-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WaxoE9ePe9wSYKOGuXpODGS1IuBtyCTsKefMEo9BQXKG9DWDlkr139Rq3sGmxX8X zjd/4IDOQtHDdhM9ABdDEw== 0000217346-98-000018.txt : 19981113 0000217346-98-000018.hdr.sgml : 19981113 ACCESSION NUMBER: 0000217346-98-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXTRON INC CENTRAL INDEX KEY: 0000217346 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT & PARTS [3720] IRS NUMBER: 050315468 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05480 FILM NUMBER: 98744250 BUSINESS ADDRESS: STREET 1: 40 WESTMINSTER ST CITY: PROVIDENCE STATE: RI ZIP: 02903 BUSINESS PHONE: 4014212800 MAIL ADDRESS: STREET 1: 40 WESTMINSTER ST CITY: PROVIDENCE STATE: RI ZIP: 02903 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN TEXTRON INC DATE OF NAME CHANGE: 19710510 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _______________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended October 3, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Commission file number 1-5480 _______________ TEXTRON INC. (Exact name of registrant as specified in its charter) _______________ Delaware 05-0315468 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 40 Westminster Street, Providence, RI 02903 401-421-2800 (Address and telephone number of principal executive offices) _______________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Common stock outstanding at October 31, 1998 - 158,438,000 shares PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS TEXTRON INC. Condensed Consolidated Statement of Income (unaudited) (Dollars in millions except per share amounts)
Three Months Ended Nine Months Ended October 3, September 27, October 3, September 27, 1998 1997 1998 1997 Revenues Manufacturing sales $ 2,253 $ 1,950 $ 6,813 $ 6,088 Finance revenues 99 92 275 264 Total revenues 2,352 2,042 7,088 6,352 Costs and expenses Cost of sales 1,833 1,589 5,545 4,975 Selling and administrative 249 221 742 670 Gain on sale of division - - (97) - Special charges - - 87 - Interest 80 72 232 218 Provision for losses on collection of finance receivables 6 5 16 17 Total costs and expenses 2,168 1,887 6,525 5,880 Income from continuing operations before income taxes and distributions on preferred securities of subsidiary trust 184 155 563 472 Income taxes (70) (58) (221) (182) Distributions on preferred securities of subsidiary trust, net of income taxes (6) (6) (19) (19) Income from continuing operations 108 91 323 271 Income from discontinued operation, net of income taxes 34 47 125 137 Net income $ 142 $ 138 $ 448 $ 408 Earning per share: Basic: Income from continuing operations $ .67 $ .55 $ 1.99 $ 1.64 Income from discontinued operations .20 .28 .76 0.82 Net income $ .87 $ .83 $ 2.75 $ 2.46 Diluted: Income from continuing operations $ .65 $ .54 $ 1.94 $ 1.60 Income from discontinued operations .20 .27 .74 .80 Net income $ .85 $ .81 $ 2.68 $ 2.40 Average shares outstanding: Basic 162,156,000 164,912,000 162,718,000 165,286,000 Diluted 166,116,000 169,675,000 166,927,000 169,909,000 Dividends per share: $2.08 Preferred stock, Series A $ .52 $ .52 $ 1.56 $ 1.56 $1.40 Preferred stock, Series B $ .35 $ .35 $ 1.05 $ 1.05 Common stock $ .285 $ .25 $ .855 $ .75
See notes to condensed consolidated financial statements. Item 1. FINANCIAL STATEMENTS (Continued) TEXTRON INC. Condensed Consolidated Balance Sheet (unaudited) (Dollars in millions)
October 3, January 3, 1998 1998 Assets Parent Group: Cash $ 57 $ 30 Commercial and U.S. government receivables 1,102 920 Inventories 1,650 1,349 Investment in discontinued operation 1,193 1,214 Other current assets 300 185 Total Parent Group current assets 4,302 3,698 Property, plant, and equipment, less accumulated depreciation of $1,829 and $1,676 1,994 1,761 Goodwill, less accumulated amortization of $371 and $329 1,847 1,567 Other 1,265 1,126 Total Parent Group assets 9,408 8,152 Finance Group: Cash 3 13 Finance receivables - net 3,011 2,993 Other assets 212 172 Total Finance Group assets 3,226 3,178 Total Company assets $ 12,634 $ 11,330 Liabilities and shareholders' equity Liabilities Parent Group: Current portion of long-term debt and short-term debt $ 1,232 $ 476 Accounts payable 837 812 Accrued liabilities 1,070 853 Total Parent Group current liabilities 3,139 2,141 Accrued postretirement benefits other than pensions 769 766 Other liabilities 1,283 1,195 Long-term debt 876 745 Total Parent Group liabilities 6,067 4,847 Finance Group: Other liabilities 183 88 Deferred income taxes 313 319 Debt 2,301 2,365 Total Finance Group liabilities 2,797 2,772 Total Company liabilities 8,864 7,619 Textron - obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Textron junior subordinated debt securities 483 483 Shareholders' equity Capital stock: Preferred stock 13 13 Common stock 24 24 Capital surplus 888 830 Retained earnings 3,671 3,362 Accumulated other comprehensive income (89) (62) 4,507 4,167 Less cost of treasury shares 1,220 939 Total shareholders' equity 3,287 3,228 Total liabilities and shareholders' equity $ 12,634 $ 11,330 Common shares outstanding 159,769,000 162,343,000
See notes to condensed consolidated financial statements. Item 1. FINANCIAL STATEMENTS (Continued) TEXTRON INC. Condensed Consolidated Statement of Cash Flows (Unaudited) (In millions)
Nine Months Ended October 3, September 27, 1998 1997 Cash flows from operating activities: Income from continuing operations $ 323 $ 271 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation 205 176 Amortization 56 47 Provision for losses on receivables 17 19 Special charges 87 - Gain on sale of business (97) - Dividends received from discontinued operation 140 75 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Increase in commercial and U.S. government receivables (131) (60) Increase in inventories (224) (187) Increase in other assets (143) (136) Decrease in accounts payable (12) (21) Increase in accrued liabilities 224 52 Other - net (15) 4 Net cash provided by operating activities 430 240 Cash flows from investing activities: Proceeds from disposition of investments - 251 Finance receivables: Originated or purchased (2,899) (1,928) Repaid or sold 2,613 1,753 Proceeds from sale of securitized assets 260 373 Cash used in acquisitions (458) (355) Cash received from dispositions 160 549 Capital expenditures (302) (227) Other investing activities - net 17 30 Net cash provided (used) by investing activities (609) 446 Cash flows from financing activities: Parent Group: Increase (decrease) in short-term debt 745 (128) Proceeds from issuance of long-term debt 7 16 Principal payments on long-term debt (100) (91) Finance Group: Decrease in short-term debt (112) (134) Proceeds from issuance of long-term debt 361 50 Principal payments on long-term debt (330) (145) Proceeds from exercise of stock options 44 32 Purchases of Textron common stock (281) (130) Dividends paid (138) (124) Net cash provided (used) by financing activities 196 (654) Net increase in cash 17 32 Cash at beginning of period 43 31 Cash at end of period $ 60 $ 63
See notes to condensed consolidated financial statements. TEXTRON INC. Notes to Condensed Consolidated Financial Statements (unaudited) Note 1: Basis of presentation The financial statements should be read in conjunction with the financial statements included in Textron's Annual Report on Form 10-K and the restated financial statements included on Form 8-K dated October 6, 1998 for the year ended January 3, 1998. The financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of Textron's consolidated financial position at October 3, 1998, and its consolidated results of operations for each of the respective three and nine month periods ended October 3, 1998 and September 27, 1997 and consolidated cash flows for each of the nine month periods ended October 3, 1998 and September 27, 1997. The results of operations for the nine months ended October 3, 1998 are not necessarily indicative of results for the full year. Business segment data has been reclassified to reflect the transfer of Lycoming from the Aircraft segment to the Industrial segment. Note 2: Discontinued Operation On August 11, 1998, Textron announced that it had reached an agreement to sell Avco Financial Services (AFS) to Associates First Capital Corporation for $3.9 billion in cash. This transaction is subject to regulatory approvals and it is expected to close by the end of 1998 or early 1999. AFS has been presented herein as a discontinued operation. Summarized operating results of AFS are represented below:
Three months ended Nine months ended October 3, September 27, October 3, September 27, 1998 1997 1998 1997 (In millions) Revenues $ 461 $ 463 $1,391 $1,366 Cost and expenses 407 388 1,190 1,145 Income before income taxes 54 75 201 221 Income taxes (20) (28) (76) (84) Net income $ 34 $ 47 $ 125 $ 137
Presented below is a summary of AFS' financial position at October 3, 1998 and January 3, 1998:
October 3, January 3, 1998 1998 (In millions) Assets: Investments $ 933 $ 844 Finance receivables - net 7,438 7,234 Other 657 654 Total assets $9,028 $8,732 Liabilities: Accounts payable $ 100 $ 123 Accrued liabilities, including income taxes 388 485 Debt 7,347 6,910 Total equity 1,193 1,214 Total liabilities and equity $9,028 $8,732
Note 3: Earnings per Share In 1997, Textron adopted FAS 128 "Earnings Per Share." FAS 128 requires companies to present basic and diluted earnings per share amounts. The dilutive effect of convertible preferred stock and stock options was 4,209,000 and 4,623,000 shares for the nine month periods ending October 3, 1998 and September 27, 1997, respectively. Income available to common shareholders used to calculate basic and diluted earnings per share approximated net income for both periods. Note 4: Inventories
October 3, January 3, 1998 1998 (In millions) Finished goods $ 479 $ 454 Work in process 904 675 Raw materials 442 366 1,825 1,495 Less progress payments and customer deposits 175 146 $1,650 $1,349
Note 5: Textron-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely Textron junior subordinated debt securities In 1996, a trust sponsored and wholly-owned by Textron issued preferred securities to the public (for $500 million) and shares of its common securities to Textron (for $15.5 million), the proceeds of which were invested by the trust in $515.5 million aggregate principal amount of Textron's newly issued 7.92% Junior Subordinated Deferrable Interest Debentures, due 2045. The debentures are the sole asset of the trust. The amounts due to the trust under the debentures and the related income statement amounts have been eliminated in Textron's consolidated financial statements. The preferred securities accrue and pay cash distributions quarterly at a rate of 7.92% per annum. Textron has guaranteed, on a subordinated basis, distributions and other payments due on the preferred securities. The guarantee, when taken together with Textron's obligations under the debentures and in the indenture pursuant to which the debentures were issued and Textron's obligations under the Amended and Restated Declaration of Trust governing the trust, provides a full and unconditional guarantee of amounts due on the preferred securities. The preferred securities are mandatorily redeemable upon the maturity of the debentures on March 31, 2045, or earlier to the extent of any redemption by Textron of any debentures. The redemption price in either such case will be $25 per share plus accrued and unpaid distributions to the date fixed for redemption. Note 6: Contingencies Textron is subject to a number of lawsuits, investigations and claims arising out of the conduct of its business, including those relating to commercial transactions, government contracts, product liability, and environmental, safety and health matters. Some seek compensatory, treble or punitive damages in substantial amounts; fines, penalties or restitution; or remediation of contamination. Some are or purport to be class actions. Under federal government procurement regulations, some could result in suspension or debarment of Textron or its subsidiaries from U.S. government contracting for a period of time. On the basis of information presently available, Textron believes that any liability for these suits and proceedings would not have a material effect on Textron's net income or financial condition. See Part II, Item 1., LEGAL PROCEEDINGS. Note 7: Comprehensive Income In 1998, Textron adopted FAS 130, "Reporting Comprehensive Income." FAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on Textron's net income or shareholders' equity. FAS 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of FAS 130. During the first nine months of 1998 and 1997, total comprehensive income amounted to $421 million and $345 million, respectively. For the three month period ending October 3, 1998 and September 27, 1997 total comprehensive income amounted to $145 million and $117 million, respectively. Note 8: New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued FAS 131 "Disclosures about Segments of an Enterprise and Related Information." FAS 131 requires public companies to report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. This statement is effective for financial statements of fiscal years beginning after December 15, 1997. In March 1998, the Accounting Standards Executive Committee issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that companies capitalize certain internal-use software once certain criteria are met. This statement is effective for financial statements of fiscal years beginning after December 15, 1998. In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 will require all costs of start-up activities, including organization costs, to be expensed as incurred. This statement is effective for financial statements of fiscal years beginning after December 15, 1998. In June 1998, the Financial Accounting Standards Board issued FAS 133 "Accounting for Derivative Instruments and Hedging Activities." FAS 133 requires an entity to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. This statement is effective for fiscal years beginning after June 15, 1999. Textron is evaluating the potential impact of these pronouncements on future reporting. Note 9: Financial information by borrowing group Textron consists of two borrowing groups - the Textron Parent Company Borrowing Group (Parent Group) and Textron's commercial finance subsidiary (Finance Group). The Parent Group consists of all entities of Textron (primarily manufacturing) other than its wholly-owned commercial finance subsidiary. The Finance Group consists of Textron Financial Corporation (TFC). Summarized financial information (Statement of Income and Statement of Cash Flows) for the Parent Group reflects the Finance Group on a one-line basis under the equity method of accounting. Item 1. FINANCIAL STATEMENTS (Continued) Note 9: Financial information by borrowing group (continued) PARENT GROUP (unaudited) (In millions)
Three Months Ended Nine Months Ended October 3, September 27, October 3, September 27, Condensed Statement of Income 1998 1997 1998 1997 Sales $2,253 $1,950 $6,813 $6,088 Costs and expenses Cost of sales 1,833 1,589 5,545 4,975 Selling and administrative 229 203 684 620 Gain on sale of division - - (97) - Special charges - - 87 - Interest 40 32 116 101 Total costs and expenses 2,102 1,824 6,335 5,696 151 126 478 392 Pretax income on Finance Group 33 29 85 80 Income from continuing operations before income taxes and distributions on preferred securities of subsidiary trust 184 155 563 472 Income taxes (70) (58) (221) (182) Distributions on preferred securities of subsidiary trust, net of income taxes (6) (6) (19) (19) Income from continuing operations 108 91 323 271 Income from discontinued operation net of income taxes 34 47 125 137 Net income $ 142 $ 138 $ 448 $ 408
Item 1. FINANCIAL STATEMENTS (Continued) Note 9: Financial information by borrowing group (continued) PARENT GROUP (unaudited) (In millions)
Nine Months Ended October 3, September 27, Condensed Statement of Cash Flows 1998 1997 Cash flows from operating activities: Income from continuing operations $ 323 $ 271 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Earnings of Finance Group greater than distributions to Parent Group - 15 Depreciation 203 174 Amortization 51 41 Gain on sale of division (97) - Special charges 87 - Dividends received from discontinued operation 140 75 Changes in assets and liabilities excluding those related to acquisitions and divestitures: Increase in receivables (131) (60) Increase in inventories (224) (187) Increase in other assets (172) (138) Increase in accounts payable and accrued liabilities 143 21 Other - net (1) 7 Net cash provided by operating activities 322 219 Cash flows from investing activities: Capital expenditures (293) (222) Cash used in acquisitions (443) (355) Cash received from disposition of businesses 160 549 Proceeds from disposition of investments - 251 Other investing activities - net 27 20 Net cash provided (used) by investing activities (549) 243 Cash flows from financing activities: Increase (decrease) in short-term debt 745 (128) Proceeds from issuance of long-term debt 7 16 Principal payments on long-term debt (100) (91) Proceeds from exercise of stock options 44 32 Purchases of Textron common stock (281) (130) Dividends paid (138) (124) Contributions paid to Finance Group (23) - Net cash provided (used) by financing 254 (425) activities Net increase in cash 27 37 Cash at beginning of period 30 24 Cash at end of period $ 57 $ 61
Item 1. FINANCIAL STATEMENTS (Continued) Note 9: Financial information by borrowing group (continued) FINANCE GROUP (unaudited) (In millions)
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, Condensed Statement of Income 1998 1997 1998 1997 Revenues $ 99 $ 92 $ 275 $ 264 Costs and expenses Selling and administrative 20 18 58 50 Interest 40 40 116 117 Provision for losses on collection of finance receivables 6 5 16 17 Total costs and expenses 66 63 190 184 Income before income taxes 33 29 85 80 Income taxes (13) (10) (33) (30) Net income $ 20 $ 19 $ 52 $ 50
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TEXTRON INC. Revenues and Income by Business Segment (In millions)
Three Months Ended Nine Months Ended October 3, September 27, October 3, September 27, 1998 1997 1998 1997 REVENUES Aircraft $ 826 $ 725 $2,340 $2,159 Automotive 534 464 1,735 1,544 Industrial 893 761 2,738 2,385 Finance 99 92 275 264 Total revenues $2,352 $2,042 $7,088 $6,352 INCOME Aircraft $ 91 $ 79 $ 243 $ 218 Automotive 29 28 128 111 Industrial 103 87 306 263 Finance 33 29 85 80 256 223 762 672 Gain on sale of division* - - 97 - Special charges* - - (87) - Segment income 256 223 772 672 Corporate expenses and other - net (32) (36) (93) (99) Interest expense - net (40) (32) (116) (101) Income from continuing operations before income taxes and distributions on preferred securities of subsidiary trust $ 184 $ 155 $ 563 $ 472
*Special charges include restructuring charges of $10 million for the Aircraft segment, $25 million for the Automotive segment and $52 million for the Industrial segment. The gain on sale of division relates to the Industrial segment. Liquidity and Capital Resources The Statements of Cash Flows for Textron Inc. and the Parent Group detailing the changes in cash balances are on pages 4 and 10, respectively. The Parent Group's operating cash flow includes dividends received from the Finance Group of $52 million and $65 million during the first nine months of 1998 and 1997, respectively, and dividends received from AFS of $140 million and $75 million, respectively. The Parent Group's debt to total capital ratio was 36% at October 3, 1998, up from 25% at year end. In the third quarter, the Parent Group entered into credit agreements with six banks for an aggregate of $990 million. The termination date is March 31, 1999. The Parent Group has credit facilities outstanding at October 3, 1998 aggregating $2.8 billion, $1.6 billion of which was not used or reserved as support for outstanding commercial paper or bank borrowings. At September 30, 1998, the Finance Group had credit facilities outstanding of approximately $1.2 billion, $319 million of which was available at quarter end. The Parent Group had $311 million available at quarter end under their shelf registration statement with the Securities and Exchange. In the first nine months of 1998, the Finance Group increased its medium-term note facility by $750 million and issued $300 million medium-term notes under this facility. The Finance Group had $542 million available under the facility at September 30, 1998. During the first nine months of 1998, Textron's Parent Group acquired six companies: - Ransomes PLC - A UK-based manufacturer of commercial turf care machinery; - Sukosim - a German-based fastener manufacturer; - Peiner - a German-based fastener company; - Ring Screw Works - a Michigan-based supplier of specialty threaded fasteners to the automotive industry; - Datacom Technologies - a Washington-based manufacturer of cable test instruments, and - Midland Industrial Plastics - a UK-based manufacturer of automotive interior and exterior trim. The total cost of these acquisitions was approximately $590 million, including notes issued for approximately $150 million, plus the assumption of debt. Early in the fourth quarter, Textron completed the acquisition of the entire issued capital stock of David Brown Group PLC for approximately $326 million, plus the assumption of debt. David Brown Group PLC is a UK-based designer and manufacturer of industrial gears and mechanical and hydraulic transmission systems. In the first nine months of 1998, the Finance Group had $50 million of interest rate exchange agreements expire. Also, during the first nine months, the Parent Group terminated $275 million of fixed-pay interest rate exchange agreements. On August 11, 1998, Textron announced that its Board of Directors had authorized a new 25 million share repurchase program that supersedes the 8 million shares that remained under its previous authorization. Approximately 4.2 million shares were repurchased in the third quarter. Management believes that the Parent Group will continue to have adequate access to credit markets and that its credit facilities and cash flows from operations - -- including dividends received from Textron's Finance Group -- and expected proceeds from the sale of AFS, will continue to be more than sufficient to meet its operating needs and to finance growth. Year 2000 Readiness Disclosure Introduction Much of the world's computer hardware and software is not designed to process date information after 1999. This is largely because computer programs have historically used only two digits to identify the year in a date, but problems related to processing of date information also may arise because some software assigns special meaning to certain dates. This Year 2000 problem could, if uncorrected, cause computers and other equipment used and manufactured by Textron and Textron's suppliers and customers to fail to operate properly. Year 2000 Program In early 1997, Textron began a company-wide program (the "Program") to assess the possible vulnerability of Textron to the Year 2000 problem and to minimize the effect of the problem on Textron's operations. The Program is centrally directed from the Year 2000 Program Office at Textron's corporate headquarters and is executed at each Textron business unit. The Program addresses five "Major Elements" at the corporate headquarters and each business unit: - Business Systems: management information systems and personal computer applications, including the computing environments that support them. - Factory and Facilities Equipment: equipment that uses a computer to control its operation either for producing an end-product or providing services. - End-Products: software products, delivered either alone or as a component of another product, that are supplied to Textron customers. - Suppliers: assurance that those who sell goods and services to Textron will not interrupt Textron operations due to the Year 2000 problem. - Customers: assurance that those who buy goods and services from Textron will not interrupt Textron operations due to the Year 2000 problem. For each of the Major Elements, the Program measures five "Readiness Levels": Level I) Management has become aware of the issue. An inventory is being taken of the Items that the Year 2000 problem may affect. Level II) The inventory of Year 2000 items has been completed. The priority of each Item is being assessed. Actions are being planned to assure that each Item is ready for the Year 2000. Resources are being committed to do the work. Level III) Planning has been completed. The prescribed actions are being performed, including testing to verify that the actions are effective. Suppliers and customers are being surveyed and their progress is being tracked. Level IV) Items critical to operations have been remediated and have been put in normal operation. Surveys of critical suppliers and customers have been completed. Core business systems continue to be tested. Follow-up checking of suppliers and customers is in process. Contingency plans are being prepared. Audits to verify readiness are being performed. Remediation of Items that are important to operations, but not critical, is being performed. Level V) Systems critical to operations have been tested. Audits and associated corrective actions have been completed. Contingency plans have been completed. Follow-up checking of suppliers and customers has been completed. In all material respects, Textron is ready for Year 2000.
Based on information currently available, Textron estimates that it will substantially reach Readiness Level IV by December 31, 1998, and achieve full Readiness Level IV by June 30, 1999. Textron estimates that it will substantially reach Readiness Level V by June 30, 1999, and achieve full Readiness Level V by September 30, 1999. Textron intends to have independent parties complete an assessment of the implementation of the Program at the corporate headquarters and each business unit by March 31, 1999. The Readiness Level of the Major Elements Items that have been inventoried as of September 1, 1998, is shown in the following table. Major Element inventories are under continuous review, and additional Items may be identified in the future. For the Major Elements of "Suppliers" and "Customers" the indicated Readiness Level refers to Textron's progress in reviewing the readiness of customers and suppliers, and not to Textron's assessment of their readiness. Major Element Percent of Identified Major Element Items at Readiness Level II III IV V Business Systems 4% 27% 33% 36% Factory and Facilities Equipment 5% 22% 27% 46% End-Products 1% 3% 1% 96% Suppliers 16% 37% 23% 24% Customers 20% 33% 19% 27% Year 2000 Costs The total cost of the Year 2000 Program for continuing operations is estimated to be approximately $125 million. Approximately $70 million is for modifications to existing Items and other program expenses and $55 million is for replacement systems which have been or are expected to be capitalized in accordance with Company policy. Through August 31, 1998, total expenditures were $72 million. The estimated future cost to complete the Program is expected to be approximately $53 million including approximately $19 million for replacement systems. Funds for the Program are provided from special project appropriations totaling approximately $24 million and from normal operating and capital budgets. The Year 2000 Program has delayed certain other Textron information management projects. Delay of these projects is not expected to have an adverse impact on Textron. Risks and Contingency Plans Year 2000 issues have the potential, if not remediated, to severely disrupt Textron's business operations and to adversely affect Textron's financial condition. The Year 2000 Program is expected to significantly reduce Textron's exposure to these issues, particularly with respect to Textron's Business Systems, Factory & Facilities Equipment, and End-Products. However, it is possible that unanticipated problems may arise in the course of Textron's implementation of the Year 2000 Program. In addition, while monitoring of Year 2000 readiness by Textron's suppliers and customers is a major part of the Year 2000 Program, Textron has very limited ability to ensure Year 2000 readiness by such parties. Textron could also be affected by failure of government agencies, in the U.S. and elsewhere, to maintain governmental services that are essential to Textron's operations. Textron is developing contingency plans to cover situations in which Year 2000 problems arise despite Textron's efforts. Such plans are expected to be substantially ready by June 30, 1999. Forward-looking statements contained in this report relating to Year 2000 issues, including expectations of readiness, possible effects on Textron and similar matters, are subject to the risks described in this section. Results of Operations - Three months ended October 3, 1998 vs Three months ended September 27, 1997 Diluted earnings per share from continuing operations in the third quarter 1998 were $0.65 per share, up 20% from the 1997 amount of $0.54. Income from continuing operations in 1998 of $108 million was up 19% from $91 million in 1997. Revenues increased 15% to $2.4 billion in 1998 from $2.0 billion in 1997. Net income was $142 million versus $138 million in 1997. In August, 1998, Textron announced that it had reached an agreement to sell Avco Financial Services (AFS) to Associates First Capital Corporation for $3.9 billion in cash. This transaction is subject to regulatory approvals and it is expected to close by the end of 1998 or early 1999. Textron has restated its financial statements as presented herein to treat AFS as a discontinued operation. See Note 2 to the condensed consolidated financial statements for additional information. The Aircraft segment's revenues and income increased $101 million (14%) and $12 million (15%), respectively, due to higher results at Cessna Aircraft. Cessna's revenues and income increased as a result of higher sales of business jets and single engine aircraft. Bell Helicopter's revenues decreased, due primarily to the completion in 1997 of the three-year contract for model 412 helicopters with the Canadian Forces ($43 million) and lower commercial helicopter and spares sales ($10 million), partially offset by higher revenues on the V-22 program and Huey and Cobra upgrade contracts ($45 million). Bell's income decreased as a result of the lower sales, partially offset by favorable contract adjustments in 1998 related to the V-22 program. The Automotive segment's revenues increased $70 million (15%), while income increased $1 million (4%). The revenue increase was due to higher volume at Kautex associated with capacity expansion in North America, higher sales at the Trim operations, due primarily to increased Chrysler production, and the contribution from acquisitions. These revenue increases were partially offset by the impact of a strike at General Motors in 1998. The increase in income reflected the above factors, partially offset by new product development costs and the impact of the introduction of a major replacement program with significant additional content. The Industrial segment's revenues increased $132 million (17%) and income increased $16 million (18%). These increases reflected the contribution from acquisitions, primarily Ransomes PLC., Ring Screw Works and Sukosim, and internal growth combined with ongoing margin improvement. Internal growth was driven primarily by continued strength in the Fluid & Power Systems business. These benefits were partially offset by the divestitures of Speidel in the fourth quarter 1997 and Fuel Systems in the second quarter 1998 and the impact of a strike at General Motors on the Fastening Systems business. The Finance segment's revenues increased $7 million (8%), while income increased $4 million (14%). The results benefited from higher average yields on receivables and higher other income, reflecting increases in residual income, syndication income and portfolio servicing income. These benefits were partially offset by a higher provision for losses and higher expenses related to an acquisition of a receivable factoring company, growth in managed receivables, and growth in businesses with higher operating expense ratios. Both years included a gain of approximately $3 million on the securitization of Textron- related receivables. Corporate expenses and other - net decreased $4 million, due primarily to 1997 expenses related to organizational changes and higher support costs related to international expansion. Interest expense - net for the Parent Group increased $8 million, due to higher average debt resulting from the incremental debt associated with acquisitions and share repurchases. Income taxes - the current quarter's effective income tax rate of 38.0% was slightly higher than the corresponding prior year rate of 37.4%. Discontinued operation - Income from discontinued operations of $34 million was $13 million lower than 1997's income from discontinued operation of $47 million. The decrease was due primarily to (a) a gain in 1997 on the sale of underperforming branches in the U.S., (b) lower earnings in Hong Kong due to a weakening economy and (c) an increase in the provision for loan losses in the U.S., due to higher growth in consumer finance receivables. Results of Operations - Nine months ended October 3, 1998 vs Nine months ended September 27, 1997 Diluted earnings per share from continuing operations for the first nine months were $1.94 per share, up 21% from the 1997 amount of $1.60. Income from continuing operations in 1998 of $323 million was up 19% from $271 million in 1997. Revenues increased 12% to $7.1 billion in 1998 from $6.4 billion in 1997. Net income was $448 million versus $408 million in 1997. The Aircraft segment's revenues increased $181 million (8%) and income before special charges increased $25 million (11%), due to higher results at Cessna Aircraft. Cessna's revenues and income increased as a result of higher sales of business jets, single engine aircraft and Caravans. Bell Helicopter's revenues decreased, due primarily to the completion in 1997 of the Canadian Forces contract ($142 million). These lower revenues were partially offset by higher commercial helicopter and spares sales ($23 million) and higher revenues to the U.S. Government ($21 million) as increased revenues on the V-22 program and Huey and Cobra upgrade contracts ($99 million) more than offset lower foreign military sales ($40 million) and lower revenues on other U.S. Government contracts ($38 million). Bell's income decreased due to the lower sales, and a change in product mix, primarily resulting from lower margins on U.S. Government contracts. This unfavorable impact was partially offset by a lower level of product development expense in 1998. The Automotive segment's revenues increased $191 million (12%), while income before special charges increased $17 million (15%). The revenue increase was due to higher volume at Kautex associated with capacity expansion in North America, higher sales at the Trim operations, due primarily to increased Chrysler production (which was depressed in 1997 by a strike at Chrysler in the second quarter of 1997), and the contribution from acquisitions. These revenue increases were partially offset by the impact of a strike at General Motors in 1998. The increase in income reflected the above factors, partially offset by new product development costs and the impact of the introduction of a major replacement program with significant additional content. The Industrial segment's revenues and income before special charges increased $353 million (15%) and $43 million (16%), respectively. These increases reflected the contribution from acquisitions, primarily Ransomes PLC., Ring Screw Works and Sukosim, and internal growth combined with ongoing margin improvement. Internal growth was driven by continued strength in the Fastening Systems and Fluid & Power Systems businesses. These benefits were partially offset by the divestitures of Speidel in the fourth quarter 1997 and Fuel Systems in the second quarter 1998, the impact of a strike at General Motors and a one-month strike at Textron's Jacobsen plant in 1998. Margins, although slightly higher than last year, were adversely impacted by the lower margins of acquisitions, the divestitures of higher margin businesses and unfavorable contract adjustments related to marine and land systems products. The Finance segment's revenues increased $11 million (4%), as a result of higher average yields on receivables (10.10% in the first nine months of 1998 vs. 9.96% in the first nine months of 1997) and higher other income, reflecting increases in residual income, prepayment income, syndication income and portfolio servicing income, partially offset by a lower level of average receivables ($3.173 billion in the first nine months of 1998 vs. $3.194 billion in the first nine months of 1997). Its income increased $5 million (6%) as the benefit of the higher revenues and a lower provision for losses were partially offset by higher expenses related to an acquisition of a receivable factoring company, growth in managed receivables and growth in businesses with higher operating expense ratios. Both years included a gain of approximately $3 million on the securitization of Textron-related receivables. Gain on sale of division Fuel Systems Textron was sold to Woodward Governor Company for $160 million in cash in June 1998, at a pretax gain of $97 million ($54 million after-tax, or $0.32 per diluted share). Special charges: To enhance the competitiveness and profitability of its core businesses, Textron recorded a pretax charge of $87 million in the second quarter 1998 ($54 million after-tax or $0.32 per diluted share). This charge was recorded to cover asset impairments ($28 million), severance costs ($40 million), and other exit-related costs ($9 million) associated with its decision to exit several small, nonstrategic product lines in Automotive and the former Systems and Components divisions which did not meet Textron's return criteria, and to realign certain operations in the Industrial segment. The pretax charges recorded in the Automotive and Industrial segments were $25 million and $52 million, respectively, and also included the cost of a litigation settlement of $10 million in the Aircraft segment. Corporate expenses and other - net decreased $6 million due primarily to first quarter 1997 litigation expenses related to a divested operation and higher third quarter 1997 expenses related to organizational changes and higher support costs related to international expansion. Interest expense - net for the Parent Group increased $15 million, due to higher average debt resulting from the incremental debt associated with acquisitions and share repurchases, partially offset by the payment of debt with proceeds in 1997 from the divestiture of Paul Revere. Income taxes - the effective income tax rate of 39.3% for the nine months was higher than the corresponding prior year rate of 38.6%, due primarily to the nontax deductibility of goodwill related to the divestiture of Fuel Systems Textron partially offset by the favorable resolution of certain matters with taxing authorities. Discontinued operation - Income from discontinued operations of $125 million was $12 million lower than 1997's income from discontinued operation of $137 million. The decrease was due primarily to (a) weakness in the U.S. Finance business, (b) lower earnings in Hong Kong due to a weakening economy and (c) the unfavorable impact of foreign exchange rates primarily in Australia and Canada, partially offset by (d) the benefits of a gain from the sale of the centralized real estate portfolio and higher capital gains. * * * * * * Forward-looking Information: Certain statements in this Report, and other oral and written statements made by Textron from time to time, are forward-looking statements, including those that discuss strategies, goals, outlook or other non-historical matters; or project revenues, income, returns or other financial measures. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements, including the following: (i) continued market demand for the types of products and services produced and sold by Textron, (ii)changes in worldwide economic and political conditions and associated impact on interest and foreign exchange rates, (iii) the level of sales by original equipment manufacturers of vehicles for which Textron supplies parts, (iv) the successful integration of companies acquired by Textron. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the Company's most recent Restated Financial Statements and Restated Financial Information filed on Form 8-K (dated 10/6/98) Exhibit 99.1 pages 3 through 9. There has been no material change in this information. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS On September 30, 1998, the Director of the Water Division of Region 5 of United States Environmental Protection Agency in Chicago, Illinois, issued an administrative Complaint alleging that Textron's CWC Castings Division violated the Clean Water Act. The Complaint alleges that CWC exceeded wastewater discharge limits contained in the sewer permit for its Muskegon, Michigan, facility and that its sampling protocol did not conform to applicable federal regulations. The Complaint proposes a penalty of $137,000. Textron has filed an Answer to the Complaint in which it contests the allegations and the appropriateness of the amount of the proposed penalty and requests a hearing. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Asset Purchase Agreement Among Textron Inc., Avco Financial Services, Inc. and Associates First Capital Corporation dated as of August 11, 1998 10.2 Employment Agreement between Textron and John D. Butler dated July 23, 1998 10.3 Employment Agreement between Textron and Lewis B. Campbell dated July 23, 1998 10.4 Employment Agreement between Textron and Herbert L. Henkel dated August 12, 1998 10.5 Employment Agreement between Textron and Mary L. Howell dated July 23, 1998 10.6 Employment Agreement between Textron and Wayne W. Juchatz dated July 23, 1998 10.7 Employment Agreement between Textron and Stephen L. Key dated July 23, 1998 12.1 Computation of ratio of income to combined fixed charges and preferred securities dividends of the Parent Group 12.2 Computation of ratio of income to combined fixed charges and preferred securities dividends of Textron Inc. including all majority-owned subsidiaries 27 Financial Data Schedule (filed electronically only) (b) Reports on Form 8-K During the quarter ended October 3, 1998, Textron filed the following reports on Form 8-K: Current Report on Form 8-K filed with the Securities and Exchange Commission dated August 11, 1998, reporting under Item 5 (Other Events) and filing under Item 7 (Exhibits) a press release announcing that Textron reached an agreement to sell its Avco Financial Services, Inc. unit ("AFS") to Associates First Capital Corporation for $3.9 billion in cash. Current Report on Form 8-K filed with the Securities and Exchange Commission dated October 6, 1998, reporting under Item 5 (Other Events) and filing under Item 7 (Exhibits) restated financial statements to reflect AFS as a discontinued operation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TEXTRON INC. Date: November 12, 1998 s/R. L. Yates R. L. Yates Vice President and Controller (principal accounting officer) LIST OF EXHIBITS The following exhibits are filed as part of this report on Form 10-Q: Name of Exhibit 10.1 Asset Purchase Agreement Among Textron Inc., Avco Financial Services, Inc. and Associates First Capital Corporation dated as of August 11, 1998 10.2 Employment Agreement between Textron and John D. Butler dated July 23, 1998 10.3 Employment Agreement between Textron and Lewis B. Campbell dated July 23, 1998 10.4 Employment Agreement between Textron and Herbert L. Henkel dated August 12, 1998 10.5 Employment Agreement between Textron and Mary L. Howell dated July 23, 1998 10.6 Employment Agreement between Textron and Wayne W. Juchatz dated July 23, 1998 10.7 Employment Agreement between Textron and Stephen L. Key dated July 23, 1998 12.1 Computation of ratio of income to combined fixed charges and preferred securities dividends of the Parent Group 12.2 Computation of ratio of income to combined fixed charges and preferred securities dividends of Textron Inc. including all majority-owned subsidiaries 27 Financial Data Schedule (filed electronically only)
EX-10.1 2 Redacted Format ASSET PURCHASE AGREEMENT AMONG TEXTRON INC., AVCO FINANCIAL SERVICES, INC. and ASSOCIATES FIRST CAPITAL CORPORATION As of August 11, 1998 TABLE OF CONTENTS RECITALS 1 ARTICLE I DEFINITIONS 1.1 Definitions 2 ARTICLE II PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES 2.1 Purchase and Sale of Assets 10 2.2 Assumption of Liabilities 10 2.3 Purchase Price 11 2.4 Closing 14 2.5 Closing Obligations 14 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND THE COMPANY 3.1 Corporate Organization and Qualification 16 3.2 Stock of Subsidiaries 17 3.3 Authority Relative to This Agreement 18 3.4 Consents and Approvals; No Violations 19 3.5 SEC Reports; Financial Statements 21 3.6 Statutory Statements 22 3.7 Absence of Certain Changes or Events 22 3.8 Litigation 23 3.9 Taxes 23 3.10 Employee Benefit Plans; Labor Matters 25 3.11 Environmental Laws and Regulations 28 3.12 Compliance with Laws 28 3.13 Material Contracts 28 3.14 Insurance 29 3.15 Brokers and Finders 30 3.16 Intercompany Loans 30 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER 4.1 Corporate Organization and Qualification 30 4.2 Authority Relative to This Agreement 30 4.3 Consents and Approvals; No Violations 31 4.4 Financing 31 4.5 Brokers and Finders 32 4.6 Certain Proceedings 32 ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS AND OTHER AGREEMENTS 5.1 Conduct of Business of the Company 32 5.2 Access to Information 37 5.3 Other Actions 38 5.4 Advice of Changes 38 5.5 HSR Act Filing 39 5.6 Consents and Reasonable Efforts 39 5.7 Further Assurances 43 5.8 Publicity 43 5.9 Indemnification 44 5.10 Employees 45 5.11 Tax Allocation Agreement 48 5.12 Intercompany Transactions 48 5.13 No Negotiation 49 5.14 Non-Disclosure 49 5.15 Management of Risk Regarding Currency Translations 50 ARTICLE VI CONDITIONS TO CONSUMMATION OF THE TRANSACTION 6.1 Conditions to Each Party's Obligations to Complete the Transaction 50 6.2 Additional Conditions to the Obligation of Buyer 51 6.3 Additional Conditions to the Obligation of the Company 53 ARTICLE VII TERMINATION 7.1 Termination by Mutual Consent 54 7.2 Termination by Any Party 54 7.3 Termination by Buyer 54 7.4 Termination by Parent and the Company 55 7.5 Effect of Termination 55 ARTICLE VIII OBLIGATIONS AFTER CLOSING 8.1 Survival of Representations and Covenants; Indemnification 56 8.2 Guarantees 62 8.3 Name Changes 62 8.4 Other Matters 62 8.5 Non-Competition 63 ARTICLE IX MISCELLANEOUS AND GENERAL 9.1 Interpretation 64 9.2 Payment of Expenses and Other Payments 65 9.3 Amendment 65 9.4 Waiver and Extension 65 9.5 Counterparts 65 9.6 Governing Law 66 9.7 Notices 66 9.8 Entire Agreement; Assignment 67 9.9 Parties in Interest 68 9.10 Validity 68 9.11 Captions 68 9.12 Bulk Transfer Laws 68 9.13 Transfer, Sales and Stamp Taxes 69 EXHIBIT 1 -- Bill of Sale, Assignment and Assumption Agreement EXHIBIT 2 -- Tax Allocation Agreement EXHIBIT 3 -- Separation Agreement ASSET PURCHASE AGREEMENT AGREEMENT, dated as of August 11, 1998, (the "Agreement") among Textron Inc., a Delaware corporation ("Parent"), Avco Financial Services, Inc. (the "Company"), a Delaware corporation and a wholly owned subsidiary of Textron Inc., and Associates First Capital Corporation, a Delaware corporation ("Buyer"). RECITALS WHEREAS, the Company desires to sell, and the Buyer desires to purchase, substantially all of the assets and liabilities of the Company for the consideration and on the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, Parent, the Company and Buyer hereby agree as follows: 1 ARTICLE I 7DEFINITIONS 1.1 Definitions. For purposes of this Agreement, except as otherwise expressly provided or unless the context clearly requires otherwise: "Adjusted Stockholder's Equity" shall have the meaning ascribed to it in Section 6.2(c). "Affiliate" of any Person shall mean any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person. "Agreement" shall have the meaning ascribed to it in the Preamble. "Assets" shall have the meaning ascribed to it in Section 2.1. "Buyer" shall have the meaning ascribed to it in the Preamble. "Claim" shall have the meaning ascribed to it in Section 8.1(d). "Closing" shall have the meaning ascribed to it in Section 2.4. "Closing Date" shall have the meaning ascribed to it in Section 2.4. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Company" has the meaning ascribed to it in the Preamble. "Company Employee" shall have the meaning ascribed to it in Section 5.10(k). "Company Indemnified Parties" shall have the meaning ascribed to it in Section 5.9(a). "Company Plan" shall mean each bonus, incentive, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock, stock option, employment, consulting, termination, retention, severance, change-in-control, compensation, medical, health or other plan, agreement, policy, program, or arrangement that covers current or former employees, officers or directors of the Company or the Subsidiaries. "Company's Profit Sharing Plan" shall have the meaning ascribed to it in Section 5.10(f). "Company Properties" shall mean all parcels and interests of real property owned in fee or leased by the Company or any Subsidiary excluding any real property which is owned as a result of foreclosure, settlements in lieu of foreclosure, troubled loans or debt restructuring or other action taken with respect to property which was security for the repayment of a loan or other advance of funds by the Company or any Subsidiary. "Company SAP Statements" shall have the meaning ascribed to it in Section 3.6. "Company SEC Reports" shall have the meaning ascribed to it in Section 3.5(a). "Confidentiality Agreement" shall mean the agreement between Parent and Buyer dated June 5, 1998. "Consent" shall mean any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation by, or filing with or notification to, a person pursuant to any Contract, Law, Order or Permit. "Contract" shall mean any written or oral agreement, arrangement, commitment, contract, indenture, instrument, lease or other obligation of any kind or character, or other obligation that is binding on any Person or its capital stock, properties or business. "Default" shall mean (i) any breach or violation of or default under any Contract, Order or Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of or default under any Contract, Order or Permit, or (iii) any occurrence of any event that with or without the passage of time or the giving of notice would give rise to a right to terminate or revoke, change the current terms of, or renegotiate, or to accelerate, increase, or impose any liability under, or create any Lien in connection with, any Contract, Order or Permit. "Designated Subsidiary" shall mean Avco Financial Services International, Inc. (Nebraska); Avco Financial Services Management Company; Newport Management Company; Balboa Life Insurance Company; Balboa Insurance Company; Avco Group Limited (U.K.); Avco Trust PLC (U.K.); Avco Financial Services (Asia) Limited (Hong Kong); Avco Australia Pty. Ltd.; Textron Financial Corporation (Australia) Pty. Ltd.; Avco Financial Services Limited (Australia); Avco Access Ltd. (Australia); Avco Financial Services Canada Limited; Textron Financial Corporation (Canada); Atlantic Reinsurance Company; Hallmark General Insurance Company (Australia); Hallmark Life Insurance Company (Australia); and London and Midland Insurance Company (Canada). "Directly Owned Subsidiaries" shall have the meaning ascribed to it in Section 3.2(a). "Disclosure Schedule" shall mean the Disclosure Schedule prepared by the Company and delivered to Buyer concurrently with the execution of this Agreement. "E&Y" shall mean Ernst & Young LLP, independent accountants of the Company. "Employee Welfare Benefit Plan" shall mean an employee welfare benefit plan as defined in Section 3(1) of ERISA and any comparable plan in locations outside the United States. "Environmental Claim" shall mean any investigation, notice of violation, demand, allegation, action, suit, Order, consent decree, penalty, fine, Lien, proceeding or claim (whether administrative, judicial or private in nature) arising: (i) pursuant to, or in connection with, an actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Material or actual or alleged activity associated with any Hazardous Material; (iii) from any abatement, removal, remedial, corrective or other response action in connec tion with any Hazardous Material, Environmental Law or Order; or (iv) from any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "Environmental Law" shall mean any Law pertaining to: (i) the protection of health, safety and the indoor or outdoor environment; (ii) the conservation, management or use of natural resources and wildlife; (iii) the protection or use of surface water and ground water; (iv) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, release, threatened release, abatement, removal, remediation or handling of, or exposure to, any Hazardous Material; or (v) pollution (including any release to air, land, surface water and ground water); and includes, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. 9601 et seq., and the Solid Waste Disposal Act, as amended, 42 U.S.C. 6901 et seq. "ERISA" shall have the meaning ascribed to it in Section 3.10(a). "ERISA Affiliate" shall mean any corporation or trade or business, whether or not incorporated, that together with an entity or any subsidiary of such entity would be deemed a "single employer" within the meaning of Section 4001 of ERISA, or considered as being members of a controlled group of corpora tions, under common control, or members of an affiliated service group within the meaning of Subsections 414(b), (c), (m) or (o) of the Code or Section 4001(a)(14) of ERISA. "Finance Subsidiary" shall mean any Subsidiary whose principal business is financial as identified in Schedule A hereto. "Financial Statements" shall have the meaning ascribed to such term in Section 3.5(b). "Foreign Competition Laws" shall mean foreign statutes, rules, regulations, orders, decrees, administrative and judicial directives, and other foreign laws, that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization, lessening of competition or restraint of trade. "GAAP" shall have the meaning ascribed to it in Section 3.5(b). "Guarantees" shall have the meaning ascribed to it in Section 5.6(c). "Governmental Entity" shall have the meaning ascribed to it in Section 3.4(a). "Hazardous Material" shall mean any substance, chemical, compound, product, solid, gas, liquid, waste, by- product, pollutant, contaminant or material which is hazardous or toxic, and includes without limitation, asbestos or any substance containing asbestos, polychlorinated biphenyls, petroleum (including crude oil or any fraction thereof), and any hazardous or toxic waste, material or substance regulated under any Environ mental Law. "Indemnified Party" shall have the meaning ascribed to it in Section 8.1.(b). "Indemnifying Party" shall have the meaning ascribed to it in Section 8.1.(b). "Insurance Subsidiary" shall mean any Subsidiary whose principal business is insurance as identified in Schedule A hereto. "Interest Rate" shall mean six (6) percent per year calculated on the basis of a 365 day year and charged for the actual number of days elapsed. "Interim Statements" shall have the meaning ascribed to it in Section 2.3(b). "Law" shall mean any federal, state, local or foreign law, statute, ordinance, rule, regulation, Order, judgment or decree, administrative or judicial decision, and any other executive or legislative proclamation. "Liabilities" shall have the meaning ascribed to it in Section 2.2. "License" shall mean any license, Permit, certificate of authority or any other instrument issued by any governmental authority relating to the ability to do business by the Company and the Subsidiaries. "Lien" shall mean any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement, lien, mortgage, option, pledge, reservation, restriction, security interest, title retention or other security arrangement, or any adverse right or interest, charge, or claim of any nature whatsoever of, on, or with respect to any property or property interest. "Litigation" shall mean any suit, action, arbi tration, cause of action, claim, complaint, criminal prosecution, investigation, demand letter, governmental or other admin istrative proceeding, whether at law or at equity, before or by any federal, state or foreign court, tribunal, or agency or before any arbitrator. "Losses" shall mean any and all actual losses, liabilities, costs and expenses (including reasonable attorneys' fees and costs of investigation). "Material Adverse Effect" shall mean any adverse change in the business, assets, liabilities, financial condition, or results of operations of the Company or any of the Subsidiaries which, individually or together with any other such adverse change, is material to the Company and the Subsidiaries taken as a whole, other than any such effect attributable to or resulting from (i) the public announcement of the transactions contemplated hereby, (ii) any change in banking, insurance, consumer finance, commercial finance, thrift, fair lending or similar Laws of general applicability or interpretations thereof by courts or governmental authorities, (iii) any change in general economic conditions, in interest rates, currency exchange rates, or in conditions affecting banking, insurance, consumer finance, commercial finance, or thrift industries generally, (iv) any act or omission of the Company or any Subsidiary taken with the prior consent of the Buyer pursuant to Article V or (v) actions taken by the Company at the specific request of Buyer. "Material Contract" shall have the meaning ascribed to it in Section 3.13. "Order" shall mean any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local or foreign or other court, arbitrator, mediator, tribunal, administrative agency or authority. "Permit" shall mean any federal, state, local or foreign governmental approval, authorization, certificate, declaration, easement, filing, franchise, license, notice, permit, variance, clearance, exemption, closure or right to which any person is a party or that is or may be binding upon or inure to the benefit of any person or its securities, properties or business. "Person" shall mean any individual, corporation, partnership, joint venture, trust, association, organization, governmental authority or other entity. "Purchase Price" shall have the meaning ascribed to it in Section 2.3(a). "Representatives" shall have the meaning ascribed to it in Section 5.2(a). "Requisite Regulatory Approvals" shall have the meaning ascribed to it in Section 3.4(a). "Section 5.9 Indemnified Parties" shall have the meaning ascribed to it in Section 5.9.(b). "Separation Agreement" shall mean the Separation Agreement of even date herewith entered into by and among Parent, the Company and Buyer, attached hereto as Exhibit 3. "Shares" shall have the meaning ascribed to it in Section 2.1. "Statement" shall have the meaning ascribed to it in Section 2.3(b). "Subsidiary" shall mean each corporation identified in Schedule A to this Agreement. "Tax" or "Taxes" shall mean all United States federal, state, provincial, local, territorial and foreign income, profits, franchise, license, capital, transfer, ad valorem, wage, severance, occupation, import, custom, gross receipts, payroll, sales, employment, use, property, real estate, excise, value added, estimated, stamp, alternative or add-on minimum, environmental, withholding and any other taxes, duties, assessments or governmental tax charges of any kind whatsoever. "Tax Authority" shall mean any domestic, foreign, federal, national, state, provincial, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority. "Tax Return" shall mean any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including any information return, claim for refund, amended return or declaration of estimated Tax. "Transaction" shall mean the purchase of Assets and the assumption of Liabilities described in Sections 2.1 and 2.2. "Tax Allocation Agreement" shall mean the Tax Allocation Agreement of even date herewith by and among Parent, the Company and Buyer attached hereto as Exhibit 2. "Transferred Employee" shall have the meaning ascribed to it in Section 5.10(a). ARTICLE II PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES 2.1 Purchase and Sale of Assets. Subject to the terms and conditions of this Agreement, at the Closing the Company shall sell, transfer, convey, assign and deliver to Buyer and Buyer shall purchase, acquire and accept from the Company: (a) all the outstanding capital stock owned by the Company in the Directly Owned Subsidiaries (the "Shares"); and (b) all of the Company's other rights, properties, assets, claims, contracts and businesses of every kind, character and description, whether tangible or intangible, whether real, personal or mixed, whether accrued, contingent or otherwise, and wherever located; except for (v) the shares of Parent Series D Cumulative Preferred Stock, (w) the Company's National Bank Charter, (x) any rights in or to the names "Textron" and "TFC", alone or in combination with any other words, and any trade names, trademarks or service marks relating thereto, and (y) any documents or records which the Company is required by law to retain in its possession. (The Shares and the items listed in Section 2.1(b) which are being purchased by Buyer are collectively referred to as the "Assets"). 2.2 Assumption of Liabilities. Subject to the terms and conditions of this Agreement, the Tax Allocation Agreement and the Separation Agreement, at the Closing the Buyer shall assume all of the liabilities and obligations of the Company (known and unknown and whether absolute, accrued, contingent or otherwise) existing as of the Closing Date, whether asserted before or after such time, other than the liabilities and obligations of the Company (i) in connection with the transactions contemplated by this Agreement, (ii) in connection with the deferred tax liability associated with the Parent Series D Cumulative Preferred Stock or (iii) pursuant to, or as a result of a breach of, this Agreement or any other Contract entered into in connection with the Transaction. (The liabilities and obligations being assumed hereunder are collectively referred to as the "Liabilities".) 2.3 (a) Purchase Price. Subject to the terms and conditions of this Agreement including the provisions of Section 6.1(b) hereof and in consideration of the sale, assignment, transfer and delivery of the Assets, Buyer shall pay to the Company on the Closing Date, in immediately available funds by wire transfer to an account designated in writing at least two business days in advance by the Company, the sum of three billion, nine hundred million dollars ($3,900,000,000) (the "Purchase Price"). (b) Closing Date Statements. (1) As soon as practical, but in any event within sixty (60) days following the Closing Date, unless otherwise extended by the mutual agreement of the parties, the Company shall deliver to the Buyer at Buyer's expense (i) the audited consolidated statement of financial position of the Company and its consolidated Subsidiaries as of the Closing Date (the "Statement") together with the report thereon of Ernst & Young LLP, independent accountants of the Company ("E&Y"), stating that such Statement has been prepared in conformity with GAAP applied on a basis consistent with the preparation of the audited December 31, 1997 balance sheet as contained in the SEC Reports; (ii) a schedule of the intercompany accounts receivables between Parent or an affiliate of Parent (other than the Company and the Subsidiaries) on the one hand and the Company or any Subsidiary on the other hand set forth in the Statement; (iii) a schedule of deferred tax accounts for each Directly Owned Subsidiary as set forth in the Statement;(iv) a schedule of all intercompany payments between Parent and its Affiliates (other than the Company and the Subsidiaries) on the one hand and the Company and the Subsidiaries on the other hand from the date of the Interim Statements to the Closing Date; and (v) a schedule setting forth the contingent tax reserves as adjusted in accordance with the Tax Allocation Agreement. The term "Interim Statements" shall mean the Financial Statements of the Company and its consolidated subsidiaries as of, and for the six month period ending on, June 30, 1998. If requested by Buyer, the Company shall request that E&Y conduct a full audit of the Company and its consolidated Subsidiaries at Buyer's expense and deliver a statement of stockholders' equity and cash flows. (2) Subject to Section 2.3(d), the Statement shall be final, binding and conclusive on the parties hereto as they relate to the calculation of the Purchase Price but shall not affect Parent's or the Company's liability under any other Section of this Agreement. (c) Settlement of Purchase Price. Subject to the provisions of Section 2.3(d), within forty-five (45) days after the date of receipt by the Buyer of the Statement, in the event that the Adjusted Stockholder's Equity (as defined in Section 6.2(c)) and delivered pursuant to this Section 2.3 is (i) more than $1,227,400,000, then the Buyer shall pay the difference to the Company, as an adjustment to the Purchase Price, or (ii) less than $1,227,400,000, then the Company shall pay the difference to the Buyer, as an adjustment to the Purchase Price prior to 11:00 a.m. local time in New York. All payments pursuant to this Section 2.3(c) or Section 2.3(d) ("Purchase Price Adjustment Payments") shall be made by wire transfer of immediately available funds and shall be made together with interest thereon at the Interest Rate, payable for the period commencing on the Closing Date and ending on the day immediately prior to the date of such Purchase Price Adjustment Payment. (d) Closing Date Statement Disputes. (i) Buyer may dispute any amounts reflected on the Statement; provided, however, that the Buyer shall notify the Company in writing (the "Dispute Notice") of each disputed item, specifying the amount thereof in dispute and setting forth, in reasonable detail, the basis for such dispute, within forty-five (45) days of Buyer's receipt of the Statement as so submitted; and provided, further, however, that if an account or item is recorded or treated in a manner consistent with past practice, then, provided that such recording or treatment does not prevent the Statement from being in accordance with GAAP, it must be accepted as correct by Buyer for purposes of this Section. Buyer shall submit only one Dispute Notice containing all disputed items. In the event of such a dispute, the Buyer and the Company shall attempt to reconcile their difference and any resolution by them as to any disputed amounts shall be final, binding and conclusive on the parties hereto. If the Buyer and the Company are unable to reach a resolution with such effect within thirty (30) days of the receipt by the Company of the Buyer's written notice of dispute, the Buyer and the Company shall submit the items remaining in dispute for resolution to the Independent Accounting Firm (as defined below) which shall, within thirty (30) days after submission, determine and report to the parties upon such remaining disputed items, and such report shall be final, binding and conclusive on the parties hereto. All costs and expenses of the Independent Accounting Firm relating to the disputed items shall be allocated between the Buyer and the Company in the same proportion that the aggregate dollar amount of the items unsuccessfully disputed by each party bears to the total dollar amount of the items disputed hereunder. The term "Independent Accounting Firm" shall mean Arthur Andersen & Co., Certified Public Accountants or such other firm as the Buyer and the Company shall agree. (i) Notwithstanding any dispute pursuant to this Section 2.3(d) of any amounts payable pursuant to Section 2.3(c), each applicable party shall at the time specified in Section 2.3(c) pay that portion of the amounts payable by it pursuant to Section 2.3(c) and not subject at the time of such payment to such dispute. Subject to the preceding sentence, any Purchase Price Adjustment Payment made pursuant to this Section 2.3(d) shall be paid within five (5) business days following the resolution thereof. (e) Access to Books and Records. During the periods in which (x) the Statement is being prepared, or (y) any dispute may be raised as contemplated by Section 2.3(d), Parent, the Company and the Buyer shall provide each other, including their authorized agents and representatives, with reasonable access, during normal business hours and without disruption to their normal business, to their respective books, records, facilities, employees, accountants, counsel or other representatives pertaining to the Company and the transactions contemplated hereby to the extent affecting the Company including any consolidated or combined returns, schedules, consolidated or combined work papers and other related documents and shall promptly provide to the Company copies of all books, records, contracts, reports and other information which the Company or E&Y may reasonably request in connection with the preparation of the Statement; provided, however, that with respect to consolidated, combined, unitary or similar Tax Returns which include Parent (or any of its Affiliates other than the Company and the Subsidiaries) on the one hand and the Company (or any of the Subsidiaries) on the other hand, Buyer shall only have access to portions of such Tax Returns relevant to the Company and the Subsidiaries. 2.4 Closing. The Company shall as promptly as possible notify the Buyer, and the Buyer shall as promptly as possible notify the Company when the conditions to such party's obligations to complete the Transaction have been satisfied or waived. The closing of the Transaction (the "Closing") shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, One Beacon Street, Boston, Massachusetts at 10:00 a.m. Boston time on the last day of the month in which all of the conditions set forth in Article VI have been satisfied or waived, provided, however, that if the day on which such conditions have been satisfied or waived is not at least three business days prior to the last day of such month then the Closing shall occur on the last day of the following month, or at such other time, date and place as the Company and Buyer may agree in writing; provided, further, however, that if the conditions set forth in Article VI are not satisfied or waived prior to the third business day prior to November 30, 1998 the Closing shall, at the election of Parent, not occur prior to the first business day of January 1999. (The date on which the Closing occurs is hereafter referred to as the "Closing Date".) 2.5 Closing Obligations. (a) At the Closing, the Company shall deliver to Buyer: (i) certificates representing the Shares duly endorsed (or accompanied by duly executed stock powers) for transfer to Buyer; (ii) a duly executed Bill of Sale, Assignment and Assumption Agreement in the form attached as Exhibit 1 hereto; (iii) the Officer's Certificate described in Section 6.2(e); (iv) the resignation of any officer or director of any Subsidiary who is an employee or director of Parent; (v) all such other documents as may be necessary to convey to Buyer the right, title and interest of the Company and the Subsidiaries in and to the Assets; (vi) a certificate executed by the Secretary or Assistant Secretary of the Company as to the Certificate of Incorporation and By-Laws of the Company and the resolutions of the Board of Directors of the Company authorizing and approving the execution, delivery and performance of this Agreement and the transactions contemplated hereby, a list of officers of the Company and setting forth that such Certificate of Incorporation, By-Laws, and authorizations and approvals are in full force and effect on the Closing Date; (vii) a certificate executed by the Secretary or Assistant Secretary of each Designated Subsidiary as to the Certificate of Incorporation and By-Laws of such Subsidiary, a list of officers of such Designated Subsidiary and setting forth that such Certificate of Incorporation and By-Laws are in full force and effect on the Closing Date; and (viii) a certificate under Section 1445(b)(2) of the Code providing that the Company is not a foreign Person, in form and substance reasonably satisfactory to Buyer. (b) At the Closing, the Buyer shall deliver to the Company: (i) a duly executed Bill of Sale, Assignment and Assumption Agreement in the form attached as Exhibit 1 hereto; (ii) documents in a form reasonably satisfactory to the Company and Buyer under which Buyer assumes the Company's obligations under the agreements identified in Section 3.4(a)(vi) of the Disclosure Schedule; (iii) the Officer's Certificate described in Section 6.3(d); and (iv) the Purchase Price in the manner set forth in Section 2.3. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND THE COMPANY Parent and the Company jointly and severally represent and warrant to Buyer that: 3.1 Corporate Organization and Qualification. (a) Parent, the Company and each Designated Subsidiary is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation. Each Subsidiary other than the Designated Subsidiaries is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation except where the failure to be duly organized, validly existing and in good standing is not reasonably likely to have a Material Adverse Effect. Parent, the Company and each of its Subsidiaries is qualified and in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification, except where the failure to so qualify or be in good standing is not reasonably likely to have a Material Adverse Effect. Parent, the Company and each of its Subsidiaries has all requisite corporate power and authority and all necessary governmental Consents to own, lease and operate its properties and to carry on its business as it is now being conducted, except where the failure to have such power and authority is not reasonably likely to have a Material Adverse Effect. The Company has or will have made available to Buyer prior to Closing complete and correct copies of the articles of organization or articles of or certificates of incorporation, as the case may be, and by-laws or other equivalent organizational documents of it and each Designated Sub sidiary as in effect as of the date hereof. (b) Each Finance Subsidiary has the necessary Licenses or other certificates of authority to conduct its business as is being currently conducted in each jurisdiction where such Licenses or certificates are required except where the failure to be so licensed or authorized is not reasonably likely to result in a Material Adverse Effect. (c) Each Insurance Subsidiary is (i) duly licensed or autho rized as an insurance company in its jurisdiction of incorpora tion as set forth in Schedule A to the Agreement and is not deemed to be "commercially domiciled" in any other jurisdiction, (ii) duly licensed or authorized as an insurance company in each other jurisdiction where it is required to be so licensed or authorized, and (iii) duly authorized in its jurisdiction of incorporation and each other applicable jurisdiction to write each line of business reported as being written in the Company SAP Statements, except, in any such case, where the failure to be so licensed or authorized is not reasonably likely to result in a Material Adverse Effect. 3.2 Stock of Subsidiaries. (a) Schedule A to the Agreement identifies each Subsidiary of the Company and separately identifies each Subsidiary whose capital stock is directly owned by the Company (the "Directly Owned Subsidiaries"). The Company does not own, directly or indirectly, any equity interests in any other Person. (b) All of the shares of capital stock of the Directly Owned Subsidiaries, except for any directors' qualifying shares, are owned by the Company, free and clear of all Liens, and have been duly authorized, validly issued and are fully paid and nonassessable and were not issued in violation of any preemptive rights. Except for (i) any director's qualifying shares and (ii) as set forth in Section 3.2(b) of the Disclosure Schedule, all of the shares of the other Subsidiaries are owned by the Company or another Subsidiary or Subsidiaries free and clear of all Liens and have been duly authorized, validly issued and are fully paid and nonassessable and were not issued in violation of any preemptive rights except for any such Liens or where any such failures to be duly authorized, validly issued, and fully paid or nonassessable would not reasonably be expected to have a Material Adverse Effect. (c) Except as set forth in Section 3.2(c) of the Disclosure Schedule, there are no options, warrants, convertible securities or other rights, agreements, arrangements or commitments relating to the capital stock of, or other equity interest in, the Subsidiaries obligating the Company or a Subsidiary to issue, sell, transfer or otherwise dispose of or sell any shares of capital stock of, or other equity interest in, a Subsidiary. (d) Upon consummation of the Transaction, the Buyer will acquire valid title to the Shares free and clear of all Liens. Except as set forth in Section 3.2(d) of the Disclosure Schedule, there are no voting trusts, stockholder or registration rights agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of the shares of capital stock of the Subsidiaries. 3.3 Authority Relative to This Agreement. Each of Parent and the Company has the requisite corporate power and au thority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement and the con summation by each of Parent and the Company of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of each of Parent and the Company and the stockholder of the Company and no other corporate proceeding on the part of the Company or Parent is necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Parent and the Company and, assuming this Agreement consti tutes the valid and binding agreement of Buyer, constitutes the valid and binding agreement of Parent and the Company, enforceable against Parent and the Company in accordance with its terms, except that the enforcement hereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). 3.4 Consents and Approvals; No Violations. (a) Except for (i) the filing of applications and notices, as applicable, with federal and state regulatory authorities governing consumer finance, commercial finance, mortgage lending and insurance in the states in which the Company and its domestic Subsidiaries operate their respective businesses and the approval of such applications or the grant of required Licenses by such authorities, (ii) the filing of applications and notices, as applicable, with the foreign governmental authorities regulating consumer finance, commercial finance, mortgage lending and insurance in the foreign jurisdictions in which the Subsidiaries operate their businesses, and the approval of such applications or the grant of required Licenses by such authorities, (iii) the filing of notification and report forms with the United States Federal Trade Commission and the United States Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and the expiration or termination of any applicable waiting period thereunder, (iv) the filing of applications and notices, as applicable, with foreign governmental authorities under the Foreign Competition Laws, and the approval of such applications by such authorities, if required (including, without limitation, (x) in the instance of Australia, receipt of approval from the Treasurer under the Foreign Acquisitions and Takeovers Act, (y) in the instance of Canada, receipt of either an Advanced Ruling Certificate or no-action letter from the Bureau of Competition, in such form and to such effect as would be determined to be reasonably satisfactory, and (z) in the instance of the United Kingdom, receipt of a response from either the Office of Fair Trading or the Monopolies and Mergers Commission under the Merger Control Law, in such form and to such effect as would be determined to be reasonably satisfactory), (v) the Consents of third parties under the Contracts listed in Section 3.4(a)(v) of the Disclosure Schedule, and (vi) the assumption by Buyer of the Company's obligations under the Contracts identified in Section 3.4(a)(vi) of the Disclosure Schedule, no notices to, Consents or approvals of, or filings or registrations with, any court, administrative agency or commission or other governmental authority or instrumentality (each, a "Governmental Entity") or with any self-regulatory authority or with any third party are necessary in connection with the execution and delivery by Parent and the Company of this Agreement and the consummation by Parent and the Company of the transactions contemplated hereby, except for such notices, Consents, approvals, filings or registrations, the failure of which to be made or obtained would not reasonably be expected to have a Material Adverse Effect. The notices, Consents, or approvals, filings or registrations, and expirations or terminations of waiting periods referred in clauses 3.4(a)(i) through 3.4(a)(iv), without giving effect for purposes of this definition to any qualifier as to materiality or Material Adverse Effect are hereinafter referred to as the "Requisite Regulatory Approvals". As of the date hereof, neither Parent nor the Company knows of any reason why the Requisite Regulatory Approvals should not be obtained. (b) Neither the execution and delivery of this Agreement by Parent or the Company nor the consummation by Parent and the Company of the transactions contemplated hereby, does nor will (i) conflict with or result in any breach of any provisions of the certificate of incorporation or by-laws of the Parent or Company or the certificate of incorporation or by-laws or other equivalent organizational documents of any of the Subsidiaries; (ii) subject to obtaining the Consents listed in Section 3.4(a)(v) of the Disclosure Schedule and the Buyer assuming the Company's obligations under the Contracts identified in Section 3.4(a)(vi) of the Disclosure Schedule, and except as set forth in Section 3.4(b) of the Disclosure Schedule, conflict with, result in a violation or breach of, or constitute a Default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, License, Contract, agreement or other instrument or obligation to which the Parent or Company or any of the Subsidiaries is a party or by which any of them or any of their respective properties or assets may be bound; (iii) conflict with, result in a violation or breach of, or constitute a Default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any License or Permit; or (iv) subject to giving the notices, making the filings or registrations or obtaining the Consents or approvals referred to in clauses (i) through (vi) in paragraph (a) above, conflict with, violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company, any of the Subsidiaries or any of their respective properties or assets, except, in the case of clauses (ii), (iii) or (iv) of this paragraph (b) for violations, breaches or Defaults which would not reasonably be expected to have a Material Adverse Effect. 3.5 SEC Reports; Financial Statements. (a) The Company has timely filed all reports required to be filed by it with the Securities and Exchange Commission (the "SEC") since January 1, 1997 pursuant to the federal securi ties Laws and the SEC rules and regulations thereunder which com plied in all material respects with applicable requirements of the Securities Exchange Act of 1934, as amended (collectively, the "Company SEC Reports"). None of the Company SEC Reports, as of their respective dates, contained or will contain any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The consolidated statements of financial position and the related consolidated statements of operations, stockholders' equity and cash flows (including the related notes thereto) of the Company included in the Company SEC Reports (the "Financial Statements") complied in all material respects with applicable ac counting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in conformity with United States generally accepted accounting principles ("GAAP") (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a basis consistent with prior periods (except as otherwise noted therein), and present fairly the consolidated financial position of the Company as of their respective dates, and the consolidated results of its operations and its cash flows for the periods presented therein (subject, in the case of the unaudited interim financial statements, to normal and recurring year-end adjustments that have not been and are not expected to be material in amount). 3.6 Statutory Statements. Each of the Insurance Sub sidiaries has filed all annual or quarterly statements, together with all exhibits and schedules thereto, required to be filed with or submitted to the appropriate regulatory authorities of the jurisdiction in which it is domiciled on forms prescribed or permitted by such authority (collectively, the "Company SAP State ments") since January 1, 1997. Financial statements included in the Company SAP Statements and prepared on a statutory basis, in cluding the notes thereto, have been prepared in all material re spects in accordance with accounting practices prescribed or per mitted by applicable regulatory authorities in effect as of the date of the respective statements and such accounting practices have been applied in all material respects on a consistent basis throughout the periods involved, except as expressly set forth in the notes or schedules thereto, and such financial statements present fairly the respective statutory financial positions and results of operation of each of the Insurance Subsidiaries as of their respective dates and for the respective periods presented therein. 3.7 Absence of Certain Changes or Events. (a) Except as disclosed in the Company SEC Reports filed prior to the date of this Agreement, or as set forth in Sec tion 3.7(a) of the Disclosure Schedule or as a consequence of, or as expressly contemplated by, this Agreement, since December 31, 1997, (i) the business of the Company has been carried on only in the ordinary and usual course consistent with past practice, and (ii) there has not occurred any event, development or change which has resulted or is reasonably likely to result in a Material Adverse Effect; provided, however, that if the Material Adverse Effect results from a lawsuit identified in Section 3.8 of the Disclosure Schedule, Parent may cure the Material Adverse Effect by contribution to the capital of the Company in an amount sufficient to avoid a Material Adverse Effect. (b) Except as set forth in the Company SEC Reports filed prior to the date of this Agreement or as listed in Section 3.7(b) of the Disclosure Schedule, and except for liabilities and obligations incurred in the ordinary course of business consistent with past practice, since December 31, 1997, neither the Company nor any of its Subsidiaries has any liabilities or obligations (i) of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be recognized or disclosed on a consolidated balance sheet of the Company and its consolidated subsidiaries or in the notes thereto except for liabilities or obligations which have not resulted in or are not reasonably likely to have a Material Adverse Effect or (ii) of any other nature (whether accrued, absolute, contingent or otherwise) which exceed in the aggregate three hundred and twenty- five million dollars ($325,000,000), before giving effect to any related reduction in Taxes. The reference to a threshold of $325 million in this Section 3.7(b)(ii) shall not be deemed in any way to define the terms "material" or "Material Adverse Effect" and shall not be construed to limit or qualify in any way the right of Buyer to claim that any other representation or warranty set forth in this Agreement has been inaccurate or has been breached; provided, however, that if the Material Adverse Effect results from a lawsuit identified in Section 3.8 of the Disclosure Schedule, Parent may cure the Material Adverse Effect by a cash contribution to the capital of the Company in an amount sufficient to avoid a Material Adverse Effect. 3.8 Litigation. Except as set forth in Section 3.8 of the Disclosure Schedule, there is no Litigation pending, or to the knowledge of the members of the Executive Committee of the Board of Directors of the Company (which includes the General Counsel of the Company), threatened, the outcome of which is rea sonably likely to have a Material Adverse Effect. 3.9 Taxes. (a) Tax Returns Filed and Taxes Paid. Each of the Company and the Subsidiaries has timely filed all material Tax Returns that it was required to file and all such Tax Returns were correct and complete in all material respects. Each of the Company and the Subsidiaries has timely paid in full all Taxes that are due or owing. (b) Tax Payments and Withholdings. Each of the Company and the Subsidiaries has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (c) No Liens. There are no Liens or other encumbrances on any of the material assets or properties of the Company and the Subsidiaries that arose in connection with any failure (or alleged failure) to pay Tax. (d) Tax Positions. No position has been asserted in writing by any Tax Authority with respect to Taxes of the Company and the Subsidiaries which, if asserted by such Tax Authority in a Tax period ending after the Closing Date would reasonably be expected to have a Material Adverse Effect on the Company and the Subsidiaries. (e) No Pending Ruling, Closing Agreements, or Changes in Accounting Method. There are no outstanding requests for rulings with any Tax Authority that would have a Material Adverse Effect on the operations of the Company or the Subsidiaries for periods after the Closing Date. None of the Company and the Subsidiaries has (i) executed, become subject to, or entered into any closing agreement pursuant to Code Section 7121 or any similar or predecessor provisions thereof under the Code or other Tax Law, or (ii) received approval to make or agreed to a change in accounting method, which closing agreement or change in accounting method would have a Material Adverse Effect on the Company or any of the Subsidiaries for any Tax period ending after the Closing Date. None of the Company and the Subsidiaries has any application pending with any Tax Authority requesting permission for any change in accounting method that would have a Material Adverse Effect on the Company or the Subsidiaries for any Tax period ending after the Closing Date. (f) No Affiliated Group Liability. No liability has been asserted against the Company or the Subsidiaries with respect to Taxes of any affiliated group within the meaning of Section 1504(a) of the Code of which the Company or the Subsidiaries have been a member and of which Parent was not the common parent corporation. (g) No Tax Indemnities. No liability has been asserted against the Company or the Subsidiaries with respect to Taxes of any other Person pursuant to any Tax allocation or sharing agreement with any such Person, or any agreement to indemnify any such Person with respect to Taxes. 3.10 Employee Benefit Plans; Labor Matters. (a) A copy of each (i) employee benefit plan covered by the Employee Retirement Income Security Act of 1974, as amended ("ERISA")(and comparable foreign plans) (ii) each stock option plan and (iii) each employment agreement with any officer of the Company or a Subsidiary will be made available to Buyer prior to Closing. (b) Each Company Plan has been operated in accordance with its terms and the requirements of ERISA, the Code, and all other applicable Laws, except where the failure to have been so operated is not reasonably likely to result in a Material Adverse Effect. All reports and disclosures relating to the Company Plans required to be filed or furnished to any governmental entity, participants or beneficiaries prior to the Closing Date have been or will be filed or furnished in a timely manner and in accordance in all respects with applicable Law, except where the failure to be so filed or furnished is not reasonably likely to have a Material Adverse Effect. (c) (i) Neither the Company, any Subsidiary, any Company Plan, any trust created thereunder nor any trustee or administrator thereof has engaged in any transaction with the Company or any ERISA Affiliate, any Company Plan, any such trust, or any trustee or administrator thereof, or any party dealing with any Company Plan or any such trust, which could result in a liability assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 of the Code; and (ii) the Company, the Subsidiaries, and all fiduciaries (as defined in Section 3(21) of ERISA) with respect to the Company Plans, have complied in all material respects with Section 404 of ERISA. (d) Determination Letters. (i) Each Company Plan currently in effect which is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service with respect to the Code, or an application has been filed for such determination letter on a timely basis and is currently pending, and (ii) nothing has occurred that could reasonably be expected to adversely affect the qualified status of such Company Plan. (e) Except as is not reasonably likely to result in a Material Adverse Effect, no event or condition has occurred, or failed to occur, in connection with which the Company or any ERISA Affiliate or any of the Subsidiaries is or may reasonably be expected to be, directly or indirectly through any Affiliate, subject to any liability, lien or encumbrance with respect to any plan under ERISA or other applicable Law or under any agreement, instrument or understanding pursuant to or under which the Company or the Subsidiaries are required to indemnify any person against such liability, lien or encumbrance. No liability under Subtitle C, D or E of Title IV of ERISA has been or is expected to be incurred by the Company or any Subsidiary with respect to any ongoing frozen or terminated "single-employer plan", within the meaning of Section 4001(a)(15) of ERISA, or "multi-employer plan" within the meaning of Section 4001(a)(3) of ERISA, currently or formerly maintained by any of them, or the single- employer plan of any ERISA Affiliate. The Company and the Subsidiaries have not sponsored, maintained, contributed, or been obligated to contribute, to a multi-employer plan under Subtitle E of Title IV of ERISA. No notice of a "reportable event" within the meaning of Section 4043 of ERISA, for which the 30-day reporting requirement has not been waived, has been required to be filed for any Company Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof or will be required to be filed in connection with the transactions contemplated by this Agreement. (f) All contributions required to be made under the terms of any Company Plan as of the Closing Date have been or will be timely made on or prior to the Closing Date. No single- employer plan of the Company has an "accumulated funding deficiency" (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither the Company nor any Subsidiary has provided, or is required to provide, security to any plan pursuant to Section 401(a)(29) of the Code. (g) The consummation of the transactions contemplated in this Agreement will not, except as set forth in Schedule 3.10(g) (which may be amended any time prior to September 15, 1998), (A) entitle any employees of the Company or the Subsidiaries to severance pay, (B) accelerate the time of payment or vesting or trigger any payment of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any of the Company Plans or (C) result in any breach or violation of, or a default under, any of the Company Plans. (h) Except as is not reasonably likely to result in a Material Adverse Effect, the Company and the Subsidiaries have complied with all applicable provisions of Section 6.01 et seq. of ERISA and Section 4980B of the Code and with all applicable provisions of the Health Insurance Portability and Accountability Act of 1996. (i) Since January 1, 1997, except as is not reasonably likely to result in a Material Adverse Effect, neither the Company nor any of the Subsidiaries has in the past or is now engaged in any unfair labor practice, nor is any complaint against the Company or any of the Subsidiaries pending or threatened before the National Labor Relations Board; (i) there is no labor strike, dispute, slowdown or stoppage actually pending or threatened with respect to any employees of the Company or any of the Subsidiaries; (ii) no attempt to organize any group or all of the employees of the Company or the Subsidiaries has been made, or to the best of the Company's knowledge, proposed; and (iii) no grievance which might have an adverse effect on the Company or the Subsidiaries or the conduct of their business is pending in accordance with the Company's and the Subsidiaries' established procedures for handling grievances and no claim therefor has been asserted. Except as is not reasonably likely to have a Material Adverse Effect, (i) no agreement restricts the Company or any of the Subsidiaries from relocating, closing or terminating any of their operations or facilities; and (ii) in the past three years there has not been any work stoppage at the Company or any Subsidiary. Neither the Company nor any of the Subsidiaries is now, and the consummation of the transactions contemplated by this Agreement will not cause the Company or the Subsidiaries to become bound by, obligated under or responsible for any labor contract, collective bargaining agreement, consent decree or conciliation agreement relating to employment (other than plans or arrangements of a type described in Section 3.10(a)). (j) The Company and the Subsidiaries are in compliance with their obligations pursuant to the Worker Adjustment and Retraining Notification Act of 1988 ("WARN" Act). The Company and the Subsidiaries have not effectuated a "mass layoff" (as defined under the WARN Act) affecting in whole or in part any site of employment, facility, operating unit or employees of the Company or any Subsidiary. 3.11 Environmental Laws and Regulations. Except as disclosed in Section 3.11 of the Disclosure Schedule, or except as is not reasonably likely to result in a Material Adverse Effect: (a) the Company and the Subsidiaries and each of the Company Properties are and have been in compliance with all applicable Environmental Laws with respect to the Company Properties; (b) the Company and the Subsidiaries have obtained all Permits required for the operation of the Company Properties by any applicable Environmental Law; (c) neither the Company nor any Subsidiary has, and the Company has no knowledge of any other person who has caused any release, threatened release or disposal of any Hazardous Material at any of the Company Properties; (d) the Company has no knowledge that any of the Company Properties are adversely affected by any release, threatened release or disposal of a Hazardous Material originating or emanating from any other property; (e) neither the Company nor any Subsidiary has manufactured, used, generated, stored, treated, transported, disposed of, arranged for the disposal of, released, or otherwise managed any Hazardous Material at the Company Properties or at any other Property; (f) neither the Company nor any Subsidiary (i) has any liability for response or corrective action, natural resources damage, or any other harm pursuant to any Environmental Law involving any of the Company Properties, (ii) is subject to, has notice or knowledge of, or is required to give any notice of any Environmental Claim involving any of the Company Properties or (iii) has knowledge of any condition or occurrence at any of the Company Properties which could form the basis of an Environ mental Claim against the Company, any Subsidiary or any of the Company Properties; (g) the Company Properties are not subject to any, and the Company has no knowledge of any imminent, re striction on the ownership, occupancy, use or transferability of the Company Properties with respect to any (i) Environmental Law or (ii) release, threatened release or disposal of any Hazardous Material; and (h) there are no conditions or circumstances at any of the Company Properties that pose a risk to the environment or the health or safety of any person; provided, however, that for purposes of clauses (c),(d), (e),(f) and (h) of this Section 3.11 Company Properties shall be deemed to include any Property previously owned or leased by the Company or any Subsidiary that would qualify as a Company Property were such Property owned by the Company or a Subsidiary as of the date hereof. 3.12 Compliance with Laws. The Company and each Subsidiary are in compliance with all applicable Laws, Orders, Permits and Licenses except for instances of non-compliance which are not reasonably likely to have a Material Adverse Effect. Except as set forth in Section 3.12 of the Disclosure Schedule, since January 1, 1996, neither the Company nor any Subsidiary has received any written notification or written communication from any agency or department of foreign, federal, state, or local government (a) asserting that the Company or any Subsidiary is not in compliance with any of the Laws, Orders, Licenses or Permits of any governmental agency or authority or that any such agency or authority enforces, except such instances of non-com pliance that are not reasonably likely to have a Material Adverse Effect, or (b) requiring the Company or any Subsidiary to enter into or consent to the issuance of a cease and desist order, formal agreement, directive or commitment which restricts materially the conduct of the Company's business or its assets, liabilities, financial condition, results of operations, capital, credit or reserve policies, its management, or the payment of dividends. 3.13 Material Contracts. Each Material Contract is in full force and effect, and is a legal, valid and binding obligation of the Company or a Subsidiary and, to the knowledge of the Company, each of the other parties thereto, enforceable in accordance with its terms, except that the enforcement thereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relat ing to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and except as would not reasonably be likely to have a Material Adverse Effect. No condition exists or event has occurred which (whether with or without notice or lapse of time or both, or the happening or occurrence of any other event) would constitute a default by the Company or a Subsidiary or, to the knowledge of the Company, any other party thereto under, or result in a right in termination of, any Material Contract, except as would not reasonably be likely to have a Material Adverse Effect. The term "Material Contract" shall mean any Contract which is material to the Company and the Subsidiaries taken as a whole. 3.14 Insurance. Parent or the Company and the Subsidiaries self-insure or maintain with third parties policies of fire and casualty, liability and other forms of insurance in such amounts, with such deductibles and retained amounts, and against such risks and losses, as are reasonable for the conduct of the business as conducted on the date hereof and for the assets of the Company and the Subsidiaries. Parent and the Company shall, or shall cause the Subsidiaries to, maintain in full force and effect all such self-insurance or insurance, as the case may be, during the period from the date of this Agreement through the Closing Date. 3.15 Brokers and Finders. Other than Goldman, Sachs & Co. and J.P. Morgan and Co. (the fees and expenses of which shall be borne solely by Parent), neither Parent nor the Company have employed any investment banker, broker, finder, consultant or intermediary in connection with the transactions contemplated by this Agreement which would be entitled to any investment banking, brokerage, finder's, financial advisory or similar fee or commission in connection with this Agreement or the transactions contemplated hereby. 3.16 Intercompany Loans. Neither the Company nor any Subsidiary (i) have outstanding loans to Parent or any Affiliate of Parent (other than the Company or any Subsidiary) whose aggregate balance exceeds five million dollars ($5,000,000), (ii) have loans outstanding to customers of Parent or any Affiliate of Parent which in the aggregate exceeds twelve million dollars ($12,000,000), or (iii) have any other significant commercial relationships with Parent or any Affiliate of Parent (other than the Company or any Subsidiary). 1.13 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER The Buyer represents and warrants to the Company that: 4.1 Corporate Organization and Qualification. The Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. 4.2 Authority Relative to This Agreement. The Buyer has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contem plated hereby. This Agreement and the consummation by Buyer of the transactions contemplated hereby have been duly and validly authorized by its Board of Directors and no other corporate pro ceedings on the part of Buyer are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Buyer and, assuming this Agreement constitutes the valid and binding agreement of Parent and the Company, constitutes the valid and binding agreement of Parent and Buyer, enforceable against it in accordance with its terms, except that the enforce ment hereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is con sidered in a proceeding at law or in equity). 4.3 Consents and Approvals; No Violations. Neither the execution, delivery or performance of this Agreement by Buyer nor the consummation by Buyer of the transactions contemplated hereby nor compliance by Buyer with any of the provisions hereof will (a) conflict with or result in any breach of any provision of its certificate of incorporation, or articles of organization, as the case may be, or respective by-laws or other equivalent organizational documents, of Buyer or any of its subsidiaries; (b) require any Consent of any governmental or regulatory authori ty except for the Requisite Regulatory Approvals and Consents which are not reasonably likely to have an adverse material effect on Buyer or its ability to consummate the transactions hereunder; (c) result in a Default under any of the terms, conditions or provisions of any Contract to which Buyer or any of the Buyer's subsidiaries or any of their respective assets may be bound, except for such Defaults as to which requisite waivers or Consents have been obtained or which are not reasonably likely to have a Material Adverse Effect on Buyer or its ability to consummate the transactions hereunder; or (d) assuming the Con sents referred to in this Section 4.3 are duly and timely ob tained or made, violate any Order or Law applicable to Buyer or any of its subsidiaries or to any of their respective assets, except for violations which are not reasonably likely to have a Material Adverse Effect on Buyer or its ability to consummate the transactions hereunder. As of the date hereof, Buyer knows of no reason why the Requisite Regulatory Approvals should not be obtained. 4.4 Financing. Buyer has or will have on the Closing Date sufficient funds available to pay the Purchase Price for all of the Assets being purchased under this Agreement. 4.5 Brokers and Finders. Except as set forth in Schedule 4.5 to this Agreement, Buyer has not employed any in vestment banker, broker, finder, or intermediary in connection with the transactions contemplated by this Agreement which would be entitled to any investment banking, brokerage, finder's, financial advisory or similar fee or commission in connection with this Agreement or the transactions contemplated hereby. 4.6 Certain Proceedings. There is no pending proceeding that has been commenced against Buyer that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, Buyer's performance of the Agreement or the consummation by Buyer of the transaction contemplated hereby. To Buyer's knowledge, no such proceeding has been threatened. ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS AND OTHER AGREEMENTS 5.1 Conduct of Business of the Company. Except as set forth in Section 5.1 of the Disclosure Schedule, during the period from the date of this Agreement to the Closing Date (un less Buyer shall otherwise agree in writing and except as other wise expressly contemplated by this Agreement), the Company will conduct and will cause the Subsidiaries to conduct their opera tions in the ordinary course of business consistent with past practice and shall use all reasonable efforts to preserve intact their Assets and current business organizations, keep available the services of their current officers and employees, maintain their Licenses and Contracts and preserve their relationships with customers, suppliers, creditors, reinsurers, brokers, agents and others having business dealings with them. Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by this Agreement, or as set forth in Section 5.1 of the Disclosure Schedule, or as agreed to in writing by the Buyer, the Company agrees as to itself and its Subsidiaries that: (a) Issuance of Securities. The Company and its Subsidiaries shall not issue, sell, grant, dispose of, pledge or otherwise encumber or transfer, or cause, authorize or propose the issuance, sale, grant, disposition or pledge or other encum brance or transfer of (i) any additional shares of capital stock of any class, or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for any shares of capital stock, or any rights, warrants, options, calls, commitments or any other agreements of any character to purchase or acquire any shares of capital stock or any securities or rights convertible into, exchangeable for, or evidencing the right to subscribe for, any shares of capital stock or (ii) any other securities in respect of, in lieu of, or in substitution for, shares outstanding on the date hereof. (b) Dividends. The Company shall not, nor shall it permit any Subsidiary to (i) split, combine, subdivide or reclas sify any shares of its capital stock or (ii) declare, set aside for payment or pay any dividend, or make any other actual, con structive or deemed distribution in respect of, or redeem or repurchase, any of its capital stock or otherwise make any pay ments to Parent in its capacity as a stockholder, the effect of which, in the case of this clause (ii), shall be to cause the closing condition contained in Section 6.2(c) to be incapable of being satisfied. (c) Restructuring. The Company and its Subsidiaries shall not adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitaliza tion or other reorganization of the Company or any Subsidiary. (d) Governing Documents. The Company and its Subsidiaries shall not adopt any amendments to their articles of organization or to the articles or certificates of incorporation, as the case may be, or their by-laws or other equivalent organizational documents, or alter through merger, liquidation, reorganization, restructuring or in any other fashion the cor porate structure or ownership of the Company or any Subsidiary. (e) Indebtedness. The Company and the Subsidiaries shall not incur any indebtedness for money borrowed other than in the ordinary course of business consistent with past practice or guarantee any such indebtedness of another Person (other than the Company or any other Subsidiary), enter into any "keep well" or other agreement to maintain any financial condition of another Person (other than the Company or any other Subsidiary) or enter into any arrangement having the economic effect of any of the foregoing. (f) No Acquisitions. Except in connection with foreclosure, settlements in lieu of foreclosure or troubled loan or debt restructurings and the acquisition from time to time of receivables within the limits set forth in Section 5.1(f) of the Disclosure Schedule, the Company and the Subsidiaries shall not acquire or agree to acquire (i) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, limited liability company, partnership, joint venture, association or other business organization or division thereof or (ii) any assets that, individually or in the aggregate, are material to the Company and the Subsidiaries. (g) No Dispositions. Except in the ordinary course of business consistent with past practice including the sale of receivables within the limits set forth in Section 5.1(g) of the Disclosure Schedule, the Company and the Subsidiaries shall not sell, lease, license or otherwise encumber or subject to any Lien or otherwise dispose of any of the properties or assets of the Company or any Subsidiary. (h) Capital Expenditures. The Company and the Subsidiaries shall not make or agree to make any capital expenditures relating to a single project in excess of two hundred and fifty thousand dollars ($250,000) or in the aggregate in excess of one million dollars ($1,000,000). (i) Contracts. Except in the ordinary course of business consistent with past practice, the Company and the Subsidiaries shall not (y) enter into any Material Contract, or (z) modify, amend or transfer in any material respect or terminate any Material Contract to which the Company or any Subsidiary is a party or waive, release or assign any material rights or claims thereunder. (j) Employee Matters. Except as required by Law or in the ordinary course of business consistent with past practice or in accordance with this Agreement, the Company and the Subsidiaries shall not (i) increase the compensation or fringe benefits of any of their respective employees, (ii) enter into any Contract with any of their respective employees, officers or directors regarding his or her employment, compensation or benefits, or (iii) adopt any plan, arrangement or policy which would become a Company Plan or amend any Company Plan to the extent such adoption or amendment would create or increase any liability or obligation on the part of the Company or the Subsidiaries. (k) Approvals. The Company and its subsidiaries shall not take any action or enter into any agreement that could reasonably be expected to jeopardize or delay in any material respect the receipt of any Requisite Regulatory Approval. (l) Accounting Policies and Procedures. The Company and its Subsidiaries shall not make any change to their accounting methods, principles or practices, except as may be required by GAAP, Regulation S-X promulgated by the SEC, or applicable statutory accounting principles. (m) Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, suffer to exist or assume any material Lien on any of their material assets. (n) Claims. The Company and its Subsidiaries shall not settle any material claim, action or proceeding or waive, assign or release any material rights or claims except in either case (i) in the ordinary course of business consistent with past practice and (ii) to settle any Litigation which settlement would not (A) impose either material restrictions on the conduct of the business of the Company or any Subsidiary or (B) for any individual Litigation item settled for money, exceed $250,000 in cost to the Company or any Subsidiary. The Company and the Subsidiaries shall not pay, discharge or satisfy any Liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), except in the ordinary course of business consistent with past practice or in accordance with their terms as in effect of the date hereof. (o) Interest Rate and Foreign Exchange. Except in the ordinary course of business consistent with past practice, the Company and its Subsidiaries shall not materially restructure or materially change its gap position, through purchases, sales, hedges, swaps, caps or collars or otherwise or the manner in which any current hedges are classified or reported. (p) Representations and Warranties. The Company and the Subsidiaries shall not (i) take, or agree or commit to take any action that would make any representation and warranty of the Company hereunder that is qualified as to materiality from being untrue or inaccurate in any respect or any such representation or warranty that is not so qualified from being untrue or inaccurate in any material respect on the Closing Date (except for representations and warranties which speak as of a particular date or period of time, which need be accurate only as of such date or period of time), or (ii) omit, or agree to omit, to take any action necessary to prevent any such representation or war ranty that is qualified as to materiality from being untrue or inaccurate in any respect or any such representation or warranty that is not so qualified from being untrue or inaccurate in any material respect on the Closing Date; provided, however, that the Company and any Subsidiary shall be permitted to take or omit to take such action which can be cured, and in fact is cured, at or prior to the Closing Date. (q) Taxes. The Company and the Subsidiaries shall not make any Tax election or settle or compromise any material Tax liability, except in respect of ongoing matters or in the ordinary course of business consistent with past practice; provided, however, that the foregoing restrictions shall not apply to any Tax matter involving a Tax Return filed by the Company as part of any Parent consolidated group. (r) No Agreements. The Company and the Subsidiaries shall not authorize, recommend, propose or announce an intention to do any of the foregoing, or agree or enter into any Contract to do any of the foregoing. 5.2 Access to Information. (a) Upon reasonable notice, the Company shall (and shall cause each of the Subsidiaries to) afford to officers, em ployees, counsel, accountants, financing sources and other autho rized representatives of the Buyer ("Representatives"), in order to evaluate the transactions contemplated by this Agreement, reasonable access, during normal business hours throughout the period prior to the Closing Date, to its officers, directors, employees, accountants and other advisors and agents, properties, books, records and Contracts and, during such period, it shall (and shall cause each of the Subsidiaries to) furnish promptly to such Representatives all financial, operating and other data and other information concerning its business, properties and personnel as may reasonably be requested. (b) Buyer agrees that it will, and will cause its Representatives to, use any information obtained pursuant to this Section only in connection with the consummation of the transac tions contemplated by this Agreement. (c) The Confidentiality Agreement shall apply with re spect to Information, as defined therein, furnished to the Representatives pursuant to this Section. (d) As reasonably requested by Buyer, Parent shall cause Company to provide Buyer with (i) a list of all affiliated groups within the meaning of Section 1504(a) of the Code of which the Company or the Subsidiaries have been a member and of which Parent was not the common parent corporation, (ii) a list of all Tax allocation or Tax sharing agreements to which the Company and the Subsidiaries is a party with any Person and any agreements that provide for the Company and the Subsidiaries to indemnify any Person with respect to Taxes, (iii) a list of the federal, state and foreign income Tax Returns and other Tax Returns which are material and that were filed by the Company and each of the Subsidiaries during the three year period ending on the date of the latest balance sheet included with the Financial Statements indicating periods for which such Tax Returns were filed that are closed under applicable statutes of limitation, and (iv) copies of all United States federal pro forma consolidated income Tax Return information of the Company and the Subsidiaries and all material, state, local, and foreign income or franchise Tax Returns of the Company and the Subsidiaries (including only the relevant portions of Parent's Tax Returns that relate solely to the Company and the Subsidiaries) for all Tax periods ending on or after the date which is three years prior to the Closing Date. (e) Prior to September 1, 1998, the Company shall provide to Buyer a list of all material services provided to the Company or any Subsidiary by Parent or any Affiliate of Parent (other than the Company or any Subsidiary) or pursuant to Contracts between Parent or any Affiliate of Parent (other than the Company or any Subsidiary) and third parties. If requested by Buyer, Parent shall enter into an amendment to the Separation Agreement to provide, to the extent feasible and not otherwise prohibited by Law, for the continuation for a reasonable period subsequent to the Closing of any services included on such list, any such services to be provided on commercially reasonable terms. 5.3 Other Actions. Parent, the Company, the Buyer and their respective subsidiaries shall not take any action that would, or could reasonably be expected to, result in any of the conditions to the consummation of the Transaction set forth in Article VI not being satisfied. 5.4 Advice of Changes. Parent, the Company and Buyer shall promptly advise the other party orally and in writing of (a) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect, (b) the failure by it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement or (c) any change or event (i) having, or which, insofar as can reasonably be foreseen, would have, in the case of Buyer, a material adverse effect on Buyer, and, in the case of the Company, a Material Adverse Effect, or (ii) which has resulted, or which, insofar as can reasonably be foreseen, would result, in any of the conditions set forth in Article VI not being satisfied; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. 5.5 HSR Act Filing. Each party hereto shall, as promptly as practicable, file, or cause to be filed, any required notification and report forms under the HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division of the United States Department of Justice (the "Antitrust Division") in connection with the transactions contemplated by this Agreement, and will use their respective commercially reasonable efforts to respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation and to cause the waiting periods under the HSR Act to terminate or expire at the earliest possible date. Each party hereto will each furnish to the other such necessary information and reasonable assistance as the other may reasonably request in connection with its preparation of necessary filings or submissions to any governmental or regulatory agency, including, without limitation, any filings necessary under the provisions of the HSR Act. 5.6 Consents and Reasonable Efforts. (a) Prior to September 1, 1998, the Company will provide Buyer with a list of each material License and shall cooperate with Buyer to determine a list of all Requisite Regulatory Approvals. (b) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties hereto agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party or parties in doing, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement as promptly as practicable (it being recognized that time is of the essence), including, (i) obtaining all Consents, approvals and agreements of, and giving and making all notices and filings with, any governmental and regulatory authorities necessary to authorize, approve or permit the consummation of the transactions contemplated by this Agreement, including, the Requisite Regulatory Approvals and (ii) obtain all other approvals and Consents to the transactions contemplated by this Agreement including (x) the Consents of third parties required to assign or otherwise transfer to Buyer the Contracts identified in Section 3.4(a)(v) of the Disclosure Schedule, and (y) the approvals of third parties to Buyer's assumption of the Company's obligations under the Contracts identified in Section 3.4(a)(vi) of the Disclosure Schedule. In connection with and in furtherance of the foregoing, Buyer agrees to use its commercially reasonable efforts to file all required applications with state insurance commissioners or departments on Form A and all comparable forms in Canada, the U.K., Australia and New Zealand, not later than thirty (30) days from the date hereof. Each of the Company and Buyer shall promptly inform the other of any material communication received by such party or any of its Affiliates from any regulatory agency regarding any of the transactions contemplated hereby. Each of the Company and Buyer shall advise the other promptly of any understandings, undertakings or agreements which such party or any of its affiliates proposes to make or enter into with any regulatory agency in connection with the transactions contemplated hereby. The Company shall be entitled to notice of and to participate in all hearings of any regulatory agency held in connection with or relating to any of the transactions contemplated hereby. (c) The Company and Buyer shall use all commercially reasonable efforts to terminate the guarantees by the Company of obligations of Subsidiaries as identified in Section 5.6(c) of the Disclosure Schedule (the "Guarantees"), and arrange for Buyer to assume the obligations of the Company under the Guarantees. (d) In the event and to the extent that Buyer and the Company are unable to obtain any required approval or Consent of any person other than a Governmental Entity to any Contract to be assigned to Buyer hereunder, (i) the Company shall use commercially reasonable efforts in cooperation with Buyer to (x) provide or cause to be provided to Buyer the benefits of any such Contract, (y) cooperate in any arrangement, reasonable and lawful as to the Company and Buyer, designed to provide such benefits to Buyer and (z) enforce for the account of Buyer any rights of the Company arising from such Contract, including the right to elect to terminate in accordance with the terms thereof on the advice of Buyer; (ii) Buyer shall use commercially reasonable efforts to perform the obligations of the Company arising under such Contract, to the extent that, by reason of the transactions consummated pursuant to this Agreement, Buyer has control over the resources necessary to perform such obligations; and (iii) the consummation of the transactions contemplated hereby shall not be deemed to have resulted in the assignment of such Contract. If and when any such approval or Consent shall be obtained or such Contract shall otherwise become assignable, the Company shall promptly assign all of its rights and obligations thereunder to Buyer without the payment of further consideration and Buyer shall, without the payment of any further consideration therefor, assume such rights and obligation and the Company shall be relieved of any and all obligation or liability hereunder. (e) (i) If, on the Closing Date, there has not been obtained any Requisite Regulatory Approval with respect to any Subsidiary in the absence of which the conditions precedent to the Closing set forth in Article VI would nevertheless be satisfied, the securities (or other ownership interests) representing all of the Company's ownership of such Subsidiary (the "Deferred Securities") shall not be delivered to Buyer at Closing and, if owned by another Subsidiary, shall be transferred, by dividend or otherwise, from such Subsidiary to the Company immediately prior to Closing; provided that, Buyer may, at its election, proceed to take delivery of the Deferred Securities if such action would not (i) subject Parent or any subsidiary or Affiliate of Parent (other than a Subsidiary), or any officer, director or agent of any such Person, to any liability or penalty or (ii) be in violation of any Law or Order applicable to or binding on Parent or any subsidiary or Affiliate or Parent (other than a Subsidiary), or any officer, director or agent of any such Person. From and after the Closing, the parties hereto, at their respective expense, shall continue to use reasonable best efforts to obtain all Requisite Regulatory Approvals relating to the Deferred Securities or the transfer thereof. (ii) Until such time as any Deferred Securities have been transferred to Buyer or a third party in accordance with this Section 5.6(e) (each a "Deferred Transfer"), the Subsidiaries to which any Deferred Securities relate shall be managed and operated by the Company in the manner hereinafter provided from the Closing and until the respective Deferred Transfer, with all gains, income, excess cash flow, losses, expenses, Taxes or other items generated thereby to be for the account of such Subsidiaries and not in any respect for the account of Parent or its other Affiliates. From the Closing Date to the date of the Deferred Transfer, the Company shall hold the Deferred Securities and operate the Subsidiaries to which the Deferred Securities relate only in the ordinary course substantially consistent with past practice and shall use all reasonable efforts to preserve intact such Subsidiaries' business, keep available such Subsidiaries' officers and employees, maintain such Subsidiaries' Licenses and Contracts and preserve such Subsidiaries' relationships with customers, suppliers, creditors, reinsurers, brokers, agents and others having business dealings with them. (iii) Unless otherwise transferred upon Buyer's instructions in accordance with this Section 5.6(e), the certificates for the relevant Deferred Securities, duly endorsed in blank and with all necessary transfer stamps affixed thereto or such other assignments, deeds, share transfer forms or other instruments or documents are necessary in order to effectively transfer the Deferred Securities, will be delivered to Buyer free and clear of all Liens, without the payment of any additional consideration by Buyer, on the date which is no more than five business days after all Requisite Regulatory Approvals relating to any such Deferred Securities or the transfer thereof shall have been obtained or on such other date as the parties may mutually agree. (iv) The Company shall, on the Buyer's written instructions at any time after the Closing Date (subject to applicable Law), or may at any time after 12 months after the Closing Date, for Buyer's benefit, sell or dispose of the Deferred Securities or the assets of the Subsidiaries to which such Deferred Securities relate, on such terms and conditions as Buyer shall reasonably determine, and remit the proceeds of such sale to Buyer; provided that the Company shall have no liability to any transferee of such Deferred Securities or assets other than for negligence or wilful misconduct. (v) The Company shall provide Buyer with a quarterly accounting, as well as an accounting as of the date of any Deferred Transfer, covering all transactions entered into on behalf of Buyer from the Closing Date or, if more recent, the date as of which any previous accounting was measured, to the date as of which such accounting is measured. Buyer shall have full access, subject to applicable Law, upon reasonable notice and during normal business hours to the properties, officers, employees, books, papers and records of any Subsidiary to which Deferred Securities relate. 5.7 Further Assurances. On and after the Closing Date, (a) the parties hereto shall use all reasonable efforts to take or cause to be taken all appropriate action and do, or cause to be done, all things necessary or appropriate to consummate and make effective the transactions contemplated hereby, including the execution of any additional documents, instruments or conveyances of any kind (not containing additional representations and warranties) which may be reasonably necessary or appropriate to carry out any of the provisions hereof, including putting Buyer in full possession and operating control of the Assets and causing Buyer to have full unencumbered ownership of all Shares, and giving effect to the assumption of Liabilities by Buyer as contemplated by this Agreement and (b) as requested by Buyer, Parent and the Company shall use all reasonable best efforts to deliver to the Buyer, originals of all Contracts, agreements, commitments, books, records, files, certificates, Licenses, Permits and plans of the Company and the Subsidiaries in possession of the Company or a Subsidiary and copies of all documents and records identified in clause (y) of Section 2.1. 5.8 Publicity. The parties will consult with each other and will mutually agree upon any press releases pertaining to the purchase of assets under this Agreement and shall not issue any such press releases prior to such consultation and agreement, except as may be required by applicable Law or by obligations pursuant to any listing agreement with any national securities exchange, in which case the party proposing to issue such press release shall use its reasonable efforts to consult in good faith with the other party before issuing any such press re leases. 5.9 Indemnification. (a) Buyer agrees that all rights to indemnification and exculpation existing in favor of the directors, officers, employees and agents of the Company and its Subsidiaries in their capacity as such (the "Company Indemnified Parties"), with respect to matters occurring at or prior to the Closing Date, under the provisions existing on the date hereof of the applicable certificate of incorporation or by-laws or other equivalent organizational documents shall survive and continue in full force after Closing, and that after the Closing, Buyer shall assume any obligations of the Company and Parent in respect thereof as to any claim or claims asserted after the Closing Date. (b) Buyer shall cause to be maintained in effect for the Section 5.9 Indemnified Parties (as defined below) for not less than six years after the Closing Date policies of directors' and officers' liability insurance with respect to matters occurring at or prior to the Closing Date (including, without limitation, the transactions contemplated by this Agreement) providing substantially the same coverage and containing terms and conditions which are no less advantageous, in any material respect, to those currently maintained for the benefit of the Company's present or former directors, officers, employees or agents covered by such insurance policies prior to the Closing Date (the "Section 5.9 Indemnified Parties"); provided, however, that Buyer may, in lieu of maintaining such existing insurance as provided above, cause comparable coverage to be provided under any policy maintained for the benefit of Buyer or any of the Buyer's subsidiaries, so long as the material terms thereof are no less advantageous than such existing insurance. (c) This Section 5.9 is intended to benefit the Company Indemnified Parties and the Section 5.9 Indemnified Par ties and shall be binding on all successors and assigns of Buyer. (d) The Company shall use its reasonable efforts to provide all required or appropriate notices under such existing insurance with respect to potential claims of which it is aware prior to the Closing Date. 5.10 Employees. (a) Buyer shall offer employment on terms substantially similar in the aggregate to those currently provided by the Company to all of the employees of the Company whose employment with the Company has not ended as of the Closing Date (it being understood that individuals who are on long-term disability as of the Closing Date shall not be considered to be employed by the Company as of the Closing Date); provided, however, that no such continued employment shall be construed to limit the ability of Buyer to terminate any such employee at any time for any reason. Each employee of the Company or the Subsidiaries who accepts continued employment and becomes an employee of Buyer on the Closing Date or continues to be an employee of a Subsidiary (or, in the case of any employee offered continued employment upon returning to work from a leave of absence, on such date as such employee becomes an employee of Buyer) shall be hereinafter referred to as a "Transferred Employee." Notwithstanding anything to the contrary, employment of the Transferred Employees shall be subject to all of Buyer's policies and practices, including the policy of employment-at- will. Buyer agrees to provide and pay the severance benefits and other payments as set forth in the documents identified in Section 3.7 (a)(2) of the Disclosure Schedule. (b) On and after the Closing Date, Buyer shall provide the Transferred Employees with the employee benefits generally provided to other employees of Buyer, subject to the terms and conditions of Buyer's plans; provided, however, that Buyer may elect to provide vacation benefits under the Company's or any Subsidiaries' plans (and not under Buyer's vacation policies). (At Buyers's option, welfare plan benefits may be provided in the manner set forth in the Separation Agreement described in Section 8.4(a).) Company and the Subsidiaries shall use their best efforts to provide Buyer prior to the Closing Date with such information as Buyer requires to implement the provisions of this Section 5.10. (c) Buyer shall grant for purposes of all of Buyer's Employee Welfare Benefit Plans and, if applicable, Buyer's vacation policy past service credit to all Transferred Employees for all periods of time credited to such Transferred Employees under the Employee Welfare Benefit Plans and vacation policy maintained for the Transferred Employees immediately prior to the Closing Date; provided, however, that Buyer shall not be required to grant past service credit to Transferred Employees for any purposes under Buyer's retiree medical plan; and provided, further, that with respect to Buyer's short-term disability plan, past service credit shall be granted to Transferred Employees only for purposes of determining eligibility and not for purposes of determining the applicable schedule. (d) With respect to any benefits provided under any Employee Welfare Benefit Plan, Buyer shall (i) waive all limitations as to preexisting conditions, exclusions, and waiting periods with respect to participation and coverage requirements applicable to the Transferred Employees so that the Transferred Employees may be eligible to participate in such plans after the Closing Date, other than limitations or waiting periods that are already in effect with respect to such employees and that have not been satisfied as of the Closing Date under any Employee Welfare Benefit Plan maintained for the Transferred Employees immediately prior to the Closing Date, and (ii) provide each Transferred Employee with credit for any co-payments and deductibles paid prior to the Closing Date in satisfying any applicable deductible or out-of-pocket requirements under any Employee Welfare Benefit Plans that the Transferred Employees are eligible to participate in after the Closing Date; provided, however, that (i) and (ii) above shall apply only to the extent that the Company, Parent and the Subsidiaries provide Buyer with the information Buyer requires to administer such provisions. (e) Buyer shall assume all liability for, and any obligations under, to the extent any such liability or obligations pertain to Company Employees, any retiree medical, dental and life insurance plans maintained for any of the Company Employees immediately prior to the Closing Date. (f) As soon as practicable after the Closing Date, Buyer shall assume and agrees to be the plan sponsor (as the term is defined in ERISA Section 3(16)(B)) of the Avco Financial Services, Inc. Profit Sharing Retirement Plan (the "Company's Profit Sharing Plan"), and accordingly, shall assume responsibility and authority over the Company's Profit Sharing Plan and the related trust, which is intended to qualify under Section 401(a) and Section 501(a) of the Code. Upon such assumption, Buyer shall assume all of the Company's rights and obligations and shall indemnify Company from any and all liabilities with respect to the Company's Profit Sharing Plan and the Company shall be relieved of all such rights and obligations including liabilities regarding such accrued benefits under the Company's Profit Sharing Plan. (g) Buyer shall advise the Transferred Employees, in a written communication issued to such employees within sixty days following the date of this Agreement, of Buyer's undertakings set forth in this Section 5.10. Any general communication prepared by the Company, Parent or any Subsidiary specifically referencing any action to be taken by Buyer relating to the subjects covered in Section 5.10 shall be approved in advance by Buyer, to the extent of such specific references. (h) Transferred Employees shall receive credit for their service with the Company and the Subsidiaries for eligibility and vesting purposes only under the Associates Savings and Profit-Sharing Plan; provided, however, that such past service credit shall be granted under the Associates Savings and Profit-Sharing Plan only to the extent that such service was recognized and credited to such Transferred Employees under the Company's Profit Sharing Plan. Transferred Employees shall not receive credit for their service with the Company and the Subsidiaries for any purposes under Buyer's tax-qualified defined benefit pension plan. Parent shall take the action necessary to vest, to the extent necessary, Transferred Employees who participate in the Textron Savings Plan in their accrued benefits under such plan as of the Closing Date. (i) For a period of two (2) years from and after the Closing Date, neither Parent nor the Company nor any of the Parent's subsidiaries shall, without Buyer's consent, solicit or employ the Transferred Employees. (j) Nothing contained in this Agreement, whether expressed or implied, is intended to confer upon any employee of the Company or the Subsidiaries or any Transferred Employee or their legal representatives, any rights or remedies, including, without limitation, any rights of employment for any period of any nature or kind whatsoever under or by reason of this Agreement. (k) Except for claims or demands relating to the Textron Savings Plan and any matter subject to indemnification pursuant to Section 8.1(b)(iii), after Closing, Buyer shall assume, discharge, pay and be solely liable for and shall indemnify, defend and hold harmless the Company, Parent and any of their present and former officers, directors, employees, agents, assigns and representatives from and against all Losses arising directly or indirectly from any claims or demands by any person employed by the Company or the Subsidiaries on or prior to the Closing Date ("Company Employee") or their family members arising out of the employment by Company or the Subsidiaries of the Company Employees including any claims relating to any severance arrangements and any Employee Welfare Benefit Plans. 5.11 Tax Allocation Agreement. Parent and Buyer have executed as of the date hereof the Tax Allocation Agreement relating to the allocation of the purchase price, the payment of taxes, elections under Section 338 of the Code, and related matters. 5.12 Intercompany Transactions. Intercompany transactions shall be treated in accordance with the Separation Agreement. At or prior to the Closing, Parent and the Company will obtain the release of all Liens on assets of the Company or any Subsidiary securing, and all guarantees by the Company or any Subsidiary of, any indebtedness of Parent or any of its Affiliates (other than the Company and the Subsidiaries). Except as otherwise provided in the Separation Agreement, Parent and any Affiliate of Parent (other than the Company or a Subsidiary) will (a) cancel any indebtedness for money borrowed by the Company or any Subsidiary from Parent or any Affiliate of Parent (other than the Company or any Subsidiary) and (b) repay any indebtedness for money borrowed by Parent or any Affiliate of Parent (other than the Company or any Subsidiary) from the Company or any Subsidiary. 5.13 No Negotiation. Neither the Company, any Subsidiary nor Parent will, directly or indirectly, through any director, employee, representative, affiliate or agent of the Company, any Subsidiary or Parent, or otherwise (i) solicit, initiate, encourage or assist in the submission of any inquiries, proposals or offers from any Person or group relating to any acquisition or purchase of any assets of, or any equity interest in, the Company or any Subsidiary or any form of recapitalization transaction, merger, consolidation, business combination, spin- off, liquidation or similar transaction involving, directly or indirectly, the Company or any Subsidiary (each an "Acquisition Proposal"), (ii) participate in any discussions or negotiations regarding any Acquisition Proposal or furnish to any Person any information concerning the Company, any Subsidiary or any Acquisition Proposal or (iii) otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to make or enter into an Acquisition Proposal. If the Company, any Subsidiary or the Parent receives any inquiry, proposal or offer to enter into any transaction of any type referred to above, such party agrees to inform the Buyer promptly of the terms thereof and the identity of the party making such inquiry, proposal or offer. 5.14 Non-Disclosure. Each of Parent and the Company agrees that, at all times from and after the date hereof, except as required by law or by the order of any court or government agency, it shall keep secret and retain in strictest confidence and shall not, except with the express prior written consent of Buyer, directly or indirectly disclose, communicate or divulge to any Person or use for the benefit of any Person, any Proprietary information (meaning, all information or data with respect to the conduct or details of the businesses of the Company or any Subsidiary as of the date hereof and the Closing Date, including, without limitation, methods of operation, customers and customer lists, details of contracts with customers, consultants, suppliers or employees, products, proposed products, former products, proposed, pending or completed acquisitions of any company, divisions, product line or other business unit, prices and pricing policies, fees, costs, plans, designs, technology, inventions, trade secrets, know-how, software, marketing methods, policies, plans, personnel, suppliers, competitors, markets or other specialized information or proprietary matters of the business of the Company or the Subsidiaries, as of the date hereof and the Closing Date). The restrictions contained in the preceding sentence shall not apply to any Proprietary Information that (i) is or becomes a matter of public knowledge other than through disclosure by Parent or the Company or (ii) is or becomes known to Parent or the Company from another source which is under no known obligation of confidentiality to Buyer. 5.15 Management of Risk Regarding Currency Translations. At the request of Buyer, the Company or a Subsidiary shall enter into transactions or arrangements to manage the risk of foreign currency translations for periods anticipated to be prior to Closing, provided that any such transactions or arrangements are undertaken at the cost and risk of, and for the benefit of, Buyer and Buyer shall indemnify, defend and hold the Company and any Subsidiary harmless from any liability associated therewith and the Company will make available to Buyer any benefit associated therewith. ARTICLE VI CONDITIONS TO CONSUMMATION OF THE TRANSACTION 6.1 Conditions to Each Party's Obligations to Complete the Transaction. The respective obligations of each party to complete the Transaction are subject to the satisfaction at or prior to the Closing Date of the following conditions: (a) Injunction. There shall not be in effect any Law or Order of a court or governmental or regulatory agency of competent jurisdiction directing that the transactions contemplated herein not be consummated as provided herein; provid ed, however, that, subject to the terms and provisions herein provided, prior to invoking this condition each party shall use all reasonable efforts to have any such Order vacated. (b) Governmental Filings and Consents. All Requisite Regulatory Approvals shall have been obtained and be in effect as of the Closing Date with respect to (i) (x) Finance Subsidiaries incorporated in Canada, the United Kingdom and Australia, (y) Finance Subsidiaries incorporated in the United States (excluding the territory of Puerto Rico) which, as of December 31, 1997 accounted for at least 95% of the consolidated receivables of all Finance Subsidiaries in the United States and (z) Finance Subsidiaries which, as of December 31, 1997 accounted for at least 90% of the consolidated receivables of all Finance Subsidiaries, and (ii) (x) Insurance Subsidiaries incorporated in Canada, the United Kingdom and Australia, (y) Insurance Subsidiaries incorporated in the United States which accounted for at least 95% of the revenue of all Insurance Subsidiaries in the United States for the year ending December 31, 1997, and (z) and Insurance Subsidiaries which accounted for at least 90% of the revenues of all Insurance Subsidiaries for the year ending December 31, 1997, and the waiting periods under the HSR Act shall have expired or been terminated; provided, however, that in the event that either all conditions to Closing set forth in this Article VI have been satisfied or waived and the Requisite Regulatory Approvals relating to operations of the Company or its Subsidiaries in the Commonwealth of Puerto Rico (the "Puerto Rican Regulatory Approvals") have not been obtained or all conditions to Closing set forth in this Article VI have been satisfied or waived other than the Puerto Rican Regulatory Approvals, then at the election of Parent, either the Puerto Rican Regulatory Approvals shall be a condition to Closing under this Article VI or the Purchase Price shall be reduced by $150,000,000 and Buyer and Seller shall be deemed to have waived the Puerto Rican Regulatory Approvals. (c) Third Party Consents. Consents of third parties under the Contracts identified in Section 3.4(a)(v) of the Disclosure Schedule have been obtained except where the failure to obtain the Consents either individually or in the aggregate shall not have a material adverse effect on the ability of the Buyer to conduct the Company's business (taken as a whole) as conducted by the Company as of the date hereof. 6.2 Additional Conditions to the Obligation of Buyer. The obligation of Buyer to complete the Transaction is subject to the satisfaction at or prior to the Closing Date of the following conditions, any and all of which may be waived in whole or in part by Buyer to the extent permitted by applicable law: (a) Representations and Warranties. For purposes of this Section 6.2(a), the accuracy of the representations and warranties of the Company set forth in Article III of this Agreement shall be assessed as of the date of this Agreement and as of the Closing Date with the same effect as though all such representations and warranties had been made on and as of the Closing Date; provided, however, that representations and warranties which are confined to a specified date or period of time shall speak only as of such date or period of time. All representations and warranties set forth in Article III hereof which are qualified by reference to materiality or a Material Adverse Effect shall be true and correct and all other representa tions and warranties set forth in Article III of this Agreement shall be true and correct in all material respects. (b) Performance. Parent and the Company shall have performed in all material respects all of their respective covenants and agreements under this Agreement theretofore to be performed. (c) Adjusted Stockholder's Equity. Adjusted Stockholder's Equity, as defined below, shall be greater than one billion two hundred twenty-seven million four hundred thousand dollars ($1,227,400,000). (If Adjusted Stockholder's Equity is less than $1,227,400,000, this condition can be satisfied by a contribution of cash to the capital of the Company on or before Closing equal to the difference between Adjusted Stockholder's Equity and $1,227,400,000.) For purposes of this Section, the term "Adjusted Stockholder's Equity" shall mean stockholder's equity (i.e., total consolidated assets, less total consolidated liabilities) of the Company as set forth in the Statement computed (i) without regard to (A) any securities valuation adjustment and any currency translation adjustment and (B) the Parent Series D Cumulative Preferred Stock and the deferred Tax liability attributable thereto, (ii) without including any of the assets referred to in clauses (w), (x) and (y) of Section 2.1 to the extent such assets were reflected on the Interim Statements (iii) by adding an amount equal to any accruals or payments made after June 30, 1998 and prior to the Closing Date pursuant to the agreements and programs identified as item 2 of Section 3.7(a) of the Disclosure Schedule; and (iv) otherwise taking into account Sections 19(b) and 19(c)of the Tax Allocation Agreement. (d) Separation Agreement. Each of the Parent and the Company shall have performed its respective obligations under the Separation Agreement to be performed by it on or before the Closing. (e) Officer's Certificates. Buyer shall have received on the Closing Date certificates dated the Closing Date and executed by the Chief Executive Officer or the Chief Financial Officer of each of Parent and the Company certifying to the ful fillment of the conditions specified in Sections 6.2(a),(b),(c) and (d) hereof. 6.3 Additional Conditions to the Obligation of the Company. The obligation of Parent and the Company to complete the Transaction is subject to the satisfaction at or prior to the Closing Date of the following conditions, any and all of which may be waived in whole or in part by the Company to the extent permitted by applicable law: (a) Representations and Warranties. For purposes of this Section 6.3(a), the accuracy of the representations and warranties set forth in Article IV of this Agreement shall be assessed as of the date of this Agreement and as of the Closing Date with the same effect as though all such representations and warranties had been made on and as of the Closing Date; provided, however, that representations and warranties which are confined to a specified date or period of time shall speak only as of such date or period of time. All representations and warranties set forth in Article IV of this Agreement which are qualified by reference to materiality shall be true and correct and all other representations and warranties set forth in Article IV of this Agreement shall be true and correct in all material respects. (b) Performance. Buyer shall have performed in all material respects its respective covenants and agreements under this Agreement theretofore to be performed. (c) Assumed Obligations. Buyer shall have assumed the obligations of the Company under the Contracts identified in Section 3.4(a)(vi) of the Disclosure Schedule in a form reasonably satisfactory to the Company, the Buyer and the other parties to said Contracts. (d) Officer's Certificate. The Company shall have received on the Closing Date a certificate dated the Closing Date and executed by the Chief Executive Officer or the Chief Financial Officer of the Buyer certifying to the fulfillment of the conditions specified in Sections 6.3(a), (b) and (c) hereof. ARTICLE VII TERMINATION 7.1 Termination by Mutual Consent. This Agreement may be terminated and the Transaction may be abandoned at any time prior to the Closing Date, by the mutual written consent of the Company and the Buyer. 7.2 Termination by Any Party. This Agreement may be terminated and the Transaction may be abandoned by the Company or the Buyer if (i) any court of competent jurisdiction in the United States or some other governmental body or regulatory authority shall have issued an Order permanently restraining, en joining or otherwise prohibiting the Transaction and such Order shall have become final and nonappealable; provided, however, that the party seeking to terminate this Agreement pursuant to this clause (i) shall have used all commercially reasonable efforts to remove such Order, or (ii) the Transaction shall not have been consummated by May 31, 1999; provided, however, that the right to terminate this Agreement pursuant to this Section 7.2(ii) shall not be available to any party whose failure to fulfill any of its material obligations under this Agreement results in the failure of the Transaction to occur on or prior to such date. 7.3 Termination by Buyer. This Agreement may be termi nated by Buyer and the Transaction may be abandoned prior to the Closing Date, (i) in the event of a material breach by Parent or by the Company of any covenant or agreement contained in this Agreement which, by its nature, cannot be cured prior to the Closing or which has not been cured within 30 days after the giving of written notice to Parent or the Company of such breach, (ii) in the event of an inaccuracy of any representation or warranty of Parent or the Company contained in this Agreement which, by its nature, cannot be cured prior to the Closing or which has not been cured within 30 days after the giving of written notice to Parent or the Company of such inaccuracy and which inaccuracy, in either case, would cause the conditions set forth in Section 6.2(a) not to be satisfied, or (iii) in the event that any of the conditions precedent to the obligations of Buyer to consummate the Transaction cannot be satisfied or fulfilled by the date set forth in Section 7.2(ii) of this Agree ment, provided that the failure of such conditions to be so satisfied shall not be as a result of Buyer's failure to fulfill its material obligations under this Agreement. 7.4 Termination by Parent and the Company. This Agree ment may be terminated by Parent and the Company and the Transaction may be abandoned at any time prior to the Closing Date, (i) in the event of a material breach by Buyer of any covenant or agreement contained in this Agreement which, by its nature, cannot be cured prior to the Closing or which has not been cured within 30 days after the giving of written notice to Buyer of such breach, (ii) in the event of an inaccuracy of any representation or warranty of Buyer contained in this Agreement which, by its nature, cannot be cured prior to the Closing or which has not been cured within 30 days after the giving of written notice to the Buyer of such inaccuracy and which inac curacy, in either case, would cause the conditions set forth in Section 6.3(a) not to be satisfied, or (iii) in the event that any of the conditions precedent to the obligations of Parent and the Company to consummate the Transaction cannot be satisfied or fulfilled by the date set forth in Section 7.2(ii) of this Agreement, provided that the failure of such conditions to be so satisfied shall not be as a result of Parent's or the Company's failure to fulfill its material obligations under this Agreement. 7.5 Effect of Termination. In the event of termi nation of this Agreement and the abandonment of the Transaction pursuant to this Article VII, written notice thereof shall as promptly as practicable be given to the other party to this Agree ment and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned, without further action by any of the parties hereto. If this Agreement is terminated as provided herein, this Agreement shall forthwith become void and have no effect except that (i) the obligations of the Buyer set forth in the Confidentiality Agreement shall remain in effect, (ii) no party shall be relieved from any liabilities or damages arising out of a willful breach of any provision of this Agreement, and (iii) the respective obligations of the parties set forth in Sections 5.15 and 9.2 shall remain in effect. ARTICLE VIII OBLIGATIONS AFTER CLOSING 8.1 Survival of Representations and Covenants; Indemnification. (a) ****[This section (approximately twenty-one lines) has been omitted pursuant to a confidential treatment request. The omitted portion has been filed separately with the Commission.]**** (b) Agreement to Indemnify. ****[This section (approximately sixty-two lines) has been omitted pursuant to a confidential treatment request. The omitted portion has been filed separately with the Commission.]**** (c) Limitation of Liability. ****[This section (approximately thirty lines) has been omitted pursuant to a confidential treatment request. The omitted portion has been filed separately with the Commission.]**** (d) Notice of Claim. If the Indemnified Party shall become aware of any claim, proceeding or other matter (a "Claim") which may give rise to a Loss that will be taken into account for purposes of calculating whether the Indemnifying Party's indemnification obligation arises pursuant to Section 8.1(c)(i) above, the Indemnified Party shall promptly give notice thereof to the Indemnifying Party. Such notice shall specify whether the Claim arises as a result of a Claim by a Person against the Indemnified Party (a "Third Party Claim") or whether the Claim does not so arise (a "Direct Claim"), and shall also specify with reasonable particularity (to the extent that the information is available) the factual basis for the Claim and the amount of the Claim, if known. If, through the fault of the Indemnified Party, the Indemnifying Party does not receive notice of any Claim in time to contest effectively the determination of any Loss susceptible of being contested, the Indemnifying Party shall be entitled to set off against the amount claimed by the Indemnified Party (to be applied to the Deductible set forth in Section 8.1(c) or, if the Deductible has been satisfied to be paid to the Indemnified Party) the amount of any Losses incurred by the Indemnifying Party resulting from the Indemnified Party's failure to give such notice on a timely basis. (e) Direct Claims. With respect to any Direct Claim, following receipt of notice from the Indemnified Party of the Claim, the Indemnifying Party shall have 60 days to make such investigation of the Claim as is considered necessary or desirable. For the purpose of such investigation, the Indemnified Party shall make available to the Indemnifying Party the information relied upon by the Indemnified Party to substantiate the Claim, together with all such other information as the Indemnifying Party may reasonably request. If both parties agree at or prior to the expiration of such 60-day period (or any mutually agreed upon extension thereof) to the validity and amount of such Claim, they shall agree to apply it to the Deductible, or if the Deductible has been satisfied, the Indemnifying Party shall immediately pay to the Indemnified Party the full agreed upon amount of the Claim, failing which the matter shall be referred to binding arbitration in such manner as the parties may agree or shall be determined by a court of competent jurisdiction in the State of New York. (f) Third Party Claims. (i) With respect to any Third Party Claims, the Indemnifying Party shall have the right, at its expense and at its election, to assume control of the negotiation, settlement and defense of the Claim through counsel of its choice. In such event, the Indemnifying Party shall reimburse the Indemnified Party for all the Indemnified Party's reasonable out-of-pocket expenses as a result of such assumption. The election of the Indemnifying Party to assume such control shall be made within 60 days of receipt of notice of the Third Party Claim, failing which the Indemnifying Party shall be deemed to have elected not to do so. If the Indemnifying Party elects to assume such control, the Indemnified Party shall have the right to be informed and consulted with respect to the negotiation, settlement or defenses of such Third Party Claim and to retain counsel to act on its behalf, but the fees and disbursements of such counsel shall be paid by the Indemnified Party unless the Indemnifying Party consents to the retention of such counsel or unless the named parties to any action or proceeding include both the Indemnifying Party and the Indemnified Party and a representation of both the Indemnifying Party and the Indemnified Party by the same counsel would be inappropriate due to the actual or potential differing interests between them (such as the availability of different defenses). If the Indemnifying Party, having elected to assume such control, thereafter fails to defend the Third Party Claim within a reasonable time, the Indemnified Party shall be entitled to assume such control, and the Indemnifying Party shall be bound by the results obtained by the Indemnified Party with respect to the Third Party Claim. If any Third Party Claim is of a nature such that the Indemnified party is required by applicable Law to make a payment to any Person (a "Third Party") with respect to the Third Party Claim before the completion of settlement negotiations or related legal proceedings, the Indemnified Party may make such payment and the Indemnifying Party shall, subject to Section 8.1(b) and Section 8.1(c) above, forthwith after demand by the Indemnified Party, reimburse the Indemnified Party for such payment. If the amount of any liability of the Indemnified Party under the Third Party Claim in respect of which such payment was made, as finally determined, is less than the amount which was paid by the Indemnifying Party to the Indemnified Party, the Indemnified party shall, promptly after receipt of the difference from the Third Party, pay the amount of such difference to the Indemnifying Party. (ii) If the Indemnifying Party fails to assume control of the defense of any Third Party Claim, the Indemnified Party shall have the exclusive right to consent, settle or pay the amount claimed. Whether or not the Indemnifying Party assumes control of the negotiation, settlement or defenses of any Third Party Claim, the Indemnifying Party shall not settle any Third Party Claim without the written consent of the Indemnified Party, which consent shall not be unreasonably withheld or delayed; but then the liability of the Indemnifying Party shall be limited to the proposed settlement amount if any such consent is not obtained for any reason. (iii) The Indemnified Party and the Indemnifying Party shall cooperate fully with each other with respect to Third Party Claims, and, regardless of which party has control thereof as provided for herein, shall keep each other fully advised with respect thereto (including supplying copies of all relevant documentation promptly as it becomes available). 8.2 Guarantees. If any Guarantee shall be in effect after Closing, Buyer shall pay or cause to be paid all debt covered by the Guarantee as the same shall become due and payable, and shall indemnify and hold the Company harmless with respect to any payments made by Company pursuant to any Guarantee provided that such payments have been made in good faith. 8.3 Name Changes. (a) No later than three months after the Closing Date, Buyer will change the names of the following corporations and cease using the names Textron and TFC in any manner: Textron Finance Company Limited (U.K.), Textron Finance Compagnie, S.A. (France), Textron Finance Compagnie, SAS, TFC Location S.A. (France), Textron Financial Corporation (Canada), Textron Finance Corporation (Australia) Pty. Ltd., and Textron Australia Deposits Pty. Ltd. (b) No later than two business days after the Closing Date the Company will change its name. 8.4 Other Matters. (a) Parent and Buyer have executed as of the date hereof, a Separation Agreement covering the treatment of services provided to the Company and certain of the Subsidiaries by Parent, and Contracts between Parent and third parties under which goods or services are provided to the Company and certain of the Subsidiaries, and other intercompany matters. (b) Buyer shall indemnify, defend, and hold harmless the Company and Parent and their present and former officers, directors, employees, agents, assigns and representatives following the Closing from all Losses resulting from the Assets and Liabilities transferred to Buyer pursuant to this Agreement. 8.5 Non-Competition. Except for any Subsidiaries retained by the Company because a Requisite Regulatory Approval was not obtained prior to the Closing Date, Parent agrees that for a period of two (2) years from the Closing Date hereof it will not and it will cause its subsidiaries not to (a) engage in consumer finance lending which has as its primary purpose direct general consumer lending, except as otherwise contemplated by this Agreement or (b) specifically target customers of the Company or its Subsidiaries as of the Closing Date for financial services or insurance products. Except for clause (b) in the immediately preceding sentence, nothing herein shall be interpreted, however, to restrict Parent or its subsidiaries from engaging in consumer lending and leasing (secured or unsecured) which is related to the purchase, financing or refinancing of (i) timeshare intervals, whether fee simple, fractional, right to use, membership, or any similar resort industry description; (ii) memberships of any kind or classification in golf courses, country clubs, boating clubs, or yacht clubs, or other clubs, resorts or any organizations related to any of the foregoing; (iii) aircraft, aircraft engines, avionics or flight related equipment; (iv) products manufactured, distributed or sold by Parent or any entity which formerly or may in the future be a commercial finance customer of Parent or its subsidiaries, whether or not such products are also financed by Parent or its subsidiaries under a flooring or wholesale arrangement, (v) residential real estate, improved or unimproved; or (vi) premiums for any insurance products. It is expressly understood that Parent and its subsidiaries are in the global commercial finance and insurance business, and in the business of purchasing and/or servicing consumer notes, invoices, accounts, mortgages, security instruments and other paper, and nothing herein shall be interpreted as restricting Parent's or its subsidiaries' right to continue in those businesses. It is also expressly understood that Parent and its subsidiaries routinely accept the pledge of consumer notes, invoices, accounts, mortgages, security instruments and other paper in connection with global commercial finance transactions and nothing herein shall be interpreted as restricting Parent's or its subsidiaries' continued right to accept such security. ARTICLE IX MISCELLANEOUS AND GENERAL 9.1 Interpretation. (a) When a reference is made in this Agreement to a section or article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. (b) Whenever the words "include", "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." (c) The words "hereof", "hereby" "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and article, section, paragraph, exhibit and schedule references are to the articles, sections, paragraphs, exhibits and schedules of this Agreement unless otherwise specified. (d) The plural of any defined term shall have a meaning correlative to such defined term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (e) A reference to any party to this Agreement or any other agreement or document shall include such party's permitted successors and permitted assigns. (f) A reference to any legislation or to any provision of any legislation shall include any modification or re-enactment thereof, any legislative provision substituted therefor and all regulations and statutory instruments issued thereunder or pursuant thereto. (g) The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 9.2 Payment of Expenses and Other Payments. Whether or not the Transaction shall be consummated and except as otherwise provided in this Agreement, each party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the transac tions contemplated hereby; provided, however, that if the transaction is consummated, all expenses of the Company and the Subsidiaries shall be paid by Parent. 9.3 Amendment. This Agreement may be amended only by a written agreement signed by all parties to this Agreement. 9.4 Waiver and Extension. At any time prior to the Closing Date, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (c) except to the extent prohibited by Law, waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same or any other provi sion of this Agreement. No waiver of any condition or of the breach of any term contained in this Agreement in one or more instances shall be deemed to be or construed as a further or continuing waiver or such condition or breach or a waiver of any condition or of the breach of any other term of this Agreement. 9.5 Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of counter parts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 9.6 Governing Law. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York without giving effect to the principles of conflicts of law thereof. 9.7 Notices. Any notice, request, instruction or other document to be given hereunder by any party to another party shall be in writing and shall be deemed given when delivered personally, upon receipt of a transmission confirmation (with a confirming copy sent by overnight courier) if sent by facsimile or like transmission, and on the next business day when sent by Federal Express, United Parcel Service, Express Mail, or other reputable overnight courier, as follows: (a) If to the Company, to Avco Financial Services, Inc. c/o Textron Inc. 40 Westminster Street Providence, Rhode Island 02903 Attention: Stephen L. Key (401) 421-2800 (telephone) (401) 457-2418 (facsimile) with a copy to: Textron Inc. 40 Westminster Street Providence, Rhode Island 02903 Attention: Wayne W. Juchatz (401) 421-2800 (telephone) (401) 457-2418 (facsimile) Skadden, Arps, Slate, Meagher & Flom LLP One Beacon Street Boston, MA 02108 Attention: Margaret A. Brown, Esq. (617) 573-4800 (telephone) (617) 573-4822 (facsimile) (b) If to Parent, to Textron Inc. 40 Westminster Street Providence, Rhode Island 02903 Attention: Stephen L. Key (401) 421-2800 (telephone) (401) 457-2418 (facsimile) with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP One Beacon Street Boston, MA 02108 Attention: Margaret A. Brown, Esq. (617) 573-4800 (telephone) (617) 573-4822 (facsimile) (c) If to Buyer, to 250 East Carpenter Freeway Irving, Texas 75062 Attention: President (972) 652-3333 (telephone) (972) 652-7095 (facsimile) with a copy to: 250 East Carpenter Freeway Irving, Texas 75062 Attention: General Counsel (972) 652-4449 (telephone) (972) 652-5798 (facsimile) or to such other persons or addresses as may be designated in writing by the party to receive such notice. Nothing in this section shall be deemed to constitute consent to the manner and address for service of process in connection with any legal proceeding (including litigation arising out of or in connection with this Agreement), which service shall be effected as required by applicable Law. 9.8 Entire Agreement; Assignment. This Agreement and the Confidentiality Agreement (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, among the parties or any of them with respect to the subject matter hereof and (b) shall not be assigned by operation of law or otherwise without the prior written consent of the other party hereto; provided, however, that (i) the Buyer may assign its rights, in whole or in part, to one or more of its Affiliates and such Affiliate or Affiliates may assume Buyer's obligations hereunder and (ii) the capital stock of any Subsidiary may be purchased by any subsidiary of Buyer, provided that in the case of each of clauses (i) and (ii) Buyer shall remain jointly and severally liable hereunder with such Affiliate, and provided further that no such assignment or purchase by any subsidiary of Buyer may be made, if the effect thereof would be to (x) result in an economic cost to Parent or its Affiliates, (y) create any additional financial risk to the Company or Parent under any document relating to indebtedness for borrowed money or any Guarantee, or (z) delay or adversely affect the satisfaction of the conditions set forth in Article VI. 9.9 Parties in Interest. This Agreement shall be bind ing upon and inure solely to the benefit of each party hereto and their respective successors and assigns and to the benefit of any person or entity which is indemnified under this Agreement. Nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 9.10 Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, each of which shall remain in full force and effect. 9.11 Captions. The article, section and paragraph captions herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 9.12 Bulk Transfer Laws. The Buyer acknowledges that the Company will not comply with the provisions of any bulk transfer laws of any jurisdiction in connection with the transactions contemplated by the Agreement. 9.13 Transfer, Sales and Stamp Taxes. All transfer, sales and stamp taxes and similar charges, fees and assessments incurred in connection with this Agreement and the transactions contemplated hereby shall be borne one-half by the Company and one-half by Buyer. The Buyer shall prepare and file (or cause to be filed), to the extent required by, or permissible under, applicable Law, all necessary Tax Returns and other documentation with respect to all such transfer, sales and stamp taxes and similar charges, fees and assessments, and, if required by applicable Law, the Company shall join in the execution of any such Tax Returns and other documentation as reasonably requested by Buyer. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written. TEXTRON INC. By: /s/ Stephen L. Key Name: Stephen L. Key Title: Executive Vice President and Chief Financial Officer AVCO FINANCIAL SERVICES, INC. By: /s/ Stephen L. Key Name: Stephen L. Key Title: Vice President ASSOCIATES FIRST CAPITAL CORPORATION By: /s/ Roy A. Guthrie Name: Roy A. Guthrie Title: Senior Executive Vice President, Chief Financial Officer EX-10.2 3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is entered into as of this 23rd day of July, 1998 by and between Textron Inc. (the "Company"), a Delaware corporation having its principal office at 40 Westminster Street, Providence, Rhode Island 02903 and John D. Butler residing at 327 North Main Street, One Constitution Hill, Providence, Rhode Island 02904 (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive is presently employed by the Company; WHEREAS, the Company desires to continue to employ the Executive and the Executive is willing to continue to be employed by the Company; and WHEREAS, the Company and the Executive desire to set forth the terms and conditions of such continued employment. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the adequacy and receipt of which is acknowledged, the parties hereto agree as follows: 1. Term of Employment The Company hereby agrees to continue to employ the Executive and the Executive hereby accepts continued employment, in accordance with the terms and conditions set forth herein, for a term (the "Employment Term") commencing on the date hereof (the "Effective Date") and terminating, unless otherwise terminated earlier in accordance with Section 5 hereof, on the third anniversary of the Effective Date (the "Original Employment Term"), provided that the Employment Term shall be automatically extended, subject to earlier termination as provided in Section 5 hereof, for successive additional one (1) year periods (the "Additional Terms"), unless, at least ninety (90) days prior to the end of the Original Employment Term or the then Additional Term, the Company or the Executive has notified the other in writing that the Employment Term shall terminate at the end of the then current term. 2. Position and Responsibilities During the Employment Term, the Executive shall serve as the Executive Vice President and Chief Human Resources Officer of the Company or in such higher capacity as agreed by the Company and the Executive. The Executive shall report exclusively to the Chief Executive Officer and the Board of Directors of the Company (the "Board"). The Executive shall, to the extent appointed or elected, serve on the Board as a director and as a member of any committee of the Board, in each case, without additional compensation. The Executive shall, to the extent appointed or elected, serve as a director or as a member of any committee of the board (or the equivalent bodies in a non- corporate subsidiary or affiliate) of any of the Company's subsidiaries or affiliates and as an officer or employee (in a capacity commensurate with his position with the Company) of any such subsidiaries or affiliates, in all cases, without additional compensation or benefits and any compensation paid to the Executive, or benefits provided to the Executive, in such capacities shall be a credit with regard to the amounts due hereunder from the Company. The Executive shall have duties, authorities and responsibilities generally commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies subject to the By-laws of the Company and the organizational structure of the Company. The Executive shall devote substantially all of his business time, attention and energies to the performance of his duties hereunder, provided the foregoing will not prevent the Executive from participating in charitable, community or industry affairs, from managing his and his family's personal passive investments, and (with the consent of the Chief Executive Officer or the Organization and Compensation Committee (or its successor) of the Board (the "O&C Committee"), which consent will not be unreasonably withheld, conditioned or delayed) serving on the board of directors of other companies, provided that these activities do not materially interfere with the performance of his duties hereunder or create a potential business conflict or the appearance thereof. The Company has consented to the Executive's services on the boards of directors, if any, on which the Executive currently serves, which boards the Executive has disclosed in writing to the O&C Committee. The Executive may retain any compensation or benefits received as a result of consented to service as a director of entities not related to the Company. 3. Compensation and Benefits During the Employment Term, the Company shall pay and provide the Executive the following: 3.1 Base Salary. The Company shall pay the Executive a base salary (the "Base Salary") in an amount which shall be established from time to time by the O&C Committee (or as otherwise designated by the Board), provided, however, that such base salary rate shall not be less than his current rate of base salary. Base Salary shall be paid to the Executive in accordance with the Company's normal payroll practices for executives. Base Salary shall be reviewed at least annually to ascertain whether, in the judgment of the reviewing committee, such Base Salary should be increased. If so increased, Base Salary shall not be thereafter decreased and shall thereafter, as increased, be the Base Salary hereunder. 3.2 Annual Bonus. The Company shall provide the Executive with the opportunity to earn an annual cash bonus under the Company's current annual incentive compensation plan for executives or a replacement plan therefor at a level commensurate with his position, provided that the minimum annual target award payable upon the achievement of reasonably attainable objective performance goals shall be at least fifty percent (50%) of Base Salary. 3.3 Long-Term Incentives. The Company shall provide the Executive the opportunity to earn long-term incentive awards under the current equity and cash based plans and programs or replacements therefor at a level commensurate with the current aggregate opportunity being provided to the Executive. 3.4 Employee Benefits. The Executive shall, to the extent eligible, be entitled to participate at a level commensurate with his position in all employee benefit welfare and retirement plans and programs, as well as equity plans, generally provided by the Company to its senior executives in accordance with the terms thereof as in effect from time to time. Such plans and programs currently include, without limitation, the Amended and Restated Supplemental Retirement Plan for Textron Inc. Key Executives (the "SERP"), the 1994 Long-Term Incentive Plan, the Key Executive Program (including the Deferred Income Plan, the Supplemental Benefits Plan (the "SBP") and the Survivor Benefit Plan), group term life insurance plan, comprehensive health, major medical, vision and dental insurance plans and short-term and long-term disability plans. 3.5 Vacation. The Executive shall be entitled to paid vacation in accordance with the standard written policies of the Company with regard to vacations of executives, but in no event less than four (4) weeks per calendar year. 3.6 Perquisites. The Company shall provide to the Executive, at the Company's cost, all perquisites to which other senior executives of the Company are generally entitled to receive and such other perquisites which are suitable to the character of the Executive's position with the Company and adequate for the performance of his duties hereunder but not less than the level being provided on the date hereof except as otherwise required because of changes in law. To the extent legally permissible, the Company shall not treat such amounts as income to the Executive. 3.7 Right to Change Plans. The Company shall not be obligated by reason of this Section 3 to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, program, or perquisite, so long as such changes are similarly applicable to executive employees generally and provided that the benefits or additional credit specifically as set forth in Section 3.8 below shall not be diminished. 3.8 Existing Awards. The Company acknowledges that the Executive currently is entitled to, among other things, the special grants set forth in Exhibit A hereto, as modified on Exhibit A. 4. Expenses Upon submission of appropriate documentation, in accordance with its policies in effect from time to time, the Company shall pay, or reimburse, the Executive for all ordinary and necessary expenses, in a reasonable amount, which the Executive incurs in performing his duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies in which the Executive participates in accordance with the Company's policies in effect from time to time. 5. Termination of Employment The Executive's employment with the Company (including but not limited to any subsidiary or affiliate or the Company) and the Employment Term shall terminate upon the occurrence of the first of the following events: (a) Automatically on the date of the Executive's death. (b) Upon thirty (30) days written notice by the Company to the Executive of a termination due to Disability, provided such notice is delivered during the period of Disability. The term "Disability" shall mean, for purposes of this Agreement, the inability of the Executive, due to injury, illness, disease or bodily or mental infirmity, to engage in the performance of his material duties of employment with the Company as contemplated by Section 2 herein for a period of more than one hundred eighty (180) consecutive days or for a period that is reasonably expected to exist for a period of more than one hundred eighty (180) consecutive days, provided that interim returns to work of less than ten (10) consecutive business days in duration shall not be deemed to interfere with a determination of consecutive absent days if the reason for absence before and after the interim return are the same. The existence or non-existence of a Disability shall be determined by a physician agreed upon in good faith by the Executive (or his representatives) and the Company. It is expressly understood that the Disability of the Executive for a period of one hundred eighty (180) consecutive days or less shall not constitute a failure by him to perform his duties hereunder and shall not be deemed a breach or default and the Executive shall receive full compensation for any such period of Disability or for any other temporary illness or incapacity during the term of this Agreement. (c) Immediately upon written notice by the Company to the Executive of a termination due to his retirement at or after the Executive's attainment of age sixty-five (65). (d) Immediately upon written notice by the Company to the Executive of a termination for Cause, provided such notice is given within ninety (90) days after the discovery by the Board or the Chief Executive Officer of the Cause event and has been approved by the O&C Committee at a meeting at which the Executive and his counsel had the right to appear and address such meeting after receiving at least five (5) business days written notice of the meeting and reasonable detail of the facts and circumstances claimed to provide a basis for such termination. The term "Cause" shall mean, for purposes of this Agreement: (i) an act or acts of willful misrepresentation, fraud or willful dishonesty (other than good faith expense account disputes) by the Executive which in any case is intended to result in his or another person or entity's substantial personal enrichment at the expense of the Company; (ii) any willful misconduct by the Executive with regard to the Company, its business, assets or employees that has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iii) any material, willful and knowing violation by the Executive of (x) the Company's Business Conduct Guidelines, or (y) any of his fiduciary duties to the Company which in either case has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iv) the willful or reckless behavior of the Executive with regard to a matter of a material nature which has a material adverse impact (economic or otherwise) on the Company; (v) the Executive's willful failure to attempt to perform his duties under Section 2 hereof or his willful failure to attempt to follow the legal written direction of the Board, which in either case is not remedied within ten (10) days after receipt by the Executive of a written notice from the Company specifying the details thereof; (vi) the Executive's conviction of, or pleading nolo contendere or guilty to, a felony (other than (x) a traffic infraction or (y) vicarious liability solely as a result of his position provided the Executive did not have actual knowledge of the actions or inactions creating the violation of the law or the Executive relied in good faith on the advice of counsel with regard to the legality of such action or inaction (or the advice of other specifically qualified professionals as to the appropriate or proper action or inaction to take with regard to matters which are not matters of legal interpretation)); or (vii) any other material breach by the Executive of this Agreement that is not cured by the Executive within twenty (20) days after receipt by the Executive of a written notice from the Company of such breach specifying the details thereof. No action or inaction should be deemed willful if not demonstrably willful and if taken or not taken by the Executive in good faith as not being adverse to the best interests of the Company. Reference in this paragraph (d) to the Company shall also include direct and indirect subsidiaries of the Company, and materiality and material adverse impact shall be measured based on the action or inaction and the impact upon, and not the size of, the Company taken as a whole, provided that after a Change in Control, the size of the Company, taken as a whole, shall be a relevant factor in determining materiality and material adverse impact. (e) Upon written notice by the Company to the Executive of an involuntary termination without Cause. A notice by the Company of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed an involuntary termination of the Executive by the Company without Cause as of the end of the Employment Term, but the Executive may terminate at any time after the receipt of such notice and shall be treated as if he was terminated without Cause as of such date. (f) Upon twenty (20) days written notice by the Executive to the Company of a termination for Good Reason (which notice sets forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination) unless the Good Reason event is cured within such twenty (20) day period. The term "Good Reason" shall mean, for purposes of this Agreement, without the Executive's express written consent, the occurrence of any one or more of the following: (i) the assignment to the Executive of duties materially inconsistent with the Executive's then authorities, duties, responsibilities, and status (including offices, titles, and reporting requirements), or any reduction in the Executive's then title, position, reporting lines or a material reduction (other than temporarily while Disabled or otherwise incapacitated) in his then status, authorities, duties, or responsibilities or, if then a director of the Company, failure to be nominated or reelected as a director of the Company or removal as such; (ii) relocation of the Executive from the principal office of the Company (excluding reasonable travel on the Company's business to an extent substantially consistent with the Executive's business obligations) or relocation of the principal office of the Company to a location which is at least fifty (50) miles from the Company's current headquarters, provided, however, if the Executive at the time of the relocation is not located at the principal office, such relocation provision shall apply based on his then location; (iii) a reduction by the Company in the Executive's Base Salary; (iv) a reduction in the Executive's aggregate level of participation in any of the Company's short and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or arrangements in which the Executive participated as of the Effective Date, or, after a Change in Control, participated immediately prior to the Change in Control; (v) the failure of the Company to obtain and deliver to the Executive a satisfactory written agreement from any successor to the Company to assume and agree to perform this Agreement; or (vi) any other material breach by the Company of this Agreement. (g) Upon written notice by the Executive to the Company of the Executive's voluntary termination of employment without Good Reason (which the Company may, in its sole discretion, make effective earlier than any notice date). A notice by the Executive of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed a voluntary termination by the Executive without Good Reason as of the end of the Employment Term. 6. Consequences of a Termination of Employment 6.1 Termination Due to Death or Retirement. If the Employment Term ends on account of the Executive's termination due to death pursuant to Section 5(a) above or retirement pursuant to Section 5(c) above, the Executive (or the Executive's surviving spouse, or other beneficiary as so designated by the Executive during his lifetime, or to the Executive's estate, as appropriate) shall be entitled, in lieu of any other payments or benefits, to (i) payment promptly of any unpaid Base Salary, unpaid annual incentive compensation (for the preceding fiscal year) and any accrued vacation, (ii) reimbursement for any unreimbursed business expenses incurred prior to the date of termination, and (iii) any amounts, benefits or fringes due under any equity, benefit or fringe plan, grant or program in accordance with the terms of said plan, grant or program but without duplication (collectively, the "Accrued Obligations"). 6.2 Termination Due To Disability. If the Employment Term ends as a result of Disability pursuant to Section 5(b) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment, during January of the calendar year following the date of the Executive's termination, of an amount equal to three hundred percent (300%) of the Executive's target annual incentive compensation award established for the fiscal year during which the Executive's termination occurs (the "Termination Year Target Bonus"). (b) Continued monthly payment for two and one half (2 1/2) years of an amount equal to the Executive's monthly Base Salary rate reduced by any disability benefits received by the Executive under the Company's long term disability plan for the corresponding period. (c) Payments and benefits as set forth in Section 6.3(c)- (j) hereof. (d) The Executive shall be deemed to have satisfied the definition of "total disability" under the 1994 Long- Term Incentive Plan or the equivalent definition under any successor plan thereto. (e) As provided in Exhibit A hereto. 6.3 Involuntary Termination by the Company Without Cause or Termination by the Executive for Good Reason. If the Executive is involuntarily terminated by the Company without Cause in accordance with Section 5(e) above or the Executive terminates his employment for Good Reason in accordance with Section 5(f) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment, during January of the calendar year following the date of the Executive's termination, of an amount equal to the Executive's Termination Year Target Bonus multiplied by a fraction, the numerator of which is the number of days during the fiscal year of the Executive's termination that the Executive was employed by the Company and the denominator is three hundred sixty-five (365), provided that in no event shall such payment exceed fifty percent (50%) of the Termination Year Target Bonus. (b) Continued payment off payroll for two and one-half (2 1/2) years (in approximately equal monthly installments) of an amount equal to two and one-half (2 1/2) times the sum of: (i) the Executive's Base Salary, and (ii) the greater of: (x) the Termination Year Target Bonus, or (y) the Executive's highest annual incentive compensation award earned during the last three (3) fiscal years ending prior to the fiscal year of termination (whether or not deferred). (c) To the extent eligible at such time or, if the Executive would be eligible with credit for an additional two and one half (2 1/2) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and his dependents (including, if he is only eligible because of the extra age and service credit, an adjustment, to the extent necessary, to put the Executive in the same after-tax position as if he had been eligible for such coverage) and, if not eligible for continued health coverage under the retiree health plan, payment of the Executive's and Executive's eligible dependents' COBRA continuation health coverage premiums for the Company's health insurance plan that generally applies to senior executives for the two and one-half (2 1/2) year period following the date of termination or, if earlier, until the Executive and Executive's dependents cease to be eligible for such coverage, provided that, if COBRA coverage cannot be provided for the full period, any excess period shall be covered under (d) below (and further provided that, if such premiums are taxable to the Executive, an adjustment such that the Executive has no after tax cost for the providing of such COBRA coverage). (d) To the extent eligible on the date of termination, continued participation, at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans (other than medical plans covered under (c) above), until two and one-half (2 1/2) years after the date of termination; provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such benefits under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to the Executive than the Executive would have had if the benefits were provided to the Executive as an employee. (e) Two and one-half (2 1/2) additional years of service and compensation credit (at the Executive's then compensation level) for benefit purposes under any defined benefit type retirement plan, including but not limited to the SERP and the SBP if then in effect, and, if the Executive is not eligible to receive benefits under any such plan on the date of termination, two and one-half (2 1/2) additional years of age for determining eligibility to receive such benefits, provided that benefits under any such plan will not commence until the Executive actually attains the required distribution age under the plan or the Executive's spouse qualifies for death benefits under such plan and further provided that with regard to any plan qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") the additional amounts may be provided on a nonqualified plan basis. (f) Payment promptly after termination of two and one-half (2 1/2) times the amount of the maximum Company annual contribution or match to any defined contribution type plan in which the Executive participates. (g) Immediate full vesting of any outstanding stock options that would vest within two and one half (2 1/2) years after such termination of employment as if the Executive had continued employment for such two and one half (2 1/2) year period, to the extent permitted under the plan or grant, or if such vesting is not permitted, a cash payment equal to the difference between the fair market value of the shares covered by the unvested options and the exercise price of such unvested options (the "Spread") on the date of termination, and, in both cases, to the extent such options are exercisable for less than two and three quarters (2-3/4) years after termination (or, if less, the remainder of the respective terms), a cash payment equal to the Black- Scholes (based on the same methodology used for the Company's then latest distributed proxy statement or, if not so used, for internal valuation of the last stock option grants made by the Company prior to the termination) future value of such options for the lesser of two and three quarters (2-3/4) years or the remainder of such terms (any such payments shall be made promptly after such termination). The terms of the Executive's outstanding options are deemed to be modified to the extent required by this Section 6.3 (g). (h) Payment when it would otherwise be paid in accordance with the 1994 Long-Term Incentive Plan of any amount due with regard to performance share units outstanding on the date of termination to the extent permitted under such plan, plus, outside of such plan, when it would otherwise have been paid, an amount equal to the amount the Executive would have received with regard to any performance share units outstanding at the time of termination that could not be so paid. For purposes of calculating the foregoing amounts, all discretionary performance targets relating to the Executive's individual performance will be deemed to be fully achieved and the actual level of achievement of all financial performance targets will be determined as if the Executive continued to be employed through the end of the applicable measuring period. (i) Immediate full vesting of the Executive's accounts under the Deferred Income Plan, and to the extent not permitted under such plan, a cash payment outside of the plan equal to the value of the amount that would have vested under the plan. (j) Continuation of participation for two and one-half (2 1/2) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the termination. (k) As provided in Exhibit A hereto. 6.4 Termination by the Company for Cause or Termination by the Executive without Good Reason. If the Executive is terminated by the Company for Cause or the Executive terminates his employment without Good Reason, the Executive shall be entitled to receive all Accrued Obligations. 7. No Mitigation/No Offset/Release (a) In the event of any termination of employment hereunder, the Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain. The amounts payable hereunder shall not be subject to setoff, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others, except as specifically set forth in Section 9 hereof or upon obtaining by the Company of a final unappealable judgement against the Executive. (b) Any amounts payable and benefits or additional rights provided pursuant to Section 6.2 (other than Section 6.2(e)), Section 6.3 (other than Section 6.3(k)) and Section 8.1 (other than Section 8.1(m)) beyond Accrued Obligations and amounts or rights due under law, and, in the case of Section 6.3 and Section 8.1, beyond the sum of any amounts due (without execution of a release) under the Company severance program then in effect, or, if greater, three (3) months Base Salary as severance, shall only be payable if the Executive delivers to the Company a release of all claims of the Executive (other than those specifically payable or providable hereunder on or upon the applicable type of termination and any rights of indemnification under the Company's organizational documents) with regard to the Company, its subsidiaries and related entities and their respective past or present officers, directors and employees in such form as reasonably requested by the Company. (c) Upon any termination of employment, upon the request of the Company, the Executive shall deliver to the Company a resignation from all offices and directorships and fiduciary positions of the Executive in which the Executive is serving with, or at the request of, the Company or its subsidiaries, affiliates or benefit plans. (d) The amounts and benefits provided under Sections 6 and 8 hereof are intended to be inclusive and not duplicative of the amounts and benefits due under the Company's employee benefit plans and programs to the extent they are duplicative. 8. Change in Control 8.1 Employment Termination in Connection with a Change in Control. In the event of a Qualifying Termination (as defined below) during the period commencing one-hundred eighty (180) days prior to the effective date of a Change in Control and terminating on the second anniversary of the effective date of a Change in Control (the "Change in Control Protection Period"), then in lieu of the benefits provided to the Executive under Section 6.3 of this Agreement, the Company shall pay the Executive the following amounts within (except as otherwise provided) thirty (30) business days of the Qualifying Termination (or, if later, the effective date of the Change in Control; in which case any amounts or benefits previously paid pursuant to Section 6 shall be setoff against those under this Section 8) and provide the following benefits: (a) Any Accrued Obligations. (b) A lump-sum cash payment equal to three (3) times the highest rate of the Executive's Base Salary rate in effect at any time up to and including the date of the Executive's termination. (c) A lump-sum cash payment equal to the Prorated Portion (as determined in the next sentence) of the greater of: (i) the Executive's Termination Year Target Bonus or (ii) the Executive's earned annual incentive award for the fiscal year prior to the fiscal year in which the earlier of the Change in Control or the Qualifying Termination occurs (whether or not deferred). The "Prorated Portion" of the foregoing amount shall be determined by multiplying such amount by a fraction, the numerator of which is the number of days during the fiscal year of termination that the Executive is employed by the Company, and the denominator of which is, three hundred sixty-five (365). (d) A lump-sum cash payment equal to three (3) times the greater of: (i) the Executive's highest annual incentive compensation earned over the three (3) fiscal years ending prior to the earlier of the Change in Control or the Qualifying Termination (whether or not deferred); or (ii) the Executive's target incentive compensation established for the fiscal year in which the Executive's date of termination occurs. (e) To the extent the Executive is eligible, was eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination) or if the Executive would be eligible with credit for an additional three (3) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and the Executive's eligible dependents (including an adjustment to the extent necessary to put the Executive on the same after tax basis as if the Executive had been eligible for such coverage). (f) To the extent eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination), continued participation, (coordinated with (e) above to the extent duplicative), at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans, until three (3) years after the date of termination, provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such similar or improved benefit under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to him than he would have had if the benefits were provided to him as an employee. (g) A lump-sum cash payment of the actuarial present value equivalent (as determined in accordance with the most favorable (to the Executive) overall actuarial assumptions and subsidies in any of the Company's tax- qualified or nonqualified type defined benefit pension plans in which the Executive then participates) of the accrued benefits accrued by the Executive as of the date of termination under the terms of any nonqualified defined benefit type retirement plan, including but not limited to, the SERP and the SBP and assuming the benefit was fully vested without regard to any minimum age or service requirements. For this purpose, such benefits shall be calculated under the assumption that the Executive's employment continued following the date of termination for three (3) full years (i.e., three (3) additional years of age (including, but not limited to, for purposes of determining the actuarial present value), compensation and service credits shall be added). (h) Three (3) times the amount of the maximum Company contribution or match to any defined contribution type plan in which the Executive participates. (i) A lump-sum cash payment of the product of (i) the Interest Factor (as determined in the next sentence) multiplied by (ii) the Executive's entire account balance under the Deferred Income Plan (or any replacement therefor), plus an additional amount equal to three (3) times the match which the Company made for the Executive to such plan for the fiscal year ending immediately prior to the earlier of the Change in Control or the Qualifying Termination. The "Interest Factor" shall be equal to one (1) plus three (3) times the rate of earnings of the Executive's account under such plan for the fiscal year ending immediately prior to his termination. (j) Immediate full vesting of any outstanding stock options, performance share units and other equity awards (and lapse of any forfeiture provisions) to the extent permitted under the plan or grant, or if full vesting is not permitted with regard to stock options, a cash payment equal to the Spread on such unvested options on the date of termination (or, if later, the date of the Change in Control) plus, in both cases, if options are exercisable for less than three (3) years after termination (or, if less, the remainder of the respective terms, including any termination of exercisability of all Company stock options in connection with the Change in Control or a merger related thereto), a cash payment equal to the Black- Scholes (based on the same methodology used for the Company's then latest distributed proxy statement or, if not so used, for internal valuation of the last stock option grants made by the Company prior to the earlier of the Qualifying Termination or the Change in Control) future value of such outstanding options for the lesser of three (3) years or the remainder of such terms. (k) Outplacement services at a level commensurate with the Executive's position, including use of an executive office and secretary, for a period of one (1) year commencing on the date of termination but in no event extending beyond the date on which the Executive commences other full time employment. (l) Continuation of participation for three (3) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the Change in Control. (m) As provided in Exhibit A hereto. For purposes of this Section 8, a Qualifying Termination shall mean any termination of the Executive's employment (i) by the Company without Cause, or (ii) by the Executive for Good Reason. 8.2 Definition of "Change in Control." A Change in Control of the Company shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied: (a) Any "person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than the Company, any trustee or other fiduciary holding Company common stock under an employee benefit plan of the Company or a related company, or any corporation which is owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the Company's common stock, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than thirty percent (30%) of the then outstanding voting stock; (b) During any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (c) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) The approval of the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets. 8.3 Excise Tax Equalization Payment. In the event that the Executive becomes entitled to payments and/or benefits which would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, the provisions of Exhibit B will apply. 9. Noncompetition, Confidentiality and Nondisparagement 9.1 Agreement Not to Compete. (a) The Executive agrees that for a period of two (2) years after the termination of the Executive's employment, the Executive will not engage in Competition with the Company with the Listed Companies, provided that after the Executive's termination of employment the Listed Companies shall be limited to those effectively listed at the time of his termination and still on such list at the time of any alleged activity of the Executive, including, but not limited to, (i) soliciting customers, business or orders for, or selling any products and services in, Competition with the Company for such Listed Companies or (ii) diverting, enticing, or otherwise taking away customers, business or orders of the Company, or attempting to do so, in either case in Competition with the Company for such Listed Companies. (b) The Executive agrees that if, while he is receiving severance pay from the Company pursuant to Section 6.2(b) or Section 6.3(b), the Executive: (i) violates (a) above, or (ii) otherwise engages in Competition in the Restricted Territory, whether or not with the Listed Companies, Section 9.6(b) hereof shall apply. (c) The Executive agrees that the restrictions contained in this Section 9 are necessary for the protection of the business and goodwill of the Company because of the trade secrets within the Executive's knowledge and are considered by the Executive to be reasonable for such purpose. 9.2 Definitions. (a) "Competition" shall mean engaging in, as an employee, director, partner, principal, shareholder, consultant, advisor, independent contractor or similar capacity, with (a) the Listed Companies or (b) in any business, activity or conduct which directly competes with the business of the Company, provided that, with regard to the period after termination of the Executive's employment, Section 9.1(b)(ii) shall only apply to business lines in which the Company is engaged both at the time of termination of employment and at the time of the determination and which during the last fiscal year ending prior to the date of such termination repre sented at least five percent (5%) of the Company's revenues (the "Prohibited Lines"). Notwithstanding anything else in this Section 9, Competition shall not include: (A) (i) holding five percent (5%) or less of an interest in the equity or debt of any publicly traded company, (ii) engaging in any activity with the prior written approval of the Chief Executive Officer or the O&C Committee, (iii) the practice of law in a law firm that represents entities in Competition with the Company, provided that the Executive does not personally represent such entities, or (iv) the employment by, or provision of services to, an investment banking firm or consulting firm that provides services to entities that are in Competition with the Company provided that the Executive does not personally represent or provide services to such entities that are Listed Companies or otherwise with regard to businesses in Competition with the Prohibited Lines, or (B) with regard to Section 9.1(b)(ii), (i) being employed by, or consulting for, a non-Competitive division or business unit of an entity which is in Competition with the Company (and participating in such entity's employee equity plans), (ii) being employed by, or consulting for, an entity which had annual revenues in the last fiscal year prior to the Executive being employed by, or consulting for, the entity generated through business lines in Competition with the Prohibited Lines of the Company that do not exceed five percent (5%) of such entity's total annual revenues, provided that revenues within the Executive's area of responsibility or authority are not more than ten percent (10%) composed of the revenues from the businesses in Competition with the Prohibited Lines, or (iii) any activities conducted after a Change in Control of the Company. (b) The Restricted Territory shall mean any geographic area in which the Company with regard to the Prohibited Lines did more than nominal business. (c) Listed Companies shall mean those entities which are within the "peer group" established by the Company for the performance graphs in its proxy statement pursuant to Item 402(l) of Regulation S-K under the Exchange Act and which are in a list of no more than five (5) entities established by the Company from time to time and available from the Chief Human Resources Officer, provided that the addition of any entity to the list shall not be effective until sixty (60) days after it is so listed. (d) For purposes of this Section 9, "Company" shall mean the Company and its subsidiaries and affiliates. 9.3 Agreement Not to Engage in Certain Solicitation. The Executive agrees that the Executive will not, during the Executive's employment with the Company or during the two (2) year period thereafter, directly or indirectly, solicit or induce, or attempt to solicit or induce, any non-clerical employee(s), sales representative(s), agent(s), or consultant(s) of the Company to terminate such person's employment, representation or other association with the Company for the purpose of affiliating with any entity with which the Executive is associated ("Solicitation"). 9.4 Confidential Information. (a) The Executive specifically acknowledges that any trade secrets or confidential business and technical information of the Company or its vendors, suppliers or customers, whether reduced to writing, maintained on any form of electronic media, or maintained in mind or memory and whether compiled by the Executive or the Company (collectively, "Confidential Information"), derives independent economic value from not being readily known to or ascertainable by proper means by others; that reasonable efforts have been made by the Company to maintain the secrecy of such information; that such information is the sole property of the Company or its vendors, suppliers, or customers and that any retention, use or disclosure of such information by the Executive during the Employment Term (except in the course of performing duties and obligations of employment with the Company) or any time after termination thereof, shall constitute misappropriation of the trade secrets of the Company or its vendors, suppliers, or customers, provided that Confidential Information shall not include: (i) information that is at the time of disclosure public knowledge or generally known within the industry, (ii) information deemed in good faith by the Executive, while employed by the Company, desirable to disclose in the course of performing the Executive's duties, (iii) information the disclosure of which the Executive in good faith deems necessary in defense of the Executive's rights provided such disclosure by the Executive is limited to only disclose as necessary for such purpose, or (iv) information disclosed by the Executive to comply with a court, or other lawful compulsory, order compelling him to do so, provided the Executive gives the Company prompt notice of the receipt of such order and the disclosure by the Executive is limited to only disclosure necessary for such purpose. (b) The Executive acknowledges that the Company from time to time may have agreements with other persons or with the United States Government, or agencies thereof, that impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. If the Executive's duties hereunder will require disclosures to be made to him subject to such obligations and restrictions, the Executive agrees to be bound by them. 9.5 Scope of Restrictions. If, at the time of enforcement of this Section 9, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. 9.6 Remedies. (a) In the event of a material breach or threatened material breach of Section 9.1(a), Section 9.3, Section 9.4 or Section 9.10, the Company, in addition to its other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of the provisions of this Section 9. Except as specifically provided with regard to Listed Companies, the Company agrees that it will not assert to enjoin or otherwise limit the Executive's activities based on an argument of inevitable disclosure of confidential information. (b) In the event Section 9.1(b) applies, the Company may immediately cease payment to the Executive of all future amounts due under Sections 6.2(a) or (b) or Sections 6.3(a) or (b), as well as otherwise specifically provided in any other plan, grant or program. (c) Upon written request of the Executive, the Company shall within thirty (30) days notify the Executive in writing whether or not in good faith it believes any proposed activities would be in Competition and, if it so determines or does not reply within thirty (30) days, it shall be deemed to waive any right to treat such activities as Competition unless the facts are otherwise than as presented by the Executive or there is a change thereafter in such activities. The Executive shall promptly provide the Company with such information as it may reasonably request to evaluate whether or not such activities are in Competition. 9.7 Uniformity. In no event shall any definitions of Competition or Solicitation (or a similar provision) as it applies to the Executive with regard to any plan of program or grant of the Company be interpreted to be any broader than as set forth in this Section 9. 9.8 Delivery of Documents. Upon termination of this Agreement or at any other time upon request by the Company, the Executive shall promptly deliver to the Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, laboratory and research notebooks and other documents (and all copies or reproductions of such materials in his possession or control) belonging to the Company. Notwithstanding the foregoing, the Executive may retain his rolodex and similar phone directories (collectively, the "Rolodex") to the extent the Rolodex does not contain information other than name, address, telephone number and similar information, provided that, at the request of the Company, the Executive shall provide the Company with a copy of the Rolodex. 9.9 Nondisparagement. (a) During the Employment Term and thereafter, the Executive shall not with willful intent to damage economically or as to reputation or vindictively disparage the Company, its subsidiaries or their respective past or present officers, directors or employees (the "Protected Group"), provided that the foregoing shall not apply to (i) actions or statements taken or made by the Executive while employed by the Company in good faith as fulfilling the Executive's duties with the Company or otherwise at the request of the Company, (ii) truthful statements made in compliance with legal process or governmental inquiry, (iii) as the Executive in good faith deems necessary to rebut any untrue or misleading public statements made about him or any other member of the Protected Group, (iv) statements made in good faith by the Executive to rebut untrue or misleading statements made about him or any other member of the Protected Group by any member of the Protected Group, and (v) normal commercial puffery in a competitive business situation. No member of the Protected Group shall be a third party beneficiary of this Section 9.9(a). (b) During the Employment Term and thereafter, neither the Company officially nor any then member of the Executive Leadership Team (or the equivalent) of the Company, as such term is currently used within the Company, shall with willful intent to damage the Executive economically or as to reputation or otherwise vindictively disparage the Executive, provided the foregoing shall not apply to (i) actions or statements taken or made in good faith within the Company in fulfilling duties with the Company, (ii) truthful statements made in compliance with legal process, governmental inquiry or as required by legal filing or disclosure requirements, (iii) as in good faith deemed necessary to rebut any untrue or misleading statements by the Executive as to any member of the Protected Group or (iv) normal commercial puffery in a competitive business situation. (c) In the event of a material breach or threatened material breach of clauses (a) or (b) above, the Company or the Executive, as the case may be, in addition to its or the Executive's other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of this Section 9.9. 9.10 Pooling of Interests. If the Company is involved in any proposed business combination that is contemplated to be accounted for as a pooling of interests, the Executive agrees to cooperate with the reasonable requests of the Company with regard to the exercise of stock options, the sale of Company stock or other matters that could affect the ability of the combination to be accounted for as a pooling of interests. 10 Liability Insurance The Company shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists, after the Employment Term in the same amount and to the same extent, if any, as the Company covers its other officers and directors. 11 Assignment 11.1 Assignment by the Company. This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes of the "Company" under the terms of this Agreement. As used in this Agreement, the term "successor" shall mean any person, firm, corporation or business entity which at any time, whether by merger, purchase, or otherwise, acquires all or substantially all of the assets of the Company. Notwithstanding such assignment, the Company shall remain, with such successor, jointly and severally liable for all its obligations hereunder. Except as herein provided, this Agreement may not otherwise be assigned by the Company. 11.2 Assignment by the Executive. This Agreement is not assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amounts payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, in the absence of such designee, to the Executive's estate. 12 Legal Remedies 12.1 Payment of Legal Fees. The Company shall pay the Executive's reasonable legal fees and costs associated with entering into this Agreement. To the fullest extent permitted by law, the Company shall promptly pay upon submission of statements all legal and other professional fees, costs of litigation, prejudgment interest, and other expenses incurred in connection with any dispute arising hereunder; provided, however, the Company shall be reimbursed by the Executive for (i) the fees and expenses advanced in the event the Executive's claim is in a material manner in bad faith or frivolous and the arbitrator or court, as applicable, determines that the reimbursement of such fees and expenses is appropriate, or (ii) to the extent that the arbitrator or court, as appropriate, determines that such legal and other professional fees are clearly and demonstrably unreasonable. 12.2 Arbitration. All disputes and controversies arising under or in connection with this Agreement, other than the seeking of injunctive or other equitable relief pursuant to Section 9 hereof, shall be settled by arbitration conducted before a panel of three (3) arbitrators sitting in New York City, New York, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of commercial disputes of the American Arbitration Association then in effect. The determination of the majority of the arbitrators shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel of the Executive, shall be borne by the Company and the Executive shall be entitled to reimbursement of his expenses as provided in Section 12.1 hereof. 12.3 Notice. Any notices, requests, demands, or other communications provided for by this Agreement shall be sufficient if in writing and if delivered personally, sent by telecopier, sent by an overnight service or sent by registered or certified mail. Notice to the Executive not delivered personally (or by telecopy where the Executive is known to be) shall be sent to the last address on the books of the Company, and notice to the Company not delivered personally (or by telecopy to the known personal telecopy of the person it is being sent to) shall be sent to it at its principal office. All notices to the Company shall be delivered to the Chief Executive Officer with a copy to the senior legal officer. Delivery shall be deemed to occur on the earlier of actual receipt or tender and rejection by the intended recipient. 12.4 Continued Payments. In the event after a Change in Control either party files for arbitration to resolve any dispute as to whether a termination is for Cause or Good Reason, until such dispute is determined by the arbitrators, the Executive shall continue to be treated economically and benefit wise in the manner asserted by him in the arbitration effective as of the date of the filing of the arbitration, subject to the Executive promptly refunding any amounts paid to him, paying the cost of any benefits provided to him and paying to the Company the profits in any stock option or other equity awards exercised or otherwise realized by him during the pendency of the arbitration which he is ultimately held not to be entitled to; provided the arbitrators may terminate such payments and benefits in the event that they determine at any point that the Executive is intentionally delaying conclusion of the arbitration. 13 Miscellaneous 13.1 Entire Agreement. This Agreement, except to the extent specifically provided otherwise herein, supersedes any prior agreements or understandings, oral or written, between the parties hereto or between the Executive and the Company, with respect to the subject matter hereof and constitutes the entire Agreement of the parties with respect to the subject matter hereof. To the extent any severance plan or program of the Company that would apply to the Executive is more generous to the Executive than the provisions hereof, the Executive shall be entitled to any additional payments or benefits which are not duplicative, but shall otherwise not be eligible for such plan or program. 13.2 Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended, nor any provision hereof waived, except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives. 13.3 Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 13.4 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 13.5 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 13.6 Beneficiaries. The Executive may designate one or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Board or the Board's designee. The Executive may make or change such designation at any time. 13.7 Representation. The Executive represents that the Executive's employment by the Company and the performance by the Executive of his obligations under this Agreement do not, and shall not, breach any agreement that obligates him to keep in confidence any trade secrets or confidential or proprietary information of his or of any other party, to write or consult to any other party or to refrain from competing, directly or indirectly, with the business of any other party. The Executive shall not disclose to the Company, and the Company shall not request that the Executive disclose, any trade secrets or confidential or proprietary information of any other party. 14 Governing Law The provisions of this Agreement shall be construed and enforced in accordance with the laws of the state of Delaware, without regard to any otherwise applicable principles of conflicts of laws. IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement, as of the day and year first above written. /s/John D. Butler John D. Butler TEXTRON INC. By:/s/Lewis B. Campbell Name: Lewis B. Campbell Title: Chief Executive Officer Exhibit A Special Grants As provided in Section 11 of the Executive's employment letter of June 10, 1998, the Company will pay the costs of the Executive's family remaining in Zurich until September 1, 1998. Exhibit B Parachute Gross Up (a) In the event that the Executive shall become entitled to payments and/or benefits provided by this Agreement or any other amounts in the "nature of compensation" (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change of ownership or effective control covered by Section 280G(b)(2) of the Code or any person affiliated with the Company or such person) as a result of such change in ownership or effective control (collectively the "Company Payments"), and such Company Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any similar tax that may hereafter be imposed by any taxing authority) the Company shall pay to the Executive at the time specified in subsection (d) below an additional amount (the "Gross-up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Company Payments and any U.S. federal, state, and for local income or payroll tax upon the Gross-up Payment provided for by this paragraph (a), but before deduction for any U.S. federal, state, and local income or payroll tax on the Company Payments, shall be equal to the Company Payments. (b) For purposes of determining whether any of the Company Payments and Gross-up Payments (collectively the "Total Payments") will be subject to the Excise Tax and the amount of such Excise Tax, (x) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Company's independent certified public accountants appointed prior to any change in ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected by such accountants (the "Accountants") such Total Payments (in whole or in part) either do not constitute "parachute payments," represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the "base amount" or are otherwise not subject to the Excise Tax, and (y) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to pay U.S. federal income taxes at the highest marginal rate of U.S. federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence for the calendar year in which the Company Payment is to be made, net of the maximum reduction in U.S. federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the prior Gross- up Payment attributable to such reduction (plus the portion of the Gross-up Payment attributable to the Excise Tax and U.S. federal, state and local income tax imposed on the portion of the Gross-up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a U.S. federal, state and local income tax deduction), plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Gross-up Payment to be refunded to the Company has been paid to any U.S. federal, state and local tax authority, repayment thereof (and related amounts) shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expense thereof) if the Executive's claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountant or the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest or penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. (d) The Gross-up Payment or portion thereof provided for in subsection (c) above shall be paid not later than the thirtieth (30th) day following an event occurring which subjects the Executive to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Accountant, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection (c) hereof, as soon as the amount thereof can reasonably be deter mined, but in no event later than the ninetieth day after the occurrence of the event subjecting the Executive to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (e) In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Executive, but the Executive shall control any other issues. In the event the issues are interrelated, the Executive and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue, but if the parties cannot agree the Executive shall make the final determination with regard to the issues. In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Executive shall permit the representative of the Company to accompany the Executive, and the Executive and the Executive's representative shall cooperate with the Company and its representative. (f) The Company shall be responsible for all charges of the Accountant. (g) The Company and the Executive shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit B. EX-10.3 4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is entered into as of this 23rd day of July, 1998 by and between Textron Inc. (the "Company"), a Delaware corporation having its principal office at 40 Westminster Street, Providence, Rhode Island 02903 and Lewis B. Campbell residing at 50 Channing Avenue, Providence, Rhode Island 02906 (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive is presently employed by the Company; WHEREAS, the Company desires to continue to employ the Executive and the Executive is willing to continue to be employed by the Company; and WHEREAS, the Company and the Executive desire to set forth the terms and conditions of such continued employment. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the adequacy and receipt of which is acknowledged, the parties hereto agree as follows: 1. Term of Employment The Company hereby agrees to continue to employ the Executive and the Executive hereby accepts continued employment, in accordance with the terms and conditions set forth herein, for a term (the "Employment Term") commencing on the date hereof (the "Effective Date") and terminating, unless otherwise terminated earlier in accordance with Section 5 hereof, on the third anniversary of the Effective Date (the "Original Employment Term"), provided that the Employment Term shall be automatically extended, subject to earlier termination as provided in Section 5 hereof, for successive additional one (1) year periods (the "Additional Terms"), unless, at least ninety (90) days prior to the end of the Original Employment Term or the then Additional Term, the Company or the Executive has notified the other in writing that the Employment Term shall terminate at the end of the then current term. 2. Position and Responsibilities During the Employment Term, the Executive shall serve as the Chief Executive Officer of the Company or in such higher capacity as agreed by the Company and the Executive. The Executive shall report exclusively to the Board of Directors of the Company (the "Board"). The Executive shall, to the extent appointed or elected, serve on the Board as a director and as a member of any committee of the Board, in each case, without additional compensation. The Executive shall, to the extent appointed or elected, serve as a director or as a member of any committee of the board (or the equivalent bodies in a non- corporate subsidiary or affiliate) of any of the Company's subsidiaries or affiliates and as an officer or employee (in a capacity commensurate with his position with the Company) of any such subsidiaries or affiliates, in all cases, without additional compensation or benefits and any compensation paid to the Executive, or benefits provided to the Executive, in such capacities shall be a credit with regard to the amounts due hereunder from the Company. The Executive shall have duties, authorities and responsibilities generally commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies subject to the By-laws of the Company. The Executive shall devote substantially all of his business time, attention and energies to the performance of his duties hereunder, provided the foregoing will not prevent the Executive from participating in charitable, community or industry affairs, from managing his and his family's personal passive investments, and (with the consent of the Organization and Compensation Committee (or its successor) of the Board (the "O&C Committee"), which consent will not be unreasonably withheld, conditioned or delayed) serving on the board of directors of other companies, provided that these activities do not materially interfere with the performance of his duties hereunder or create a potential business conflict or the appearance thereof. The Company has consented to the Executive's services on the boards of directors, if any, on which the Executive currently serves, which boards the Executive has disclosed in writing to the O&C Committee. The Executive may retain any compensation or benefits received as a result of consented to service as a director of entities not related to the Company. 3. Compensation and Benefits During the Employment Term, the Company shall pay and provide the Executive the following: 3.1 Base Salary. The Company shall pay the Executive a base salary (the "Base Salary") in an amount which shall be established from time to time by the O&C Committee (or as otherwise designated by the Board), provided, however, that such base salary rate shall not be less than his current rate of base salary. Base Salary shall be paid to the Executive in accordance with the Company's normal payroll practices for executives. Base Salary shall be reviewed at least annually to ascertain whether, in the judgment of the reviewing committee, such Base Salary should be increased. If so increased, Base Salary shall not be thereafter decreased and shall thereafter, as increased, be the Base Salary hereunder. 3.2 Annual Bonus. The Company shall provide the Executive with the opportunity to earn an annual cash bonus under the Company's current annual incentive compensation plan for executives or a replacement plan therefor at a level commensurate with his position, provided that the minimum annual target award payable upon the achievement of reasonably attainable objective performance goals shall be at least seventy percent (70%) of Base Salary. 3.3 Long-Term Incentives. The Company shall provide the Executive the opportunity to earn long-term incentive awards under the current equity and cash based plans and programs or replacements therefor at a level commensurate with the current aggregate opportunity being provided to the Executive. 3.4 Employee Benefits. The Executive shall, to the extent eligible, be entitled to participate at a level commensurate with his position in all employee benefit welfare and retirement plans and programs, as well as equity plans, generally provided by the Company to its senior executives in accordance with the terms thereof as in effect from time to time. Such plans and programs currently include, without limitation, the Amended and Restated Supplemental Retirement Plan for Textron Inc. Key Executives (the "SERP"), the 1994 Long-Term Incentive Plan, the Key Executive Program (including the Deferred Income Plan, the Supplemental Benefits Plan (the "SBP") and the Survivor Benefit Plan), group term life insurance plan, comprehensive health, major medical, vision and dental insurance plans and short-term and long-term disability plans. 3.5 Vacation. The Executive shall be entitled to paid vacation in accordance with the standard written policies of the Company with regard to vacations of executives, but in no event less than four (4) weeks per calendar year. 3.6 Perquisites. The Company shall provide to the Executive, at the Company's cost, all perquisites to which other senior executives of the Company are generally entitled to receive and such other perquisites which are suitable to the character of the Executive's position with the Company and adequate for the performance of his duties hereunder but not less than the level being provided on the date hereof except as otherwise required because of changes in law. To the extent legally permissible, the Company shall not treat such amounts as income to the Executive. 3.7 Right to Change Plans. The Company shall not be obligated by reason of this Section 3 to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, program, or perquisite, so long as such changes are similarly applicable to executive employees generally and provided that the benefits or additional credit specifically as set forth in Section 3.8 below shall not be diminished. 3.8 Existing Awards. The Company acknowledges that the Executive currently is entitled to, among other things, the special grants set forth in Exhibit A hereto, as modified on Exhibit A. 4. Expenses Upon submission of appropriate documentation, in accordance with its policies in effect from time to time, the Company shall pay, or reimburse, the Executive for all ordinary and necessary expenses, in a reasonable amount, which the Executive incurs in performing his duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies in which the Executive participates in accordance with the Company's policies in effect from time to time. 5. Termination of Employment The Executive's employment with the Company (including but not limited to any subsidiary or affiliate or the Company) and the Employment Term shall terminate upon the occurrence of the first of the following events: (a) Automatically on the date of the Executive's death. (b) Upon thirty (30) days written notice by the Company to the Executive of a termination due to Disability, provided such notice is delivered during the period of Disability. The term "Disability" shall mean, for purposes of this Agreement, the inability of the Executive, due to injury, illness, disease or bodily or mental infirmity, to engage in the performance of his material duties of employment with the Company as contemplated by Section 2 herein for a period of more than one hundred eighty (180) consecutive days or for a period that is reasonably expected to exist for a period of more than one hundred eighty (180) consecutive days, provided that interim returns to work of less than ten (10) consecutive business days in duration shall not be deemed to interfere with a determination of consecutive absent days if the reason for absence before and after the interim return are the same. The existence or non-existence of a Disability shall be determined by a physician agreed upon in good faith by the Executive (or his representatives) and the Company. It is expressly understood that the Disability of the Executive for a period of one hundred eighty (180) consecutive days or less shall not constitute a failure by him to perform his duties hereunder and shall not be deemed a breach or default and the Executive shall receive full compensation for any such period of Disability or for any other temporary illness or incapacity during the term of this Agreement. (c) Immediately upon written notice by the Company to the Executive of a termination due to his retirement at or after the Executive's attainment of age sixty-five (65). (d) Immediately upon written notice by the Company to the Executive of a termination for Cause, provided such notice is given within ninety (90) days after the discovery by the Board of the Cause event and has been approved by at least two-thirds of the Board at a meeting at which the Executive and his counsel had the right to appear and address such meeting after receiving at least five (5) business days written notice of the meeting and reasonable detail of the facts and circumstances claimed to provide a basis for such termination. The term "Cause" shall mean, for purposes of this Agreement: (i) an act or acts of willful misrepresentation, fraud or willful dishonesty (other than good faith expense account disputes) by the Executive which in any case is intended to result in his or another person or entity's substantial personal enrichment at the expense of the Company; (ii) any willful misconduct by the Executive with regard to the Company, its business, assets or employees that has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iii) any material, willful and knowing violation by the Executive of (x) the Company's Business Conduct Guidelines, or (y) any of his fiduciary duties to the Company which in either case has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iv) the willful or reckless behavior of the Executive with regard to a matter of a material nature which has a material adverse impact (economic or otherwise) on the Company; (v) the Executive's willful failure to attempt to perform his duties under Section 2 hereof or his willful failure to attempt to follow the legal written direction of the Board, which in either case is not remedied within ten (10) days after receipt by the Executive of a written notice from the Company specifying the details thereof; (vi) the Executive's conviction of, or pleading nolo contendere or guilty to, a felony (other than (x) a traffic infraction or (y) vicarious liability solely as a result of his position provided the Executive did not have actual knowledge of the actions or inactions creating the violation of the law or the Executive relied in good faith on the advice of counsel with regard to the legality of such action or inaction (or the advice of other specifically qualified professionals as to the appropriate or proper action or inaction to take with regard to matters which are not matters of legal interpretation)); or (vii) any other material breach by the Executive of this Agreement that is not cured by the Executive within twenty (20) days after receipt by the Executive of a written notice from the Company of such breach specifying the details thereof. No action or inaction should be deemed willful if not demonstrably willful and if taken or not taken by the Executive in good faith as not being adverse to the best interests of the Company. Reference in this paragraph (d) to the Company shall also include direct and indirect subsidiaries of the Company, and materiality and material adverse impact shall be measured based on the action or inaction and the impact upon, and not the size of, the Company taken as a whole, provided that after a Change in Control, the size of the Company, taken as a whole, shall be a relevant factor in determining materiality and material adverse impact. (e) Upon written notice by the Company to the Executive of an involuntary termination without Cause. A notice by the Company of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed an involuntary termination of the Executive by the Company without Cause as of the end of the Employment Term, but the Executive may terminate at any time after the receipt of such notice and shall be treated as if he was terminated without Cause as of such date. (f) Upon twenty (20) days written notice by the Executive to the Company of a termination for Good Reason (which notice sets forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination) unless the Good Reason event is cured within such twenty (20) day period. The term "Good Reason" shall mean, for purposes of this Agreement, without the Executive's express written consent, the occurrence of any one or more of the following: (i) the assignment to the Executive of duties materially inconsistent with the Executive's then authorities, duties, responsibilities, and status (including offices, titles, and reporting requirements), or any reduction in the Executive's then title, position, reporting lines or a material reduction (other than temporarily while Disabled or otherwise incapacitated) in his then status, authorities, duties, or responsibilities including but not limited to holding his then position in the Company while the Company is a subsidiary of another entity (holding stock in the Company entitled to at least fifty percent (50%) of the vote for the election of directors) and not holding the same or equivalent position in the ultimate parent entity or, if then a director of the Company, failure to be nominated or reelected as a director of the Company or removal as such; (ii) relocation of the Executive from the principal office of the Company (excluding reasonable travel on the Company's business to an extent substantially consistent with the Executive's business obligations) or relocation of the principal office of the Company to a location which is at least fifty (50) miles from the Company's current headquarters, provided, however, if the Executive at the time of the relocation is not located at the principal office, such relocation provision shall apply based on his then location; (iii) a reduction by the Company in the Executive's Base Salary; (iv) a reduction in the Executive's aggregate level of participation in any of the Company's short and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or arrangements in which the Executive participated as of the Effective Date, or, after a Change in Control, participated immediately prior to the Change in Control; (v) the failure of the Company to obtain and deliver to the Executive a satisfactory written agreement from any successor to the Company to assume and agree to perform this Agreement; or (vi) any other material breach by the Company of this Agreement. (g) Upon written notice by the Executive to the Company of the Executive's voluntary termination of employment without Good Reason (which the Company may, in its sole discretion, make effective earlier than any notice date). A notice by the Executive of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed a voluntary termination by the Executive without Good Reason as of the end of the Employment Term. 6. Consequences of a Termination of Employment 6.1 Termination Due to Death or Retirement. If the Employment Term ends on account of the Executive's termination due to death pursuant to Section 5(a) above or retirement pursuant to Section 5(c) above, the Executive (or the Executive's surviving spouse, or other beneficiary as so designated by the Executive during his lifetime, or to the Executive's estate, as appropriate) shall be entitled, in lieu of any other payments or benefits, to (i) payment promptly of any unpaid Base Salary, unpaid annual incentive compensation (for the preceding fiscal year) and any accrued vacation, (ii) reimbursement for any unreimbursed business expenses incurred prior to the date of termination, and (iii) any amounts, benefits or fringes due under any equity, benefit or fringe plan, grant or program in accordance with the terms of said plan, grant or program but without duplication (collectively, the "Accrued Obligations"). 6.2 Termination Due To Disability. If the Employment Term ends as a result of Disability pursuant to Section 5(b) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment, during January of the calendar year following the date of the Executive's termination, of an amount equal to three hundred percent (300%) of the Executive's target annual incentive compensation award established for the fiscal year during which the Executive's termination occurs (the "Termination Year Target Bonus"). (b) Continued monthly payment for two and one half (2 1/2) years of an amount equal to the Executive's monthly Base Salary rate reduced by any disability benefits received by the Executive under the Company's long term disability plan for the corresponding period. (c) Payments and benefits as set forth in Section 6.3(c)- (j) hereof. (d) The Executive shall be deemed to have satisfied the definition of "total disability" under the 1994 Long- Term Incentive Plan or the equivalent definition under any successor plan thereto. (e) As provided in Exhibit A hereto. 6.3 Involuntary Termination by the Company Without Cause or Termination by the Executive for Good Reason. If the Executive is involuntarily terminated by the Company without Cause in accordance with Section 5(e) above or the Executive terminates his employment for Good Reason in accordance with Section 5(f) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment, during January of the calendar year following the date of the Executive's termination, of an amount equal to the Executive's Termination Year Target Bonus multiplied by a fraction, the numerator of which is the number of days during the fiscal year of the Executive's termination that the Executive was employed by the Company and the denominator is three hundred sixty-five (365), provided that in no event shall such payment exceed fifty percent (50%) of the Termination Year Target Bonus. (b) Continued payment off payroll for two and one-half (2 1/2) years (in approximately equal monthly installments) of an amount equal to two and one-half (2 1/2) times the sum of: (i) the Executive's Base Salary, and (ii) the greater of: (x) the Termination Year Target Bonus, or (y) the Executive's highest annual incentive compensation award earned during the last three (3) fiscal years ending prior to the fiscal year of termination (whether or not deferred). (c) To the extent eligible at such time or, if the Executive would be eligible with credit for an additional two and one half (2 1/2) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and his dependents (including, if he is only eligible because of the extra age and service credit, an adjustment, to the extent necessary, to put the Executive in the same after-tax position as if he had been eligible for such coverage) and, if not eligible for continued health coverage under the retiree health plan, payment of the Executive's and Executive's eligible dependents' COBRA continuation health coverage premiums for the Company's health insurance plan that generally applies to senior executives for the two and one-half (2 1/2) year period following the date of termination or, if earlier, until the Executive and Executive's dependents cease to be eligible for such coverage, provided that, if COBRA coverage cannot be provided for the full period, any excess period shall be covered under (d) below (and further provided that, if such premiums are taxable to the Executive, an adjustment such that the Executive has no after tax cost for the providing of such COBRA coverage). (d) To the extent eligible on the date of termination, continued participation, at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans (other than medical plans covered under (c) above), until two and one-half (2 1/2) years after the date of termination; provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such benefits under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to the Executive than the Executive would have had if the benefits were provided to the Executive as an employee. (e) Two and one-half (2 1/2) additional years of service and compensation credit (at the Executive's then compensation level) for benefit purposes under any defined benefit type retirement plan, including but not limited to the SERP and the SBP if then in effect, and, if the Executive is not eligible to receive benefits under any such plan on the date of termination, two and one-half (2 1/2) additional years of age for determining eligibility to receive such benefits, provided that benefits under any such plan will not commence until the Executive actually attains the required distribution age under the plan or the Executive's spouse qualifies for death benefits under such plan and further provided that with regard to any plan qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") the additional amounts may be provided on a nonqualified plan basis. (f) Payment promptly after termination of two and one-half (2 1/2) times the amount of the maximum Company annual contribution or match to any defined contribution type plan in which the Executive participates. (g) Immediate full vesting of any outstanding stock options that would vest within two and one half (2 1/2) years after such termination of employment as if the Executive had continued employment for such two and one half (2 1/2) year period, to the extent permitted under the plan or grant, or if such vesting is not permitted, a cash payment equal to the difference between the fair market value of the shares covered by the unvested options and the exercise price of such unvested options (the "Spread") on the date of termination, and, in both cases, to the extent such options are exercisable for less than two and three quarters (2-3/4) years after termination (or, if less, the remainder of the respective terms), a cash payment equal to the Black- Scholes (based on the same methodology used for the Company's then latest distributed proxy statement or, if not so used, for internal valuation of the last stock option grants made by the Company prior to the termination) future value of such options for the lesser of two and three quarters (2-3/4) years or the remainder of such terms (any such payments shall be made promptly after such termination). The terms of the Executive's outstanding options are deemed to be modified to the extent required by this Section 6.3 (g). (h) Payment when it would otherwise be paid in accordance with the 1994 Long-Term Incentive Plan of any amount due with regard to performance share units outstanding on the date of termination to the extent permitted under such plan, plus, outside of such plan, when it would otherwise have been paid, an amount equal to the amount the Executive would have received with regard to any performance share units outstanding at the time of termination that could not be so paid. For purposes of calculating the foregoing amounts, all discretionary performance targets relating to the Executive's individual performance will be deemed to be fully achieved and the actual level of achievement of all financial performance targets will be determined as if the Executive continued to be employed through the end of the applicable measuring period. (i) Immediate full vesting of the Executive's accounts under the Deferred Income Plan, and to the extent not permitted under such plan, a cash payment outside of the plan equal to the value of the amount that would have vested under the plan. (j) Continuation of participation for two and one-half (2 1/2) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the termination. (k) As provided in Exhibit A hereto. 6.4 Termination by the Company for Cause or Termination by the Executive without Good Reason. If the Executive is terminated by the Company for Cause or the Executive terminates his employment without Good Reason, the Executive shall be entitled to receive all Accrued Obligations. 7. No Mitigation/No Offset/Release (a) In the event of any termination of employment hereunder, the Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain. The amounts payable hereunder shall not be subject to setoff, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others, except as specifically set forth in Section 9 hereof or upon obtaining by the Company of a final unappealable judgement against the Executive. (b) Any amounts payable and benefits or additional rights provided pursuant to Section 6.2 (other than Section 6.2(e)), Section 6.3 (other than Section 6.3(k)) and Section 8.1 (other than Section 8.1(m)) beyond Accrued Obligations and amounts or rights due under law, and, in the case of Section 6.3 and Section 8.1, beyond the sum of any amounts due (without execution of a release) under the Company severance program then in effect, or, if greater, three (3) months Base Salary as severance, shall only be payable if the Executive delivers to the Company a release of all claims of the Executive (other than those specifically payable or providable hereunder on or upon the applicable type of termination and any rights of indemnification under the Company's organizational documents) with regard to the Company, its subsidiaries and related entities and their respective past or present officers, directors and employees in such form as reasonably requested by the Company. (c) Upon any termination of employment, upon the request of the Company, the Executive shall deliver to the Company a resignation from all offices and directorships and fiduciary positions of the Executive in which the Executive is serving with, or at the request of, the Company or its subsidiaries, affiliates or benefit plans. (d) The amounts and benefits provided under Sections 6 and 8 hereof are intended to be inclusive and not duplicative of the amounts and benefits due under the Company's employee benefit plans and programs to the extent they are duplicative. 8. Change in Control 8.1 Employment Termination in Connection with a Change in Control. In the event of a Qualifying Termination (as defined below) during the period commencing one-hundred eighty (180) days prior to the effective date of a Change in Control and terminating on the second anniversary of the effective date of a Change in Control (the "Change in Control Protection Period"), then in lieu of the benefits provided to the Executive under Section 6.3 of this Agreement, the Company shall pay the Executive the following amounts within (except as otherwise provided) thirty (30) business days of the Qualifying Termination (or, if later, the effective date of the Change in Control; in which case any amounts or benefits previously paid pursuant to Section 6 shall be setoff against those under this Section 8) and provide the following benefits: (a) Any Accrued Obligations. (b) A lump-sum cash payment equal to three (3) times the highest rate of the Executive's Base Salary rate in effect at any time up to and including the date of the Executive's termination. (c) A lump-sum cash payment equal to the Prorated Portion (as determined in the next sentence) of the greater of: (i) the Executive's Termination Year Target Bonus or (ii) the Executive's earned annual incentive award for the fiscal year prior to the fiscal year in which the earlier of the Change in Control or the Qualifying Termination occurs (whether or not deferred). The "Prorated Portion" of the foregoing amount shall be determined by multiplying such amount by a fraction, the numerator of which is the number of days during the fiscal year of termination that the Executive is employed by the Company, and the denominator of which is, three hundred sixty-five (365). (d) A lump-sum cash payment equal to three (3) times the greater of: (i) the Executive's highest annual incentive compensation earned over the three (3) fiscal years ending prior to the earlier of the Change in Control or the Qualifying Termination (whether or not deferred); or (ii) the Executive's target incentive compensation established for the fiscal year in which the Executive's date of termination occurs. (e) To the extent the Executive is eligible, was eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination) or if the Executive would be eligible with credit for an additional three (3) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and the Executive's eligible dependents (including an adjustment to the extent necessary to put the Executive on the same after tax basis as if the Executive had been eligible for such coverage). (f) To the extent eligible prior or after the Change in Control (or, if earlier the Qualifying Termination), continued participation, (coordinated with (e) above to the extent duplicative), at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans, until three (3) years after the date of termination, provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such similar or improved benefit under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to him than he would have had if the benefits were provided to him as an employee. (g) A lump-sum cash payment of the actuarial present value equivalent (as determined in accordance with the most favorable (to the Executive) overall actuarial assumptions and subsidies in any of the Company's tax- qualified or nonqualified type defined benefit pension plans in which the Executive then participates) of the accrued benefits accrued by the Executive as of the date of termination under the terms of any nonqualified defined benefit type retirement plan, including but not limited to, the SERP and the SBP and assuming the benefit was fully vested without regard to any minimum age or service requirements. For this purpose, such benefits shall be calculated under the assumption that the Executive's employment continued following the date of termination for three (3) full years (i.e., three (3) additional years of age (including, but not limited to, for purposes of determining the actuarial present value), compensation and service credits shall be added). (h) Three (3) times the amount of the maximum Company contribution or match to any defined contribution type plan in which the Executive participates. (i) A lump-sum cash payment of the product of (i) the Interest Factor (as determined in the next sentence) multiplied by (ii) the Executive's entire account balance under the Deferred Income Plan (or any replacement therefor), plus an additional amount equal to three (3) times the match which the Company made for the Executive to such plan for the fiscal year ending immediately prior to the earlier of the Change in Control or the Qualifying Termination. The "Interest Factor" shall be equal to one (1) plus three (3) times the rate of earnings of the Executive's account under such plan for the fiscal year ending immediately prior to his termination. (j) Immediate full vesting of any outstanding stock options, performance share units and other equity awards (and lapse of any forfeiture provisions) to the extent permitted under the plan or grant, or if full vesting is not permitted with regard to stock options, a cash payment equal to the Spread on such unvested options on the date of termination (or, if later, the date of the Change in Control) plus, in both cases, if options are exercisable for less than three (3) years after termination (or, if less, the remainder of the respective terms, including any termination of exercisability of all Company stock options in connection with the Change in Control or a merger related thereto), a cash payment equal to the Black- Scholes (based on the same methodology used for the Company's then latest distributed proxy statement or, if not so used, for internal valuation of the last stock option grants made by the Company prior to the earlier of the Qualifying Termination or the Change in Control) future value of such outstanding options for the lesser of three (3) years or the remainder of such terms. (k) Outplacement services at a level commensurate with the Executive's position, including use of an executive office and secretary, for a period of one (1) year commencing on the date of termination but in no event extending beyond the date on which the Executive commences other full time employment. (l) Continuation of participation for three (3) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the Change in Control. (m) As provided in Exhibit A hereto. For purposes of this Section 8, a Qualifying Termination shall mean any termination of the Executive's employment (i) by the Company without Cause, or (ii) by the Executive for Good Reason. 8.2 Definition of "Change in Control." A Change in Control of the Company shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied: (a) Any "person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than the Company, any trustee or other fiduciary holding Company common stock under an employee benefit plan of the Company or a related company, or any corporation which is owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the Company's common stock, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than thirty percent (30%) of the then outstanding voting stock; (b) During any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (c) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) The approval of the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets. 8.3 Excise Tax Equalization Payment. In the event that the Executive becomes entitled to payments and/or benefits which would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, the provisions of Exhibit B will apply. 9. Noncompetition, Confidentiality and Nondisparagement 9.1 Agreement Not to Compete. (a) The Executive agrees that for a period of two (2) years after the termination of the Executive's employment, the Executive will not engage in Competition with the Company with the Listed Companies, provided that after the Executive's termination of employment the Listed Companies shall be limited to those effectively listed at the time of his termination and still on such list at the time of any alleged activity of the Executive, including, but not limited to, (i) soliciting customers, business or orders for, or selling any products and services in, Competition with the Company for such Listed Companies or (ii) diverting, enticing, or otherwise taking away customers, business or orders of the Company, or attempting to do so, in either case in Competition with the Company for such Listed Companies. (b) The Executive agrees that if, while he is receiving severance pay from the Company pursuant to Section 6.2(b) or Section 6.3(b), the Executive: (i) violates (a) above, or (ii) otherwise engages in Competition in the Restricted Territory, whether or not with the Listed Companies, Section 9.6(b) hereof shall apply. (c) The Executive agrees that the restrictions contained in this Section 9 are necessary for the protection of the business and goodwill of the Company because of the trade secrets within the Executive's knowledge and are considered by the Executive to be reasonable for such purpose. 9.2 Definitions. (a) "Competition" shall mean engaging in, as an employee, director, partner, principal, shareholder, consultant, advisor, independent contractor or similar capacity, with (a) the Listed Companies or (b) in any business, activity or conduct which directly competes with the business of the Company, provided that, with regard to the period after termination of the Executive's employment, Section 9.1(b)(ii) shall only apply to business lines in which the Company is engaged both at the time of termination of employment and at the time of the determination and which during the last fiscal year ending prior to the date of such termination repre sented at least five percent (5%) of the Company's revenues (the "Prohibited Lines"). Notwithstanding anything else in this Section 9, Competition shall not include: (A) (i) holding five percent (5%) or less of an interest in the equity or debt of any publicly traded company, (ii) engaging in any activity with the prior written approval of the O&C Committee, (iii) the practice of law in a law firm that represents entities in Competition with the Company, provided that the Executive does not personally represent such entities, or (iv) the employment by, or provision of services to, an investment banking firm or consulting firm that provides services to entities that are in Competition with the Company provided that the Executive does not personally represent or provide services to such entities that are Listed Companies or otherwise with regard to businesses in Competition with the Prohibited Lines, or (B) with regard to Section 9.1(b)(ii), (i) being employed by, or consulting for, a non-Competitive division or business unit of an entity which is in Competition with the Company (and participating in such entity's employee equity plans), (ii) being employed by, or consulting for, an entity which had annual revenues in the last fiscal year prior to the Executive being employed by, or consulting for, the entity generated through business lines in Competition with the Prohibited Lines of the Company that do not exceed five percent (5%) of such entity's total annual revenues, provided that revenues within the Executive's area of responsibility or authority are not more than ten percent (10%) composed of the revenues from the businesses in Competition with the Prohibited Lines, or (iii) any activities conducted after a Change in Control of the Company. (b) The Restricted Territory shall mean any geographic area in which the Company with regard to the Prohibited Lines did more than nominal business. (c) Listed Companies shall mean those entities which are within the "peer group" established by the Company for the performance graphs in its proxy statement pursuant to Item 402(l) of Regulation S-K under the Exchange Act and which are in a list of no more than five (5) entities established by the Company from time to time and available from the Chief Human Resources Officer, provided that the addition of any entity to the list shall not be effective until sixty (60) days after it is so listed. (d) For purposes of this Section 9, "Company" shall mean the Company and its subsidiaries and affiliates. 9.3 Agreement Not to Engage in Certain Solicitation. The Executive agrees that the Executive will not, during the Executive's employment with the Company or during the two (2) year period thereafter, directly or indirectly, solicit or induce, or attempt to solicit or induce, any non-clerical employee(s), sales representative(s), agent(s), or consultant(s) of the Company to terminate such person's employment, representation or other association with the Company for the purpose of affiliating with any entity with which the Executive is associated ("Solicitation"). 9.4 Confidential Information. (a) The Executive specifically acknowledges that any trade secrets or confidential business and technical information of the Company or its vendors, suppliers or customers, whether reduced to writing, maintained on any form of electronic media, or maintained in mind or memory and whether compiled by the Executive or the Company (collectively, "Confidential Information"), derives independent economic value from not being readily known to or ascertainable by proper means by others; that reasonable efforts have been made by the Company to maintain the secrecy of such information; that such information is the sole property of the Company or its vendors, suppliers, or customers and that any retention, use or disclosure of such information by the Executive during the Employment Term (except in the course of performing duties and obligations of employment with the Company) or any time after termination thereof, shall constitute misappropriation of the trade secrets of the Company or its vendors, suppliers, or customers, provided that Confidential Information shall not include: (i) information that is at the time of disclosure public knowledge or generally known within the industry, (ii) information deemed in good faith by the Executive, while employed by the Company, desirable to disclose in the course of performing the Executive's duties, (iii) information the disclosure of which the Executive in good faith deems necessary in defense of the Executive's rights provided such disclosure by the Executive is limited to only disclose as necessary for such purpose, or (iv) information disclosed by the Executive to comply with a court, or other lawful compulsory, order compelling him to do so, provided the Executive gives the Company prompt notice of the receipt of such order and the disclosure by the Executive is limited to only disclosure necessary for such purpose. (b) The Executive acknowledges that the Company from time to time may have agreements with other persons or with the United States Government, or agencies thereof, that impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. If the Executive's duties hereunder will require disclosures to be made to him subject to such obligations and restrictions, the Executive agrees to be bound by them. 9.5 Scope of Restrictions. If, at the time of enforcement of this Section 9, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. 9.6 Remedies. (a) In the event of a material breach or threatened material breach of Section 9.1(a), Section 9.3, Section 9.4 or Section 9.10, the Company, in addition to its other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of the provisions of this Section 9. Except as specifically provided with regard to Listed Companies, the Company agrees that it will not assert to enjoin or otherwise limit the Executive's activities based on an argument of inevitable disclosure of confidential information. (b) In the event Section 9.1(b) applies, the Company may immediately cease payment to the Executive of all future amounts due under Sections 6.2(a) or (b) or Sections 6.3(a) or (b), as well as otherwise specifically provided in any other plan, grant or program. (c) Upon written request of the Executive, the Company shall within thirty (30) days notify the Executive in writing whether or not in good faith it believes any proposed activities would be in Competition and, if it so determines or does not reply within thirty (30) days, it shall be deemed to waive any right to treat such activities as Competition unless the facts are otherwise than as presented by the Executive or there is a change thereafter in such activities. The Executive shall promptly provide the Company with such information as it may reasonably request to evaluate whether or not such activities are in Competition. 9.7 Uniformity. In no event shall any definitions of Competition or Solicitation (or a similar provision) as it applies to the Executive with regard to any plan of program or grant of the Company be interpreted to be any broader than as set forth in this Section 9. 9.8 Delivery of Documents. Upon termination of this Agreement or at any other time upon request by the Company, the Executive shall promptly deliver to the Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, laboratory and research notebooks and other documents (and all copies or reproductions of such materials in his possession or control) belonging to the Company. Notwithstanding the foregoing, the Executive may retain his rolodex and similar phone directories (collectively, the "Rolodex") to the extent the Rolodex does not contain information other than name, address, telephone number and similar information, provided that, at the request of the Company, the Executive shall provide the Company with a copy of the Rolodex. 9.9 Nondisparagement. (a) During the Employment Term and thereafter, the Executive shall not with willful intent to damage economically or as to reputation or vindictively disparage the Company, its subsidiaries or their respective past or present officers, directors or employees (the "Protected Group"), provided that the foregoing shall not apply to (i) actions or statements taken or made by the Executive while employed by the Company in good faith as fulfilling the Executive's duties with the Company or otherwise at the request of the Company, (ii) truthful statements made in compliance with legal process or governmental inquiry, (iii) as the Executive in good faith deems necessary to rebut any untrue or misleading public statements made about him or any other member of the Protected Group, (iv) statements made in good faith by the Executive to rebut untrue or misleading statements made about him or any other member of the Protected Group by any member of the Protected Group, and (v) normal commercial puffery in a competitive business situation. No member of the Protected Group shall be a third party beneficiary of this Section 9.9(a). (b) During the Employment Term and thereafter, neither the Company officially nor any then member of the Executive Leadership Team (or the equivalent) of the Company, as such term is currently used within the Company, shall with willful intent to damage the Executive economically or as to reputation or otherwise vindictively disparage the Executive, provided the foregoing shall not apply to (i) actions or statements taken or made in good faith within the Company in fulfilling duties with the Company, (ii) truthful statements made in compliance with legal process, governmental inquiry or as required by legal filing or disclosure requirements, (iii) as in good faith deemed necessary to rebut any untrue or misleading statements by the Executive as to any member of the Protected Group or (iv) normal commercial puffery in a competitive business situation. (c) In the event of a material breach or threatened material breach of clauses (a) or (b) above, the Company or the Executive, as the case may be, in addition to its or the Executive's other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of this Section 9.9. 9.10 Pooling of Interests. If the Company is involved in any proposed business combination that is contemplated to be accounted for as a pooling of interests, the Executive agrees to cooperate with the reasonable requests of the Company with regard to the exercise of stock options, the sale of Company stock or other matters that could affect the ability of the combination to be accounted for as a pooling of interests. 10 Liability Insurance The Company shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists, after the Employment Term in the same amount and to the same extent, if any, as the Company covers its other officers and directors. 11 Assignment 11.1 Assignment by the Company. This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes of the "Company" under the terms of this Agreement. As used in this Agreement, the term "successor" shall mean any person, firm, corporation or business entity which at any time, whether by merger, purchase, or otherwise, acquires all or substantially all of the assets of the Company. Notwithstanding such assignment, the Company shall remain, with such successor, jointly and severally liable for all its obligations hereunder. Except as herein provided, this Agreement may not otherwise be assigned by the Company. 11.2 Assignment by the Executive. This Agreement is not assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amounts payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, in the absence of such designee, to the Executive's estate. 12 Legal Remedies 12.1 Payment of Legal Fees. The Company shall pay the Executive's reasonable legal fees and costs associated with entering into this Agreement. To the fullest extent permitted by law, the Company shall promptly pay upon submission of statements all legal and other professional fees, costs of litigation, prejudgment interest, and other expenses incurred in connection with any dispute arising hereunder; provided, however, the Company shall be reimbursed by the Executive for (i) the fees and expenses advanced in the event the Executive's claim is in a material manner in bad faith or frivolous and the arbitrator or court, as applicable, determines that the reimbursement of such fees and expenses is appropriate, or (ii) to the extent that the arbitrator or court, as appropriate, determines that such legal and other professional fees are clearly and demonstrably unreasonable. 12.2 Arbitration. All disputes and controversies arising under or in connection with this Agreement, other than the seeking of injunctive or other equitable relief pursuant to Section 9 hereof, shall be settled by arbitration conducted before a panel of three (3) arbitrators sitting in New York City, New York, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of commercial disputes of the American Arbitration Association then in effect. The determination of the majority of the arbitrators shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel of the Executive, shall be borne by the Company and the Executive shall be entitled to reimbursement of his expenses as provided in Section 12.1 hereof. 12.3 Notice. Any notices, requests, demands, or other communications provided for by this Agreement shall be sufficient if in writing and if delivered personally, sent by telecopier, sent by an overnight service or sent by registered or certified mail. Notice to the Executive not delivered personally (or by telecopy where the Executive is known to be) shall be sent to the last address on the books of the Company, and notice to the Company not delivered personally (or by telecopy to the known personal telecopy of the person it is being sent to) shall be sent to it at its principal office. All notices to the Company shall be delivered to the Chairman of the O&C Committee with a copy to the senior legal officer. Delivery shall be deemed to occur on the earlier of actual receipt or tender and rejection by the intended recipient. 12.4 Continued Payments. In the event after a Change in Control either party files for arbitration to resolve any dispute as to whether a termination is for Cause or Good Reason, until such dispute is determined by the arbitrators, the Executive shall continue to be treated economically and benefit wise in the manner asserted by him in the arbitration effective as of the date of the filing of the arbitration, subject to the Executive promptly refunding any amounts paid to him, paying the cost of any benefits provided to him and paying to the Company the profits in any stock option or other equity awards exercised or otherwise realized by him during the pendency of the arbitration which he is ultimately held not to be entitled to; provided the arbitrators may terminate such payments and benefits in the event that they determine at any point that the Executive is intentionally delaying conclusion of the arbitration. 13 Miscellaneous 13.1 Entire Agreement. This Agreement, except to the extent specifically provided otherwise herein, supersedes any prior agreements or understandings, oral or written, between the parties hereto or between the Executive and the Company, with respect to the subject matter hereof and constitutes the entire Agreement of the parties with respect to the subject matter hereof. To the extent any severance plan or program of the Company that would apply to the Executive is more generous to the Executive than the provisions hereof, the Executive shall be entitled to any additional payments or benefits which are not duplicative, but shall otherwise not be eligible for such plan or program. 13.2 Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended, nor any provision hereof waived, except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives. 13.3 Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 13.4 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 13.5 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 13.6 Beneficiaries. The Executive may designate one or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Board or the Board's designee. The Executive may make or change such designation at any time. 13.7 Representation. The Executive represents that the Executive's employment by the Company and the performance by the Executive of his obligations under this Agreement do not, and shall not, breach any agreement that obligates him to keep in confidence any trade secrets or confidential or proprietary information of his or of any other party, to write or consult to any other party or to refrain from competing, directly or indirectly, with the business of any other party. The Executive shall not disclose to the Company, and the Company shall not request that the Executive disclose, any trade secrets or confidential or proprietary information of any other party. 14 Governing Law The provisions of this Agreement shall be construed and enforced in accordance with the laws of the state of Delaware, without regard to any otherwise applicable principles of conflicts of laws. IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement, as of the day and year first above written. /s/Lewis B. Campbell Lewis B. Campbell TEXTRON INC. By:/s/John D. Butler Name: John D. Butler Title: Executive Vice President Exhibit A Special Grants By Retention Award Letter (the "Letter") dated December 19, 1995, the Executive was awarded the cash equivalent of 25,000 shares of Company stock (50,000 shares post split) subject to certain conditions. The Letter shall continue to apply, except as set forth below. 1. In the event of the Executive's termination of employment as a result of death (pursuant to Section 5(a) hereof), Disability (pursuant to Section 5(b) hereof), by the Company without Cause (pursuant to Section 5(e) hereof) or by the Executive for Good Reason (pursuant to Section 5(f) hereof), the Executive shall immediately become fully vested in the cash payment under the Letter (which shall be calculated using the same method as set forth in the Letter, but substituting the date of termination for January 1, 2001) and the award shall immediately be paid out after the date of termination in a lump sum. Furthermore, in the event of a Change in Control before January 1, 2001, but not a termination until thereafter, the value of the cash payment on January 1, 2001 will be the greater of the method in the second and fourth bullets of the Letter. The payment shall immediately vest upon a Change in Control, but not be paid out until the earlier of January 1, 2001 or a termination of employment. The foregoing award shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment, execution or levy of any kind and any attempt to do so shall not be recognized. Exhibit B Parachute Gross Up (a) In the event that the Executive shall become entitled to payments and/or benefits provided by this Agreement or any other amounts in the "nature of compensation" (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change of ownership or effective control covered by Section 280G(b)(2) of the Code or any person affiliated with the Company or such person) as a result of such change in ownership or effective control (collectively the "Company Payments"), and such Company Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any similar tax that may hereafter be imposed by any taxing authority) the Company shall pay to the Executive at the time specified in subsection (d) below an additional amount (the "Gross-up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Company Payments and any U.S. federal, state, and for local income or payroll tax upon the Gross-up Payment provided for by this paragraph (a), but before deduction for any U.S. federal, state, and local income or payroll tax on the Company Payments, shall be equal to the Company Payments. (b) For purposes of determining whether any of the Company Payments and Gross-up Payments (collectively the "Total Payments") will be subject to the Excise Tax and the amount of such Excise Tax, (x) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Company's independent certified public accountants appointed prior to any change in ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected by such accountants (the "Accountants") such Total Payments (in whole or in part) either do not constitute "parachute payments," represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the "base amount" or are otherwise not subject to the Excise Tax, and (y) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to pay U.S. federal income taxes at the highest marginal rate of U.S. federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence for the calendar year in which the Company Payment is to be made, net of the maximum reduction in U.S. federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the prior Gross- up Payment attributable to such reduction (plus the portion of the Gross-up Payment attributable to the Excise Tax and U.S. federal, state and local income tax imposed on the portion of the Gross-up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a U.S. federal, state and local income tax deduction), plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Gross-up Payment to be refunded to the Company has been paid to any U.S. federal, state and local tax authority, repayment thereof (and related amounts) shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expense thereof) if the Executive's claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountant or the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest or penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. (d) The Gross-up Payment or portion thereof provided for in subsection (c) above shall be paid not later than the thirtieth (30th) day following an event occurring which subjects the Executive to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Accountant, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection (c) hereof, as soon as the amount thereof can reasonably be deter mined, but in no event later than the ninetieth day after the occurrence of the event subjecting the Executive to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (e) In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Executive, but the Executive shall control any other issues. In the event the issues are interrelated, the Executive and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue, but if the parties cannot agree the Executive shall make the final determination with regard to the issues. In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Executive shall permit the representative of the Company to accompany the Executive, and the Executive and the Executive's representative shall cooperate with the Company and its representative. (f) The Company shall be responsible for all charges of the Accountant. (g) The Company and the Executive shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit B. EX-10.4 5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is entered into as of this 12th day of August, 1998 by and between Textron Inc. (the "Company"), a Delaware corporation having its principal office at 40 Westminster Street, Providence, Rhode Island 02903 and Herbert L. Henkel residing at 4 Spinney Lane, North Kingstown, Rhode Island 02852 (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Executive and the Executive is willing to be employed by the Company; and WHEREAS, the Company and the Executive desire to set forth the terms and conditions of such employment. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the adequacy and receipt of which is acknowledged, the parties hereto agree as follows: 1. Term of Employment The Company hereby agrees to employ the Executive and the Executive hereby accepts employment, in accordance with the terms and conditions set forth herein, for a term (the "Employment Term") commencing on the date hereof (the "Effective Date") and terminating, unless otherwise terminated earlier in accordance with Section 5 hereof, on the third anniversary of the Effective Date (the "Original Employment Term"), provided that the Employment Term shall be automatically extended, subject to earlier termination as provided in Section 5 hereof, for successive additional one (1) year periods (the "Additional Terms"), unless, at least ninety (90) days prior to the end of the Original Employment Term or the then Additional Term, the Company or the Executive has notified the other in writing that the Employment Term shall terminate at the end of the then current term. 2. Position and Responsibilities During the Employment Term, the Executive shall serve as the Executive Vice President and Chief Operating Officer of the Company or in such higher capacity as agreed by the Company and the Executive. The Executive shall report exclusively to the Chief Executive Officer and the Board of Directors of the Company (the "Board"). The Executive shall, to the extent appointed or elected, serve on the Board as a director and as a member of any committee of the Board, in each case, without additional compensation. The Executive shall, to the extent appointed or elected, serve as a director or as a member of any committee of the board (or the equivalent bodies in a non-corporate subsidiary or affiliate) of any of the Company's subsidiaries or affiliates and as an officer or employee (in a capacity commensurate with his position with the Company) of any such subsidiaries or affiliates, in all cases, without additional compensation or benefits and any compensation paid to the Executive, or benefits provided to the Executive, in such capacities shall be a credit with regard to the amounts due hereunder from the Company. The Executive shall have duties, authorities and responsibilities generally commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies, subject to the By-laws of the Company the organizational structure of the Company. The Executive shall devote substantially all of his business time, attention and energies to the performance of his duties hereunder, provided the foregoing will not prevent the Executive from participating in charitable, community or industry affairs, from managing his and his family's personal passive investments, and (with the consent of the Chief Executive Officer or the Organization and Compensation Committee (or its successor) of the Board (the "O&C Committee"), which consent will not be unreasonably withheld, conditioned or delayed) serving on the board of directors of other companies, provided that these activities do not materially interfere with the performance of his duties hereunder or create a potential business conflict or the appearance thereof. 3. Compensation and Benefits During the Employment Term, the Company shall pay and provide the Executive the following: 3.1 Base Salary. The Company shall pay the Executive an initial base salary (the "Base Salary") at a rate of $500,000. Base Salary shall be paid to the Executive in accordance with the Company's normal payroll practices for executives. Base Salary shall be reviewed at least annually by the O&C Committee (or as otherwise designated by the Board) to ascertain whether, in the judgment of the reviewing committee, such Base Salary should be increased. If so increased, Base Salary shall not be thereafter decreased and shall thereafter, as increased, be the Base Salary hereunder. 3.2 Annual Bonus. The Company shall provide the Executive with the opportunity to earn an annual cash bonus under the Company's current annual incentive compensation plan for executives or a replacement plan therefor at a level commensurate with his position, provided that the minimum annual target award payable upon the achievement of reasonably attainable objective performance goals shall be at least sixty percent (60%) of Base Salary. 3.3 Long-Term Incentives. The Company shall provide the Executive the opportunity to earn long-term incentive awards under the current equity and cash based plans and programs or replacements therefor. 3.4 Employee Benefits. The Executive shall, to the extent eligible, be entitled to participate at a level commensurate with his position in all employee benefit welfare and retirement plans and programs, as well as equity plans, generally provided by the Company to its senior executives in accordance with the terms thereof as in effect from time to time. 3.5 Vacation. The Executive shall be entitled to paid vacation in accordance with the standard written policies of the Company with regard to vacations of executives, but in no event less than four (4) weeks per calendar year. 3.6 Perquisites. The Company shall provide to the Executive, at the Company's cost, all perquisites to which other senior executives of the Company are generally entitled to receive and such other perquisites which are suitable to the character of the Executive's position with the Company and adequate for the performance of his duties hereunder. To the extent legally permissible, the Company shall not treat such amounts as income to the Executive. 3.7 Right to Change Plans. The Company shall not be obligated by reason of this Section 3 to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, program, or perquisite, so long as such changes are similarly applicable to executive employees generally. 4. Expenses Upon submission of appropriate documentation, in accordance with its policies in effect from time to time, the Company shall pay, or reimburse, the Executive for all ordinary and necessary expenses, in a reasonable amount, which the Executive incurs in performing his duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies in which the Executive participates in accordance with the Company's policies in effect from time to time. 5. Termination of Employment The Executive's employment with the Company (including but not limited to any subsidiary or affiliate or the Company) and the Employment Term shall terminate upon the occurrence of the first of the following events: (a) Automatically on the date of the Executive's death. (b) Upon thirty (30) days written notice by the Company to the Executive of a termination due to Disability, provided such notice is delivered during the period of Disability. The term "Disability" shall mean, for purposes of this Agreement, the inability of the Executive, due to injury, illness, disease or bodily or mental infirmity, to engage in the performance of his material duties of employment with the Company as contemplated by Section 2 herein for a period of more than one hundred eighty (180) consecutive days or for a period that is reasonably expected to exist for a period of more than one hundred eighty (180) consecutive days, provided that interim returns to work of less than ten (10) consecutive business days in duration shall not be deemed to interfere with a determination of consecutive absent days if the reason for absence before and after the interim return are the same. The existence or non-existence of a Disability shall be determined by a physician agreed upon in good faith by the Executive (or his representatives) and the Company. It is expressly understood that the Disability of the Executive for a period of one hundred eighty (180) consecutive days or less shall not constitute a failure by him to perform his duties hereunder and shall not be deemed a breach or default and the Executive shall receive full compensation for any such period of Disability or for any other temporary illness or incapacity during the term of this Agreement. (c) Immediately upon written notice by the Company to the Executive of a termination due to his retirement at or after the Executive's attainment of age sixty-five (65). (d) Immediately upon written notice by the Company to the Executive of a termination for Cause, provided such notice is given within ninety (90) days after the discovery by the Board or the Chief Executive Officer of the Cause event and has been approved by the O&C Committee at a meeting at which the Executive and his counsel had the right to appear and address such meeting after receiving at least five (5) business days written notice of the meeting and reasonable detail of the facts and circumstances claimed to provide a basis for such termination. The term "Cause" shall mean, for purposes of this Agreement: (i) an act or acts of willful misrepresentation, fraud or willful dishonesty (other than good faith expense account disputes) by the Executive which in any case is intended to result in his or another person or entity's substantial personal enrichment at the expense of the Company; (ii) any willful misconduct by the Executive with regard to the Company, its business, assets or employees that has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iii) any material, willful and knowing violation by the Executive of (x) the Company's Business Conduct Guidelines, or (y) any of his fiduciary duties to the Company which in either case has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iv) the willful or reckless behavior of the Executive with regard to a matter of a material nature which has a material adverse impact (economic or otherwise) on the Company; (v) the Executive's willful failure to attempt to perform his duties under Section 2 hereof or his willful failure to attempt to follow the legal written direction of the Board, which in either case is not remedied within ten (10) days after receipt by the Executive of a written notice from the Company specifying the details thereof; (vi) the Executive's conviction of, or pleading nolo contendere or guilty to, a felony (other than (x) a traffic infraction or (y) vicarious liability solely as a result of his position provided the Executive did not have actual knowledge of the actions or inactions creating the violation of the law or the Executive relied in good faith on the advice of counsel with regard to the legality of such action or inaction (or the advice of other specifically qualified professionals as to the appropriate or proper action or inaction to take with regard to matters which are not matters of legal interpretation)); or (vii) any other material breach by the Executive of this Agreement that is not cured by the Executive within twenty (20) days after receipt by the Executive of a written notice from the Company of such breach specifying the details thereof. No action or inaction should be deemed willful if not demonstrably willful and if taken or not taken by the Executive in good faith as not being adverse to the best interests of the Company. Reference in this paragraph (d) to the Company shall also include direct and indirect subsidiaries of the Company, and materiality and material adverse impact shall be measured based on the action or inaction and the impact upon, and not the size of, the Company taken as a whole, provided that after a Change in Control, the size of the Company, taken as a whole, shall be a relevant factor in determining materiality and material adverse impact. (e) Upon written notice by the Company to the Executive of an involuntary termination without Cause. A notice by the Company of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed an involuntary termination of the Executive by the Company without Cause as of the end of the Employment Term, but the Executive may terminate at any time after the receipt of such notice and shall be treated as if he was terminated without Cause as of such date. (f) Upon twenty (20) days written notice by the Executive to the Company of a termination for Good Reason (which notice sets forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination) unless the Good Reason event is cured within such twenty (20) day period. The term "Good Reason" shall mean, for purposes of this Agreement, without the Executive's express written consent, the occurrence of any one or more of the following: (i) the assignment to the Executive of duties materially inconsistent with the Executive's then authorities, duties, responsibilities, and status (including offices, titles, and reporting requirements), or any reduction in the Executive's then title, position, reporting lines or a material reduction (other than temporarily while Disabled or otherwise incapacitated) in his then status, authorities, duties, or responsibilities or, if then a director of the Company, failure to be nominated or reelected as a director of the Company or removal as such; (ii) relocation of the Executive from the principal office of the Company (excluding reasonable travel on the Company's business to an extent substantially consistent with the Executive's business obligations) or relocation of the principal office of the Company to a location which is at least fifty (50) miles from the Company's current headquarters, provided, however, if the Executive at the time of the relocation is not located at the principal office, such relocation provision shall apply based on his then location but shall not cover a relocation to the principal office prior to a Change in Control; (iii) a reduction by the Company in the Executive's Base Salary; (iv) a reduction in the Executive's aggregate level of participation in any of the Company's short and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or arrangements in which the Executive participated as of the Effective Date, or, after a Change in Control, participated immediately prior to the Change in Control; (v) the failure of the Company to obtain and deliver to the Executive a satisfactory written agreement from any successor to the Company to assume and agree to perform this Agreement; or (vi) any other material breach by the Company of this Agreement. (g) Upon written notice by the Executive to the Company of the Executive's voluntary termination of employment without Good Reason (which the Company may, in its sole discretion, make effective earlier than any notice date). A notice by the Executive of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed a voluntary termination by the Executive without Good Reason as of the end of the Employment Term. 6. Consequences of a Termination of Employment 6.1 Termination Due to Death or Retirement. If the Employment Term ends on account of the Executive's termination due to death pursuant to Section 5(a) above or retirement pursuant to Section 5(c) above, the Executive (or the Executive's surviving spouse, or other beneficiary as so designated by the Executive during his lifetime, or to the Executive's estate, as appropriate) shall be entitled, in lieu of any other payments or benefits, to (i) payment promptly of any unpaid Base Salary, unpaid annual incentive compensation (for the preceding fiscal year) and any accrued vacation, (ii) reimbursement for any unreimbursed business expenses incurred prior to the date of termination, and (iii) any amounts, benefits or fringes due under any equity, benefit or fringe plan, grant or program in accordance with the terms of said plan, grant or program but without duplication (collectively, the "Accrued Obligations"). 6.2 Termination Due To Disability. If the Employment Term ends as a result of Disability pursuant to Section 5(b) above, the Executive shall be entitled, in lieu of any other payments or benefits, to any Accrued Obligations. 6.3 Involuntary Termination by the Company Without Cause or Termination by the Executive for Good Reason. If the Executive is involuntarily terminated by the Company without Cause in accordance with Section 5(e) above or the Executive terminates his employment for Good Reason in accordance with Section 5(f) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment of the Prorated Portion (as determined in the next sentence) of the earned annual incentive compensation award for the fiscal year in which the Executive's termination occurs, payable promptly after the end of such fiscal year. "Prorated Portion" shall be determined by multiplying such amount by a fraction, the numerator of which is the number of days during the fiscal year of termination that the Executive is employed by the Company, and the denominator of which is, 365. (b) Continued payment off payroll for two years (in approximately equal monthly installments) of an amount equal to two times the sum of (i) the Executive's Base Salary and (ii) the higher of (x) the Executive's target incentive compensation established for the fiscal year in which the Executive's termination occurs or (y) a multiple thereof equal to the product of such target amount and the multiple of target earned by the Executive for the prior fiscal year (whether or not deferred). (c) Payment of the premium for COBRA continuation health coverage for the Executive and the Executive's dependents until the earliest of (i) eighteen (18) months after such termination, (ii) until no longer eligible for COBRA continuation benefit coverage or (iii) the Executive commences other substantially full- time employment. 6.4 Termination by the Company for Cause or Termination by the Executive without Good Reason. If the Executive is terminated by the Company for Cause or the Executive terminates his employment without Good Reason, the Executive shall be entitled to receive all Accrued Obligations. 7. No Mitigation/No Offset/Release (a) In the event of any termination of employment hereunder, the Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain. The amounts payable hereunder shall not be subject to setoff, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others, except as specifically set forth in Section 9 hereof or upon obtaining by the Company of a final unappealable judgement against the Executive. (b) Any amounts payable and benefits or additional rights provided pursuant to Section 6.3 or Section 8.1 beyond and Accrued Obligations and beyond the sum of any amounts due (without execution of a release) under the Company severance program then in effect, or, if greater, three (3) months Base Salary as severance, shall only be payable if the Executive delivers to the Company a release of all claims of the Executive (other than those specifically payable or providable hereunder on or upon the applicable type of termination and any rights of indemnification under the Company's organizational documents) with regard to the Company, its subsidiaries and related entities and their respective past or present officers, directors and employees in such form as reasonably requested by the Company. (c) Upon any termination of employment, upon the request of the Company, the Executive shall deliver to the Company a resignation from all offices and directorships and fiduciary positions of the Executive in which the Executive is serving with, or at the request of, the Company or its subsidiaries, affiliates or benefit plans. (d) The amounts and benefits provided under Sections 6 and 8 hereof are intended to be inclusive and not duplicative of the amounts and benefits due under the Company's employee benefit plans and programs to the extent they are duplicative. 8. Change in Control 8.1 Employment Termination in Connection with a Change in Control. In the event of a Qualifying Termination (as defined below) during the period commencing one-hundred eighty (180) days prior to the effective date of a Change in Control and terminating on the second anniversary of the effective date of a Change in Control (the "Change in Control Protection Period"), then in lieu of the benefits provided to the Executive under Section 6.3 of this Agreement, the Company shall pay the Executive the following amounts within (except as otherwise provided) thirty (30) business days of the Qualifying Termination (or, if later, the effective date of the Change in Control; in which case any amounts or benefits previously paid, pursuant to Section 6 shall be setoff against those under this Section 8) and provide the following benefits: (a) Any Accrued Obligations. (b) A lump-sum cash payment equal to three (3) times the highest rate of the Executive's Base Salary rate in effect at any time up to and including the date of the Executive's termination. (c) A lump-sum cash payment equal to the Prorated Portion of the greater of: (i) the Executive's target annual incentive compensation award established for the fiscal year during which the Executive's award termination occurs, or (ii) the Executive's earned annual incentive award for the fiscal year prior to the fiscal year in which the earlier of the Change in Control or the Qualifying Termination occurs (whether or not deferred). (d) A lump-sum cash payment equal to three (3) times the greater of: (i) the Executive's highest annual incentive compensation earned over the three (3) fiscal years ending prior to the earlier of the Change in Control or the Qualifying Termination (whether or not deferred); or (ii) the Executive's target incentive compensation established for the fiscal year in which the Executive's date of termination occurs. (e) To the extent the Executive is eligible, was eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination) or if the Executive would be eligible with credit for an additional three (3) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and the Executive's eligible dependents (including an adjustment to the extent necessary to put the Executive on the same after tax basis as if the Executive had been eligible for such coverage). (f) To the extent eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination), continued participation, (coordinated with (e) above to the extent duplicative), at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans, until three (3) years after the date of termination, provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such similar or improved benefit under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to him than he would have had if the benefits were provided to him as an employee. (g) A lump-sum cash payment of the actuarial present value equivalent (as determined in accordance with the most favorable (to the Executive) overall actuarial assumptions and subsidies in any of the Company's tax- qualified or nonqualified type defined benefit pension plans in which the Executive then participates) of the accrued benefits accrued by the Executive as of the date of termination under the terms of any nonqualified defined benefit type retirement plan, including but not limited to, the Amended and Restated Supplemental Executive Retirement Plan for Textron Inc. Key Executives and the Supplemental Benefits Plan and assuming the benefit was fully vested without regard to any minimum age or service requirements. For this purpose, such benefits shall be calculated under the assumption that the Executive's employment continued following the date of termination for three (3) full years (i.e., three (3) additional years of age (including, but not limited to, for purposes of determining the actuarial present value), compensation and service credits shall be added). (h) Three (3) times the amount of the maximum Company contribution or match to any defined contribution type plan in which the Executive participates. (i) A lump-sum cash payment of the product of (i) the Interest Factor (as determined in the next sentence) multiplied by (ii) the Executive's entire account balance under the Deferred Income Plan (or any replacement therefor), plus an additional amount equal to three (3) times the match which the Company made for the Executive to such plan for the fiscal year ending immediately prior to the earlier of the Change in Control or the Qualifying Termination. The "Interest Factor" shall be equal to one (1) plus three (3) times the rate of earnings of the Executive's account under such plan for the fiscal year ending immediately prior to his termination. (j) Immediate full vesting of any outstanding stock options, performance share units and other equity awards (and lapse of any forfeiture provisions) to the extent permitted under the plan or grant, or if full vesting is not permitted with regard to stock options, a cash payment equal to the difference between the fair market value of the shares covered by the unvested options and the exercise price of such unvested options on such unvested options on the date of termination (or, if later, the date of the Change in Control). (k) Outplacement services at a level commensurate with the Executive's position, including use of an executive office and secretary, for a period of one (1) year commencing on the date of termination but in no event extending beyond the date on which the Executive commences other full time employment. (l) Continuation of participation for three (3) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the Change in Control. For purposes of this Section 8, a Qualifying Termination shall mean any termination of the Executive's employment (i) by the Company without Cause, or (ii) by the Executive for Good Reason. 8.2 Definition of "Change in Control." A Change in Control of the Company shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied: (a) Any "person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than the Company, any trustee or other fiduciary holding Company common stock under an employee benefit plan of the Company or a related company, or any corporation which is owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the Company's common stock, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than thirty percent (30%) of the then outstanding voting stock; (b) During any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (c) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) The approval of the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets. 8.3 Excise Tax Equalization Payment. In the event that the Executive becomes entitled to payments and/or benefits which would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, the provisions of Exhibit A will apply. 9. Noncompetition, Confidentiality and Nondisparagement 9.1 Agreement Not to Compete. (a) The Executive agrees that for a period of two (2) years after the termination of the Executive's employment, the Executive will not engage in Competition with the Company with the Listed Companies, provided that after the Executive's termination of employment the Listed Companies shall be limited to those effectively listed at the time of his termination and still on such list at the time of any alleged activity of the Executive, including, but not limited to, (i) soliciting customers, business or orders for, or selling any products and services in, Competition with the Company for such Listed Companies or (ii) diverting, enticing, or otherwise taking away customers, business or orders of the Company, or attempting to do so, in either case in Competition with the Company for such Listed Companies. (b) The Executive agrees that if, while he is receiving severance pay from the Company pursuant to Section 6.3(b), the Executive: (i) violates (a) above, or (ii) otherwise engages in Competition in the Restricted Territory, whether or not with the Listed Companies, Section 9.6(b) hereof shall apply. (c) The Executive agrees that the restrictions contained in this Section 9 are necessary for the protection of the business and goodwill of the Company because of the trade secrets within the Executive's knowledge and are considered by the Executive to be reasonable for such purpose. 9.2 Definitions. (a) "Competition" shall mean engaging in, as an employee, director, partner, principal, shareholder, consultant, advisor, independent contractor or similar capacity, with (a) the Listed Companies or (b) in any business, activity or conduct which directly competes with the business of the Company, provided that, with regard to the period after termination of the Executive's employment, Section 9.1(b)(ii) shall only apply to business lines in which the Company is engaged both at the time of termination of employment and at the time of the determination and which during the last fiscal year ending prior to the date of such termination repre sented at least five percent (5%) of the Company's revenues (the "Prohibited Lines"). Notwithstanding anything else in this Section 9, Competition shall not include: (A) (i) holding five percent (5%) or less of an interest in the equity or debt of any publicly traded company, (ii) engaging in any activity with the prior written approval of the Chief Executive Officer or the O&C Committee, (iii) the practice of law in a law firm that represents entities in Competition with the Company, provided that the Executive does not personally represent such entities, or (iv) the employment by, or provision of services to, an investment banking firm or consulting firm that provides services to entities that are in Competition with the Company provided that the Executive does not personally represent or provide services to such entities that are Listed Companies or otherwise with regard to businesses in Competition with the Prohibited Lines, or (B) with regard to Section 9.1(b)(ii), (i) being employed by, or consulting for, a non-Competitive division or business unit of an entity which is in Competition with the Company (and participating in such entity's employee equity plans), (ii) being employed by, or consulting for, an entity which had annual revenues in the last fiscal year prior to the Executive being employed by, or consulting for, the entity generated through business lines in Competition with the Prohibited Lines of the Company that do not exceed five percent (5%) of such entity's total annual revenues, provided that revenues within the Executive's area of responsibility or authority are not more than ten percent (10%) composed of the revenues from the businesses in Competition with the Prohibited Lines, or (iii) any activities conducted after a Change in Control of the Company. (b) The Restricted Territory shall mean any geographic area in which the Company with regard to the Prohibited Lines did more than nominal business. (c) Listed Companies shall mean those entities which are within the "peer group" established by the Company for the performance graphs in its proxy statement pursuant to Item 402(l) of Regulation S-K under the Exchange Act and which are in a list of no more than five (5) entities established by the Company from time to time and available from the Chief Human Resources Officer, provided that the addition of any entity to the list shall not be effective until sixty (60) days after it is so listed. (d) For purposes of this Section 9, "Company" shall mean the Company and its subsidiaries and affiliates. 9.3 Agreement Not to Engage in Certain Solicitation. The Executive agrees that the Executive will not, during the Executive's employment with the Company or during the two (2) year period thereafter, directly or indirectly, solicit or induce, or attempt to solicit or induce, any non-clerical employee(s), sales representative(s), agent(s), or consultant(s) of the Company to terminate such person's employment, representation or other association with the Company for the purpose of affiliating with any entity with which the Executive is associated ("Solicitation"). 9.4 Confidential Information. (a) The Executive specifically acknowledges that any trade secrets or confidential business and technical information of the Company or its vendors, suppliers or customers, whether reduced to writing, maintained on any form of electronic media, or maintained in mind or memory and whether compiled by the Executive or the Company (collectively, "Confidential Information"), derives independent economic value from not being readily known to or ascertainable by proper means by others; that reasonable efforts have been made by the Company to maintain the secrecy of such information; that such information is the sole property of the Company or its vendors, suppliers, or customers and that any retention, use or disclosure of such information by the Executive during the Employment Term (except in the course of performing duties and obligations of employment with the Company) or any time after termination thereof, shall constitute misappropriation of the trade secrets of the Company or its vendors, suppliers, or customers, provided that Confidential Information shall not include: (i) information that is at the time of disclosure public knowledge or generally known within the industry, (ii) information deemed in good faith by the Executive, while employed by the Company, desirable to disclose in the course of performing the Executive's duties, (iii) information the disclosure of which the Executive in good faith deems necessary in defense of the Executive's rights provided such disclosure by the Executive is limited to only disclose as necessary for such purpose, or (iv) information disclosed by the Executive to comply with a court, or other lawful compulsory, order compelling him to do so, provided the Executive gives the Company prompt notice of the receipt of such order and the disclosure by the Executive is limited to only disclosure necessary for such purpose. (b) The Executive acknowledges that the Company from time to time may have agreements with other persons or with the United States Government, or agencies thereof, that impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. If the Executive's duties hereunder will require disclosures to be made to him subject to such obligations and restrictions, the Executive agrees to be bound by them. 9.5 Scope of Restrictions. If, at the time of enforcement of this Section 9, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. 9.6 Remedies. (a) In the event of a material breach or threatened material breach of Section 9.1(a), Section 9.3, Section 9.4 or Section 9.10, the Company, in addition to its other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of the provisions of this Section 9. Except as specifically provided with regard to Listed Companies, the Company agrees that it will not assert to enjoin or otherwise limit the Executive's activities based on an argument of inevitable disclosure of confidential information. (b) In the event Section 9.1(b) applies, the Company may immediately cease payment to the Executive of all future amounts due under Sections 6.3(a) or (b) as well as otherwise specifically provided in any other plan, grant or program. (c) Upon written request of the Executive, the Company shall within thirty (30) days notify the Executive in writing whether or not in good faith it believes any proposed activities would be in Competition and, if it so determines or does not reply within thirty (30) days, it shall be deemed to waive any right to treat such activities as Competition unless the facts are otherwise than as presented by the Executive or there is a change thereafter in such activities. The Executive shall promptly provide the Company with such information as it may reasonably request to evaluate whether or not such activities are in Competition. 9.7 Uniformity. In no event shall any definitions of Competition or Solicitation (or a similar provision) as it applies to the Executive with regard to any plan of program or grant of the Company be interpreted to be any broader than as set forth in this Section 9. 9.8 Delivery of Documents. Upon termination of this Agreement or at any other time upon request by the Company, the Executive shall promptly deliver to the Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, laboratory and research notebooks and other documents (and all copies or reproductions of such materials in his possession or control) belonging to the Company. Notwithstanding the foregoing, the Executive may retain his rolodex and similar phone directories (collectively, the "Rolodex") to the extent the Rolodex does not contain information other than name, address, telephone number and similar information, provided that, at the request of the Company, the Executive shall provide the Company with a copy of the Rolodex. 9.9 Nondisparagement. (a) During the Employment Term and thereafter, the Executive shall not with willful intent to damage economically or as to reputation or vindictively disparage the Company, its subsidiaries or their respective past or present officers, directors or employees (the "Protected Group"), provided that the foregoing shall not apply to (i) actions or statements taken or made by the Executive while employed by the Company in good faith as fulfilling the Executive's duties with the Company or otherwise at the request of the Company, (ii) truthful statements made in compliance with legal process or governmental inquiry, (iii) as the Executive in good faith deems necessary to rebut any untrue or misleading public statements made about him or any other member of the Protected Group, (iv) statements made in good faith by the Executive to rebut untrue or misleading statements made about him or any other member of the Protected Group by any member of the Protected Group, and (v) normal commercial puffery in a competitive business situation. No member of the Protected Group shall be a third party beneficiary of this Section 9.9(a). (b) During the Employment Term and thereafter, neither the Company officially nor any then member of the Executive Leadership Team (or the equivalent) of the Company, as such term is currently used within the Company, shall with willful intent to damage the Executive economically or as to reputation or otherwise vindictively disparage the Executive, provided the foregoing shall not apply to (i) actions or statements taken or made in good faith within the Company in fulfilling duties with the Company, (ii) truthful statements made in compliance with legal process, governmental inquiry or as required by legal filing or disclosure requirements, (iii) as in good faith deemed necessary to rebut any untrue or misleading statements by the Executive as to any member of the Protected Group, or (iv) normal commercial puffery in a competitive business situation. (c) In the event of a material breach or threatened material breach of clauses (a) or (b) above, the Company or the Executive, as the case may be, in addition to its or the Executive's other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of this Section 9.9. 9.10 Pooling of Interests. If the Company is involved in any proposed business combination that is contemplated to be accounted for as a pooling of interests, the Executive agrees to cooperate with the reasonable requests of the Company with regard to the exercise of stock options, the sale of Company stock or other matters that could affect the ability of the combination to be accounted for as a pooling of interests. 10 Liability Insurance The Company shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists, after the Employment Term in the same amount and to the same extent, if any, as the Company covers its other officers and directors. 11 Assignment 11.1 Assignment by the Company. This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes of the "Company" under the terms of this Agreement. As used in this Agreement, the term "successor" shall mean any person, firm, corporation or business entity which at any time, whether by merger, purchase, or otherwise, acquires all or substantially all of the assets of the Company. Notwithstanding such assignment, the Company shall remain, with such successor, jointly and severally liable for all its obligations hereunder. Except as herein provided, this Agreement may not otherwise be assigned by the Company. 11.2 Assignment by the Executive. This Agreement is not assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amounts payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, in the absence of such designee, to the Executive's estate. 12 Legal Remedies 12.1 Payment of Legal Fees. The Company shall pay the Executive's reasonable legal fees and costs associated with entering into this Agreement. To the fullest extent permitted by law, the Company shall promptly pay upon submission of statements all legal and other professional fees, costs of litigation, prejudgment interest, and other expenses incurred in connection with any dispute arising hereunder; provided, however, the Company shall be reimbursed by the Executive for (i) the fees and expenses advanced in the event the Executive's claim is in a material manner in bad faith or frivolous and the arbitrator or court, as applicable, determines that the reimbursement of such fees and expenses is appropriate, or (ii) to the extent that the arbitrator or court, as appropriate, determines that such legal and other professional fees are clearly and demonstrably unreasonable. 12.2 Arbitration. All disputes and controversies arising under or in connection with this Agreement, other than the seeking of injunctive or other equitable relief pursuant to Section 9 hereof, shall be settled by arbitration conducted before a panel of three (3) arbitrators sitting in New York City, New York, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of commercial disputes of the American Arbitration Association then in effect. The determination of the majority of the arbitrators shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel of the Executive, shall be borne by the Company and the Executive shall be entitled to reimbursement of his expenses as provided in Section 12.1 hereof. 12.3 Notice. Any notices, requests, demands, or other communications provided for by this Agreement shall be sufficient if in writing and if delivered personally, sent by telecopier, sent by an overnight service or sent by registered or certified mail. Notice to the Executive not delivered personally (or by telecopy where the Executive is known to be) shall be sent to the last address on the books of the Company, and notice to the Company not delivered personally (or by telecopy to the known personal telecopy of the person it is being sent to) shall be sent to it at its principal office. All notices to the Company shall be delivered to the Chief Executive Officer with a copy to the [senior legal officer]. Delivery shall be deemed to occur on the earlier of actual receipt or tender and rejection by the intended recipient. [12.4 Continued Payments. In the event after a Change in Control either party files for arbitration to resolve any dispute as to whether a termination is for Cause or Good Reason, until such dispute is determined by the arbitrators, the Executive shall continue to be treated economically and benefit wise in the manner asserted by him in the arbitration effective as of the date of the filing of the arbitration, subject to the Executive promptly refunding any amounts paid to him, paying the cost of any benefits provided to him and paying to the Company the profits in any stock option or other equity awards exercised or otherwise realized by him during the pendency of the arbitration which he is ultimately held not to be entitled to; provided the arbitrators may terminate such payments and benefits in the event that they determine at any point that the Executive is intentionally delaying conclusion of the arbitration.] 13 Miscellaneous 13.1 Entire Agreement. This Agreement, except to the extent specifically provided otherwise herein, supersedes any prior agreements or understandings, oral or written, between the parties hereto or between the Executive and the Company, with respect to the subject matter hereof and constitutes the entire Agreement of the parties with respect to the subject matter hereof. To the extent any severance plan or program of the Company that would apply to the Executive is more generous to the Executive than the provisions hereof, the Executive shall be entitled to any additional payments or benefits which are not duplicative, but shall otherwise not be eligible for such plan or program. 13.2 Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended, nor any provision hereof waived, except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives. 13.3 Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 13.4 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 13.5 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 13.6 Beneficiaries. The Executive may designate one or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Board or the Board's designee. The Executive may make or change such designation at any time. 13.7 Representation. The Executive represents that the Executive's employment by the Company and the performance by the Executive of his obligations under this Agreement do not, and shall not, breach any agreement that obligates him to keep in confidence any trade secrets or confidential or proprietary information of his or of any other party, to write or consult to any other party or to refrain from competing, directly or indirectly, with the business of any other party. The Executive shall not disclose to the Company, and the Company shall not request that the Executive disclose, any trade secrets or confidential or proprietary information of any other party. 14 Governing Law The provisions of this Agreement shall be construed and enforced in accordance with the laws of the state of Delaware, without regard to any otherwise applicable principles of conflicts of laws. IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement, as of the day and year first above written. /s/Herbert L. Henkel Herbert L. Henkel TEXTRON INC. By:/s/John D. Butler Name: John D. Butler Title: Executive Vice President Exhibit A Parachute Gross Up (a) In the event that the Executive shall become entitled to payments and/or benefits provided by this Agreement or any other amounts in the "nature of compensation" (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change of ownership or effective control covered by Section 280G(b)(2) of the Code or any person affiliated with the Company or such person) as a result of such change in ownership or effective control (collectively the "Company Payments"), and such Company Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any similar tax that may hereafter be imposed by any taxing authority) the Company shall pay to the Executive at the time specified in subsection (d) below an additional amount (the "Gross-up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Company Payments and any U.S. federal, state, and for local income or payroll tax upon the Gross-up Payment provided for by this paragraph (a), but before deduction for any U.S. federal, state, and local income or payroll tax on the Company Payments, shall be equal to the Company Payments. (b) For purposes of determining whether any of the Company Payments and Gross-up Payments (collectively the "Total Payments") will be subject to the Excise Tax and the amount of such Excise Tax, (x) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Company's independent certified public accountants appointed prior to any change in ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected by such accountants (the "Accountants") such Total Payments (in whole or in part) either do not constitute "parachute payments," represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the "base amount" or are otherwise not subject to the Excise Tax, and (y) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to pay U.S. federal income taxes at the highest marginal rate of U.S. federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence for the calendar year in which the Company Payment is to be made, net of the maximum reduction in U.S. federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the prior Gross- up Payment attributable to such reduction (plus the portion of the Gross-up Payment attributable to the Excise Tax and U.S. federal, state and local income tax imposed on the portion of the Gross-up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a U.S. federal, state and local income tax deduction), plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Gross-up Payment to be refunded to the Company has been paid to any U.S. federal, state and local tax authority, repayment thereof (and related amounts) shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expense thereof) if the Executive's claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountant or the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest or penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. (d) The Gross-up Payment or portion thereof provided for in subsection (c) above shall be paid not later than the thirtieth (30th) day following an event occurring which subjects the Executive to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Accountant, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection (c) hereof, as soon as the amount thereof can reasonably be deter mined, but in no event later than the ninetieth day after the occurrence of the event subjecting the Executive to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (e) In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Executive, but the Executive shall control any other issues. In the event the issues are interrelated, the Executive and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue, but if the parties cannot agree the Executive shall make the final determination with regard to the issues. In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Executive shall permit the representative of the Company to accompany the Executive, and the Executive and the Executive's representative shall cooperate with the Company and its representative. (f) The Company shall be responsible for all charges of the Accountant. (g) The Company and the Executive shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit A. EX-10.5 6 Exhibit 10.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is entered into as of this 23rd day of July, 1998 by and between Textron Inc. (the "Company"), a Delaware corporation having its principal office at 40 Westminster Street, Providence, Rhode Island 02903 and Mary L. Howell residing at 4605 Rock Spring Road, Arlington, Virginia 22207 (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive is presently employed by the Company; WHEREAS, the Company desires to continue to employ the Executive and the Executive is willing to continue to be employed by the Company; and WHEREAS, the Company and the Executive desire to set forth the terms and conditions of such continued employment. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the adequacy and receipt of which is acknowledged, the parties hereto agree as follows: 1. Term of Employment The Company hereby agrees to continue to employ the Executive and the Executive hereby accepts continued employment, in accordance with the terms and conditions set forth herein, for a term (the "Employment Term") commencing on the date hereof (the "Effective Date") and terminating, unless otherwise terminated earlier in accordance with Section 5 hereof, on the third anniversary of the Effective Date (the "Original Employment Term"), provided that the Employment Term shall be automatically extended, subject to earlier termination as provided in Section 5 hereof, for successive additional one (1) year periods (the "Additional Terms"), unless, at least ninety (90) days prior to the end of the Original Employment Term or the then Additional Term, the Company or the Executive has notified the other in writing that the Employment Term shall terminate at the end of the then current term. 2. Position and Responsibilities During the Employment Term, the Executive shall serve as the Executive Vice President - Government and International of the Company or in such higher capacity as agreed by the Company and the Executive. The Executive shall report exclusively to the Chief Executive Officer and the Board of Directors of the Company (the "Board"). The Executive shall, to the extent appointed or elected, serve on the Board as a director and as a member of any committee of the Board, in each case, without additional compensation. The Executive shall, to the extent appointed or elected, serve as a director or as a member of any committee of the board (or the equivalent bodies in a non-corporate subsidiary or affiliate) of any of the Company's subsidiaries or affiliates and as an officer or employee (in a capacity commensurate with her position with the Company) of any such subsidiaries or affiliates, in all cases, without additional compensation or benefits and any compensation paid to the Executive, or benefits provided to the Executive, in such capacities shall be a credit with regard to the amounts due hereunder from the Company. The Executive shall have duties, authorities and responsibilities generally commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies subject to the By-laws of the Company and the organizational structure of the Company. The Executive shall devote substantially all of her business time, attention and energies to the performance of her duties hereunder, provided the foregoing will not prevent the Executive from participating in charitable, community or industry affairs, from managing her and her family's personal passive investments, and (with the consent of the Chief Executive Officer or the Organization and Compensation Committee (or its successor) of the Board (the "O&C Committee"), which consent will not be unreasonably withheld, conditioned or delayed) serving on the board of directors of other companies, provided that these activities do not materially interfere with the performance of her duties hereunder or create a potential business conflict or the appearance thereof. The Company has consented to the Executive's services on the boards of directors, if any, on which the Executive currently serves, which boards the Executive has disclosed in writing to the O&C Committee. The Executive may retain any compensation or benefits received as a result of consented to service as a director of entities not related to the Company. 3. Compensation and Benefits During the Employment Term, the Company shall pay and provide the Executive the following: 3.1 Base Salary. The Company shall pay the Executive a base salary (the "Base Salary") in an amount which shall be established from time to time by the O&C Committee (or as otherwise designated by the Board), provided, however, that such base salary rate shall not be less than her current rate of base salary. Base Salary shall be paid to the Executive in accordance with the Company's normal payroll practices for executives. Base Salary shall be reviewed at least annually to ascertain whether, in the judgment of the reviewing committee, such Base Salary should be increased. If so increased, Base Salary shall not be thereafter decreased and shall thereafter, as increased, be the Base Salary hereunder. 3.2 Annual Bonus. The Company shall provide the Executive with the opportunity to earn an annual cash bonus under the Company's current annual incentive compensation plan for executives or a replacement plan therefor at a level commensurate with her position, provided that the minimum annual target award payable upon the achievement of reasonably attainable objective performance goals shall be at least fifty percent (50%) of Base Salary. 3.3 Long-Term Incentives. The Company shall provide the Executive the opportunity to earn long-term incentive awards under the current equity and cash based plans and programs or replacements therefor at a level commensurate with the current aggregate opportunity being provided to the Executive. 3.4 Employee Benefits. The Executive shall, to the extent eligible, be entitled to participate at a level commensurate with her position in all employee benefit welfare and retirement plans and programs, as well as equity plans, generally provided by the Company to its senior executives in accordance with the terms thereof as in effect from time to time. Such plans and programs currently include, without limitation, the Amended and Restated Supplemental Retirement Plan for Textron Inc. Key Executives (the "SERP"), the 1994 Long-Term Incentive Plan, the Key Executive Program (including the Deferred Income Plan, the Supplemental Benefits Plan (the "SBP") and the Survivor Benefit Plan), group term life insurance plan, comprehensive health, major medical, vision and dental insurance plans and short-term and long-term disability plans. 3.5 Vacation. The Executive shall be entitled to paid vacation in accordance with the standard written policies of the Company with regard to vacations of executives, but in no event less than four (4) weeks per calendar year. 3.6 Perquisites. The Company shall provide to the Executive, at the Company's cost, all perquisites to which other senior executives of the Company are generally entitled to receive and such other perquisites which are suitable to the character of the Executive's position with the Company and adequate for the performance of her duties hereunder but not less than the level being provided on the date hereof except as otherwise required because of changes in law. To the extent legally permissible, the Company shall not treat such amounts as income to the Executive. 3.7 Right to Change Plans. The Company shall not be obligated by reason of this Section 3 to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, program, or perquisite, so long as such changes are similarly applicable to executive employees generally and provided that the benefits or additional credit specifically as set forth in Section 3.8 below shall not be diminished. 3.8 Existing Awards. The Company acknowledges that the Executive currently is entitled to, among other things, the special grants set forth in Exhibit A hereto, as modified on Exhibit A. 4. Expenses Upon submission of appropriate documentation, in accordance with its policies in effect from time to time, the Company shall pay, or reimburse, the Executive for all ordinary and necessary expenses, in a reasonable amount, which the Executive incurs in performing her duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies in which the Executive participates in accordance with the Company's policies in effect from time to time. 5. Termination of Employment The Executive's employment with the Company (including but not limited to any subsidiary or affiliate or the Company) and the Employment Term shall terminate upon the occurrence of the first of the following events: (a) Automatically on the date of the Executive's death. (b) Upon thirty (30) days written notice by the Company to the Executive of a termination due to Disability, provided such notice is delivered during the period of Disability. The term "Disability" shall mean, for purposes of this Agreement, the inability of the Executive, due to injury, illness, disease or bodily or mental infirmity, to engage in the performance of her material duties of employment with the Company as contemplated by Section 2 herein for a period of more than one hundred eighty (180) consecutive days or for a period that is reasonably expected to exist for a period of more than one hundred eighty (180) consecutive days, provided that interim returns to work of less than ten (10) consecutive business days in duration shall not be deemed to interfere with a determination of consecutive absent days if the reason for absence before and after the interim return are the same. The existence or non-existence of a Disability shall be determined by a physician agreed upon in good faith by the Executive (or her representatives) and the Company. It is expressly understood that the Disability of the Executive for a period of one hundred eighty (180) consecutive days or less shall not constitute a failure by her to perform her duties hereunder and shall not be deemed a breach or default and the Executive shall receive full compensation for any such period of Disability or for any other temporary illness or incapacity during the term of this Agreement. (c) Immediately upon written notice by the Company to the Executive of a termination due to her retirement at or after the Executive's attainment of age sixty-five (65). (d) Immediately upon written notice by the Company to the Executive of a termination for Cause, provided such notice is given within ninety (90) days after the discovery by the Board or the Chief Executive Officer of the Cause event and has been approved by the O&C Committee at a meeting at which the Executive and her counsel had the right to appear and address such meeting after receiving at least five (5) business days written notice of the meeting and reasonable detail of the facts and circumstances claimed to provide a basis for such termination. The term "Cause" shall mean, for purposes of this Agreement: (i) an act or acts of willful misrepresentation, fraud or willful dishonesty (other than good faith expense account disputes) by the Executive which in any case is intended to result in her or another person or entity's substantial personal enrichment at the expense of the Company; (ii) any willful misconduct by the Executive with regard to the Company, its business, assets or employees that has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iii) any material, willful and knowing violation by the Executive of (x) the Company's Business Conduct Guidelines, or (y) any of her fiduciary duties to the Company which in either case has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iv) the willful or reckless behavior of the Executive with regard to a matter of a material nature which has a material adverse impact (economic or otherwise) on the Company; (v) the Executive's willful failure to attempt to perform her duties under Section 2 hereof or her willful failure to attempt to follow the legal written direction of the Board, which in either case is not remedied within ten (10) days after receipt by the Executive of a written notice from the Company specifying the details thereof; (vi) the Executive's conviction of, or pleading nolo contendere or guilty to, a felony (other than (x) a traffic infraction or (y) vicarious liability solely as a result of her position provided the Executive did not have actual knowledge of the actions or inactions creating the violation of the law or the Executive relied in good faith on the advice of counsel with regard to the legality of such action or inaction (or the advice of other specifically qualified professionals as to the appropriate or proper action or inaction to take with regard to matters which are not matters of legal interpretation)); or (vii) any other material breach by the Executive of this Agreement that is not cured by the Executive within twenty (20) days after receipt by the Executive of a written notice from the Company of such breach specifying the details thereof. No action or inaction should be deemed willful if not demonstrably willful and if taken or not taken by the Executive in good faith as not being adverse to the best interests of the Company. Reference in this paragraph (d) to the Company shall also include direct and indirect subsidiaries of the Company, and materiality and material adverse impact shall be measured based on the action or inaction and the impact upon, and not the size of, the Company taken as a whole, provided that after a Change in Control, the size of the Company, taken as a whole, shall be a relevant factor in determining materiality and material adverse impact. (e) Upon written notice by the Company to the Executive of an involuntary termination without Cause. A notice by the Company of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed an involuntary termination of the Executive by the Company without Cause as of the end of the Employment Term, but the Executive may terminate at any time after the receipt of such notice and shall be treated as if she was terminated without Cause as of such date. (f) Upon twenty (20) days written notice by the Executive to the Company of a termination for Good Reason (which notice sets forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination) unless the Good Reason event is cured within such twenty (20) day period. The term "Good Reason" shall mean, for purposes of this Agreement, without the Executive's express written consent, the occurrence of any one or more of the following: (i) the assignment to the Executive of duties materially inconsistent with the Executive's then authorities, duties, responsibilities, and status (including offices, titles, and reporting requirements), or any reduction in the Executive's then title, position, reporting lines or a material reduction (other than temporarily while Disabled or otherwise incapacitated) in her then status, authorities, duties, or responsibilities or, if then a director of the Company, failure to be nominated or reelected as a director of the Company or removal as such; (ii) relocation of the Executive from the principal office of the Company (excluding reasonable travel on the Company's business to an extent substantially consistent with the Executive's business obligations) or relocation of the principal office of the Company to a location which is at least fifty (50) miles from the Company's current headquarters, provided, however, if the Executive at the time of the relocation is not located at the principal office, such relocation provision shall apply based on her then location; (iii) a reduction by the Company in the Executive's Base Salary; (iv) a reduction in the Executive's aggregate level of participation in any of the Company's short and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or arrangements in which the Executive participated as of the Effective Date, or, after a Change in Control, participated immediately prior to the Change in Control; (v) the failure of the Company to obtain and deliver to the Executive a satisfactory written agreement from any successor to the Company to assume and agree to perform this Agreement; or (vi) any other material breach by the Company of this Agreement. (g) Upon written notice by the Executive to the Company of the Executive's voluntary termination of employment without Good Reason (which the Company may, in its sole discretion, make effective earlier than any notice date). A notice by the Executive of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed a voluntary termination by the Executive without Good Reason as of the end of the Employment Term. 6. Consequences of a Termination of Employment 6.1 Termination Due to Death or Retirement. If the Employment Term ends on account of the Executive's termination due to death pursuant to Section 5(a) above or retirement pursuant to Section 5(c) above, the Executive (or the Executive's surviving spouse, or other beneficiary as so designated by the Executive during her lifetime, or to the Executive's estate, as appropriate) shall be entitled, in lieu of any other payments or benefits, to (i) payment promptly of any unpaid Base Salary, unpaid annual incentive compensation (for the preceding fiscal year) and any accrued vacation, (ii) reimbursement for any unreimbursed business expenses incurred prior to the date of termination, and (iii) any amounts, benefits or fringes due under any equity, benefit or fringe plan, grant or program in accordance with the terms of said plan, grant or program but without duplication (collectively, the "Accrued Obligations"). 6.2 Termination Due To Disability. If the Employment Term ends as a result of Disability pursuant to Section 5(b) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment, during January of the calendar year following the date of the Executive's termination, of an amount equal to three hundred percent (300%) of the Executive's target annual incentive compensation award established for the fiscal year during which the Executive's termination occurs (the "Termination Year Target Bonus"). (b) Continued monthly payment for two and one half (2 1/2) years of an amount equal to the Executive's monthly Base Salary rate reduced by any disability benefits received by the Executive under the Company's long term disability plan for the corresponding period. (c) Payments and benefits as set forth in Section 6.3(c)- (j) hereof. (d) The Executive shall be deemed to have satisfied the definition of "total disability" under the 1994 Long- Term Incentive Plan or the equivalent definition under any successor plan thereto. (e) As provided in Exhibit A hereto. 6.3 Involuntary Termination by the Company Without Cause or Termination by the Executive for Good Reason. If the Executive is involuntarily terminated by the Company without Cause in accordance with Section 5(e) above or the Executive terminates her employment for Good Reason in accordance with Section 5(f) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment, during January of the calendar year following the date of the Executive's termination, of an amount equal to the Executive's Termination Year Target Bonus multiplied by a fraction, the numerator of which is the number of days during the fiscal year of the Executive's termination that the Executive was employed by the Company and the denominator is three hundred sixty-five (365), provided that in no event shall such payment exceed fifty percent (50%) of the Termination Year Target Bonus. (b) Continued payment off payroll for two and one-half (2 1/2) years (in approximately equal monthly installments) of an amount equal to two and one-half (2 1/2) times the sum of: (i) the Executive's Base Salary, and (ii) the greater of: (x) the Termination Year Target Bonus, or (y) the Executive's highest annual incentive compensation award earned during the last three (3) fiscal years ending prior to the fiscal year of termination (whether or not deferred). (c) To the extent eligible at such time or, if the Executive would be eligible with credit for an additional two and one half (2 1/2) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and her dependents (including, if she is only eligible because of the extra age and service credit, an adjustment, to the extent necessary, to put the Executive in the same after-tax position as if she had been eligible for such coverage) and, if not eligible for continued health coverage under the retiree health plan, payment of the Executive's and Executive's eligible dependents' COBRA continuation health coverage premiums for the Company's health insurance plan that generally applies to senior executives for the two and one-half (2 1/2) year period following the date of termination or, if earlier, until the Executive and Executive's dependents cease to be eligible for such coverage, provided that, if COBRA coverage cannot be provided for the full period, any excess period shall be covered under (d) below (and further provided that, if such premiums are taxable to the Executive, an adjustment such that the Executive has no after tax cost for the providing of such COBRA coverage). (d) To the extent eligible on the date of termination, continued participation, at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans (other than medical plans covered under (c) above), until two and one-half (2 1/2) years after the date of termination; provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such benefits under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to the Executive than the Executive would have had if the benefits were provided to the Executive as an employee. (e) Two and one-half (2 1/2) additional years of service and compensation credit (at the Executive's then compensation level) for benefit purposes under any defined benefit type retirement plan, including but not limited to the SERP and the SBP if then in effect, and, if the Executive is not eligible to receive benefits under any such plan on the date of termination, two and one-half (2 1/2) additional years of age for determining eligibility to receive such benefits, provided that benefits under any such plan will not commence until the Executive actually attains the required distribution age under the plan or the Executive's spouse qualifies for death benefits under such plan and further provided that with regard to any plan qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") the additional amounts may be provided on a nonqualified plan basis. (f) Payment promptly after termination of two and one-half (2 1/2) times the amount of the maximum Company annual contribution or match to any defined contribution type plan in which the Executive participates. (g) Immediate full vesting of any outstanding stock options that would vest within two and one half (2 1/2) years after such termination of employment as if the Executive had continued employment for such two and one half (2 1/2) year period, to the extent permitted under the plan or grant, or if such vesting is not permitted, a cash payment equal to the difference between the fair market value of the shares covered by the unvested options and the exercise price of such unvested options (the "Spread") on the date of termination, and, in both cases, to the extent such options are exercisable for less than two and three quarters (2-3/4) years after termination (or, if less, the remainder of the respective terms), a cash payment equal to the Black- Scholes (based on the same methodology used for the Company's then latest distributed proxy statement or, if not so used, for internal valuation of the last stock option grants made by the Company prior to the termination) future value of such options for the lesser of two and three quarters (2-3/4) years or the remainder of such terms (any such payments shall be made promptly after such termination). The terms of the Executive's outstanding options are deemed to be modified to the extent required by this Section 6.3 (g). (h) Payment when it would otherwise be paid in accordance with the 1994 Long-Term Incentive Plan of any amount due with regard to performance share units outstanding on the date of termination to the extent permitted under such plan, plus, outside of such plan, when it would otherwise have been paid, an amount equal to the amount the Executive would have received with regard to any performance share units outstanding at the time of termination that could not be so paid. For purposes of calculating the foregoing amounts, all discretionary performance targets relating to the Executive's individual performance will be deemed to be fully achieved and the actual level of achievement of all financial performance targets will be determined as if the Executive continued to be employed through the end of the applicable measuring period. (i) Immediate full vesting of the Executive's accounts under the Deferred Income Plan, and to the extent not permitted under such plan, a cash payment outside of the plan equal to the value of the amount that would have vested under the plan. (j) Continuation of participation for two and one-half (2 1/2) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the termination. (k) As provided in Exhibit A hereto. 6.4 Termination by the Company for Cause or Termination by the Executive without Good Reason. If the Executive is terminated by the Company for Cause or the Executive terminates her employment without Good Reason, the Executive shall be entitled to receive all Accrued Obligations. 7. No Mitigation/No Offset/Release (a) In the event of any termination of employment hereunder, the Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain. The amounts payable hereunder shall not be subject to setoff, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others, except as specifically set forth in Section 9 hereof or upon obtaining by the Company of a final unappealable judgement against the Executive. (b) Any amounts payable and benefits or additional rights provided pursuant to Section 6.2 (other than Section 6.2(e)), Section 6.3 (other than Section 6.3(k)) and Section 8.1 (other than Section 8.1(m)) beyond Accrued Obligations and amounts or rights due under law, and, in the case of Section 6.3 and Section 8.1, beyond the sum of any amounts due (without execution of a release) under the Company severance program then in effect, or, if greater, three (3) months Base Salary as severance, shall only be payable if the Executive delivers to the Company a release of all claims of the Executive (other than those specifically payable or providable hereunder on or upon the applicable type of termination and any rights of indemnification under the Company's organizational documents) with regard to the Company, its subsidiaries and related entities and their respective past or present officers, directors and employees in such form as reasonably requested by the Company. (c) Upon any termination of employment, upon the request of the Company, the Executive shall deliver to the Company a resignation from all offices and directorships and fiduciary positions of the Executive in which the Executive is serving with, or at the request of, the Company or its subsidiaries, affiliates or benefit plans. (d) The amounts and benefits provided under Sections 6 and 8 hereof are intended to be inclusive and not duplicative of the amounts and benefits due under the Company's employee benefit plans and programs to the extent they are duplicative. 8. Change in Control 8.1 Employment Termination in Connection with a Change in Control. In the event of a Qualifying Termination (as defined below) during the period commencing one-hundred eighty (180) days prior to the effective date of a Change in Control and terminating on the second anniversary of the effective date of a Change in Control (the "Change in Control Protection Period"), then in lieu of the benefits provided to the Executive under Section 6.3 of this Agreement, the Company shall pay the Executive the following amounts within (except as otherwise provided) thirty (30) business days of the Qualifying Termination (or, if later, the effective date of the Change in Control; in which case any amounts or benefits previously paid pursuant to Section 6 shall be setoff against those under this Section 8) and provide the following benefits: (a) Any Accrued Obligations. (b) A lump-sum cash payment equal to three (3) times the highest rate of the Executive's Base Salary rate in effect at any time up to and including the date of the Executive's termination. (c) A lump-sum cash payment equal to the Prorated Portion (as determined in the next sentence) of the greater of: (i) the Executive's Termination Year Target Bonus or (ii) the Executive's earned annual incentive award for the fiscal year prior to the fiscal year in which the earlier of the Change in Control or the Qualifying Termination occurs (whether or not deferred). The "Prorated Portion" of the foregoing amount shall be determined by multiplying such amount by a fraction, the numerator of which is the number of days during the fiscal year of termination that the Executive is employed by the Company, and the denominator of which is, three hundred sixty-five (365). (d) A lump-sum cash payment equal to three (3) times the greater of: (i) the Executive's highest annual incentive compensation earned over the three (3) fiscal years ending prior to the earlier of the Change in Control or the Qualifying Termination (whether or not deferred); or (ii) the Executive's target incentive compensation established for the fiscal year in which the Executive's date of termination occurs. (e) To the extent the Executive is eligible, was eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination) or if the Executive would be eligible with credit for an additional three (3) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and the Executive's eligible dependents (including an adjustment to the extent necessary to put the Executive on the same after tax basis as if the Executive had been eligible for such coverage). (f) To the extent eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination), continued participation, (coordinated with (e) above to the extent duplicative), at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans, until three (3) years after the date of termination, provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such similar or improved benefit under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to her than she would have had if the benefits were provided to her as an employee. (g) A lump-sum cash payment of the actuarial present value equivalent (as determined in accordance with the most favorable (to the Executive) overall actuarial assumptions and subsidies in any of the Company's tax- qualified or nonqualified type defined benefit pension plans in which the Executive then participates) of the accrued benefits accrued by the Executive as of the date of termination under the terms of any nonqualified defined benefit type retirement plan, including but not limited to, the SERP and the SBP and assuming the benefit was fully vested without regard to any minimum age or service requirements. For this purpose, such benefits shall be calculated under the assumption that the Executive's employment continued following the date of termination for three (3) full years (i.e., three (3) additional years of age (including, but not limited to, for purposes of determining the actuarial present value), compensation and service credits shall be added). (h) Three (3) times the amount of the maximum Company contribution or match to any defined contribution type plan in which the Executive participates. (i) A lump-sum cash payment of the product of (i) the Interest Factor (as determined in the next sentence) multiplied by (ii) the Executive's entire account balance under the Deferred Income Plan (or any replacement therefor), plus an additional amount equal to three (3) times the match which the Company made for the Executive to such plan for the fiscal year ending immediately prior to the earlier of the Change in Control or the Qualifying Termination. The "Interest Factor" shall be equal to one (1) plus three (3) times the rate of earnings of the Executive's account under such plan for the fiscal year ending immediately prior to her termination. (j) Immediate full vesting of any outstanding stock options, performance share units and other equity awards (and lapse of any forfeiture provisions) to the extent permitted under the plan or grant, or if full vesting is not permitted with regard to stock options, a cash payment equal to the Spread on such unvested options on the date of termination (or, if later, the date of the Change in Control) plus, in both cases, if options are exercisable for less than three (3) years after termination (or, if less, the remainder of the respective terms, including any termination of exercisability of all Company stock options in connection with the Change in Control or a merger related thereto), a cash payment equal to the Black- Scholes (based on the same methodology used for the Company's then latest distributed proxy statement or, if not so used, for internal valuation of the last stock option grants made by the Company prior to the earlier of the Qualifying Termination or the Change in Control) future value of such outstanding options for the lesser of three (3) years or the remainder of such terms. (k) Outplacement services at a level commensurate with the Executive's position, including use of an executive office and secretary, for a period of one (1) year commencing on the date of termination but in no event extending beyond the date on which the Executive commences other full time employment. (l) Continuation of participation for three (3) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the Change in Control. (m) As provided in Exhibit A hereto. For purposes of this Section 8, a Qualifying Termination shall mean any termination of the Executive's employment (i) by the Company without Cause, or (ii) by the Executive for Good Reason. 8.2 Definition of "Change in Control." A Change in Control of the Company shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied: (a) Any "person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than the Company, any trustee or other fiduciary holding Company common stock under an employee benefit plan of the Company or a related company, or any corporation which is owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the Company's common stock, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than thirty percent (30%) of the then outstanding voting stock; (b) During any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (c) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) The approval of the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets. 8.3 Excise Tax Equalization Payment. In the event that the Executive becomes entitled to payments and/or benefits which would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, the provisions of Exhibit B will apply. 9. Noncompetition, Confidentiality and Nondisparagement 9.1 Agreement Not to Compete. (a) The Executive agrees that for a period of two (2) years after the termination of the Executive's employment, the Executive will not engage in Competition with the Company with the Listed Companies, provided that after the Executive's termination of employment the Listed Companies shall be limited to those effectively listed at the time of her termination and still on such list at the time of any alleged activity of the Executive, including, but not limited to, (i) soliciting customers, business or orders for, or selling any products and services in, Competition with the Company for such Listed Companies or (ii) diverting, enticing, or otherwise taking away customers, business or orders of the Company, or attempting to do so, in either case in Competition with the Company for such Listed Companies. (b) The Executive agrees that if, while she is receiving severance pay from the Company pursuant to Section 6.2(b) or Section 6.3(b), the Executive: (i) violates (a) above, or (ii) otherwise engages in Competition in the Restricted Territory, whether or not with the Listed Companies, Section 9.6(b) hereof shall apply. (c) The Executive agrees that the restrictions contained in this Section 9 are necessary for the protection of the business and goodwill of the Company because of the trade secrets within the Executive's knowledge and are considered by the Executive to be reasonable for such purpose. 9.2 Definitions. (a) "Competition" shall mean engaging in, as an employee, director, partner, principal, shareholder, consultant, advisor, independent contractor or similar capacity, with (a) the Listed Companies or (b) in any business, activity or conduct which directly competes with the business of the Company, provided that, with regard to the period after termination of the Executive's employment, Section 9.1(b)(ii) shall only apply to business lines in which the Company is engaged both at the time of termination of employment and at the time of the determination and which during the last fiscal year ending prior to the date of such termination repre sented at least five percent (5%) of the Company's revenues (the "Prohibited Lines"). Notwithstanding anything else in this Section 9, Competition shall not include: (A) (i) holding five percent (5%) or less of an interest in the equity or debt of any publicly traded company, (ii) engaging in any activity with the prior written approval of the Chief Executive Officer or the O&C Committee, (iii) the practice of law in a law firm that represents entities in Competition with the Company, provided that the Executive does not personally represent such entities, or (iv) the employment by, or provision of services to, an investment banking firm or consulting firm that provides services to entities that are in Competition with the Company provided that the Executive does not personally represent or provide services to such entities that are Listed Companies or otherwise with regard to businesses in Competition with the Prohibited Lines, or (B) with regard to Section 9.1(b)(ii), (i) being employed by, or consulting for, a non-Competitive division or business unit of an entity which is in Competition with the Company (and participating in such entity's employee equity plans), (ii) being employed by, or consulting for, an entity which had annual revenues in the last fiscal year prior to the Executive being employed by, or consulting for, the entity generated through business lines in Competition with the Prohibited Lines of the Company that do not exceed five percent (5%) of such entity's total annual revenues, provided that revenues within the Executive's area of responsibility or authority are not more than ten percent (10%) composed of the revenues from the businesses in Competition with the Prohibited Lines, or (iii) any activities conducted after a Change in Control of the Company. (b) The Restricted Territory shall mean any geographic area in which the Company with regard to the Prohibited Lines did more than nominal business. (c) Listed Companies shall mean those entities which are within the "peer group" established by the Company for the performance graphs in its proxy statement pursuant to Item 402(l) of Regulation S-K under the Exchange Act and which are in a list of no more than five (5) entities established by the Company from time to time and available from the Chief Human Resources Officer, provided that the addition of any entity to the list shall not be effective until sixty (60) days after it is so listed. (d) For purposes of this Section 9, "Company" shall mean the Company and its subsidiaries and affiliates. 9.3 Agreement Not to Engage in Certain Solicitation. The Executive agrees that the Executive will not, during the Executive's employment with the Company or during the two (2) year period thereafter, directly or indirectly, solicit or induce, or attempt to solicit or induce, any non-clerical employee(s), sales representative(s), agent(s), or consultant(s) of the Company to terminate such person's employment, representation or other association with the Company for the purpose of affiliating with any entity with which the Executive is associated ("Solicitation"). 9.4 Confidential Information. (a) The Executive specifically acknowledges that any trade secrets or confidential business and technical information of the Company or its vendors, suppliers or customers, whether reduced to writing, maintained on any form of electronic media, or maintained in mind or memory and whether compiled by the Executive or the Company (collectively, "Confidential Information"), derives independent economic value from not being readily known to or ascertainable by proper means by others; that reasonable efforts have been made by the Company to maintain the secrecy of such information; that such information is the sole property of the Company or its vendors, suppliers, or customers and that any retention, use or disclosure of such information by the Executive during the Employment Term (except in the course of performing duties and obligations of employment with the Company) or any time after termination thereof, shall constitute misappropriation of the trade secrets of the Company or its vendors, suppliers, or customers, provided that Confidential Information shall not include: (i) information that is at the time of disclosure public knowledge or generally known within the industry, (ii) information deemed in good faith by the Executive, while employed by the Company, desirable to disclose in the course of performing the Executive's duties, (iii) information the disclosure of which the Executive in good faith deems necessary in defense of the Executive's rights provided such disclosure by the Executive is limited to only disclose as necessary for such purpose, or (iv) information disclosed by the Executive to comply with a court, or other lawful compulsory, order compelling her to do so, provided the Executive gives the Company prompt notice of the receipt of such order and the disclosure by the Executive is limited to only disclosure necessary for such purpose. (b) The Executive acknowledges that the Company from time to time may have agreements with other persons or with the United States Government, or agencies thereof, that impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. If the Executive's duties hereunder will require disclosures to be made to her subject to such obligations and restrictions, the Executive agrees to be bound by them. 9.5 Scope of Restrictions. If, at the time of enforcement of this Section 9, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. 9.6 Remedies. (a) In the event of a material breach or threatened material breach of Section 9.1(a), Section 9.3, Section 9.4 or Section 9.10, the Company, in addition to its other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of the provisions of this Section 9. Except as specifically provided with regard to Listed Companies, the Company agrees that it will not assert to enjoin or otherwise limit the Executive's activities based on an argument of inevitable disclosure of confidential information. (b) In the event Section 9.1(b) applies, the Company may immediately cease payment to the Executive of all future amounts due under Sections 6.2(a) or (b) or Sections 6.3(a) or (b), as well as otherwise specifically provided in any other plan, grant or program. (c) Upon written request of the Executive, the Company shall within thirty (30) days notify the Executive in writing whether or not in good faith it believes any proposed activities would be in Competition and, if it so determines or does not reply within thirty (30) days, it shall be deemed to waive any right to treat such activities as Competition unless the facts are otherwise than as presented by the Executive or there is a change thereafter in such activities. The Executive shall promptly provide the Company with such information as it may reasonably request to evaluate whether or not such activities are in Competition. 9.7 Uniformity. In no event shall any definitions of Competition or Solicitation (or a similar provision) as it applies to the Executive with regard to any plan of program or grant of the Company be interpreted to be any broader than as set forth in this Section 9. 9.8 Delivery of Documents. Upon termination of this Agreement or at any other time upon request by the Company, the Executive shall promptly deliver to the Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, laboratory and research notebooks and other documents (and all copies or reproductions of such materials in her possession or control) belonging to the Company. Notwithstanding the foregoing, the Executive may retain her rolodex and similar phone directories (collectively, the "Rolodex") to the extent the Rolodex does not contain information other than name, address, telephone number and similar information, provided that, at the request of the Company, the Executive shall provide the Company with a copy of the Rolodex. 9.9 Nondisparagement. (a) During the Employment Term and thereafter, the Executive shall not with willful intent to damage economically or as to reputation or vindictively disparage the Company, its subsidiaries or their respective past or present officers, directors or employees (the "Protected Group"), provided that the foregoing shall not apply to (i) actions or statements taken or made by the Executive while employed by the Company in good faith as fulfilling the Executive's duties with the Company or otherwise at the request of the Company, (ii) truthful statements made in compliance with legal process or governmental inquiry, (iii) as the Executive in good faith deems necessary to rebut any untrue or misleading public statements made about her or any other member of the Protected Group, (iv) statements made in good faith by the Executive to rebut untrue or misleading statements made about her or any other member of the Protected Group by any member of the Protected Group, and (v) normal commercial puffery in a competitive business situation. No member of the Protected Group shall be a third party beneficiary of this Section 9.9(a). (b) During the Employment Term and thereafter, neither the Company officially nor any then member of the Executive Leadership Team (or the equivalent) of the Company, as such term is currently used within the Company, shall with willful intent to damage the Executive economically or as to reputation or otherwise vindictively disparage the Executive, provided the foregoing shall not apply to (i) actions or statements taken or made in good faith within the Company in fulfilling duties with the Company, (ii) truthful statements made in compliance with legal process, governmental inquiry or as required by legal filing or disclosure requirements, (iii) as in good faith deemed necessary to rebut any untrue or misleading statements by the Executive as to any member of the Protected Group or (iv) normal commercial puffery in a competitive business situation. (c) In the event of a material breach or threatened material breach of clauses (a) or (b) above, the Company or the Executive, as the case may be, in addition to its or the Executive's other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of this Section 9.9. 9.10 Pooling of Interests. If the Company is involved in any proposed business combination that is contemplated to be accounted for as a pooling of interests, the Executive agrees to cooperate with the reasonable requests of the Company with regard to the exercise of stock options, the sale of Company stock or other matters that could affect the ability of the combination to be accounted for as a pooling of interests. 10 Liability Insurance The Company shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists, after the Employment Term in the same amount and to the same extent, if any, as the Company covers its other officers and directors. 11 Assignment 11.1 Assignment by the Company. This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes of the "Company" under the terms of this Agreement. As used in this Agreement, the term "successor" shall mean any person, firm, corporation or business entity which at any time, whether by merger, purchase, or otherwise, acquires all or substantially all of the assets of the Company. Notwithstanding such assignment, the Company shall remain, with such successor, jointly and severally liable for all its obligations hereunder. Except as herein provided, this Agreement may not otherwise be assigned by the Company. 11.2 Assignment by the Executive. This Agreement is not assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amounts payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, in the absence of such designee, to the Executive's estate. 12 Legal Remedies 12.1 Payment of Legal Fees. The Company shall pay the Executive's reasonable legal fees and costs associated with entering into this Agreement. To the fullest extent permitted by law, the Company shall promptly pay upon submission of statements all legal and other professional fees, costs of litigation, prejudgment interest, and other expenses incurred in connection with any dispute arising hereunder; provided, however, the Company shall be reimbursed by the Executive for (i) the fees and expenses advanced in the event the Executive's claim is in a material manner in bad faith or frivolous and the arbitrator or court, as applicable, determines that the reimbursement of such fees and expenses is appropriate, or (ii) to the extent that the arbitrator or court, as appropriate, determines that such legal and other professional fees are clearly and demonstrably unreasonable. 12.2 Arbitration. All disputes and controversies arising under or in connection with this Agreement, other than the seeking of injunctive or other equitable relief pursuant to Section 9 hereof, shall be settled by arbitration conducted before a panel of three (3) arbitrators sitting in New York City, New York, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of commercial disputes of the American Arbitration Association then in effect. The determination of the majority of the arbitrators shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel of the Executive, shall be borne by the Company and the Executive shall be entitled to reimbursement of her expenses as provided in Section 12.1 hereof. 12.3 Notice. Any notices, requests, demands, or other communications provided for by this Agreement shall be sufficient if in writing and if delivered personally, sent by telecopier, sent by an overnight service or sent by registered or certified mail. Notice to the Executive not delivered personally (or by telecopy where the Executive is known to be) shall be sent to the last address on the books of the Company, and notice to the Company not delivered personally (or by telecopy to the known personal telecopy of the person it is being sent to) shall be sent to it at its principal office. All notices to the Company shall be delivered to the Chief Executive Officer with a copy to the senior legal officer. Delivery shall be deemed to occur on the earlier of actual receipt or tender and rejection by the intended recipient. 12.4 Continued Payments. In the event after a Change in Control either party files for arbitration to resolve any dispute as to whether a termination is for Cause or Good Reason, until such dispute is determined by the arbitrators, the Executive shall continue to be treated economically and benefit wise in the manner asserted by her in the arbitration effective as of the date of the filing of the arbitration, subject to the Executive promptly refunding any amounts paid to her, paying the cost of any benefits provided to her and paying to the Company the profits in any stock option or other equity awards exercised or otherwise realized by her during the pendency of the arbitration which she is ultimately held not to be entitled to; provided the arbitrators may terminate such payments and benefits in the event that they determine at any point that the Executive is intentionally delaying conclusion of the arbitration. 13 Miscellaneous 13.1 Entire Agreement. This Agreement, except to the extent specifically provided otherwise herein, supersedes any prior agreements or understandings, oral or written, between the parties hereto or between the Executive and the Company, with respect to the subject matter hereof and constitutes the entire Agreement of the parties with respect to the subject matter hereof. To the extent any severance plan or program of the Company that would apply to the Executive is more generous to the Executive than the provisions hereof, the Executive shall be entitled to any additional payments or benefits which are not duplicative, but shall otherwise not be eligible for such plan or program. 13.2 Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended, nor any provision hereof waived, except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives. 13.3 Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 13.4 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 13.5 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 13.6 Beneficiaries. The Executive may designate one or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Board or the Board's designee. The Executive may make or change such designation at any time. 13.7 Representation. The Executive represents that the Executive's employment by the Company and the performance by the Executive of her obligations under this Agreement do not, and shall not, breach any agreement that obligates her to keep in confidence any trade secrets or confidential or proprietary information of her or of any other party, to write or consult to any other party or to refrain from competing, directly or indirectly, with the business of any other party. The Executive shall not disclose to the Company, and the Company shall not request that the Executive disclose, any trade secrets or confidential or proprietary information of any other party. 14 Governing Law The provisions of this Agreement shall be construed and enforced in accordance with the laws of the state of Delaware, without regard to any otherwise applicable principles of conflicts of laws. IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement, as of the day and year first above written. /s/Mary L. Howell Mary L. Howell TEXTRON INC. By:/s/John D. Butler Name: John D. Butler Title: Executive Vice President Exhibit A Special Grants None. Exhibit B Parachute Gross Up (a) In the event that the Executive shall become entitled to payments and/or benefits provided by this Agreement or any other amounts in the "nature of compensation" (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change of ownership or effective control covered by Section 280G(b)(2) of the Code or any person affiliated with the Company or such person) as a result of such change in ownership or effective control (collectively the "Company Payments"), and such Company Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any similar tax that may hereafter be imposed by any taxing authority) the Company shall pay to the Executive at the time specified in subsection (d) below an additional amount (the "Gross-up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Company Payments and any U.S. federal, state, and for local income or payroll tax upon the Gross-up Payment provided for by this paragraph (a), but before deduction for any U.S. federal, state, and local income or payroll tax on the Company Payments, shall be equal to the Company Payments. (b) For purposes of determining whether any of the Company Payments and Gross-up Payments (collectively the "Total Payments") will be subject to the Excise Tax and the amount of such Excise Tax, (x) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Company's independent certified public accountants appointed prior to any change in ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected by such accountants (the "Accountants") such Total Payments (in whole or in part) either do not constitute "parachute payments," represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the "base amount" or are otherwise not subject to the Excise Tax, and (y) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to pay U.S. federal income taxes at the highest marginal rate of U.S. federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence for the calendar year in which the Company Payment is to be made, net of the maximum reduction in U.S. federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the prior Gross- up Payment attributable to such reduction (plus the portion of the Gross-up Payment attributable to the Excise Tax and U.S. federal, state and local income tax imposed on the portion of the Gross-up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a U.S. federal, state and local income tax deduction), plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Gross-up Payment to be refunded to the Company has been paid to any U.S. federal, state and local tax authority, repayment thereof (and related amounts) shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expense thereof) if the Executive's claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountant or the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest or penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. (d) The Gross-up Payment or portion thereof provided for in subsection (c) above shall be paid not later than the thirtieth (30th) day following an event occurring which subjects the Executive to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Accountant, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection (c) hereof, as soon as the amount thereof can reasonably be deter mined, but in no event later than the ninetieth day after the occurrence of the event subjecting the Executive to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (e) In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Executive, but the Executive shall control any other issues. In the event the issues are interrelated, the Executive and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue, but if the parties cannot agree the Executive shall make the final determination with regard to the issues. In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Executive shall permit the representative of the Company to accompany the Executive, and the Executive and the Executive's representative shall cooperate with the Company and its representative. (f) The Company shall be responsible for all charges of the Accountant. (g) The Company and the Executive shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit B. EX-10.6 7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is entered into as of this 23rd day of July, 1998 by and between Textron Inc. (the "Company"), a Delaware corporation having its principal office at 40 Westminster Street, Providence, Rhode Island 02903 and Wayne W. Juchatz residing at 15 Courageous Circle, Bristol, Rhode Island 02809 (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive is presently employed by the Company; WHEREAS, the Company desires to continue to employ the Executive and the Executive is willing to continue to be employed by the Company; and WHEREAS, the Company and the Executive desire to set forth the terms and conditions of such continued employment. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the adequacy and receipt of which is acknowledged, the parties hereto agree as follows: 1. Term of Employment The Company hereby agrees to continue to employ the Executive and the Executive hereby accepts continued employment, in accordance with the terms and conditions set forth herein, for a term (the "Employment Term") commencing on the date hereof (the "Effective Date") and terminating, unless otherwise terminated earlier in accordance with Section 5 hereof, on the third anniversary of the Effective Date (the "Original Employment Term"), provided that the Employment Term shall be automatically extended, subject to earlier termination as provided in Section 5 hereof, for successive additional one (1) year periods (the "Additional Terms"), unless, at least ninety (90) days prior to the end of the Original Employment Term or the then Additional Term, the Company or the Executive has notified the other in writing that the Employment Term shall terminate at the end of the then current term. 2. Position and Responsibilities During the Employment Term, the Executive shall serve as the Executive Vice President and General Counsel of the Company or in such higher capacity as agreed by the Company and the Executive. The Executive shall report exclusively to the Chief Executive Officer and the Board of Directors of the Company (the "Board"). The Executive shall, to the extent appointed or elected, serve on the Board as a director and as a member of any committee of the Board, in each case, without additional compensation. The Executive shall, to the extent appointed or elected, serve as a director or as a member of any committee of the board (or the equivalent bodies in a non-corporate subsidiary or affiliate) of any of the Company's subsidiaries or affiliates and as an officer or employee (in a capacity commensurate with his position with the Company) of any such subsidiaries or affiliates, in all cases, without additional compensation or benefits and any compensation paid to the Executive, or benefits provided to the Executive, in such capacities shall be a credit with regard to the amounts due hereunder from the Company. The Executive shall have duties, authorities and responsibilities generally commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies subject to the By-laws of the Company and the organizational structure of the Company. The Executive shall devote substantially all of his business time, attention and energies to the performance of his duties hereunder, provided the foregoing will not prevent the Executive from participating in charitable, community or industry affairs, from managing his and his family's personal passive investments, and (with the consent of the Chief Executive Officer or the Organization and Compensation Committee (or its successor) of the Board (the "O&C Committee"), which consent will not be unreasonably withheld, conditioned or delayed) serving on the board of directors of other companies, provided that these activities do not materially interfere with the performance of his duties hereunder or create a potential business conflict or the appearance thereof. The Company has consented to the Executive's services on the boards of directors, if any, on which the Executive currently serves, which boards the Executive has disclosed in writing to the O&C Committee. The Executive may retain any compensation or benefits received as a result of consented to service as a director of entities not related to the Company. 3. Compensation and Benefits During the Employment Term, the Company shall pay and provide the Executive the following: 3.1 Base Salary. The Company shall pay the Executive a base salary (the "Base Salary") in an amount which shall be established from time to time by the O&C Committee (or as otherwise designated by the Board), provided, however, that such base salary rate shall not be less than his current rate of base salary. Base Salary shall be paid to the Executive in accordance with the Company's normal payroll practices for executives. Base Salary shall be reviewed at least annually to ascertain whether, in the judgment of the reviewing committee, such Base Salary should be increased. If so increased, Base Salary shall not be thereafter decreased and shall thereafter, as increased, be the Base Salary hereunder. 3.2 Annual Bonus. The Company shall provide the Executive with the opportunity to earn an annual cash bonus under the Company's current annual incentive compensation plan for executives or a replacement plan therefor at a level commensurate with his position, provided that the minimum annual target award payable upon the achievement of reasonably attainable objective performance goals shall be at least fifty percent (50%) of Base Salary. 3.3 Long-Term Incentives. The Company shall provide the Executive the opportunity to earn long-term incentive awards under the current equity and cash based plans and programs or replacements therefor at a level commensurate with the current aggregate opportunity being provided to the Executive. 3.4 Employee Benefits. The Executive shall, to the extent eligible, be entitled to participate at a level commensurate with his position in all employee benefit welfare and retirement plans and programs, as well as equity plans, generally provided by the Company to its senior executives in accordance with the terms thereof as in effect from time to time. Such plans and programs currently include, without limitation, the Amended and Restated Supplemental Retirement Plan for Textron Inc. Key Executives (the "SERP"), the 1994 Long-Term Incentive Plan, the Key Executive Program (including the Deferred Income Plan, the Supplemental Benefits Plan (the "SBP") and the Survivor Benefit Plan), group term life insurance plan, comprehensive health, major medical, vision and dental insurance plans and short-term and long-term disability plans. 3.5 Vacation. The Executive shall be entitled to paid vacation in accordance with the standard written policies of the Company with regard to vacations of executives, but in no event less than four (4) weeks per calendar year. 3.6 Perquisites. The Company shall provide to the Executive, at the Company's cost, all perquisites to which other senior executives of the Company are generally entitled to receive and such other perquisites which are suitable to the character of the Executive's position with the Company and adequate for the performance of his duties hereunder but not less than the level being provided on the date hereof except as otherwise required because of changes in law. To the extent legally permissible, the Company shall not treat such amounts as income to the Executive. 3.7 Right to Change Plans. The Company shall not be obligated by reason of this Section 3 to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, program, or perquisite, so long as such changes are similarly applicable to executive employees generally and provided that the benefits or additional credit specifically as set forth in Section 3.8 below shall not be diminished. 3.8 Existing Awards. The Company acknowledges that the Executive currently is entitled to, among other things, the special grants set forth in Exhibit A hereto, as modified on Exhibit A. 4. Expenses Upon submission of appropriate documentation, in accordance with its policies in effect from time to time, the Company shall pay, or reimburse, the Executive for all ordinary and necessary expenses, in a reasonable amount, which the Executive incurs in performing his duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies in which the Executive participates in accordance with the Company's policies in effect from time to time. 5. Termination of Employment The Executive's employment with the Company (including but not limited to any subsidiary or affiliate or the Company) and the Employment Term shall terminate upon the occurrence of the first of the following events: (a) Automatically on the date of the Executive's death. (b) Upon thirty (30) days written notice by the Company to the Executive of a termination due to Disability, provided such notice is delivered during the period of Disability. The term "Disability" shall mean, for purposes of this Agreement, the inability of the Executive, due to injury, illness, disease or bodily or mental infirmity, to engage in the performance of his material duties of employment with the Company as contemplated by Section 2 herein for a period of more than one hundred eighty (180) consecutive days or for a period that is reasonably expected to exist for a period of more than one hundred eighty (180) consecutive days, provided that interim returns to work of less than ten (10) consecutive business days in duration shall not be deemed to interfere with a determination of consecutive absent days if the reason for absence before and after the interim return are the same. The existence or non-existence of a Disability shall be determined by a physician agreed upon in good faith by the Executive (or his representatives) and the Company. It is expressly understood that the Disability of the Executive for a period of one hundred eighty (180) consecutive days or less shall not constitute a failure by him to perform his duties hereunder and shall not be deemed a breach or default and the Executive shall receive full compensation for any such period of Disability or for any other temporary illness or incapacity during the term of this Agreement. (c) Immediately upon written notice by the Company to the Executive of a termination due to his retirement at or after the Executive's attainment of age sixty-five (65). (d) Immediately upon written notice by the Company to the Executive of a termination for Cause, provided such notice is given within ninety (90) days after the discovery by the Board or the Chief Executive Officer of the Cause event and has been approved by the O&C Committee at a meeting at which the Executive and his counsel had the right to appear and address such meeting after receiving at least five (5) business days written notice of the meeting and reasonable detail of the facts and circumstances claimed to provide a basis for such termination. The term "Cause" shall mean, for purposes of this Agreement: (i) an act or acts of willful misrepresentation, fraud or willful dishonesty (other than good faith expense account disputes) by the Executive which in any case is intended to result in his or another person or entity's substantial personal enrichment at the expense of the Company; (ii) any willful misconduct by the Executive with regard to the Company, its business, assets or employees that has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iii) any material, willful and knowing violation by the Executive of (x) the Company's Business Conduct Guidelines, or (y) any of his fiduciary duties to the Company which in either case has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iv) the willful or reckless behavior of the Executive with regard to a matter of a material nature which has a material adverse impact (economic or otherwise) on the Company; (v) the Executive's willful failure to attempt to perform his duties under Section 2 hereof or his willful failure to attempt to follow the legal written direction of the Board, which in either case is not remedied within ten (10) days after receipt by the Executive of a written notice from the Company specifying the details thereof; (vi) the Executive's conviction of, or pleading nolo contendere or guilty to, a felony (other than (x) a traffic infraction or (y) vicarious liability solely as a result of his position provided the Executive did not have actual knowledge of the actions or inactions creating the violation of the law or the Executive relied in good faith on the advice of counsel with regard to the legality of such action or inaction (or the advice of other specifically qualified professionals as to the appropriate or proper action or inaction to take with regard to matters which are not matters of legal interpretation)); or (vii) any other material breach by the Executive of this Agreement that is not cured by the Executive within twenty (20) days after receipt by the Executive of a written notice from the Company of such breach specifying the details thereof. No action or inaction should be deemed willful if not demonstrably willful and if taken or not taken by the Executive in good faith as not being adverse to the best interests of the Company. Reference in this paragraph (d) to the Company shall also include direct and indirect subsidiaries of the Company, and materiality and material adverse impact shall be measured based on the action or inaction and the impact upon, and not the size of, the Company taken as a whole, provided that after a Change in Control, the size of the Company, taken as a whole, shall be a relevant factor in determining materiality and material adverse impact. (e) Upon written notice by the Company to the Executive of an involuntary termination without Cause. A notice by the Company of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed an involuntary termination of the Executive by the Company without Cause as of the end of the Employment Term, but the Executive may terminate at any time after the receipt of such notice and shall be treated as if he was terminated without Cause as of such date. (f) Upon twenty (20) days written notice by the Executive to the Company of a termination for Good Reason (which notice sets forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination) unless the Good Reason event is cured within such twenty (20) day period. The term "Good Reason" shall mean, for purposes of this Agreement, without the Executive's express written consent, the occurrence of any one or more of the following: (i) the assignment to the Executive of duties materially inconsistent with the Executive's then authorities, duties, responsibilities, and status (including offices, titles, and reporting requirements), or any reduction in the Executive's then title, position, reporting lines or a material reduction (other than temporarily while Disabled or otherwise incapacitated) in his then status, authorities, duties, or responsibilities or, if then a director of the Company, failure to be nominated or reelected as a director of the Company or removal as such; (ii) relocation of the Executive from the principal office of the Company (excluding reasonable travel on the Company's business to an extent substantially consistent with the Executive's business obligations) or relocation of the principal office of the Company to a location which is at least fifty (50) miles from the Company's current headquarters, provided, however, if the Executive at the time of the relocation is not located at the principal office, such relocation provision shall apply based on his then location; (iii) a reduction by the Company in the Executive's Base Salary; (iv) a reduction in the Executive's aggregate level of participation in any of the Company's short and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or arrangements in which the Executive participated as of the Effective Date, or, after a Change in Control, participated immediately prior to the Change in Control; (v) the failure of the Company to obtain and deliver to the Executive a satisfactory written agreement from any successor to the Company to assume and agree to perform this Agreement; or (vi) any other material breach by the Company of this Agreement. (g) Upon written notice by the Executive to the Company of the Executive's voluntary termination of employment without Good Reason (which the Company may, in its sole discretion, make effective earlier than any notice date). A notice by the Executive of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed a voluntary termination by the Executive without Good Reason as of the end of the Employment Term. 6. Consequences of a Termination of Employment 6.1 Termination Due to Death or Retirement. If the Employment Term ends on account of the Executive's termination due to death pursuant to Section 5(a) above or retirement pursuant to Section 5(c) above, the Executive (or the Executive's surviving spouse, or other beneficiary as so designated by the Executive during his lifetime, or to the Executive's estate, as appropriate) shall be entitled, in lieu of any other payments or benefits, to (i) payment promptly of any unpaid Base Salary, unpaid annual incentive compensation (for the preceding fiscal year) and any accrued vacation, (ii) reimbursement for any unreimbursed business expenses incurred prior to the date of termination, and (iii) any amounts, benefits or fringes due under any equity, benefit or fringe plan, grant or program in accordance with the terms of said plan, grant or program but without duplication (collectively, the "Accrued Obligations"). 6.2 Termination Due To Disability. If the Employment Term ends as a result of Disability pursuant to Section 5(b) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment, during January of the calendar year following the date of the Executive's termination, of an amount equal to three hundred percent (300%) of the Executive's target annual incentive compensation award established for the fiscal year during which the Executive's termination occurs (the "Termination Year Target Bonus"). (b) Continued monthly payment for two and one half (2 1/2) years of an amount equal to the Executive's monthly Base Salary rate reduced by any disability benefits received by the Executive under the Company's long term disability plan for the corresponding period. (c) Payments and benefits as set forth in Section 6.3(c)- (j) hereof. (d) The Executive shall be deemed to have satisfied the definition of "total disability" under the 1994 Long- Term Incentive Plan or the equivalent definition under any successor plan thereto. (e) As provided in Exhibit A hereto. 6.3 Involuntary Termination by the Company Without Cause or Termination by the Executive for Good Reason. If the Executive is involuntarily terminated by the Company without Cause in accordance with Section 5(e) above or the Executive terminates his employment for Good Reason in accordance with Section 5(f) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment, during January of the calendar year following the date of the Executive's termination, of an amount equal to the Executive's Termination Year Target Bonus multiplied by a fraction, the numerator of which is the number of days during the fiscal year of the Executive's termination that the Executive was employed by the Company and the denominator is three hundred sixty-five (365), provided that in no event shall such payment exceed fifty percent (50%) of the Termination Year Target Bonus. (b) Continued payment off payroll for two and one-half (2 1/2) years (in approximately equal monthly installments) of an amount equal to two and one-half (2 1/2) times the sum of: (i) the Executive's Base Salary, and (ii) the greater of: (x) the Termination Year Target Bonus, or (y) the Executive's highest annual incentive compensation award earned during the last three (3) fiscal years ending prior to the fiscal year of termination (whether or not deferred). (c) To the extent eligible at such time or, if the Executive would be eligible with credit for an additional two and one half (2 1/2) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and his dependents (including, if he is only eligible because of the extra age and service credit, an adjustment, to the extent necessary, to put the Executive in the same after-tax position as if he had been eligible for such coverage) and, if not eligible for continued health coverage under the retiree health plan, payment of the Executive's and Executive's eligible dependents' COBRA continuation health coverage premiums for the Company's health insurance plan that generally applies to senior executives for the two and one-half (2 1/2) year period following the date of termination or, if earlier, until the Executive and Executive's dependents cease to be eligible for such coverage, provided that, if COBRA coverage cannot be provided for the full period, any excess period shall be covered under (d) below (and further provided that, if such premiums are taxable to the Executive, an adjustment such that the Executive has no after tax cost for the providing of such COBRA coverage). (d) To the extent eligible on the date of termination, continued participation, at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans (other than medical plans covered under (c) above), until two and one-half (2 1/2) years after the date of termination; provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such benefits under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to the Executive than the Executive would have had if the benefits were provided to the Executive as an employee. (e) Two and one-half (2 1/2) additional years of service and compensation credit (at the Executive's then compensation level) for benefit purposes under any defined benefit type retirement plan, including but not limited to the SERP and the SBP if then in effect, and, if the Executive is not eligible to receive benefits under any such plan on the date of termination, two and one-half (2 1/2) additional years of age for determining eligibility to receive such benefits, provided that benefits under any such plan will not commence until the Executive actually attains the required distribution age under the plan or the Executive's spouse qualifies for death benefits under such plan and further provided that with regard to any plan qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") the additional amounts may be provided on a nonqualified plan basis. (f) Payment promptly after termination of two and one-half (2 1/2) times the amount of the maximum Company annual contribution or match to any defined contribution type plan in which the Executive participates. (g) Immediate full vesting of any outstanding stock options that would vest within two and one half (2 1/2) years after such termination of employment as if the Executive had continued employment for such two and one half (2 1/2) year period, to the extent permitted under the plan or grant, or if such vesting is not permitted, a cash payment equal to the difference between the fair market value of the shares covered by the unvested options and the exercise price of such unvested options (the "Spread") on the date of termination, and, in both cases, to the extent such options are exercisable for less than two and three quarters (2-3/4) years after termination (or, if less, the remainder of the respective terms), a cash payment equal to the Black- Scholes (based on the same methodology used for the Company's then latest distributed proxy statement or, if not so used, for internal valuation of the last stock option grants made by the Company prior to the termination) future value of such options for the lesser of two and three quarters (2-3/4) years or the remainder of such terms (any such payments shall be made promptly after such termination). The terms of the Executive's outstanding options are deemed to be modified to the extent required by this Section 6.3 (g). (h) Payment when it would otherwise be paid in accordance with the 1994 Long-Term Incentive Plan of any amount due with regard to performance share units outstanding on the date of termination to the extent permitted under such plan, plus, outside of such plan, when it would otherwise have been paid, an amount equal to the amount the Executive would have received with regard to any performance share units outstanding at the time of termination that could not be so paid. For purposes of calculating the foregoing amounts, all discretionary performance targets relating to the Executive's individual performance will be deemed to be fully achieved and the actual level of achievement of all financial performance targets will be determined as if the Executive continued to be employed through the end of the applicable measuring period. (i) Immediate full vesting of the Executive's accounts under the Deferred Income Plan, and to the extent not permitted under such plan, a cash payment outside of the plan equal to the value of the amount that would have vested under the plan. (j) Continuation of participation for two and one-half (2 1/2) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the termination. (k) As provided in Exhibit A hereto. 6.4 Termination by the Company for Cause or Termination by the Executive without Good Reason. If the Executive is terminated by the Company for Cause or the Executive terminates his employment without Good Reason, the Executive shall be entitled to receive all Accrued Obligations. 7. No Mitigation/No Offset/Release (a) In the event of any termination of employment hereunder, the Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain. The amounts payable hereunder shall not be subject to setoff, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others, except as specifically set forth in Section 9 hereof or upon obtaining by the Company of a final unappealable judgement against the Executive. (b) Any amounts payable and benefits or additional rights provided pursuant to Section 6.2 (other than Section 6.2(e)), Section 6.3 (other than Section 6.3(k)) and Section 8.1 (other than Section 8.1(m)) beyond Accrued Obligations and amounts or rights due under law, and, in the case of Section 6.3 and Section 8.1, beyond the sum of any amounts due (without execution of a release) under the Company severance program then in effect, or, if greater, three (3) months Base Salary as severance, shall only be payable if the Executive delivers to the Company a release of all claims of the Executive (other than those specifically payable or providable hereunder on or upon the applicable type of termination and any rights of indemnification under the Company's organizational documents) with regard to the Company, its subsidiaries and related entities and their respective past or present officers, directors and employees in such form as reasonably requested by the Company. (c) Upon any termination of employment, upon the request of the Company, the Executive shall deliver to the Company a resignation from all offices and directorships and fiduciary positions of the Executive in which the Executive is serving with, or at the request of, the Company or its subsidiaries, affiliates or benefit plans. (d) The amounts and benefits provided under Sections 6 and 8 hereof are intended to be inclusive and not duplicative of the amounts and benefits due under the Company's employee benefit plans and programs to the extent they are duplicative. 8. Change in Control 8.1 Employment Termination in Connection with a Change in Control. In the event of a Qualifying Termination (as defined below) during the period commencing one-hundred eighty (180) days prior to the effective date of a Change in Control and terminating on the second anniversary of the effective date of a Change in Control (the "Change in Control Protection Period"), then in lieu of the benefits provided to the Executive under Section 6.3 of this Agreement, the Company shall pay the Executive the following amounts within (except as otherwise provided) thirty (30) business days of the Qualifying Termination (or, if later, the effective date of the Change in Control; in which case any amounts or benefits previously paid pursuant to Section 6 shall be setoff against those under this Section 8) and provide the following benefits: (a) Any Accrued Obligations. (b) A lump-sum cash payment equal to three (3) times the highest rate of the Executive's Base Salary rate in effect at any time up to and including the date of the Executive's termination. (c) A lump-sum cash payment equal to the Prorated Portion (as determined in the next sentence) of the greater of: (i) the Executive's Termination Year Target Bonus or (ii) the Executive's earned annual incentive award for the fiscal year prior to the fiscal year in which the earlier of the Change in Control or the Qualifying Termination occurs (whether or not deferred). The "Prorated Portion" of the foregoing amount shall be determined by multiplying such amount by a fraction, the numerator of which is the number of days during the fiscal year of termination that the Executive is employed by the Company, and the denominator of which is, three hundred sixty-five (365). (d) A lump-sum cash payment equal to three (3) times the greater of: (i) the Executive's highest annual incentive compensation earned over the three (3) fiscal years ending prior to the earlier of the Change in Control or the Qualifying Termination (whether or not deferred); or (ii) the Executive's target incentive compensation established for the fiscal year in which the Executive's date of termination occurs. (e) To the extent the Executive is eligible, was eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination) or if the Executive would be eligible with credit for an additional three (3) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and the Executive's eligible dependents (including an adjustment to the extent necessary to put the Executive on the same after tax basis as if the Executive had been eligible for such coverage). (f) To the extent eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination), continued participation, (coordinated with (e) above to the extent duplicative), at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans, until three (3) years after the date of termination, provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such similar or improved benefit under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to him than he would have had if the benefits were provided to him as an employee. (g) A lump-sum cash payment of the actuarial present value equivalent (as determined in accordance with the most favorable (to the Executive) overall actuarial assumptions and subsidies in any of the Company's tax- qualified or nonqualified type defined benefit pension plans in which the Executive then participates) of the accrued benefits accrued by the Executive as of the date of termination under the terms of any nonqualified defined benefit type retirement plan, including but not limited to, the SERP and the SBP and assuming the benefit was fully vested without regard to any minimum age or service requirements. For this purpose, such benefits shall be calculated under the assumption that the Executive's employment continued following the date of termination for three (3) full years (i.e., three (3) additional years of age (including, but not limited to, for purposes of determining the actuarial present value), compensation and service credits shall be added). (h) Three (3) times the amount of the maximum Company contribution or match to any defined contribution type plan in which the Executive participates. (i) A lump-sum cash payment of the product of (i) the Interest Factor (as determined in the next sentence) multiplied by (ii) the Executive's entire account balance under the Deferred Income Plan (or any replacement therefor), plus an additional amount equal to three (3) times the match which the Company made for the Executive to such plan for the fiscal year ending immediately prior to the earlier of the Change in Control or the Qualifying Termination. The "Interest Factor" shall be equal to one (1) plus three (3) times the rate of earnings of the Executive's account under such plan for the fiscal year ending immediately prior to his termination. (j) Immediate full vesting of any outstanding stock options, performance share units and other equity awards (and lapse of any forfeiture provisions) to the extent permitted under the plan or grant, or if full vesting is not permitted with regard to stock options, a cash payment equal to the Spread on such unvested options on the date of termination (or, if later, the date of the Change in Control) plus, in both cases, if options are exercisable for less than three (3) years after termination (or, if less, the remainder of the respective terms, including any termination of exercisability of all Company stock options in connection with the Change in Control or a merger related thereto), a cash payment equal to the Black- Scholes (based on the same methodology used for the Company's then latest distributed proxy statement or, if not so used, for internal valuation of the last stock option grants made by the Company prior to the earlier of the Qualifying Termination or the Change in Control) future value of such outstanding options for the lesser of three (3) years or the remainder of such terms. (k) Outplacement services at a level commensurate with the Executive's position, including use of an executive office and secretary, for a period of one (1) year commencing on the date of termination but in no event extending beyond the date on which the Executive commences other full time employment. (l) Continuation of participation for three (3) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the Change in Control. (m) As provided in Exhibit A hereto. For purposes of this Section 8, a Qualifying Termination shall mean any termination of the Executive's employment (i) by the Company without Cause, or (ii) by the Executive for Good Reason. 8.2 Definition of "Change in Control." A Change in Control of the Company shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied: (a) Any "person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than the Company, any trustee or other fiduciary holding Company common stock under an employee benefit plan of the Company or a related company, or any corporation which is owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the Company's common stock, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than thirty percent (30%) of the then outstanding voting stock; (b) During any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (c) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) The approval of the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets. 8.3 Excise Tax Equalization Payment. In the event that the Executive becomes entitled to payments and/or benefits which would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, the provisions of Exhibit B will apply. 9. Noncompetition, Confidentiality and Nondisparagement 9.1 Agreement Not to Compete. (a) The Executive agrees that for a period of two (2) years after the termination of the Executive's employment, the Executive will not engage in Competition with the Company with the Listed Companies, provided that after the Executive's termination of employment the Listed Companies shall be limited to those effectively listed at the time of his termination and still on such list at the time of any alleged activity of the Executive, including, but not limited to, (i) soliciting customers, business or orders for, or selling any products and services in, Competition with the Company for such Listed Companies or (ii) diverting, enticing, or otherwise taking away customers, business or orders of the Company, or attempting to do so, in either case in Competition with the Company for such Listed Companies. (b) The Executive agrees that if, while he is receiving severance pay from the Company pursuant to Section 6.2(b) or Section 6.3(b), the Executive: (i) violates (a) above, or (ii) otherwise engages in Competition in the Restricted Territory, whether or not with the Listed Companies, Section 9.6(b) hereof shall apply. (c) The Executive agrees that the restrictions contained in this Section 9 are necessary for the protection of the business and goodwill of the Company because of the trade secrets within the Executive's knowledge and are considered by the Executive to be reasonable for such purpose. 9.2 Definitions. (a) "Competition" shall mean engaging in, as an employee, director, partner, principal, shareholder, consultant, advisor, independent contractor or similar capacity, with (a) the Listed Companies or (b) in any business, activity or conduct which directly competes with the business of the Company, provided that, with regard to the period after termination of the Executive's employment, Section 9.1(b)(ii) shall only apply to business lines in which the Company is engaged both at the time of termination of employment and at the time of the determination and which during the last fiscal year ending prior to the date of such termination repre sented at least five percent (5%) of the Company's revenues (the "Prohibited Lines"). Notwithstanding anything else in this Section 9, Competition shall not include: (A) (i) holding five percent (5%) or less of an interest in the equity or debt of any publicly traded company, (ii) engaging in any activity with the prior written approval of the Chief Executive Officer or the O&C Committee, (iii) the practice of law in a law firm that represents entities in Competition with the Company, provided that the Executive does not personally represent such entities, or (iv) the employment by, or provision of services to, an investment banking firm or consulting firm that provides services to entities that are in Competition with the Company provided that the Executive does not personally represent or provide services to such entities that are Listed Companies or otherwise with regard to businesses in Competition with the Prohibited Lines, or (B) with regard to Section 9.1(b)(ii), (i) being employed by, or consulting for, a non-Competitive division or business unit of an entity which is in Competition with the Company (and participating in such entity's employee equity plans), (ii) being employed by, or consulting for, an entity which had annual revenues in the last fiscal year prior to the Executive being employed by, or consulting for, the entity generated through business lines in Competition with the Prohibited Lines of the Company that do not exceed five percent (5%) of such entity's total annual revenues, provided that revenues within the Executive's area of responsibility or authority are not more than ten percent (10%) composed of the revenues from the businesses in Competition with the Prohibited Lines, or (iii) any activities conducted after a Change in Control of the Company. (b) The Restricted Territory shall mean any geographic area in which the Company with regard to the Prohibited Lines did more than nominal business. (c) Listed Companies shall mean those entities which are within the "peer group" established by the Company for the performance graphs in its proxy statement pursuant to Item 402(l) of Regulation S-K under the Exchange Act and which are in a list of no more than five (5) entities established by the Company from time to time and available from the Chief Human Resources Officer, provided that the addition of any entity to the list shall not be effective until sixty (60) days after it is so listed. (d) For purposes of this Section 9, "Company" shall mean the Company and its subsidiaries and affiliates. 9.3 Agreement Not to Engage in Certain Solicitation. The Executive agrees that the Executive will not, during the Executive's employment with the Company or during the two (2) year period thereafter, directly or indirectly, solicit or induce, or attempt to solicit or induce, any non-clerical employee(s), sales representative(s), agent(s), or consultant(s) of the Company to terminate such person's employment, representation or other association with the Company for the purpose of affiliating with any entity with which the Executive is associated ("Solicitation"). 9.4 Confidential Information. (a) The Executive specifically acknowledges that any trade secrets or confidential business and technical information of the Company or its vendors, suppliers or customers, whether reduced to writing, maintained on any form of electronic media, or maintained in mind or memory and whether compiled by the Executive or the Company (collectively, "Confidential Information"), derives independent economic value from not being readily known to or ascertainable by proper means by others; that reasonable efforts have been made by the Company to maintain the secrecy of such information; that such information is the sole property of the Company or its vendors, suppliers, or customers and that any retention, use or disclosure of such information by the Executive during the Employment Term (except in the course of performing duties and obligations of employment with the Company) or any time after termination thereof, shall constitute misappropriation of the trade secrets of the Company or its vendors, suppliers, or customers, provided that Confidential Information shall not include: (i) information that is at the time of disclosure public knowledge or generally known within the industry, (ii) information deemed in good faith by the Executive, while employed by the Company, desirable to disclose in the course of performing the Executive's duties, (iii) information the disclosure of which the Executive in good faith deems necessary in defense of the Executive's rights provided such disclosure by the Executive is limited to only disclose as necessary for such purpose, or (iv) information disclosed by the Executive to comply with a court, or other lawful compulsory, order compelling him to do so, provided the Executive gives the Company prompt notice of the receipt of such order and the disclosure by the Executive is limited to only disclosure necessary for such purpose. (b) The Executive acknowledges that the Company from time to time may have agreements with other persons or with the United States Government, or agencies thereof, that impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. If the Executive's duties hereunder will require disclosures to be made to him subject to such obligations and restrictions, the Executive agrees to be bound by them. 9.5 Scope of Restrictions. If, at the time of enforcement of this Section 9, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. 9.6 Remedies. (a) In the event of a material breach or threatened material breach of Section 9.1(a), Section 9.3, Section 9.4 or Section 9.10, the Company, in addition to its other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of the provisions of this Section 9. Except as specifically provided with regard to Listed Companies, the Company agrees that it will not assert to enjoin or otherwise limit the Executive's activities based on an argument of inevitable disclosure of confidential information. (b) In the event Section 9.1(b) applies, the Company may immediately cease payment to the Executive of all future amounts due under Sections 6.2(a) or (b) or Sections 6.3(a) or (b), as well as otherwise specifically provided in any other plan, grant or program. (c) Upon written request of the Executive, the Company shall within thirty (30) days notify the Executive in writing whether or not in good faith it believes any proposed activities would be in Competition and, if it so determines or does not reply within thirty (30) days, it shall be deemed to waive any right to treat such activities as Competition unless the facts are otherwise than as presented by the Executive or there is a change thereafter in such activities. The Executive shall promptly provide the Company with such information as it may reasonably request to evaluate whether or not such activities are in Competition. 9.7 Uniformity. In no event shall any definitions of Competition or Solicitation (or a similar provision) as it applies to the Executive with regard to any plan of program or grant of the Company be interpreted to be any broader than as set forth in this Section 9. 9.8 Delivery of Documents. Upon termination of this Agreement or at any other time upon request by the Company, the Executive shall promptly deliver to the Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, laboratory and research notebooks and other documents (and all copies or reproductions of such materials in his possession or control) belonging to the Company. Notwithstanding the foregoing, the Executive may retain his rolodex and similar phone directories (collectively, the "Rolodex") to the extent the Rolodex does not contain information other than name, address, telephone number and similar information, provided that, at the request of the Company, the Executive shall provide the Company with a copy of the Rolodex. 9.9 Nondisparagement. (a) During the Employment Term and thereafter, the Executive shall not with willful intent to damage economically or as to reputation or vindictively disparage the Company, its subsidiaries or their respective past or present officers, directors or employees (the "Protected Group"), provided that the foregoing shall not apply to (i) actions or statements taken or made by the Executive while employed by the Company in good faith as fulfilling the Executive's duties with the Company or otherwise at the request of the Company, (ii) truthful statements made in compliance with legal process or governmental inquiry, (iii) as the Executive in good faith deems necessary to rebut any untrue or misleading public statements made about him or any other member of the Protected Group, (iv) statements made in good faith by the Executive to rebut untrue or misleading statements made about him or any other member of the Protected Group by any member of the Protected Group, and (v) normal commercial puffery in a competitive business situation. No member of the Protected Group shall be a third party beneficiary of this Section 9.9(a). (b) During the Employment Term and thereafter, neither the Company officially nor any then member of the Executive Leadership Team (or the equivalent) of the Company, as such term is currently used within the Company, shall with willful intent to damage the Executive economically or as to reputation or otherwise vindictively disparage the Executive, provided the foregoing shall not apply to (i) actions or statements taken or made in good faith within the Company in fulfilling duties with the Company, (ii) truthful statements made in compliance with legal process, governmental inquiry or as required by legal filing or disclosure requirements, (iii) as in good faith deemed necessary to rebut any untrue or misleading statements by the Executive as to any member of the Protected Group or (iv) normal commercial puffery in a competitive business situation. (c) In the event of a material breach or threatened material breach of clauses (a) or (b) above, the Company or the Executive, as the case may be, in addition to its or the Executive's other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of this Section 9.9. 9.10 Pooling of Interests. If the Company is involved in any proposed business combination that is contemplated to be accounted for as a pooling of interests, the Executive agrees to cooperate with the reasonable requests of the Company with regard to the exercise of stock options, the sale of Company stock or other matters that could affect the ability of the combination to be accounted for as a pooling of interests. 10 Liability Insurance The Company shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists, after the Employment Term in the same amount and to the same extent, if any, as the Company covers its other officers and directors. 11 Assignment 11.1 Assignment by the Company. This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes of the "Company" under the terms of this Agreement. As used in this Agreement, the term "successor" shall mean any person, firm, corporation or business entity which at any time, whether by merger, purchase, or otherwise, acquires all or substantially all of the assets of the Company. Notwithstanding such assignment, the Company shall remain, with such successor, jointly and severally liable for all its obligations hereunder. Except as herein provided, this Agreement may not otherwise be assigned by the Company. 11.2 Assignment by the Executive. This Agreement is not assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amounts payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, in the absence of such designee, to the Executive's estate. 12 Legal Remedies 12.1 Payment of Legal Fees. The Company shall pay the Executive's reasonable legal fees and costs associated with entering into this Agreement. To the fullest extent permitted by law, the Company shall promptly pay upon submission of statements all legal and other professional fees, costs of litigation, prejudgment interest, and other expenses incurred in connection with any dispute arising hereunder; provided, however, the Company shall be reimbursed by the Executive for (i) the fees and expenses advanced in the event the Executive's claim is in a material manner in bad faith or frivolous and the arbitrator or court, as applicable, determines that the reimbursement of such fees and expenses is appropriate, or (ii) to the extent that the arbitrator or court, as appropriate, determines that such legal and other professional fees are clearly and demonstrably unreasonable. 12.2 Arbitration. All disputes and controversies arising under or in connection with this Agreement, other than the seeking of injunctive or other equitable relief pursuant to Section 9 hereof, shall be settled by arbitration conducted before a panel of three (3) arbitrators sitting in New York City, New York, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of commercial disputes of the American Arbitration Association then in effect. The determination of the majority of the arbitrators shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel of the Executive, shall be borne by the Company and the Executive shall be entitled to reimbursement of his expenses as provided in Section 12.1 hereof. 12.3 Notice. Any notices, requests, demands, or other communications provided for by this Agreement shall be sufficient if in writing and if delivered personally, sent by telecopier, sent by an overnight service or sent by registered or certified mail. Notice to the Executive not delivered personally (or by telecopy where the Executive is known to be) shall be sent to the last address on the books of the Company, and notice to the Company not delivered personally (or by telecopy to the known personal telecopy of the person it is being sent to) shall be sent to it at its principal office. All notices to the Company shall be delivered to the Chief Executive Officer with a copy to the senior human resources officer. Delivery shall be deemed to occur on the earlier of actual receipt or tender and rejection by the intended recipient. 12.4 Continued Payments. In the event after a Change in Control either party files for arbitration to resolve any dispute as to whether a termination is for Cause or Good Reason, until such dispute is determined by the arbitrators, the Executive shall continue to be treated economically and benefit wise in the manner asserted by him in the arbitration effective as of the date of the filing of the arbitration, subject to the Executive promptly refunding any amounts paid to him, paying the cost of any benefits provided to him and paying to the Company the profits in any stock option or other equity awards exercised or otherwise realized by him during the pendency of the arbitration which he is ultimately held not to be entitled to; provided the arbitrators may terminate such payments and benefits in the event that they determine at any point that the Executive is intentionally delaying conclusion of the arbitration. 13 Miscellaneous 13.1 Entire Agreement. This Agreement, except to the extent specifically provided otherwise herein, supersedes any prior agreements or understandings, oral or written, between the parties hereto or between the Executive and the Company, with respect to the subject matter hereof and constitutes the entire Agreement of the parties with respect to the subject matter hereof. To the extent any severance plan or program of the Company that would apply to the Executive is more generous to the Executive than the provisions hereof, the Executive shall be entitled to any additional payments or benefits which are not duplicative, but shall otherwise not be eligible for such plan or program. 13.2 Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended, nor any provision hereof waived, except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives. 13.3 Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 13.4 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 13.5 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 13.6 Beneficiaries. The Executive may designate one or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Board or the Board's designee. The Executive may make or change such designation at any time. 13.7 Representation. The Executive represents that the Executive's employment by the Company and the performance by the Executive of his obligations under this Agreement do not, and shall not, breach any agreement that obligates him to keep in confidence any trade secrets or confidential or proprietary information of his or of any other party, to write or consult to any other party or to refrain from competing, directly or indirectly, with the business of any other party. The Executive shall not disclose to the Company, and the Company shall not request that the Executive disclose, any trade secrets or confidential or proprietary information of any other party. 14 Governing Law The provisions of this Agreement shall be construed and enforced in accordance with the laws of the state of Delaware, without regard to any otherwise applicable principles of conflicts of laws. IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement, as of the day and year first above written. /s/Wayne W. Juchatz Wayne W. Juchatz TEXTRON INC. By:/s/John D. Butler Name: John D. Butler Title: Executive Vice President Exhibit A Special Grants For all purposes with regard to all qualified and non- qualified defined benefit type pension plans of the Company in which the Executive participates, the Executive shall be entitled to twelve (12) additional years of Company service credit, including but not limited to under the SBP and the SERP, provided that no additional service will be recognized under any qualified plan but will be made up as part of the SBP or SERP or through another nonqualified arrangement and further provided that the Executive shall not receive such additional credit until he is credited with five (5) years of service under the qualified defined benefit pension plan or his earlier termination of employment as a result of his death, for Disability (pursuant to Section 5(b) hereof), by the Company without Cause (pursuant to Section 5(e) hereof) or by the Executive for Good Reason (pursuant to Section 5(f) hereof). Exhibit B Parachute Gross Up (a) In the event that the Executive shall become entitled to payments and/or benefits provided by this Agreement or any other amounts in the "nature of compensation" (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change of ownership or effective control covered by Section 280G(b)(2) of the Code or any person affiliated with the Company or such person) as a result of such change in ownership or effective control (collectively the "Company Payments"), and such Company Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any similar tax that may hereafter be imposed by any taxing authority) the Company shall pay to the Executive at the time specified in subsection (d) below an additional amount (the "Gross-up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Company Payments and any U.S. federal, state, and for local income or payroll tax upon the Gross-up Payment provided for by this paragraph (a), but before deduction for any U.S. federal, state, and local income or payroll tax on the Company Payments, shall be equal to the Company Payments. (b) For purposes of determining whether any of the Company Payments and Gross-up Payments (collectively the "Total Payments") will be subject to the Excise Tax and the amount of such Excise Tax, (x) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Company's independent certified public accountants appointed prior to any change in ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected by such accountants (the "Accountants") such Total Payments (in whole or in part) either do not constitute "parachute payments," represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the "base amount" or are otherwise not subject to the Excise Tax, and (y) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to pay U.S. federal income taxes at the highest marginal rate of U.S. federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence for the calendar year in which the Company Payment is to be made, net of the maximum reduction in U.S. federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the prior Gross- up Payment attributable to such reduction (plus the portion of the Gross-up Payment attributable to the Excise Tax and U.S. federal, state and local income tax imposed on the portion of the Gross-up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a U.S. federal, state and local income tax deduction), plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Gross-up Payment to be refunded to the Company has been paid to any U.S. federal, state and local tax authority, repayment thereof (and related amounts) shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expense thereof) if the Executive's claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountant or the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest or penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. (d) The Gross-up Payment or portion thereof provided for in subsection (c) above shall be paid not later than the thirtieth (30th) day following an event occurring which subjects the Executive to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Accountant, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection (c) hereof, as soon as the amount thereof can reasonably be deter mined, but in no event later than the ninetieth day after the occurrence of the event subjecting the Executive to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (e) In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Executive, but the Executive shall control any other issues. In the event the issues are interrelated, the Executive and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue, but if the parties cannot agree the Executive shall make the final determination with regard to the issues. In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Executive shall permit the representative of the Company to accompany the Executive, and the Executive and the Executive's representative shall cooperate with the Company and its representative. (f) The Company shall be responsible for all charges of the Accountant. (g) The Company and the Executive shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit B. EX-10.7 8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is entered into as of this 23rd day of July, 1998 by and between Textron Inc. (the "Company"), a Delaware corporation having its principal office at 40 Westminster Street, Providence, Rhode Island 02903 and Stephen L. Key residing at 44 Stimson Avenue, Providence, Rhode Island 02906 (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive is presently employed by the Company; WHEREAS, the Company desires to continue to employ the Executive and the Executive is willing to continue to be employed by the Company; and WHEREAS, the Company and the Executive desire to set forth the terms and conditions of such continued employment. NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the adequacy and receipt of which is acknowledged, the parties hereto agree as follows: 1. Term of Employment The Company hereby agrees to continue to employ the Executive and the Executive hereby accepts continued employment, in accordance with the terms and conditions set forth herein, for a term (the "Employment Term") commencing on the date hereof (the "Effective Date") and terminating, unless otherwise terminated earlier in accordance with Section 5 hereof, on the third anniversary of the Effective Date (the "Original Employment Term"), provided that the Employment Term shall be automatically extended, subject to earlier termination as provided in Section 5 hereof, for successive additional one (1) year periods (the "Additional Terms"), unless, at least ninety (90) days prior to the end of the Original Employment Term or the then Additional Term, the Company or the Executive has notified the other in writing that the Employment Term shall terminate at the end of the then current term. 2. Position and Responsibilities During the Employment Term, the Executive shall serve as the Executive Vice President and Chief Financial Officer of the Company or in such higher capacity as agreed by the Company and the Executive. The Executive shall report exclusively to the Chief Executive Officer and the Board of Directors of the Company (the "Board"). The Executive shall, to the extent appointed or elected, serve on the Board as a director and as a member of any committee of the Board, in each case, without additional compensation. The Executive shall, to the extent appointed or elected, serve as a director or as a member of any committee of the board (or the equivalent bodies in a non-corporate subsidiary or affiliate) of any of the Company's subsidiaries or affiliates and as an officer or employee (in a capacity commensurate with his position with the Company) of any such subsidiaries or affiliates, in all cases, without additional compensation or benefits and any compensation paid to the Executive, or benefits provided to the Executive, in such capacities shall be a credit with regard to the amounts due hereunder from the Company. The Executive shall have duties, authorities and responsibilities generally commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies subject to the By-laws of the Company and the organizational structure of the Company. The Executive shall devote substantially all of his business time, attention and energies to the performance of his duties hereunder, provided the foregoing will not prevent the Executive from participating in charitable, community or industry affairs, from managing his and his family's personal passive investments, and (with the consent of the Chief Executive Officer or the Organization and Compensation Committee (or its successor) of the Board (the "O&C Committee"), which consent will not be unreasonably withheld, conditioned or delayed) serving on the board of directors of other companies, provided that these activities do not materially interfere with the performance of his duties hereunder or create a potential business conflict or the appearance thereof. The Company has consented to the Executive's services on the boards of directors, if any, on which the Executive currently serves, which boards the Executive has disclosed in writing to the O&C Committee. The Executive may retain any compensation or benefits received as a result of consented to service as a director of entities not related to the Company. 3. Compensation and Benefits During the Employment Term, the Company shall pay and provide the Executive the following: 3.1 Base Salary. The Company shall pay the Executive a base salary (the "Base Salary") in an amount which shall be established from time to time by the O&C Committee (or as otherwise designated by the Board), provided, however, that such base salary rate shall not be less than his current rate of base salary. Base Salary shall be paid to the Executive in accordance with the Company's normal payroll practices for executives. Base Salary shall be reviewed at least annually to ascertain whether, in the judgment of the reviewing committee, such Base Salary should be increased. If so increased, Base Salary shall not be thereafter decreased and shall thereafter, as increased, be the Base Salary hereunder. 3.2 Annual Bonus. The Company shall provide the Executive with the opportunity to earn an annual cash bonus under the Company's current annual incentive compensation plan for executives or a replacement plan therefor at a level commensurate with his position, provided that the minimum annual target award payable upon the achievement of reasonably attainable objective performance goals shall be at least fifty-five percent (55%) of Base Salary. 3.3 Long-Term Incentives. The Company shall provide the Executive the opportunity to earn long-term incentive awards under the current equity and cash based plans and programs or replacements therefor at a level commensurate with the current aggregate opportunity being provided to the Executive. 3.4 Employee Benefits. The Executive shall, to the extent eligible, be entitled to participate at a level commensurate with his position in all employee benefit welfare and retirement plans and programs, as well as equity plans, generally provided by the Company to its senior executives in accordance with the terms thereof as in effect from time to time. Such plans and programs currently include, without limitation, the Amended and Restated Supplemental Retirement Plan for Textron Inc. Key Executives (the "SERP"), the 1994 Long-Term Incentive Plan, the Key Executive Program (including the Deferred Income Plan, the Supplemental Benefits Plan (the "SBP") and the Survivor Benefit Plan), group term life insurance plan, comprehensive health, major medical, vision and dental insurance plans and short-term and long-term disability plans. 3.5 Vacation. The Executive shall be entitled to paid vacation in accordance with the standard written policies of the Company with regard to vacations of executives, but in no event less than four (4) weeks per calendar year. 3.6 Perquisites. The Company shall provide to the Executive, at the Company's cost, all perquisites to which other senior executives of the Company are generally entitled to receive and such other perquisites which are suitable to the character of the Executive's position with the Company and adequate for the performance of his duties hereunder but not less than the level being provided on the date hereof except as otherwise required because of changes in law. To the extent legally permissible, the Company shall not treat such amounts as income to the Executive. 3.7 Right to Change Plans. The Company shall not be obligated by reason of this Section 3 to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, program, or perquisite, so long as such changes are similarly applicable to executive employees generally and provided that the benefits or additional credit specifically as set forth in Section 3.8 below shall not be diminished. 3.8 Existing Awards. The Company acknowledges that the Executive currently is entitled to, among other things, the special grants set forth in Exhibit A hereto, as modified on Exhibit A. 4. Expenses Upon submission of appropriate documentation, in accordance with its policies in effect from time to time, the Company shall pay, or reimburse, the Executive for all ordinary and necessary expenses, in a reasonable amount, which the Executive incurs in performing his duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies in which the Executive participates in accordance with the Company's policies in effect from time to time. 5. Termination of Employment The Executive's employment with the Company (including but not limited to any subsidiary or affiliate or the Company) and the Employment Term shall terminate upon the occurrence of the first of the following events: (a) Automatically on the date of the Executive's death. (b) Upon thirty (30) days written notice by the Company to the Executive of a termination due to Disability, provided such notice is delivered during the period of Disability. The term "Disability" shall mean, for purposes of this Agreement, the inability of the Executive, due to injury, illness, disease or bodily or mental infirmity, to engage in the performance of his material duties of employment with the Company as contemplated by Section 2 herein for a period of more than one hundred eighty (180) consecutive days or for a period that is reasonably expected to exist for a period of more than one hundred eighty (180) consecutive days, provided that interim returns to work of less than ten (10) consecutive business days in duration shall not be deemed to interfere with a determination of consecutive absent days if the reason for absence before and after the interim return are the same. The existence or non-existence of a Disability shall be determined by a physician agreed upon in good faith by the Executive (or his representatives) and the Company. It is expressly understood that the Disability of the Executive for a period of one hundred eighty (180) consecutive days or less shall not constitute a failure by him to perform his duties hereunder and shall not be deemed a breach or default and the Executive shall receive full compensation for any such period of Disability or for any other temporary illness or incapacity during the term of this Agreement. (c) Immediately upon written notice by the Company to the Executive of a termination due to his retirement at or after the Executive's attainment of age sixty-five (65). (d) Immediately upon written notice by the Company to the Executive of a termination for Cause, provided such notice is given within ninety (90) days after the discovery by the Board or the Chief Executive Officer of the Cause event and has been approved by the O&C Committee at a meeting at which the Executive and his counsel had the right to appear and address such meeting after receiving at least five (5) business days written notice of the meeting and reasonable detail of the facts and circumstances claimed to provide a basis for such termination. The term "Cause" shall mean, for purposes of this Agreement: (i) an act or acts of willful misrepresentation, fraud or willful dishonesty (other than good faith expense account disputes) by the Executive which in any case is intended to result in his or another person or entity's substantial personal enrichment at the expense of the Company; (ii) any willful misconduct by the Executive with regard to the Company, its business, assets or employees that has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iii) any material, willful and knowing violation by the Executive of (x) the Company's Business Conduct Guidelines, or (y) any of his fiduciary duties to the Company which in either case has, or was intended to have, a material adverse impact (economic or otherwise) on the Company; (iv) the willful or reckless behavior of the Executive with regard to a matter of a material nature which has a material adverse impact (economic or otherwise) on the Company; (v) the Executive's willful failure to attempt to perform his duties under Section 2 hereof or his willful failure to attempt to follow the legal written direction of the Board, which in either case is not remedied within ten (10) days after receipt by the Executive of a written notice from the Company specifying the details thereof; (vi) the Executive's conviction of, or pleading nolo contendere or guilty to, a felony (other than (x) a traffic infraction or (y) vicarious liability solely as a result of his position provided the Executive did not have actual knowledge of the actions or inactions creating the violation of the law or the Executive relied in good faith on the advice of counsel with regard to the legality of such action or inaction (or the advice of other specifically qualified professionals as to the appropriate or proper action or inaction to take with regard to matters which are not matters of legal interpretation)); or (vii) any other material breach by the Executive of this Agreement that is not cured by the Executive within twenty (20) days after receipt by the Executive of a written notice from the Company of such breach specifying the details thereof. No action or inaction should be deemed willful if not demonstrably willful and if taken or not taken by the Executive in good faith as not being adverse to the best interests of the Company. Reference in this paragraph (d) to the Company shall also include direct and indirect subsidiaries of the Company, and materiality and material adverse impact shall be measured based on the action or inaction and the impact upon, and not the size of, the Company taken as a whole, provided that after a Change in Control, the size of the Company, taken as a whole, shall be a relevant factor in determining materiality and material adverse impact. (e) Upon written notice by the Company to the Executive of an involuntary termination without Cause. A notice by the Company of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed an involuntary termination of the Executive by the Company without Cause as of the end of the Employment Term, but the Executive may terminate at any time after the receipt of such notice and shall be treated as if he was terminated without Cause as of such date. (f) Upon twenty (20) days written notice by the Executive to the Company of a termination for Good Reason (which notice sets forth in reasonable detail the facts and circumstances claimed to provide a basis for such termination) unless the Good Reason event is cured within such twenty (20) day period. The term "Good Reason" shall mean, for purposes of this Agreement, without the Executive's express written consent, the occurrence of any one or more of the following: (i) the assignment to the Executive of duties materially inconsistent with the Executive's then authorities, duties, responsibilities, and status (including offices, titles, and reporting requirements), or any reduction in the Executive's then title, position, reporting lines or a material reduction (other than temporarily while Disabled or otherwise incapacitated) in his then status, authorities, duties, or responsibilities or, if then a director of the Company, failure to be nominated or reelected as a director of the Company or removal as such; (ii) relocation of the Executive from the principal office of the Company (excluding reasonable travel on the Company's business to an extent substantially consistent with the Executive's business obligations) or relocation of the principal office of the Company to a location which is at least fifty (50) miles from the Company's current headquarters, provided, however, if the Executive at the time of the relocation is not located at the principal office, such relocation provision shall apply based on his then location; (iii) a reduction by the Company in the Executive's Base Salary; (iv) a reduction in the Executive's aggregate level of participation in any of the Company's short and/or long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or arrangements in which the Executive participated as of the Effective Date, or, after a Change in Control, participated immediately prior to the Change in Control; (v) the failure of the Company to obtain and deliver to the Executive a satisfactory written agreement from any successor to the Company to assume and agree to perform this Agreement; or (vi) any other material breach by the Company of this Agreement. (g) Upon written notice by the Executive to the Company of the Executive's voluntary termination of employment without Good Reason (which the Company may, in its sole discretion, make effective earlier than any notice date). A notice by the Executive of non-renewal of the Employment Term pursuant to Section 1 above shall be deemed a voluntary termination by the Executive without Good Reason as of the end of the Employment Term. 6. Consequences of a Termination of Employment 6.1 Termination Due to Death or Retirement. If the Employment Term ends on account of the Executive's termination due to death pursuant to Section 5(a) above or retirement pursuant to Section 5(c) above, the Executive (or the Executive's surviving spouse, or other beneficiary as so designated by the Executive during his lifetime, or to the Executive's estate, as appropriate) shall be entitled, in lieu of any other payments or benefits, to (i) payment promptly of any unpaid Base Salary, unpaid annual incentive compensation (for the preceding fiscal year) and any accrued vacation, (ii) reimbursement for any unreimbursed business expenses incurred prior to the date of termination, and (iii) any amounts, benefits or fringes due under any equity, benefit or fringe plan, grant or program in accordance with the terms of said plan, grant or program but without duplication (collectively, the "Accrued Obligations"). 6.2 Termination Due To Disability. If the Employment Term ends as a result of Disability pursuant to Section 5(b) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment, during January of the calendar year following the date of the Executive's termination, of an amount equal to three hundred percent (300%) of the Executive's target annual incentive compensation award established for the fiscal year during which the Executive's termination occurs (the "Termination Year Target Bonus"). (b) Continued monthly payment for two and one half (2 1/2) years of an amount equal to the Executive's monthly Base Salary rate reduced by any disability benefits received by the Executive under the Company's long term disability plan for the corresponding period. (c) Payments and benefits as set forth in Section 6.3(c)- (j) hereof. (d) The Executive shall be deemed to have satisfied the definition of "total disability" under the 1994 Long- Term Incentive Plan or the equivalent definition under any successor plan thereto. (e) As provided in Exhibit A hereto. 6.3 Involuntary Termination by the Company Without Cause or Termination by the Executive for Good Reason. If the Executive is involuntarily terminated by the Company without Cause in accordance with Section 5(e) above or the Executive terminates his employment for Good Reason in accordance with Section 5(f) above, the Executive shall be entitled, in lieu of any other payments or benefits, subject to Section 7(b) hereof, to any Accrued Obligations and the following: (a) Payment, during January of the calendar year following the date of the Executive's termination, of an amount equal to the Executive's Termination Year Target Bonus multiplied by a fraction, the numerator of which is the number of days during the fiscal year of the Executive's termination that the Executive was employed by the Company and the denominator is three hundred sixty-five (365), provided that in no event shall such payment exceed fifty percent (50%) of the Termination Year Target Bonus. (b) Continued payment off payroll for two and one-half (2 1/2) years (in approximately equal monthly installments) of an amount equal to two and one-half (2 1/2) times the sum of: (i) the Executive's Base Salary, and (ii) the greater of: (x) the Termination Year Target Bonus, or (y) the Executive's highest annual incentive compensation award earned during the last three (3) fiscal years ending prior to the fiscal year of termination (whether or not deferred). (c) To the extent eligible at such time or, if the Executive would be eligible with credit for an additional two and one half (2 1/2) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and his dependents (including, if he is only eligible because of the extra age and service credit, an adjustment, to the extent necessary, to put the Executive in the same after-tax position as if he had been eligible for such coverage) and, if not eligible for continued health coverage under the retiree health plan, payment of the Executive's and Executive's eligible dependents' COBRA continuation health coverage premiums for the Company's health insurance plan that generally applies to senior executives for the two and one-half (2 1/2) year period following the date of termination or, if earlier, until the Executive and Executive's dependents cease to be eligible for such coverage, provided that, if COBRA coverage cannot be provided for the full period, any excess period shall be covered under (d) below (and further provided that, if such premiums are taxable to the Executive, an adjustment such that the Executive has no after tax cost for the providing of such COBRA coverage). (d) To the extent eligible on the date of termination, continued participation, at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans (other than medical plans covered under (c) above), until two and one-half (2 1/2) years after the date of termination; provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such benefits under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to the Executive than the Executive would have had if the benefits were provided to the Executive as an employee. (e) Two and one-half (2 1/2) additional years of service and compensation credit (at the Executive's then compensation level) for benefit purposes under any defined benefit type retirement plan, including but not limited to the SERP and the SBP if then in effect, and, if the Executive is not eligible to receive benefits under any such plan on the date of termination, two and one-half (2 1/2) additional years of age for determining eligibility to receive such benefits, provided that benefits under any such plan will not commence until the Executive actually attains the required distribution age under the plan or the Executive's spouse qualifies for death benefits under such plan and further provided that with regard to any plan qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") the additional amounts may be provided on a nonqualified plan basis. (f) Payment promptly after termination of two and one-half (2 1/2) times the amount of the maximum Company annual contribution or match to any defined contribution type plan in which the Executive participates. (g) Immediate full vesting of any outstanding stock options that would vest within two and one half (2 1/2) years after such termination of employment as if the Executive had continued employment for such two and one half (2 1/2) year period, to the extent permitted under the plan or grant, or if such vesting is not permitted, a cash payment equal to the difference between the fair market value of the shares covered by the unvested options and the exercise price of such unvested options (the "Spread") on the date of termination, and, in both cases, to the extent such options are exercisable for less than two and three quarters (2-3/4) years after termination (or, if less, the remainder of the respective terms), a cash payment equal to the Black- Scholes (based on the same methodology used for the Company's then latest distributed proxy statement or, if not so used, for internal valuation of the last stock option grants made by the Company prior to the termination) future value of such options for the lesser of two and three quarters (2-3/4) years or the remainder of such terms (any such payments shall be made promptly after such termination). The terms of the Executive's outstanding options are deemed to be modified to the extent required by this Section 6.3 (g). (h) Payment when it would otherwise be paid in accordance with the 1994 Long-Term Incentive Plan of any amount due with regard to performance share units outstanding on the date of termination to the extent permitted under such plan, plus, outside of such plan, when it would otherwise have been paid, an amount equal to the amount the Executive would have received with regard to any performance share units outstanding at the time of termination that could not be so paid. For purposes of calculating the foregoing amounts, all discretionary performance targets relating to the Executive's individual performance will be deemed to be fully achieved and the actual level of achievement of all financial performance targets will be determined as if the Executive continued to be employed through the end of the applicable measuring period. (i) Immediate full vesting of the Executive's accounts under the Deferred Income Plan, and to the extent not permitted under such plan, a cash payment outside of the plan equal to the value of the amount that would have vested under the plan. (j) Continuation of participation for two and one-half (2 1/2) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the termination. (k) As provided in Exhibit A hereto. 6.4 Termination by the Company for Cause or Termination by the Executive without Good Reason. If the Executive is terminated by the Company for Cause or the Executive terminates his employment without Good Reason, the Executive shall be entitled to receive all Accrued Obligations. 7. No Mitigation/No Offset/Release (a) In the event of any termination of employment hereunder, the Executive shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment that the Executive may obtain. The amounts payable hereunder shall not be subject to setoff, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others, except as specifically set forth in Section 9 hereof or upon obtaining by the Company of a final unappealable judgement against the Executive. (b) Any amounts payable and benefits or additional rights provided pursuant to Section 6.2 (other than Section 6.2(e)), Section 6.3 (other than Section 6.3(k)) and Section 8.1 (other than Section 8.1(m)) beyond Accrued Obligations and amounts or rights due under law, and, in the case of Section 6.3 and Section 8.1, beyond the sum of any amounts due (without execution of a release) under the Company severance program then in effect, or, if greater, three (3) months Base Salary as severance, shall only be payable if the Executive delivers to the Company a release of all claims of the Executive (other than those specifically payable or providable hereunder on or upon the applicable type of termination and any rights of indemnification under the Company's organizational documents) with regard to the Company, its subsidiaries and related entities and their respective past or present officers, directors and employees in such form as reasonably requested by the Company. (c) Upon any termination of employment, upon the request of the Company, the Executive shall deliver to the Company a resignation from all offices and directorships and fiduciary positions of the Executive in which the Executive is serving with, or at the request of, the Company or its subsidiaries, affiliates or benefit plans. (d) The amounts and benefits provided under Sections 6 and 8 hereof are intended to be inclusive and not duplicative of the amounts and benefits due under the Company's employee benefit plans and programs to the extent they are duplicative. 8. Change in Control 8.1 Employment Termination in Connection with a Change in Control. In the event of a Qualifying Termination (as defined below) during the period commencing one-hundred eighty (180) days prior to the effective date of a Change in Control and terminating on the second anniversary of the effective date of a Change in Control (the "Change in Control Protection Period"), then in lieu of the benefits provided to the Executive under Section 6.3 of this Agreement, the Company shall pay the Executive the following amounts within (except as otherwise provided) thirty (30) business days of the Qualifying Termination (or, if later, the effective date of the Change in Control; in which case any amounts or benefits previously paid pursuant to Section 6 shall be setoff against those under this Section 8) and provide the following benefits: (a) Any Accrued Obligations. (b) A lump-sum cash payment equal to three (3) times the highest rate of the Executive's Base Salary rate in effect at any time up to and including the date of the Executive's termination. (c) A lump-sum cash payment equal to the Prorated Portion (as determined in the next sentence) of the greater of: (i) the Executive's Termination Year Target Bonus or (ii) the Executive's earned annual incentive award for the fiscal year prior to the fiscal year in which the earlier of the Change in Control or the Qualifying Termination occurs (whether or not deferred). The "Prorated Portion" of the foregoing amount shall be determined by multiplying such amount by a fraction, the numerator of which is the number of days during the fiscal year of termination that the Executive is employed by the Company, and the denominator of which is, three hundred sixty-five (365). (d) A lump-sum cash payment equal to three (3) times the greater of: (i) the Executive's highest annual incentive compensation earned over the three (3) fiscal years ending prior to the earlier of the Change in Control or the Qualifying Termination (whether or not deferred); or (ii) the Executive's target incentive compensation established for the fiscal year in which the Executive's date of termination occurs. (e) To the extent the Executive is eligible, was eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination) or if the Executive would be eligible with credit for an additional three (3) years of age and service credit, coverage under all applicable retiree health and other retiree welfare plans for the Executive and the Executive's eligible dependents (including an adjustment to the extent necessary to put the Executive on the same after tax basis as if the Executive had been eligible for such coverage). (f) To the extent eligible prior or after the Change in Control (or, if earlier, the Qualifying Termination), continued participation, (coordinated with (e) above to the extent duplicative), at no additional after tax cost to the Executive than the Executive would have as an employee, in all welfare plans, until three (3) years after the date of termination, provided, however, that in the event the Executive obtains other employment that offers substantially similar or improved benefits, as to any particular welfare plan, such continuation of coverage by the Company for such similar or improved benefit under such plan shall immediately cease. To the extent such coverage cannot be provided under the Company's welfare benefit plans without jeopardizing the tax status of such plans, for underwriting reasons or because of the tax impact on the Executive, the Company shall pay the Executive an amount such that the Executive can purchase such benefits separately at no greater after tax cost to him than he would have had if the benefits were provided to him as an employee. (g) A lump-sum cash payment of the actuarial present value equivalent (as determined in accordance with the most favorable (to the Executive) overall actuarial assumptions and subsidies in any of the Company's tax- qualified or nonqualified type defined benefit pension plans in which the Executive then participates) of the accrued benefits accrued by the Executive as of the date of termination under the terms of any nonqualified defined benefit type retirement plan, including but not limited to, the SERP and the SBP and assuming the benefit was fully vested without regard to any minimum age or service requirements. For this purpose, such benefits shall be calculated under the assumption that the Executive's employment continued following the date of termination for three (3) full years (i.e., three (3) additional years of age (including, but not limited to, for purposes of determining the actuarial present value), compensation and service credits shall be added). (h) Three (3) times the amount of the maximum Company contribution or match to any defined contribution type plan in which the Executive participates. (i) A lump-sum cash payment of the product of (i) the Interest Factor (as determined in the next sentence) multiplied by (ii) the Executive's entire account balance under the Deferred Income Plan (or any replacement therefor), plus an additional amount equal to three (3) times the match which the Company made for the Executive to such plan for the fiscal year ending immediately prior to the earlier of the Change in Control or the Qualifying Termination. The "Interest Factor" shall be equal to one (1) plus three (3) times the rate of earnings of the Executive's account under such plan for the fiscal year ending immediately prior to his termination. (j) Immediate full vesting of any outstanding stock options, performance share units and other equity awards (and lapse of any forfeiture provisions) to the extent permitted under the plan or grant, or if full vesting is not permitted with regard to stock options, a cash payment equal to the Spread on such unvested options on the date of termination (or, if later, the date of the Change in Control) plus, in both cases, if options are exercisable for less than three (3) years after termination (or, if less, the remainder of the respective terms, including any termination of exercisability of all Company stock options in connection with the Change in Control or a merger related thereto), a cash payment equal to the Black- Scholes (based on the same methodology used for the Company's then latest distributed proxy statement or, if not so used, for internal valuation of the last stock option grants made by the Company prior to the earlier of the Qualifying Termination or the Change in Control) future value of such outstanding options for the lesser of three (3) years or the remainder of such terms. (k) Outplacement services at a level commensurate with the Executive's position, including use of an executive office and secretary, for a period of one (1) year commencing on the date of termination but in no event extending beyond the date on which the Executive commences other full time employment. (l) Continuation of participation for three (3) additional years in the Company's programs with regard to tax preparation assistance and financial planning assistance, club dues and automobile (but based on the automobile then being used and no new one), in accordance with the Company's programs in effect at the time of the Change in Control. (m) As provided in Exhibit A hereto. For purposes of this Section 8, a Qualifying Termination shall mean any termination of the Executive's employment (i) by the Company without Cause, or (ii) by the Executive for Good Reason. 8.2 Definition of "Change in Control." A Change in Control of the Company shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied: (a) Any "person" or "group" (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than the Company, any trustee or other fiduciary holding Company common stock under an employee benefit plan of the Company or a related company, or any corporation which is owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the Company's common stock, is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than thirty percent (30%) of the then outstanding voting stock; (b) During any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (c) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (d) The approval of the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of its assets. 8.3 Excise Tax Equalization Payment. In the event that the Executive becomes entitled to payments and/or benefits which would constitute "parachute payments" within the meaning of Section 280G(b)(2) of the Code, the provisions of Exhibit B will apply. 9. Noncompetition, Confidentiality and Nondisparagement 9.1 Agreement Not to Compete. (a) The Executive agrees that for a period of two (2) years after the termination of the Executive's employment, the Executive will not engage in Competition with the Company with the Listed Companies, provided that after the Executive's termination of employment the Listed Companies shall be limited to those effectively listed at the time of his termination and still on such list at the time of any alleged activity of the Executive, including, but not limited to, (i) soliciting customers, business or orders for, or selling any products and services in, Competition with the Company for such Listed Companies or (ii) diverting, enticing, or otherwise taking away customers, business or orders of the Company, or attempting to do so, in either case in Competition with the Company for such Listed Companies. (b) The Executive agrees that if, while he is receiving severance pay from the Company pursuant to Section 6.2(b) or Section 6.3(b), the Executive: (i) violates (a) above, or (ii) otherwise engages in Competition in the Restricted Territory, whether or not with the Listed Companies, Section 9.6(b) hereof shall apply. (c) The Executive agrees that the restrictions contained in this Section 9 are necessary for the protection of the business and goodwill of the Company because of the trade secrets within the Executive's knowledge and are considered by the Executive to be reasonable for such purpose. 9.2 Definitions. (a) "Competition" shall mean engaging in, as an employee, director, partner, principal, shareholder, consultant, advisor, independent contractor or similar capacity, with (a) the Listed Companies or (b) in any business, activity or conduct which directly competes with the business of the Company, provided that, with regard to the period after termination of the Executive's employment, Section 9.1(b)(ii) shall only apply to business lines in which the Company is engaged both at the time of termination of employment and at the time of the determination and which during the last fiscal year ending prior to the date of such termination repre sented at least five percent (5%) of the Company's revenues (the "Prohibited Lines"). Notwithstanding anything else in this Section 9, Competition shall not include: (A) (i) holding five percent (5%) or less of an interest in the equity or debt of any publicly traded company, (ii) engaging in any activity with the prior written approval of the Chief Executive Officer or the O&C Committee, (iii) the practice of law in a law firm that represents entities in Competition with the Company, provided that the Executive does not personally represent such entities, or (iv) the employment by, or provision of services to, an investment banking firm or consulting firm that provides services to entities that are in Competition with the Company provided that the Executive does not personally represent or provide services to such entities that are Listed Companies or otherwise with regard to businesses in Competition with the Prohibited Lines, or (B) with regard to Section 9.1(b)(ii), (i) being employed by, or consulting for, a non-Competitive division or business unit of an entity which is in Competition with the Company (and participating in such entity's employee equity plans), (ii) being employed by, or consulting for, an entity which had annual revenues in the last fiscal year prior to the Executive being employed by, or consulting for, the entity generated through business lines in Competition with the Prohibited Lines of the Company that do not exceed five percent (5%) of such entity's total annual revenues, provided that revenues within the Executive's area of responsibility or authority are not more than ten percent (10%) composed of the revenues from the businesses in Competition with the Prohibited Lines, or (iii) any activities conducted after a Change in Control of the Company. (b) The Restricted Territory shall mean any geographic area in which the Company with regard to the Prohibited Lines did more than nominal business. (c) Listed Companies shall mean those entities which are within the "peer group" established by the Company for the performance graphs in its proxy statement pursuant to Item 402(l) of Regulation S-K under the Exchange Act and which are in a list of no more than five (5) entities established by the Company from time to time and available from the Chief Human Resources Officer, provided that the addition of any entity to the list shall not be effective until sixty (60) days after it is so listed. (d) For purposes of this Section 9, "Company" shall mean the Company and its subsidiaries and affiliates. 9.3 Agreement Not to Engage in Certain Solicitation. The Executive agrees that the Executive will not, during the Executive's employment with the Company or during the two (2) year period thereafter, directly or indirectly, solicit or induce, or attempt to solicit or induce, any non-clerical employee(s), sales representative(s), agent(s), or consultant(s) of the Company to terminate such person's employment, representation or other association with the Company for the purpose of affiliating with any entity with which the Executive is associated ("Solicitation"). 9.4 Confidential Information. (a) The Executive specifically acknowledges that any trade secrets or confidential business and technical information of the Company or its vendors, suppliers or customers, whether reduced to writing, maintained on any form of electronic media, or maintained in mind or memory and whether compiled by the Executive or the Company (collectively, "Confidential Information"), derives independent economic value from not being readily known to or ascertainable by proper means by others; that reasonable efforts have been made by the Company to maintain the secrecy of such information; that such information is the sole property of the Company or its vendors, suppliers, or customers and that any retention, use or disclosure of such information by the Executive during the Employment Term (except in the course of performing duties and obligations of employment with the Company) or any time after termination thereof, shall constitute misappropriation of the trade secrets of the Company or its vendors, suppliers, or customers, provided that Confidential Information shall not include: (i) information that is at the time of disclosure public knowledge or generally known within the industry, (ii) information deemed in good faith by the Executive, while employed by the Company, desirable to disclose in the course of performing the Executive's duties, (iii) information the disclosure of which the Executive in good faith deems necessary in defense of the Executive's rights provided such disclosure by the Executive is limited to only disclose as necessary for such purpose, or (iv) information disclosed by the Executive to comply with a court, or other lawful compulsory, order compelling him to do so, provided the Executive gives the Company prompt notice of the receipt of such order and the disclosure by the Executive is limited to only disclosure necessary for such purpose. (b) The Executive acknowledges that the Company from time to time may have agreements with other persons or with the United States Government, or agencies thereof, that impose obligations or restrictions on the Company regarding inventions made during the course of work under such agreements or regarding the confidential nature of such work. If the Executive's duties hereunder will require disclosures to be made to him subject to such obligations and restrictions, the Executive agrees to be bound by them. 9.5 Scope of Restrictions. If, at the time of enforcement of this Section 9, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. 9.6 Remedies. (a) In the event of a material breach or threatened material breach of Section 9.1(a), Section 9.3, Section 9.4 or Section 9.10, the Company, in addition to its other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of the provisions of this Section 9. Except as specifically provided with regard to Listed Companies, the Company agrees that it will not assert to enjoin or otherwise limit the Executive's activities based on an argument of inevitable disclosure of confidential information. (b) In the event Section 9.1(b) applies, the Company may immediately cease payment to the Executive of all future amounts due under Sections 6.2(a) or (b) or Sections 6.3(a) or (b), as well as otherwise specifically provided in any other plan, grant or program. (c) Upon written request of the Executive, the Company shall within thirty (30) days notify the Executive in writing whether or not in good faith it believes any proposed activities would be in Competition and, if it so determines or does not reply within thirty (30) days, it shall be deemed to waive any right to treat such activities as Competition unless the facts are otherwise than as presented by the Executive or there is a change thereafter in such activities. The Executive shall promptly provide the Company with such information as it may reasonably request to evaluate whether or not such activities are in Competition. 9.7 Uniformity. In no event shall any definitions of Competition or Solicitation (or a similar provision) as it applies to the Executive with regard to any plan of program or grant of the Company be interpreted to be any broader than as set forth in this Section 9. 9.8 Delivery of Documents. Upon termination of this Agreement or at any other time upon request by the Company, the Executive shall promptly deliver to the Company all records, files, memoranda, notes, designs, data, reports, price lists, customer lists, drawings, plans, computer programs, software, software documentation, sketches, laboratory and research notebooks and other documents (and all copies or reproductions of such materials in his possession or control) belonging to the Company. Notwithstanding the foregoing, the Executive may retain his rolodex and similar phone directories (collectively, the "Rolodex") to the extent the Rolodex does not contain information other than name, address, telephone number and similar information, provided that, at the request of the Company, the Executive shall provide the Company with a copy of the Rolodex. 9.9 Nondisparagement. (a) During the Employment Term and thereafter, the Executive shall not with willful intent to damage economically or as to reputation or vindictively disparage the Company, its subsidiaries or their respective past or present officers, directors or employees (the "Protected Group"), provided that the foregoing shall not apply to (i) actions or statements taken or made by the Executive while employed by the Company in good faith as fulfilling the Executive's duties with the Company or otherwise at the request of the Company, (ii) truthful statements made in compliance with legal process or governmental inquiry, (iii) as the Executive in good faith deems necessary to rebut any untrue or misleading public statements made about him or any other member of the Protected Group, (iv) statements made in good faith by the Executive to rebut untrue or misleading statements made about him or any other member of the Protected Group by any member of the Protected Group, and (v) normal commercial puffery in a competitive business situation. No member of the Protected Group shall be a third party beneficiary of this Section 9.9(a). (b) During the Employment Term and thereafter, neither the Company officially nor any then member of the Executive Leadership Team (or the equivalent) of the Company, as such term is currently used within the Company, shall with willful intent to damage the Executive economically or as to reputation or otherwise vindictively disparage the Executive, provided the foregoing shall not apply to (i) actions or statements taken or made in good faith within the Company in fulfilling duties with the Company, (ii) truthful statements made in compliance with legal process, governmental inquiry or as required by legal filing or disclosure requirements, (iii) as in good faith deemed necessary to rebut any untrue or misleading statements by the Executive as to any member of the Protected Group or (iv) normal commercial puffery in a competitive business situation. (c) In the event of a material breach or threatened material breach of clauses (a) or (b) above, the Company or the Executive, as the case may be, in addition to its or the Executive's other remedies at law or in equity, shall be entitled to injunctive or other equitable relief in order to enforce or prevent any violations of this Section 9.9. 9.10 Pooling of Interests. If the Company is involved in any proposed business combination that is contemplated to be accounted for as a pooling of interests, the Executive agrees to cooperate with the reasonable requests of the Company with regard to the exercise of stock options, the sale of Company stock or other matters that could affect the ability of the combination to be accounted for as a pooling of interests. 10 Liability Insurance The Company shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists, after the Employment Term in the same amount and to the same extent, if any, as the Company covers its other officers and directors. 11 Assignment 11.1 Assignment by the Company. This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes of the "Company" under the terms of this Agreement. As used in this Agreement, the term "successor" shall mean any person, firm, corporation or business entity which at any time, whether by merger, purchase, or otherwise, acquires all or substantially all of the assets of the Company. Notwithstanding such assignment, the Company shall remain, with such successor, jointly and severally liable for all its obligations hereunder. Except as herein provided, this Agreement may not otherwise be assigned by the Company. 11.2 Assignment by the Executive. This Agreement is not assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amounts payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, in the absence of such designee, to the Executive's estate. 12 Legal Remedies 12.1 Payment of Legal Fees. The Company shall pay the Executive's reasonable legal fees and costs associated with entering into this Agreement. To the fullest extent permitted by law, the Company shall promptly pay upon submission of statements all legal and other professional fees, costs of litigation, prejudgment interest, and other expenses incurred in connection with any dispute arising hereunder; provided, however, the Company shall be reimbursed by the Executive for (i) the fees and expenses advanced in the event the Executive's claim is in a material manner in bad faith or frivolous and the arbitrator or court, as applicable, determines that the reimbursement of such fees and expenses is appropriate, or (ii) to the extent that the arbitrator or court, as appropriate, determines that such legal and other professional fees are clearly and demonstrably unreasonable. 12.2 Arbitration. All disputes and controversies arising under or in connection with this Agreement, other than the seeking of injunctive or other equitable relief pursuant to Section 9 hereof, shall be settled by arbitration conducted before a panel of three (3) arbitrators sitting in New York City, New York, or such other location agreed by the parties hereto, in accordance with the rules for expedited resolution of commercial disputes of the American Arbitration Association then in effect. The determination of the majority of the arbitrators shall be final and binding on the parties. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel of the Executive, shall be borne by the Company and the Executive shall be entitled to reimbursement of his expenses as provided in Section 12.1 hereof. 12.3 Notice. Any notices, requests, demands, or other communications provided for by this Agreement shall be sufficient if in writing and if delivered personally, sent by telecopier, sent by an overnight service or sent by registered or certified mail. Notice to the Executive not delivered personally (or by telecopy where the Executive is known to be) shall be sent to the last address on the books of the Company, and notice to the Company not delivered personally (or by telecopy to the known personal telecopy of the person it is being sent to) shall be sent to it at its principal office. All notices to the Company shall be delivered to the Chief Executive Officer with a copy to the senior legal officer. Delivery shall be deemed to occur on the earlier of actual receipt or tender and rejection by the intended recipient. 12.4 Continued Payments. In the event after a Change in Control either party files for arbitration to resolve any dispute as to whether a termination is for Cause or Good Reason, until such dispute is determined by the arbitrators, the Executive shall continue to be treated economically and benefit wise in the manner asserted by him in the arbitration effective as of the date of the filing of the arbitration, subject to the Executive promptly refunding any amounts paid to him, paying the cost of any benefits provided to him and paying to the Company the profits in any stock option or other equity awards exercised or otherwise realized by him during the pendency of the arbitration which he is ultimately held not to be entitled to; provided the arbitrators may terminate such payments and benefits in the event that they determine at any point that the Executive is intentionally delaying conclusion of the arbitration. 13 Miscellaneous 13.1 Entire Agreement. This Agreement, except to the extent specifically provided otherwise herein, supersedes any prior agreements or understandings, oral or written, between the parties hereto or between the Executive and the Company, with respect to the subject matter hereof and constitutes the entire Agreement of the parties with respect to the subject matter hereof. To the extent any severance plan or program of the Company that would apply to the Executive is more generous to the Executive than the provisions hereof, the Executive shall be entitled to any additional payments or benefits which are not duplicative, but shall otherwise not be eligible for such plan or program. 13.2 Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended, nor any provision hereof waived, except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives. 13.3 Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 13.4 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 13.5 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 13.6 Beneficiaries. The Executive may designate one or more persons or entities as the primary and/or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Board or the Board's designee. The Executive may make or change such designation at any time. 13.7 Representation. The Executive represents that the Executive's employment by the Company and the performance by the Executive of his obligations under this Agreement do not, and shall not, breach any agreement that obligates him to keep in confidence any trade secrets or confidential or proprietary information of his or of any other party, to write or consult to any other party or to refrain from competing, directly or indirectly, with the business of any other party. The Executive shall not disclose to the Company, and the Company shall not request that the Executive disclose, any trade secrets or confidential or proprietary information of any other party. 14 Governing Law The provisions of this Agreement shall be construed and enforced in accordance with the laws of the state of Delaware, without regard to any otherwise applicable principles of conflicts of laws. IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement, as of the day and year first above written. /s/Stephen L. Key Stephen L. Key TEXTRON INC. By:/s/John D. Butler Name: John D. Butler Title: Executive Vice President Exhibit A Special Grants Pursuant to a letter dated March 21, 1995 (the "Letter"), the Executive is entitled to the cash equivalent of 20,000 shares of the Company's common stock (40,000 shares post split) following his retirement provided he retires from the Company at or after age 65. The number of shares shall be proportionally adjusted for any increase or decrease in the number of issued shares of the Company's common stock resulting from a stock split, stock dividend or any other increase or decrease in such shares effected without receipt of consideration by the Company. For consideration: the cash equivalent will be based on the average of the composite closing price (as reported on the New York Stock Exchange consolidated tape) of the Company's common stock for the first ten trading days following the trigger date, provided that in the event of a Change in Control, if a Qualified Termination occurs within the protected period under Section 8 of the Agreement, the price, if higher, shall be the highest closing price per share of the Company's common stock (as reported on the New York Stock Exchange consolidated tape) during the 30 day period ending on the date of such Change in Control. Notwithstanding the foregoing age 65 requirement, the payment shall vest and be paid out in a lump sum upon the Executive's termination of employment as a result of death (pursuant to Section 5(a) hereof), Disability (pursuant to Section 5(b) hereof), by the Company without Cause (pursuant to Section 5(e) hereof) or by the Executive for Good Reason (pursuant to Section 5(f) hereof). The payment shall immediately vest upon a Change in Control, but not be paid out until the termination of employment thereafter. The foregoing award shall not be subject in any manner in anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment, execution or levy of any kind and any attempt to do so shall not be recognized. Exhibit B Parachute Gross Up (a) In the event that the Executive shall become entitled to payments and/or benefits provided by this Agreement or any other amounts in the "nature of compensation" (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a change of ownership or effective control covered by Section 280G(b)(2) of the Code or any person affiliated with the Company or such person) as a result of such change in ownership or effective control (collectively the "Company Payments"), and such Company Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (and any similar tax that may hereafter be imposed by any taxing authority) the Company shall pay to the Executive at the time specified in subsection (d) below an additional amount (the "Gross-up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Company Payments and any U.S. federal, state, and for local income or payroll tax upon the Gross-up Payment provided for by this paragraph (a), but before deduction for any U.S. federal, state, and local income or payroll tax on the Company Payments, shall be equal to the Company Payments. (b) For purposes of determining whether any of the Company Payments and Gross-up Payments (collectively the "Total Payments") will be subject to the Excise Tax and the amount of such Excise Tax, (x) the Total Payments shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless and except to the extent that, in the opinion of the Company's independent certified public accountants appointed prior to any change in ownership (as defined under Code Section 280G(b)(2)) or tax counsel selected by such accountants (the "Accountants") such Total Payments (in whole or in part) either do not constitute "parachute payments," represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the "base amount" or are otherwise not subject to the Excise Tax, and (y) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (c) For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to pay U.S. federal income taxes at the highest marginal rate of U.S. federal income taxation in the calendar year in which the Gross-up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence for the calendar year in which the Company Payment is to be made, net of the maximum reduction in U.S. federal income taxes which could be obtained from deduction of such state and local taxes if paid in such year. In the event that the Excise Tax is subsequently determined by the Accountants to be less than the amount taken into account hereunder at the time the Gross-up Payment is made, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the prior Gross- up Payment attributable to such reduction (plus the portion of the Gross-up Payment attributable to the Excise Tax and U.S. federal, state and local income tax imposed on the portion of the Gross-up Payment being repaid by the Executive if such repayment results in a reduction in Excise Tax or a U.S. federal, state and local income tax deduction), plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Gross-up Payment to be refunded to the Company has been paid to any U.S. federal, state and local tax authority, repayment thereof (and related amounts) shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed the interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expense thereof) if the Executive's claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountant or the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Gross-up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross- up Payment), the Company shall make an additional Gross-up Payment in respect of such excess (plus any interest or penalties payable with respect to such excess) at the time that the amount of such excess is finally determined. (d) The Gross-up Payment or portion thereof provided for in subsection (c) above shall be paid not later than the thirtieth (30th) day following an event occurring which subjects the Executive to the Excise Tax; provided, however, that if the amount of such Gross-up Payment or portion thereof cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Accountant, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection (c) hereof, as soon as the amount thereof can reasonably be deter mined, but in no event later than the ninetieth day after the occurrence of the event subjecting the Executive to the Excise Tax. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (e) In the event of any controversy with the Internal Revenue Service (or other taxing authority) with regard to the Excise Tax, the Executive shall permit the Company to control issues related to the Excise Tax (at its expense), provided that such issues do not potentially materially adversely affect the Executive, but the Executive shall control any other issues. In the event the issues are interrelated, the Executive and the Company shall in good faith cooperate so as not to jeopardize resolution of either issue, but if the parties cannot agree the Executive shall make the final determination with regard to the issues. In the event of any conference with any taxing authority as to the Excise Tax or associated income taxes, the Executive shall permit the representative of the Company to accompany the Executive, and the Executive and the Executive's representative shall cooperate with the Company and its representative. (f) The Company shall be responsible for all charges of the Accountant. (g) The Company and the Executive shall promptly deliver to each other copies of any written communications, and summaries of any verbal communications, with any taxing authority regarding the Excise Tax covered by this Exhibit B. EX-12.1 9 EXHIBIT 12.1 PARENT GROUP COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (unaudited) (In millions except ratio)
Nine Months Ended October 3, 1998 Fixed charges: Interest expense $ 116 Distributions on preferred securities of subsidiary trust, net of income taxes 19 Estimated interest portion of rents 16 Total fixed charges $ 151 Income: Income before income taxes and distributions on preferred securities of subsidiary trust $ 563 Eliminate equity in undistributed pretax income of Finance Group (33) Fixed charges * 132 Adjusted income $ 662 Ratio of income to fixed charges 4.38 * Adjusted to exclude distributions on preferred securities of subsidiary trust, net of income taxes
EX-12.2 10 EXHIBIT 12.2 TEXTRON INC. INCLUDING ALL MAJORITY-OWNED SUBSIDIARIES COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (unaudited) (In millions except ratio) Nine Months Ended October 3, 1998 Fixed charges: Interest expense $ 232 Distributions on preferred securities of subsidiary trust, net of income taxes 19 Estimated interest portion of rents 16 Total fixed charges $ 267 Income: Income before income taxes and distributions on preferred securities of subsidiary trust $ 563 Fixed charges * 248 Adjusted income $ 811 Ratio of income to fixed charges 3.04 * Adjusted to exclude distributions on preferred securities of subsidiary trust, net of income taxes
EX-27 11
5 9-MOS JAN-02-1999 OCT-03-1998 60 0 0 0 1,650 4,302 0 0 12,634 3,139 4,409 24 0 13 3,250 12,634 6,813 7,088 5,545 5,545 (10) 16 232 563 221 323 125 0 0 448 2.75 2.68
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