Document:

exv10w2

Exhibit 10.2

EXECUTION COPY

 

EMPLOYEE MATTERS AGREEMENT

among

NORTHROP GRUMMAN CORPORATION,

NEW P, INC.,

and

HUNTINGTON INGALLS INDUSTRIES, INC.

Dated as of March 29, 2011

 

 

 

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
	 	 	8	 
	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
	 	 	13	 
	 
	 	 	 	 
	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
	 	 	15	 
	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	 
	 
	 	 	 	 
	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 March 29, 2011 (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
	 	 	2	 
	HII Common Stock
	 	 	18	 
	HII Employee
	 	 	3	 
	HII Employee Liabilities
	 	 	3	 
	HII Employment Agreement
	 	 	3	 
	HII Group
	 	 	3	 
	HII Master Trust
	 	 	10	 
	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
	 	 	16	 
	HII Spinoff Plans
	 	 	4	 
	HII Spinoff Welfare Plans
	 	 	8	 

 

 

Table of Definitions (cont.)

	 	 	 	 	 
	Definition	 	Page	 
	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
	 	 	17	 
	Original Group
	 	 	7	 
	Plan Payee
	 	 	4	 
	Separation Agreement
	 	 	1	 
	Split DB Plans
	 	 	10	 
	Split DC Plans
	 	 	13	 
	Split Nonqualified Plans
	 	 	16	 
	Split Plans
	 	 	4	 
	Split Welfare Plans
	 	 	8	 
	True-Up Amount
	 	 	11	 
	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.

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

2

 

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

3

 

          “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.

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

4

 

          “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, (a) 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 (b) 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 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

5

 

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. 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 Plans, the New NGC Employment Agreements, the HII Benefit
Plans and the HII Employment Agreements shall be governed by the Litigation Management Agreement,
and

6

 

this Employee Matters Agreement shall govern the allocation of Liabilities related to any such
litigation.

     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:

          (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

7

 

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.

     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,

8

 

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 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.

9

 

     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 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

10

 

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). New NGC or a member of the New NGC Group shall cause its
actuary to determine the estimated value, as of December 31, 2010, 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, as adjusted for earnings based on (i)
actual earnings of the applicable Split DB Plan from January 1, 2011 through February 28, 2011, and
(ii) the daily interest rate on 90-day Treasury securities as of February 28, 2011 for the period
from March 1, 2011 through the actual date of transfer, 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, 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

11

 

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 on 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 on 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 on Schedule
5.2(d)) with respect to the payment of the True-Up Amount.

          (e) To the extent that a Split DB Plan includes a retiree medical account under Section 401(h)
of the Code, assets relating to such account shall be transferred to the applicable HII Spinoff DB
Plan, with the amount of such transfer equal to a pro rata share
of the total prefunded plan assets for the related retiree medical plan. The pro rata share
is equal to the total amount of prefunded assets from the related retiree medical plan’s respective
VEBA account and the 401(h) account, multiplied by a fraction. The numerator of the fraction is
the actuarial accrued liability for the transferred employees and the denominator of which is the
total actuarial accrued liability for the total plan participants; the actuarial accrued liability
is determined based on the ongoing funding assumptions for purposes of the CAS funding for the
retiree medical plan. Such transfer shall be made at the same time as the transfer of the
Estimated Retirement Plan Transfer Amount, and the transfer amount shall be subject to subsequent
adjustment under the principles specified in Sections 5.2(c) and 5.2(d).

          (f) 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

12

 

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
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.

13

 

          (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
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.

14

 

     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 deemed to apply to the specified default investment fund.

     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 and/or in kind securities 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. If the New NGC Grantor Trust has any residual balances at the end of the month in which the
Distribution Date occurs, such balances will be settled by transfer of cash.

     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

15

 

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
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 the amount
determined as specified on Schedule 7.2(b).

          (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 Plan
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

16

 

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 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 on
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 deemed to apply to the specified default investment fund.

     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

17

 

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 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 $0.01 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

18

 

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 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.

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:
	 	/s/ Mark Rabinowitz	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Mark Rabinowitz	 	 
	 

	 	 	 	Title: Corporate Vice President & Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	NEW P, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Mark Rabinowitz	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Mark Rabinowitz	 	 
	 

	 	 	 	Title: President & Treasurer	 	 
	 
	 	 	 	 	 	 
	 	 	HUNTINGTON INGALLS INDUSTRIES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ C. Michael Petters	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: C. Michael Petters	 	 
	 

	 	 	 	Title: President and Chief Executive Officer	 	 

[Signature Page to Employee Matters Agreement]exv10w3

Exhibit 10.3

EXECUTION COPY

 

INSURANCE MATTERS AGREEMENT

among

NORTHROP GRUMMAN CORPORATION,

NEW P, INC.,

and

HUNTINGTON INGALLS INDUSTRIES, INC.

Dated as of March 29, 2011

 

 

 

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
	 	 	2	 
	 
	 	 	 	 
	ARTICLE II SHIPBUILDING INSURANCE POLICIES
	 	 	2	 
	Section 2.1 Assignment of Shipbuilding Insurance Policies
	 	 	2	 
	Section 2.2 Assumption of Risk
	 	 	3	 
	Section 2.3 Assumption of Amounts Payable
	 	 	3	 
	Section 2.4 Further Assurances
	 	 	3	 
	Section 2.5 Pending Claims
	 	 	3	 
	 
	 	 	 	 
	ARTICLE III RETAINED INSURANCE POLICIES
	 	 	3	 
	Section 3.1 Assignment of Retained Insurance Policies
	 	 	3	 
	Section 3.2 Pre-Distribution Occurrences
	 	 	4	 
	Section 3.3 HII’s Financial Obligations for the Retained Insurance Policies
	 	 	4	 
	Section 3.4 Assumption of Risk
	 	 	4	 
	Section 3.5 Directors’ and Officers’ Insurance
	 	 	4	 
	Section 3.6 Northrop Grumman Risk Management Inc. Insurance Policies
	 	 	5	 
	Section 3.7 Replacement Insurance Policies
	 	 	5	 
	Section 3.8 Insurance Company Bankruptcy or Insolvency
	 	 	5	 
	 
	 	 	 	 
	ARTICLE IV COOPERATION
	 	 	5	 
	Section 4.1 Cooperation in Claims Handling
	 	 	5	 
	Section 4.2 Information
	 	 	5	 
	Section 4.3 Retention of Insurance Policies
	 	 	6	 
	Section 4.4 Certain Actions
	 	 	6	 
	Section 4.5 Allocation of Amounts
	 	 	6	 
	Section 4.6 No Agreement to Provide Insurance Management or Risk
Management Services
	 	 	6	 
	Section 4.7 Outside-Entity Insurance Policies
	 	 	6	 
	 
	 	 	 	 
	ARTICLE V GENERAL PROVISIONS
	 	 	6	 
	Section 5.1 Effect if Distribution Does Not Occur
	 	 	6	 
	Section 5.2 Incorporation of Separation Agreement Provisions
	 	 	7	 

i

 

     INSURANCE MATTERS AGREEMENT, dated as of March 29, 2011 (this “Insurance 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 Insurance 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.

     B. Pursuant to the Separation Agreement, the business of NGC will be separated into two
publicly traded companies: (a) HII, which following the Separation (as defined in the Separation
Agreement) will own and conduct, directly and indirectly, the Shipbuilding Business (as defined in
the Separation Agreement), and (b) New NGC, which following the Separation will own and conduct,
directly and indirectly, the Retained Business (as defined in the Separation Agreement).

     C. NGC, its Subsidiaries, and their respective predecessors have historically maintained
various Insurance Policies (as defined below) providing coverage for the Shipbuilding Business and
the Retained Business.

     D. The parties desire to enter into this Insurance Matters Agreement to allocate, among
themselves, rights in the Insurance Policies and related coverages.

AGREEMENT

     In consideration of the foregoing and the mutual covenants and agreements herein contained,
and intending to become 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	 
	Current Retained Insurance Policies
	 	 	2	 
	HII
	 	 	1	 
	Insurance Matters Agreement
	 	 	1	 
	Insurance Policies
	 	 	2	 
	New NGC
	 	 	1	 
	NGC
	 	 	1	 
	Outside-Entity Insurance Policies
	 	 	2	 
	Retained Insurance Policies
	 	 	2	 
	Separation Agreement
	 	 	1	 
	Shipbuilding Insurance Policies
	 	 	2	 

 

 

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

          “Current Retained Insurance Policies” means Retained Insurance Policies in effect as
of the Distribution Date.

          “Insurance Policies” means insurance contracts of any kind, including, without
limitation, first-party property, primary liability, excess liability, self-insurance, captive
insurance company arrangements, reinsurance, surety bonds, and certificates of insurance naming or
benefiting NGC or one of its pre-Distribution Subsidiaries, together with the rights, benefits, and
privileges that arise thereunder or by virtue of law, except that “Insurance Policies” excludes
life and employee benefits insurance. “Insurance Policies” includes insurance contracts issued to
Subsidiaries of NGC before NGC acquired such Subsidiaries.

          “Outside-Entity Insurance Policies” means any Insurance Policies that (a) are acquired
by any entity that is not a member of either Group and (b) name or benefit any New NGC Entity or
any HII Entity.

          “Retained Insurance Policies” means the Insurance Policies identified on the
memorandum exchanged between the parties to this Insurance Matters Agreement entitled “Listing of
Retained Insurance Policies.”

          “Shipbuilding Insurance Policies” means the Insurance Policies identified on the
memorandum exchanged between the parties to this Insurance Matters Agreement entitled “Listing of
Shipbuilding Insurance Policies.”

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

ARTICLE II

SHIPBUILDING INSURANCE POLICIES

     Section 2.1 Assignment of Shipbuilding Insurance Policies. Effective as of the date
of the Internal Reorganization, to the extent not already assigned, transferred, conveyed and
delivered prior to such date and subject to Section 2.2 of the Separation Agreement, NGC hereby
assigns, transfers, conveys and delivers to HII and HII hereby accepts and assumes NGC’s rights and
obligations in the Shipbuilding Insurance Policies to the extent that the Shipbuilding Insurance
Policies cover Shipbuilding Liabilities. NGC shall use reasonable best efforts to obtain written
confirmation from its insurance broker that the Shipbuilding Insurance Policies may be assigned to
HII or an HII Entity and shall
use reasonable best efforts to obtain any necessary consents identified by its insurance
broker to assign the Shipbuilding Insurance Policies. Nothing in this Section shall be construed
to mean that NGC or New NGC believes that the consent by an insurer to the

2

 

assignment of any
particular Insurance Policy or right or obligation in or under any particular Insurance Policy is
required by Law to make such assignment effective.

     Section 2.2 Assumption of Risk. In the event that NGC does not have the right to
completely assign the Shipbuilding Insurance Policies to HII, HII shall bear the risk that such
coverage is not available and will be obligated at its own expense to obtain replacement coverage,
but New NGC shall use reasonable best efforts to assist HII to the extent reasonably necessary to
provide HII access to the benefits of the Shipbuilding Insurance Policies. HII shall nonetheless
be responsible for handling its own claims and coverage disputes. New NGC shall promptly notify
HII if New NGC receives notice from any insurance carrier that NGC does not have the right to
assign the Shipbuilding Insurance Policies to HII.

     Section 2.3 Assumption of Amounts Payable. HII shall pay or cause to be paid any
self-insured retentions, deductibles, premiums, retrospective premium adjustments, or other amounts
payable after the Distribution relating to the Shipbuilding Insurance Policies.

     Section 2.4 Further Assurances. Under the Separation Agreement, HII has assumed or
will assume the Shipbuilding Liabilities and is solely responsible for such. HII nevertheless
agrees to use its reasonable best efforts to provide the New NGC Group the benefit of the
Shipbuilding Insurance Policies to the extent any Person seeks to collect any Shipbuilding
Liability against any New NGC Entity. HII shall not cancel, terminate, or amend the Shipbuilding
Insurance Policies in a manner that adversely affects coverage for the New NGC Group. HII shall
pay all amounts necessary to exhaust or otherwise satisfy all applicable self-insured retentions,
deductibles, and retrospective premium adjustments for the Shipbuilding Insurance Policies and
related to any Shipbuilding Liability, as well as similar amounts not covered by the Shipbuilding
Insurance Policies and related to any of the Shipbuilding Liabilities. New NGC shall not be
responsible for letters of credit or surety bonds required to maintain the Shipbuilding Insurance
Policies.

     Section 2.5 Pending Claims. Unless otherwise provided in the Separation Agreement,
New NGC shall pay to HII all net recoveries received on claims filed by NGC on behalf of the
Shipbuilding Business under the Shipbuilding Insurance Policies when such claims were filed prior
to the Distribution Date. New NGC shall make payments (net of expenses) to HII within 30 days of
receiving the insurance proceeds related to the claims.

ARTICLE III

RETAINED INSURANCE POLICIES

     Section 3.1 Assignment of Retained Insurance Policies. Effective as of the date of
the Internal Reorganization, to the extent not already assigned, transferred,
conveyed and delivered prior to such date and subject to Section 2.2 of the Separation
Agreement, NGC hereby assigns, transfers, conveys and delivers to New NGC and New NGC hereby
accepts and assumes NGC’s rights and obligations in the Retained Insurance Policies. NGC shall use
reasonable best efforts to obtain written confirmation from its

3

 

insurance broker that the Retained
Insurance Policies may be assigned to New NGC and its Subsidiaries and Affiliates and shall use
reasonable best efforts to obtain any necessary consents identified by its insurance broker to
assign the Retained Insurance Policies. Nothing in this Section shall be construed to mean that
NGC or New NGC believes that the consent by an insurer to the assignment of any particular
Insurance Policy or right or obligation in or under any particular Insurance Policy is required by
Law to make such assignment effective.

     Section 3.2 Pre-Distribution Occurrences. New NGC shall use reasonable best efforts
to provide HII the benefit of the Retained Insurance Policies for occurrences, losses,
circumstances and other acts or events occurring prior to the Distribution. HII shall make claims
under the Retained Insurance Policies directly to the insurer and shall provide New NGC
contemporaneous written notice of any such claim. HII may negotiate settlement of such claims
under the Retained Insurance Policies independently of the New NGC Group, but shall keep New NGC
reasonably advised concerning the status of any such negotiation. HII shall obtain the prior
written consent of New NGC, which shall not be unreasonably withheld or delayed, before initiating
coverage litigation against any insurer or initiating any legal action against a broker of the
Retained Insurance Policies. In no event will HII initiate coverage litigation directly against
any New NGC Entity.

     Section 3.3 HII’s Financial Obligations for the Retained Insurance Policies. After
the Distribution Date, HII shall, independently and without the involvement of the New NGC Group,
pay all amounts necessary to exhaust or otherwise satisfy all applicable self-insured retentions,
deductibles, fronted policy program repayments, and any other amounts not covered by the Retained
Insurance Policies and related to any claim made on the Retained Insurance Policies by HII. HII
also shall pay its proportionate share of any retrospective premium adjustments for the Retained
Insurance Policies, according to the protocols which have historically been followed prior to the
Distribution. HII shall not be responsible for letters of credit or surety bonds required to
maintain the Retained Insurance Policies.

     Section 3.4 Assumption of Risk. In the event that New NGC does not have the right
under the Retained Insurance Policies to provide HII the benefit of such Insurance Policies, HII
shall bear the risk that such coverage is not available, but New NGC shall at its own cost and
expense use reasonable best efforts to assist HII to the extent reasonably necessary to provide HII
access to the benefits of the Retained Insurance Policies. HII shall nonetheless be responsible
for its own claims handling. New NGC shall promptly notify HII if New NGC receives notice from any
insurance carrier that NGC does not have the right to provide HII with the benefits of the Retained
Insurance Policies.

     Section 3.5 Directors’ and Officers’ Insurance. For the six-year period commencing
immediately after the Distribution, New NGC shall maintain in effect
directors’ and officers’ liability Insurance Policies providing coverage for acts or omissions
occurring prior to the Distribution with respect to those Persons who are currently covered by
NGC’s directors’ and officers’ liability Insurance Policies, including such Persons who become
officers, directors or employees of HII, on terms and at limits no less favorable

4

 

than New NGC’s
directors’ and officers’ liability Insurance Policies in any given policy year.

     Section 3.6 Northrop Grumman Risk Management Inc. Insurance Policies. Notwithstanding
Section 3.2 of this Insurance Matters Agreement, HII shall retain coverage under certain
self-insurance policies issued by Northrop Grumman Risk Management Inc. until March 15, 2011, but
only to the extent that Northrop Grumman Risk Management Inc. has reinsurance contracts covering
losses incurred by HII during that period. HII shall, independently and without the involvement of
the New NGC Group, pay all amounts necessary to exhaust or otherwise satisfy all applicable
self-insured retentions, deductibles, fronted policy program repayments, and any other amounts not
covered by reinsurance and related to any claim made on Northrop Grumman Risk Management Inc.
Insurance Policies.

     Section 3.7 Replacement Insurance Policies. Except as expressly set forth above, the
policy period of all Current Retained Insurance Policies shall be deemed to end as to HII as of the
Distribution. HII has arranged and shall be obligated to maintain its own separate replacement
Insurance Policies for the period that commences as of the Distribution, and such insurance
arrangements shall be separate and apart from the insurance programs of New NGC and its
Subsidiaries.

     Section 3.8 Insurance Company Bankruptcy or Insolvency. With regards to the Retained
Insurance Policies only, the parties shall use their best efforts to cooperate with one another to
maximize the total recovery in the event of any future settlement or other disposition of the
liabilities of any insurance company, which shall become insolvent or otherwise seek to avail
itself of any scheme of arrangement or bankruptcy proceeding. In addition, the parties shall use
their best efforts to allocate to HII any portion of any such recovery which pertains to the
Shipbuilding Liabilities.

ARTICLE IV

COOPERATION

     Section 4.1 Cooperation in Claims Handling. Each of New NGC and HII, at the request
of the other and at its own cost and expense, shall cooperate with and use reasonable best efforts
to assist the other in processing or presenting claims made under any Insurance Policy for the
benefit of any insured party.

     Section 4.2 Information. Each of New NGC and HII and their respective Groups shall
share such information as is reasonably necessary in order to permit the other to manage and
conduct its insurance matters in an orderly fashion. On or before the Distribution, New NGC will
provide to HII the best available listing of historic Insurance Policies that provide coverage to
HII for occurrences, claims, losses, circumstances and
other acts or events on or after April 3, 2001 and electronic copies of all such Insurance
Policies in its possession. HII shall be solely responsible for maintaining this information and
New NGC shall not be obligated to provide duplicative or additional information following the
Distribution.

5

 

     Section 4.3 Retention of Insurance Policies. Each of New NGC Entities and HII
Entities will use reasonable best efforts to prevent the destruction of any Insurance Policy, to
notify the other Group of the proposed destruction of any Insurance Policy, and to give such other
Group reasonable opportunity to take possession of such Insurance Policy prior to such destruction.

     Section 4.4 Certain Actions. Except to the extent provided in this Insurance Matters
Agreement, no New NGC Entity or HII Entity shall take any action that would compromise, jeopardize,
or otherwise interfere with either Group’s rights under any Insurance Policy. Except as otherwise
contemplated by the Separation Agreement, this Insurance Matters Agreement, or any other Ancillary
Agreement, after the Distribution, no New NGC Entity or HII Entity shall, without the prior written
consent of the other Group, which such consent shall not be unreasonably withheld or delayed,
provide any insurance carrier with a release, or amend, modify, settle, compromise, or waive any
rights under any Insurance Policy, if such release, amendment, modification or waiver would
adversely affect any rights or potential rights of any member of the other Group thereunder.
However, nothing in this Section 4.4 shall (a) preclude any member of any Group from presenting any
claim or from exhausting any policy limit, (b) require any member of any Group to pay any premium
or other amount or to incur any Liability or (c) require any member of any Group to renew, extend
or continue any Insurance Policy.

     Section 4.5 Allocation of Amounts. For purposes of the exhaustion of any limits that
apply to coverage available under the Insurance Policies, amounts shall be allocated to the
Insurance Policies on a first come/first served basis. That means that amounts covered by such
Insurance Policies shall be allocated to such Insurance Policies in the order in which such amounts
were paid by the insurance companies.

     Section 4.6 No Agreement to Provide Insurance Management or Risk Management Services.
Nothing in this Insurance Matters Agreement shall be construed as providing for or creating an
obligation to provide insurance management or risk management services.

     Section 4.7 Outside-Entity Insurance Policies. Outside-Entity Insurance Policies are
unaffected by this transaction. It will be the responsibility of each Group to monitor and renew
any Outside-Entity Insurance Policies benefiting that Group without the involvement of the other
Group. However, the parties shall, each at its own cost and expense, use their reasonable best
efforts to cooperate and assist one another to assure that appropriate name change amendments are
made to any Outside-Entity Insurance Policies necessary to assure that said Outside-Entity
Insurance Policies insure the entity that has the Liabilities to which the insurance relates.

ARTICLE V

GENERAL PROVISIONS

     Section 5.1 Effect if Distribution Does Not Occur. If the Distribution does not
occur, then all actions and events that are, under this Insurance Matters Agreement, to be taken or
occur effective as of the Distribution, or otherwise in connection with the

6

 

Distribution shall not
be taken or occur, except to the extent specifically agreed by the parties.

     Section 5.2 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 5.2 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). In the event of any conflict or inconsistency between any
of the foregoing provisions of the Separation Agreement and any provision of this Insurance Matters
Agreement, this Insurance Matters Agreement shall prevail with respect to matters governed by this
Insurance Matters Agreement.

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

7

 

     IN WITNESS WHEREOF, the parties have caused this Insurance Matters Agreement to be executed as
of the date first written above by their respective officers thereunto duly authorized.

	 	 	 	 	 
	 	NORTHROP GRUMMAN CORPORATION

 	 
	 	By:  	/s/ Mark Rabinowitz
 	 
	 	 	Name:  	Mark Rabinowitz 	 
	 	 	Title:  	Corporate Vice President & Treasurer 	 
	 

	 	 	 	 	 
	 	NEW P, INC.

 	 
	 	By:  	/s/ Mark Rabinowitz
 	 
	 	 	Name:  	Mark Rabinowitz 	 
	 	 	Title:  	President & Treasurer 	 
	 

	 	 	 	 	 
	 	HUNTINGTON INGALLS INDUSTRIES, INC.

 	 
	 	By:  	/s/ C. Michael Petters	 
	 	 	Name:  	C. Michael Petters 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 

[Signature Page to Insurance Matters Agreement]

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