EX-10.(qq)






Exhibit 10(qq)








	 	 	 

	 

	 	Office of the
	 

	 	Chief Human Resources Officer
	
	 	 
	 	Northrop Grumman Corporation
	 	1840 Century Park East
	 

	 	Los Angeles, California 90067-2199
	 

	 	Telephone: 310-201-3181






June 7, 2010



VIA FEDERAL EXPRESS



Ms. Sheila Cheston



Dear Sheila:



As we discussed, Northrop Grumman Corporation (“Northrop Grumman” or “the Company”) is pleased to
offer you a position on our senior management team as Corporate Vice President and General Counsel.
In this position, you will be a member of our Corporate Policy Council (“CPC”).



This letter sets forth a summary of the key compensation and benefit provisions of this offer.





	 	1.	 	Base Salary.
	 
	 	 	 	Your initial base salary will be $700,000 per year, which will be subject to
periodic adjustment in accordance with the Company’s normal salary review process.
	 
	 	2.	 	Bonus.
	 
	 	 	 	You will be a participant in the Company’s Annual Incentive Plan (or any successor
annual bonus plan) (“AIP”). Your target annual bonus under the AIP will be 75% of
your annual base salary. The actual bonus that you earn from year to year may be
adjusted upwards or downwards from the target bonus amount by multiplying the target
bonus by the “Company Performance Factor” and the “Individual Performance Factor,”
as such terms are defined in the AIP; provided, however, that your actual bonus for
calendar year 2010, to be paid on or before March 15, 2011, shall be no less than
$525,000 if you have remained employed by the Company through the end of 2010. Your
target bonus is subject to adjustment in accordance with the Company’s normal
executive compensation review process.




 









 











Ms. Sheila Cheston

June 7, 2010

Page 2





	 	3.	 	Equity Grants.
	 
	 	 	 	You will be eligible for annual grants of equity awards under the terms of the
Company’s Long-Term Incentive Stock Plan (and any successor to such plan) (“LTISP”).
Your initial grant for calendar year 2010 shall be at an economic value of
$1,736,000 with a mix of 50 percent stock options and 50 percent Restricted
Performance Stock Rights (“RPSRs”). The exact number of options and RPSRs
corresponding to this grant will be determined during the Company’s fourth quarter
trading window and will be based upon the Company’s customary award grant valuation
methodologies.
	 
	 	 	 	The stock options will be awarded to you, and will have a strike price equal to, the
closing price of Northrop Grumman’s stock on the New York Stock Exchange on the
second day of the fourth quarter trading window. The trading window is scheduled to
open two days after the third quarter earnings release, which is scheduled for
October 27, 2010. One third of the shares subject to the options shall vest and
become exercisable upon each of the first, second, and third anniversaries of the
grant date, subject, in each case, to the termination of employment rules set forth
in the applicable Grant Certificate (as defined below).
	 
	 	 	 	The RPSRs will vest at the end of a three-year performance period beginning January
1, 2010 and ending on December 31, 2012, subject to the performance and termination
of employment rules set forth in the Grant Certificate.
	 
	 	 	 	All equity grants, including the Restricted Stock Rights provided below, shall be
subject to the terms and conditions of the LTISP and the grant certificates provided
to Corporate Vice Presidents (“Grant Certificates”).
	 
	 	 	 	In calendar years of your employment following 2010, you will be eligible for
further equity grants on the same basis (including guideline amounts for awards) as
other Corporate Vice Presidents who are CPC members.
	 
	 	4.	 	Executive Perquisites.
	 
	 	 	 	You will receive the same executive perquisites as other Corporate Vice Presidents
who are CPC members. Those perquisites currently include reimbursement of up to
$15,000 annually for tax preparation/financial planning, personal liability
insurance, and an executive physical examination program. You will also receive the
same vacation benefit as other Corporate Vice Presidents who are CPC members, who
currently accrue vacation at a rate of four weeks per calendar year.




 









 











Ms. Sheila Cheston

June 7, 2010

Page 3





	 	5.	 	Pension Benefit.
	 
	 	 	 	As a member of the CPC, you will participate in the Officers Retirement Account
Contribution Plan (ORAC). The ORAC currently provides a Company contribution of 4
percent of eligible compensation. Additionally, you will participate in the
Retirement Account Contribution Plan (RAC). The RAC currently provides a Company
contribution of 3 to 5 percent of eligible compensation, depending on your age.
	 
	 	6.	 	Liability Insurance Protection.
	 
	 	 	 	The Company will cover you under its directors and officers liability insurance
policies as in effect from time to time, which generally provide protection for
claims made against you as an officer of Northrop Grumman Corporation. The Company
will also provide you with its standard indemnification agreement provided to CPC
members.
	 
	 	7.	 	Severance Protection.
	 
	 	 	 	You will be eligible for benefits under the terms of the Severance Plan for Elected
and Appointed Officers of Northrop Grumman Corporation (“VP Severance Plan”) on the
same basis as other Corporate Vice Presidents who are CPC members in the event you
undergo a “Qualifying Termination” (as that term is defined in the VP Severance
Plan), provided that you first sign a release of claims as required by the plan and
satisfy any other terms and conditions of the plan as in effect at the time of your
severance. Those benefits currently include, in general, a cash payment of one and
one-half times the sum of base salary and target bonus, continuation of medical and
dental coverage for 18 months, and a pro rata annual bonus for the year of
termination.
	 
	 	8.	 	Make Up for Lost BAE Benefits.
	 
	 	 	 	You are presently employed by BAE Systems, Inc. (“BAE”). The following benefits are
provided in consideration for the benefits you are losing with respect to your
employment by BAE by accepting employment with the Company. You agree to provide
Northrop Grumman, within 30 days of accepting this offer, with copies of your stock
holdings (and forfeitures) to confirm the benefits you lost in accepting employment
with the Company.
	 
	 	 	 	Signing Bonus
	 
	 	 	 	The Company will provide you with a cash signing bonus in the total amount of
$800,000, to be paid in three installments and subject to vesting as described
below. The first installment of $500,000 will be paid within 30 days after your
date of hire; the second installment of $150,000 on the first anniversary of your
date of hire; and the third installment of $150,000 on the second anniversary of
your date of hire. Except as provided for in




 









 











Ms. Sheila Cheston

June 7, 2010

Page 4





	 	 	 	the next two sentences, your entitlement to each installment of the signing bonus is
contingent on your continued employment with the Company through the installment
payment date. However, in the event of your separation from service with the
Company due to your Accidental Death (as defined below) or due to your Disability or
Qualifying Termination (as those two terms are defined in the VP Severance Plan)
prior to payment of the full signing bonus, the remaining balance will be paid in
full to you (or your estate in the event of your death) within 30 days of your
separation from service with the Company; provided, however, that if you are a
“specified employee” within the meaning of Treasury Regulation Section 1.409A-1(i)
as of the date of your separation from service with the Company, such payment shall
be made to you on the first day of the seventh month following the month in which
your separation from service with the Company occurs (or the date of your Accidental
Death, if earlier). “Accidental Death” shall be defined as that term is used in the
Accidental Death and Dismemberment Plan applicable to Corporate Vice Presidents who
are members of the CPC.
	 
	 	 	 	Restricted Stock Rights (RSRs)
	 
	 	 	 	The Company will provide you with a special grant of 33,000 Restricted Stock Rights
(“Special 2010 RSRs”). One half of these Special 2010 RSRs shall vest upon each of
the first and second anniversaries of your grant date, subject, in each case, to the
termination of employment rules set forth in the applicable grant certificates
(except for the accelerated vesting provisions set forth below). These Special 2010
RSRs shall be granted at the same time as the other equity grants described in
Section 3 of this letter and shall be subject to all the terms and conditions of the
LTISP and of Northrop Grumman’s current standard grant certificate for RSR grants
(“RSR Grant Certificate”); provided, however, that in the event of your separation
from service with the Company due to your Accidental Death (as defined above) or due
to your Disability or Qualifying Termination (as those two terms are defined in the
VP Severance Plan) prior to the vesting or other termination of the Special 2010
RSRs, any unvested portion of these Special 2010 RSRs shall fully vest as of the
date of such Accidental Death, Disability or Qualifying Termination. The foregoing
accelerated vesting of these Special 2010 RSRs shall control notwithstanding
anything to the contrary in the RSR Grant Certificate. This special accelerated
vesting treatment shall only apply to the Special 2010 RSRs and not to any other
equity grants described in this letter or to any future RSR grants you may receive.
The RSR Grant Certificate that evidences your Special 2010 RSRs will be modified to
reflect these provisions and related changes to payment terms intended to comply with, and avoid
any tax, penalty or interest under, Section 409A of the Internal




 









 











Ms. Sheila Cheston

June 7, 2010

Page 5





	 	 	 	Revenue Code (“Section 409A”). In the event of your Accidental Death on or after
your date of hire and before the grant date of these Special 2010 RSRs, the Company
will pay in a lump sum the cash value of the RSRs to your estate, determined by
using the closing price of Northrop Grumman stock on the New York Stock Exchange on
the date of your Accidental Death (or the next preceding business day if the date of
Accidental Death is not a business day). This lump sum payment shall be made to
your estate within 30 days following the date of your Accidental Death.
	 
	 	9.	 	BAE Nonqualified Pension Benefit.
	 
	 	 	 	You have frozen qualified and nonqualified pension benefits with your current
employer, BAE. You have advised the Company that you are not aware of any reason
why your employment with the Company would cause you to forfeit benefits under any
of these plans, but you have expressed a concern that there may be such a forfeiture
provision that you are not aware of in the BAE Post-2004 Nonqualified Pension Plan
(“BAE NQ Plan”). If there is such a provision in this plan, and if BAE causes you
to forfeit this benefit as a result of your employment with Northrop Grumman, the
Company will provide you with a lump sum payment (not to exceed $600,000) equal to
the value of the lost benefit under the BAE NQ Plan, provided you have first
submitted to the Company reasonably satisfactory information substantiating the
calculation of the lump-sum value. This payment, if due, shall be made no later
than March 15, 2011. You agree to provide the Company with information
substantiating the lost benefit, including copies of your benefit calculations under
the BAE NQ Plan, within 90 days of accepting this offer. You further agree to
reasonably cooperate with the Company if the Company wishes you to pursue a claim
that benefits are actually due to you under the BAE NQ Plan.
	 
	 	10.	 	Compliance with Section 409A.
	 
	 	 	 	It is intended that any amounts and benefits payable to you under this offer letter
shall comply with and avoid the imputation of any tax, penalty or interest under
Section 409A. This offer letter shall be construed and interpreted consistent with
that intent. The term “separation from service” as used in this offer letter has
the meaning ascribed to such term for purposes of Section 409A.




 









 











Ms. Sheila Cheston

June 7, 2010

Page 6





	 	11.	 	 Company’s Right to Change Policies and Plans.
	 
	 	 	 	Nothing in this offer letter affects or limits the Company’s right to amend or
terminate its compensation and benefit policies and plans, including without
limitation the AIP, the LTISP, the Grant Certificates, the executive perquisites,
the ORAC, the RAC, or the VP Severance Plan; provided, however, that you will
be treated no less favorably than other Corporate Vice Presidents who are CPC
members generally in the event of such amendment or termination.




Sheila, the above is a summary of the key compensation and benefit provisions of this offer. This
offer has been approved by the Northrop Grumman Corporation’s Board of Directors. However, this
offer and your employment are subject to the normal pre-employment contingencies applicable to
other new hires at Northrop Grumman. Those contingencies are summarized on Attachment A to this
letter.



In addition, this offer is subject to your representing to the Company, by your signature below,
that you are not aware of any non-competition or similar restriction which would preclude your
employment with the Company. You further acknowledge and agree that this is a material
representation which the Company is relying upon in making this offer. If your employment with the
Company is terminated because of such a restriction, you understand and agree that such termination
shall not constitute a “Qualifying Termination” as that term is used in the VP Severance Plan.



This offer will remain open for 30 days. If you accept the terms of this offer letter, you agree
to tender your notice of resignation with BAE within 24 hours after signing and returning this
offer letter to me.



If you are in agreement with the terms of this offer, please sign and date this letter below,
indicating your estimated start date, and return the letter to me. I look forward to having you
join our senior management team.




	 	 	 	 	 
	 	Sincerely yours,
 	 
	 	/s/ Debora L. Catsavas
 	 
	 
	 	Debora L. Catsavas 	 
	 	Vice President and Acting Chief Human Resources Officer 	 
	 



	 	 	 	 	 
	ACCEPTED:
 	 
	/s/ Sheila Cheston
 	 
	Sheila Cheston 	 
	 
	DATED: 	          6/17/10	 
	 
	ESTIMATED START DATE:
	 
	Aug. 30, 2010
	 



 









 









Ms. Sheila Cheston

June 7, 2010

Page 7




ATTACHMENT A TO SHEILA CHESTON OFFER LETTER



The normal pre-employment contingencies applicable to new hires at Northrop Grumman include the
following:





	 	•	 	Company’s review of applicant’s Employment Application (Form C-539) and Employment
Application Addendum (Form C-550) with respect to prior government service, and Company’s
determination that no legal restrictions exist under the various “revolving door” laws
which would preclude the Company from hiring the applicant or significantly affect the
applicant’s ability to perform the job. Under some circumstances, the applicant may be
required to get a legal opinion from the relevant US Government Designated Agency Ethics
Official.
	 
	 	•	 	Successful passing of a drug test.
	 
	 	•	 	Successful passing of a background investigation.
	 
	 	•	 	Compliance with IRCA requirements to verify applicant is authorized to work in the US.
	 
	 	•	 	Proof of “US Person” status under the export control laws.
	 
	 	•	 	Applicant obtaining security clearance/access as necessary to perform his or her job.
If hired, applicant must retain such clearance/access as a condition of employment.
	 
	 	•	 	Applicant must sign Form C-611, “Dispute Resolution Acknowledgement and Agreement”,
which requires the applicant to arbitrate rather than litigate any employment-related
claims against the Company, with certain designated exceptions.
	 
	 	•	 	Applicant must sign Form C-100B, “Employment Agreement”, which among other things
provides that applicant will become an “at will” employee if hired, and that applicant will
comply with the Company’s rules and policies if hired.
	 
	 	•	 	Applicant must sign Form C-100A, “Employee Intellectual Property Agreement”, which among
other things provides that applicant will not use or disclose confidential information
except as authorized to do so by the Company, and that all “developments” (including inventions and other intellectual property) made by
the applicant while employed by the Company belong to the Company, with certain exceptions
noted in the agreement.