Document:

exv10w6

Exhibit 10.6

EXECUTION COPY

 

TRANSITION SERVICES AGREEMENT

among

NORTHROP GRUMMAN SYSTEMS CORPORATION,

NORTHROP GRUMMAN SHIPBUILDING, INC.,

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 SERVICES
	 	 	2	 
	 
	Section 2.1 Provision of Services
	 	 	2	 
	Section 2.2 Standard of Care; Means of Providing Services
	 	 	2	 
	Section 2.3 Additional Services
	 	 	3	 
	Section 2.4 Services Not Provided by NGSC
	 	 	3	 
	Section 2.5 Use of Services
	 	 	3	 
	Section 2.6 Third-Party Providers
	 	 	3	 
	Section 2.7 Non-Exclusivity
	 	 	4	 
	Section 2.8 Cooperation
	 	 	4	 
	Section 2.9 Limitation on Services
	 	 	4	 
	Section 2.10 Personnel
	 	 	4	 
	Section 2.11 Right to Determine Priority
	 	 	5	 
	Section 2.12 Independent Contractor
	 	 	5	 
	Section 2.13 Independence
	 	 	5	 
	Section 2.14 Temporary Shutdowns for Maintenance
	 	 	5	 
	Section 2.15 Access
	 	 	5	 
	Section 2.16 Disclaimer of Warranty
	 	 	6	 
	Section 2.17 Duty of Good Faith and Fair Dealing
	 	 	6	 
	Section 2.18 Program Managers
	 	 	6	 
	 
	ARTICLE III COMPENSATION
	 	 	6	 
	 
	Section 3.1 Service Charge
	 	 	6	 
	Section 3.2 Invoicing and Payments
	 	 	6	 
	Section 3.3 Taxes
	 	 	7	 
	Section 3.4 Disputed Amounts
	 	 	7	 
	Section 3.5 Company’s Employees
	 	 	8	 
	Section 3.6 Third-Party Obligations
	 	 	8	 
	Section 3.7 Books and Records
	 	 	8	 
	 
	ARTICLE IV TERM AND TERMINATION
	 	 	8	 
	 
	Section 4.1 Term
	 	 	8	 
	Section 4.2 Extension of Term
	 	 	8	 
	Section 4.3 Termination
	 	 	9	 
	Section 4.4 Breach of Transition Services Agreement
	 	 	9	 

i

 

TABLE OF CONTENTS

(Continued)

	 	 	 	 	 
	 	 	Page	 
	Section 4.5 Sums Due
	 	 	9	 
	Section 4.6 Effect of Termination
	 	 	9	 
	Section 4.7 Return of Records
	 	 	9	 
	 
	ARTICLE V FORCE MAJEURE
	 	 	9	 
	 
	Section 5.1 Event of Force Majeure
	 	 	9	 
	Section 5.2 Reasonable Efforts
	 	 	10	 
	 
	ARTICLE VI LIABILITIES
	 	 	10	 
	 
	Section 6.1 Punitive and Consequential Damages
	 	 	10	 
	Section 6.2 Limitation of Liability
	 	 	10	 
	Section 6.3 Obligation to Re-Perform
	 	 	10	 
	Section 6.4 Release and Indemnity
	 	 	10	 
	 
	ARTICLE VII CONFIDENTIALITY; TITLE TO DATA; INFORMATION SYSTEMS
	 	 	11	 
	 
	Section 7.1 Confidentiality
	 	 	11	 
	Section 7.2 Title to Data
	 	 	12	 
	Section 7.3 Intellectual Property
	 	 	12	 
	Section 7.4 Use of NGSC’s Information Systems
	 	 	13	 
	 
	ARTICLE VIII GENERAL PROVISIONS
	 	 	13	 
	 
	Section 8.1 Effect if Distribution Does Not Occur
	 	 	13	 
	Section 8.2 Incorporation of Separation Agreement Provisions
	 	 	13	 
	Section 8.3 Parties’ Obligations
	 	 	14	 

	 	 	 

	Schedule A

	 	Statement of Work
	Schedule B

	 	Confidentiality
	Schedule C

	 	Business Associate Agreement

ii

 

TRANSITION SERVICES AGREEMENT

     TRANSITION SERVICES AGREEMENT, dated as of March 29, 2011 (this “Transition Services
Agreement”), among Northrop Grumman Systems Corporation, a Delaware corporation
(“NGSC”), Northrop Grumman Shipbuilding, Inc., a Virginia corporation (“NGSB”), New
P, Inc., a Delaware corporation (“New NGC”), and Huntington Ingalls Industries, Inc., a
Delaware corporation (“HII”).

RECITALS

     A. The parties and Northrop Grumman Corporation, a Delaware corporation (“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. NGSB desires to purchase certain services from NGSC during a transition period, for the
benefit of NGSB’s operation of the Shipbuilding Business.

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	 
	Authorized Users 
	 	 	13	 
	HII 
	 	 	1	 
	New NGC 
	 	 	1	 
	NGC 
	 	 	1	 
	NGSB 
	 	 	2	 
	NGSC 
	 	 	2	 
	NGSC Indemnitees 
	 	 	10	 
	NGSC’s Banner 
	 	 	13	 
	NGSC’s Network 
	 	 	13	 
	Program Manager 
	 	 	6	 
	Separation Agreement 
	 	 	1	 
	Service 
	 	 	2	 
	Service Charge 
	 	 	6	 
	Services 
	 	 	2	 
	Services IP 
	 	 	12	 
	Term 
	 	 	8	 
	Third-Party Products and Services 
	 	 	3	 
	Third-Party Providers 
	 	 	3	 
	Transition Services Agreement 
	 	 	1	 

 

     Section 1.2 Certain Defined Terms. For purposes of this Transition Services Agreement:

          “NGSB” has the meaning set forth in the preamble, and shall include its Subsidiaries
and successor(s) or, unless context otherwise requires, any of NGSB’s Affiliates (including HII)
when that Affiliate receives the Services listed and described on Schedule A.

          “NGSC” has the meaning set forth in the preamble or, unless context otherwise
requires, any of NGSC’s Subsidiaries when that Subsidiary performs the Services listed and
described on Schedule A.

          “Service” or “Services” means those services described on Schedule A
or otherwise provided by NGSC pursuant to Article II.

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

ARTICLE II

SERVICES

     Section 2.1 Provision of Services.

          (a) NGSC shall provide or cause one of its Subsidiaries to provide to NGSB the services listed
and as specified on Schedule A, attached hereto.

          (b) For each Service, the parties have set forth on Schedule A, the time period during
which the Service will be provided (if different from the Term), a description of the Service and
certain related obligations, a dollar amount commensurate with the Services provided and certain
other terms applicable thereto.

     Section 2.2 Standard of Care; Means of Providing Services.

          (a) Subject to the limitations set forth in this Article II or unless otherwise agreed by the
parties, the Services shall be performed by NGSC for NGSB’s operation of the Shipbuilding Business
at a level of service that is substantially the same as the level of service in which such Services
were generally performed prior to the Distribution and NGSB shall use such Services for substantially the same purposes and in

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substantially the same manner and level of service as NGSB had used such Services prior to the date
hereof.

          (b) Subject to Section 2.2(a), NGSC shall, in its sole discretion, determine the means, manner
and resources used to provide the Services in accordance with its reasonable business judgment.
Without limiting the foregoing, NGSC may elect to modify or replace at any time (i) its policies
and procedures, (ii) any Subsidiaries and/or third parties that provide any Services, (iii) the
location from which any Service is provided or (iv) the intellectual property rights, information
technology, products and services used to provide the Services.

     Section 2.3 Additional Services. Schedule A may be amended at any time by amendment of
this Transition Services Agreement to add additional services.

     Section 2.4 Services Not Provided by NGSC. No services provided under this Transition Services
Agreement shall be construed as accounting, legal or tax advice or shall create any fiduciary
obligations on the part of NGSC or any of its Subsidiaries or Affiliates to any Person, including
to NGSB or any of its Subsidiaries or Affiliates, or to any plan trustee or any customer of any of
them.

     Section 2.5 Use of Services. NGSC shall be required to provide Services only to NGSB in
connection with NGSB’s operation of the Shipbuilding Business. NGSB shall not resell any Services
to any Person whatsoever or permit the use of the Services by any Person other than in connection
with the conduct of business in the ordinary course by NGSB. This provision shall not, however,
prevent recovery by NGSB of all or any costs of such Services under any contract to which the NGSB
is a party.

     Section 2.6 Third-Party Providers. Each of NGSB and NGSC shall use commercially reasonable
efforts (a) to obtain any required consents of the providers (“Third-Party Providers”) of
any products or services to be used by NGSC in providing the Services (“Third-Party Products
and Services”) and (b) where necessary, to obtain new licenses or similar agreements, to permit
NGSC to use or receive the benefit of the Third-Party Products and Services during the term of this
Transition Services Agreement to provide the Services; provided, however, that NGSC
shall exclusively conduct all negotiations with Third-Party Providers in connection with (a) and
(b), and that NGSB shall provide reasonable cooperation to NGSC in connection with such
negotiations. Pursuant to Section 3.2, NGSB shall pay for any additional Third-Party Products and
Services, including payments for any licenses, and any additional fees imposed by such Third-Party
Providers, including any fees for services related to “knowledge transfer,” in each case reasonably
necessary for NGSC to provide the Services. The parties understand and agree that provision of any
Services requiring the use of any Third-Party Products and Services shall be subject to receipt of
any required consents of the applicable Third-Party Providers. For the avoidance of doubt, the
licenses and agreements referred to in this Transition Services Agreement refer only to those
licenses and agreements necessary to permit NGSC to provide and for NGSB to receive Services under
this Transition Services Agreement. New licenses and agreements necessary for HII or NGSB to stand
up or separately operate its business after completion of the Services are not provided for herein and are the sole
responsibility of HII and NGSB.

3

 

     Section 2.7 Non-Exclusivity. Subject to the provisions of Section 4.1(a) governing the
termination of Services, nothing in this Transition Services Agreement shall preclude NGSB from
obtaining, in whole or in part, services of any nature that may be obtainable from NGSC, from its
own employees or from providers other than NGSC.

     Section 2.8 Cooperation. NGSB shall, in a timely manner, take all such actions as may be
reasonably necessary or desirable in order to enable or assist NGSC in the provision of Services to
NGSB, including providing necessary information and specific written authorizations and consents,
and NGSC shall be relieved of its obligations hereunder to the extent that NGSB fails to take any
such action, or NGSB’s failure to conclude or maintain any such action renders performance or
ongoing performance by NGSC of such obligations unlawful, impracticable or unreasonable, in NGSC’s
sole determination. NGSB shall be liable to NGSC and its Subsidiaries and Affiliates for any
Liabilities resulting from, arising out of or relating to NGSB’s failure to comply with the
obligations set forth in this Section 2.8.

     Section 2.9 Limitation on Services. Unless expressly provided otherwise on Schedule A:

          (a) NGSC shall only be required to provide the Services to or for the benefit of the
Shipbuilding Business as conducted immediately prior to the date of this Transition Services
Agreement;

          (b) NGSB shall not use the Services other than in a manner directly related to the operation
of the Shipbuilding Business as conducted immediately prior to the date of this Transition Services
Agreement;

          (c) NGSC shall not be required to expand its facilities, incur new long-term capital expenses
or employ additional personnel or maintain the employment of any specific employee in order to
provide the Services to NGSB;

          (d) NGSC shall not be required to provide Services hereunder that are greater in nature and
scope than the comparable services provided by NGSC to NGSB prior to the Distribution; and

          (e) NGSC shall not be obligated to provide any Services to the extent inconsistent with
applicable law or contract.

     Section 2.10 Personnel. In providing the Services, NGSC, as it deems necessary or appropriate in
its reasonable judgment, may (a) use the personnel of NGSC or its Affiliates and (b) employ the
services a Third-Party Provider to the extent the relevant Third-Party Products and Services are
routinely utilized to provide similar services to other businesses of any member of the New NGC
Group or are reasonably necessary for the efficient performance of any of such Services;
provided that if NGSC obtains the services of a Third-Party Provider not routinely utilized
to provide similar services to other business of NGSC, that NGSB consents prior to the use of such Third-Party Provider, which consent shall
not be unreasonably withheld. NGSC will only employ the services of Third-Party Providers who have
entered into non-disclosure agreements that obligate such third

4

 

parties to maintain the confidentiality of HII’s and NGSB’s proprietary and business sensitive information and that
prohibit the Third-Party Provider from using such proprietary and business sensitive information
for any purpose other than in connection with providing the Services.

     Section 2.11 Right to Determine Priority. If there is an unavoidable conflict between the
immediate needs of NGSC and those of NGSB as to the use of or access to a particular Service to be
provided by NGSC, NGSC shall have the right, in its sole discretion, to establish reasonable
priorities, at particular times and under particular circumstances, as between NGSC and NGSB. In
any such situation, NGSC shall provide notice to NGSB of any such changes at the earliest
practicable time.

     Section 2.12 Independent Contractor. NGSC shall act under this Transition Services Agreement
solely as an independent contractor and not as an agent of NGSB.

     Section 2.13 Independence. Unless otherwise agreed in writing, all employees and representatives
of NGSC who provide Services under this Transition Services Agreement shall be deemed for purposes
of all compensation and employee benefits matters to be employees or representatives of NGSC and
not employees or representatives of NGSB. In performing the Services, such employees and
representatives shall be under the direction, control and supervision of NGSC (and not NGSB) and
NGSC shall have the sole right to exercise all authority with respect to the employment (including
termination of employment), assignment and compensation of such employees and representatives.

     Section 2.14 Temporary Shutdowns for Maintenance. NGSC shall have the right to shut down
temporarily for maintenance purposes the operation of the information technology resources,
networks, related infrastructure and facilities providing any Service whenever in its judgment,
reasonably exercised, such action is necessary; provided, however, that NGSC shall
notify NGSB at least 20 days prior to any scheduled maintenance, to the extent reasonably
practicable. In the event that it is not reasonably practicable to schedule the maintenance 20
days or more in advance, NGSB shall be notified that maintenance is required. NGSC shall give NGSB
as much advance notice of any such shutdown as is reasonably practicable. When feasible, this
notice shall be given in writing. When written notice is not feasible, oral notice shall be given
and promptly confirmed in writing. NGSC shall be relieved of its obligations to provide Services
during the period that its facilities are so shut down but shall use reasonable efforts to minimize
each period of shutdown for such purpose and to schedule such shutdown so as not to inconvenience
or disrupt NGSB’s conduct of its business.

     Section 2.15 Access. NGSB shall make available on a timely basis to NGSC all information and
materials reasonably requested by NGSC to enable it to provide the Services. NGSB shall give NGSC
reasonable access, during regular business hours and at such other times as are reasonably
required, to the business premises for the purposes of providing Services. NGSB shall fully inform
NGSC of all of its applicable security and safety rules and regulations, and when accessing NGSB’s
business premises, NGSC shall use reasonable efforts to comply with all of NGSB’s security and safety rules and regulations
as described to NGSC.

5

 

     Section 2.16 Disclaimer of Warranty. Except as expressly set forth in this Transition Services
Agreement, the Services and products to be purchased under this Transition Services Agreement are
furnished as is, where is, with all faults and without warranty of any kind, express or implied,
including any warranty of merchantability or fitness for any particular purpose. NGSC does not
make any warranty that any service complies with any law, domestic or foreign.

     Section 2.17 Duty of Good Faith and Fair Dealing. The parties recognize that prior to the
Distribution, NGSC was a provider of certain critical services necessary to the operations of the
Shipbuilding Business. If the parties failed to list a service on Schedule A that is
critical and essential to the Shipbuilding Business, then they agree to consider in good faith
whether they can reasonably modify Schedule A to include such service.

     Section 2.18 Program Managers. Each of NGSB and NGSC shall appoint a program manager who will be
responsible for managing the relationship between the parties (each a “Program Manager”).
The Program Managers shall be the preferred and primary points of contact for the parties in
relation to this Transition Services Agreement. The responsibilities for the Program Managers
shall include, and the Program Managers shall have the authority to:

          (a) manage and resolve any disputes that arise under this Transition Services Agreement; and

          (b) disseminate information obtained in their role as Program Managers, as appropriate,
throughout their respective organizations.

In the event that the Program Managers cannot resolve any dispute that arises under this Transition
Services Agreement within 30 days, then the dispute resolutions procedures set forth in Article X
of the Separation Agreement shall govern such dispute.

ARTICLE III

COMPENSATION

     Section 3.1 Service Charge. As consideration for the provision of the Services, NGSB shall, for
each Service performed, pay NGSC the applicable dollar amount for such Service set forth on
Schedule A (the “Service Charge”). In addition to the Service Charge for such
Services, NGSC shall also be entitled to reimbursement from NGSB upon receipt of reasonable
supporting documentation for all reasonable and necessary third-party and out-of-pocket expenses
incurred in connection with NGSC’s provision of the Services that are not included as part of the
Service Charge. In the event the Service is terminated, the Service Charge will be prorated for
the number of days of Service received in the calendar month (based on a 30-day month) in which the
Service is terminated.

     Section 3.2 Invoicing and Payments.

          (a) Invoices. Except as the parties shall otherwise agree, after the end of each
month, NGSC shall submit an invoice to NGSB for the costs it incurred under this Transition
Services Agreement for that month. Each invoice shall include a line item level

6

 

of detail for the
previously agreed-upon Services for which there is a Service Charge, together with documentation
supporting each of the invoiced amounts so that NGSB can make appropriate cost settlements to each
business unit and cost center. NGSB shall pay all amounts due and payable under such invoice in
accordance with Section 3.2(c).

          (b) Notice. All invoices shall be in writing and shall be delivered by first class
mail, facsimile or e-mail to the attention of NGSB at the following address, or pursuant to such
other instructions as may be designated in writing by NGSB:

Northrop Grumman Shipbuilding, Inc.

4101 Washington Avenue

Newport News, VA 23607

Attention: Accounts Payable

Facsimile: (757) 688-8842

E-mail: accountspayable@hii-co.com

          (c) Payment. All payments described in this Section 3.2 shall be made by electronic
funds transmission in U.S. Dollars to an account designated by NGSC or NGSB, as applicable, without
any offset or deduction of any nature whatsoever, within 30 days of the date of receipt of any
properly submitted invoice. Invoices unpaid as of such date shall accrue interest at a rate equal
to the daily average one-month LIBOR plus one percent (1%); provided, however, that
interest shall not accrue for a period of up to one-month on past-due unpaid invoices if the delay
or failure to pay results from causes beyond NGSB’s reasonable control, including any strikes,
lock-outs or other labor difficulties, acts of any government, riot, insurrection or other
hostilities, embargo, fuel or energy shortage, fire, flood, acts of God, wrecks or transportation
delays, or inability to obtain necessary labor, materials or utilities. If NGSB fails to pay any
amount due hereunder when due, NGSC shall have the right, without any liability to NGSB, or anyone
claiming by or through NGSB, to cease providing any or all of the Services provided by NGSC to NGSB
unless NGSB cures such a failure to make payment within five days of NGSC’s providing written
notice of its intention to cease providing services, which right may be exercised by NGSC in its
sole and absolute discretion.

     Section 3.3 Taxes. All amounts invoiced by NGSC in connection with the Services shall include all
taxes, duties, assessments and other charges that are imposed now or in the future by any
Governmental Authority except that any applicable Virginia or Mississippi sales, value added or
similar tax will be paid by NGSB directly to the appropriate state under direct payment permit No.
998008 (Virginia) and No. 57 (Mississippi).

     Section 3.4 Disputed Amounts. In the event NGSB disputes the accuracy of any invoice, NGSB shall
pay the full invoice. If NGSB fails to pay any undisputed amount owed under this Transition
Services Agreement, NGSB shall correct such failure promptly
following notice of the failure and shall pay NGSC interest on the amount paid late at an
interest rate equal to the daily average one-month LIBOR plus one percent (1%).

7

 

     Section 3.5 Company’s Employees. NGSC shall not be obligated to pay any amounts to NGSB or any of
their employees in respect of payroll, benefits or similar obligations.

     Section 3.6 Third-Party Obligations. NGSC shall not be required to use its own funds for any
third-party-provided service or payment obligation of NGSB.

     Section 3.7 Books and Records. NGSC shall keep books and records of the Services provided and
reasonable supporting documentation of all charges incurred in connection with providing such
Services and shall produce records that verify the Services were performed and when such Services
were performed, and shall make such books and records available to NGSB upon reasonable notice,
during normal business hours.

ARTICLE IV

TERM AND TERMINATION

     Section 4.1 Term.

          (a) This Transition Services Agreement shall become effective on the Distribution Date and
shall remain in effect until the expiration of the last time period for the performance of Services
scheduled on Schedule A (which in no event shall be longer than 12 months, unless extended
pursuant to Section 4.2, the “Term”) unless (i) earlier terminated with respect to a
particular Service by NGSB in accordance with Section 4.1(b) or by NGSC in accordance with Section
4.1(c) or (ii) this Transition Services Agreement is earlier terminated pursuant to Section 4.3.

          (b) NGSB may cancel any Service upon 60 days’ written notice, subject to the requirement that,
in addition to any other amounts due under this Transition Services Agreement, NGSB pays to NGSC
the out-of-pocket costs reasonably incurred by NGSC to settle or terminate any agreements with
Third-Party Providers who provide Services to NGSB, as well as the incremental internal costs, but
excluding employee termination and severance costs, incurred by NGSC, as reasonably determined by
NGSC, as a result of such cancellation, which out-of-pocket and internal costs shall be set forth
in reasonable detail in a written invoice provided to NGSB.

          (c) NGSC may cease to provide any Service upon 60 days’ written notice to NGSB if NGSC
permanently ceases to provide such service to NGSC’s subsidiaries, sectors, divisions and business
units, provided that NGSC reasonably cooperates with NGSB in transitioning such Service to
another supplier; provided, further, that NGSC shall not unilaterally cease Services that NGSB
reasonably determines are necessary for the conduct of the Shipbuilding Business, and in that
event, the parties shall agree upon a limited transition period and plan.

Section 4.2 Extension of Term. The term of any Services may only be extended by amendment of this
Transition Services Agreement.

8

 

     Section 4.3 Termination. This Transition Services Agreement shall terminate on the earliest to
occur of:

          (a) the expiration of the Term;

          (b) the date on which the provision of all Services has terminated or been canceled pursuant
to Section 4.1; or

          (c) the date on which this Transition Services Agreement is terminated pursuant to Section
4.4.

     Section 4.4 Breach of Transition Services Agreement. If either party shall breach of any of its
significant obligations under this Transition Services Agreement, including any failure to make
payments when due, and such party does not cure such default within 30 days after receiving written
notice thereof from the non-breaching party, the non-breaching party may terminate this Transition
Services Agreement, including the provision of the Services pursuant hereto, immediately by
providing written notice of termination.

     Section 4.5 Sums Due. In the event of a termination of this Transition Services Agreement, NGSC
shall be entitled to all outstanding amounts due from NGSB up to the date of termination.

     Section 4.6 Effect of Termination. Sections 3.2 through 3.7, Section 4.5, Article VI, Article
VII, Article VIII and this Section 4.6 shall survive any termination of this Transition Services
Agreement.

     Section 4.7 Return of Records. Upon the termination of a Service or Services with respect to which
NGSC holds books, records or files, including current and archived copies of computer files, owned
by NGSB and used by NGSC in connection with the provision of a Service to NGSB, NGSC will return
all of such books, records or files as soon as reasonably practicable. NGSB shall bear NGSC’s
costs and expenses associated with the return of such documents. At its expense, NGSC may make a
copy of such books, records or files for its legal files.

ARTICLE V

FORCE MAJEURE

     Section 5.1 Event of Force Majeure. NGSC shall not be liable for any interruption of Service,
delay or failure to perform under this Transition Services Agreement when such interruption, delay
or failure results from causes beyond its reasonable control, including any strikes, lock-outs or
other labor difficulties, acts of any government, riot, insurrection or other hostilities, embargo,
fuel or energy shortage, fire, flood, acts of God, wrecks or transportation delays, or inability to
obtain necessary labor, materials or utilities. In any such event, NGSC’s obligations hereunder
shall be postponed for such time as its performance is suspended or delayed on account thereof.
NGSC will promptly notify NGSB either orally or in writing, upon learning of the occurrence of such
event of force majeure.

9

 

     Section 5.2 Reasonable Efforts. Upon the cessation of the force majeure event, NGSC will use
reasonable efforts to resume its performance with the least possible delay.

ARTICLE VI

LIABILITIES

     Section 6.1 Punitive and Consequential Damages. Except with respect to liabilities owed to
third-parties not affiliated with either Group, neither party shall be liable to the other, whether
in contract, in tort (including negligence and strict liability), or otherwise, for any punitive,
indirect, incidental or consequential damages, which in any way arise out of, relate to, or are a
consequence of, its performance or nonperformance hereunder, or the provision of or failure to
provide any Service or perform any other obligation hereunder, including loss of profits and
business interruptions.

     Section 6.2 Limitation of Liability. In any event, the liability of NGSC with respect to this
Transition Services Agreement or anything done in connection herewith, including the performance or
breach hereof, or from the sale, delivery, provision or use of any Service or product provided
under or covered by this Transition Services Agreement, whether in contract, tort (including
negligence or strict liability) or otherwise, shall not exceed the dollar amounts previously paid
to NGSC by NGSB in respect of the Service to which such liability relates.

     Section 6.3 Obligation to Re-Perform. In the event of any breach of this Transition Services
Agreement by NGSC with respect to any error or defect in the provision of any Service, NGSC shall,
at NGSB’s request, correct such error or defect or re-perform such Services at the expense of NGSC.

     Section 6.4 Release and Indemnity.

          (a) Except as specifically set forth in this Transition Services Agreement, NGSB hereby
releases NGSC, its employees, agents, officers and directors (the “NGSC Indemnitees”) and
agrees to indemnify and hold harmless the NGSC Indemnitees from any and all claims, demands,
complaints, liabilities, losses, damages and all costs and expenses arising from or relating to the
provision or use of any Service or product provided hereunder to the extent not arising from the
gross negligence or willful misconduct of NGSC.

          (b) Any purchase order issued by NGSB to NGSC implementing performance of services under this
Agreement shall contain the flow down of indemnification provided under Federal Acquisition
Regulation 52.250-1 and Alternative I, “Indemnification under Public Law 85-804” and DFARS
252.235-7001 “Indemnification under 10 USC 2354-Cost Reimbursement.”

10

 

ARTICLE VII

CONFIDENTIALITY; TITLE TO DATA; INFORMATION
SYSTEMS

     Section 7.1 Confidentiality.

          (a) Each of the parties agrees that any business-sensitive and proprietary information of the
other party marked or identified in writing as such and received in the course of performance under
this Transition Services Agreement shall be kept strictly in confidence by the parties, except that
either party may disclose such information for the purpose of providing or facilitating Services
pursuant to this Transition Services Agreement to any subsidiary of either party or to third
parties that provide such Services, provided, that any such third party shall have agreed to be
bound by this Section 7.1. Upon the expiration or termination of this Transition Services
Agreement, each party shall return to the other party all of such other party’s business-sensitive
and proprietary information to the extent that such information has not been previously returned
pursuant to Section 4.7. In lieu of returning such information, the receiving party may, with the
disclosing party’s prior written approval, destroy such information and provide the disclosing
party with a certificate of destruction, signed by an officer of the receiving party.

          (b) During the Term, certain employees of the members of each Group will have access to and
the ability to modify certain highly confidential and proprietary information of the other Group,
including personnel information, financial records, subcontracts, pricing information, Protected
Health Information (as that term is defined by the Health Insurance Portability and Accountability
Act), and audit work papers. Those employees with enhanced access to highly confidential and
proprietary information are listed on Schedule B. Schedule B may be updated from
time to time by either party to reflect the deletion or addition of the employees of the members of
such party’s Group with access to highly confidential and proprietary information of the other
Group. The parties hereby agree that, in addition to the confidentiality undertakings set forth in
Section 7.1(a), each party shall, as to its employees listed on Schedule B:

               (i) brief each such employee regarding (A) the sensitive nature of the information to which he
or she will have access and the necessity of assuring that there is no alteration modification,
deletion of the other Group’s information, and that none of the other Group’s information is
disclosed, either to third parties or to unauthorized personnel within such employee’s Group, and
(B) procedures established by his or her employer for the protection of such information;

               (ii) cause each such employee to enter into written undertakings acknowledging that he or she
has been briefed on the proper procedures handling of the highly confidential and proprietary
information and that he or she agrees to comply with those procedures; and

               (iii) not grant any such employee access to the highly confidential and proprietary
information until such employee has been briefed on the

11

 

procedures for handling highly confidential and proprietary information and executed the
above-referenced written undertaking.

               (c) During the Term, certain employees of the New NGC Group will have access to Protected
Health Information (as that term is defined by the Health Insurance Portability and Accountability
Act) of participants in the HII health plans. Access to, and use and disclosure of, that Protected
health Information by employees of the New NGC Group will be subject to the Business Associate
Agreement in the form attached hereto as Schedule C.

     Section 7.2 Title to Data.

          (a) NGSB acknowledges and agrees that it will acquire no right, title or interest (including
any license rights or rights of use) in any firmware, software or hardware, and the licenses
therefor that are owned by NGSC, by reason of NGSC’s provision of the Services provided hereunder.

          (b) NGSC agrees that all records, data, files, input materials and other information received
or computed for the benefit of NGSB and which relate to the conduct of NGSB’s operations are the
property of NGSB. Nothing in the previous sentence shall create any obligation on the part of NGSC
to provide hardware or other equipment to NGSB for the conduct of NGSB’s operations.

     Section 7.3 Intellectual Property. The parties agree that each of NGSC and NGSB, as applicable,
owns and shall retain sole ownership of its intellectual property, technology and data, including
any intellectual property, technology or data (or improvements or modifications to any of the
foregoing) created or developed by NGSC or NGSB, as applicable, in connection with the performance
of Services hereunder (“Services IP”); provided, however, all data created
pursuant to a Service and on behalf of NGSB as recipient of such Service shall be owned by NGSB.
To the extent necessary to give effect to the foregoing, upon the request of NGSC or NGSB having
created or developed Services IP, NGSC or NGSB, as applicable, shall promptly, and shall cause its
employees, agents and contractors to promptly (a) disclose all information and provide copies of
all documents relating to such Services IP to the developing party, (b) assign all right, title and
interest in any such Services IP to the developing party (other than the business information
created as the outcome of a Service delivered to NGSB, which shall be owned by NGSB) and (c)
execute such documents and do such other acts as the developing party may reasonably request in
relation to such Services IP. If the receipt or provision of the Services hereunder requires the
use by NGSC or NGSB, as applicable, of the intellectual property, technology or data of NGSC or
NGSB, as applicable, then NGSC or NGSB, as applicable, shall have the right to use such
intellectual property, technology and data during the Term for the sole purpose of, and only to the
extent necessary for, the receipt or provision of the Services hereunder, pursuant to the terms and
conditions of this Transition Services Agreement. Except as provided under clause (b) of this
Section 7.3, the transfer of intellectual property shall be governed exclusively by the Separation
Agreement and IP License Agreement.

12

 

     Section 7.4 Use of NGSC’s Information Systems.

          (a) NGSB acknowledges and agrees that use of NGSC’s computer network and Information Solutions
Services (collectively, the “NGSC’s Network”) by NGSB, its employees, contractors and
anyone else that NGSB directly or indirectly authorizes to use NGSC’s Network (“Authorized
Users”) shall be subject to compliance with New NGC’s Corporate Policy CP R1, “Computer Systems
and Electronic Media,” and NGSC’s related corporate procedures, copies of which have been made
available to NGSB. NGSB shall provide a copy of New NGC’s Corporate Policy CP R1 to all Authorized
Users. NGSC shall use reasonable best efforts to provide NGSB with 20 days’ advance notice of any
changes to Corporate Policy CP R1. This applies only to the NGSC network and does not apply to any
networks that are firewalled off from the NGSC network.

          (b) NGSB further acknowledges and agrees that all Authorized Users will see, at the time of
login to NGSC’s Network, a login banner that will state, in substantially similar form, that
individual users have no expectation of privacy in any information passing through or stored on
NGSC’s Network and that any communications or data that pass through or are stored on NGSC’s
Network may be monitored, intercepted, searched, disclosed or used for any lawful purpose by NGSC
or a third party (the “NGSC’s Banner”). NGSB shall require consent to the terms of NGSC’s
Banner as a condition precedent for use of NGSC’s Network by Authorized Users.

          (c) NGSB also specifically agrees and consents to the specific terms of and activities set
forth Section 7.4(b).

ARTICLE VIII

GENERAL PROVISIONS

     Section 8.1 Effect if Distribution Does Not Occur. If the Distribution does not occur, then all
actions and events that are, under this Transition Services 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 8.2 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 8.2 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 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 Transition Services Agreement, this Transition Services
Agreement shall prevail with respect to matters governed by this Transition Services Agreement.

13

 

     Section 8.3 Parties’ Obligations. Except where specifically provided otherwise, a party’s
obligations under this Agreement shall include obligations of its employees and Affiliates. Each
of HII and New NGC hereby agrees to take any actions, or refrain from taking any actions, to the
extent required pursuant to this Agreement.

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

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

	 	 	 	 	 
	 	NORTHROP GRUMMAN SYSTEMS CORPORATION

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

	 	 	 	 	 
	 	NORTHROP GRUMMAN SHIPBUILDING, INC.

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

[Signature Page to Transition Services Agreement]

 

 

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

	 	 	 	 	 
	 	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 Transition Services Agreement]exv10w7

EXHIBIT 10.7

HUNTINGTON INGALLS INDUSTRIES, INC.

TERMS AND CONDITIONS APPLICABLE TO

NON-EMPLOYEE DIRECTOR STOCK UNITS

GRANTED UNDER THE 2011 LONG-TERM INCENTIVE STOCK PLAN

     These Terms and Conditions (“Terms”) apply to stock units (“Stock Units”) granted by
Huntington Ingalls Industries, Inc. (the “Company”) to its directors who are not employed by the
Company or one of its subsidiaries. The date of grant of the Stock Units (the “Grant Date”) and
the number of Stock Units applicable to your award are set forth in the electronic stock plan award
recordkeeping system (“Stock Plan System”) maintained by the Company or its designee. These Terms
apply only with respect to the stock units referred to above that are granted pursuant to the
Company’s compensation program for its directors. If you were granted such stock units, you are
referred to as the “Director” with respect to your award. Capitalized terms are generally defined
in Section 8 below if not otherwise defined herein.

          Each Stock Unit represents a right to receive one share of the Company’s Common Stock, or cash
of equivalent value as provided herein. As used herein, the term “stock unit” means a
non-voting unit of measurement which is deemed for bookkeeping purposes to be equivalent to one
outstanding share of the Company’s Common Stock. The number of Stock Units subject to your
award is subject to adjustment as provided herein. The Stock Unit award is subject to all of
the terms and conditions set forth in these Terms, and is further subject to all of the terms
and conditions of the Plan, as it may be amended from time to time, and any rules adopted by
the Board, as such rules are in effect from time to time.

1. Vested Status; Payment
of Stock Units.

     The Stock Units subject to your award shall be one hundred percent (100%) vested as of the
Grant Date (subject to adjustment as provided in Section 4).

     Except as otherwise provided below, all Stock Units shall be paid by the Company on or within
30 days following the Director’s Separation from Service. The Company shall pay such Stock Units
in either an equivalent number of shares of Common Stock, or, in the discretion of the Board, in
cash or in a combination of shares of Common Stock and cash. In the event of a cash payment, the
amount of the payment for the Stock Units to be paid in cash (subject to any applicable tax
withholding as provided in Section 5 below) will equal the Fair Market Value (as defined below) of
a share of Common Stock as of the date that such Stock Units became payable. No fractional shares
will be issued.

     Notwithstanding anything contained herein to the contrary, if the Director is a Key Employee
as of the Director’s Separation from Service, any payment triggered by the such Separation from
Service shall be made on the first day of the seventh month following the date of such Separation
from Service (or, if earlier, the date of the Director’s death). For the avoidance of doubt, the
Director shall remain eligible to receive additional credits of Stock Units as dividend equivalents
pursuant to Section 3 during any period of time payment of the Director’s Stock Units is delayed
pursuant to this Section.

2. Non-Transferability and Other Restrictions.

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

     2.2 Recoupment of Awards. Any payments or issuances of shares with respect to the award are
subject to recoupment pursuant to the Company’s Policy Regarding the Recoupment of Certain
Performance-Based Compensation Payments as in effect from time to time, as well as any recoupment
or similar provisions of applicable law, and the Director shall promptly make any reimbursement
requested by the Board pursuant to such policy or applicable law with respect to the award.
Further, the Director agrees, by accepting the award, that the Company and its affiliates may
deduct from any amounts it may owe the Director from time to time

1

 

(such as other compensation) to the extent of any amounts the Director is required to
reimburse the Company pursuant to such policy or applicable law with respect to the award.

3. Compliance with Laws; No Stockholder Rights Prior to Issuance; Dividend Rights.

     3.1 Compliance with Laws. The Company’s obligation to make any payments or issue any shares
with respect to the award is subject to full compliance with all then applicable requirements of
law, the Securities and Exchange Commission or other regulatory agencies having jurisdiction over
the Company and its shares, and of any exchange upon which stock of the Company may be listed.

     3.2 Limitations on Rights Associated with Units. The Director shall not have the rights and
privileges of a stockholder, including without limitation the right to vote or receive dividends
(except as expressly provided in Section 3.3), with respect to any shares which may be issued in
respect of the Stock Units until the date appearing on the certificate(s) for such shares (or, in
the case of shares entered in book entry form, the date that the shares are actually recorded in
such form for the benefit of the Director), if such shares become deliverable.

     3.3 Dividend Equivalent Rights Distributions. Not later than 60 days following each date that
the Company pays an ordinary cash dividend on its Common Stock (if any), the Company shall credit
the Director with an additional number of Stock Units equal to (i) the per share cash dividend paid
by the Company on its Common Stock on such date, multiplied by (ii) the total number of Stock Units
(including any dividend equivalents previously credited hereunder) (with such total number adjusted
pursuant to Section 4) subject to the Stock Unit award as of the related dividend payment record
date, divided by (iii) the Fair Market Value of a share of Common Stock on the date of payment of
such dividend. Any Stock Units credited pursuant to the foregoing provisions of this Section 3.3
shall be subject to the same vesting, payment and other terms, conditions and restrictions as the
original Stock Units to which they relate. No crediting of Stock Units shall be made pursuant to
this Section 3.3 with respect to any Stock Units which, as of such record date, have been paid
pursuant to Section 1.

4. Adjustments.

     The Stock Units are subject to adjustment upon the occurrence of events such as stock splits,
stock dividends and other changes in capitalization in accordance with Section 6(a) of the Plan.
In the event of any adjustment, the Company will give the Director written notice thereof which
will set forth the nature of the adjustment.

5. Tax Matters.

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

     5.2 Transfer Taxes. The Company will pay all federal and state transfer taxes, if any, and
other fees and expenses in connection with the issuance of shares in connection with the payment of
the Stock Units.

     5.3 Compliance with Code. The Board shall administer and construe the award, and may amend
the Terms of the award, in a manner designed to comply with the Code and to avoid adverse tax
consequences under Code Section 409A or otherwise.

     5.4 Unfunded Arrangement. The right of the Director to receive payment under the award shall
be an unsecured contractual claim against the Company. As such, neither the Director nor any
Successor shall have any rights in or against any specific assets of the Company based on the
award. Awards shall at all times be considered entirely unfunded for tax purposes.

6. Board Authority.

     The Board has the discretionary authority to determine any questions as to the date when the
Director’s services terminated and the cause of such termination and to interpret any provision of
these Terms, the Stock Plan System, the Plan, and any other applicable rules. Any action taken by,
or inaction of, the Board relating to or pursuant to these Terms, the Stock Plan System, the Plan,
or any other

2

 

applicable rules shall be within the absolute discretion of the Board and shall be conclusive
and binding on all persons.

7. Plan; Amendment.

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

8. Definitions.

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

     “Affiliated Company” means the Company and other entity related to the Company under the rules
of Code Section 414.

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

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

     “Common Stock” means the Company’s common stock.

     “Fair Market Value” is used as defined in the Plan; provided, however, the Board in
determining such Fair Market Value for purposes of the award may utilize such other exchange,
market, or listing as it deems appropriate.

     “Key Employee” means an employee treated as a “specified employee” under Code Section
409A(a)(2)(B)(i) of the Company or an Affiliated Company (i.e., a key employee (as defined in Code
Section 416(i) without regard to paragraph (5) thereof)) if the Company’s or an Affiliated
Company’s stock is publicly traded on an established securities market or otherwise. The Company
shall determine in accordance with a uniform Company policy which participants are Key Employees as
of each December 31 in accordance with IRS regulations or other guidance under Code Section 409A,
provided that in determining the compensation of individuals for this purpose, the definition of
compensation in Treas. Reg. § 1.415(c)-2(d)(3) shall be used. Such determination shall be
effective for the 12-month period commencing on April 1 of the following year.

     “Plan” means the Huntington Ingalls Industries, Inc. 2011 Long-Term Incentive Stock Plan, as
it may be amended form time to time.

     “Separation from Service” means a “separation from service” within the meaning of Code Section
409A (which Separation from Service generally will occur on the date the Director ceases to be a
member of the Board).

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

3

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