Document:

exv10w3

 

Exhibit 10(3)

2007-002

February 1, 2007

Mr. James F. Palmer

[Address Intentionally Left Blank]

Dear Jim:

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

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

	 	1.	 	Base Salary.
	 
	 	 	 	Your initial base salary will be $725,000 per year, which will be subject to
periodic adjustment in accordance with the Company’s normal salary review process.
	 
	 	2.	 	Bonus.
	 
	 	 	 	You will be a participant in the Company’s Annual Incentive Plan (“AIP”), which
provides annual bonuses. Your target bonus under the AIP will be 70% of your
annual base salary. The actual bonus that you earn from year to year may be
adjusted upwards or downwards from the target bonus amount by multiplying the
target bonus by the “Unit Performance Factor” and the “Individual Performance
Factor,” as such terms are defined in the AIP; provided, however, that your actual
bonus for calendar year 2007, to be paid on or before March 15, 2008, shall be no
less than

 

 

Mr. James F. Palmer

February 1, 2007

Page 2

	 	 	 	$507,500 if you have remained employed by the Company through the end of 2007;
provided, a pro rata bonus may be payable pursuant to the VP Severance Plan or the
Northrop Grumman Corporation March 2004 Special Agreement (the “March 2004 Special
Agreement”) (see Sections 10 and 7, respectively, below).
	 
	 	3.	 	Equity Grants.
	 
	 	 	 	You will be eligible for annual grants of equity awards under the terms of the
Company’s Long-Term Incentive Stock Plan (and any successor to such plan)
(“LTISP”). Your initial grant for calendar year 2007 shall be 40,000 stock options
and 20,000 Restricted Performance Stock Rights (“RPSRs”).
	 
	 	 	 	The stock options will be awarded to you, and will have a strike price equal to the
closing price of Northrop Grumman’s stock on the New York Stock Exchange, on the
date you commence employment with Northrop Grumman (“Date of Hire”). One quarter
of the shares subject to the options shall vest and become exercisable upon each of
the first, second, third and fourth anniversaries of your Date of Hire, subject, in
each case, to the termination of employment rules set forth in the applicable Grant
Certificate (as defined below).
	 
	 	 	 	The RPSRs will vest at the end of a three-year performance period beginning January
1, 2007 and ending on December 31, 2009, subject to the performance and termination
of employment rules set forth in the Grant Certificate.
	 
	 	 	 	All equity grants, including the Restricted Stock Rights (“RSRs”) provided for
below, shall be subject to the terms and conditions of the LTISP and the grant
certificates provided to Corporate Vice Presidents (“Grant Certificates”), forms of
which have been provided to you.
	 
	 	 	 	In calendar years following 2007, you will be eligible for further equity grants on
the same basis (including guideline amounts for awards) as other Corporate Vice
Presidents.
	 
	 	4.	 	Executive Perquisites.
	 
	 	 	 	You will receive the same executive perquisites as other Corporate Vice Presidents
who are CPC members generally receive. Those perquisites currently include a car
allowance, allowances for tax

 

 

Mr. James F. Palmer

February 1, 2007

Page 3

	 	 	 	preparation/financial planning and club membership, personal liability insurance,
and an executive physical examination program, with an approximate total value of
$35,000. You will also receive vacation of not less than four weeks per calendar
year.
	 
	 	5.	 	Pension Benefit.
	 
	 	 	 	As a member of the CPC, you will participate in the CPC Supplemental Executive
Retirement Plan (“CPC SERP”). You currently have an accrued but unvested
tax-qualified and supplemental pension benefit from a defined benefit plan at your
present employer, Visteon Corporation, which has an estimated lump sum present
value of approximately $535,000. You agree to provide evidence reasonably
satisfactory to Northrop Grumman of the actual estimated present value of this
benefit within ninety days of your Date of Hire. The “Visteon Present Value” shall
be the lesser of either: (1) the actual estimated present value, or (2) $588,500.
Northrop Grumman agrees that if at the time you terminate from employment with the
Company, the total lump sum present value of your vested Northrop Grumman pension
benefit from all Northrop Grumman qualified and unqualified pension plans (the “NGC
Present Value”) is less than the Visteon Present Value, then Northrop Grumman shall
make a cash payment to you in the amount by which the Visteon Present Value exceeds
the NGC Present Value. This amount shall be paid within thirty days of your
employment termination or at such later time as may be necessary to comply with
Section 409A of the Internal Revenue Code (“Section 409A”).
	 
	 	6.	 	Medical Benefits.
	 
	 	 	 	While employed by Northrop Grumman, you will participate in the Executive Medical
Plan in which other Corporate Vice Presidents participate. You will also
participate in the Special Officer Retiree Medical Plan.
	 
	 	7.	 	Change in Control Protection.
	 
	 	 	 	You will be provided with the same March 2004 Special Agreement provided to other
Corporate Vice Presidents, which provides you with protection in the event of a
“Change in Control” of Northrop Grumman Corporation (as that term is defined in the
March 2004 Special Agreement). That Agreement currently provides severance

 

 

Mr. James F. Palmer

February 1, 2007

Page 4

	 	 	 	benefits equal to three times the sum of your base salary and bonus, three years of
medical, dental and life coverage, a pro rata annual bonus for the year of
termination and “gross up” protection for taxes which may be due under Internal
Revenue Code Section 4999.
	 
	 	8.	 	Liability Insurance Protection.
	 
	 	 	 	The Company will cover you under its directors and officers liability insurance
policies, which provide protection for claims made against you as an officer of
Northrop Grumman Corporation. The Company will provide you its standard
indemnification agreement provided to CPC members.
	 
	 	9.	 	Relocation Benefit.
	 
	 	 	 	You will be provided with the same relocation benefit available to other Corporate
Vice Presidents, which includes a full “gross up” feature pursuant to which the
Company reimburses you in an amount equal to the income and employment taxes
attributable to the relocation benefit, including relocation benefits provided
below. In addition, the Company will provide you with three benefits outside of
our normal relocation policy: (a) the Company will pay for closing costs and other
items covered by the relocation policy in connection with your purchase of a home
in Los Angeles; (b) we will extend the temporary living benefit in the relocation
policy to a reasonable period beyond the 60 day limit set forth in the policy
(anticipated to be up to 120 additional days); and (c) we will move your personal
effects and vehicles from Detroit to Los Angeles, and will also move items
designated by you from Seattle to Los Angeles.
	 
	 	10.	 	Severance Protection.
	 
	 	 	 	You will be entitled to benefits under the terms of the Severance Plan for Elected
and Appointed Officers of Northrop Grumman Corporation (“VP Severance Plan”) in the
event you undergo a “Qualifying Termination” as that term is defined in the VP
Severance Plan, assuming you are not entitled to benefits in connection with that
termination under your March 2004 Special Agreement, and provided that you first
sign a release of claims as required by the plan, if that “Qualifying Termination”
occurs within one year of your Date of Hire. If your “Qualifying Termination

 

 

Mr. James F. Palmer

February 1, 2007

Page 5

	 	 	 	occurs more than one year after your Date of Hire, you will be eligible for such
benefits on the same basis as other CPC members. The benefits you will be either
entitled or eligible to receive under this Plan shall be the same as benefits
afforded to other Corporate Vice Presidents. Those benefits currently include a
cash payment of two times the sum of base salary and bonus as well as continuation
of medical and dental coverage for two years and a pro rata annual bonus for the
year of termination.
	 
	 	11.	 	Reimbursement for Legal Fees.
	 
	 	 	 	The Company shall reimburse you for reasonable professional fees you incurred in
connection with the negotiation and preparation of this offer letter and will
provide you in addition a tax gross up amount equal to income taxes due on the
reimbursed professional fees.
	 
	 	12.	 	Make Up for Lost Visteon Benefits.
	 
	 	 	 	In consideration of the fact that you are forfeiting certain equity awards and
other benefits as a result of your departure from Visteon Corporation, the Company
will provide you with a special grant of 40,000 Restricted Stock Rights (“Special
2007 RSRs”). One quarter of these Special 2007 RSRs shall vest upon each of the
first, second, third and fourth anniversaries of your Date of Hire with the
Company, subject, in each case, to the termination of employment rules set forth in
the applicable grant certificates (except for the accelerated vesting provisions
set forth below). These Special 2007 RSRs shall be subject to all the terms and
conditions of the LTISP and of Northrop Grumman’s current standard grant
certificate for RSR grants (“RSR Grant Certificate”); provided, however, that in
the event of your death, Disability or Qualifying Termination (as the latter two
terms are defined in the VP Severance Plan) prior to the vesting or other
termination of the Special 2007 RSRs, any unvested portion of these Special 2007
RSRs shall fully vest as of the date of such death, Disability or Qualifying
Termination. The foregoing accelerated vesting of these Special 2007 RSRs shall
control notwithstanding anything to the contrary in the RSR Grant Certificate.
This special accelerated vesting treatment shall only apply to the Special 2007
RSRs and not to any future RSR grants you may receive.

 

 

Mr. James F. Palmer

February 1, 2007

Page 6

	 	 	 	In addition, in the event that applicable securities laws or Visteon insider
trading policies preclude you from exercising all then-vested grants of Visteon
options from the time your employment with Visteon terminates through the 90 day
period following termination of employment when such options terminate in
accordance with their terms, the Company will provide you a cash payment equal to
the value of these options as of the date you terminate from Visteon. This payment
will be made promptly following the date the vested Visteon options terminate
without having become exercisable due to applicable securities law restrictions,
provided you have first provided the Company with reasonably satisfactory
information about why you can not exercise these options, the date the options
terminate, and the actual value of these options as of the date your employment
with Visteon terminates. For purposes of this offer the “value” of these vested
Visteon options equals the fair market value of the total number of Visteon shares
subject to the vested options (determined by the closing market price of Visteon
stock as of the date your employment with Visteon terminates) less the aggregate
exercise price of the options. The current estimated value of these options is
$608,000.
	 
	 	13.	 	Signing Bonus.
	 
	 	 	 	The Company will provide you with a cash signing bonus in the total amount of
$700,000, to be paid in three equal installments. The first installment will be
paid thirty days after your Date of Hire; the second installment on the first
anniversary of your Date of Hire; and the third installment on the second
anniversary of your Date of Hire. Except as provided for in the next two
sentences, your entitlement to each installment of the signing bonus is contingent
on your continued employment with the Company through the installment payment date.
However, in the event of your Disability or Qualifying Termination (as these two
terms are defined in the VP Severance Plan) prior to payment of the full signing
bonus, the remaining balance will be paid in full within thirty days of such event.
In the event of your death prior to payment of the full signing bonus, the
remaining balance will be paid to your estate as soon as practicable after receipt
by the Company of notice of your death.
	 
	 	14.	 	Boeing SERP.
	 
	 	 	 	One of your prior employers was The Boeing Corporation (“Boeing”). You are
currently receiving a supplemental non-

 

 

Mr. James F. Palmer

February 1, 2007

Page 7

	 	 	 	qualified executive retirement benefit from Boeing in the amount of $8,632 per
month (the “Boeing SERP Benefit”). This Boeing SERP Benefit includes a joint and
survivor provision pursuant to which your current spouse is entitled to receive a
certain percentage of the Boeing SERP Benefit (the “J&S Benefit”) per month for her
lifetime in the event you predecease her. However, it is possible that under the
terms of the Boeing SERP, Boeing may cause you to forfeit this benefit as a result
of your employment with Northrop Grumman Corporation. If this occurs, Northrop
Grumman will replace the lost Boeing SERP Benefit by providing you (and, if
applicable, your spouse) the same benefits on the same terms as Boeing would have
provided had it not determined to cease payments, provided you have first submitted
to the Company reasonably satisfactory information substantiating the calculation
of the monthly amount due and the amount of the J&S Benefit. In addition, you agree
to provide the Company with copies of your benefit elections under the Boeing SERP
within a reasonable period of time after your Date of Hire. In the event of a
“Change in Control” of Northrop Grumman (as that term is defined in the March 2004
Special Agreement), the Company will, to the extent permitted without triggering
any tax, penalties or interest under Section 409A, pay you the actuarial present
value (determined by applying the same mortality assumptions and interest rate as
apply for determining lump sum actuarial equivalence under the CPC SERP) of your
remaining Boeing SERP Benefit in lieu of the payments it is obligated to make under
this Section 14 within ninety days of the effective date of the Change in Control.
In the event such accelerated payment can not be made due to the foregoing Section
409A limitation, the benefits shall continue as otherwise provided in this
paragraph. You agree to use your best efforts to retain the Boeing SERP Benefit
you are receiving from Boeing as well as the J&S Benefit and to cooperate with
Northrop Grumman in these matters. Should Boeing restore your Boeing SERP Benefit
and/or the J&S Benefit at any time after ceasing to pay, you agree that the
obligations of Northrop Grumman under this Section will end upon the resumption of
payments from Boeing; provided, however, Northrop Grumman’s obligations under this
Section 14 shall resume in the event that Boeing thereafter suspends or terminates
payment of your Boeing SERP Benefit as a result of your employment with Northrop
Grumman.

 

 

Mr. James F. Palmer

February 1, 2007

Page 8

	 	15.	 	Compliance with Section 409A.
	 
	 	 	 	The payments due in connection with this offer shall be adjusted as minimally
necessary so as to achieve compliance with Section 409A. The Company will apply
any such adjustments to you in a manner consistent with any comparable adjustments
being made in the compensation arrangements of other members of the CPC; provided,
however, that with respect to the Special 2007 RSRs, such adjustment shall not
adversely affect the economic value intended by the parties in awarding such RSRs
hereunder (and such treatment of the Special 2007 RSRs shall not be inferred to (1)
limit the Company’s right to decrease or otherwise adjust any other award or
payment to you affected by Section 409A provided that the treatment of your other
awards and payments is consistent with the awards held by and payments to CPC
members generally, and (2) limit the Company’s right to reduce the opportunities
that you might otherwise have to voluntarily defer compensation pursuant to any
deferred compensation plan maintained by the Company).
	 
	 	16.	 	Company’s Right to Change Policies and Plans.
	 
	 	 	 	Nothing in this offer letter affects or limits the Company’s right to amend or
terminate its compensation and benefit policies and plans, including without
limitation the AIP, the LTISP, the Grant Certificates, the executive perquisites,
the CPC SERP, the Executive Medical Plan, the SORMP, the March 2004 Special
Agreement, the relocation policy, or the VP Severance Plan; provided, however, that
that you will be treated no less favorably than other Corporate Vice Presidents
generally in the event of such amendment or termination; and provided further, that
no such amendment or termination shall adversely affect your entitlement to the
Visteon Present Value under Section 5 or your entitlements under Sections 11, 12,
13 and 14 of this letter agreement.

     Jim, the above is a summary of the key compensation and benefit provisions of this offer.
This offer is subject to approval by the Northrop Grumman Corporation’s Board of Directors. If you
conditionally accept the terms of this offer letter, it will be presented to the Board and will
become effective if (and only if) the Board approves it. We understand that your acceptance will
become unconditional and effective and you will tender your notice of resignation

 

 

Mr. James F. Palmer

February 1, 2007

Page 9

with Visteon within 24 hours after receipt of notice from us of Board approval. In addition,
your employment will be subject to the normal pre-employment steps applicable to other new hires at
Northrop Grumman. As is true for other Northrop Grumman employees, your employment with the
Company will be on an “at will” basis, except that your right to severance benefits will be as
provided above in Section 10.

     If you are in agreement with the terms of this offer, please sign and date this letter below
and return it to me. I look forward to having you join our senior management team. Consistent
with our recent discussion, I am assuming that you will be able to start with us on March 12.

	 	 	 	 	 
	 	Sincerely yours,

 	 
	 	/s/ Ian Ziskin
 	 
	 	Ian Ziskin 	 
	 	Corporate Vice President and Chief Human Resources and
Administrative Officer 	 
	 

AGREED TO:

	 	 	 
	/s/ James F. Palmer

	 	 
	 

     James F. Palmer

	 	 
	 
	 	 
	DATED:
	 	 
	 
	 	 
	February 3, 2007exv10w5

 

Exhibit 10(5)

NORTHROP GRUMMAN CORPORATION

SPECIAL OFFICER RETIREE MEDICAL PLAN

(As Amended and Restated Effective April 1, 2007)

ARTICLE 1 INTRODUCTION

	1.01	 	Purpose. The purpose of the Northrop Grumman Corporation Special Officer Retiree
Medical Plan (“Plan”) is to provide lifetime retiree medical benefits to eligible elected
officers of Northrop Grumman Corporation (“the Company”) and their eligible dependents. This
Plan provides for the continuation of welfare benefits to a select group of management or
highly compensated employees within the meaning of Department of Labor Regulation 29 CFR
section 2520.104-24 and Sections 201, 301, and 401 of the Employee Retirement Income Security
Act of 1974 (“ERISA”).

	1.02	 	Substantive Benefits. This document describes the standard eligibility provisions
and terms of coverage under the Plan. The actual medical benefit coverage will be provided
pursuant to the terms of the Northrop Grumman Executive Medical Plan (“Executive Medical
Plan”) as amended from time to time.

ARTICLE 2 DEFINITIONS

	2.01	 	Board. The Company’s Board of Directors.

	2.02	 	Committee. The Compensation and Management Development Committee of the Board.

	2.03	 	Continuation Coverage. Coverage under the Plan that, as of the time the coverage is
provided, is identical to the coverage as provided under the Plan to similarly situated
persons with respect to whom a Qualifying Event has not occurred.

	2.04	 	Continuation Coverage Election Period. The period beginning on the date of the
Qualifying Event and ending sixty (60) days after the later of (a) the date the Qualified
Beneficiary would lose coverage on account of a Qualifying Event, or (b) the date that the
Qualified Beneficiary is provided with notice of his or her right to elect Continuation
Coverage.

	2.05	 	Grandfathered Participants. Participants who were actively employed by the Company
on September 30, 2003.

	2.06	 	Participant. An elected officer of the Company who is designated by the Board or the
Committee as eligible to participate in the Plan.

	2.07	 	Prior Plan. The Northrop Grumman Special Officer Retiree Medical Plan as in effect
prior to October 1, 2003.

	2.08	 	Qualified Beneficiary. A Vested Participant’s spouse or dependent who, on the day
before a Qualifying Event, is covered under the Plan. In the case of a Qualifying Event
described in subsection 2.09(iv) below, Qualified Beneficiary means a Vested Participant

 

 

	 	 	who had retired on or before the date of substantial elimination of coverage and any person who
on the day before the Qualifying Event is the spouse or Surviving Spouse of the retired
Vested Participant or a covered dependent child of the retired Vested Participant or
Surviving Spouse.

	2.09	 	Qualifying Event. Any of: (i) the death of a retired Vested Participant, but only
with respect to a beneficiary who is not the Surviving Spouse of the retired Vested
Participant; (ii) the divorce or legal separation of a retired Vested Participant from his
spouse; (iii) a dependent child ceasing to be eligible for coverage as dependent child of a
retired Vested Participant under the dependent eligibility provisions of the Executive Medical
Plan; or (iv) a proceeding in a case under Title 11 of the United States Code with respect to
the Company; provided, however, that any such event will be a Qualifying Event only if it will
cause the Qualified Beneficiary an immediate or deferred loss of coverage under the Plan. For
purposes of this subsection, a loss of coverage means to cease to be eligible for benefits
under the Plan under the same terms and conditions as in effect immediately before the
Qualifying Event. A loss of coverage will be considered a deferred loss of coverage for
purposes of this provision if the loss of coverage does not occur at the time of the
Qualifying Event but occurs before the end of what would be the maximum period of Continuation
Coverage under section 8.04 below. In the case of a Qualifying Event described in (iv), a loss
of coverage includes a substantial elimination of coverage with respect to a Qualified
Beneficiary within one year before or after the date of commencement of the bankruptcy
proceeding.
	 
	2.10	 	Retired Participants. Vested Participants who retired and commenced benefits under
the Plan prior to October 1, 2003.

	2.11	 	Surviving Spouse. The individual to whom the Vested Participant is legally married
under applicable State law at the time of the Vested Participant’s death.

	2.12	 	Vested Participant. A Participant with either five years of Vesting Service as an
elected officer or 30 years of total service with the Company and its affiliates.

	2.13	 	Vesting Service. Vesting Service is service performed while eligible to participate
in the Plan. The Board or the Committee may, in its discretion, grant Vesting Service
outright or designate other types of service as Vesting Service. Such grants or designations
will be set forth in an Appendix to this Plan.

ARTICLE 3 ELIGIBILITY AND BENEFITS

	3.01	 	Eligibility. Eligibility for the Plan is limited to those elected officers of the
Company who are designated as eligible to participate in the Plan by the Board or the
Committee. The eligible spouse and dependents of a Vested Participant will be eligible for
benefits under the Plan commencing at the same time the Vested Participant’s benefits
commence. Spouse and dependent eligibility will be determined in accordance with the terms of
the Executive Medical Plan.

2

 

	3.02	 	Revocation of Eligibility. The Board or Committee may revoke a non-Vested
Participant’s Plan eligibility without the Participant’s consent. The Board or Committee may
revoke a Vested Participant’s or Surviving Spouse’s Plan eligibility, provided that the Vested
Participant or, after the Participant’s death, his or her Surviving Spouse, consents to the
revocation.

	3.03	 	Automatic Cessation of Eligibility. A Participant who is not a Vested Participant
will automatically cease to be a Participant under the Plan upon the earlier of the following:
(i) the date the Participant terminates employment with the Company; or (ii) the date the
Participant ceases to be an elected officer of the Company. However, the Board or the
Committee may make provision for a Participant who ceases to be an elected officer of the
Company, but does not terminate employment with the Company, to continue to accrue service
credited toward becoming a Vested Participant. The spouse or dependent of a Participant will
cease to be eligible for benefits under the Plan upon the earlier of the following: (i) the
date the Participant ceases to be a Participant under the Plan; or (ii) the date the spouse or
dependent ceases to be eligible in accordance with the terms of the Executive Medical Plan.

	3.04	 	Plan Freeze. No elected officer whose date of election is effective after March 31,
2007 shall be designated as eligible to participate in the Plan. An elected officer who is a
Participant as of March 31, 2007 may continue to earn Vesting Service after that date in
accordance with the terms of the Plan.

ARTICLE 4 COMMENCEMENT OF BENEFITS AND COSTS

	4.01	 	Commencement of Benefits. Benefits for Vested Participants commence at retirement
from the Company at age 65 or later.

	4.02	 	Early Commencement of Benefits. If a Vested Participant has attained the age of 55
and has at least ten years of Vesting Service, such Vested Participant may elect to commence
benefits coincident with retirement from the Company before age 65. If the election to
commence is not made at the time of retirement, the Vested Participant and his or her
dependents cease to be eligible for the Plan. No subsequent election to commence benefits
will be allowed.

	4.03	 	Surviving Spouse Benefit. If a Vested Participant dies before retiring from the
Company, the Vested Participant’s Surviving Spouse may elect to commence benefits as of the
first of the month coincident with or after the Vested Participant would have attained age 65
or, if the Vested Participant had ten years of Vesting Service at the time of death, as of the
first of the month coincident with or after the Vested Participant would have attained age 55.

	4.04	 	Duration of Benefits. Subject to the Company’s right to amend or terminate the Plan
(as limited by subsection 6.01(b)), coverage under the Plan will be provided for the life of
the Vested Participant and the life of his or her Surviving Spouse, if any. Eligible

3

 

	 	 	dependent
coverage will only be available during the life of the Vested Participant and the life of
his or her Surviving Spouse, if any, subject to ARTICLE 8. 
	 
	4.05	 	Coverage Provided. This medical coverage will be provided pursuant to the terms of
the Executive Medical Plan, as such Executive Medical Plan is modified from time to time for
active executives.

	4.06	 	Medicare. A Vested Participant, spouse or Surviving Spouse must enroll in Medicare
Parts A and B when first eligible in order to receive benefits under this Plan. If he or she
fails to enroll, coverage under this Plan will cease upon the date the Vested Participant,
spouse or Surviving Spouse first becomes eligible for Medicare Parts A and B.

	4.07	 	Costs of Coverage.

	 	(a)	 	The Vested Participant (or Surviving Spouse, following the death of a Vested
Participant) will be responsible for any participant cost items, such as contributions
toward the cost of coverage, copayments, and deductibles, as determined by the Company
in its discretion and described in the Executive Medical Plan; provided, however, that
subject to subsection (b) below, the level of participant contributions toward the cost
of coverage will be frozen as of the date the Vested Participant commences benefits
under this Plan.
	 
	 	(b)	 	A Vested Participant’s or Surviving Spouse’s contribution toward the cost of
coverage may vary based on the level of coverage (one-person, two or more persons,
etc.) in effect.

	4.08	 	Cessation of Coverage. Eligibility for the continuation of executive medical
benefits pursuant to the Plan will cease if any payment required to be made by the Vested
Participant or dependent (for example, participant contributions, copayments or deductibles)
is not timely paid in accordance with procedures established by the Company.

ARTICLE 5 SPECIAL COVERAGE PROVISIONS

	5.01	 	Retired Participants. Retired Participants were given the opportunity to elect to be covered under
the terms of this Plan (effective
January 1, 2004) or to continue to be
covered under the terms of the Prior
Plan. Retired Participants who elected
to be covered by the Prior Plan will be
covered under and subject to the terms
of the Prior Plan attached hereto as
Exhibit A and their required
contributions for coverage will be equal
to their required contribution under the
Prior Plan as of October 1, 2003.

	5.02	 	Grandfathered Participants. Grandfathered Participants have the right, if otherwise
eligible for the Plan at the time of retirement, to elect to be covered under the terms of the
Prior Plan or the Plan as in effect at the time of such Participant’s retirement. A
Grandfathered Participant who elects to be covered under the terms of the Prior Plan will
pay contributions for coverage equal to
the rate in effect as of September 30,
2003. Such election will be made
pursuant to forms and procedures
specified by the Company.

4

 

ARTICLE 6 CHANGE IN CONTROL

	6.01	 	Effect of Change in Control. Upon the occurrence of a “change in control” as defined
in the Company’s Change-In-Control Severance Plan (as in effect at the time of the event),
each of the following will occur:

	 	(a)	 	The Participant will become a “Vested Participant.”
	 
	 	(b)	 	The Plan may not be terminated or amended in any manner that adversely affects
the benefits of the Participant without his or her consent.
	 
	 	(c)	 	All Participant contributions, co-pays, deductibles and any other participant
or dependent cost items pursuant to the terms of the Executive Medical Plan will be
frozen as of the date of the change in control.

ARTICLE 7 CLAIMS AND APPEALS PROCEDURES

A claim or appeal relating to medical benefits under the Plan will be subject to the claims and
appeals procedures set forth in the Executive Medical Plan. A claim or appeal relating to
eligibility to participate in the Plan, status as a Vested Participant, required contributions or
any other claim or appeal that is not a claim or appeal relating to a medical benefit under the
Plan will be subject to the claims and appeals procedures set forth in the Executive Medical Plan,
except that such claims will be decided by the Vice President, Compensation, Benefits and HRIS, or
his or her delegate, who will be the claims administrator and the appropriate named fiduciary with
respect to such claims.

ARTICLE 8 CONTINUATION OF COVERAGE

	8.01	 	General. In addition to the Surviving Spouse coverage described above, temporary
continued coverage under the Plan may be purchased after the date coverage would ordinarily
terminate under the Plan as a result of a Qualifying Event.

	8.02	 	Participant/Beneficiary Notice Requirements. In the case of the Qualifying Events
described in subsections 2.09(ii) and (iii) above, the retired Vested Participant or his or
her spouse or dependent must provide notice of the occurrence of the Qualifying Event not
later than 60 days after the occurrence. Such notice must be provided to the COBRA
administrator for the Executive Medical Plan.

	8.03	 	Availability of Continuation Coverage. Upon the occurrence of a Qualifying Event,
each Qualified Beneficiary will be offered an opportunity to purchase continuation coverage
under the Plan. The election to purchase Continuation Coverage must be made during the
Continuation Coverage Election Period in such form and manner as the Company prescribes. A
Qualified Beneficiary who fails to elect Continuation Coverage during the
Continuation Coverage Election Period following a Qualifying Event will not be entitled to
elect Continuation Coverage with respect to such Qualifying Event.

5

 

	8.04	 	Period of Continuation Coverage. Continuation Coverage as elected by the Qualified
Beneficiary will extend for the period beginning on the date of loss of coverage as a result
of the Qualifying Event and ending on the earliest of the following dates:

	 	(a)	 	If the Qualifying Event was divorce or legal separation, death of the retired
Vested Participant, or loss of dependent child status, 36 months after the date
Continuation Coverage began;
	 
	 	(b)	 	If the Qualifying Event was a proceeding in a case under Title 11 of the United
States Code: (i) for a Qualified Beneficiary who is the retired Vested Participant, the
retired Vested Participant’s date of death; (ii) for a Qualified Beneficiary who is the
Surviving Spouse or dependent child of the retired Vested Participant, 36 months after
the date of death of the retired Vested Participant;
	 
	 	(c)	 	The first day for which timely payment for Continuation Coverage is not made
with respect to the Qualified Beneficiary as provided in section 8.05 below;
	 
	 	(d)	 	The date upon which the Company ceases to maintain any group health plan;
	 
	 	(e)	 	The date upon which the Qualified Beneficiary first becomes covered under
another group health plan after the date Continuation Coverage is elected; provided,
Continuation Coverage will not terminate if the other group health plan contains an
exclusion or limitation with respect to any preexisting condition that affects the
Qualified Beneficiary, unless that limitation or exclusion does not apply to the
Qualified Beneficiary because of the requirements of the Health Insurance Portability
and Accountability Act of 1996;
	 
	 	(f)	 	The date that the Qualified Beneficiary first becomes entitled to Medicare
benefits under Title XVIII of the Social Security Act after the date Continuation
Coverage is elected.

	 	 	Notwithstanding anything herein to the contrary, the Company may terminate the Continuation
Coverage of a Qualified Beneficiary on the same basis that the Company terminates coverage
under the Plan for a similarly situated Participant with respect to whom a Qualifying Event
has not occurred.

	8.05	 	Payment for Continuation Coverage.

	 	(a)	 	Each Qualified Beneficiary who has elected to purchase Continuation Coverage
will make a monthly payment to the Company in an amount up to 102% of the applicable
premium determined in accordance with Internal Revenue Code Section 4980B(f)(4).
	 
	 	(b)	 	The payment for the period of Continuation Coverage beginning on the date a
Qualified Beneficiary would otherwise lose coverage as a result of a Qualifying Event
and ending on the last day of the month during which the Qualified Beneficiary elects
Continuation Coverage will be due on the date the Qualified 

6

 

	 	 	 	Beneficiary elects
Continuation Coverage and payment made within forty-five (45) days of such date will be
deemed timely payment. The monthly payments for the remainder of the period of
Continuation Coverage will be due as of the first day of the month for which the
coverage is provided and payment made within thirty (30) days of the due date for each
monthly installment will be deemed timely payment.

ARTICLE 9 GENERAL PROVISIONS

	9.01	 	Amendment and Plan Termination. Except as provided in ARTICLE 6, the Company may
amend or terminate the Plan at any time for any reason. No amendment or termination of the
Plan will affect the terms of the Prior Plan with respect to: (i) a Grandfathered Participant
who as of the date of such amendment or termination has not retired; (ii) a Grandfathered
Participant who as of the date of such amendment or termination has retired and elected to be
covered under the terms of the Prior Plan; or (iii) a Retired Participant who elected to be
covered under the terms of the Prior Plan.

	9.02	 	Assignment of Benefits. A Vested Participant or dependent may not, either voluntarily
or involuntarily, assign, anticipate, alienate, commute, sell, transfer, pledge or encumber
any benefits to which he or she is or may become entitled under the Plan, nor may Plan
benefits be subject to attachment or garnishment by any of their creditors or to legal
process.

	9.03	 	Nonduplication of Benefits. This Section applies if the Company is required to make
payments under this Plan to a person or entity other than the payees described in the Plan. In
such a case, any coverage due the Participant (or his or her dependent) under the Plan will be
reduced by the actuarial value of the coverage extended or payments made to such other person
or entity.

	9.04	 	Medicare Primary. Medicare coverage is primary to coverage offered pursuant to the
Plan. Plan coverage will be secondary to Medicare to the maximum extent permissible under law.

	9.05	 	Funding. Participants have the status of general unsecured creditors of the Company
and the Plan constitutes a mere promise by the Company to continue eligibility for executive
medical coverage pursuant to the terms of the Plan.

	9.06	 	Construction. The Committee will have full and sole discretionary authority to
determine eligibility, construe and interpret the terms of the Plan, and determine factual
issues, including the power to remedy possible ambiguities, inconsistencies or omissions.

	9.07	 	Governing Law. This Plan will be governed by the law of the State of California,
except to the extent superseded by federal law.

	9.08	 	Actions By Company. Any powers exercisable by the Company under the Plan will be
exercised by written resolution adopted by the Board, the Committee or the delegate of either.
The Board or the Committee may by written resolution delegate any of its powers

7

 

	 	 	under the Plan
and any such delegations may provide for subdelegations, also by written resolution.
	 
	9.09	 	Non-Standard Provisions. The Board or Committee may in their discretion apply
eligibility requirements or terms of coverage other than the standard provisions with respect
to an individual. Any such nonstandard terms shall be stated in Appendix A.

	 	 	 	 	 
	 	NORTHROP GRUMMAN CORPORATION

 	 
	 	By:  	/s/ Debora L. Catsavas
 	 
	 	 	Debora Catsavas 	 
	 	 	Vice President, Compensation, Benefits and HRIS 	 
	 
	 	 	 
	 	Date:  	                                              4/17/07
 	 
	 	 	 	 
	 	 	 	 

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APPENDIX A

Special Provisions Applicable to Sandra J. Wright

Notwithstanding her change to the position of Vice President, Financial Planning and Analysis (an
appointed officer position) effective April 20, 2005, Sandra J. Wright will continue to be
considered a Participant for purposes of the Plan and her service with the Company after that date
will be taken into account under the Plan for purposes of determining whether she is considered a
Vested Participant under the Plan.

Special Provision Applicable to Thomas C. Schievelbein

Effective as of November 1, 2004, Thomas C. Schievelbein will be considered a Vested Participant
under the Plan.

Special Provision Applicable to Jerry Agee

Effective as of April 1, 2007, Jerry Agee will be considered a Vested Participant under the Plan.

Special Provision Applicable to James L. Sanford

Effective as of April 1, 2007, James L. Sanford will be considered a Vested Participant under the
Plan.

9

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