exv10w1






EXHIBIT 10.1




 





EMPLOYEE MATTERS AGREEMENT



among



NORTHROP GRUMMAN CORPORATION,



NEW P, INC.,



and



HUNTINGTON INGALLS INDUSTRIES, INC.



Dated as of [__________]



 








 









 








TABLE OF CONTENTS





	 	 	 	 	 
	 	 	Page
	ARTICLE I DEFINITIONS
	 	 	1	 
	 
	Section 1.1 Table of Definitions
	 	 	1	 
	Section 1.2 Certain Defined Terms
	 	 	2	 
	Section 1.3 Other Capitalized Terms
	 	 	5	 
	 
	 	 	 	 
	ARTICLE II GENERAL PRINCIPLES; EMPLOYEE TRANSFERS
	 	 	5	 
	 
	Section 2.1 Assumption of HII Employee Liabilities
	 	 	5	 
	Section 2.2 Allocation of Liabilities With Respect to Benefit Plans and
Employment Agreements
	 	 	5	 
	Section 2.3 HII Benefit Plans and HII Employment Agreements
	 	 	6	 
	Section 2.4 Plan-Related Litigation
	 	 	6	 
	Section 2.5 Vacation and Sick Pay
	 	 	7	 
	Section 2.6 Employee Transfers
	 	 	7	 
	Section 2.7 Annual Bonuses
	 	 	7	 
	 
	 	 	 	 
	ARTICLE III SERVICE CREDIT
	 	 	7	 
	 
	Section 3.1 Service Credit for Employee Transfers
	 	 	7	 
	Section 3.2 HII Benefit Plans
	 	 	8	 
	 
	 	 	 	 
	ARTICLE IV CERTAIN WELFARE BENEFIT PLAN MATTERS
	 	 	8	 
	 
	Section 4.1 HII Retained Welfare Plans
	 	 	8	 
	Section 4.2 HII Spinoff Welfare Plans
	 	 	9	 
	Section 4.3 Continuation of Elections
	 	 	9	 
	Section 4.4 Deductibles and Other Cost-Sharing Provisions
	 	 	9	 
	Section 4.5 Flexible Spending Account Treatment
	 	 	9	 
	Section 4.6 Health Reimbursement Arrangement Treatment
	 	 	9	 
	Section 4.7 Workers’ Compensation
	 	 	10	 
	 
	 	 	 	 
	ARTICLE V TAX-QUALIFIED DEFINED BENEFIT PLANS
	 	 	10	 
	 
	Section 5.1 HII Retained Defined Benefit Plans
	 	 	10	 
	Section 5.2 HII Spinoff DB Plans
	 	 	10	 
	Section 5.3 Continuation of Elections
	 	 	12	 
	 
	 	 	 	 
	ARTICLE VI U.S. TAX-QUALIFIED DEFINED CONTRIBUTION PLANS
	 	 	13	 
	 
	Section 6.1 HII Retained Defined Contribution Plans
	 	 	13	 
	Section 6.2 HII Spinoff DC Plans
	 	 	13	 






i









 




TABLE OF CONTENTS

(Continued)




	 	 	 	 	 
	 	 	Page
	Section 6.3 Continuation of Elections
	 	 	14	 
	Section 6.4 Contributions Due
	 	 	15	 
	 
	 	 	 	 
	ARTICLE VII NONQUALIFIED RETIREMENT PLANS
	 	 	15	 
	 
	Section 7.1 HII Retained Nonqualified Plans
	 	 	15	 
	Section 7.2 HII Spinoff Nonqualified Plans
	 	 	15	 
	Section 7.3 No Distributions On Separation
	 	 	17	 
	Section 7.4 Section 409A
	 	 	17	 
	Section 7.5 Continuation of Elections
	 	 	17	 
	Section 7.6 Delayed Transfer Employees
	 	 	17	 
	 
	 	 	 	 
	ARTICLE VIII NEW NGC EQUITY COMPENSATION AWARDS
	 	 	18	 
	 
	Section 8.1 General Treatment of Outstanding New NGC Equity Compensation
Awards
	 	 	18	 
	Section 8.2 Tax Withholding and Reporting
	 	 	19	 
	Section 8.3 Tax Deductions
	 	 	19	 
	 
	 	 	 	 
	ARTICLE IX BENEFIT PLAN REIMBURSEMENTS, BENEFIT PLAN THIRD-PARTY CLAIMS
	 	 	19	 
	 
	Section 9.1 General Principles
	 	 	19	 
	Section 9.2 Benefit Plan Third-Party Claims
	 	 	20	 
	 
	 	 	 	 
	ARTICLE X COOPERATION
	 	 	20	 
	 
	Section 10.1 Cooperation
	 	 	20	 
	 
	 	 	 	 
	ARTICLE XI MISCELLANEOUS
	 	 	21	 
	 
	Section 11.1 Vendor Contracts
	 	 	21	 
	Section 11.2 Further Assurances
	 	 	21	 
	Section 11.3 Employment Tax Reporting Responsibility
	 	 	21	 
	Section 11.4 Data Privacy
	 	 	21	 
	Section 11.5 Employee Badges
	 	 	21	 
	Section 11.6 Third Party Beneficiaries
	 	 	21	 
	Section 11.7 Effect if Distribution Does Not Occur
	 	 	22	 
	Section 11.8 Incorporation of Separation Agreement Provisions
	 	 	22	 
	Section 11.9 No Representation or Warranty
	 	 	22	 











ii









 








EMPLOYEE MATTERS AGREEMENT




     EMPLOYEE MATTERS AGREEMENT, dated as of [____________] (this “Employee Matters
Agreement”), among Northrop Grumman Corporation, a Delaware corporation (“NGC”), New P,
Inc., a Delaware corporation (“New NGC”), and Huntington Ingalls Industries, Inc., a
Delaware corporation (“HII”).



RECITALS




     A. The parties to this Employee Matters Agreement, together with certain Subsidiaries of NGC,
have entered into the Separation and Distribution Agreement (the “Separation Agreement”),
dated as of the date hereof, pursuant to which New NGC intends to distribute to its stockholders
its entire interest in HII by way of a stock dividend.



     B. The parties wish to set forth their agreements as to certain matters regarding employment,
compensation and employee benefits.



AGREEMENT




     In consideration of the foregoing and the mutual covenants and agreements herein contained,
and intending to be legally bound hereby, the parties agree as follows:



ARTICLE I

DEFINITIONS




     Section 1.1 Table of Definitions. The following terms have the meanings set forth on
the pages referenced below:




	 	 	 	 	 
	Definition	 	Page
	Applicable Transfer Date
	 	 	7	 
	Benefit Plan
	 	 	2	 
	Converted HII Equity Compensation Award 
	 	 	18	 
	Delayed Transfer Employee
	 	 	7	 
	Employee Matters Agreement
	 	 	1	 
	Employment Agreement
	 	 	2	 
	ERISA
	 	 	2	 
	Estimated Retirement Plan Transfer Amount 
	 	 	11	 
	Exchange Ratio
	 	 	18	 
	Final Nonqualified Plan Transfer Amount 
	 	 	16	 
	Final Nonqualified Plan Transfer Date
	 	 	16	 
	Final Retirement Plan Transfer Amount

	 	 	11	 
	Final Transfer Date
	 	 	11	 
	HII
	 	 	1	 
	HII Benefit Plans
	 	 	3	 
	HII Common Stock
	 	 	18	 
	HII Employee
	 	 	3	 
	HII Employee Liabilities
	 	 	3	 
	HII Employment Agreement
	 	 	3	 
	HII Group
	 	 	3	 
	HII Master Trust
	 	 	11	 
	HII Retained Benefit Plan
	 	 	3	 
	HII Retained DB Plans
	 	 	10	 
	HII Retained DC Plans
	 	 	13	 
	HII Retained Nonqualified Plans
	 	 	15	 
	HII Retained Welfare Plans
	 	 	8	 
	HII Retiree
	 	 	3	 
	HII Spinoff DB Plans
	 	 	10	 
	HII Spinoff DC Plans
	 	 	13	 
	HII Spinoff Nonqualified Plans
	 	 	15	 






 









 




Table of Definitions (cont.)





	 	 	 	 	 
	Definition	 	Page
	HII Spinoff Plans
	 	 	4	 
	HII Spinoff Welfare Plans
	 	 	9	 
	HII Welfare Plan
	 	 	4	 
	HRA
	 	 	9	 
	Initial Nonqualified Plan Transfer Amount 
	 	 	16	 
	New NGC
	 	 	1	 
	New NGC Benefit Plan
	 	 	4	 
	New NGC CPU
	 	 	18	 
	New NGC Employee Liabilities
	 	 	4	 
	New NGC Employment Agreement
	 	 	4	 
	New NGC Equity Compensation Award
	 	 	18	 
	New NGC Grantor Trust
	 	 	15	 
	New NGC Group
	 	 	4	 
	New NGC Option
	 	 	18	 
	New NGC Retiree
	 	 	4	 
	New NGC RPSR
	 	 	18	 
	New NGC RSR
	 	 	18	 
	New NGC Welfare Plan
	 	 	4	 
	NGC
	 	 	1	 
	Nonqualified Plan True-Up Amount
	 	 	16	 
	Original Group
	 	 	8	 
	Plan Payee
	 	 	4	 
	Separation Agreement
	 	 	1	 
	Split DB Plans
	 	 	10	 
	Split DC Plans
	 	 	13	 
	Split Nonqualified Plans
	 	 	15	 
	Split Plans
	 	 	5	 
	Split Welfare Plans
	 	 	9	 
	True-Up Amount
	 	 	12	 
	Vendor Contract
	 	 	21	 
	Welfare Plan
	 	 	5	 
	Workers’ Compensation Event
	 	 	5	 






     Section 1.2 Certain Defined Terms. For the purposes of this Employee
Matters Agreement:



          “Benefit Plan” means, with respect to an entity, each plan, program, policy,
agreement, arrangement or understanding that is a deferred compensation, executive compensation,
incentive bonus or other bonus, pension, profit sharing, savings, retirement, severance pay, salary
continuation, life, death benefit, health, hospitalization, sick leave, vacation pay, disability or
accident insurance or other employee benefit plan, program, agreement or arrangement, including any
“employee benefit plan” (as defined in Section 3(3) of ERISA) sponsored, maintained or contributed
to by such entity or to which such entity is a party or under which such entity has any obligation;
provided that no New NGC Equity Compensation Award, nor any plan under which any such New NGC
Equity Compensation Award is granted, shall constitute a “Benefit Plan” under this Employee Matters
Agreement. In addition, no Employment Agreement shall constitute a Benefit Plan for purposes
hereof.




          “Employment Agreement” means any individual employment, retention, consulting, change
in control, split dollar life insurance, sale bonus, incentive bonus, severance or other individual
compensatory agreement between any current or former employee and NGC or any of its Affiliates or a
member of the New NGC Group or the HII Group.




          “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.




2









 





          “HII Benefit Plans” means the HII Retained Benefit Plans and the HII Spinoff Plans.




          “HII Employee” means each individual who, as of the Distribution, is employed by a
member of the HII Group (including, for the avoidance of doubt, any such individual who is on a
leave of absence, whether paid or unpaid, from which such employee is permitted to return (in
accordance with HII’s personnel policies)).




          “HII Employee Liabilities” means all potential or actual employment and employee
benefits-related or other Liabilities, whether arising before, on or after the Distribution Date,
with respect to: (a) HII Employees and HII Retirees and any other persons employed by the HII Group
(and their respective Plan Payees, including, without limitation, for any deferred vested benefits
under any Benefit Plan); (b) any other individuals asserting rights or obligations stemming from
their services to or in connection with the Shipbuilding Business; (c) HII Employment Agreements;
and (d) the HII Benefit Plans (including, for avoidance of doubt, Liabilities that arise or are
alleged to have arisen prior to Distribution under a Split Plan from which an HII Spinoff Plan
assumed Liabilities hereunder).




          “HII Employment Agreement” means any Employment Agreement to which any member of the
HII Group is a party and to which no member of the New NGC Group or NGC is a party. The HII
Employment Agreements shall be the sole responsibility of one or more members of the HII Group
following the Distribution.




          “HII Group” is defined in the Separation Agreement, but for convenience is duplicated
here, provided that the definition in the Separation Agreement controls. HII Group means HII and
each Person that will be a direct or indirect Subsidiary of HII immediately prior to the
Distribution (but after giving effect to the Internal Reorganization) and each Person that is or
becomes a member of the HII Group after the Distribution, including in all circumstances the
predecessor and successor entities of each such Person. For the purposes of this Employee Matters
Agreement, (a) New NGC shall not be deemed to be a successor entity of NGC and (b) NGC shall not be
deemed to be a member of the HII Group.




          “HII Retained Benefit Plan” means any Benefit Plan that, as of the Distribution, is
sponsored or maintained solely by any member of the HII Group. HII Retained Benefit Plan shall
also mean any multiemployer plan (as defined in Section 3(37) of ERISA) to which any member of the
HII Group contributes for the benefit of its employees. For the avoidance of doubt, no member of
the HII Group shall be deemed to sponsor or maintain any Benefit Plan if its relationship to such
Benefit Plan is solely to administer such Benefit Plan or provide to New NGC any reimbursement in
respect of such Benefit Plan. The HII Retained Benefit Plans (excluding any multiemployer plans)
shall be sponsored solely by one or more members of the HII Group following the Distribution.




          “HII Retiree” means each former employee of NGC or its Affiliates (or the predecessors
thereof), including, without limitation, any such individual with deferred




3









 




vested benefits under any Benefit Plan, whose last employment prior to the Distribution was
with the HII Group or the Shipbuilding Business.




          “HII Spinoff Plans” means the HII Spinoff DB Plans, HII Spinoff DC Plans, HII Spinoff
Nonqualified Plans and HII Spinoff Welfare Plans.




          “HII Welfare Plan” means each HII Benefit Plan that is a Welfare Plan.




          “New NGC Benefit Plan” means any Benefit Plan sponsored or maintained by any member of
the New NGC Group or NGC. New NGC Benefit Plan shall also mean any multiemployer plan (as defined
in Section 3(37) of ERISA) to which any member of the New NGC Group or NGC contributes for the
benefit of its employees. For the avoidance of doubt, no member of the New NGC Group shall be
deemed to sponsor or maintain any Benefit Plan if its relationship to such Benefit Plan is solely
to administer such Benefit Plan or provide to HII any reimbursement in respect of such Benefit
Plan. The New NGC Benefit Plans (excluding any multiemployer plans) shall be those Benefit Plans
sponsored solely by one or more members of the New NGC Group following the Distribution.




          “New NGC Employee Liabilities” means all potential or actual employment and employee
benefits-related or other Liabilities with respect to current employees and former employees of NGC
and the New NGC Group, whether arising before, on or after the Distribution Date, but excluding any
HII Employee Liabilities.




          “New NGC Employment Agreement” means any Employment Agreement to which any member of
the New NGC Group or NGC is a party and to which no member of the HII Group (other than NGC) is or
was a party or beneficiary. The New NGC Employment Agreements shall be the responsibility of one
or more members of the New NGC Group following the Distribution.




          “New NGC Group” is defined in the Separation Agreement, but for convenience is
duplicated here, provided that the definition in the Separation Agreement controls. New NGC Group
means New NGC and each Person that will be a direct or indirect Subsidiary of New NGC immediately
after the Distribution and each Person that is or becomes a member of the New NGC Group after the
Distribution, including in all circumstances the predecessor and successor entities of each such
Person. For the purposes of this Employee Matters Agreement, NGC shall not be deemed to be a
predecessor entity of New NGC.




          “New NGC Retiree” means each former employee of NGC, any of its Affiliates and the New
NGC Group, who is not an HII Retiree.




          “New NGC Welfare Plan” means each New NGC Benefit Plan that is a Welfare Plan.




          “Plan Payee” means, as to an individual who participates in a Benefit Plan, such
individual’s dependents, beneficiaries, alternate payees and alternate recipients, as applicable
under such Benefit Plan.







4









 








          “Split Plans” means the Split Welfare Plans, Split DB Plans, Split DC Plans and Split
Nonqualified Plans.




          “Welfare Plan” means each Benefit Plan that provides life insurance, health care,
dental care, vision care, employee assistance programs (EAP), accidental death and dismemberment
insurance, disability, severance, vacation or other group welfare or fringe benefits and is an
“employee welfare benefit plan” as described in Section 3(1) of ERISA.




          “Workers’ Compensation Event” means the event, injury, illness or condition giving
rise to a workers’ compensation claim.




     Section 1.3 Other Capitalized Terms. Capitalized terms not defined in this Employee
Matters Agreement shall have the meanings ascribed to them in the Separation Agreement.



ARTICLE II

GENERAL PRINCIPLES; EMPLOYEE TRANSFERS




     Section 2.1 Assumption of HII Employee Liabilities. Effective as of the Distribution,
except as otherwise specifically provided in this Employee Matters Agreement, (i) the HII Group
shall be solely responsible for all HII Employee Liabilities and the New NGC Group shall not retain
any HII Employee Liabilities and (ii) the New NGC Group shall be solely responsible for all New NGC
Employee Liabilities and the HII Group shall not retain any New NGC Employee Liabilities.



     Section 2.2 Allocation of Liabilities With Respect to Benefit Plans and Employment
Agreements. Except as otherwise specifically provided in this Employee Matters Agreement,
effective as of the Distribution, each HII Employee and HII Retiree (and each such individual’s
Plan Payees) shall cease participation in all New NGC Benefit Plans and, as of such time, HII shall
or shall cause another member of the HII Group to have in effect such HII Benefit Plans as are
necessary to comply with its obligations pursuant to this Employee Matters Agreement.



          (a) Effective as of the Distribution, except as otherwise specifically provided in this
Employee Matters Agreement, New NGC shall, or shall cause one or more members of the New NGC Group
to, retain, pay, perform, fulfill and discharge in due course all Liabilities arising out of or
relating to all New NGC Employment Agreements.




          (b) Effective as of the Distribution, except as otherwise specifically provided in this
Employee Matters Agreement, HII shall, or shall cause one or more members of the HII Group to,
retain, pay, perform, fulfill and discharge in due course (i) all Liabilities arising out of or
relating to all HII Benefit Plans, (ii) all Liabilities arising out of or relating to all HII
Employment Agreements, (iii) all Liabilities arising out of or relating to the Converted HII Equity
Compensation Awards (including, without limitation, any and all Liabilities with respect to any
equity award of NGC or New NGC that, through assumption and conversion, becomes a Converted HII
Equity Compensation Award, as well as any and all Liabilities with respect to the assumption and
conversion of such an award), and (iv) all Liabilities with respect to the employment, service,
termination of






5









 







employment or termination of service of all HII Employees, HII Retirees, their respective Plan
Payees, and other service providers (including any individual who is, or was, an independent
contractor, temporary employee, temporary service worker, consultant, freelancer, agency employee,
leased employee, on-call worker, incidental worker, or nonpayroll worker of any member of the HII
Group or in any other employment, non-employment, or retainer arrangement, or relationship with any
member of the HII Group), in each case to the extent arising in connection with or as a result of
employment with or the performance of services for any member of the HII Group or the Shipbuilding
Business. For the avoidance of doubt, from and after the Distribution, in no event will HII be
required to issue, grant or award any compensation relating to HII Common Stock to any employee who
is a member of the New NGC Group, and, subject to the treatment of the New NGC Equity Compensation
Awards that are outstanding as of the Distribution and held by any HII Employee or HII Retiree as
provided in Section 8.1, in no event will New NGC be required to issue, grant or award any
compensation relating to New NGC Common Stock to any employee who is a member of the HII Group.




     Section 2.3 HII Benefit Plans and HII Employment Agreements(a) . Schedule 2.3
sets forth a complete list of all material HII Benefit Plans and HII Employment Agreements.
Effective as of the Distribution, HII or another member of the HII Group shall, as applicable in
accordance with this Employee Matters Agreement, adopt, continue or, to the extent necessary,
assume sponsorship of each HII Benefit Plan and HII Employment Agreement, and the New NGC Group
shall use reasonable efforts to transfer or cause to be transferred to HII all plan documents,
trust agreements, insurance policies, administrative agreements, and other agreements and
instruments reasonably required for the maintenance and administration of the HII Benefit Plans and
the HII Employment Agreements. To facilitate HII’s establishment of the HII Spinoff Plans, New NGC
shall, prior to Distribution, provide HII with draft plan documents of the HII Spinoff Plans for
HII’s review and consideration. New NGC shall endeavor to ensure that such draft plan documents
accurately replicate the material terms of the respective Split DC Plans, Split DB Plans, Split
Welfare Plans and Split Nonqualified Plans, but New NGC makes no representation or warranty that
the draft plan documents do so or that draft plan documents satisfy any applicable legal
requirements and New NGC expressly disclaims any and all liability related to the draft HII Spinoff
Plans.



     Effective on the Distribution Date, the HII Group shall be exclusively responsible for
administering each HII Benefit Plan and each HII Employment Agreement in accordance with its terms
and for all obligations and liabilities with respect to the HII Benefit Plans and HII Employment
Agreements and all benefits owed to participants in the HII Benefit Plans and individuals who are
parties to the HII Employment Agreements, whether arising before, on or after the Distribution
Date. Except as specifically provided herein, HII shall not assume sponsorship, maintenance or
administration of any Benefit Plan or Employment Agreement that is not an HII Benefit Plan or an
HII Employment Agreement or receive or assume any assets or liabilities in connection with any such
Benefit Plan or Employment Agreement.



     Section 2.4 Plan-Related Litigation. Notwithstanding anything herein to the contrary,
the management of the defense of all litigation related to the New NGC Benefit



6









 




Plans, the New NGC Employment Agreements, the HII Benefit Plans and the HII Employment
Agreements shall be governed by the Litigation Management Agreement, and this Employee Matters
Agreement shall govern the allocation of Liabilities related to any such litigation. For the
avoidance of doubt, if such litigation relates solely to matters occurring after the Distribution
with respect to a Benefit Plan or an Employment Agreement: (a) if such Benefit Plan or Employment
Agreement is an HII Benefit Plan or an HII Employment Agreement, the HII Group shall be solely
responsible for such litigation and any liabilities with respect thereto, and (b) if such Benefit
Plan or Employment is a New NGC Benefit Plan or a New NGC Employment Agreement, the New NGC Group
shall be solely responsible for such litigation and any liabilities with respect thereto.




     Section 2.5 Vacation and Sick Pay. HII shall assume responsibility for accrued
vacation and sick pay and any other paid time off attributable to HII Employees and HII Retirees as
of the Distribution, or Applicable Transfer Date.



     Section 2.6 Employee Transfers. Upon mutual agreement of HII and New NGC any employee
whose employment transfers within 45 days after the Distribution from the New NGC Group to the HII
Group or from the HII Group to the New NGC Group because they were inadvertently and erroneously
treated as employed by the wrong employer on the Distribution Date, and who was continuously
employed by a member of the HII Group or the New NGC Group (as applicable) from the Distribution
through the date such employee commences active employment with a member of the New NGC Group or
HII Group (as applicable) shall be a “Delayed Transfer Employee.” Except as otherwise
specifically provided in this Employee Matters Agreement, such Delayed Transfer Employees shall be
treated in the same manner as HII Employees as specified in this Employee Matters Agreement, to the
extent practicable in compliance with applicable Law and the Employee Plans. For purposes of this
Employee Matters Agreement, the date on which a Delayed Transfer Employee actually commences
employment with the HII Group or the New NGC Group (as applicable) is referred to as such
individual’s “Applicable Transfer Date” and such Applicable Transfer Date shall, except as
expressly provided herein and in compliance with Law applicable to the Employee Plans, be treated
as the Distribution Date for Delayed Transfer Employees where the Distribution Date is referenced
in this Employee Matters Agreement. Notwithstanding anything herein to the contrary, the mutual
agreement with respect to, and Applicable Transfer Date of, any Delayed Transfer Employee must
occur on or before 45 days after Distribution.



     Section 2.7 Annual Bonuses. HII shall be solely responsible for all annual bonuses
earned by HII Employees and HII Retirees with respect to periods ending on or after January 1,
2011.



ARTICLE III

SERVICE CREDIT




     Section 3.1 Service Credit for Employee Transfers. The Benefit Plans shall provide
the following service crediting rules effective as of the Distribution:



7









 





          (a) If a Delayed Transfer Employee becomes employed by a member of the New NGC Group or HII
Group on or before 45 days after the Distribution then such Delayed Transfer Employee’s service
with the HII Group or the New NGC Group (as applicable) following the Distribution shall be
recognized for purposes of eligibility, vesting and pension credit under the appropriate Benefit
Plans, subject to the terms of those plans.




          (b) If a former employee of HII Group or New NGC Group (such Group, the “Original
Group”) (whether or not a Delayed Transfer Employee) becomes employed by a member of the other
Group (such Group, the “Transferee Group”) either (i) later than 45 days after the Distribution or
(ii) without having been continuously employed by a member of the Original Group from the
Distribution through the date such former employee commences active employment with a member of the
Transferee Group, then the Benefits Plans of the Transferee Group will not recognize for any
purpose such individual’s service with the Original Group before or after the Distribution, except
to the extent required by Law. If a former employee is rehired by his or her Original Group then
all such individual’s service shall be recognized by the Benefit Plans of the Original Group to the
extent required by Law.




     Section 3.2 HII Benefit Plans. From and after the Distribution, or Applicable
Transfer Date, HII shall, and shall cause its affiliates and successors to, provide credit under
the HII Benefit Plans to HII Employees and HII Retirees for their service with HII and its
predecessors and affiliates (including but not limited to NGC and any of its Affiliates, HII Group,
New NGC and the New NGC Group) for all purposes to the same extent that such service was recognized
under the relevant New NGC Benefit Plans. For avoidance of doubt, service shall be credited for
all purposes, including but not limited to, benefit accrual, determining eligibility to
participate, vesting, eligibility to retire, and eligibility for subsidized post-retirement welfare
benefits and the amount of such subsidy; provided, however, that service shall not
be recognized to the extent that such recognition would result in the duplication of benefits.



ARTICLE IV

CERTAIN WELFARE BENEFIT PLAN MATTERS




     Section 4.1 HII Retained Welfare Plans. HII shall cause a member of the HII Group to
retain, or to the extent necessary, assume sponsorship of any HII retained welfare plans (the
“HII Retained Welfare Plans”) and take all necessary actions to continue contributions to
the HII Retained Benefit Plans that are multiemployer Welfare Plans. To the extent necessary,
prior to the Distribution, HII shall cause a member of the HII Group to assume sponsorship of the
HII Retained Welfare Plans. New NGC shall use reasonable efforts to transfer or cause to be
transferred to a member of the HII Group all plan documents, trust agreements, insurance policies,
administrative agreements and other agreements and instruments reasonably required for the
maintenance and administration of the HII Retained Welfare Plans. From and after the Distribution,
the HII Group shall be exclusively responsible for all obligations and liabilities with respect to
the HII Retained Welfare Plans, and all benefits owed to participants in the HII Retained Welfare
Plans, whether accrued before, on or after the Distribution.



8









 





     Section 4.2 HII Spinoff Welfare Plans. Effective not later than the Distribution, HII
or a member of the HII Group shall establish certain welfare benefit plans (such plans, the
“HII Spinoff Welfare Plans”). Each HII Spinoff Welfare Plan shall have terms and features
(including benefit coverage options and employer contribution provisions) that are substantially
identical to one of the Benefit Plans listed on Schedule 4.2 (such Benefit Plans, the
“Split Welfare Plans”) such that (for avoidance of doubt), each Split Welfare Plan is
substantially replicated by an HII Spinoff Welfare Plan. Each HII Spinoff Welfare Plan shall
assume all liability from the corresponding Split Welfare Plan with respect to, and shall provide
benefits to, those HII Employees and HII Retirees and their respective Plan Payees who immediately
prior to the Distribution were participating in, or entitled to present or future benefits under
the corresponding Split Welfare Plan. From and after the Distribution, HII and the HII Group shall
be solely and exclusively responsible for all obligations and liabilities with respect to, or in
any way related to, the HII Spinoff Welfare Plans, whether accrued before, on or after the
Distribution. For avoidance of doubt, the HII Spinoff Welfare Plans shall have the sole obligation
to provide benefits attributable to any lost participants who were formerly employed in the
Shipbuilding Business.



     Section 4.3 Continuation of Elections. As of the Distribution, HII shall cause the
HII Spinoff Welfare Plans to recognize and maintain all elections and designations (including,
without limitation, all coverage and contribution elections and beneficiary designations) in effect
with respect to HII Employees, HII Retirees and Delayed Transfer Employees prior to the
Distribution under the corresponding Split Welfare Plan and apply such elections and designations
under the HII Spinoff Welfare Plans for the remainder of the period or periods for which such
elections or designations are by their original terms effective.



     Section 4.4 Deductibles and Other Cost-Sharing Provisions. As of the Distribution (or
Applicable Transfer Date with respect to a Delayed Transfer Employee), HII shall cause the HII
Spinoff Welfare Plans to recognize all amounts applied to deductibles, co-payments and
out-of-pocket maximums with respect to HII Employees, HII Retirees and Delayed Transfer Employees
under the corresponding Split Welfare Plan during the plan year in which the Distribution or
Applicable Transfer Date occurs, and the HII Spinoff Welfare Plans will not impose any limitations
on coverage for preexisting conditions other than such limitations as were applicable under the
comparable Benefit Plans prior to the Distribution or Applicable Transfer Date.



     Section 4.5 Flexible Spending Account Treatment. With respect to the portion of a
Split Welfare Plan that consists of medical and dependent care flexible spending accounts, as of
the Distribution, HII shall be solely responsible for all liabilities with respect thereto, and the
applicable HII Spinoff Welfare Plan shall, as required under Section 4.3, give effect to the
elections of HII Employees and HII Retirees that were in effect under the Split Welfare Plan as of
the Distribution.



     Section 4.6 Health Reimbursement Arrangement Treatment. With respect to the portion
of a Split Welfare Plan that is a health reimbursement arrangement (as defined in IRS Notice
2002-45) (“HRA”), as of the Distribution, HII shall cause the applicable HII Spinoff
Welfare Plan to credit each HII Employee and HII Retiree who had an HRA



9









 




balance under the Split Welfare Plan immediately prior to the Distribution with an HRA balance
equal to the HRA balance he or she had under the Split Welfare Plan immediately prior to the
Distribution. With respect to a Delayed Transfer Employee who had an HRA balance under the Split
Welfare Plan immediately prior to his or her Applicable Transfer Date, HII shall cause the
applicable HII Spinoff Welfare Plan to credit to the Delayed Transfer Employee with an HRA balance
equal to the HRA balance he or she had under the Split Welfare Plan immediately prior to his or her
Applicable Transfer Date.




     Section 4.7 Workers’ Compensation. The HII Group shall be responsible for processing
all workers’ compensation claims of HII Employees and HII Retirees, regardless of when the Workers’
Compensation Event occurred. Coverage for such claims shall be as specified in the Insurance
Matters Agreement.



ARTICLE V

TAX-QUALIFIED DEFINED BENEFIT PLANS




     Section 5.1 HII Retained Defined Benefit Plans. Prior to the Distribution, HII shall
cause a member of the HII Group to retain or, to the extent necessary, assume sponsorship of the
HII Retained Defined Benefit Plans (and their related trusts) set forth on Schedule 5.1
(the “HII Retained DB Plans”) and take all necessary actions to continue contributions to
the HII Retained DB Plans that are multiemployer defined benefit pension plans. New NGC shall use
reasonable efforts to transfer or cause to be transferred to a member of the HII Group all plan
documents, trust agreements, insurance policies, administrative agreements and other agreements and
instruments reasonably required for the maintenance and administration of the HII Retained DB
Plans. From and after the Distribution, the HII Group shall be exclusively responsible for all
obligations and liabilities with respect to the HII Retained DB Plans, all assets of the HII
Retained DB Plans, and all benefits owed to participants in the HII Retained DB Plans, whether
accrued before, on or after the Distribution.



     Section 5.2 HII Spinoff DB Plans.



          (a) Effective as of the Distribution, HII or another member of the HII Group shall establish
certain defined benefit plans that qualify under Code Section 401(a), along with a related master
trust or trusts that is exempt under Code Section 501(a) (such plans and trusts, the “HII
Spinoff DB Plans”). Each HII Spinoff DB Plan shall have terms and features (including benefit
accrual provisions) that are substantially identical to one of the Benefit Plans listed on
Schedule 5.2(a) (such Benefit Plans, the “Split DB Plans”), such that (for
avoidance of doubt), each Split DB Plan is substantially replicated by a corresponding HII Spinoff
DB Plan. Each HII Spinoff DB Plan shall assume liability for all benefits accrued or earned
(whether or not vested) by HII Employees and HII Retirees and their respective Plan Payees under
the corresponding Split DB Plan as of the Distribution. HII or a member of the HII Group shall be
solely responsible for taking all necessary, reasonable, and appropriate actions (including the
submission of the HII Spinoff DB Plans to the Internal Revenue Service for a determination of
tax-qualified status) to establish, maintain and administer the HII Spinoff DB Plans so that they
are qualified under Section 401(a) of the Code and that the related trusts thereunder are exempt
under






10









 







Section 501(a) of the Code. The portion of liabilities relating to HII Employees, HII
Retirees and Delayed Transfer Employees and their respective Plan Payees shall cease to be
liabilities of the applicable Split DB Plan, and shall be assumed by the corresponding HII Spinoff
DB Plan in accordance with this Section and Section 414(l) of the Code, Treasury Regulation Section
1.414(l)-1, and Section 208 of ERISA.




          (b) A master trust (the “HII Master Trust”) has been established to hold the assets of
the HII Spinoff DB Plans and the HII Retained Plans, and NGC has caused certain marketable
securities to be transferred to the HII Master Trust. The HII Spinoff Plans currently
participating in the HII Master Trust as of the date of this Employee Matters Agreement are
specified on Schedule 5.2(b)(i). As of the Distribution, New NGC or a member of the New
NGC Group shall cause its actuary to determine the estimated value, as of the Distribution, of the
assets required to be held on behalf of each HII Spin-Off DB Plan in accordance with the
assumptions and valuation methodology set forth on Schedule 5.2(b)(ii) (the “Estimated
Retirement Plan Transfer Amount” for each such plan). Prior to or as of the Distribution, New
NGC or a member of the New NGC Group shall cause the trust for each Split DB Plan to transfer to
the HII Master Trust on behalf of each corresponding HII Spinoff DB Plan an amount in cash or in
kind equal to the Estimated Retirement Plan Transfer Amount for such plan, less amounts already
held by the HII Master Trust as of the Distribution on behalf of the applicable HII Spinoff DB
Plan. With respect to amounts included in the Estimated Retirement Plan Transfer Amount for
private equity, real estate, infrastructure and hedge fund partnerships, New NGC shall cause the
trust(s) in which the Split DB Plans participate to transfer to the HII Master Trust the cash value
of such assets, as determined as of the end of the month prior to the month in which the
Distribution occurs, adjusted to reflect interest in accordance with the methodology set forth on
Schedule 5.2(b)(iii) from such month-end through the day before the day such cash transfer
is made (which shall be no later than forty-five (45) days after the Distribution Date).




          (c) Within twelve (12) months following the Distribution, New NGC or a member of the New NGC
Group shall cause its actuary to provide HII with a revised calculation of the value, as of the
Distribution, of the assets to be transferred to each HII Spinoff DB Plan determined in accordance
with the assumptions and valuation methodology determined by New NGC using the assumptions
specified on Schedule 5.2(b)(ii) and reflecting any Delayed Transfer Employees and their
respective Applicable Transfer Dates and any demographic updates (the “Final Retirement Plan
Transfer Amount” for each such plan).




          (d) Within 45 days of the receipt from the actuary of the determination of the Final
Retirement Plan Transfer Amount, New NGC shall cause each Split DB Plan to transfer to the
corresponding HII Spinoff DB Plan (the date of each such transfer, the “Final Transfer
Date” for each such plan) an amount in cash or in kind equal to (i) the Final Retirement Plan
Transfer Amount, minus (ii) the sum of (A) the Estimated Retirement Plan Transfer Amount and (B)
the aggregate amount of payments made from the Split DB Plan to HII Employees, HII Retirees and
Delayed Transfer Employees and their respective Plan Payees in order to satisfy any benefit
obligation with respect to such participants following the Distribution, or Applicable Transfer
Date for Delayed Transfer Employees,




11









 




plus (iii) any payments made from an HII Spinoff DB Plan to a Delayed Transfer Employee prior
to when such Delayed Transfer Employee transferred from the HII Group to the New NGC Group (such
amount the “True-Up Amount”). However, if the True-Up Amount is a negative number with
respect to any HII Spinoff DB Plan, New NGC shall not be required to cause any such additional
transfer and instead HII shall be required to cause a transfer of cash within 45 days of the
receipt of written notification by New NGC from such HII Spinoff DB Plan to the corresponding Split
DB Plan the amount by which the sum of clauses (ii)(A) and (B) above, minus the amount in (iii)
above, exceeds the Final Retirement Plan Transfer Amount. The True-Up Amount or the amount
described in the immediately-preceding sentence shall be adjusted to reflect earnings or losses as
described in Schedule 5.2(d). The parties hereto acknowledge that the Split DB Plans’
transfer of the True-Up Amounts to the corresponding HII Spinoff DB Plans shall be in full
settlement and satisfaction of the obligations of New NGC and the Split DB Plans to transfer assets
to the HII Spinoff DB Plans pursuant to this Section.




               The True-Up Amount shall be paid from each Split DB Plan to the corresponding HII Spinoff DB
Plan in cash according to the principles described in Section 5.2(b), and adjusted to reflect
earnings or losses and expenses during the period from the Distribution (or Applicable Transfer
Date with respect to Delayed Transfer Employees) to the day before the Final Transfer Date. Such
earnings or losses shall be determined in accordance with the methodology set forth in Schedule
5.2(d) from the Distribution Date through the date the True-Up Amount is paid. In the event
that HII is obligated to cause any HII Spinoff DB Plan to reimburse the corresponding Split DB Plan
pursuant to this Section (or with respect to any earnings calculation attributable to individuals
rehired by New NGC in accordance with this Section), such reimbursement or earnings calculation
shall be performed in accordance with the same principles set forth herein (including, without
limitation, earnings or losses in accordance with the methodology set forth in Schedule
5.2(d)) with respect to the payment of the True-Up Amount.



          (e) From and after the Distribution, HII and the members of the HII Group shall be solely and
exclusively responsible for all obligations and liabilities with respect to, or in any way related
to, the HII Spinoff DB Plans, whether accrued before, on or after the Distribution. For avoidance
of doubt, the HII Spinoff DB Plans shall have the sole and exclusive obligation to restore the
unvested accrued benefits attributable to any individual who becomes employed by a member of the
HII Group and whose employment with NGC or any of its Affiliates or a member of the New NGC Group
terminated on or before the Distribution at a time when such individual’s benefits under the Split
DB Plan were not fully vested. Furthermore, the HII Spinoff DB Plans shall have the sole
obligation to restore accounts attributable to any lost participants who were formerly employed in
the Shipbuilding Business.




     Section 5.3 Continuation of Elections. As of the Distribution Date, HII (acting
directly or through a member of the HII Group) shall cause the HII Spinoff DB Plans to recognize
and maintain all existing elections, including, but not limited to, beneficiary designations,
payment form elections and rights of alternate payees under qualified domestic relations orders
with respect to HII Employees, HII Retirees and Delayed



12









 




Transfer Employees and their respective Plan Payees under the corresponding Split DB Plan.




ARTICLE VI

U.S. TAX-QUALIFIED DEFINED CONTRIBUTION PLANS




     Section 6.1 HII Retained Defined Contribution Plans. Prior to the Distribution, HII
shall cause a member of the HII Group to retain or, to the extent necessary, assume sponsorship of
the HII Retained Defined Contribution Plans (and their related trusts) set forth on Schedule
6.1 (the “HII Retained DC Plans”) and take all necessary actions to continue
contributions to the HII Retained DC Plans that are multiemployer defined contribution pension
plans. New NGC shall use reasonable efforts to transfer or cause to be transferred to a member of
the HII Group all plan documents, trust agreements, insurance policies, administrative agreements
and other agreements and instruments reasonably required for the maintenance and administration of
the HII Retained DC Plans. From and after the Distribution, the HII Group shall be exclusively
responsible for all obligations and liabilities with respect to the HII Retained DC Plans, all
assets of the HII Retained DC Plans, and all benefits owed to participants in the HII Retained DC
Plans, whether accrued before, on or after the Distribution.



     Section 6.2 HII Spinoff DC Plans.



          (a) Effective as of the Distribution, HII or another member of the HII Group shall establish
certain defined contribution plans that qualify under Code Section 401(a), and a related master
trust or trusts exempt under Code Section 501(a) (such plans and trusts, the “HII Spinoff DC
Plans”). Each HII Spinoff DC Plan shall have terms and features (including employer
contribution provisions) that are substantially identical to one of the Benefit Plans listed on
Schedule 6.2 (such Benefit Plans, the “Split DC Plans”) such that (for avoidance of
doubt), each Split DC Plan is substantially replicated by a corresponding HII Spinoff DC Plan. HII
or a member of the HII Group shall be solely responsible for taking all necessary, reasonable, and
appropriate actions (including the submission of the HII Spinoff DC Plans to the Internal Revenue
Service for a determination of tax-qualified status) to establish, maintain and administer the HII
Spinoff DC Plans so that they are qualified under Section 401(a) of the Code and that the related
trusts thereunder are exempt under Section 501(a) of the Code. Each HII Spinoff DC Plan shall
assume liability for all benefits accrued or earned (whether or not vested) by HII Employees and
HII Retirees and their respective Plan Payees under the corresponding Split DC Plan as of the
Distribution.




          (b) On or as soon as reasonably practicable following the Distribution, New NGC or a member of
the New NGC Group shall cause each Split DC Plan to transfer to the applicable HII Spinoff DC Plan,
and HII or another member of the HII Group shall cause such HII Spinoff DC Plan to accept the
transfer of, the accounts, liabilities and related assets in such Split DC Plan attributable to HII
Employees and HII Retirees and their respective Plan Payees. The transfer of assets shall be in
cash or in kind (as determined by the transferor) and include outstanding loan balances and amounts
forfeited by HII Retirees that have not yet been reallocated or applied to the payment of






13









 







contributions or expenses and be conducted in accordance with Code Section 414(l) and Treasury
Regulation Section 1.414(1)-1, and Section 208 of ERISA.




          (c) As soon as reasonably practicable (but not later than 30 days) following the Applicable
Transfer Date of a Delayed Transfer Employee who transfers employment from a member of the New NGC
Group to a member of the HII Group within 45 days following the Distribution, New NGC or a member
of the New NGC Group shall cause the accounts, related liabilities, and related assets in the
corresponding Split DC Plan(s) attributable to such Delayed Transfer Employee and their respective
Plan Payees (including any outstanding loan balances) to be transferred in cash or in kind (as
determined by the transferor) (in accordance with Code Section 414(l) and Treasury Regulation
Section 1.414(l)-1, and Section 208 of ERISA) to the applicable HII Spinoff DC Plan(s) and HII or a
member of the HII Group shall cause the applicable HII Spinoff DC Plan(s) to accept such transfer
of accounts, liabilities and assets.




          (d) In the event a Delayed Transfer Employee is an HII Employee who returns to employment with
New NGC or a member of the New NGC Group, then, as soon as reasonably practicable (but not later
than 30 days thereafter), HII or a member of the HII Group shall cause the accounts, related
liabilities, and related assets in the corresponding HII Spinoff DC Plan(s) attributable to such
Delayed Transfer Employee and their respective Plan Payees (including any outstanding loan
balances) to be transferred in cash or in-kind (as determined by the transferor) in accordance with
Code Section 414(l) and Treasury Regulation Section 1.414(l)-1, and Section 208 of ERISA to the
applicable Split DC Plan(s). New NGC or a member of the New NGC Group shall cause the applicable
Split DC Plan(s) to accept such transfer of accounts, liabilities and assets.




          (e) From and after the Distribution, except as specifically provided in paragraph (d) above,
HII and the HII Group shall be solely and exclusively responsible for all obligations and
liabilities with respect to, or in any way related to, the HII Spinoff DC Plans, whether accrued
before, on or after the Distribution. For avoidance of doubt, the HII Spinoff DC Plans shall have
the sole and exclusive obligation to restore the unvested portion of any account attributable to
any individual who becomes employed by a member of the HII Group and whose employment with NGC or
any of its Affiliates, or a member of the New NGC Group terminated on or before the Distribution at
a time when such individual’s benefits under the Split DC Plans were not fully vested.
Furthermore, the HII Spinoff DC Plans shall have the sole obligation to restore accounts
attributable to any lost participants who were formerly employed in the Shipbuilding Business.




     Section 6.3 Continuation of Elections. As of the Distribution, HII (acting directly
or through a member of the HII Group) shall cause the HII Spinoff DC Plans to recognize and
maintain all elections, including, but not limited to, deferral, investment and payment form
elections, beneficiary designations, and the rights of alternate payees under qualified domestic
relations orders with respect to HII Employees, HII Retirees and Delayed Transfer Employees and
their respective Plan Payees under the corresponding Split DC Plan; provided, that,
investment elections relating to the Northrop Grumman stock fund shall be as determined by the
appropriate fiduciary of the HII Split DC Plans.



14









 





     Section 6.4 Contributions Due. All contributions payable to the Split DC Plans with
respect to employee deferrals, matching contributions and employer contributions for HII Employees
through the Distribution Date, determined in accordance with the terms and provisions of the Split
DC Plans, ERISA and the Code, shall be paid by New NGC or a member of the New NGC Group to the
appropriate Split DC Plan prior to the date of any asset transfer described in Section 6.2.



ARTICLE VII

NONQUALIFIED RETIREMENT PLANS




     Section 7.1 HII Retained Nonqualified Plans.



          (a) Prior to the Distribution, HII shall cause a member of the HII Group to retain or, to the
extent necessary, assume sponsorship of the HII Retained Nonqualified Plans set forth on
Schedule 7.1(a) (the “HII Retained Nonqualified Plans”). New NGC shall use
reasonable efforts to transfer or cause to be transferred to a member of the HII Group all plan
documents, administrative agreements and other agreements and instruments reasonably required for
the maintenance and administration of the HII Retained Nonqualified Plans. From and after the
Distribution, the HII Group shall be exclusively responsible for all obligations and liabilities
with respect to the HII Retained Nonqualified Plans, and all benefits owed to participants in the
HII Retained Nonqualified Plans, whether accrued before, on or after the Distribution.




          (b) Unless New NGC and HII agree otherwise before the Distribution, prior to or on the
Distribution Date, New NGC shall cause to be transferred, to one or more grantor trusts established
or maintained by HII as designated by HII, cash equal to the amount of the assets held under any
grantor trust maintained by a member of the New NGC Group (each a “New NGC Grantor Trust”)
that are allocated in the records of such New NGC Grantor Trust to pay benefits under the HII
Retained Nonqualified Plans specified on Schedule 7.1(b). The amount of assets to be so
transferred shall be determined by the actuary selected by the New NGC Group.




     Section 7.2 HII Spinoff Nonqualified Plans.



          (a) Effective as of the Distribution, HII or another member of the HII Group shall establish
certain nonqualified retirement plans (such plans, the “HII Spinoff Nonqualified Plans”).
Each HII Spinoff Nonqualified Plan shall have terms and features (including employer contribution
provisions) that are substantially identical to one of the NGC Benefit Plans listed on Schedule
7.2(a) (such plans, the “Split Nonqualified Plans”) such that (for avoidance of doubt),
each Split Nonqualified Plan is substantially replicated by a corresponding HII Spinoff
Nonqualified Plan. Except as specifically provided in Section 7.6, HII or a member of the HII
Group shall be solely responsible for taking all necessary, reasonable, and appropriate actions to
establish, maintain and administer the HII Spinoff Nonqualified Plans so that they do not result in
adverse tax consequences under Code Section 409A. Each HII Spinoff Nonqualified Plan shall assume
liability for all benefits accrued or earned (whether or not vested) by HII Employees and HII
Retirees and their respective Plan Payees under the corresponding Split Nonqualified Plan as of the






15









 







Distribution. From and after the Distribution, HII and the HII Group shall be solely and
exclusively responsible for all obligations and liabilities with respect to, or in any way related
to, the HII Spinoff Nonqualified Plans, whether accrued before, on or after the Distribution.
Furthermore, HII and the HII Group shall have the sole obligation to restore in the HII Spinoff
Nonqualified Plans benefits under the Split Nonqualified Plans attributable to any lost
participants who were formerly employed in the Shipbuilding Business.




          (b) Unless New NGC and HII agree otherwise before the Distribution, prior to or on the
Distribution Date, New NGC or a member of the New NGC Group shall cause its actuary to determine
the estimated value, as of the Distribution, of the amount of assets to be transferred from the New
NGC Grantor Trusts to one or more grantor trusts established or maintained by HII as designated by
HII with respect to the HII Spinoff Nonqualified Plans specified on Schedule 7.2(b) (the
“Initial Nonqualified Plan Transfer Amount”). The Initial Nonqualified Plan Transfer
Amount shall equal, for each such HII Spinoff Nonqualified Plan, (i) the total assets held by the
applicable New NGC Grantor Trust multiplied by (ii) a fraction, (A) the numerator of which is the
total value of accrued benefits allocated to such HII Spinoff Nonqualified Plan under such New NGC
Grantor Trust, and (B) the denominator of which is the total value of all accrued benefits under
all plans for which such New NGC Grantor Trust is intended to pay all or a portion of the benefits.
For purposes of this Section 7.2(b), the value of accrued benefits shall be determined by the
actuary selected by the New NGC Group.




          (c) Within twelve (12) months following the Distribution, New NGC or a member of the New NGC
Group shall cause its actuary to provide HII with a revised calculation of the value, as of the
Distribution, of the assets to be transferred with respect to each HII Spinoff Nonqualified Plans
specified on Schedule 7.2(b), as determined by the actuary selected by the New NGC
Group, and reflecting any Delayed Transfer Employees and their respective Applicable Transfer Dates
and any demographic updates (the “Final Nonqualified Plan Transfer Amount” for each such
plan).




          (d) Within forty-five (45) days of the receipt from the actuary of the determination of the
Final Nonqualified Plan Transfer Amount, New NGC shall cause the applicable New NGC Grantor Trust
to transfer to a grantor trust specified by HII (the date of each such transfer, the “Final
Nonqualified Plan Transfer Date” for each such plan) an amount in cash equal to (i) the Final
Nonqualified Plan Transfer Amount, minus (ii) the sum of (A) the Initial Nonqualified Plan Transfer
Amount and (B) the aggregate amount of payments made pursuant to the Split Nonqualified Plan to HII
Employees, HII Retirees and Delayed Transfer Employees and their respective Plan Payees in order to
satisfy any benefit obligation with respect to such participants following the Distribution, or
Applicable Transfer Date for Delayed Transfer Employees, plus (iii) any payments made from an HII
Spinoff Nonqualified Plan specified on Schedule 7.2(b) to a Delayed Transfer Employee
prior to when such Delayed Transfer Employee transferred from the HII Group to the New NGC Group
(such amount the “Nonqualified Plan True-Up Amount”). However, if the Nonqualified Plan
True-Up Amount is a negative number with respect to any HII Spinoff Nonqualified Plan, New NGC
shall not be required to cause any such additional transfer and instead HII shall be required to
cause a transfer of cash within




16









 




forty-five (45) days of the receipt of written notification by New NGC from the relevant HII
grantor trust to the New NGC Grantor Trust specified by New NGC the amount by which the sum of
clauses (ii)(A) and (B) above, minus the amount in (iii) above, exceeds the Final Nonqualified Plan
Transfer Amount. The Nonqualified Plan True-Up Amount or the amount described in the
immediately-preceding sentence shall be adjusted to reflect earnings or losses as described in
Schedule 7.2(d). The parties hereto acknowledge that the New NGC Grantor Trusts’
transfer of the Nonqualified Plan True-Up Amounts to an HII grantor trust shall be in full
settlement and satisfaction of the obligations of New NGC and the New NGC Grantor Trusts to
transfer assets to HII or any HII grantor trust pursuant to this Section 7.2(d).




     Section 7.3 No Distributions On Separation. New NGC and HII acknowledge that neither
the Distribution nor any of the other transactions contemplated by this Employee Matters Agreement,
the Separation Agreement or the other Ancillary Agreements will trigger a payment or distribution
of compensation under any Benefit Plan that is a nonqualified retirement plan for any HII Employee
or HII Retiree and, consequently, that the payment or distribution of any compensation to which any
HII Employee or HII Retiree is entitled under any HII Retained Nonqualified Plan or HII Spinoff
Nonqualified Plan will occur upon such HII Employee’s or HII Retiree’s separation from service from
the HII Group or at such other time as provided in such HII Retained Nonqualified Plan or HII
Spinoff Nonqualified Plan or such HII Employee’s or HII Retiree’s deferral election.



     Section 7.4 Section 409A. New NGC and HII shall cooperate in good faith so that the
Distribution will not result in adverse tax consequences under Code Section 409A to any current or
former employee of any member of the New NGC Group or any member of the HII Group, or their
respective Plan Payees, in respect of his or her benefits under any New NGC Benefit Plan or HII
Benefit Plan.



     Section 7.5 Continuation of Elections. As of the Distribution, HII (acting directly
or through a member of the HII Group) shall cause each HII Spinoff Nonqualified Plan to recognize
and maintain all elections, including, but not limited to, deferral, investment and payment form
elections, beneficiary designations, and the rights of alternate payees under qualified domestic
relations orders with respect to HII Employees, HII Retirees and their Plan Payees under the
corresponding Split Nonqualified Plan; provided, that investment elections relating to a
Northrop Grumman stock fund under a Split Nonqualified Plan shall be as determined by the
appropriate party with investment authority for such HII Spinoff Nonqualified Plan.



     Section 7.6 Delayed Transfer Employees. Any Delayed Transfer Employee who transfers
to the HII Group within 45 days following the Distribution shall be treated in the same manner as
an HII Employee under this Article VII. As indicated in Section 2.6, such a Delayed Transfer
Employee’s Applicable Transfer Date shall be treated as the Distribution Date. In addition, if a
Delayed Transfer Employee transfers from the HII Group to the New NGC Group within 45 days
following the Distribution, the New NGC Group shall assume and be solely responsible, pursuant to
the terms of the applicable Split



17









 




Nonqualified Plan, for any benefits accrued by such individual under any HII Spinoff
Nonqualified Plan, and the HII Group shall have no liability with respect thereto.




ARTICLE VIII

NEW NGC EQUITY COMPENSATION AWARDS




     Section 8.1 General Treatment of Outstanding New NGC Equity Compensation Awards.
Notwithstanding any other provision of this Employee Matters Agreement or the Separation Agreement
to the contrary, from and after the Distribution, each outstanding option award to purchase New NGC
Common Stock (“New NGC Option”) and each restricted performance stock right award with
respect to New NGC Common Stock that relates to a performance period ending after January 1, 2011
(“New NGC RPSR”), restricted stock right award with respect to New NGC Common Stock
(“New NGC RSR”) and cash performance unit award subject to the terms of a New NGC long-term
incentive cash plan (“New NGC CPU”), in each case that was granted under or pursuant to any
equity compensation plan or arrangement of New NGC (each such New NGC Option, New NGC RPSR, New NGC
RSR or New NGC CPU, a “New NGC Equity Compensation Award”), that, as of the Distribution,
is held by any HII Employee (which for purposes of this Section 8.1, shall not include any Delayed
Transfer Employees) or HII Retiree, shall be assumed by HII (each such assumed New NGC Equity
Compensation Award, a “Converted HII Equity Compensation Award”). Except for cash
performance unit awards, in connection with the assumption by HII, each Converted HII Equity
Compensation Award shall be adjusted into an option award, restricted performance stock right award
or restricted stock right award, as applicable, with respect to shares of HII common stock, par
value $1.00 per share (“HII Common Stock”), having the same intrinsic value as the
applicable New NGC Equity Compensation Award using an exchange ratio (the “Exchange Ratio”)
equal to the closing price of a share of New NGC Common Stock on the last regular trading day
immediately prior to the Distribution Date based on “regular way” trading divided by the closing
price of a share of HII Common Stock on the first day on or after the Distribution Date on which
HII Common Stock trades on a “regular way” basis, with such adjustments subject to appropriate
rounding and to be effective upon the Distribution. The per share exercise price of any Converted
HII Equity Compensation Award that is a stock option shall also be adjusted effective upon the
Distribution by dividing the applicable per share exercise price of the stock option as in effect
immediately prior to the Distribution by the Exchange Ratio, with the result rounded up to the
nearest whole cent. The performance criteria applicable to any Converted HII Equity Compensation
Awards that are restricted performance stock rights and cash performance unit awards shall also be
adjusted so that the applicable performance criteria are measured based on New NGC performance
criteria through December 31, 2010, and HII performance criteria following such date through the
end of the applicable performance period. Prior to the Distribution, HII shall establish equity
compensation plans, so that upon the Distribution, HII shall have in effect an equity compensation
plan containing substantially the same terms as each original New NGC equity compensation plan
under which any Converted HII Equity Compensation Award was granted. From and after the
Distribution, each Converted HII Equity Compensation Award shall be subject to the terms of the
applicable HII equity compensation plan, the award agreement
governing such Converted HII Equity Compensation Award and any Employment Agreement to which the



18









 





applicable
HII Employee or HII Retiree is a party. From and after the Distribution, HII shall retain, pay,
perform, fulfill and discharge all Liabilities arising out of or relating to the Converted HII
Equity Compensation Awards. Effective as of the Distribution, each HII Employee and HII Retiree
shall cease participation in all New NGC equity compensation plans. In all events, the adjustments
to the Converted HII Equity Compensation Awards provided for in this Section 8.1 shall be made in a
manner that, as determined by New NGC, avoids adverse tax consequences under Code Section 409A.




     Section 8.2 Tax Withholding and Reporting. Effective from and after the Distribution,
HII shall be solely responsible for all Tax withholding obligations with respect to the Converted
HII Equity Compensation Awards.



     Section 8.3 Tax Deductions. The rights of the members of the New NGC Group and the
members of the HII Group to take deductions for New NGC Equity Compensation Awards and the
Converted HII Equity Compensation Awards shall be determined in accordance with Section 8.2 of the
Tax Matters Agreement.



ARTICLE IX

BENEFIT PLAN REIMBURSEMENTS, BENEFIT PLAN THIRD-PARTY CLAIMS




     Section 9.1 General Principles.



          (a) With respect to costs relating to Welfare Plan benefits (including, for the avoidance of
doubt, claim costs, insurance premiums and administrative fees) provided to HII Employees and HII
Retirees prior to Distribution that were not previously charged to a member of the HII Group, the
HII Group shall reimburse New NGC within 30 days following receipt of an invoice from New NGC
accompanied by reasonable documentation of such cost; provided that: (i) New NGC shall
reduce such cost to reflect the receipt by New NGC after Distribution of amounts under the Medicare
Part D Retiree Drug Subsidy Program or Early Retiree Reimbursement Program in respect of
pre-Distribution claim costs of HII Retirees, with the amount of such reduction determined by New
NGC using the allocation method historically applied by New NGC with respect to such amounts prior
the Distribution; (ii) New NGC shall further reduce such cost to reflect any subrogation or
reimbursement or similar recovery received by New NGC or a New NGC Benefit Plan after Distribution
with respect to pre-Distribution claims incurred by HII Employees and HII Retirees; (iii) no such
Welfare Plan costs shall be charged to, or adjustment amounts described in (ii) and (iii) credited
to, the HII Group after March 31, 2013; and (iv) if, as of March 31, 2013, the adjustment amounts
determined under (i) and (ii) exceed the costs chargeable to the HII Group as of that date, the New
NGC Group shall reimburse the HII Group the amount of such excess.




          (b) From and after the Distribution, any services that a member of the New NGC Group shall
provide to the members of the HII Group relating to any Benefit Plans shall be set forth in the
Transition Services Agreement (and, to the extent provided therein, a member of the New NGC Group shall provide administrative services referred to in
this Employee Matters Agreement).






19









 








          (c) From and after the Distribution, the members of the New NGC Group shall reimburse the
members of the HII Group for any rebates or reimbursements received by a member of the New NGC
Group from any third party (whether from a vendor, a taxing authority or any other third party)
that relates to amounts paid by a member of the HII Group prior to the Distribution in connection
with participation by HII Employees and HII Retirees in any New NGC Benefit Plan.




     Section 9.2 Benefit Plan Third-Party Claims. In the event of any conflict or
inconsistency between the following provision on the one hand, and the Separation Agreement or any
of the Ancillary Agreements on the other hand, the following provision shall control over the
inconsistent provisions to the extent of the inconsistency:



     If a Third-Party Claim relates solely to the Benefit Plan of the Indemnifying Party, HII and
New NGC shall take all actions necessary to substitute the Indemnifying Party and/or the relevant
Benefit Plan of the Indemnifying Party as the proper party for such Third-Party Claim. If the
Third-Party Claim relates to both an HII Benefit Plan and a New NGC Benefit Plan, HII and New NGC
shall take all actions necessary to separate or otherwise partition the Third-Party Claim so as to
allow each party to solely defend the claim relating to its own Benefit Plan (unless the parties
mutually agree that such a separation or partition is unnecessary or inadvisable). If the
Third-Party Claim cannot be transferred to the Indemnifying Party or separated or partitioned so as
to allow each party to solely defend the claim relating to its own Benefit Plan, then New NGC shall
defend the Third-Party Claim and HII may elect to participate in (but not control) the defense,
compromise, or settlement of any such Third-Party Claim at its own expense (including allocated
costs of HII in-house counsel and other HII personnel).



ARTICLE X

COOPERATION




     Section 10.1 Cooperation. Following the date of this Employee Matters Agreement, New
NGC and HII shall, and shall cause their respective Subsidiaries to, use reasonable best efforts to
cooperate with respect to any employee compensation or benefits matters that New NGC or HII, as
applicable, reasonably determines require the cooperation of both New NGC and HII in order to
accomplish the objectives of this Employee Matters Agreement. Without limiting the generality of
the preceding sentence, (a) New NGC and HII shall cooperate in coordinating each of their
respective payroll systems in connection with the transfers of HII Employees to the HII Group and
the Distribution, and (b) New NGC shall transfer records to HII as reasonably necessary for the
proper administration of HII Benefit Plans, to the extent such records are in New NGC’s possession.
The obligations of the HII Group and the New NGC Group to cooperate pursuant to this Section 10.1
shall remain in effect until all audits of all Benefit Plans with respect to which the other party
may have information have been completed or the applicable statute of limitations with respect to
such audits has expired.



20









 





ARTICLE XI

MISCELLANEOUS




     Section 11.1 Vendor Contracts. Prior to the Distribution, New NGC and HII shall use
reasonable best efforts to (a) negotiate with the current third-party providers to separate and
assign the applicable rights and obligations under each group insurance policy, health maintenance
organization, administrative services contract, third-party administrator agreement, letter of
understanding or arrangement that pertains to one or more New NGC Benefit Plans and one or more HII
Benefit Plans (each, a “Vendor Contract”) to the extent that such rights or obligations
pertain to HII Employees and HII Retirees and their respective Plan Payees or, in the alternative,
to negotiate with the current third-party providers to provide substantially similar services to
the HII Benefit Plans on substantially similar terms under separate contracts with HII or the HII
Benefit Plans and (b) to the extent permitted by the applicable third-party provider, obtain and
maintain pricing discounts or other preferential terms under the Vendor Contracts.



     Section 11.2 Further Assurances. Prior to the Distribution, if either party identifies any
commercial or other service that is needed to ensure a smooth and orderly transition of its
business in connection with the consummation of the transactions contemplated hereby, and that is
not otherwise governed by the provisions of this Employee Matters Agreement, the parties will
cooperate in determining whether there is a mutually acceptable arm’s-length basis on which the
other party will provide such service.




     Section 11.3 Employment Tax Reporting Responsibility. HII and New NGC hereby agree to
follow the standard procedure for United States employment tax withholding as provided in Section 4
of Rev. Proc. 2004-53, I.R.B. 2004-35.



     Section 11.4 Data Privacy. The parties agree that any applicable data privacy Laws
and any other obligations of the HII Group and the New NGC Group to maintain the confidentiality of
any employee information or information held by any Benefit Plans in accordance with applicable Law
shall govern the disclosure of employee information among the parties under this Employee Matters
Agreement. HII and New NGC shall ensure that they each have in place appropriate technical and
organizational security measures to protect the personal data of the HII Employees and HII
Retirees.



     Section 11.5 Employee Badges. HII shall use reasonable best efforts to cause HII
Employees to remove references to NGC from such individuals’ security badges, effective as of the
Distribution Date.



     Section 11.6 Third Party Beneficiaries. Nothing contained in this Employee Matters
Agreement shall be construed to create any third-party beneficiary rights in any individual,
including without limitation any HII Employee, New NGC Employee, New NGC Retiree or HII Retiree
(including any dependent or beneficiary thereof) nor shall this Employee Matters Agreement be
deemed to amend any Benefit Plan or to prohibit New NGC, HII or their respective Affiliates from
amending or terminating any Benefit Plan.



21









 





     Section 11.7 Effect if Distribution Does Not Occur. If the Distribution does not
occur, then all actions and events that are, under this Employee Matters Agreement, to be taken or
occur effective as of the Distribution, or otherwise in connection with the Distribution shall not
be taken or occur except to the extent specifically agreed by the parties.



     Section 11.8 Incorporation of Separation Agreement Provisions. The following
provisions of the Separation Agreement are hereby incorporated herein by reference, and unless
otherwise expressly specified herein, such provisions shall apply as if fully set forth herein
(references in this Section 11.8 to an “Article” or “Section” shall mean Articles or Sections of
the Separation Agreement, and references in the material incorporated herein by reference shall be
references to the Separation Agreement): Article V (relating to Mutual Releases; Indemnification);
Article VI (relating to Shared Gains and Shared Liabilities); Article VII (relating to Exchange of
Information; Confidentiality); Article VIII (relating to Further Assurances and Additional
Covenants); Article IX (relating to Termination); Article X (relating to Dispute Resolution); and
Article XI (relating to Miscellaneous).



     Section 11.9 No Representation or Warranty. New NGC makes no representation or
warranty with respect to any matter in this Employee Matters Agreement, including, without
limitation, any representation or warranty with respect to the legal or tax status or compliance of
any Benefit Plan, compensation arrangement or Employment Agreement, and New NGC disclaims any and
all liability with respect thereto.



[The remainder of this page is intentionally left blank.]




22









 





     IN WITNESS WHEREOF, the parties have caused this Employee Matters Agreement to be executed by
their duly authorized representatives.



	 	 	 	 	 
	 	NORTHROP GRUMMAN CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	NEW P, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	HUNTINGTON INGALLS INDUSTRIES, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



[Signature Page to Employee Matters Agreement]