Form of Letter Agreement Relating to Retention Bonus, dated July 26, 2006



 Exhibit 10.12 
  

					
	

	 	Keith J. Peden	 	Raytheon Company
		 	Senior Vice President	 	Global Headquarters
		 	Human Resources	 	870 Winter Street
		 	781.522.5097	 	Waltham, Massachusetts
		 	781.522.6470 fax	 	02451 USA

 July 26, 2006 
  
 Dear 
 Raytheon Company (“Raytheon”) is exploring
various alternatives with respect to Raytheon Aircraft Company (“RAC”) which may involve a Change in Control of RAC. This letter sets forth a special incentive arrangement for which you will be eligible in the event of a Change in Control.

 1. Raytheon Discretion. Raytheon will decide in its sole discretion if and when it will proceed with a restructuring or transaction
that may involve a Change in Control and the terms and conditions of such a transaction. Nothing contained herein shall obligate Raytheon or RAC to engage in any transaction at this or any other time. 
 2. Change in Control. For the purposes of this agreement, a “Change in Control” is defined exclusively as the consummation of:

 (A) the sale of all or substantially all of the assets of RAC; or 
 (B) any consolidation or merger of RAC or sale, transfer or distribution of voting securities of RAC (including, for example, a spin-out,
spin-off or initial public offering) other than a consolidation or merger with or sale, transfer or distribution of voting securities to Raytheon or an Affiliate of Raytheon (a “Stock Transaction”), such that, after any such Stock
Transaction, Raytheon, or an Affiliate of Raytheon, owns less than 50% of the combined voting power of the voting securities of RAC outstanding immediately after such Stock Transaction. 
 For purposes of this agreement, “Affiliate” shall mean, with respect to any specified person, a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under
common control with, the person specified, and the term “control” and any term derived therefrom shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person,
whether through ownership of voting securities, by contract, or otherwise. 
 3. Assistance. 
 (A) Duty of Loyalty and Fiduciary Responsibility. As part of the consideration for the benefits of this agreement, you agree to
assist, support and fully cooperate with Raytheon and RAC in all matters to effect a CIC, and 








 
perform such tasks requested of you to bring about such CIC. You recognize and agree that until the date of the closing of the CIC, your complete and
exclusive duty of loyalty and fiduciary responsibility are to Raytheon and RAC to further its business objectives, reputation and interests. 
 (B) Disclosure of Company Information. In addition to the provisions and restrictions contained in paragraph 12 below, you agree to keep confidential, proprietary and competitively sensitive company information
secret and not to use or disclose such in the course of the activities associated with a CIC without prior written authorization. 
 (C) Unauthorized Communications. You agree not to engage in any unauthorized communications with any officer, employee or agent of a potential buyer to a CIC and to report to Raytheon any attempted contact by any officer, employee or
agent of a potential Buyer to you. 
 (D) Post Definitive Agreement Employment Discussions. In recognition of
Raytheon’s and RAC’s desire that you make yourself available for employment with the Buyer, should the Buyer desire to engage your services, you agree to review and consider in good faith employment offers, if any made by the Buyer. The
Company recognizes it is important to RAC employees to understand and assess the terms and conditions of their post-closing employment opportunities with the Buyer. The Company agrees to provide you notice of the date of a definitive agreement with
the Buyer and, notwithstanding other provisions of this agreement, agrees that you may after that date and prior to the closing engage in discussions with the Buyer as to post-closing employment, but solely with respect to that topic. You agree that
prior to notice of a definitive agreement, you will have no discussions with the Buyer or its agents with respect to any post-closing employment. 
 (E) Violation of Duty of Loyalty and Assistance. Violations of the terms of these provisions will result in the forfeiture of the Retention Bonus in paragraph 5, and depending on the severity of the violation
may result in the termination of your employment. Any violations of this provision shall not be subject to the arbitration provision contained in paragraph 13. 
 4. Term. The term of this agreement shall be for a period of twelve (12) months from the date you execute your acceptance as indicated by your dated signature (“Effective Date”), unless the
closing date of the CIC (the “Closing Date”) occurs before that date. If the Closing Date has not occurred within twelve months of the Effective Date, this agreement shall expire as of that date and shall be null and void, and you will not
be entitled to any portion of the Retention Bonus in Paragraph 5, unless Raytheon and you agree to extend and/or otherwise modify the agreement. Such extension and/or modification must be in writing and signed by the Senior Vice President, Human
Resources of Raytheon. 
  

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 5. Retention Bonus. If you continue as an employee until the Closing Date, you will be eligible to
participate in the following Retention Bonus arrangement. 
 (A) The Retention Bonus shall be equivalent to one times your
base salary and targeted RBI Bonus, as of the Closing Date. The Retention Bonus is divided into two parts and is subject to the terms and conditions set forth below. 
 (i) Part 1: Part 1 is fifty percent (50%) of the Retention Bonus. You will be entitled to Part 1 if you continue to be an
active employee through the Closing Date. Part 1 will be paid within twenty (20) days of the Closing Date. 
 (ii)
Part 2: Part 2 is fifty percent (50%) of the Retention Bonus. You will be entitled to Part 2 if you are employed by the Buyer on the Closing Date, and remain employed by the Buyer through the first anniversary of the Closing Date. Part 2
will be paid within twenty (20) days of the first anniversary of the Closing Date. 
 (B) You will be entitled to the
full Retention Bonus (Parts 1 and 2) as of the Closing Date if: 
 (i) You are not offered a comparable position with the
Buyer, nor are you offered continued employment with Raytheon or an Affiliate of Raytheon at a base salary and targeted RBI Bonus at least equal to your base salary and targeted RBI Bonus at RAC on the Closing Date; or 
 (ii) You are offered a comparable position with the Buyer, but the position does not include a base salary and targeted incentive
compensation bonus opportunity at least equal to your base salary and targeted RBI Bonus at RAC on the Closing Date and you are not offered continued employment with Raytheon or an Affiliate of Raytheon at a base salary and targeted RBI Bonus at
least equal to your base salary and targeted RBI Bonus at RAC on the Closing Date. 
 (For purposes of this agreement, “comparable
position” shall mean a position with the Buyer in which the authority, duties or responsibilities do not constitute a material diminution as compared to those of your position with RAC immediately prior to the closing.) 
 (C) You will be entitled to the unpaid part of the Retention Bonus if you accept a position with the Buyer and, during the first twelve
(12) months of such employment, you are: 
 (i) Involuntarily separated from employment without cause, as defined below,
and you do not become employed by Raytheon; or 
  

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 (ii) Subjected to a reduction in the base salary and targeted incentive compensation
bonus opportunity (hereinafter referred to as “total compensation”) paid by the Buyer to a level that is less than your total compensation at RAC on the Closing Date, you leave the employment of the Buyer, and you do not become employed by
Raytheon. 
 (D) For purposes of this Paragraph 5, “cause” shall be defined as: 
 (i) Failure to perform any of the material duties of the position with the Buyer, including special projects and assignments, after notice
and a reasonable opportunity to correct performance; or 
 (ii) Breach of any material provision of the Buyer’s Standards
of Business Behavior and Ethics; or 
 (iii) Conviction of, or plea of nolo contendere to, any felony or misdemeanor
which has a material impact on your ability to perform the duties of your position. 
 (E) If you are entitled to Part 1 or 2
of the Retention Bonus due to the occurrence of the conditions set forth in paragraphs 5(B)-(C), you will receive this payment within twenty (20) days of written demand by you establishing to Raytheon’s satisfaction the occurrence of such
condition(s). 
 6. Termination of Employment before Closing Date. Raytheon retains the right to terminate your employment before the
Closing Date for any reason. In the event of a termination for one of the following reasons or otherwise for cause, you shall not be entitled to the Retention Bonus: 
 (A) Failure to perform any of the material duties of your position, including special projects and assignments, after notice and a
reasonable opportunity to correct performance; or 
 (B) Breach of any material provision of the Raytheon’s Standards of
Business Behavior and Ethics; or 
 (C) Breach of any material provision of Raytheon Company Rules and Regulations;

 (D) Violation of the Duty of Loyalty and Assistance as set forth in Paragraph 3. 
 If you are involuntarily terminated before the Closing Date and during the term set forth in Paragraph 4 for a reason not specified in subparagraphs (A),
(B), (C) and (D) above and not otherwise for cause, you will be eligible for an amount equal to what Part 1 of the Retention Bonus set forth in Paragraph 5 would have been if the date of your termination had been the Closing Date and you
will be eligible for severance pay in accordance with normal company policy. 
  

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 7. Results Based Incentive (“RBI) Bonus. If you continue to be an active employee through the
Closing Date, your payment under the RBI Bonus Plan for a calendar year that has not ended by the Closing Date will be handled as follows: At the time RBI payments are normally made for that year, you will receive a pro rata portion of the RBI Bonus
you would have received, if any, if you had remained employed until the payment date. The pro rata portion will be based on the number of days in the calendar year preceding the Closing Date as compared to 365. (Example: Number of days in calendar
year prior to Closing Date + 365 x Individual RBI Target Percentage x Business Performance Factors (as adjusted for shorter period if less than full calendar year) x Salary = RBI payout). 
 8. Vested Stock Options. You may exercise stock options which have vested as of the Closing Date within the periods specified in the plan under
which they were granted. 
 9. Restricted Stock Still Subject to Restrictions and Unvested Options. If you continue to be an active
employee through the Closing Date, Raytheon will propose to the Buyer, and will make efforts that Raytheon in its sole discretion considers commercially reasonable under the circumstances to obtain, the conversion of your restricted stock, including
your 2006 Restricted Shares Award, which is still subject to restrictions as of the Closing Date and your stock options which have not vested as of the Closing Date into equity awards of the Buyer. 
 10. Pension. As of the Closing Date, vesting in your accrued pension benefit will be determined pursuant to the terms of the pension plan in which
you participate at the date of closing. Raytheon will propose to the Buyer, and will make efforts that Raytheon in its sole discretion considers commercially reasonable under the circumstances to obtain, an obligation of the Buyer to provide you
with pension benefits for service with the Buyer substantially similar to the pension benefits provided to you by Raytheon before the Closing Date. 
 11. Non-disclosure about Possible CIC of RAC. You agree that without the prior consent of Raytheon you will not have any contact with any person or entity (other than those individuals identified to you in writing as being active
participants in the sale process) about, nor disclose to any such person or entity, either the fact that discussions or negotiations are taking place or have taken place regarding the possible CIC of RAC or any of the terms, conditions or other
facts relating to the possible CIC, including the status thereof. The foregoing restrictions shall not apply to the extent that the specific information in question has been publicly disclosed in a filing with the Securities and Exchange Commission.
During the course of the negotiation of the possible CIC of RAC, you recognize your continuing duty of loyalty and obligation to act in the best interests of Raytheon and RAC. 
  

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 12. Confidentiality. You agree to keep confidential this agreement and not to disclose either the
fact of the agreement or the terms thereof, except where necessary to members of your immediate family, tax or legal advisors, and as required in response to a valid subpoena or court order. 
 13. Arbitration of Claims. The parties agree that any disputes arising during the term of your employment with Raytheon and/or RAC, including but
not limited to any claims arising under the terms of this agreement, shall be subject to final and binding arbitration as the sole and exclusive forum for dispute resolution. Arbitration under this section shall be conducted pursuant to the rules of
the American Arbitration Association applicable to employment disputes. 
 14. Compliance with Section 409A. This Paragraph 14 shall
apply notwithstanding any other provision of this agreement. To the extent that rights or payments under this agreement are subject to Section 409A of the Internal Revenue Code, the agreement shall be construed and administered in compliance
with the conditions of Section 409A and regulations and other guidance issued pursuant to Section 409A for deferral of income taxation until the time the compensation is paid. Raytheon and you agree to make any amendments to this agreement
that may be required to accomplish such compliance. If you are a “specified employee” under Section 409A, any payments to you on account of your termination of employment will be postponed for at least six months from the date of your
termination of employment, to the extent required by Section 409A. 
 15. Other Severance Benefit Programs. Except as otherwise
provided in Paragraph 6, in the event you become entitled to a payment under this agreement you will not be eligible for benefits under any other Raytheon or RAC agreement, plan, policy, program, or arrangement providing severance benefits.

 Please acknowledge your acceptance of the terms and conditions stated in this agreement by signing below. 
  

			
	Very truly yours,
	
	Raytheon Company
		
	By	 	  

		 	Keith J. Peden
		 	Senior Vice President, Human Resources


  

					
	AGREED AND ACCEPTED:	 		 	
			
	  
	 		 	Date: 7/28, 2006
		 		 	

  

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