-----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, JEp9My+6+36xYcOhOnwABVIjM7/IgILIAiwxx/6GnEzWnUs7d1VqYrgqFt9knDvm jzu5TDC8Gcx+GDzAVGRNZg== 0000095395-96-000005.txt : 19960802 0000095395-96-000005.hdr.sgml : 19960802 ACCESSION NUMBER: 0000095395-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960731 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNDSTRAND CORP /DE/ CENTRAL INDEX KEY: 0000095395 STANDARD INDUSTRIAL CLASSIFICATION: PUMPS & PUMPING EQUIPMENT [3561] IRS NUMBER: 361840610 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05358 FILM NUMBER: 96602072 BUSINESS ADDRESS: STREET 1: 4949 HARRISON AVE STREET 2: P O BOX 7003 CITY: ROCKFORD STATE: IL ZIP: 61125 BUSINESS PHONE: 8152266000 MAIL ADDRESS: STREET 1: PO BOX 7003 CITY: ROCKFORD STATE: IL ZIP: 61125-7003 10-Q 1 SECOND QUARTER 1996 FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission file number 1-5358 Sundstrand Corporation ______________________________________________________ (Exact name of registrant as specified in its charter) Delaware 36-1840610 _______________________________ __________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4949 Harrison Avenue, P.O. Box 7003, Rockford, IL 61125-7003 _____________________________________________________________ (Address of principal executive offices and zip code) (815) 226-6000 ____________________________________________________ (Registrant's telephone number, including area code) 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 _____ _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 26, 1996 _______________________________________ ____________________________ Common Stock, par value $.50 per share 60,757,603 2 SUNDSTRAND CORPORATION FORM 10-Q For the Quarter Ended June 30, 1996 INDEX Page Part I. Financial Information ____ Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information Item 1. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13 2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Sundstrand Corporation and Subsidiaries Condensed Consolidated Statement of Earnings (Unaudited)
Three Months Six Months Ended June 30, Ended June 30, (Amounts in millions except ------------------ ----------------- per share data) 1996 1995 1996 1995 - ------------------------------------------------------------------------------- Net sales $ 371 $ 377 $ 739 $ 723 Costs, expenses, and other income: Costs of products sold 243 247 484 473 Marketing and administration 77 77 156 152 Restructuring charge (8) 3 (8) 61 Interest expense 8 8 15 17 Interest income (2) (1) (3) (2) Other, net - (1) - - ------ ------ ------ ------ 318 333 644 701 ------ ------ ------ ------ Earnings before income taxes 53 44 95 22 Less income taxes 19 17 35 13 ------ ------ ------ ------ Net earnings $ 34 $ 27 $ 60 $ 9 ====== ====== ====== ====== Weighted-average number of common shares outstanding 61.4 63.3 61.4 63.3 Earnings per share $ .56 $ .44 $ .98 $ .15 ====== ====== ====== ====== Cash dividends per common share $ .17 $ .15 $ .34 $ .30 ====== ====== ====== ======
3 4 Sundstrand Corporation and Subsidiaries Condensed Consolidated Statement of Cash Flows (Unaudited)
Six Months Ended June 30, ------------------- (Amounts in millions) 1996 1995 - ------------------------------------------------------------------------------ Cash flow from operating activities: Net earnings $ 60 $ 9 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 36 40 Deferred income taxes 3 (22) Change in operating assets and liabilities excluding the effects of acquisitions and divestitures: Accounts receivable 2 12 Inventory (19) (37) Other assets (2) 5 Accounts payable (8) 3 Accrued expenses (11) 79 Other (1) (5) ------ ------ Total adjustments - 75 ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 60 84 ------ ------ Cash flow from investing activities: Cash paid for property, plant, and equipment (30) (23) Proceeds from sale of assets 1 7 Investment in IRB trust 3 (5) Investment in equity companies - (1) ------ ------ NET CASH USED FOR INVESTING ACTIVITIES (26) (22) ------ ------ Cash flow from financing activities: Net payments on borrowings supported by lines of credit (10) (32) Principal payments on long-term debt (1) (4) Issuance of long-term debt - 8 Purchase of treasury stock (30) (13) Proceeds from stock options exercised 1 2 Dividends paid (21) (19) ------ ------ NET CASH USED FOR FINANCING ACTIVITIES (61) (58) ------ ------ Effect of exchange rate changes on cash 2 (5) ------ ------ Decrease in cash and cash equivalents (25) (1) Cash and cash equivalents at January 1 75 66 ------ ------ CASH AND CASH EQUIVALENTS AT JUNE 30 $ 50 $ 65 ====== ====== Supplemental cash flow information: Interest paid $ 15 $ 17 Income taxes paid $ 35 $ 30
4 5 Sundstrand Corporation and Subsidiaries Condensed Consolidated Balance Sheet (Unaudited)
June 30, December 31, (Amounts in millions) 1996 1995 - ------------------------------------------------------------------------------ Assets Current Assets Cash and cash equivalents $ 50 $ 75 Accounts receivable, net 278 281 Inventories, net of progress payment 348 330 Deferred income taxes 55 55 Other current assets 20 20 ------- ------- Total current assets 751 761 Property, Plant, and Equipment, net 444 449 Intangible Assets, net 263 266 Deferred Income Taxes 73 75 Other Assets 42 42 ------- ------- $ 1,573 $ 1,593 ======= ======= Liabilities and Shareholders' Equity Current Liabilities Notes payable $ 157 $ 168 Long-term debt due within one year 8 7 Accounts payable 94 102 Accrued salaries, wages, and commissions 26 24 Accrued postretirement benefits other than pensions 17 17 Restructuring liability 25 27 Other accrued liabilities 88 93 ------- ------- Total current liabilities 415 438 Long-Term Debt 220 221 Accrued Postretirement Benefits Other Than Pensions 365 363 Other Liabilities 83 90 Shareholders' Equity Common stock, at par value 38 38 Other shareholders' equity 452 443 ------- ------- 490 481 ------- ------- $ 1,573 $ 1,593 ======= =======
5 6 The financial information contained herein is unaudited but, in the opinion of the management of the Registrant, includes all adjustments (all of which are normal recurring adjustments) necessary for a fair presentation of the results of operations for the periods indicated. Notes to Condensed Consolidated Financial Statements (Unaudited) ACCOUNTING POLICIES The financial statements are condensed and should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 1995. PRINCIPLES OF CONSOLIDATION provide for the inclusion of the accounts of Sundstrand Corporation and all subsidiaries. All intercompany transactions are eliminated in consolidation. CASH EQUIVALENTS are considered by the Registrant to be all highly liquid debt instruments purchased with original maturities of three months or less. INVENTORIES The components of inventories at June 30, 1996, and December 31, 1995, were as follows:
June 30, December 31, (Amounts in millions) 1996 1995 - --------------------------------------------------------------------------- Raw materials $ 48 $ 51 Work in process 128 118 Finished goods and parts 190 179 ----- ----- 366 348 Less progress payments 18 18 ----- ----- $ 348 $ 330 ===== ===== Prior to the application of progress payments, the inventories shown above included costs related to long-term contracts of $37 million and $52 million, at June 30, 1996, and December 31, 1995, respectively.
STOCK SPLIT On February 20, 1996, the Registrant's Board of Directors authorized a two-for-one stock split payable as a 100 percent stock dividend which was distributed on March 19, 1996, to shareholders of record on March 5, 1996. Shareholders' equity has been restated to give retroactive recognition to the stock split in prior periods by reclassifying from retained earnings to common stock the par value of the additional shares arising from the split. In addition, all references to the number of shares and per share amounts of the Registrant's common stock have been restated to reflect the split. 6 7 RESTRUCTURING During 1995, the Registrant's Board of Directors approved a restructuring plan which resulted in a pretax charge of $58 million. The charge was taken to reduce excess manufacturing capacity caused by reductions in manufacturing volume and increases in manufacturing productivity, and to write down the assets of the Industrial segment's Spectronic Instruments business (Spectronic) and the Aerospace segment's Advanced Power Technology, Inc. (APT) in anticipation of their divestiture. The charge included $24 million in termination benefits for approximately 350 employees, primarily consisting of workers at the Registrant's Lima, Ohio, facility. Also included in the charge was $29 million for the write-down of the assets of the Lima facility, Spectronic, and APT, as well as $5 million for disposition of the Lima facility. The shutdown of the Lima facility was substantially completed in June 1996. The disposition of the Lima facility is expected to be completed by mid-1997 and the sales of Spectronic and a majority interest in APT were completed in the third quarter of 1995. Since the restructuring charge was recorded, approximately $4 million has been paid and charged against the restructuring liability, including costs to terminate 346 employees. In the second quarter of 1996, as a result of the Lima plant shutdown, future pension and other postretirement benefits for the terminated Lima employees were fixed causing recognition of an $8 million curtailment gain. Additionally, in the first six months of 1996 approximately $10 million was charged directly to earnings related primarily to the movement of equipment from the Lima facility to other manufacturing sites. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The financial information for the quarter ended June 30, 1996, as compared to the financial information for the quarter ended June 30, 1995, and the balance sheet at December 31, 1995, is discussed below, and should be read in conjunction with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, and the financial data as presented in Item 1 above. RESULTS OF OPERATIONS Second quarter 1996 sales decreased by $6 million to $371 million from $377 million in second quarter 1995. This decrease was due primarily to the 1995 divestitures of the Spectronic Instruments business (Spectronic) and Advanced Power Technology, Inc. (APT), partially offset by higher Aerospace segment sales. As a result of higher commercial aftermarket sales, Aerospace segment sales for the second quarter of 1996 increased to $183 million compared with $176 million in the same period of 1995. Industrial sales fell to $188 million in the second quarter of 1996 compared with $201 million in second quarter 1995, primarily as a result of the Spectronic divestiture and lower domestic sales of industrial compressors. Second quarter net earnings were $34 million, or $.56 per share compared with $27 million, or $.44 per share in 1995. The increase included a $5 million after tax gain for the curtailment of pension and other postretirement benefits related to the shutdown of the Lima, Ohio, plant and approximately $3 million after taxes of restructuring-related period expenses which were recognized as incurred in the second quarter of 1996. Excluding restructuring related items, second quarter 1996 net earnings increased to $32 million, or $.53 per share compared with $30 million or $.47 per share in second quarter 1995, primarily as a result of stronger commercial Aerospace sales. Sales for the first half of 1996 were $739 million compared with $723 million in the first half of 1995. As a result of higher commercial aftermarket sales, Aerospace segment sales increased to $360 million in the first half of 1996 compared with $333 million in the first half of 1995. Industrial segment sales were $379 million and $390 million in the first half of 1996 and 1995, respectively. The decrease was due to the Spectronic divestiture partially offset by higher sales at Falk. Net earnings for the first six months of 1996 were $60 million, or $.98 per share, which included a $5 million after tax restructuring-related curtailment gain. Net earnings for the first six months of 1995 were $9 million, or $.15 per share, which included restructuring charges of $42 million after taxes. Excluding restructuring related items, net income for the first half of 1996 was $61 million, or $1.00 per share, compared with $52 million, or $.82 per share in the same 1995 period. The increase was due primarily to higher Aerospace operating profit stemming from the increase in commercial aftermarket sales. 8 9 STOCK SPLIT On February 20, 1996, the Registrant's Board of Directors authorized a two-for-one stock split payable as a 100 percent stock dividend which was distributed on March 19, 1996, to shareholders of record on March 5, 1996. Shareholders' equity has been restated to give retroactive recognition to the stock split in prior periods by reclassifying from retained earnings to common stock the par value of the additional shares arising from the split. In addition, all references to the number of shares and per share amounts of the Registrant's common stock have been restated to reflect the split. ORDER Incoming orders for second quarter 1996 increased to $427 million compared with $355 million in the second quarter of 1995, primarily as a result of higher orders in the Aerospace markets. New orders for the six months ended June 30, 1996, were $790 million, down from $922 million for the same period last year. The decrease was due primarily to a $172 million long-term contract entered into in 1995 to provide the propulsion system for the United Kingdom's Royal Navy Spearfish heavyweight torpedo program. Total unfilled orders at June 30, 1996, were $982 million, compared with $946 million at June 30, 1995, and $931 million at December 31, 1995. AEROSPACE OVERVIEW FOR ONGOING BUSINESSES EXCLUDING RESTRUCTURING Second quarter 1996 sales in the Aerospace segment were up $13 million or 8 percent compared with the second quarter of 1995, as a result of increases in commercial OEM and aftermarket sales. Operating profit increased by $6 million or 26 percent on the higher commercial volume, resulting in an operating profit margin of 15.8 percent of sales, compared with 13.5 percent in the second quarter of 1995. Total Aerospace orders increased by 58 percent in the second quarter compared with the same period in 1995. INDUSTRIAL OVERVIEW FOR ONGOING BUSINESSES EXCLUDING RESTRUCTURING Industrial segment sales in the second quarter of 1996 decreased by $5 million or 3 percent compared with the second quarter of 1995. Operating profit fell by $6 million or 16 percent from the 1995 second quarter level resulting in an operating profit margin of 16.5 percent compared with 19.2 percent in the second quarter of 1995. Continued weakness at Sullair, primarily in Europe, and to a lesser extent Milton Roy, contributed to the Industrial operating profit decline. Total Industrial orders in the second quarter were flat compared with the same period in 1995. LIQUIDITY & CAPITAL RESOURCES Working capital increased by $13 million to $336 million at June 30, 1996, from $323 million at December 31, 1995. Higher inventories and lower notes and accounts payable, partially offset by a decrease in cash and cash equivalents were primarily responsible for the increase. Inventory increased in response to the increased sales and order activity, primarily in the Aerospace segment. Net cash provided by operating activities for the first half of 1996 was $60 million compared with $84 million for the first six months of 1995. Increases in various liability accounts, including accrued salaries, wages and commissions and pension and other postretirement benefits liabilities, in the first six months of 1995 were primarily responsible for the year over year change. The effects of restructuring actions which caused significant fluctuations in net earnings, deferred income taxes, and accrued expenses, did not have a material effect on net operating cash flows in either period. 9 10 In the first six months of 1996 and 1995 the Registrant used cash of $26 million and $22 million, respectively, for investing activities, primarily for the purchase of fixed assets. In the first six months of 1996, $61 million of cash was used for financing activities, primarily common stock repurchases, dividends payments, and reductions in commercial paper borrowings. In the first half of 1995, $58 million of cash was used for financing activities, which consisted primarily of cash used to reduce commercial paper borrowings, pay dividends, and repurchase common stock, partially offset by the issuance of an industrial revenue bond for capital improvements at Falk's Auburn, Alabama, facility. The Registrant repurchased 546,400 shares of its common stock during the second quarter and an additional 9,000 shares, through July 24, 1996, bringing the total shares repurchased in 1996 to 831,000. Through July 24, 1996, the Registrant has purchased a total of approximately 13 million shares of the 20 million shares authorized for repurchase by the Board of Directors. On June 18, 1996, the Board of Directors declared a quarterly cash dividend of $.17 per common share payable on September 17, 1996, to holders of record on September 3, 1996. At June 30, 1996, the Registrant's ratio of total debt to total capital was 44.0 percent compared with 45.2 percent at December 31, 1995. OUTLOOK The following forward-looking statements are subject to market risks and opportunities that could have a material impact on actual results, as set forth in the Registrant's annual report on Form 10-K filed with the Securities and Exchange Commission. The Registrant continues to expect 1996 sales of its ongoing businesses to increase by 5 percent to 10 percent, which should generate full-year earnings, excluding restructuring costs and any additional share repurchases, of between $2.25 and $2.40 per share. As a result of the improving commercial aerospace cycle, the Registrant currently believes that Aerospace commercial OEM sales for its ongoing business will increase by 20 percent to 25 percent from 1995 levels, however it continues to expect total sales for the ongoing Aerospace business to increase between 5 percent and 10 percent which should generate sustained improvement in Aerospace operating profit. For the full year, Industrial segment sales from ongoing businesses are expected to increase about 5 percent with operating profit margins approaching the 17 percent level. The Registrant currently expects 1996 operating cash flow after capital expenditures to be in the $100 million to $125 million range. Additionally, the Registrant currently expects company-funded R&D spending for the full year to be approximately $60 million, a decrease of about $10 million from its previous projection. 10 11 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Registrant has disclosed various legal proceedings in its Annual Report on Form 10-K for the fiscal year ended December 31, 1995. There have been no material changes in those proceedings or other material legal developments since that time. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Stockholders of Sundstrand Corporation was held on April 16, 1996. (c) Stockholders voted on the election of four directors for a term of three years and on a proposed amendment to the Sundstrand Corporation Nonemployee Director Stock Option Plan. Results of said votes were as follows: i) Directors Name For Withheld ---- --- -------- Klaus H. Murmann 24,946,957 1,966,535 Robert J. Smuland* 24,914,882 1,998,609 Berger G. Wallin 24,947,758 1,965,733 Richard A. Abdoo 24,932,070 1,981,421 For Against Withheld --- ------- -------- ii) Amendment to Sundstrand 22,812,188 3,706,100 395,203 Corporation Nonemployee Director Stock Option Plan * Mr. Smuland resigned from the Board of Directors effective June 10, 1996. 11 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (3) Articles of Incorporation and By-Laws (a) Text of resolutions adopted by the Board of Directors of Registrant On June 18, 1996, amending Registrant's By-Laws effective June 18, 1996. (b) Registrant's By-Laws, including all amendments as effective June 18, 1996. (10) Material Contracts (a) Employment Agreement dated June 18, 1996, between Registrant and Ronald F. McKenna, Registrant's Executive Vice President and Chief Operating Officer, Aerospace. (11) Statement Re Computation of Per Share Earnings (a) Computation of Fully Diluted Earnings Per Share (Unaudited) for the quarters ended June 30, 1996 and 1995, and for the six months ended June 30, 1996 and 1995. (27) Financial Data Schedule (b) Reports on Form 8-K On June 11, 1996, the Registrant filed a report on Form 8-K regarding the resignation of Robert J. Smuland as a director of the Registrant. 12 13 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. Sundstrand Corporation ----------------------------- (Registrant) Date: July 31, 1996 /s/ Richard M. Schilling ----------------------------- Richard M. Schilling Vice President and General Counsel and Secretary Date: July 31, 1996 /s/ DeWayne J. Fellows ----------------------------- DeWayne J. Fellows Vice President and Controller 13 EX-3 2 TEXT OF RESOLUTION Exhibit (3)(a) RESOLVED, by the Board of Directors of Sundstrand Corporation, that the first sentence of Section 3.1 of the By-Laws of the Corporation be, and it hereby is, amended effective June 18, 1996, by changing the word "twelve" to "eleven" where it appears in such sentence. EX-3 3 BY-LAWS EFFECTIVE JUNE 18, 1996 Exhibit (3)(b) BY-LAWS OF SUNDSTRAND CORPORATION (A Delaware Corporation) Effective June 18, 1996 ARTICLE I OFFICES Section 1.1. Principal Office. The principal office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. Section 1.2. Other Offices. The Corporation may also have offices at such other places, either within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS Section 2.1. Place of Meetings. All annual and special meetings of the stockholders shall be held at such place, either within or without the State of Delaware, as may be fixed by the Board and specified in the notice of the meeting. Section 2.2. Annual Meetings. An annual meeting of stockholders shall be held on such date and at such hour as may be fixed by the Board and specified in the notice of the meeting, when they shall elect by a plurality vote a Board of Directors and transact such other business as may properly be brought before the meeting. Section 2.3. List of Stockholders. The Secretary shallprepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The original or duplicate stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or stock ledger or transfer book or to vote in person or by proxy at any meeting of stockholders. Section 2.4. Special Meetings of Stockholders. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board and shall be called by the Chairman of the Board or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning eighty percent or more in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 2.5. Notice of Meetings. Except as otherwise expressly provided by law or by the Certificate of Incorporation or these By-Laws, written or printed notice of each annual or special meeting of stockholders shall be given by mail at least ten but not more than sixty days before the meeting to the stockholders of record entitled to vote thereat. Every such notice shall be directed to a stockholder at his address as it shall appear on the transfer books of the Corporation; shall state the date, time and place of the meeting; and, in the case of a special meeting, shall state briefly the purposes thereof. Business transacted at all special meetings shall be confined to the purposes stated in the notice thereof. Section 2.6. Quorum and Adjournments. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall be necessary and sufficient to constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute, by the Certificate of Incorporation, or by these By-Laws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The absence from any meeting of the number required by law or by the Certificate of Incorporation or these By-Laws for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting if the number required in respect of such other matter or matters shall be present. Once a quorum is present at a meeting, it shall be deemed to be acting thereafter throughout the meeting, irrespective of any withdrawals. Nothing in these ByLaws shall affect the right to adjourn where a quorum is present. Section 2.7. Voting by Stockholders. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation or of these ByLaws a different vote is required, in which case such express provision shall govern and control the decision of such question. At any meeting of the stockholders every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney or agent thereunto authorized in writing, and bearing a date not more than three years prior to said meeting, unless said instrument provides for a longer period. Except as otherwise provided by the Certificate of Incorporation, each stockholder present in person or by proxy at any meeting shall have, on each matter on which stockholders are entitled to vote, one vote for each share of stock having voting power, registered in his name on the books of the Corporation. Section 2.8. New Business Proposals at Annual Meetings. Only such new business shall be conducted, and only such proposals shall be acted upon at an annual meeting of stockholders, as shall have been properly brought before such annual meeting (a) by, or at the direction of, the Board of Directors, or (b) by any stockholder of the Corporation who complies with the notice procedures set forth in this Section 2.8. A stockholder who wishes to bring a proposal before an annual meeting shall give timely notice thereof in writing to the Secretary of the Corporation. Such notice, to be timely, shall be delivered to, or mailed and received by the Secretary at the principal executive offices of the Corporation at least sixty days but not more than ninety days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that if less than seventy days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, such notice by a stockholder to be timely shall be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which notice of the scheduled annual meeting was mailed or the day on which public disclosure thereof was made. Each such stockholder notice shall set forth as to each proposal to be brought before the annual meeting (a) a brief description of the proposal and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the transfer books of the Corporation, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting the proposal, (c) the class and number of shares of the Corporation's stock which are beneficially owned by the stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such proposal, and (d) any financial interest of the stockholder in such proposal. The Board of Directors may reject any stockholder proposal not timely made in accordance with the terms of this Section 2.8. If the Board of Directors, or a designated committee thereof, determines that the information provided in a stockholder's notice does not satisfy the informational requirements of this Section 2.8 in any material respect, the Secretary shall promptly notify such stockholder of the deficiency in the notice. The stockholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within five days from the date such notice of deficiency is given to the stockholder, as the Board of Directors or such committee shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee determines that the additional information provided by the stockholder, together with the information previously provided, does not satisfy the requirements of this Section 2.8 in any material respect, then the Board of Directors may reject such proposal. The Secretary shall notify the stockholder in writing whether his proposal has been made in accordance with the time and informational requirements of this Section 2.8. Notwithstanding the procedure set forth in this Section 2.8, if neither the Board of Directors nor such committee makes a determination as to the validity of any stockholder proposal, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the stockholder proposal was made in accordance with the terms of this Section 2.8. If the presiding officer determines that the stockholder's proposal was not made in accordance with the terms of this Section 2.8, he shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting. This Section 2.8 shall not prevent the consideration and approval or disapproval at an annual meeting of reports of officers, directors and committees of the Board of Directors, but, in connection with such reports, no new business shall be acted upon at such annual meeting unless stated, filed and received as herein provided. ARTICLE III DIRECTORS Section 3.1. Number, Election and Terms of Office of Directors. The number of directors which shall constitute the whole Board shall be eleven in number. Directors need not be stockholders in the Corporation. Except as provided in Section 3.3, the directors shall be elected at the annual meeting of the stockholders, and each director elected shall hold office until his successor is elected and qualified or until his earlier resignation. The directors shall be divided into three classes: Class I, Class II and Class III. Such classes shall be as nearly equal in number as possible. The term of office of the initial Class I directors shall expire at the annual meeting of stockholders in 1971, the term of office of the initial Class II directors shall expire at the annual meeting of stockholders in 1972, and the term of office of the initial Class III directors shall expire at the annual meeting of stockholders in 1973, or thereafter in each case when their respective successors are elected and qualified. At each annual election held after classification and the initial election of directors according to classes, the directors chosen to succeed those whose terms then expire shall be identified as being of the same class as the directors they succeed and shall be elected for a term expiring at the third succeeding annual meeting or thereafter when their respective successors in each case are elected and qualified. Section 3.2. Corporate Records. The directors may keep the books of the Corporation, except such as are required by law to be kept within the State of Delaware, outside of Delaware at such place or places as they may from time to time determine. Section 3.3. Vacancies. Vacancies occurring in the Board of Directors and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, and any director so chosen shall hold office until his successor is elected and qualified. A director elected to fill a vacancy shall be elected for the unexpired portion of the term of his predecessor in office. A director elected to fill a newly created directorship shall serve for the term provided herein for the class of directors for which such director was elected. Section 3.4. General Powers. The business and affairs of the Corporation shall be managed by its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 3.5. Place of Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 3.6. Annual Meetings. The first meeting of each newly elected Board shall constitute the annual meeting of said Board and shall be convened as soon as is conveniently possible but in no event more than two weeks after the date of the annual meeting of stockholders in each year at such time and place as shall be fixed by the Chairman of the Board. Section 3.7. Regular Meetings. Regular meetings of the Board shall be held upon notice, or without notice, at least quarterly, at such time and place as shall from time to time be determined by the Board. Section 3.8. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board or any four directors. Notice of each special meeting of the Board may be given by mail, telegraph or cable, personal delivery or telephone. Notice by mail shall be given at least three days before the meeting; notice by any other means shall be given a reasonable period of time before the time of such meeting but in no event shall such notice be given less than one hour before such meeting. If notice is by telephone, such notice shall be promptly confirmed by telegraph or cable to each director. Section 3.9. Quorum. At all meetings of the Board, the presence of a majority of the full number of directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 3.10. Action by Board Without Meeting. Notwithstanding anything contained in these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any Committee thereof may be taken without a meeting, if a written consent thereto is signed by all members of the Board or of such Committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or the Committee. Section 3.11. Compensation of Directors. The Board of Directors, by resolution adopted by a majority of the whole Board, may establish reasonable compensation of all directors for services to the Corporation as directors, officers or otherwise. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of any Committee may be allowed like compensation for their services to the Corporation. Section 3.12. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or Committee which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the Committee, and the Board or Committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, Committee, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of the Committee which authorizes the contract or transaction. Section 3.13. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more Committees, each Committee to consist of two or more of the directors of the Corporation. Any such Committee, to the extent provided in the resolution not inconsistent with the provisions of the Statutes of Delaware, shall have and may exercise the powers and authority of the Board of Directors in the management of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. A majority of the members of the Committee then holding office shall constitute a quorum at all meetings and each such Committee shall keep regular minutes of its proceedings and report the same to the whole Board. Section 3.14. Nomination for Election of Directors. Nominations for the election of Directors shall be properly made by the Board of Directors or a nominating committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of Directors generally; provided, however, that any such stockholder may nominate one or more persons for election as Directors at a meeting only if such stockholder has given written notice of such stockholder's intent, either by personal delivery or by United States mail, postage prepaid, to the Secretary not later than (1) with respect to an election to be held at an annual meeting of stockholders, ninety days prior to the anniversary date of the immediately preceding annual meeting, and (2) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address, as they appear on the transfer books of the Corporation, of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission as then in effect; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of any meeting at which a stockholder or its representative attempts to nominate one or more persons for election as directors may refuse to acknowledge the nomination of any person not made in compliance with the provisions of this Section 3.14. ARTICLE IV OFFICERS Section 4.1. Designation: Number. The officers of the Corporation shall consist of a Chairman of the Board; a President and Chief Executive Officer; an Executive Vice President and Chief Financial Officer; an Executive Vice President and Chief Operating Officer, Aerospace; an Executive Vice President and Chief Operating Officer, Industrial; a Vice President and General Counsel; one or more other Vice Presidents; a Secretary; a Treasurer; and a Controller, all of whom shall be elected by the Board of Directors and shall hold office until their successors are duly elected and qualified. In addition, the President and Chief Executive Officer may appoint a Tax Director, one or more Assistant Secretaries, Assistant Treasurers and Assistant Controllers and such other officers and agents as the President and Chief Executive Officer may deem necessary or desirable, who shall hold their offices for such terms and shall have such authority and perform such duties as shall be determined by the President and Chief Executive Officer from time to time. Any Executive Vice President or Vice President designated by a resolution of the Board of Directors or by delegation of the President and Chief Executive Officer shall have authority to sign contracts and any other documents as specifically authorized by the Board of Directors or the President and Chief Executive Officer or which are within the ordinary course of the business of the Corporation. Section 4.2. Non-Corporate Officers. The President and Chief Executive Officer shall have authority to appoint from time to time officers of divisions, product groups or other segments of the Corporation's business for such terms, with such authority and at such salary as the President and Chief Executive Officer in his sole discretion shall determine; provided, however, such appointed officer shall under no circumstances have authority to bind any other division, product group or other segment of the Corporation's business nor to bind the Corporation, except as to the normal and usual business affairs of the division, product group or other segment of the Corporation's business of which he is an officer. Such appointed officer, as such, shall not be construed as an officer of the Corporation. Section 4.3. Salaries. The salaries of the officers elected pursuant to Section 4.1 above shall be determined by the Board of Directors. The salaries of all other officers and agents of the Corporation appointed by the President and Chief Executive Officer shall be determined by the Board of Directors or the President and Chief Executive Officer. Section 4.4. Removal. Any officer elected by the Board of Directors and any officer or agent appointed by the President and Chief Executive Officer, as the case may be, may be removed at any time by the Board of Directors or the President and Chief Executive Officer, respectively, whenever in its or his judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any vacancy occurring in any elected office of the Corporation shall be filled by the Board of Directors. Section 4.5. Chairman of the Board. The Chairman of the Board shall preside at all meetings of stockholders and of the Board. He shall counsel the President and Chief Executive Officer on plans, policies, strategies, budgets and operating plans. The Chairman of the Board shall participate in activities such as strategic planning, acquisitions and divestitures, and presentations to analysts. The Chairman of the Board, the President and Chief Executive Officer, and/or the Executive Vice President and Chief Financial Officer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Section 4.6. President and Chief Executive Officer. The President and Chief Executive Officer shall be the chief executive officer of the Corporation. He shall see that all orders and resolutions of the Board are carried into effect. Subject to the control of the Board, the President and Chief Executive Officer shall have general supervision, control and management of the affairs and business of the Corporation. The President and Chief Executive Officer, the Chairman of the Board, and/or the Executive Vice President and Chief Financial Officer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Section 4.7. Executive Vice President and Chief Financial Officer. The Executive Vice President and Chief Financial Officer shall be the chief financial officer of the Corporation and shall be in charge of the financial, accounting, taxation, administration, personnel and public relations activities of the Corporation and shall be under the direction and report to the President and Chief Executive Officer. He and/or the President and Chief Executive Officer shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Section 4.8. Executive Vice President and Chief Operating Officer, Aerospace. The Executive Vice President and Chief Operating Officer, Aerospace shall be the chief operating officer of the Corporation's aerospace businesses. He shall assist the President and Chief Executive Officer in the general supervision, control and management of the affairs and business of the Corporation's aerospace businesses and the Corporation's government contracts and compliance activities. Section 4.9. Executive Vice President and Chief Operating Officer, Industrial. The Executive Vice President and Chief Operating Officer, Industrial shall be the chief operating officer of the Corporation's industrial businesses. He shall assist the President and Chief Executive Officer in the general supervision, control and management of the affairs and business of the Corporation's industrial businesses. Section 4.10. Vice President and General Counsel. The Vice President and General Counsel shall be the chief legal officer of the Corporation, shall be responsible for all legal and environmental matters involving the Corporation and shall direct the Corporation's legal and environmental affairs staffs. He shall be under the direction of and report to the Chief Executive Officer. Section 4.11. Other Vice Presidents. The other Vice Presidents shall perform such duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer. Section 4.12. Secretary and Assistant Secretaries. (a) The Secretary shall attend all sessions of the Board of Directors and all meetings of the stockholders and record the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for Committees of the Board when required. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or the President and Chief Executive Officer. He shall keep in safe custody the seal of the Corporation, and affix the same to any instrument requiring it, and when affixed it shall be attested by his signature or by the signature of the Treasurer or an Assistant Secretary. (b) The Assistant Secretaries in the order of their seniority shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform such other duties as the Chairman of the Board and/or the President and Chief Executive Officer shall prescribe. Section 4.13. Treasurer and Assistant Treasurers. (a) The Treasurer shall, subject to the direction of the Executive Vice President and Chief Financial Officer, have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all money and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors. (b) He shall disburse the funds of the Corporation when proper to do so, taking proper vouchers for such disbursements, and shall render to the Executive Vice President and Chief Financial Officer, the President and Chief Executive Officer and the Board of Directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation. (c) If required by the Board of Directors, he shall give the Corporation a bond in such sum, and with such surety or sureties as shall be satisfactory to the Board, for the faithful performance of the duties of his office, and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. (d) The Treasurer shall be under the direction of and report to the Executive Vice President and Chief Financial Officer. (e) The Assistant Treasurers in the order of their seniority shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Directors or the Executive Vice President and Chief Financial Officer shall prescribe. Section 4.14. Controller and Assistant Controllers. (a) The Controller shall be the chief accounting officer of the Corporation and shall be responsible for the installation and supervision of all accounting records, including the preparation and interpretation of financial statements, the continuous audit of accounts and records, and such other duties usually incident to the office of Controller. He shall be under the direction of the Executive Vice President and Chief Financial Officer and shall, in addition to the foregoing duties, perform such other duties as may be assigned to him by the Board of Directors or the Executive Vice President and Chief Financial Officer. (b) The Assistant Controllers in the order of their seniority shall, in the absence or disability of the Controller, perform the duties and exercise the powers of the Controller and shall perform such other duties as the Board of Directors or the Executive Vice President and Chief Financial Officer shall prescribe. Section 4.15. Tax Director. The Tax Director shall be responsible for the preparation and signing of all federal and state tax returns, consents, elections, closing agreements and all other documents related to the determination of any federal or state tax liability of the Corporation, and as such shall be under the direction of and report to the Treasurer. ARTICLE V SHARES AND THEIR TRANSFER Section 5.1. Certificates of Stock. Certificates for shares of stock of the Corporation shall be in such form as shall be approved by the Board, and during the period while more than one class of stock or more than one series of any class of the Corporation is authorized, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificates which the Corporation shall issue to represent such class or series of stock, or else there shall appear on the certificates a statement that the Corporation shall furnish such information to a stockholder without charge if it be requested. They shall exhibit the holder's name and number of shares, and, with respect to each class of stock of the Corporation, or series thereof, if there be more than one class or series thereof, shall bear a distinguishing letter, and each class or series thereof, if any, shall be numbered serially and be issued in consecutive order. They shall bear the Corporate seal or a facsimile thereof and shall be signed by the President and Chief Executive Officer, an Executive Vice President, or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation. If such certificate is countersigned (1) by a transfer agent other than the Corporation or its employee, or, (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with same effect as if he were such officer, transfer agent, or registrar at the date of issue. Section 5.2. Transfer of Stock. Upon surrender to the Corporation or its transfer agent of a certificate representing shares, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, a new certificate shall be issued to the person entitled thereto, and the old certificate canceled, and the transaction recorded upon the books of the Corporation. Section 5.3. Lost, Stolen or Destroyed Certificates. Any person, claiming a certificate for shares of the Corporation to be lost, stolen or destroyed, shall make affidavit of the fact and lodge the same with the Secretary of the Corporation accompanied by a signed application for a new certificate. Such person shall also give the Corporation a bond of indemnity with one or more sureties satisfactory to the Board of Directors, and in an amount which in their judgment shall be sufficient to save the Corporation from loss, or shall qualify under such blanket bond as may from time to time be approved by the Board of Directors, and thereupon the proper officers may cause to be issued a new certificate of like tenor with the one alleged to be lost, stolen or destroyed. Section 5.4. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. Section 5.5. Registered Stockholders. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. Section 5.6. Transfer Agents and Registrars. The Board of Directors may from time to time appoint a transfer agent and registrar in one or more cities; may require all certificates evidencing shares of stock of the Corporation to bear the signatures of a transfer agent and registrar; and may provide that such certificates shall be transferable in more than one city. ARTICLE VI INDEMNIFICATION OF OFFICERS AND DIRECTORS The Corporation shall, to the fullest extent to which it is empowered to do so by the General Corporation Law of Delaware, or any other applicable laws, as from time to time in effect, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation or a division thereof, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. The provisions of this Article shall be deemed to be a contract between the Corporation and each director or officer who serves in any such capacity at any time while this Article and the relevant provisions of the General Corporation Law of Delaware or other applicable law, if any, are in effect, and any repeal or modification of any such law or of this Article shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. The Corporation shall, to the fullest extent to which it is empowered to do so by the General Corporation Law of Delaware, and with respect to the Employee Retirement Income Security Act of 1974, or any other applicable laws, as from time to time in effect, indemnify any officer, director or employee of the Corporation or an affiliated corporation, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was serving at the request of the Corporation as an individual Trustee, Committee member, administrator or fiduciary of a pension or other benefit plan for employees of the Corporation, or of an affiliated corporation or other enterprise. Persons who are not covered by the foregoing provisions of this Article and who are or were employees or agents of the Corporation or a division thereof, or are or were serving at the request of the Corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the Board of Directors of the Corporation. The indemnification provided or permitted by this Article shall not be deemed exclusive of any other rights to which those indemnified may be entitled by law or otherwise, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article. The Corporation shall, to the fullest extent to which it is empowered to do so by the General Corporation Law of Delaware, or any other applicable laws, as from time to time in effect, pay expenses, including attorneys' fees, incurred in defending any action, suit or proceeding, in advance of the final disposition of such action, suit or proceeding, to any person who is or was a party or is threatened to be made a party to any such threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer of the Corporation, upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized by applicable laws. ARTICLE VII MISCELLANEOUS PROVISIONS Section 7.1. Checks, Drafts and Other Instruments; Security Voting and Proxies. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness, issued in the name of the Corporation shall be signed by such officer or officers, or such other person or persons, as the Board of Directors may from time to time designate. In the absence of specific action by the Board of Directors, the President and Chief Executive Officer or any Executive Vice President or Vice President shall have the authority to grant proxies to vote, or vote, on behalf of the Corporation the securities of other corporations, both domestic and foreign, held by the Corporation. Section 7.2. Seal. The corporate seal of the Corporation shall be in such form as the Board of Directors may determine and shall include the name of the Corporation and the words "Corporate Seal, Delaware." The seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or in any manner reproduced. Section 7.3. Fiscal Year. The fiscal year of the Corporation shall commence on the first day of January in each year and end on the following 31st day of December. Section 7.4. Notices. Notice by mail shall be deemed to have been given at the time the same shall be mailed. Notice by telegraph shall be deemed to have been given when the same shall have been delivered for prepaid transmission into the custody of a company ordinarily engaged in the transmission of such messages. Section 7.5. Waiver of Notice. Whenever any notice whatever is required to be given under the provisions of the laws of the State of Delaware or under the provisions of the Certificate of Incorporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Except as may be otherwise specifically provided by law, any waiver by mail, telegraph, cable or wireless bearing the name of the person entitled to notice shall be deemed a waiver in writing duly signed. The presence of any person at any meeting either in person or by proxy shall be deemed the equivalent of a waiver in writing duly signed, except where the person attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 7.6. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of law and of the Certificate of Incorporation. Section 7.7. Creation of Reserves. Before payment of any dividend or making any distribution of profits, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board from time to time, in its absolute discretion, may think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board shall think conducive to the interest of the Corporation, and the Board may at any time modify or abolish any such reserve in the manner in which it was created. Section 7.8. Amendments. These By-Laws may be altered or repealed by the affirmative vote of the majority of the entire number of directors specified from time to time in the restated Certificate of Incorporation at any regular meeting of the Board or at any special meeting of the Board, if notice of the proposed alteration or repeal be contained in the notice of such special meeting; provided, however, that any provisions of these By-Laws resulting from such alteration or repeal shall at all times be in conformance with the Restated Certificate of Incorporation and the laws of the State of Delaware. EX-10 4 CONTRACT WITH RONALD F. MCKENNA Exhibit (10)(a) EMPLOYMENT AGREEMENT THIS AGREEMENT entered into as of the 18th day of June, 1996, by and between Sundstrand Corporation (the "Company"), and Ronald F. McKenna, an individual (the "Executive") (hereinafter collectively referred to as "the parties"). WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the possibility of a Change in Control (as hereinafter defined in Section 8(e)) exists and that the threat of or the occurrence of a Change in Control can result in significant distractions of its key management personnel because of the uncertainties inherent in such a situation; WHEREAS, the Board has determined that it is essential and in the best interest of the Company and its stockholders to retain the services of the Executive in the event of a threat or occurrence of a Change in Control and to ensure his continued dedication and efforts in such event without undue concern for his personal financial and employment security; and WHEREAS, in order to induce the Executive to remain in the employ of the Company, particularly in the event of a threat of or the occurrence of a Change in Control, the Company desires to enter into this Agreement with the Executive. NOW, THEREFORE, in consideration of the respective agreements of the parties contained herein, it is agreed as follows: l. Employment Term. (a) The "Employment Term" shall commence on the first date during the Protected Period (as defined in Section l(c) below) on which a Change in Control occurs (the "Effective Date") and shall expire on the third anniversary of the Effective Date; provided, however, that on each anniversary of the Effective Date, the Employment Term shall automatically be extended for one (l) year unless either the Company or the Executive shall have given written notice to the other at least ninety (90) days prior thereto that the Employment Term shall not be so extended; and provided, further, that the Employment Term shall in no event extend beyond the first day of the month following the month in which the Executive attains age sixty-five (65). (b) Notwithstanding anything contained in this Agreement to the contrary, if the Executive's employment is terminated prior to the Effective Date and the Executive reasonably demonstrates that such termination (l) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (2) otherwise occurred in connection with or in anticipation of a Change in Control, then for all purposes of this Agreement, the Effective Date shall mean the date immediately prior to the date of such termination of the Executive's employment. -2- (c) For purposes of this Agreement, the "Protected Period" shall be the two (2) year period commencing on June 18, 1996, provided, however, that the Protected Period shall be automatically extended for one (l) year on June 18, 1997 and on each June 18 thereafter unless the Company shall have given written notice to the Executive at least ninety (90) days prior thereto that the Protected Period shall not be so extended; and provided, further, that notwithstanding any such notice by the Company not to extend, the Protected Period shall not end if prior to the expiration thereof any third party has indicated an intention or taken steps reasonably calculated to effect a Change in Control, in which event the Protected Period shall end only after such third party publicly announces that it has abandoned all efforts to effect a Change in Control. 2. Employment. (a) Subject to the provisions of Section 8 hereof, the Company agrees to continue to employ the Executive and the Executive agrees to remain in the employ of the Company during the Employment Term. During the Employment Term, the Executive shall be employed as Executive Vice President and Chief Operating Officer, Aerospace, of the Company or in such other senior executive capacity as may be mutually agreed to in writing by the parties. The Executive shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by persons situated in a similar executive capacity. He shall also promote, by entertainment or otherwise, the business of the Company. (b) Excluding periods of vacation and sick leave to which the Executive is entitled, during the Employment Term the Executive agrees to devote reasonable attention and time during usual business hours to the business and affairs of the Company to the extent necessary to discharge the responsibilities assigned to the Executive hereunder. The executive may (i) serve on corporate, civil or charitable boards or committees, (ii) manage personal investments and (iii) deliver lectures and teach at educational institutions, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities hereunder. 3. Base Salary. During the Employment Term, the Company agrees to pay or cause to be paid to the Executive during the term of this Agreement a base salary at the rate of $300,000 per annum or such larger amount as the Company may from time to time determine (hereinafter referred to as the "Base Salary"). Such Base Salary shall be payable in accordance with the Company's customary practices applicable to its executives. 4. Employee Benefits. During the Employment Term, the Executive shall be entitled to participate in all employee benefit plans, practices and programs maintained by the Company and made available to employees generally including, without limitation all pension, retirement, profit sharing, savings, -3- medical, hospitalization, disability, dental, life or travel accident insurance benefit plans. The Executive's participation in such plans, practices and programs shall be on the same basis and terms as are applicable to employees of the Company generally. 5. Executive Benefits. During the Employment Term, the Executive shall be entitled to participate in all executive benefit or incentive compensation plans now maintained or hereafter established by the Company for the purpose of providing compensation and/or benefits to executives of the Company including, but not limited to, the Company's 1989 Restricted Stock Plan, the Sundstrand Corporation Stock Incentive Plan, the Officer Incentive Plan, and any supplemental retirement, salary continuation, stock option, deferred compensation, supplemental medical or life insurance or other bonus or incentive compensation plans. Unless otherwise provided herein, the Executive's participation in such plans shall be on the same basis and terms as other similarly situated executives of the Company, but in no event on a basis less favorable in terms of benefit levels or reward opportunities applicable to the Executive as in effect on the Effective Date. No additional compensation provided under any of such plans shall be deemed to modify or otherwise affect the terms of this Agreement or any of the Executive's entitlements hereunder. 6. Other Benefits. (a) Fringe Benefits and Perquisites. During the Employment Term, the Executive shall be entitled to all fringe benefits and perquisites (e.g. physical examinations, financial planning and tax preparation services) made available by the Company to similarly situated executives. (b) Expenses. During the Employment Term, the Executive shall be entitled to receive prompt reimbursement of all expenses reasonably incurred by him in connection with the performance of his duties hereunder or for promoting, pursuing or otherwise furthering the business or interests of the Company. (c) As of the Effective Date, all restrictions on any outstanding award (including restricted stock awards) granted to the Executive shall lapse and such awards shall become fully (100%) vested immediately, and all stock options and stock appreciation rights granted to the Executive shall become fully (100%) vested and shall become immediately exercisable. 7. Vacation and Sick Leave. During the Employment Term, at such reasonable times as the Board shall in its discretion permit, the Executive shall be entitled, without loss of pay, to absent himself voluntarily from the performance of his employment under this Agreement, provided that: (a) The Executive shall be entitled to annual vacation in accordance with the policies as periodically -4- established by the Board for similarly situated executives of the Company. (b) The Executive shall be entitled to sick leave (without loss of pay) in accordance with the Company's policies as in effect from time to time. 8. Termination. During the Employment Term, the Executive's employment hereunder may be terminated under the following circumstances: (a) Disability. The Company may terminate the Executive's employment after having established the Executive's Disability. For purposes of this Agreement, "Disability" means a physical or mental infirmity which impairs the Executive's ability to substantially perform his duties under this Agreement, which continues for a period of at least one hundred eighty (180) consecutive days and which cannot be reasonably accommodated by the Company. The Executive shall be entitled to the compensation and benefits provided for under this Agreement for any period during the term of this Agreement and prior to the establishment of the Executive's Disability during which the Executive is unable to work due to a physical or mental infirmity. Notwithstanding anything contained in this Agreement to the contrary, until the Termination Date specified in a Notice of Termination (as each term is hereinafter defined) relating to the Executive's Disability, the Executive shall be entitled to return to his position with the Company as set forth in this Agreement in which event no Disability of the Executive will be deemed to have occurred. (b) Cause. The Company may terminate the Executive's employment for "Cause". A Termination for Cause is a termination evidenced by a resolution adopted in good faith by a majority of the Board that the Executive (i) willfully and continually failed to substantially perform his duties with the Company (other than a failure resulting from the Executive's incapacity due to physical or mental illness) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance has been delivered to the Executive specifying the manner in which the Executive has failed to substantially perform, or (ii) willfully engaged in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise; provided, however, that no termination of the Executive's employment shall be for Cause as set forth in clause (ii) above until (x) there shall have been delivered to the Executive a copy of a written notice setting forth that the Executive was guilty of the conduct set forth in clause (ii) and specifying the particulars thereof in detail, and (y) the Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Executive's counsel if the Executive so desires). No act, nor failure to act, on the Executive's part, shall be considered "willful" unless he has acted or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the -5- best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Executive after Notice of Termination is given by the Executive shall constitute Cause for purposes of this Agreement. (c) (l) Good Reason. The Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence after a Change in Control (as hereinafter defined in this Section 8(e)) of any of the events or conditions described in Subsections (i) through (vii) hereof: (i) a change in the Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Executive's reasonable judgment, does not represent a promotion from his status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Executive of any duties or responsibilities which, in the Executive's reasonable judgment, are inconsistent with such status, title, position or responsibilities; or any removal of the Executive from or failure to re-appoint or re-elect him to any of such positions, except in connection with the termination of his employment for Disability, Cause, as a result of his death or by the Executive other than for Good Reason; (ii) a reduction in the Executive's Base Salary or any failure to pay the Executive any compensation or benefits to which he is entitled within five (5) days of the date due; (iii) the failure by the Company to (A) continue in effect any material compensation or benefit plan in which the Executive was participating at the time of the Change in Control, including, but not limited to, the Company's 1989 Restricted Stock Plan, the Sundstrand Corporation Stock Incentive Plan, and the Officer Incentive Compensation Plan or (B) provide the Executive with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately prior to the Change in Control (or as in effect following the Change in Control, if greater); (iv) the insolvency or the filing (by any party, including the Company) of a petition for bankruptcy, of the Company; (v) any material breach by the Company of any provision of this Agreement; (vi) any purported termination of the Executive's employment for Cause by the Company which does -6- not comply with the terms of Section 8 of this Agreement; and (vii) the failure of the Company to obtain an agreement, satisfactory to the Executive, from any successor or assign of the Company to assume and agree to perform this Agreement, as contemplated in Section 12 hereof. (2) Any event or condition described in this Section 8(c)(i) through (vii) which occurs prior to the Effective Date but which the Executive reasonably demonstrates (i) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (ii) otherwise arose in connection with or in anticipation of a Change in Control, shall constitute Good Reason for purposes of this Agreement notwithstanding that it occurred prior to the Effective Date. (3) The Executive's right to terminate his employment pursuant to this Section (8)(c) shall not be affected by his incapacity due to physical or mental illness. (d) Voluntary Termination. The Executive may voluntarily terminate his employment hereunder at any time. If the Executive voluntarily terminates his employment for any reason or without reason during the sixty (60) day period which commences on the date which is six (6) months following the Effective Date, it shall be referred to as a "Limited Period Termination". (e) Change in Control. For purposes of this Agreement, a "Change in Control" shall mean any of the following events: (l) The acquisition (other than from the Company) by any person (as such term is defined in Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty-three percent (33%) or more of the combined voting power of the Company's then outstanding voting securities; (2) The individuals who, as of the date hereof, are members of the Board (the "Incumbent Board"), cease for any reason to constitute a majority of the Board, unless the election, or nomination for election by the Company stockholders, of any new director was approved by a vote of a majority of the Incumbent Board, and such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board; or (3) Approval by stockholders of the Company of (i) a merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or -7- consolidation, do not, as a result of such merger or consolidation, own, directly or indirectly, more than sixty-seven percent (67%) of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation or (ii) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to Section 8(e)(l), solely because thirty-three percent (33%) or more of the combined voting power of the Company's then outstanding securities is acquired by (i) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (ii) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition. (f) Notice of Termination. Any purported termination by the Company or by the Executive shall be communicated by written Notice of Termination to the other. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which indicates the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. For purposes of this Agreement, no such purported termination of employment shall be effective without such Notice of Termination. (g) Termination Date, Etc. "Termination Date" shall mean in the case of the Executive's death, his date of death, or in all other cases, the date specified in the Notice of Termination subject to the following: (1) If the Executive's employment is terminated by the Company for Cause or due to Disability, the date specified in the Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to the Executive, provided that in the case of Disability the Executive shall not have returned to the full-time performance of his duties during such period of at least thirty (30) days; and (2) If the Executive's employment is terminated for Good Reason or is a Limited Period Termination, the date specified in the Notice of Termination shall not be more than sixty (60) days from the date the Notice of Termination is given to the Company. -8- 9. Compensation Upon Termination. Upon termination of the Executive's employment during the Employment Term, the Executive shall be entitled to the following benefits: (a) If the Executive's employment is terminated by the Company for Cause or Disability or by the Executive (other than for Good Reason or a Limited Period Termination), or by reason of the Executive's death, the Company shall pay the Executive all amounts earned or accrued hereunder through the Termination Date but not paid as of the Termination Date, including Base Salary, vacation pay, bonuses or incentive compensation and any previous compensation which the Executive has previously deferred (including any interest earned or credited thereon) (collectively, "Accrued Compensation"). In addition to the foregoing, if the Executive's employment is terminated by the Company for Disability or by reason of the Executive's death, the Company shall pay to the Executive or his beneficiaries an amount equal to the bonus or incentive award that the Executive would have been entitled to receive in respect of the fiscal year in which the Executive's Termination Date occurs had he continued in employment until the end of such fiscal year, calculated as if the maximum bonus payable to the Executive had been earned for such year, multiplied by a fraction the numerator of which is the number of days in such fiscal year through the Termination Date and the denominator of which is 365 (a "Pro Rata Bonus"). The Executive's entitlement to any other compensation or benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect. (b) If the Executive's employment by the Company shall be terminated (1) by the Company other than for Cause, death or Disability, (2) by the Executive for Good Reason, or (3) by the Executive as a Limited Period Termination, then the Executive shall be entitled to the benefits provided below: (i) the Company shall pay the Executive all Accrued Compensation and a Pro Rata Bonus; (ii) the Company shall pay the Executive as severance pay and in lieu of any further salary for periods subsequent to the Termination Date, in a single payment an amount in cash equal to three (3) times the sum of (A) the Executive's Base Salary at the highest rate in effect at any time within the ninety (90) day period ending on the date the Notice of Termination is given (or if the Executive's employment is terminated after a Change in Control, the Executive's Base Salary immediately prior to the Change in Control, if greater) and (B) the "Bonus Amount" (as defined below). Notwithstanding the foregoing, the amount to be paid under this Subsection (ii) shall be multiplied by a fraction (which in no event shall be greater than one (1)) the numerator of which shall be the number of months (for this purpose any partial month shall be considered as a whole month) remaining until the -9- Executive's 65th birthday and the denominator of which shall be thirty-six (36). The term "Bonus Amount" shall mean (x) the greatest amount of any cash bonus or incentive compensation received by the Executive during the three fiscal years immediately preceding the Termination Date or (y) if no such bonus was received by the Executive during any of such three years, then an amount equal to the Executive's maximum bonus which could be awarded for the fiscal year in which the Termination Date occurs had he continued in employment until the end of such fiscal year. (iii) for a number of months equal to the lesser of (A) thirty-six (36) or (B) the number of months remaining until the Executive's 65th birthday, the Company shall at its expense continue on behalf of the Executive and his dependents and beneficiaries the life insurance, disability, medical, dental and hospitalization benefits which were being provided to the Executive at the time Notice of Termination is given (or, if the Executive is terminated following a Change in Control, the benefits provided to the Executive at the time of the Change in Control, if greater). The benefits provided in this Section 9(b)(iii) shall be no less favorable to the Executive, in terms of amounts and deductibles and costs to him, than the coverage provided the Executive under the plans providing such benefits at the time of Notice of Termination is given (or, if the Executive is terminated following a Change in Control, at the time of the Change in Control if more favorable to the Executive). The Company's obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Executive obtains any such benefits pursuant to a subsequent employer's benefit plans, in which case the Company may reduce the coverage of any benefits it is required to provide the Executive hereunder as long as the aggregate coverage of the combined benefit plans is no less favorable to the Executive, in terms of amounts and deductibles and costs to him, than the coverage required to be provided hereunder. This Subsection (iii) shall not be interpreted so as to limit any benefits to which the Executive or his dependents may be entitled under any of the Company's employee benefit plans, programs or practices following the Executive's termination of employment, including without limitation, retiree medical and life insurance benefits; (iv) the Company shall pay in a single payment an amount in cash equal to the excess of (A) the actuarial equivalent of the aggregate retirement benefit the Executive would have been entitled to receive under the Company's supplemental and excess retirement plans and under the Sundstrand Corporation Retirement Plan-Aerospace had (x) the executive remained employed by the Company for an additional three (3) complete years of credited service (or until his 65th birthday if earlier), (y) his annual compensation during such period been equal to his Base -10- Salary (at the rate used for purposes of Section 9(b)(ii)) and the Bonus Amount, and (z) he been fully (100%) vested in his benefit under each such retirement plan, over (B) the actuarial equivalent of the aggregate retirement benefit the Executive is actually entitled to receive under such retirement plans. For purposes of this Subsection (iv), "actuarial equivalent" shall be determined in accordance with the actuarial assumptions used for the calculation of benefits under the Sundstrand Corporation Retirement Plan-Aerospace as applied prior to the Termination Date in accordance with such plan's past practices (but shall in any event take into account the value of any subsidized early retirement benefit); (v) the eligibility requirements for the Company's Retiree Health Insurance Plan shall be waived, and commencing on the Executive's termination of employment, he shall be provided with the same health care coverage as provided to other eligible retirees; and (vi) the age 62 and 30-year requirements of the Executive Life Insurance Program for retirees are waived, and commencing on the Executive's termination of employment, he shall be provided with a life insurance benefit of one time his annual base salary at the time of his termination of employment. (c) The amounts provided for in Sections 9(a) and 9(b)(i), (ii) and (iv) shall be paid within five (5) days after the Executive's Termination Date. (d) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Executive in any subsequent employment. 10. Excise Tax Payments. (a) Notwithstanding anything contained in this Agreement to the contrary, in the event that any payment (within the meaning of Section 28OG(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), or distribution to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company (a "Payment" or "Payments"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the -11- Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) An initial determination shall be made as to whether a Gross-Up Payment is required pursuant to this Section 10 and the amount of such Gross-Up Payment shall be made by a national independent accounting firm selected by the Executive (the "Accounting Firm"). All fees, costs and expenses (including, but not limited to, the cost of retaining experts) of the Accounting Firm shall be borne by the Company and the Company shall pay such fees, costs and expenses as they become due. The Accounting Firm shall provide detailed supporting calculations, acceptable to the Executive, both to the Company and the Executive within fifteen (15) business days of the Termination Date, if applicable, or such other time as requested by the Company or by the Executive (provided the Executive reasonably believes that any of the Payments may be subject to the Excise Tax). The Gross-Up Payment, if any, as determined pursuant to this Section 10(b) shall be paid by the Company to the Executive within five (5) business days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to a Payment or Payments, it shall furnish the Executive with an unqualified opinion that no Excise Tax will be imposed with respect to any such Payment or Payments. Any such initial determination by the Accounting Firm of the Gross-Up Payment shall be binding upon the Company and the Executive subject to the application of Section 10(c). (c) As a result of the uncertainty in the application of Section 4999 and 28OG of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Overpayment") or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an "Underpayment"). An Underpayment shall be deemed to have occurred upon notice (formal or informal) to the Executive from any governmental taxing authority that the tax liability of the Executive (whether in respect of the then current taxable year of the Executive or in respect of any prior taxable year of the Executive) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Company has failed to make a sufficient Gross-Up Payment. An Overpayment shall be deemed to have occurred upon a "Final Determination" (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments with respect to which the Executive had previously received a Gross-Up Payment. A Final Determination shall be deemed to have occurred when the Executive has received from the applicable governmental taxing authority a refund of taxes or other reduction in his tax liability by reason of the Overpayment and upon either (i) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds the Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination -12- has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (ii) the statute of limitations with respect to the Executive's applicable tax return has expired. If an Underpayment occurs, the Executive shall promptly notify the Company and the Company shall pay to the Executive at least five (5) business days prior to the date on which the applicable governmental taxing authority has requested payment, an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties imposed on the Underpayment. If an Overpayment occurs, the amount of the Overpayment shall be treated as a loan by the Company to the Executive and the Executive shall, within ten (10) business days of the occurrence of such Overpayment, pay the Company the amount of the Overpayment plus interest at an annual rate equal to the rate provided for in Section 1274(b)(2)(B) of the Code from the date the Gross-Up Payment (to which the Overpayment relates) was paid to the Executive. (d) Notwithstanding anything contained in this Agreement to the contrary, in the event it is determined that an Excise Tax will be imposed on any Payment or Payments, the Company shall pay to the applicable governmental taxing authorities as Excise Tax withholding, the amount of the Excise Tax that the Company has actually withheld from the Payment or Payments. 11. Unauthorized Disclosure. The Executive shall not make any Unauthorized Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean disclosure by the Executive without the consent of the Board to any person, other than an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company or as may be legally required, of any confidential information obtained by the Executive while in the employ of the Company (including, but not limited to, any confidential information with respect to any of the Company's customers or methods of distribution) the disclosure of which he knows or has reason to believe will be materially injurious to the Company; provided, however, that such term shall not include the use or disclosure by the Executive, without consent, of any information known generally to the public (other than as a result of disclosure by him in violation of this Section 11) or any information not otherwise considered confidential by a reasonable person engaged in the same business as that conducted by the Company. 12. Successors and Assigns. (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required -13- to perform it if no such succession or assignment had taken place. The term "the Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representative. 13. Fees and Expenses. As of the Effective Date, the Company shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) reasonably incurred by the Executive as they become due as a result of (i) the Executive's termination of employment (including all such fees and expenses, if any, incurred in contesting or disputing any such termination of employment), (ii) the Executive's hearing before the Board as contemplated in Section (8)(b) of this Agreement, (iii) the Executive's seeking to obtain or enforce any right or benefit provided by this Agreement or by any other plan or arrangement maintained by the Company under which the Executive is or may be entitled to receive benefits, or (iv) a dispute between the Executive and the Internal Revenue Service (or any other taxing authority) with regard to an "Underpayment" (as defined in Section 10 of this Agreement). 14. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, addressed to the respective addresses last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 15. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or reduce such rights as the Executive may have under any other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance -14- with such plan or program, except as explicitly modified by this Agreement. 16. Settlement of Claims. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. 17. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 18. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Illinois without giving effect to the conflict of law principles thereof. 19. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 20. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. -15- IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written. SUNDSTRAND CORPORATION By: /s/ Robert H. Jenkins --------------------------- Title: President and Chief Executive Officer ATTEST: /s/ Richard M. Schilling - ------------------------ Secretary By: /s/ Ronald F. McKenna -------------------------- Ronald F. McKenna EX-11 5 COMPUTATION OF FULLY DILUTED EPS Exhibit (11)(a) Computation of Fully Diluted Earnings Per Share (Unaudited) Quarter Ended Six Months June 30, Ended June 30, -------------- -------------- (Amounts in millions except per share date) 1996 1995 1996 1995 - ------------------------------------------------------------------------------ EARNINGS Net earnings $ 34 $ 27 $ 60 $ 9 ===== ===== ===== ===== - ------------------------------------------------------------------------------ SHARES Weighted-average number of common shares outstanding 61.4 63.3 61.4 63.3 Additional shares assuming conversion of stock options .5 .3 .5 .3 ----- ----- ----- ----- Fully diluted shares 61.9 63.6 61.9 63.6 ===== ===== ===== ===== - ------------------------------------------------------------------------------ FULLY DILUTED EARNINGS PER SHARE Net earnings $ .55 $ .43 $ .97 $ .14 ===== ===== ===== =====
EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1996 JUN-30-1996 50 0 278 0 348 751 444 0 1573 415 220 0 0 38 452 1573 739 739 484 632 0 0 15 95 35 60 0 0 0 60 .98 0
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