolidation, do not, as a result
of such merger or consolidation, own, directly or indirectly, immediately
<PAGE> 5
following such merger or consolidation, more than sixty-seven percent (67%) of
the combined voting power of the then outstanding voting securities of the
person issuing securities in the merger or consolidation in substantially the
same proportion as their ownership of the combined voting power of the voting
securities of the Company outstanding immediately before such merger or
consolidation; provided, however, that for purposes of clause (i) and clause
(ii), voting securities of the Company issued in connection with the merger or
consolidation, including securities to cover stock options or cure "tainted"
shares (whether issued in the merger or consolidation or pursuant to a public or
private offering related thereto), shall be treated as having been issued in
such merger or consolidation and not as having been outstanding immediately
prior to such merger or consolidation or (iii) a complete liquidation or
dissolution of the Company or consummation of the sale or other disposition of
all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
pursuant to Section 8(f)(l), solely because twenty-five percent (25%) or more of
the combined voting power of the Company's then outstanding voting securities is
acquired by (i) a trustee or other fiduciary holding securities under one or
more employee benefit plans maintained by the Company or any of its subsidiaries
or (ii) any corporation which, immediately prior to such acquisition, is owned
directly or indirectly by the stockholders of the Company in the same proportion
as their ownership of stock in the Company immediately prior to such
acquisition.
(g) Notice of Termination. Any purported termination by the
Company or by the Executive shall be communicated by written Notice of
Termination to the other. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which indicates the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Employment Term under the provision so indicated. For purposes of this
Agreement, no such purported termination of the Employment Term shall be
effective without such Notice of Termination.
(h) Termination Date, Etc. "Termination Date" shall mean in
the case of the Executive's death, his date of death, or in all other cases, the
date specified in the Notice of Termination subject to the following:
(1) If the Employment Term is terminated by the
Company for Cause or due to Disability, the date specified in the Notice of
Termination shall be at least thirty (30) days from the date the Notice of
Termination is given to the Executive, provided that in the case of Disability
the Executive shall not have returned to the full-time performance of his duties
during such period of at least thirty (30) days; and
(2) If the Employment Term is terminated (i) by the
Executive for Good Reason, the date specified in the Notice of Termination shall
not be more than sixty (60) days from the date the Notice of Termination is
given to the Company or (ii) due to a Limited Period Termination, the date
specified in the Notice of Termination shall be the first anniversary of the
Effective Date, unless otherwise agreed to by the Company.
9. Compensation Upon Termination. Upon termination of the
Employment Term, the Executive shall be entitled to the following benefits and
treatment:
(a) If the Employment Term is terminated by the Company for
Cause, by the Executive (other than for Good Reason or due to a Limited Period
Termination), or by reason of the Executive's death or Disability (except if the
Executive had given timely notice of a Limited Period Termination pursuant to
Section 8(e)), the Company shall pay the Executive all amounts earned or accrued
hereunder through the Termination Date but not paid as of the Termination Date,
including Base Salary, vacation pay, bonuses or incentive compensation and any
previous compensation which the Executive has previously deferred (including any
interest earned or credited thereon) (collectively, "Accrued Compensation"). In
addition to the foregoing, if the Executive's employment is terminated by the
Company for Disability or by reason of the Executive's death (except if the
Executive had given timely notice of a Limited Period Termination pursuant to
Section 8(e)), the Company shall pay to the Executive or his beneficiaries an
amount equal to the Bonus Amount (as defined below) multiplied by a fraction the
numerator of which is the number of days in such fiscal year through the
Termination Date and the denominator of which is 365 (a "Pro Rata Bonus"). The
Executive's entitlement to any other compensation or benefits shall be
determined in accordance with the Company's employee benefit plans and other
applicable programs and practices then in effect. For purposes of this
Agreement, the term "Bonus Amount" shall mean an amount equal to the greater of
(x) the cash bonus or incentive award which would have been paid or payable to
the Executive in respect of the fiscal year in which the Executive's Termination
Date occurs had he continued in
<PAGE> 6
employment until the end of such fiscal year, calculated as if the maximum bonus
or incentive award payable to the Executive had been earned for such year and
(y) the greatest of (i) the highest percentage of Base Salary used to determine
the Executive's cash bonus or incentive award during the Three Year Period (as
defined below) multiplied by the higher of the Base Salary in effect immediately
prior to the Effective Date and immediately prior to the Termination Date, (ii)
the highest actual cash bonus or incentive award in the case of clause (i) and
clause (ii) paid or payable to the Executive in respect of any of the most
recent three (3) years prior to the fiscal year in which the Executive's
Termination Date occurs (such three (3) year period referred to as the "Three
Year Period"), and (iii) the product of (A) the highest Base Salary paid or
payable to the Executive in the year of termination or during the Three Year
Period, (B) the highest target bonus percentage applicable to the Executive in
the year of termination or during the Three Year Period and (C) the highest
Bonus to Target Ratio (as defined below) applicable to the Executive during the
Three Year Period, whichever would result in the greatest "Bonus Amount". The
"Bonus to Target Ratio" for a particular year shall mean a fraction, not less
than one, the numerator of which shall be the bonus paid or payable to the
Executive for such year and the denominator of which shall be the target bonus
applicable to the Executive for such year.
(b) If the Employment Term shall be terminated (1) by the
Company other than for Cause, (2) by the Executive for Good Reason or (3) by the
Executive due to a Limited Period Termination, then the Executive shall be
entitled to the benefits and treatment provided below:
(i) the Company shall pay the Executive all
Accrued Compensation and a Pro Rata Bonus;
(ii) the Company shall pay the Executive as
severance pay and in lieu of any further salary for periods
subsequent to the Termination Date, in a single payment (subject to
Section 23 hereof) an amount in cash equal to three (3) times the
sum of (A) the Executive's Base Salary (including, for calculation
purposes only, any portion thereof the receipt of which has been
deferred under any plan, program, policy or arrangement of the
Company providing for the deferral of income) at the highest rate
in effect at any time within the ninety (90) day period ending on
the date the Notice of Termination is given (or the Executive's
Base Salary immediately prior to a Change in Control, if greater)
and (B) the Bonus Amount. Notwithstanding the foregoing, the amount
to be paid under this Subsection (ii) shall be multiplied by a
fraction (which in no event shall be greater than one (1)) the
numerator of which shall be the number of months (for this purpose
any partial month shall be considered as a whole month) remaining
until the Executive's 65th birthday and the denominator of which
shall be thirty-six (36);
(iii) for a number of months equal to the
lesser of (A) thirty-six (36) or (B) the number of months remaining
until the Executive's 65th birthday, the Company shall at its
expense continue to provide on behalf of the Executive and his
dependents and beneficiaries the fringe benefits, perquisites, life
insurance, disability, medical, dental and hospitalization, travel
accident, pension, profit sharing, savings, retirement and any
other employee benefits (other than participation in stock or other
equity-based plans) which were being provided to the Executive at
the time Notice of Termination is given (or the benefits provided
to the Executive at the time of a Change in Control, if greater).
The benefits provided in this Section 9(b)(iii) shall be no less
favorable to the Executive, in terms of amounts and deductibles and
costs to him, than the coverage provided the Executive under the
plans providing such benefits at the time Notice of Termination is
given (or at the time of the Change in Control if more favorable to
the Executive). The Company's obligation hereunder with respect to
the foregoing benefits shall be limited to the extent that the
Executive obtains any such benefits pursuant to a subsequent
employer's benefit plans, in which case the Company may reduce the
coverage of any benefits it is required to provide the Executive
hereunder as long as the aggregate coverage of the combined benefit
plans is no less favorable to the Executive, in terms of amounts
and deductibles and costs to him, than the coverage required to be
provided hereunder. This Subsection (iii) shall not be interpreted
so as to limit any benefits to which the Executive or his
dependents may be entitled under any of the Company's employee
benefit plans, programs or practices following termination of the
Employment Term, including without limitation, retiree medical and
life insurance benefits;
(iv) the Company shall pay in a single payment
(subject to Section 23 hereof) an amount in cash equal to the
excess of (A) the actuarial equivalent of the aggregate
<PAGE> 7
retirement benefit the Executive would have been entitled to
receive under the Company's Supplemental and Special retirement
plans and under the Sundstrand Corporation Retirement
Plan-Aerospace if (w) the Executive had remained employed by the
Company for an additional three (3) complete years of credited
service (or until his 65th birthday if earlier) after termination;
(x) the early retirement reduction factor had been based on the
larger of age 55, or the Executive's actual age at termination plus
the additional years of credited service; (y) his annual
compensation during such period had been equal to his Base Salary
(at the rate used for purposes of Section 9(b)(ii)) and the Bonus
Amount, and (z) he had been fully (100%) vested in his benefit
under each such retirement plan, over (B) the actuarial equivalent
of the aggregate retirement benefit the Executive is actually
entitled to receive under such retirement plans. For purposes of
this Subsection (iv), "actuarial equivalent" shall be determined in
accordance with the actuarial assumptions used for the calculation
of benefits under the Sundstrand Corporation Retirement
Plan-Aerospace as applied immediately prior to the Termination Date
in accordance with such plan's past practices (but shall in any
event take into account the value of any subsidized early
retirement benefit and any subsidized joint and survivor annuity
options). Such "actuarial equivalent" calculation described in (A)
above shall be based on a benefit commencement age as determined in
(x) above and valuation age equal to the Executive's actual age at
termination;
(v) the Company shall pay in a single payment
(subject to Section 23 hereof) an amount in cash equal to the
greater of (x) or (y) or (z), where (x) equals three (3) times the
amount of any matching contribution made and which would have been
made on behalf of the Executive to the Company's Employee Savings
Plan and Supplemental Savings Account of the Deferred Compensation
Plan for the full year in which the Executive's Termination Date
occurs, using the applicable compensation amounts as defined in
Section 9(b)(ii) of this Agreement and assuming for this purpose
that the matching contribution percentage in effect on the
Executive's Termination Date shall remain the same for such year,
the Executive had been employed for all of such year and the
Executive had continued to make contributions for the full year
based upon his election in effect on his Termination Date, (y)
equals three (3) times the amount of any matching contribution made
on behalf of the Executive to the Company's Employee Savings Plan
and Supplemental Savings Account of the Deferred Compensation Plan
for the year prior to the year in which the Effective Date occurs
and (z) equals the amount of any matching contribution made and
which would have been made on behalf of the Executive to the
Company's Employee Savings Plan and Supplemental Savings Account of
the Deferred Compensation Plan for the full year in which the
Executive's Termination Date occurs, using the applicable
compensation amounts as defined in Section 9(b)(ii) of this
Agreement and assuming for this purpose that the matching
contribution percentage in effect on the Executive's Termination
Date shall remain the same for such year, the Executive had been
employed for all of such year and the Executive had continued to
make contributions for the full year based upon his election in
effect on his Termination Date, plus the amount of matching
contribution which would have been made on behalf of the Executive
to the Company's Employee Savings Plan and Supplemental Savings
Account of the Deferred Compensation Plan for the two full years
following the year in which the Termination Date occurs, assuming
that any prospective increases in the Company matching contribution
percentage approved prior to the Effective Date were in effect, the
Executive had been employed for the entire two-year period, the
Executive had continued to make contributions based upon his
election in effect on his Termination Date, and using the
applicable compensation amounts as defined in Section 9(b)(ii) of
this Agreement;
(vi) for purposes of the Company's Supplemental
and Special retirement plans (other than for purposes of
calculating years of service credit thereunder), the Executive
shall be treated as if he were age fifty-five (55) or his actual
age, if greater, as of the Termination Date; provided, however,
that, if applicable, the payments made pursuant to such plans shall
be discounted to take into effect the actual payments of amounts
pursuant thereto prior to the Executive attaining age fifty-five
(55), using a discount rate equal to the product of the one-year
Treasury Bill rate in effect on the Termination Date multiplied by
the difference between one and the Executive's then marginal
combined income tax rate;
(vii) the eligibility requirements for the
Company's Retiree Health Insurance Plan shall be waived, and
commencing on the Executive's termination of employment, he shall
be provided with the same health care coverage as provided to other
eligible retirees; and
<PAGE> 8
(viii) the age 60 and 30-year requirements of
the Executive Life Insurance Program for retirees shall be waived,
and commencing on the Executive's termination of employment, he
shall be provided with a life insurance benefit of (A) five (5)
times the Base Salary in effect on the Termination Date for the
period commencing on the Termination Date and terminating on the
third anniversary of the Termination Date and (B) one times the
Base Salary thereafter.
(c) Subject to Section 23 hereof, the amounts provided for
in Sections 9(a) and 9(b)(i), (ii), (iv) and (v) shall be paid within five (5)
days after the Executive's Termination Date.
(d) The Executive's death or termination by reason of
Disability, after the Executive having given timely notice of a Limited Period
Termination pursuant to Section 8(e), shall be treated as if the Executive had
terminated his employment for Good Reason on the date of death or the first
anniversary of the Effective Date, respectively.
(e) The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
10. Excise Tax Payments.
(a) Notwithstanding anything contained in this Agreement to
the contrary, in the event that any payment (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended, and any regulations
promulgated or proposed thereunder (the "Code")), or distribution to or for the
benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise in connection
with, or arising out of, his employment with the Company (a "Payment" or
"Payments"), would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) An initial determination shall be made as to whether a
Gross-Up Payment is required pursuant to this Section 10 and the amount of such
Gross-Up Payment shall be made by a national independent accounting firm
selected by the Executive (the "Accounting Firm"). All fees, costs and expenses
(including, but not limited to, the cost of retaining experts) of the Accounting
Firm shall be borne by the Company and the Company shall pay such fees, costs
and expenses as they become due. The Accounting Firm shall provide detailed
supporting calculations, acceptable to the Executive, both to the Company and
the Executive within fifteen (15) business days of the Termination Date, if
applicable, or such other time as requested by the Company or by the Executive
(provided the Executive reasonably believes that any of the Payments may be
subject to the Excise Tax). The Gross-Up Payment, if any, as determined pursuant
to this Section 10(b) shall be paid by the Company to the Executive within five
(5) business days of the Company's receipt of the Accounting Firm's
determination. The Accounting Firm shall furnish the Executive with an
unqualified opinion that no Excise Tax will be imposed with respect to any such
Payment or Payments, or that the amount of the Excise Tax due is correct. Any
such initial determination by the Accounting Firm of the Gross-Up Payment shall
be binding upon the Company and the Executive subject to the application of
Section 10(c).
(c) As a result of the uncertainty in the application of
Section 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a
portion thereof) will be paid which should not have been paid (an "Overpayment")
or a Gross-Up Payment (or a portion thereof) which should have been paid will
not have been paid (an "Underpayment"). An Underpayment shall be deemed to have
occurred upon notice (formal or informal) to the Executive from any governmental
taxing authority that the tax liability of the Executive (whether in respect of
the then current taxable year of the Executive or in respect of any prior
taxable year of the Executive) may be increased by reason of the imposition of
the Excise Tax on a Payment or Payments with respect to which the Company has
failed to make a sufficient Gross-Up Payment. An Overpayment shall be deemed to
have occurred upon a "Final Determination" (as hereinafter defined) that the
Excise Tax shall not be imposed upon all or any portion of any Payment or
Payments with respect to which the Executive had previously received a Gross-Up
<PAGE> 9
Payment. A Final Determination shall be deemed to have occurred when the
Executive has received from the applicable governmental taxing authority a
refund of taxes or other reduction in his tax liability and upon either (i) the
date a determination is made by, or an agreement is entered into with, the
applicable governmental taxing authority which finally and conclusively binds
the Executive and such taxing authority, or in the event that a claim is brought
before a court of competent jurisdiction, the date upon which a final
determination has been made by such court and either all appeals have been taken
and finally resolved or the time for all appeals has expired or (ii) the statute
of limitations with respect to the Executive's applicable tax return has
expired. If an Underpayment occurs, the Executive shall promptly notify the
Company and the Company shall pay to the Executive at least five (5) business
days prior to the date on which the applicable governmental taxing authority has
requested payment, an additional Gross-Up Payment equal to the amount of the
Underpayment plus any interest and penalties imposed on the Underpayment.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event it is determined that an Excise Tax will be imposed
on any Payment or Payments, the Company shall pay to the applicable governmental
taxing authorities as Excise Tax withholding, the amount of the Excise Tax that
the Company has actually withheld from the Payment or Payments.
11. Employee Covenants.
(a) The Executive shall not make any Unauthorized
Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean
disclosure by the Executive without the consent of the Board to any person,
other than an employee of the Company or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of his duties as an executive of the Company or as may be legally
required, of any confidential information obtained by the Executive while in the
employ of the Company (including, but not limited to, any confidential
information with respect to any of the Company's customers or methods of
distribution) the disclosure of which he knows or has reason to believe will be
materially injurious to the Company; provided, however, that such term shall not
include the use or disclosure by the Executive, without consent, of any
information known generally to the public (other than as a result of disclosure
by him in violation of this Section 11) or any information not otherwise
considered confidential by a reasonable person engaged in the same business as
that conducted by the Company.
(b) By and in consideration of the Company's entering into
this Agreement and the Base Salary and benefits to be provided by the Company
hereunder, and further in consideration of the Executive's exposure to the
proprietary information of the Company, the Executive agrees that the Executive
will not, from and after the date hereof until one year after expiration of the
Employment Term, directly or indirectly, own, manage, operate, join, control, be
employed by, or participate in the ownership, management, operation or control
of, or be connected in any manner, including but not limited to, holding the
position of shareholder, director, officer, consultant, independent contractor,
Executive, partner, or investor, with any Competing Enterprise. For purposes of
this paragraph, the term "Competing Enterprise" shall mean any person,
corporation, partnership or other entity engaged in a business (in the United
States) which is in competition with any of the businesses of the Company or any
of its affiliates as of the Termination Date. Following the Termination Date,
upon request, the Executive shall notify the Company of the Executive's then
current employment status. Notwithstanding anything contained in this Section
11(b) to the contrary, the Executive shall not be prohibited from acquiring or
holding up to two percent (2%) of the common stock of an entity that is traded
on a national securities exchange or a nationally recognized over-the-counter
market.
(c) The Executive agrees that any breach of the terms of
this Section 11 would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; the Executive therefore
also agrees that in the event of said breach or any threat of breach, the
Company shall be entitled to an immediate injunction and restraining order to
prevent such breach and/or threatened breach and/or continued breach by the
Executive and/or any and all persons and/or entities acting for and/or with the
Executive, without having to prove damages, and to all costs and expenses,
including reasonable attorneys' fees and costs, in addition to any other
remedies to which the Company may be entitled at law or in equity. The terms of
this paragraph shall not prevent the Company from pursuing any other available
remedies for any breach or threatened breach hereof, including but not limited
to the recovery of damages from the Executive. The Executive and the Company
further agree that the provisions of the covenant not to compete are reasonable.
Should a court or arbitrator determine, however, that any provision of the
covenant not to compete is unreasonable, either in period
<PAGE> 10
of time, geographical area, or otherwise, the parties hereto agree that the
covenant should be interpreted and enforced to the maximum extent which such
court or arbitrator deems reasonable.
The existence of any claim or cause of action by the
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants and agreements of this Section 11.
12. Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its successors and assigns and the Company shall
require any successor or assign to expressly assume 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 or assignment had taken place. The
term "the Company" as used herein shall include such successors and assigns. The
term "successors and assigns" as used herein shall mean a corporation or other
entity acquiring all or substantially all the assets and business of the Company
(including this Agreement) whether by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representative.
13. Fees and Expenses. The Company shall pay all legal fees and
related expenses (including the costs of experts, evidence and counsel)
reasonably incurred by the Executive as they become due as a result of (i) the
Executive's termination of employment (including all such fees and expenses, if
any, incurred in contesting or disputing any such termination of employment),
(ii) the Executive's hearing before the Board as contemplated in Section (8)(c)
of this Agreement, (iii) the Executive's seeking to obtain or enforce any right
or benefit provided by this Agreement or by any other plan or arrangement
maintained by the Company under which the Executive is or may be entitled to
receive benefits or (iv) a dispute between the Executive and the Internal
Revenue Service (or any other taxing authority) with regard to an "Underpayment"
(as defined in Section 10 of this Agreement).
14. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof (if earlier),
except that notice of change of address shall be effective only upon receipt.
15. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company or
any of its subsidiaries and for which the Executive may qualify, nor shall
anything herein limit or reduce such rights as the Executive may have under any
other agreements with the Company or any of its subsidiaries. Amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plan or program of the Company or any of its subsidiaries shall be payable
in accordance with such plan or program, except as explicitly modified by this
Agreement.
16. Settlement of Claims. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
17. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreement or
<PAGE> 11
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
18. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Illinois
without giving effect to the conflict of law principles thereof.
19. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
20. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements, if
any, understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof, including, but not limited to,
the Employment Agreement, dated as of July 20, 1989, between the Company and the
Executive, and any and all amendments thereto. The Executive acknowledges that
he has read this Agreement carefully and has consulted counsel about the
contents of this Agreement prior to the execution hereof.
21. Gender, Tense and Headings. Whenever any words are used
herein in the masculine gender, they shall be construed as though they were also
used in the feminine gender in all cases where they would so apply. Whenever any
words used herein are in the singular form, they shall be construed as though
they were also used in the plural form in all cases where they would so apply.
The headings contained herein are solely for purposes of
reference, are not part of this Agreement and shall not in any way affect the
meaning or interpretation of this Agreement.
22. Rabbi Trust. Immediately prior to a change in Control, the
Company shall deposit into a "rabbi trust," solely for the benefit of the
Executive, which meets the requirements of Rev. Proc. 92-64, 1992-2 C.B. 422,
and the terms of which are reasonably acceptable to the Executive, an amount of
cash sufficient (as determined by the Company in good faith, subject to the
approval of the Executive, which approval shall not unreasonably be withheld) to
fund the anticipated payments and benefits under this Agreement, but in no event
shall such amount be less than that amount which would be required to be
deposited by assuming that the Executive will terminate his employment due to a
Limited Period Termination on the first anniversary of the Effective Date.
23. Deferral. The Company shall provide the Executive the
opportunity to defer the receipt of any amounts payable under Section 9(a),
9(b)(i), (ii), (iv), and (v) hereunder and under the Company's Supplemental and
Special retirement plans to such date or dates as are reasonably chosen by the
Executive, such deferred amounts to appreciate at an annual rate equal to one
hundred and thirty percent (130%) of the Moody Average (as defined below) for
such year, pursuant to an election to so defer made by the Executive no later
than one year prior to the date such payments would otherwise be due. In the
event that the Executive shall make an election to defer receipt of any amount
due under Section 9(a), 9(b)(i), (ii), (iv), and (v) hereunder or under the
Company's Supplemental and Special retirement plans, on the Termination Date the
Company shall deposit into a "rabbi trust" which meets the requirements of Rev.
Proc. 92-64, 1992-2 C.B. 422, solely for the benefit of the Executive, and the
terms of which are reasonably acceptable to the Executive, an amount equal to
one hundred and ten percent (110%) of the amount so deferred. "Moody Average"
shall mean the average rate under the Moody's Long Term Corporate Bond Yield
Averages for the 12-month period ending on the last business day in September of
the Company's fiscal year preceding the year in which such rate shall be used.
On each anniversary of the initial funding of such trust, the Company shall
deposit cash into the trust in an amount sufficient so that, as of such
anniversary, the value of the assets of the trust are not less than the
obligations of the Company to the Executive under this Agreement.
24. Indemnification. During the Employment Term and thereafter,
the Company shall indemnify the Executive to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement and reasonable expenses
(including attorneys' fees), and advance amounts necessary to pay the foregoing
at the earliest time and to the fullest extent permitted by law, in connection
with any claim, action or proceeding (whether civil or criminal) against the
Executive as a result of the Executive serving as an officer or director of the
Company or in any capacity at the request of the Company, in or with regard to
any other entity, employee benefit plan or enterprise (other than arising out of
the Executive's acts of willful misconduct, misappropriation of funds or fraud).
This indemnification shall be in addition to, and not in lieu of, any other
indemnification the Executive shall be
<PAGE> 12
entitled to pursuant to the Company's Certificate of Incorporation or By-Laws or
otherwise. Following the Termination Date, the Company shall continue to cover
the Executive under the Company's directors and officers insurance for the
period during which the Executive may be subject to potential liability for any
claim, action or proceeding (whether civil or criminal) as a result of his
service as an officer or director of the Company or in any capacity at the
request of the Company, in or with regard to any other entity, employee benefit
plan or enterprise (other than arising out of the Executive's acts of willful
misconduct, misappropriation of funds or fraud) at the highest level then
maintained for any then or former officer or director, but in no event on a
basis less favorable in terms of benefit levels applicable to the Executive as
in effect immediately prior to the Effective Date.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
SUNDSTRAND CORPORATION
By:
-------------------------------
Title:
ATTEST:
- ------------------------------
Secretary
By:
-------------------------------
Executive
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