Exhibit 10.3

 

FORM B - OFFICER

 

NORTHROP GRUMMAN CORPORATION

 

TERMS AND CONDITIONS APPLICABLE TO

2005 RESTRICTED PERFORMANCE STOCK RIGHTS

GRANTED UNDER THE 2001 LONG-TERM INCENTIVE STOCK PLAN

 

These Terms and Conditions (“Terms”) apply to certain “Restricted Performance
Stock Rights” (“RPSRs”) granted by Northrop Grumman Corporation (the “Company”)
in 2005. If you were granted an RPSR award by the Company in 2005, the date of
grant of your RPSR award and the target number of RPSRs applicable to your award
are set forth in the letter from the Company announcing your RPSR award grant
(your “Grant Letter”) and are reflected in the electronic stock plan award
recordkeeping system (“Stock Plan System”) maintained by the Company or its
designee. These Terms apply to your RPSR award if referenced in your Grant
Letter and/or on the Stock Plan System with respect to your award. If you were
granted an RPSR award, you are referred to as the “Grantee” with respect to your
award. Capitalized terms are generally defined in Section 9 below if not
otherwise defined herein.

 

Each RPSR represents a right to receive one share of the Company’s Common Stock,
or cash of equivalent value as provided herein, subject to vesting as provided
herein. The performance period applicable to your award is January 1, 2005 to
December 31, 2007 (the “Performance Period”). The target number of RPSRs subject
to your award are subject to adjustment as provided herein. The RPSR award is
subject to all of the terms and conditions set forth in these Terms, and is
further subject to all of the terms and conditions of the Plan, as it may be
amended from time to time, and any rules adopted by the Committee, as such rules
are in effect from time to time.

 

1. Vesting; Payment of RPSRs.

 

The RPSRs are subject to the vesting and payment provisions established (or to
be established, as the case may be) by the Committee with respect to the
Performance Period. RPSRs that vest based on such provisions and any related
Dividend Equivalents (as defined below) will be paid as provided below. No
fractional shares will be issued.

 

1.1 Performance-Based Vesting of RPSRs. At the conclusion of the Performance
Period, the Committee shall determine whether and the extent to which the
applicable performance criteria have been achieved for purposes of determining
earnouts and RPSR payments. Based on its determination, the Committee shall
determine the percentage of RPSRs subject to the award (if any) that have vested
for the Performance Period in accordance with the earnout schedule established
(or to be established, as the case may be) by the Committee with respect to the
Performance Period (the “Earnout Percentage”). Except as provided in Section 1.2
below, any RPSRs subject to the award that are not vested as of the conclusion
of the Performance Period after giving effect to the Committee’s determinations
under this Section 1.1 shall terminate and become null and void immediately
following such determinations.

 

1.2 Minimum Vesting. The Earnout Percentage determined under Section 1.1 shall
not be less than thirty (30) percent; provided, however, that such minimum
Earnout Percentage shall not apply if, as of the December 31 immediately
preceding the start of the Performance Period, the Grantee is either the Chief
Executive Officer of the Company, is otherwise a “Covered Employee” (as defined
for purposes of Section 162(m) of the Code) of the Company, or is one of the
next three highest compensated employees (as determined by proxy convention)
with respect to the Company.

 

1.3 Payment of RPSRs. The number of RPSRs payable at the conclusion of the
Performance Period (“Earned RPSRs”) shall be determined by multiplying the
Earnout Percentage by the target number of RPSRs subject to the award. The
Earned RPSRs may be paid out in either an equivalent number of shares of Common
Stock, or, in the discretion of the Committee, in cash or in a combination of
shares of Common Stock and cash. In the event of a cash payment, the amount of
the payment for each Earned RPSR to be paid in cash (subject to tax withholding
as provided in Section 6 below) will equal the Fair Market Value (as defined
below) of a share of Common Stock as of the date the Committee determines the
extent to which the applicable RPSR performance criteria have been achieved.
RPSRs will normally be paid by March 30 following the end of the Performance
Period.

 

1.4 Dividend Equivalents. At the conclusion of the Performance Period, the
Grantee shall be entitled to payment for Dividend Equivalents (if any) with
respect to the Earned RPSRs (if any). For purposes of these Terms, “Dividend
Equivalents” means the aggregate amount of dividends paid by the Company on a
number of shares of Common Stock equivalent to the number of Earned RPSRs during
the period from the beginning of the Performance Period until the date the
Earned RPSRs are paid (without interest or other adjustments to reflect the time
value of money, but subject to adjustment

 

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pursuant to Section 5.1). For these purposes, any Earned RPSRs in excess of the
target number of RPSRs subject to the award shall be considered to have been
granted at the beginning of the Performance Period.

 

1.5 Payment of Dividend Equivalents. Dividend Equivalents (if any) will be paid
at the same time as the Earned RPSRs to which they relate are paid. Dividend
Equivalents will be paid in cash or, in the discretion of the Committee,
distributed in shares of Company Common Stock or a combination of cash and
shares. If distributed in shares, the number of shares to be issued (subject to
tax withholding) will be determined by (a) determining the aggregate cash amount
of the Dividend Equivalents payable, and (b) dividing such amount by the average
closing price of a share of Common Stock on the composite tape of the New York
Stock Exchange for trading days during the last month of the Performance Period.
Fractional shares will not be paid.

 

2. Early Termination of Award; Termination of Employment.

 

2.1 General. The RPSRs and related Dividend Equivalents subject to the award
shall terminate and become null and void prior to the conclusion of the
Performance Period if and when (a) the award terminates in connection with a
Change in Control pursuant to Section 5 below, or (b) except as provided below
in this Section 2 and in Section 5, the Grantee ceases for any reason to be an
employee of the Company or one of its subsidiaries.

 

2.2 Termination of Employment Due to Retirement, Death or Disability. The number
of RPSRs (and related Dividend Equivalents) subject to the award that would
otherwise be paid if the Grantee had remained employed by the Company or a
subsidiary through the entire Performance Period shall vest on a prorated basis
as provided herein if the Grantee’s employment by the Company and its
subsidiaries terminates due to the Grantee’s Retirement, death, or Disability
and, in each case, only if the Grantee has completed at least six (6)
consecutive calendar months of employment with the Company or a subsidiary
during the three-year Performance Period. Such prorating of RPSRs (and related
Dividend Equivalents) shall be based on the number of full months the Grantee
was actually employed by the Company or one of its subsidiaries out of the
thirty-six month Performance Period. Partial months of employment during the
Performance Period, even if substantial, shall not be counted for purposes of
prorated vesting. Any RPSRs (and related Dividend Equivalents) subject to the
award that do not vest in accordance with this Section 2.2 upon a termination of
the Grantee’s employment due to Retirement, death or Disability shall terminate
immediately upon such termination of employment.

 

In the case of Retirement, the number of Earned RPSRs subject to prorating shall
be calculated based on the entire Performance Period in accordance with Section
1 above as if the Grantee had not terminated employment. In the case of death or
Disability (a) the Performance Period used to calculate the Grantee’s Earned
RPSRs will be deemed to have ended as of the most recent date that performance
has been measured by the Company with respect to the RPSRs (but in no event
shall such date be more than one year before the Grantee’s termination of
employment), (b) the Earnout Percentage of the Grantee’s RPSRs will be
determined based on actual performance for that short Performance Period, and
(c) payment of Earned RPSRs (and Dividend Equivalents thereon) will normally be
made by the end of the third month following the month of the Grantee’s death or
Disability. The Earnout Percentage shall be determined after giving effect to
Section 1.2, if applicable. Notwithstanding the preceding sentences of this
paragraph, for the purpose of computing the number of Earned RPSRs, and for
purposes of the time and manner of payment of the Grantee’s Earned RPSRs, the
termination of employment by the Grantee on account of Retirement shall be
treated as a termination on account of death or Disability, if: (a)
contemporaneous with such Retirement the Grantee accepts employment with a
not-for-profit entity; federally funded research and development center; local,
state or federal government; public or private college or university, or other,
similar entity; and (b) the Committee determines in its discretion that such
employment may likely give rise to a conflict of interest or appearance thereof.

 

In the event of the Grantee’s death subsequent to a termination of employment
due to Retirement or Disability, the Grantee’s Successor shall be entitled to
any payments to which the Grantee would have been entitled under this Agreement.

 

2.3 Other Terminations of Employment. Subject to Section 5.2, all RPSRs subject
to the award and related Dividend Equivalents terminate immediately upon a
termination of the Grantee’s employment: (a) for any reason other than due to
the Grantee’s Retirement, death or Disability; or (b) for Retirement, death or
Disability, if the six-month employment requirement under Section 2.2 above is
not satisfied.

 

2.4 Leave of Absence. Unless the Committee otherwise provides (at the time of
the leave or otherwise), if the Grantee is granted a leave of absence by the
Company, the Grantee (a) shall not be deemed to have incurred a termination of
employment at the time such leave commences for purposes of the award, and (b)
shall be deemed to be employed by the Company for the duration of such approved
leave of absence for purposes of the award. A termination of employment shall be
deemed to have occurred if the Grantee does not timely

 

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return to active employment upon the expiration of such approved leave or if the
Grantee commences a leave that is not approved by the Company.

 

2.5 Salary Continuation. Subject to Section 2.4 above, the term “employment” as
used herein means active employment by the Company and salary continuation
without active employment (other than a leave of absence approved by the Company
that is covered by Section 2.4) will not, in and of itself, constitute
“employment” for purposes hereof (in the case of salary continuation without
active employment, the Grantee’s cessation of active employee status shall,
subject to Section 2.4, be deemed to be a termination of “employment” for
purposes hereof). Furthermore, salary continuation will not, in and of itself,
constitute a leave of absence approved by the Company for purposes of the award.

 

2.6 Sale or Spinoff of Subsidiary or Business Unit. For purposes of the RPSRs
(and related Dividend Equivalents) subject to the award, a termination of
employment of the Grantee shall be deemed to have occurred if the Grantee is
employed by a subsidiary or business unit and that subsidiary or business unit
is sold, spun off, or otherwise divested and the Grantee does not Retire upon or
immediately before such event and the Grantee does not otherwise continue to be
employed by the Company after such event.

 

2.7 Continuance of Employment Required. Except as expressly provided in Sections
2.2 and 2.4 above and in Section 5 below, the vesting of the RPSRs and related
Dividend Equivalents subject to the award requires continued employment through
the last day of the Performance Period as a condition of the payment of such
RPSRs and Dividend Equivalents. Employment for only a portion of the Performance
Period, even if substantial, will not entitle the Grantee to any proportionate
vesting or avoid or mitigate a termination of rights and benefits upon or
following a termination of employment. Nothing contained in these Terms, the
Grant Letter, the Stock Plan System, or the Plan constitutes an employment
commitment by the Company or any subsidiary, affects the Grantee’s status (if
the Grantee is otherwise an at-will employee) as an employee at will who is
subject to termination without cause, confers upon the Grantee any right to
continue in the employ of the Company or any subsidiary, or interferes in any
way with the right of the Company or of any subsidiary to terminate such
employment at any time.

 

3. Non-Transferability and Other Restrictions.

 

The award, as well as the RPSRs and Dividend Equivalents subject to the award,
are non-transferable and shall not be subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance or charge. The
foregoing transfer restrictions shall not apply to: (a) transfers to the
Company; or (b) transfers pursuant to a qualified domestic relations order (as
defined in the Code). Notwithstanding the foregoing, the Company may honor any
transfer required pursuant to the terms of a court order in a divorce or similar
domestic relations matter to the extent that such transfer does not adversely
affect the Company’s ability to register the offer and sale of the underlying
shares on a Form S-8 Registration Statement and such transfer is otherwise in
compliance with all applicable legal, regulatory and listing requirements.

 

4. Compliance with Laws; No Stockholder Rights Prior to Issuance.

 

The Company’s obligation to make any payments or issue any shares with respect
to the award is subject to full compliance with all then applicable requirements
of law, the Securities and Exchange Commission, the Commissioner of Corporations
of the State of California, or other regulatory agencies having jurisdiction
over the Company and its shares, and of any exchange upon which stock of the
Company may be listed. The Grantee shall not have the rights and privileges of a
stockholder with respect to any shares which may be issued in respect of the
RPSRs and/or Dividend Equivalents until the date appearing on the certificate(s)
for such shares (or, in the case of shares entered in book entry form, the date
that the shares are actually recorded in such form for the benefit of the
Grantee), if such shares become deliverable.

 

5. Adjustments; Change in Control.

 

5.1 Adjustments. The RPSRs, Dividend Equivalents, related performance criteria,
and the shares subject to the award are subject to adjustment upon the
occurrence of events such as stock splits, stock dividends and other changes in
capitalization in accordance with Section 6(a) of the Plan. In the event of any
adjustment, the Company will give the Grantee written notice thereof which will
set forth the nature of the adjustment.

 

5.2 Possible Acceleration on Change in Control. Notwithstanding the provisions
of Section 2 hereof, and further subject to the Company’s ability to terminate
the award as provided in Section 5.3 below, the Grantee shall be entitled to
proportionate vesting of the award as provided below if the Grantee is not
otherwise entitled to a pro-rata payment pursuant to Section 2 and in the event
of the Grantee’s termination of employment in the following circumstances:

 

  (a)

if the Grantee is covered by a Change in Control Severance Arrangement at the
time of the termination, if the termination of employment constitutes a
“Qualifying Termination” (as such term, or any similar successor term, is
defined

 

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in such Change in Control Severance Arrangement) that triggers the Grantee’s
right to severance benefits under such Change in Control Severance Arrangement.

 

  (b) if the Grantee is not covered by a Change in Control Severance Arrangement
at the time of the termination and if the termination occurs either within the
Protected Period corresponding to a Change in Control of the Company or within
twenty-four (24) calendar months following the date of a Change in Control of
the Company, the Grantee’s employment by the Company and its subsidiaries is
involuntarily terminated by the Company and its subsidiaries for reasons other
than Cause or by the Grantee for Good Reason.

 

Notwithstanding anything else contained herein to the contrary, the termination
of the Grantee’s employment (or other events giving rise to Good Reason) shall
not entitle the Grantee to any accelerated vesting pursuant to clause (b) above
if there is objective evidence that, as of the commencement of the Protected
Period, the Grantee had specifically been identified by the Company as an
employee whose employment would be terminated as part of a corporate
restructuring or downsizing program that commenced prior to the Protected Period
and such termination of employment was expected at that time to occur within six
(6) months. The applicable Change in Control Severance Arrangement shall govern
the matters addressed in this paragraph as to clause (a) above.

 

In the event the Grantee is entitled to a prorated payment in accordance with
the foregoing provisions of this Section 5.2, then the Grantee will be eligible
for a prorated portion of the RPSRs (and related Dividend Equivalents)
determined in accordance with the following formula: (a) the Earnout Percentage
determined in accordance with Section 1 but calculated based on performance for
the portion of the three-year Performance Period ending on the last day of the
month coinciding with or immediately preceding the date of the termination of
the Grantee’s employment, multiplied by (b) the target number of RPSRs subject
to the award, multiplied by (c) a fraction the numerator of which is the total
number of full months that the Grantee was an employee of the Company or a
subsidiary on and after the beginning of the Performance Period and through the
date of the termination of the Grantee’s employment (but not in excess of 36
months) and the denominator of which is 36. Accumulated Dividend Equivalents
through the date of the termination shall be paid to the Grantee with respect to
the Grantee’s RPSRs which are paid. Payment will be made no later than 60 days
after the later of the Change in Control of the Company or the termination of
the Grantee’s employment.

 

5.3 Automatic Acceleration; Early Termination. If the Company undergoes a Change
in Control triggered by clause (iii) or (iv) of the definition thereof and the
Company is not the surviving entity and the successor to the Company (if any)
(or a Parent thereof) does not agree in writing prior to the occurrence of the
Change in Control to continue and assume the award following the Change in
Control, or if for any other reason the award would not continue after the
Change in Control, then upon the Change in Control the Grantee shall be entitled
to a prorated payment of the RPSRs as provided below. Unless the Committee
expressly provides otherwise in the circumstances, no acceleration of vesting or
exercisability of the award shall occur pursuant to this Section 5.3 in
connection with a Change in Control if either (a) the Company is the surviving
entity, or (b) the successor to the Company (if any) (or a Parent thereof)
agrees in writing prior to the Change in Control to assume the award. The award
shall terminate, subject to such prorated payment provisions, upon a Change in
Control triggered by clause (iii) or (iv) of the definition thereof in which the
Company is not the surviving entity and the successor to the Company (if any)
(or a Parent thereof) does not agree in writing prior to the occurrence of the
Change in Control to continue and assume the award following the Change in
Control. The Committee may make adjustments pursuant to Section 6(a) of the Plan
and/or deem an acceleration of vesting of the award pursuant to this Section 5.3
to occur sufficiently prior to an event if necessary or deemed appropriate to
permit the Grantee to realize the benefits intended to be conveyed with respect
to the shares underlying the award; provided, however, that, the Committee may
reinstate the original terms of the award if the related event does not actually
occur.

 

In the event the Grantee is entitled to a prorated payment in accordance with
the foregoing provisions of this Section 5.3, then the Grantee will, be eligible
for a prorated portion of the RPSRs (and related Dividend Equivalents)
determined in accordance with the following formula: (a) the Earnout Percentage
determined in accordance with Section 1 but calculated based on performance for
the portion of the three-year Performance Period ending on the date of the
Change in Control of the Company, multiplied by (b) the target number of RPSRs
subject to the award, multiplied by (c) a fraction the numerator of which is the
total number of full months that the Grantee was an employee of the Company or a
subsidiary on and after the beginning of the Performance Period and before the
occurrence of the Change in Control (but not in excess of 36 months) and the
denominator of which is 36. Accumulated Dividend Equivalents through the date of
the Change in Control shall be paid to the Grantee with respect to the Grantee’s
RPSRs which are paid. Payment will be made no later than 60 days after the
Change in Control.

 

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6. Tax Matters.

 

6.1 Tax Withholding. The Company or the subsidiary which employs the Grantee
shall be entitled to require, as a condition of making any payments or issuing
any shares upon vesting of the RPSRs or related Dividend Equivalents, that the
Grantee or other person entitled to such shares or other payment pay any sums
required to be withheld by federal, state or local tax law with respect to such
vesting or payment. Alternatively, the Company or such subsidiary, in its
discretion, may make such provisions for the withholding of taxes as it deems
appropriate (including, without limitation, withholding the taxes due from
compensation otherwise payable to the Grantee or reducing the number of shares
otherwise deliverable with respect to the award (valued at their then Fair
Market Value) by the amount necessary to satisfy such withholding obligations at
the flat percentage rates applicable to supplemental wages).

 

6.2 Transfer Taxes. The Company will pay all federal and state transfer taxes,
if any, and other fees and expenses in connection with the issuance of shares in
connection with the vesting of the RPSRs or related Dividend Equivalents.

 

7. Committee Authority.

 

The Committee has the discretionary authority to determine any questions as to
the date when the Grantee’s employment terminated and the cause of such
termination and to interpret any provision of these Terms, the Grant Letter, the
Stock Plan System, the Plan, and any other applicable rules. Any action taken
by, or inaction of, the Committee relating to or pursuant to these Terms, the
Grant Letter, the Stock Plan System, the Plan, or any other applicable rules
shall be within the absolute discretion of the Committee and shall be conclusive
and binding on all persons.

 

8. Plan; Amendment.

 

The RPSRs and Dividend Equivalents subject to the award are governed by, and the
Grantee’s rights are subject to, all of the terms and conditions of the Plan and
any other rules adopted by the Committee, as the foregoing may be amended from
time to time. The Grantee shall have no rights with respect to any amendment of
these Terms or the Plan unless such amendment is in writing and signed by a duly
authorized officer of the Company. In the event of a conflict between the
provisions of the Grant Letter and/or the Stock Plan System and the provisions
of these Terms and/or the Plan, the provisions of these Terms and/or the Plan,
as applicable, shall govern.

 

9. Definitions.

 

Whenever used in these Terms, the following terms shall have the meanings set
forth below and, when the meaning is intended, the initial letter of the word is
capitalized:

 

“Board” means the Board of Directors of the Company.

 

“Cause” means the occurrence of either or both of the following:

 

  (i) The Grantee’s conviction for committing an act of fraud, embezzlement,
theft, or other act constituting a felony (other than traffic related offenses
or as a result of vicarious liability); or

 

  (ii) The willful engaging by the Grantee in misconduct that is significantly
injurious to the Company. However, no act, or failure to act, on the Grantee’s
part shall be considered “willful” unless done, or omitted to be done, by the
Grantee not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.

 

“Change in Control” is used as defined in the Plan.

 

“Change in Control Severance Arrangement” means a “Special Agreement” entered
into by and between the Grantee and the Company that provides severance
protections in the event of certain changes in control of the Company or the
Company’s Change-in-Control Severance Plan, as each may be in effect from time
to time, or any similar successor agreement or plan that provides severance
protections in the event of a change in control of the Company.

 

“Code” means the United States Internal Revenue Code of 1986, as amended.

 

“Committee” means the Company’s Compensation and Management Development
Committee or any successor committee appointed by the Board to administer the
Plan.

 

“Disability” means disabled pursuant to the provisions of the Company’s (or one
of its subsidiary’s) Long Term Disability Plan applicable to the Grantee; or, if
the Grantee is not covered by such a Long Term Disability Plan, the incapacity
of the Grantee, due to injury, illness, disease, or bodily or mental infirmity,
to engage in the performance of substantially all of the usual duties of
employment with the Company or the subsidiary which employs the Grantee, such
disability to be determined by the Committee upon receipt and in reliance on
competent medical advice from one or more

 

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individuals, selected by the Committee, who are qualified to give such
professional medical advice.

 

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

 

“Fair Market Value” is used as defined in the Plan; provided, however, the
Committee in determining such Fair Market Value for purposes of the award may
utilize such other exchange, market, or listing as it deems appropriate. For
purposes of a cashless exercise, the Fair Market Value of the shares shall be
the price at which the shares in payment of the exercise price are sold.

 

“Good Reason” means, without the Grantee’s express written consent, the
occurrence of any one or more of the following:

 

  (i) A material and substantial reduction in the nature or status of the
Grantee’s authorities or responsibilities (when such authorities and/or
responsibilities are viewed in the aggregate) from their level in effect on the
day immediately prior to the start of the Protected Period, other than (A) an
inadvertent act that is remedied by the Company promptly after receipt of notice
thereof given by the Grantee, and/or (B) changes in the nature or status of the
Grantee’s authorities or responsibilities that, in the aggregate, would
generally be viewed by a nationally-recognized executive placement firm as
resulting in the Grantee having not materially and substantially fewer
authorities and responsibilities (taking into consideration the Company’s
industry) when compared to the authorities and responsibilities applicable to
the position held by the Grantee immediately prior to the start of the Protected
Period. For the purpose of the preceding test, the Grantee and the Company shall
mutually agree on a nationally-recognized consulting firm; provided that, if
agreement cannot timely be reached, the Company and the Grantee shall each
timely choose a nationally-recognized firm and representatives of these two
firms shall promptly choose a third firm, which third firm will make the
determination referred to in the preceding sentence. The written opinion of the
firm thus selected shall be conclusive as to this issue.

 

In addition, if the Grantee is a vice president, the Grantee’s loss of
vice-president status will constitute “Good Reason”; provided that the loss of
the title of “vice president” will not, in and of itself, constitute Good Reason
if the Grantee’s lack of a vice president title is generally consistent with the
manner in which the title of vice president is used within the Grantee’s
business unit or if the loss of the title is the result of a promotion to a
higher level office. For the purposes of the preceding sentence, the Grantee’s
lack of a vice-president title will only be considered generally consistent with
the manner in which such title is used if most persons in the business unit with
authorities, duties, and responsibilities comparable to those of the Grantee
immediately prior to the commencement of the Protected Period do not have the
title of vice-president.

 

  (ii) A reduction by the Company in the Grantee’s annualized rate of base
salary as in effect on the date of grant of the award or as the same shall be
increased from time to time.

 

  (iii) A material reduction in the aggregate value of the Grantee’s level of
participation in any of the Company’s short and/or long-term incentive
compensation plans (excluding stock-based incentive compensation plans),
employee benefit or retirement plans, or policies, practices, or arrangements in
which the Grantee participates immediately prior to the start of the Protected
Period provided; however, that a reduction in the aggregate value shall not be
deemed to be “Good Reason” if the reduced value remains substantially consistent
with the average level of other employees who have positions commensurate with
the position held by the Grantee immediately prior to the start of the Protected
Period.

 

  (iv) A material reduction in the Grantee’s aggregate level of participation in
the Company’s stock-based incentive compensation plans from the level in effect
immediately prior to the start of the Protected Period; provided, however, that
a reduction in the aggregate level of participation shall not be deemed to be
“Good Reason” if the reduced level of participation remains substantially
consistent with the average level of participation of other employees who have
positions commensurate with the position held by the Grantee immediately prior
to the start of the Protected Period.

 

  (v) The Grantee is informed by the Company that his or her principal place of
employment for the Company will be relocated to a location that is greater than
fifty (50) miles away from the Grantee’s principal place of employment for the
Company at the start of the corresponding Protected Period; provided that, if
the Company communicates an intended effective date for such relocation, in no
event shall Good Reason exist pursuant to this clause (v) more than ninety (90)
days before such intended effective date.

 

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The Grantee’s right to terminate employment for Good Reason shall not be
affected by the Grantee’s incapacity due to physical or mental illness. The
Grantee’s continued employment shall not constitute a consent to, or a waiver of
rights with respect to, any circumstances constituting Good Reason herein.

 

“Parent” is used as defined in the Plan.

 

“Plan” means the Northrop Grumman 2001 Long-Term Incentive Stock Plan, as it may
be amended form time to time.

 

The “Protected Period” corresponding to a Change in Control of the Company shall
be a period of time determined in accordance with the following:

 

  (i) If the Change in Control is triggered by a tender offer for shares of the
Company’s stock or by the offeror’s acquisition of shares pursuant to such a
tender offer, the Protected Period shall commence on the date of the initial
tender offer and shall continue through and including the date of the Change in
Control; provided that in no case will the Protected Period commence earlier
than the date that is six (6) months prior to the Change in Control.

 

  (ii) If the Change in Control is triggered by a merger, consolidation, or
reorganization of the Company with or involving any other corporation, the
Protected Period shall commence on the date that serious and substantial
discussions first take place to effect the merger, consolidation, or
reorganization and shall continue through and including the date of the Change
in Control; provided that in no case will the Protected Period commence earlier
than the date that is six (6) months prior to the Change in Control.

 

  (iii) In the case of any Change in Control not described in clause (i) or (ii)
above, the Protected Period shall commence on the date that is six (6) months
prior to the Change in Control and shall continue through and including the date
of the Change in Control.

 

“Retirement” or “Retire” means that the Grantee terminates employment after
attaining age 55 with at least 10 years of service (other than in connection
with a termination by the Company or a subsidiary for cause). In the case of a
Grantee who is an officer of the Company subject to the Company’s mandatory
retirement at age 65 policy, “Retirement” or “Retire” shall also include as to
that Grantee (without limiting the Grantee’s ability to Retire pursuant to the
preceding sentence) a termination of the Grantee’s employment pursuant to such
mandatory retirement policy (regardless of the Grantee’s years of service and
other than in connection with a termination by the Company or a subsidiary for
cause).

 

“Successor” means the person acquiring a Grantee’s rights to a grant under the
Plan by will or by the laws of descent or distribution.

 

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