UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001. COMMISSION FILE NUMBER 001-16445
ROCKWELL COLLINS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-2314475
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
400 COLLINS ROAD NE 52498
CEDAR RAPIDS, IOWA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (319) 295-1000
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
(including the associated Preferred Share
Purchase Rights)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT: None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant on November 30, 2001 was approximately $3.1 billion.
183,635,165 shares of the registrant's Common Stock, par value $.01 per share, were outstanding on November 30, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Certain information contained in the Annual Report to Shareowners of the registrant for the fiscal year ended September 30, 2001 is incorporated by reference into Part I, Part II and Part IV.
(2) Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of the registrant to be held on February 13, 2002 is incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS.
GENERAL
Rockwell Collins, Inc. (the "Company" or "Rockwell Collins"), headquartered in Cedar Rapids, Iowa, is a world leader in providing aviation electronics and airborne and mobile communications products and systems for commercial and military applications. The Company was incorporated in Delaware in March 2001 in connection with the June 29, 2001 distribution by Rockwell International Corporation, a Delaware corporation and Rockwell Collins' former parent company ("Rockwell"), to Rockwell shareowners on a pro rata basis of all of the issued and outstanding shares of common stock, par value $.01 per share (the "Company Common Stock"), of the Company (the "Distribution"). In the Distribution, Rockwell shareowners received one share of Company Common Stock for each share of Rockwell common stock owned as of the close of business on June 15, 2001, the record date for the Distribution. Prior to the Distribution, Rockwell transferred substantially all of its operations, assets and liabilities related to the avionics and communications businesses then owned and operated by Rockwell (the "Avionics and Communications Business") (including liabilities relating to former operations) and certain other assets and liabilities to the Company or to subsidiaries of the Company. As used herein, the terms "Company" or "Rockwell Collins" include subsidiaries and predecessors unless the context indicates otherwise.
Rockwell Collins has a global presence, with operations in 27 countries, and serves its worldwide customer base through its Commercial Systems and Government Systems business segments. The Commercial Systems business supplies flight deck electronic products and systems, including communications, navigation, display and automatic flight control systems, as well as in-flight entertainment and information management systems, to manufacturers of commercial air transport, business and regional aircraft and commercial airlines throughout the world. The Government Systems business supplies defense electronics products and systems, including communications, navigation and integrated systems, for airborne, ground and shipboard applications to the U.S. Department of Defense, foreign militaries and manufacturers of military aircraft and helicopters. In addition, both the Commercial Systems and Government Systems businesses provide a wide array of services and support to the Company's customers through the Company's network of over 60 service locations worldwide.
Whenever reference is made in any Item of this Annual Report on Form 10-K to information under specific captions of the 2001 Annual Report to Shareowners of the Company (the "2001 Annual Report") or to information in the Proxy Statement for the Annual Meeting of Shareowners of the Company to be held on February 13, 2002 (the "2002 Proxy Statement"), such information shall be deemed to be incorporated herein by such reference.
Financial information with respect to the Company's business segments, including their contributions to sales and operating earnings for the three years ended September 30, 2001, is contained under the caption SEGMENT PERFORMANCE in MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS on pages 31-32 of the 2001 Annual Report, and in Note 22 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the 2001 Annual Report.
The financial information included or incorporated by reference in this Annual Report on Form 10-K contains information for periods while Rockwell Collins was operated as a business of Rockwell prior to the Distribution, and may not necessarily reflect what the financial position, results of operations and cash flows would have been had the Company been operated independently during such periods.
PRODUCTS
Rockwell Collins designs, develops, manufactures, markets, distributes, sells, services and supports a broad range of aviation electronics and airborne and mobile communications products and systems for commercial and military applications. While products, systems and services in the Commercial Systems and Government Systems businesses are primarily focused on aviation applications, the Government Systems business also offers products and systems for ground and shipboard applications. Through the Company's network of over 60 service locations
worldwide, both the Commercial Systems and Government Systems businesses also provide a wide range of services and support to their customers, including equipment repair and overhaul, service parts, field service engineering, training services, technical information services and aftermarket used equipment sales.
COMMERCIAL SYSTEMS
Rockwell Collins is one of the world's leading suppliers of avionics equipment to manufacturers of commercial air transport, business and regional aircraft and commercial airlines throughout the world. This equipment includes:
- communications products and systems, such as data links, High Frequency and Very High Frequency communications systems and satellite communications systems;
- navigation products and systems, including a broad range of navigation sensors and flight management systems;
- situational awareness products and systems, such as weather radar, traffic alert collision avoidance systems and Mode S transponders, which aid pilots in awareness of airborne obstacles and resolve flight path conflicts;
- flight deck products and systems, which include a broad offering of multi-function liquid crystal display units;
- automatic flight control systems, which perform manual and automatic pilot and landing functions;
- integrated avionics systems, such as the Pro Line 21 system, which integrate communications and navigation sensors, displays and flight control systems; and
- integrated information systems, such as the I2S system, which are focused on providing information management solutions that help improve flight operations, maintenance and cabin services.
Rockwell Collins is also a leading provider of in-flight entertainment and cabin management products and systems and has a full line of audio and video entertainment solutions for standard and widebody aircraft. In addition to offering audio, video and display products, the Company provides integrated in-flight entertainment systems, including the Total Entertainment System, to provide airline passengers with a variety of entertainment options while in flight. In-flight entertainment products and systems are marketed worldwide to commercial air transport manufacturers, commercial airlines and business aircraft operators.
GOVERNMENT SYSTEMS
Rockwell Collins provides defense electronics equipment to all branches of the U.S. Department of Defense (Air Force, Army, Navy and Marines), the U.S. Coast Guard, Ministries of Defense throughout the world and manufacturers of military aircraft and helicopters. The Company's defense electronics equipment includes:
- communications products and systems designed to help customers transfer information across the communications spectrum, ranging from Low and Very Low Frequency to High, Very High and Ultra High Frequency to satellite communications;
- military data link products and systems;
- navigation products and systems, including radio navigation systems, global positioning systems, handheld navigation systems and multi-mode receivers; and
- integrated systems for the flight deck, such as the Flight2 system, an avionics architecture that integrates flight operations with navigation and guidance functions and that can include flight controls and displays, information/data processing and communications, navigation and/or safety and surveillance systems.
PRODUCT SALES
The Company's sales by product class for the three fiscal years ended September 30, 2001 were as follows (in millions):
FISCAL YEAR
ENDED SEPTEMBER 30,
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2001 2000 1999
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Commercial Systems:
Commercial Avionics Products..................................... $ 1,274 $ 1,231 $ 1,213
In-Flight Entertainment Products................................. 422 355 333
Government Systems:
Defense Electronic Products...................................... 1,124 924 892
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Total......................................................... $ 2,820 $ 2,510 $ 2,438
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CUSTOMERS; SALES AND MARKETING
The Company serves a broad range of customers worldwide, including commercial air transport, business and regional aircraft manufacturers, military aircraft and helicopter manufacturers, airlines, the U.S. Department of Defense, other governmental agencies and foreign militaries. The Company markets its products, systems and services directly to Commercial Systems and Government Systems customers through an internal marketing and sales force. In addition, the Company utilizes a worldwide dealer network to distribute its products. In fiscal 2001, various branches of the U.S. Government accounted for 28% of the Company's total sales and The Boeing Company accounted for 8% of the Company's total sales.
The Company's largest customers have substantial bargaining power, including with respect to price and other commercial terms. Although the Company believes that it generally enjoys good relations with its customers, the loss of all or a substantial portion of its sales to any of its large volume customers for any reason, including the loss of contracts, reduced or delayed customer requirements or strikes or other work stoppages affecting production by these customers, could have a material adverse effect on the Company's business, financial condition and results of operations.
COMPETITION
The Company operates in a highly competitive environment. Principal competitive factors include total cost of ownership, product and system performance, quality, service, design and engineering capabilities, new product innovation and timely delivery. The Company competes worldwide with a number of United States and international companies that are both larger and smaller than the Company in terms of resources and market share, and some of which are the Company's customers. Some of the Company's competitors have more extensive or more specialized engineering, manufacturing and marketing capabilities than the Company does in some areas. As a result, these competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or may be able to devote greater resources to the development, promotion and sale of their products than the Company. Furthermore, competitors who have greater financial resources than the Company may be better able to provide financing to their customers in connection with sales of their products.
The recent trend toward industry consolidation has had a major impact on the competitive environment in which the Company operates. Over the past several years, the Company's competitors have undertaken a number of mergers, alliances and realignments that have contributed to a very dynamic competitive landscape. During this same time frame, the Company has completed six acquisitions and entered into numerous strategic alliances to improve its competitive position.
RAW MATERIALS AND SUPPLIES
The Company believes it has adequate sources for the supply of raw materials and components for its manufacturing needs with suppliers located around the world. Electronic components and other raw materials used in the manufacture of the Company's products are generally available from several suppliers. The Company continues to work with its supply base for raw materials and components to ensure an adequate source of supply, including through strategic alliances, dual sourcing, identification of substitute or alternate parts that meet performance requirements and last-time and life-time buys. Although historically the Company has not experienced any significant difficulties in obtaining an adequate supply of raw materials and components necessary for its manufacturing operations, the loss of a significant supplier or the inability of a supplier to meet performance and quality specifications or delivery schedules could have a material adverse effect on the Company's business, financial condition and results of operations.
BACKLOG
The following table summarizes the Company's backlog (in millions):
SEPTEMBER 30,
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2001 2000
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Commercial Systems..................................................... $ 515 $ 734
Government Systems:
Funded Orders..................................................... 1,160 902
Unfunded Orders................................................... 250 120
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Total Backlog................................................. $ 1,925 $ 1,756
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The Company's backlog represents the aggregate of the sales price of orders received from customers, but not recognized as revenue, and excludes unexercised options. Although the Company believes that the orders included in backlog are firm, some orders may be canceled by the customer without penalty, and the Company may elect to permit cancellation of orders without penalty where management believes that it is in the Company's best interest to do so.
JOINT VENTURES
As the aviation electronics and communications industry has been experiencing significant trends of consolidation of suppliers and has become more globalized, joint ventures and other cooperative arrangements have become an important element of the Company's business strategies. The Company currently has interests in two active joint ventures with operations in the United States. The Company's joint ventures include its 50%-owned joint venture with BAE Systems, plc (formerly Marconi Electronic Systems) for joint pursuit of the worldwide military data link market. In addition, Kaiser Aerospace and Electronics Corporation, the Company's wholly-owned subsidiary, has a 50%-owned joint venture with Elbit Systems, Ltd. (formerly EFW, Inc.) for joint pursuit of helmet mounted cueing systems for the worldwide military fixed wing marketplace. In accordance with generally accepted accounting principles in the United States, these joint ventures are accounted for under the equity method.
ACQUISITIONS AND DISPOSITIONS
The Company continually considers various strategic and business opportunities, including strategic acquisitions and alliances, licenses and marketing arrangements, and reviews the prospects of its existing businesses to determine whether any of them should be modified, sold or otherwise discontinued.
Since fiscal 1998, the Company has completed six cash acquisitions to augment its internal growth plans. These acquisitions, which have been targeted in the general areas of in-flight entertainment systems, flight deck displays technology and service and support, include:
- in-flight entertainment systems: the December 1997 acquisition of Hughes-Avicom International, Inc. and the July 2000 acquisition of Sony Trans Com;
- displays technology: the March 1999 acquisition of the remaining 50% interest in Flight Dynamics that the Company did not already own and the December 2000 acquisition of Kaiser Aerospace and Electronics Corporation; and
- service and support: the November 1997 acquisition of Melbourne Avionics Workshop and the August 1999 acquisition of Intertrade Ltd.
In October 1998 the Company completed the disposition of its railroad electronics business in order to better align the strategic fit and contribution of its businesses.
The aerospace industry in which the Company operates has been experiencing significant consolidation among suppliers, including the Company and its competitors, and the customers the Company serves. Commercial airlines have increasingly been merging and creating global alliances to achieve greater scale and enhance their geographic reach. Aircraft manufacturers continue to make acquisitions to expand their product portfolios to better compete in the global marketplace. In addition, aviation electronics and communications suppliers have been consolidating and forming alliances to broaden their product and integrated system offerings and achieve critical mass. This supplier consolidation is in part attributable to aircraft manufacturers and airlines more frequently awarding long-term sole source or preferred supplier contracts to the most capable suppliers, thus reducing the total number of suppliers from whom components and systems are purchased.
Additional information relating to acquisitions is contained in Note 4 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the 2001 Annual Report.
RESEARCH AND DEVELOPMENT
The Company has significant research, development, engineering and product design capabilities. At September 30, 2001, the Company employed approximately 4,200 engineers.
The Company spent $295 million, $265 million and $232 million in fiscal 2001, 2000 and 1999, respectively, on research and development. In addition, customer-sponsored research and development was $217 million, $203 million and $188 million in fiscal 2001, 2000 and 1999, respectively. Customer-sponsored research and development is generally performed under long-term fixed price contracts with the U.S. Government. These contracts generally require the production of initial prototype units or limited production quantities to the U.S. Government's specifications.
ROCKWELL SCIENTIFIC COMPANY LLC
The Company and Rockwell each own a 50% equity interest in Rockwell Scientific Company LLC, which is engaged in advanced research and development of technologies in electronics, imaging and optics, material and computational sciences and information technology. Rockwell Scientific Company LLC provides research and development services to the Company, as well as to The Boeing Company, Conexant Systems, Inc., Rockwell and the U.S. Government.
INTELLECTUAL PROPERTY
The Company owns over 600 United States and foreign patents and numerous pending patent applications, including those patents and patent applications purchased in its recent acquisitions of Sony Trans Com and Kaiser Aerospace and Electronics Corporation. The Company also licenses certain patents relating to its manufacturing and other activities. While in the aggregate the Company considers its patents and licenses important to the operation of its business, the Company does not consider any individual patent or license to be of such importance that the loss or termination of any one patent or license would materially affect the Company.
Rockwell continues to own the Rockwell name. In connection with the Distribution, Rockwell granted the Company the exclusive right to continue to use the Rockwell Collins name other than in connection with automation products. This exclusive right would terminate following certain change of control events applicable to the Company as described in the distribution agreement among Rockwell, Rockwell Collins and Rockwell Scientific Company LLC.
EMPLOYEES
As of September 30, 2001, the Company had approximately 17,500 full-time employees. Approximately 2,700 of the Company's employees in the United States are covered by collective bargaining agreements.
A collective bargaining agreement with the International Association of Theatrical and Stage Employees covering approximately 350 in-flight entertainment service base employees located throughout the United States expires on December 31, 2001. Negotiations with the union are currently in progress.
CYCLICALITY
The avionics and communications markets in which the Company sells its products are, to varying degrees, cyclical and have experienced periodic downturns. For example, markets for the Company's commercial aviation electronic products have experienced downturns during periods of slowdowns in the commercial airline industry and during periods of weak conditions in the economy in general, as demand for new aircraft generally declines during these periods. Although the Company believes that aftermarket demand for many of its products and its Government Systems business may reduce its exposure to these business downturns, the Company has experienced these conditions in its business in the past and may experience downturns in the future. In addition, acts of terror, such as the events of September 11, 2001, could precipitate or exacerbate aerospace downturns.
REGULATORY MATTERS
The continued sale, installation and operation of the Company's products in commercial aviation applications is subject to continued compliance with applicable regulatory requirements and future changes to those requirements. In the U.S., the Company's commercial aviation products are required to comply with Federal Aviation Administration regulations governing production and quality systems, airworthiness and installation approvals, repair procedures and continuing operational safety. Some of the Company's products, such as radio frequency transmitters and receivers, must also comply with Federal Communications Commission regulations governing authorization and operational approval of telecommunications equipment.
Internationally, similar requirements exist for airworthiness, installation and operational approvals. These requirements are administered by the national aviation authorities of each country and, in the case of Europe, coordinated by the European Joint Aviation Authorities. Many countries also impose specific telecommunications equipment requirements, administered through their national aviation authorities or telecommunications authority. In Europe, approval to import products also requires compliance with European Commission directives, such as those associated with electrical safety, electro-magnetic compatibility and the use of metric units of measurement.
Products already in service may also become subject to mandatory changes for continued regulatory compliance as a result of any identified safety issue, which can arise from an aircraft accident, incident or service difficulty report.
ENVIRONMENTAL MATTERS
Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes, and other activities affecting the environment have had and will continue to have an impact on the Company's manufacturing operations. Thus far, compliance with environmental requirements and resolution of environmental claims have been accomplished without material effect on the Company's liquidity and capital resources, competitive position or financial condition. Based on its assessment, management believes that the Company's expenditures for environmental capital investment and remediation necessary to comply with present
regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on the Company's business or financial condition. Management cannot assess the possible effect of compliance with future requirements.
GEOGRAPHIC INFORMATION
The Company's principal markets outside the United States are in Australia, Brazil, Canada, China, France, Germany, Mexico, Russia, Singapore and the United Kingdom. In addition to normal business risks, operations outside the United States are subject to other risks including, among other factors, political, economic and social environments, governmental laws and regulations, and currency revaluations and fluctuations.
Selected financial information by major geographic area for each of the three years in the period ended September 30, 2001 is contained in Note 22 of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in the 2001 Annual Report.
CERTAIN BUSINESS RISKS
The Company's business, financial condition and operating results can be impacted by a number of factors, including but not limited to those set forth below and elsewhere in this Annual Report on Form 10-K, any one of which could cause the Company's actual results to vary materially from recent results or from the Company's anticipated future results.
THE TERRORIST ATTACKS THAT OCCURRED ON SEPTEMBER 11, 2001 HAVE ADVERSELY AFFECTED OUR BUSINESS AND POSSIBLE FUTURE TERRORIST ATTACKS MAY FURTHER ADVERSELY AFFECT OUR BUSINESS.
The terrorist attacks which took place on September 11, 2001 have caused significant uncertainty with respect to U.S. and other business and financial markets and have adversely affected our business. National and global responses to these terrorist attacks could cause further uncertainty and instability in these markets. Although our Government Systems business may experience greater demand for its products as a result of increased government defense spending, factors arising (directly or indirectly) from these terrorist attacks and possible future terrorist attacks which have adversely affected our business and which may further adversely affect our business include:
- the impact of the terrorist attacks and declines in air travel as a result of the terrorist attacks on the financial condition of our commercial airline and aircraft manufacturer customers. For example, a significant amount of cancellations of orders for aircraft from aircraft manufacturers as a result of the attacks is expected to adversely impact our future results;
- deteriorating financial performance of airlines could result in a reduction of discretionary spending for aircraft upgrades of avionics and in-flight entertainment equipment;
- potential reductions in the need for aircraft maintenance due to declines in air travel; and
- the adverse effect of the attacks, or future events arising as a result of the attacks, on the economy in general.
WE DEPEND TO A SIGNIFICANT DEGREE ON U.S. GOVERNMENT CONTRACTS, WHICH ARE
SUBJECT TO UNIQUE RISKS.
In fiscal 2001, 28% of our sales were derived from United States government contracts. In addition to normal business risks, companies engaged in supplying equipment to the United States government are subject to unique risks which are largely beyond our control. These risks include:
- dependence on Congressional appropriations and administrative allotment of funds;
- the ability of the U.S. government to terminate, without prior notice, partially completed government programs that were previously authorized;
- changes in governmental procurement legislation and regulations and other policies which may reflect military and political developments;
- significant changes in contract scheduling;
- intense competition for available United States government business necessitating increases in time and investment for design and development;
- difficulty of forecasting costs and schedules when bidding on developmental and highly sophisticated technical work;
- changes over the life of United States government contracts, particularly development contracts, which generally result in adjustments of contract prices; and
- claims based on United States government work, which may result in fines, the cancellation or suspension of payments or suspension or debarment proceedings affecting potential further business with the United States government.
IMPEDIMENTS TO NEW AIRSPACE MANAGEMENT TECHNOLOGIES, INCLUDING THE FAILURE OF GOVERNMENT AVIATION AGENCIES TO PROVIDE THE NECESSARY INFRASTRUCTURE TO ENABLE THE TRANSITION TO THESE TECHNOLOGIES, MAY IMPACT FUTURE SALES.
The aerospace industry is experiencing a global transition from traditional communications, navigation, surveillance and air traffic control systems to air traffic management systems utilizing satellite-based technologies that will allow pilots to fly at desired paths and speeds selected in real time, while still complying with instrument flight regulations. The transition to these technologies will require the use of digital communications systems, global positioning system navigation, satellite surveillance techniques and ground surveillance systems. These technologies are expected to result in more direct and efficient flight routes, fewer flight delays and reduced airport congestion. Although we believe that we are well positioned to participate in this market evolution, our ability to capitalize on the transition to airspace management technologies is subject to various risks, including:
- delays in the development of the necessary satellite and ground infrastructure by U.S. and foreign governments;
- delays in adopting national and international regulatory standards;
- failure of our product development investments in communications, navigation and surveillance products that enable airspace management technologies to coincide with market evolution to, and demand for, these products;
- the ability and desire of customers to invest in products enabling airspace management technologies; and
- political instability resulting from the September 11, 2001 terrorist attacks and possible future terrorist attacks.
OUR MANUFACTURING OPERATIONS IN CALIFORNIA MAY BE ADVERSELY AFFECTED BY POWER OUTAGES AND WILL BE ADVERSELY AFFECTED BY INCREASED ELECTRIC POWER COSTS IN THAT STATE.
We have manufacturing operations in California, which may experience electric power outages due to the difficulties being encountered by the electric utility industry in that state. If our California operations were to shut down due to lack of electric power for extended periods, they might be unable to meet customers' delivery
schedules, thereby adversely affecting our revenue. In addition, our California operations may experience increased operating expenses due to inefficiencies resulting from irregular interruptions in electric power supply. These operations also will incur increased electric power costs in the future. We are unable to predict how long the difficulties faced by the electric utility industry in California will continue, or how such difficulties will be resolved. To the extent they do continue and our operations experience power outages and/or increases in their cost of electric power, our business could be adversely affected.
WE MAY BE RESPONSIBLE FOR FEDERAL INCOME TAX LIABILITIES THAT RELATE TO OUR
SPIN-OFF FROM ROCKWELL.
In connection with our spin-off from Rockwell, the Internal Revenue Service (the IRS) issued a tax ruling to Rockwell stating that the spin-off would qualify as a tax-free reorganization for U.S. federal income tax purposes. While the tax ruling generally is binding on the IRS, the continuing validity of the ruling is subject to certain factual representations and assumptions. We are not aware of any facts or circumstances that would cause these representations and assumptions to be untrue.
The tax allocation agreement entered into between us and Rockwell in connection with the spin-off provides that we will be responsible for any taxes imposed on Rockwell, us or Rockwell shareowners as a result of either:
- the failure of the spin-off to qualify as a tax-free reorganization for U.S. federal income tax purposes, or
- the subsequent disqualification of the spin-off as a tax-free transaction to Rockwell for U.S. federal income tax purposes,
if the failure or disqualification is attributable to specific post-spin-off actions by or in respect of us, our subsidiaries or our shareowners. For example, even if the spin-off otherwise qualifies as a tax-free reorganization for U.S. federal income tax purposes, it may be disqualified as tax-free to Rockwell if 50% or more of our stock is acquired as part of a plan or series of related transactions that include the spin-off. For this purpose, any acquisitions of our stock within two years before or after the spin-off are presumed to be part of such a plan, although Rockwell or we may be able to rebut that presumption. Under temporary IRS regulations which were not effective at the time of the spin-off, if specified conditions are satisfied, an acquisition occurring more than six months after the spin-off will not be considered as part of a plan which includes the spin-off provided that there was no agreement, understanding, arrangement or substantial negotiations concerning the acquisition before a date that is six months after the spin-off. There is no assurance that rules similar to those contained in the temporary regulations will be applied to transactions such as the spin-off occurring before the effective date of the temporary regulations. The process for determining whether a change of ownership has occurred under the tax rules is complex and uncertain. If we do not carefully monitor our compliance with these rules we might inadvertently cause or permit a change of ownership to occur, triggering our obligation to indemnify Rockwell pursuant to the tax allocation agreement. In addition, our obligation to indemnify Rockwell in the event that a change of ownership causes the spin-off not to be tax-free could discourage or prevent a third party from making a proposal to acquire our company.
If we were required to pay any of the taxes described above, the payment would be substantial and would have a material adverse effect on our business, financial condition and results of operations.
CAUTIONARY STATEMENT
This Annual Report on Form 10-K, and documents that are incorporated by reference in this Annual Report on Form 10-K, contain statements, including certain projections and business trends, accompanied by such phrases as "believes", "estimates", "expects", "could", "likely", "anticipates", "will", "intends", and other similar expressions, that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the impact of the terrorist attacks on September 11, 2001 and their aftermath; the timing related to restoring consumer confidence in air travel; the health of the commercial aerospace industry; domestic and foreign government spending, budgetary and trade policies; economic and political changes in international markets where
the Company competes, such as changes in currency exchange rates, inflation rates, recession, foreign ownership restrictions and other external factors over which the Company has no control; demand for and market acceptance of new and existing products, including potential cancellation of orders by commercial customers; successful development of advanced technologies; competitive product and pricing pressures; and the uncertainties of litigation, as well as other risks and uncertainties, including but not limited to those detailed herein and from time to time in the Company's other SEC filings. These forward-looking statements are made only as of the date hereof.
ITEM 2. PROPERTIES.
As of September 30, 2001, the Company operated fourteen manufacturing facilities throughout the United States and one manufacturing facility each in Mexico, France, the United Kingdom and Australia. The Company also has 75 engineering facilities, sales offices, warehouses and service locations. These facilities have aggregate floor space of approximately 5.5 million square feet, substantially all of which is in use. Of this floor space, approximately 63% is owned and approximately 37% is leased. There are no major encumbrances on any of the Company's plants or equipment, other than financing arrangements which in the aggregate are not material. In the opinion of management, the Company's properties have been well maintained, are in sound operating condition and contain all equipment and facilities necessary to operate at present levels. A summary of floor space of these facilities at September 30, 2001 is as follows:
OWNED LEASED
LOCATION FACILITIES FACILITIES TOTAL
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(IN THOUSANDS OF SQUARE FEET)
United States........................................... 3,392 1,646 5,038
Canada and Mexico....................................... -- 112 112
Europe.................................................. 90 205 295
Asia-Pacific............................................ -- 53 53
South America........................................... -- 6 6
Australia............................................... -- 25 25
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Total............................................... 3,482 2,047 5,529
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OWNED LEASED
TYPE OF FACILITY FACILITIES FACILITIES TOTAL
---------------- ----- ----- -----
(IN THOUSANDS OF SQUARE FEET)
Manufacturing........................................... 1,284 550 1,834
Sales, Engineering, Service and General Office Space.... 2,198 1,497 3,695
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Total............................................... 3,482 2,047 5,529
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The Company's major facilities are located in Cedar Rapids, Iowa (830,000 square feet), Richardson, Texas (280,000 square feet), Melbourne, Florida (270,000 square feet), Coralville, Iowa (180,000 square feet), Irvine, California (390,000 square feet), Pomona, California (249,000 square feet), San Jose, California (200,000 square feet), Charlotte, North Carolina (77,000 square feet), Portland, Oregon (76,000 square feet) and Mexicali, Mexico (110,000 square feet). The Company's facilities are generally shared by the Commercial Systems and Government Systems businesses.
Certain of the Company's facilities, including those located in California and Mexicali, Mexico, are located near major earthquake fault lines. The Company maintains only minimal earthquake insurance with respect to these facilities.
ITEM 3. LEGAL PROCEEDINGS.
Pursuant to the terms of the distribution agreement entered into among Rockwell, the Company and Rockwell Scientific Company LLC, the Company assumed all responsibility for current and future litigation, including environmental proceedings, against Rockwell or its subsidiaries with respect to the operations of the Company's business.
On January 15, 1997, a civil action was filed against the Company in
the United States District Court for the District of Arizona in Tucson,
Universal Avionics Systems Corp. v. Rockwell International Corp. and Rockwell
Collins, Inc., No. CV 97-28 TUC ACM, in which Universal, a manufacturer and
marketer of aviation electronics, including Flight Management Systems (FMS),
asserted four claims against the Company arising out of its participation in the
FMS business: (1) attempted monopolization under Section 2 of the Sherman Act;
(2) anticompetitive conduct (exclusive dealing and tying) under Section 1 of the
Sherman Act and Section 3 of the Clayton Act; (3) tortious interference with
business relationships and prospective economic business advantage under the
common law of Arizona; and (4) unfair competition under the common law of
Arizona. Universal seeks damages of approximately $35 million before trebling
for the alleged antitrust violations; actual damages of an unspecified amount
for the alleged common law violations; punitive damages; attorneys' fees and
injunctive relief. The Company and Rockwell have denied the allegations and have
asserted counterclaims against Universal for defamation and unfair competition.
On July 17, 2001, the district court granted defendants' motion for partial
summary judgment for failure to allege a relevant market entitling plaintiff to
relief, certified that ruling for appeal, dismissed as moot other motions for
summary judgment filed by defendants challenging plaintiff's attempted
monopolization, exclusive dealing and tying claims, and stayed further
proceedings, including rulings on motions for summary judgment filed by
defendants as to plaintiff's other claims, pending appeal. On July 19, 2001,
plaintiff filed a notice of appeal with the Ninth Circuit Court of Appeals.
On April 3, 2000, a civil action was filed against the Company in the Court of Common Pleas of Pennsylvania for Allegheny County, Westinghouse Air Brake Technologies Corp. v. Rockwell Collins, Inc., No. GD 00-5766, asserting various claims arising out of the plaintiff's purchase of the Company's former Railroad Electronics Business pursuant to a Sale Agreement on October 5, 1998. Specifically, the plaintiff alleges that it is entitled under provisions of the Sale Agreement to a post-closing adjustment of approximately $7 million in the purchase price, and that it is entitled to unspecified damages for alleged misrepresentations, breaches of warranty, mistake of fact, and failure by the Company to turn over certain assets and to provide certain post-closing support. On December 13, 2000, the trial court ordered that the claim for a post-closing adjustment in the purchase price be submitted to mandatory arbitration pursuant to provisions of the Sale Agreement, but declined to stay court proceedings on the other issues during pendency of the arbitration proceeding. The parties are in the early stages of discovery in the lawsuit and are in the process of initiating arbitration of the post-closing purchase price adjustment claim.
On December 14, 1995, a civil action was filed in the United States District Court for the Western District of Texas, El Paso Division, United States ex. rel Staines v. Rockwell International Corp., No. LP 95 CA 514, under the qui tam provisions of the False Claims Act seeking unspecified damages for alleged violations of the Act on two contracts with agencies of the U.S. Government under which an electronics fabricating plant in El Paso now owned by The Boeing Company performed work on subcontract for Boeing, and two contracts where the plant performed work on subcontract for the Company's Dallas, Texas facility. Specifically with respect to the work performed at the El Paso plant for the Company, the plaintiff alleges that certain components were improperly tested and that certain components removed from circuit boards for testing were thereafter reinstalled when they should not have been. The Boeing Company has agreed to defend and indemnify the Company and Rockwell for claims relating to work performed on Boeing contracts, and for any wrongdoing that may have occurred at the El Paso plant relating to work performed there for the Company, but not for wrongdoing, if any, that may have occurred at or under the direction of the Company's Dallas facility. In October 1998 the United States declined to intervene in the action on its own behalf and the plaintiff has since proceeded to prosecute the action himself with private counsel. Rockwell and Boeing have denied wrongdoing and are vigorously defending the action. Discovery is not yet complete. On May 11, 1999 Boeing and Rockwell filed a motion to dismiss the case on the pleadings, which motion is still pending. On July 27, 2001, the court entered an order requiring expedited discovery. The Company anticipates the trial will commence in the first quarter of calendar year 2002.
On January 15, 1999, a civil action was filed against the Company and Hughes Electronics Manufacturing Service Company in the Superior Court of the State of California for Orange County, SOS Wireless Communications, Inc. v. Rockwell Collins, Inc. and Hughes Electronics Manufacturing Service Company, No. 804428, in which the plaintiff alleged defendants breached a contract to build a special purpose cellular telephone for the plaintiff and made various misrepresentations with respect thereto. The plaintiff sought damages of approximately $22 million for breach of contract, negligent misrepresentation and intentional misrepresentation and approximately $45 million in punitive damages. The Company denied the allegation, filed a counterclaim against the
plaintiff for approximately $1.1 million based on unpaid invoices for product delivered, and vigorously defended the action. On August 9, 1999, the parties stipulated that the matter should be submitted to binding arbitration pursuant to the terms of a contractual arbitration clause, and the civil action was dismissed without prejudice. On August 25, 2000, the arbitrator entered an order granting judgment in favor of the Company and against the plaintiff in the amount of approximately $1.1 million on the Company's counterclaim. An arbitration hearing on the plaintiff's claims was held during the first half of 2001. The matter was submitted to the arbitrator for decision in the third calendar quarter of 2001, following the parties' submission of post-hearing briefs. On October 24, 2001, the arbitrator ruled against the plaintiff on all of its causes of action and ordered plaintiff to pay the Company $1.1 million.
In addition, various other lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to the conduct of its business, including those pertaining to product liability, intellectual property, environmental, safety and health, contract and employment matters.
Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, management believes the disposition of matters that are pending or asserted will not have a material adverse effect on the Company's business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth quarter of 2001.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY.
The name, age, office and position held with the Company, and principal occupations and employment during the past five years of each of the executive officers of the Company as of December 1, 2001 are as follows:
NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE
------------------------------------------------------------------- ---
CLAYTON M. JONES -- President and Chief Executive Officer of Rockwell Collins since June 2001;
Senior Vice President of Rockwell (electronic controls and communications) and President of
Rockwell Collins, Inc., a subsidiary of Rockwell, from January 1999 to May 2001; Executive
Vice President of Rockwell Collins, Inc. prior thereto....................................... 52
BARRY M. ABZUG -- Senior Vice President, Corporate Development of Rockwell Collins since October
2001; President and General Manager, Aerospace/Communications Division of ITT Industries,
Inc. (engineering and manufacturing) from October 1998 to August 2000; Vice President and
Director, Communications Systems Business Unit of ITT Industries, Inc. prior thereto......... 49
PATRICK E. ALLEN -- Vice President, Finance and Treasurer of Rockwell Collins since June 2001;
Vice President and Treasurer of Rockwell from June 2000 to May 2001; Vice President, Financial
Planning and Analysis of Rockwell from June 1999 to May 2000; Assistant Controller of Rockwell
from August 1997 to May 1999; Director, External Financial Reports of Rockwell prior thereto. 37
GARY R. CHADICK -- Senior Vice President, General Counsel and Secretary of Rockwell Collins since
July 2001; Assistant General Counsel of Operations of Litton Industries, Inc. (advanced
electronics, information systems, electronic components and ship systems) from September 1999
to July 2001; Group Counsel, Litton Advanced Electronics Systems Group prior thereto......... 40
ROBERT M. CHIUSANO -- Executive Vice President and Chief Operating Officer, Government Systems of
Rockwell Collins since June 2001; Vice President and General Manager, Government Systems of
Rockwell Collins, Inc., a subsidiary of Rockwell, prior thereto.............................. 51
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NAME, OFFICE AND POSITION, AND PRINCIPAL OCCUPATIONS AND EMPLOYMENT AGE
------------------------------------------------------------------- ---
LAWRENCE A. ERICKSON -- Senior Vice President and Chief Financial Officer of Rockwell Collins
since June 2001; Vice President and Controller, Finance and Strategic Development of Rockwell
Collins, Inc., a subsidiary of Rockwell, from October 1999 to May 2001; Vice President and
Controller of Rockwell Collins, Inc. prior thereto............................................ 52
JEROME J. GASPAR -- Senior Vice President, Engineering and Technology of Rockwell Collins since
June 2001; Vice President, Engineering and Technology of Rockwell Collins, Inc., a subsidiary
of Rockwell, from January 2000 to May 2001; Vice President, Displays Center of Excellence of
Rockwell Collins, Inc. from August 1997 to December 1999; Vice President, Programs of Rockwell
Collins Commercial Avionics prior
thereto....................................................................................... 56
NEAL J. KEATING -- Executive Vice President and Chief Operating Officer, Commercial Systems of
Rockwell Collins since June 2001; Vice President and General Manager, Passenger Systems of
Rockwell Collins, Inc., a subsidiary of Rockwell, from June 1999 to May 2001; Vice President
and General Manager of Rockwell Collins Air Transport Systems from March 1997 to May 1999;
Vice President and General Manager, Operator Interface Business of Rockwell Automation prior
thereto....................................................................................... 46
HERMAN M. REININGA -- Senior Vice President, Operations of Rockwell Collins since June 2001; Vice
President, Operations of Rockwell Collins, Inc., a subsidiary of Rockwell, prior thereto...... 60
WILLIAM J. RICHTER -- Senior Vice President, Human Resources of Rockwell Collins since June 2001;
Vice President, Human Resources of Rockwell Collins, Inc., a subsidiary of Rockwell, prior
thereto....................................................................................... 55
ALFRED J. SPIGARELLI -- Vice President, Benefits and Administrative Services of Rockwell Collins
since June 2001; Vice President, Benefits and Administrative Services of Rockwell from July
1999 to May 2001; Vice President, Compensation and Benefits of Rockwell from June 1997 to July
1999; Director, Benefits Administration of Rockwell prior thereto............................. 61
DEREK R. WIMMER -- Vice President and General Auditor of Rockwell Collins since June 2001;
Controller of Rockwell Collins Air Transport Systems from November 2000 to May 2001; Senior
Director, Commercial and Business Compliance of Rockwell Collins, Inc., a subsidiary of
Rockwell, from October 1998 to November 2000; Vice President, International Planning and
Development of Rockwell from November 1997 to September 1998; Director, International Planning
and Development of Rockwell prior thereto..................................................... 55
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There are no family relationships, as defined, between any of the above executive officers. No officer of the Company was selected pursuant to any arrangement or understanding between him and any person other than the Company. All executive officers are elected annually.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock, par value $.01 per share, is listed on the New York Stock Exchange and trades under the symbol "COL". On December 17, 2001, there were 46,246 shareowners of record of the Company's Common Stock. The Company's Common Stock began trading "regular way" on the New York Stock Exchange on July 2, 2001. Prior to the Distribution, the Company's Common Stock traded on a "when-issued" basis from June 15, 2001 to June 29, 2001.
The high and low trading prices of the Company's Common Stock on the New York Stock Exchange -- Composite Transactions reporting system during the fourth quarter of 2001 were $24.23 and $11.80, respectively.
Prior to the Distribution, on June 29, 2001, the Company paid a cash dividend to Rockwell, then the Company's sole shareowner, in the amount of $300 million. On July 2, 2001, the Company announced a quarterly dividend of 9 cents per share, payable on September 4, 2001 to shareowners of record on August 13, 2001.
ITEM 6. SELECTED FINANCIAL DATA.
See the information in the table captioned SELECTED FINANCIAL DATA on page 63 of the 2001 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
See the discussion and analysis under the caption MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS on pages
28-36 of the 2001 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See INDEPENDENT AUDITORS' REPORT, CONSOLIDATED STATEMENT OF FINANCIAL
POSITION, CONSOLIDATED STATEMENT OF OPERATIONS, CONSOLIDATED STATEMENT OF CASH
FLOWS, CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY AND COMPREHENSIVE INCOME,
and NOTES TO CONSOLIDATED FINANCIAL STATEMENTS on pages 37-62 of the 2001 Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
See the information under the captions ELECTION OF DIRECTORS and
INFORMATION AS TO NOMINEES FOR DIRECTORS AND CONTINUING DIRECTORS on pages 1-4
of the 2002 Proxy Statement.
No nominee for director was selected pursuant to any arrangement or understanding between the nominee and any person other than the Company pursuant to which such person is or was to be selected as a director or nominee. See also the information with respect to executive officers of the Company under Item 4a of Part I.
ITEM 11. EXECUTIVE COMPENSATION.
See the information under the captions EXECUTIVE COMPENSATION, OPTION
GRANTS, AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES and RETIREMENT
BENEFITS on pages 8-12 of the 2002 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
See the information under the captions VOTING SECURITIES and OWNERSHIP BY MANAGEMENT OF EQUITY SECURITIES on pages 1 and 7, respectively, of the 2002 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information under the caption BOARD OF DIRECTORS AND COMMITTEES and CERTAIN TRANSACTIONS AND OTHER RELATIONSHIPS on pages 4-6 of the 2002 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements (all financial statements listed below are those of the Company and its consolidated subsidiaries and are incorporated by reference in Item 8 from the 2001 Annual Report).
Consolidated Statement of Financial Position, September 30, 2001 and 2000.
Consolidated Statement of Operations, years ended September 30, 2001, 2000 and 1999.
Consolidated Statement of Cash Flows, years ended September 30, 2001, 2000 and 1999.
Consolidated Statement of Shareowners' Equity and Comprehensive Income, years ended September 30, 2001, 2000 and 1999.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(2) Financial Statement Schedule for the years ended September 30, 2001, 2000 and 1999.
PAGE
----
Independent Auditors' Report.................................. S-1
Schedule II -- Valuation and Qualifying Accounts.............. S-2
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Schedules not filed herewith are omitted because of the
absence of conditions under which they are required or because
the information called for is shown in the financial
statements or notes thereto.
(3) Exhibits
3-a-1 Restated Certificate of Incorporation of the Company, as
amended.
3-a-2 Certificate of Merger effecting name change of the Company
from "New Rockwell Collins, Inc." to "Rockwell Collins, Inc.".
3-b-1 Amended By-Laws of the Company, filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (No. 333-63100),
are incorporated herein by reference.
4-a-1 Rights Agreement dated as of June 28, 2001 by and between the
Company and Mellon Investor Services LLC, as Rights Agent,
filed as Exhibit 4.1 to the Company's current report on Form
8-K dated July 11, 2001, is incorporated herein by reference.
4-a-2 Indenture dated as of November 1, 2001 between the Company and
Citibank, N.A., as Trustee, filed as Exhibit 4.b to the
Company's Registration Statement on Form S-3 (No. 333-72914),
is incorporated herein by reference.
*10-a-1 The Company's 2001 Long-Term Incentives Plan, adopted by the
Company's Board of Directors on June 1, 2001, to be submitted
for approval by the Company's shareowners at the 2002 Annual
Meeting of Shareowners, filed as Exhibit 4.5 to the Company's
Registration Statement on Form S-8 (No. 333-63120), is
incorporated herein by reference.
*10-a-2 Forms of Stock Option Agreements under the Company's 2001
Long-Term Incentives Plan.
*10-a-3 Form of Stock Option Agreement under the Company's 2001
Long-Term Incentives Plan for stock option grants to the
non-executive Chairman of the Board of Directors.
*10-a-4 Form of Restricted Stock Agreement under the Company's
2001 Long-Term Incentives Plan for restricted stock grants to
the non-executive Chairman of the Board of Directors.
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*10-b-1 The Company's Directors Stock Plan, adopted by the Company's
Board of Directors on June 1, 2001, to be submitted for
approval by the Company's shareowners at the 2002 Annual
Meeting of Shareowners, filed as Exhibit 10.2 to the Company's
Registration Statement on Form 10 (File No. 001-16445) (the
"Form 10"), is incorporated herein by reference.
*10-b-2 Form of Stock Option Agreement under the Company's Directors
Stock Plan.
*10-b-3 Form of Restricted Stock Agreement under the Company's
Directors Stock Plan.
*10-c-1 The Company's Annual Incentive Compensation Plan for Senior
Executive Officers, adopted by the Company's Board of
Directors on June 1, 2001, to be submitted for approval by the
Company's shareowners at the 2002 Annual Meeting of
Shareowners, filed as Exhibit 10.4 to the Form 10, is
incorporated herein by reference.
*10-d-1 The Company's Incentive Compensation Plan, adopted by the
Company's Board of Directors on September 12, 2001.
*10-e-1 The Company's 2001 Stock Option Plan, adopted by the Company's
Board of Directors on June 1, 2001, filed as Exhibit 10.3 to
the Form 10, is incorporated herein by reference.
*10-f-1 The Company's Deferred Compensation Plan, adopted by the
Company's Board of Directors on June 13, 2001.
*10-g-1 The Company's Non-Qualified Savings Plan, adopted by the
Company's Board of Directors on June 13, 2001.
*10-h-1 The Company's Non-Qualified Pension Plan, adopted by the
Company's Board of Directors on June 13, 2001.
*10-i-1 The Company's Master Trust -- Deferred Compensation and
Non-Qualified Savings and Non-Qualified Pension Plans, adopted
by the Company's Board of Directors on June 13, 2001.
10-j-1 364-Day Credit Agreement dated as of May 30, 2001 among the
Company, the Banks listed therein and The Chase Manhattan
Bank, as Agent, filed as Exhibit 10.9.1 to the Form 10, is
incorporated herein by reference.
10-k-1 Five-Year Credit Agreement dated as of May 30, 2001 among the
Company, the Banks listed therein and The Chase Manhattan
Bank, as Agent, filed as Exhibit 10.9.2 to the Form 10, is
incorporated herein by reference.
10-l-1 Distribution Agreement dated as of June 29, 2001 by and among
Rockwell International Corporation, the Company and Rockwell
Scientific Company LLC, filed as Exhibit 2.1 to the Company's
current report on Form 8-K dated July 11, 2001, is
incorporated herein by reference.
10-m-1 Employee Matters Agreement dated as of June 29, 2001 by and
among Rockwell International Corporation, the Company and
Rockwell Scientific Company LLC, filed as Exhibit 2.2 to the
Company's current report on Form 8-K dated July 11, 2001, is
incorporated herein by reference.
10-n-1 Tax Allocation Agreement dated as of June 29, 2001 by and
between Rockwell International Corporation and the Company,
filed as Exhibit 2.3 to the Company's current report on Form
8-K dated July 11, 2001, is incorporated herein by reference.
*10-o-1 Form of Change of Control Agreement between the Company and
certain executives of the Company, filed as Exhibit 10.7.1 to
the Form 10, is incorporated herein by reference.
*10-o-2 Schedule identifying executives of the Company who are party
to a Change of Control Agreement in the form set forth as
Exhibit 10-o-1 to this Annual Report on Form 10-K.
*10-o-3 Form of Change of Control Agreement between the Company and
certain executives of the Company, filed as Exhibit 10.8.1 to
the Form 10, is incorporated herein by reference.
*10-o-4 Schedule identifying executives of the Company who are party
to a Change of Control Agreement in the form set forth as
Exhibit 10-o-3 to this Annual Report on Form 10-K, filed as
Exhibit 10.8.2 to the Form 10, is incorporated herein by
reference.
16
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12 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
13 Portions of the 2001 Annual Report to Shareowners of the
Company incorporated herein by reference.
21 List of subsidiaries of the Company.
23 Independent Auditors' Consent.
24 Powers of Attorney authorizing certain persons to sign this
Annual Report on Form 10-K on behalf of certain directors and
officers of the Company.
------------------
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* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K dated July 11, 2001 in respect of the completion of the Distribution.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ROCKWELL COLLINS, INC.
By /s/ GARY R. CHADICK
-----------------------------------------------
Gary R. Chadick
Senior Vice President, General Counsel and
Secretary
Dated: December 19, 2001
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on the 19th day of December, 2001 by the following persons on behalf of the registrant and in the capacities indicated.
CLAYTON M. JONES* President and Chief Executive Officer (principal
executive officer) and Director
DONALD R. BEALL* Non-Executive Chairman of the
Board of Directors
ANTHONY J. CARBONE* Director
MICHAEL P.C. CARNS* Director
RICHARD J. FERRIS* Director
JOSEPH F. TOOT, JR.* Director
LAWRENCE A. ERICKSON* Senior Vice President and Chief Financial Officer
(principal financial officer)
PATRICK E. ALLEN* Vice President Finance and Treasurer
(principal accounting officer)
*By /s/ GARY R. CHADICK
-----------------------------------------
Gary R. Chadick, Attorney-in-fact**
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** By authority of the powers of attorney filed herewith.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of Rockwell Collins, Inc. Cedar Rapids, Iowa
We have audited the consolidated financial statements of Rockwell Collins, Inc. and subsidiaries (formerly the avionics and communications business of Rockwell International Corporation) as of September 30, 2001 and 2000, and for each of the three years in the period ended September 30, 2001, and have issued our report thereon dated November 1, 2001, which report includes an explanatory paragraph noting that the Company had not previously operated as a stand-alone company during the periods presented; such financial statements and report are included in your 2001 Annual Report to Shareowners and are incorporated herein by reference. Our audits also included the financial statement schedule of Rockwell Collins, Inc. and subsidiaries, listed in Item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 1, 2001
SCHEDULE II
ROCKWELL COLLINS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
(IN MILLIONS)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR (A) EXPENSES OTHER (B) DEDUCTIONS (C) YEAR (A)
----------- ----------- -------- --------- -------------- --------
Year ended September 30, 2001:
Allowance for doubtful accounts........ $ 9 $ 11 $ 1 $ (1) $ 20
Allowance for excess and obsolete
inventories........................... 95 36 3 (13) 121
Year ended September 30, 2000:
Allowance for doubtful accounts....... 8 -- 1 -- 9
Allowance for excess and obsolete
inventories......................... 89 10 13 (17) 95
Year ended September 30, 1999:
Allowance for doubtful accounts....... 9 1 -- (2) 8
Allowance for excess and obsolete
inventories......................... 103 3 (8) (9) 89
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EXHIBIT INDEX
3-a-1 Restated Certificate of Incorporation of the Company, as
amended.
3-a-2 Certificate of Merger effecting name change of the Company
from "New Rockwell Collins, Inc." to "Rockwell Collins, Inc.".
3-b-1 Amended By-Laws of the Company, filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-8 (No. 333-63100),
are incorporated herein by reference.
4-a-1 Rights Agreement dated as of June 28, 2001 by and between the
Company and Mellon Investor Services LLC, as Rights Agent,
filed as Exhibit 4.1 to the Company's current report on Form
8-K dated July 11, 2001, is incorporated herein by reference.
4-a-2 Indenture dated as of November 1, 2001 between the Company and
Citibank, N.A., as Trustee, filed as Exhibit 4.b to the
Company's Registration Statement on Form S-3 (No. 333-72914),
is incorporated herein by reference.
*10-a-1 The Company's 2001 Long-Term Incentives Plan, adopted by the
Company's Board of Directors on June 1, 2001, to be submitted
for approval by the Company's shareowners at the 2002 Annual
Meeting of Shareowners, filed as Exhibit 4.5 to the Company's
Registration Statement on Form S-8 (No. 333-63120), is
incorporated herein by reference.
*10-a-2 Forms of Stock Option Agreements under the Company's 2001
Long-Term Incentives Plan.
*10-a-3 Form of Stock Option Agreement under the Company's 2001
Long-Term Incentives Plan for stock option grants to the
non-executive Chairman of the Board of Directors.
*10-a-4 Form of Restricted Stock Agreement under the Company's 2001
Long-Term Incentives Plan for restricted stock grants to the
non-executive Chairman of the Board of Directors.
*10-b-1 The Company's Directors Stock Plan, adopted by the Company's
Board of Directors on June 1, 2001, to be submitted for
approval by the Company's shareowners at the 2002 Annual
Meeting of Shareowners, filed as Exhibit 10.2 to the Company's
Registration Statement on Form 10 (File No. 001-16445) (the
"Form 10"), is incorporated herein by reference.
*10-b-2 Form of Stock Option Agreement under the Company's Directors
Stock Plan.
*10-b-3 Form of Restricted Stock Agreement under the Company's
Directors Stock Plan.
*10-c-1 The Company's Annual Incentive Compensation Plan for Senior
Executive Officers, adopted by the Company's Board of
Directors on June 1, 2001, to be submitted for approval by the
Company's shareowners at the 2002 Annual Meeting of
Shareowners, filed as Exhibit 10.4 to the Form 10, is
incorporated herein by reference.
*10-d-1 The Company's Incentive Compensation Plan, adopted by the
Company's Board of Directors on September 12, 2001.
*10-e-1 The Company's 2001 Stock Option Plan, adopted by the Company's
Board of Directors on June 1, 2001, filed as Exhibit 10.3 to
the Form 10, is incorporated herein by reference.
*10-f-1 The Company's Deferred Compensation Plan, adopted by the
Company's Board of Directors on June 13, 2001.
*10-g-1 The Company's Non-Qualified Savings Plan, adopted by the
Company's Board of Directors on June 13, 2001.
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*10-h-1 The Company's Non-Qualified Pension Plan, adopted by the
Company's Board of Directors on June 13, 2001.
*10-i-1 The Company's Master Trust -- Deferred Compensation and
Non-Qualified Savings and Non-Qualified Pension Plans, adopted
by the Company's Board of Directors on June 13, 2001.
10-j-1 364-Day Credit Agreement dated as of May 30, 2001 among the
Company, the Banks listed therein and The Chase Manhattan
Bank, as Agent, filed as Exhibit 10.9.1 to the Form 10, is
incorporated herein by reference.
10-k-1 Five-Year Credit Agreement dated as of May 30, 2001 among the
Company, the Banks listed therein and The Chase Manhattan
Bank, as Agent, filed as Exhibit 10.9.2 to the Form 10, is
incorporated herein by reference.
10-l-1 Distribution Agreement dated as of June 29, 2001 by and among
Rockwell International Corporation, the Company and Rockwell
Scientific Company LLC, filed as Exhibit 2.1 to the Company's
current report on Form 8-K dated July 11, 2001, is
incorporated herein by reference.
10-m-1 Employee Matters Agreement dated as of June 29, 2001 by and
among Rockwell International Corporation, the Company and
Rockwell Scientific Company LLC, filed as Exhibit 2.2 to the
Company's current report on Form 8-K dated July 11, 2001, is
incorporated herein by reference.
10-n-1 Tax Allocation Agreement dated as of June 29, 2001 by and
between Rockwell International Corporation and the Company,
filed as Exhibit 2.3 to the Company's current report on Form
8-K dated July 11, 2001, is incorporated herein by reference.
*10-o-1 Form of Change of Control Agreement between the Company and
certain executives of the Company, filed as Exhibit 10.7.1 to
the Form 10, is incorporated herein by reference.
*10-o-2 Schedule identifying executives of the Company who are party
to a Change of Control Agreement in the form set forth as
Exhibit 10-o-1 to this Annual Report on Form 10-K.
*10-o-3 Form of Change of Control Agreement between the Company and
certain executives of the Company, filed as Exhibit 10.8.1 to
the Form 10, is incorporated herein by reference.
*10-o-4 Schedule identifying executives of the Company who are party
to a Change of Control Agreement in the form set forth as
Exhibit 10-o-3 to this Annual Report on Form 10-K, filed as
Exhibit 10.8.2 to the Form 10, is incorporated herein by
reference.
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
13 Portions of the 2001 Annual Report to Shareowners of the
Company incorporated herein by reference.
21 List of subsidiaries of the Company.
23 Independent Auditors' Consent.
24 Powers of Attorney authorizing certain persons to sign this
Annual Report on Form 10-K on behalf of certain directors and
officers of the Company.
------------------
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* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K dated July 11, 2001 in respect of the completion of the Distribution.
EXHIBIT 3-a-1
RESTATED CERTIFICATE OF
INCORPORATION
OF
ROCKWELL COLLINS, INC.
(AS AMENDED)
FIRST: The name of the Corporation is Rockwell Collins, Inc.
SECOND: The Corporation's registered office in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of its registered agent is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.
THIRD: The nature of the business, or objects or purposes to be transacted, promoted or carried on, are: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the Corporation shall have the authority to issue is 1,025,000,000, of which (i) 1,000,000,000 shares of the par value of $.01 each are to be of a class designated Common Stock (the "Common Stock") and (ii) 25,000,000 shares without par value are to be of a class designated Preferred Stock (the "Preferred Stock").
In this Article Fourth, any reference to a section or paragraph, without further attribution, within a provision relating to a particular class of stock is intended to refer solely to the specified section or paragraph of the other provisions relating to the same class of stock.
COMMON STOCK
The Common Stock shall have the following voting powers, designations, preferences and relative, participating, optional and other special rights, and qualifications, limitations or restrictions thereof:
1. Dividends. Whenever the full dividends upon any outstanding Preferred Stock for all past dividend periods shall have been paid and the full dividends thereon for the then current respective dividend periods shall have been paid, or declared and a sum sufficient for the respective payments thereof set apart, the holders of shares of the Common Stock shall be entitled to receive such dividends and distributions in equal amounts per share, payable in cash or otherwise, as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor.
2. Rights on Liquidation. In the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, after the payment or setting apart for payment to the holders of any outstanding Preferred Stock of the full preferential amounts to which such holders are entitled as herein provided or referred to, all of the remaining assets of the Corporation shall belong to and be distributable in equal amounts per share to the holders of the Common Stock. For purposes of this paragraph 2, a consolidation or merger of the Corporation with any other corporation, or the sale, transfer or lease of all or substantially all its assets shall not constitute or be deemed a liquidation, dissolution or winding-up of the Corporation.
3. Voting. Except as otherwise provided by the laws of the State of Delaware or by this Article Fourth, each share of Common Stock shall entitle the holder thereof to one vote.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to provide for the issuance of shares of Preferred Stock in series and, by filing a certificate pursuant to the applicable law of the State of Delaware (hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:
(a) the designation of the series, which may be by distinguishing number, letter or title;
(b) the number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding);
(c) whether dividends, if any, shall be cumulative or noncumulative and the dividend rate of the series;
(d) the dates at which dividends, if any, shall be payable;
(e) the redemption rights and price or prices, if any, for shares of the series;
(f) the terms and amount of any sinking fund provided for the purchase or redemption of shares of the series;
(g) the amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation;
(h) whether the shares of the series shall be convertible into shares of any other class or series, or any other security, of the Corporation or any other corporation, and, if so, the specification of such other class or series or such other security, the conversion price or prices or rate or rates, any adjustments thereof, the date or dates as of which such shares shall be convertible and all other terms and conditions upon which such conversion may be made;
(i) restrictions on the issuance of shares of the same series or of any other class or series; and
(j) the voting rights, if any, of the holders of shares of the series.
Except as may be provided in this Certificate of Incorporation or in a Preferred Stock Designation, the Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes, and holders of Preferred Stock shall not be entitled to receive notice of any meeting of shareowners at which they are not entitled to vote. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation.
The Corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable law.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation and Amount. A series of Preferred Stock, without par value, is hereby created and shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 2,500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock.
2. Dividends and Distributions.
2.1. Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock and of any other junior stock of the Corporation,
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the second Monday of March, June, September
and December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction of a
share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
2.2. The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph 2.1 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
2.3. Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights:
3.1. Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareowners of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
3.2. Except as otherwise provided herein, in any other Preferred Stock Designation creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareowners of the Corporation.
3.3. Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.
4. Certain Restrictions.
4.1. Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in paragraph 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:
(a) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(b) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
(c) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(d) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
4.2. The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under subparagraph (c) of paragraph 4.1, purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued
as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein or in any other Preferred Stock Designation creating a series of Preferred Stock or any similar stock or as otherwise required by law.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (ii) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (i) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable.
9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock.
10. Amendment. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the shareowners of the Corporation shall not be subject to the payment of corporate debts to any extent whatever.
SEVENTH: Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors of the Corporation shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the whole Board. A director need not be a shareowner. The election of directors of the Corporation need not be by ballot unless the By-Laws so require.
The directors, other than those who may be elected by the holders of any series of Preferred Stock or any other series or class of stock, as provided herein or in any Preferred Stock Designation, shall be divided into three classes, as nearly equal in number as possible. One class of directors shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 2002, another class shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 2003, and another class shall be initially elected for a term expiring at the annual meeting of shareowners to be held in 2004. Members of each class shall hold office until their successors are duly elected and qualified. At each annual meeting of the shareowners of the Corporation, commencing with the 2002 annual meeting, the successors of the class of directors whose term expires at that meeting shall be elected by a plurality vote of all votes cast for the election of directors at such meeting to hold office for a term expiring at the annual meeting of shareowners held in the third year following the year of their election.
Subject to the rights of the holders of any series of Preferred Stock, and unless the Board of Directors otherwise determines, newly created directorships resulting
from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of shareowners at which the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. No decrease in the number of authorized directors constituting the whole Board of Directors shall shorten the term of any incumbent director.
Subject to the rights of the holders of any series of Preferred Stock or any other series or class of stock, as provided herein or in any Preferred Stock Designation, to elect additional directors under specific circumstances, any director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80 percent of the voting power of the then outstanding capital stock of the Corporation (the "Capital Stock") entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class.
No director of the Corporation shall be liable to the Corporation or
its shareowners for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its shareowners, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. No repeal or
modification of this paragraph, directly or by adoption of an inconsistent
provision of this Certificate of Incorporation, by the shareowners of the
Corporation shall be effective with respect to any cause of action, suit, claim
or other matter that, but for this paragraph, would accrue or arise prior to
such repeal or modification.
EIGHTH: Unless otherwise determined by the Board of Directors, no holder of stock of the Corporation shall, as such holder, have any right to purchase or subscribe for any stock of any class which the Corporation may issue or sell, whether or not exchangeable for any stock of the Corporation of any class or classes and whether out of unissued shares authorized by the Certificate of Incorporation of the Corporation as originally filed or by any amendment thereof or out of shares of stock of the Corporation acquired by it after the issue thereof.
NINTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its shareowners or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or shareowner thereof, or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of the General Corporation Law of the State of Delaware (the "GCL") or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of section 279 of the GCL
order a meeting of the creditors or class of creditors, and/or of the shareowners or class of shareowners of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the shareowners or class of shareowners of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the shareowners or class of shareowners, of this Corporation, as the case may be, and also on this Corporation.
TENTH:
1. Amendment of Certificate of Incorporation. From time to time any of the provisions of the Certificate of Incorporation may be amended, altered or repealed, and other provisions authorized by the statutes of the State of Delaware at the time in force may be added or inserted in the manner at the time prescribed by said statutes, and all rights at any time conferred upon the shareowners of the Corporation by its Certificate of Incorporation are granted subject to the provisions of this Article Tenth. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of the then outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal Article Seventh, this Article Tenth or Article Twelfth or adopt any provision inconsistent with any of the foregoing articles.
2. By-Laws. The Board of Directors is expressly authorized to make, alter, amend and repeal the By-Laws of this Corporation, in any manner not inconsistent with the laws of the State of Delaware or of the Certificate of Incorporation of the Corporation, subject to the power of the holders of the Capital Stock to alter or repeal the By-Laws made by the Board of Directors; provided, that any such amendment or repeal by shareowners shall require the affirmative vote of the holders of at least 80% of the voting power of the then outstanding Voting Stock, voting together as a single class.
ELEVENTH: The shareowner vote required to approve Business Combinations (as hereinafter defined) shall be as set forth in this Article Eleventh.
1. Higher Vote for Business Combinations. In addition to any
affirmative vote required by law, this Certificate of Incorporation or the
By-Laws of the Corporation, and except as otherwise expressly provided in
Section 2 of this Article Eleventh, a Business Combination shall not be
consummated without the affirmative vote of the holders of at least 80% of
the voting power of the then outstanding Voting Stock, voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage or separate
class vote may be specified, by law or in any agreement with any national
securities exchange or otherwise.
2. When Higher Vote Is Not Required. The provisions of Section 1 of this Article Eleventh shall not be applicable to a Business Combination if the conditions specified in either of the following paragraphs A or B are met.
A. Approval by Continuing Directors. The Business Combination shall have been approved by at least two-thirds of the Continuing Directors (as hereinafter defined), whether such approval is made prior to or subsequent to the date on which the Interested Shareowner (as hereinafter defined) became an Interested Shareowner (the "Determination Date").
B. Price and Procedure Requirements. Each of the seven
conditions specified in the following subparagraphs (i) through
(vii) shall have been met:
(i) The aggregate amount of the cash and the Fair
Market Value (as hereinafter defined) as of the date of the
consummation of the Business Combination (the "Consummation
Date") of any consideration other than cash to be received per
share by holders of Common Stock in such Business Combination
shall be an amount at least equal to the higher amount
determined under clauses (a) and (b) below (the requirements
of this paragraph B(i) shall be applicable with respect to all
shares of Common Stock outstanding, whether or not the
Interested Shareowner has previously acquired any shares of
the Common Stock): (a) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by or on behalf of the Interested
Shareowner for any shares of Common Stock acquired
beneficially by it (1) within the two-year period immediately
prior to the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested Shareowner,
whichever is higher, plus interest compounded annually from
the Determination Date through the Consummation Date at the
prime rate of interest of Morgan Guaranty Trust Company of New
York (or of such other major bank headquartered in New York
City selected by at least two-thirds of the Continuing
Directors) from time to time in effect in New York City, less
the aggregate amount of any cash dividends paid, and the Fair
Market Value of any dividends paid in other than cash, per
share of Common Stock from the Determination Date through the
Consummation Date in an amount up to but not exceeding the
amount of such interest payable per share of Common Stock; and
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is
higher.
(ii) The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of any consideration other than cash to be received per share by holders of shares of any class or series of outstanding Capital Stock, other than the Common Stock, in such Business Combination shall be an amount at least equal to the highest amount determined under clauses (a), (b) and (c) below (the requirements of this paragraph B(ii) shall be applicable with respect to all shares of every class or series of outstanding Capital Stock, other than the Common Stock, whether or not the Interested Shareowner has previously acquired any shares of a particular class or series of Capital Stock):
(a) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Shareowner for any shares of such class or series of Capital Stock acquired beneficially by it (1) within the two-year period immediately prior to the Announcement Date or (2) in the transaction in which it became an Interested Shareowner, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of Morgan Guaranty Trust Company of New York (or of such other major bank headquartered in New York City selected by at least two-thirds of the Continuing Directors) from time to time in effect in New York City, less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividends paid in other than cash, per share of such class or series of Capital Stock from the Determination Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of such class or series of Capital Stock; and
(b) the Fair Market Value per share of such class or series of Capital Stock on the Announcement Date or on the Determination Date, whichever is higher; and
(c) the highest preferential amount per share to which the holders of shares of such class or series of Capital Stock would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, regardless of whether the Business Combination to be consummated constitutes such an event.
(iii) The consideration to be received by holders of a particular class or series of outstanding Capital Stock (including Common Stock) shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Shareowner in its direct or indirect acquisition of beneficial
ownership of shares of such class or series of Capital Stock. If the consideration so paid for shares of any class or series of Capital Stock varied as to form, the form of consideration for such class or series of Capital Stock shall be either cash or the form used to acquire beneficial ownership of the largest number of shares of such class or series of Capital Stock previously acquired by the Interested Shareowner.
(iv) After such Interested Shareowner has become an Interested Shareowner and prior to the consummation of such Business Combination, such Interested Shareowner shall not have become the beneficial owner of any additional shares of Capital Stock except as part of the transaction that results in such Interested Shareowner becoming an Interested Shareowner and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Shareowner's percentage beneficial ownership of any class or series of Capital Stock; and, except as approved by at least two-thirds of the Continuing Directors: (a) there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding Capital Stock; (b) there shall have been no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any stock split, stock dividend or subdivision of the Common Stock); and (c) there shall have been an increase in the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of Common Stock.
(v) After such Interested Shareowner has become an Interested Shareowner, such Interested Shareowner shall not have received the benefit, directly or indirectly (except proportionately as a shareowner of the Corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all shareowners of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent place, any statement as to the
advisability of the Business Combination that the Continuing Directors, or any of them, may choose to make and, if deemed advisable by at least two-thirds of the Continuing Directors, the opinion of an investment banking firm selected for and on behalf of the Corporation by at least two-thirds of the Continuing Directors as to the fairness of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Capital Stock other than the Interested Shareowner and its Affiliates or Associates (as hereinafter defined).
(vii) Such Interested Shareowner shall not have made any material change in the Corporation's business or equity capital structure without the approval of at least two-thirds of the Continuing Directors.
Any Business Combination to which Section 1 of this Article Eleventh shall not apply by reason of this Section 2 shall require only such affirmative vote as is required by law, any other provision of this Certificate of Incorporation, the By-Laws of the Corporation or any agreement with any national securities exchange.
3. Certain Definitions. For the purposes of this Article Eleventh:
A. A "Business Combination" shall mean:
(i) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Shareowner or (ii) any other corporation (whether or not itself an Interested Shareowner) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Shareowner; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareowner or any Affiliate or Associate of any Interested Shareowner involving any assets or securities of the Corporation, any Subsidiary or any Interested Shareowner or any Affiliate or Associate of any Interested Shareowner having an aggregate Fair Market Value of $25,000,000 or more; or
(iii) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Shareowner or any Affiliate or Associate of any Interested Shareowner; or
(iv) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareowner) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of Capital Stock, or any securities convertible into Capital Stock or into equity securities of any
Subsidiary, that is beneficially owned by any Interested Shareowner or any Affiliate or Associate of any Interested Shareowner; or
(v) any agreement, contract, arrangement or other understanding providing for any one or more of the actions specified in clauses (i) through (iv) above.
B. A "person" shall mean any individual, firm, corporation or other entity and shall include any group composed of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Capital Stock.
C. "Interested Shareowner" shall mean any person (other than the Corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation, any Subsidiary or Rockwell International Corporation or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which:
(i) is the beneficial owner of Voting Stock having 10% or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or
(ii) is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of Voting Stock having 10% or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareowner, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933;
provided, however, that Rockwell International Corporation shall not be an Interested Shareowner as a result of its ownership of Capital Stock of the Corporation prior to the distribution of the shares of Capital Stock of the Corporation to the holders of capital stock of Rockwell International Corporation (the "Distribution").
D. A person shall be a "beneficial owner" of any Capital Stock:
(i) which such person or any Affiliate or Associate of such person beneficially owns, directly or indirectly; or
(ii) which such person or any Affiliate or Associate of such person has, directly or indirectly, (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Capital Stock.
E. For the purposes of determining whether a person is an Interested Shareowner pursuant to paragraph C of this Section 3, the number of shares of Capital Stock deemed to be outstanding shall include shares deemed owned by the Interested Shareowner through application of paragraph D of this Section 3 but shall not include any other shares of Capital Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
F. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 8, 2001 (the term "registrant" in such Rule 12b-2 meaning in this case the Corporation).
G. "Subsidiary" means any corporation of which a majority
of any class of equity security is beneficially owned by the
Corporation; provided, however, that for the purposes of the
definition of Interested Shareowner set forth in paragraph C of this
Section 3, the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is beneficially
owned by the Corporation.
H. "Continuing Director" means any member of the Board of Directors of the Corporation (the "Board") who is not an Affiliate or Associate or representative of the Interested Shareowner and was a member of the Board prior to the time that the Interested Shareowner became an Interested Shareowner, and any successor of a Continuing Director who is not an Affiliate or Associate or representative of the Interested Shareowner and is recommended or elected to succeed a Continuing Director by at least two-thirds of the Continuing Directors then members of the Board.
I. "Fair Market Value" means: (i) in the case of cash, the amount of such cash; (ii) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the New York Stock Exchange Composite Transactions reporting system, or, if such stock is not quoted on such system, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange
Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period immediately preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined in good faith by at least two-thirds of the Continuing Directors; and (iii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by at least two-thirds of the Continuing Directors.
J. In the event of any Business Combination in which
the Corporation survives, the phrase "consideration other than
cash to be received" as used in paragraphs B(i) and (ii) of
Section 2 of this Article Eleventh shall include the shares of
Common Stock and/or the shares of any other class or series of
Capital Stock retained by the holders of such shares.
4. Powers of Continuing Directors. Any determination as to compliance with this Article Eleventh, including without limitation (A) whether a person is an Interested Shareowner, (B) the number of shares of Capital Stock or other securities beneficially owned by any person, (C) whether a person is an Affiliate or Associate of another, (D) whether the requirements of paragraph B of Section 2 have been met with respect to any Business Combination, and (E) whether the assets that are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $25,000,000 or more shall be made only upon action by not less than two-thirds of the Continuing Directors of the Corporation; and the good faith determination of at least two-thirds of the Continuing Directors on such matters shall be conclusive and binding for all the purposes of this Article Eleventh.
5. No Effect on Fiduciary Obligations. Nothing contained in this Article Eleventh shall be construed to relieve the Board of Directors or any Interested Shareowner from any fiduciary obligation imposed by law.
6. Amendment, Repeal, etc. Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of at least 80% of the voting power of the then outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article Eleventh; provided, however, that the preceding provisions of this Section 6 shall not apply to any amendment to this Article Eleventh, and such amendment shall require only such affirmative vote as is required by law and any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation, if such amendment shall
have been approved by at least two-thirds of the members of the Board who are persons who would be eligible to serve as Continuing Directors.
TWELFTH: From and after the time of the Distribution, any action required or permitted to be taken by the shareowners shall be taken only at an annual or special meeting of such shareowners and not by consent in writing. Special meetings of the shareowners for any purpose or purposes shall be called only by the Board of Directors pursuant to a resolution adopted by a majority of the whole Board.
EXHIBIT 3-a-2
CERTIFICATE OF MERGER
Merging
ROCKWELL COLLINS, LLC
(a Delaware limited liability company)
into
NEW ROCKWELL COLLINS, INC.
(a Delaware corporation)
Pursuant to Section 264 of the Delaware General Corporation Law and Section 18-209 of the Delaware Limited Liability Company Act
NEW ROCKWELL COLLINS, INC., a corporation formed and existing under and by virtue of the Delaware General Corporation Law ("NRCI"), DOES HEREBY CERTIFY that:
FIRST: NRCI is a corporation organized and existing under the laws of the State of Delaware. Rockwell Collins, LLC is a limited liability company formed and existing under the laws of the State of Delaware.
SECOND: An Agreement and Plan of Merger between NRCI and RC LLC (the "Merger Agreement") pursuant to which RC LLC will be merged with and into NRCI (the "Merger") has been approved, adopted, certified, executed and acknowledged by each of NRCI and RC LLC in accordance with the requirements of Section 264 of the Delaware General Corporation Law and Section 18-209 of the Delaware Limited Liability Company Act and the Merger Agreement has been approved and adopted by written consent of the sole shareowner of NRCI in accordance with Section 228 of the Delaware General Corporation Law and the sole member of RC LLC in accordance with Section 18-302(d) of the Delaware Limited Liability Company Act.
THIRD: NRCI shall be the surviving corporation of the Merger (the "Surviving Corporation"), and shall continue its corporate existence under the name "Rockwell Collins, Inc.".
FOURTH: The Restated Certificate of Incorporation of NRCI as in effect immediately prior to the effective time of the Merger is hereby amended by changing Article FIRST thereof so that, as amended, such article shall read in its entirety as follows:
"FIRST: The name of the Corporation is Rockwell Collins, Inc."
and, as amended, shall be the Restated Certificate of Incorporation of the Surviving Corporation, until altered, amended or repealed thereafter in accordance with the provisions thereof and applicable law.
FIFTH: The Merger shall be effective at 11:59 p.m., Eastern Time, on June 27, 2001.
SIXTH: The executed Merger Agreement is on file at the principal place of business of Surviving Corporation. The address of the principal place of business of the Surviving Corporation is 400 Collins Road NE, Cedar Rapids, Iowa 52498.
SEVENTH: A copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any shareowner of NRCI and any member of RC LLC.
IN WITNESS WHEREOF, New Rockwell Collins, Inc. has caused this Certificate of Merger to be duly executed on this 27th day of June 2001.
NEW ROCKWELL COLLINS, INC.
By: /s/ P.E. ALLEN
------------------------------------
P.E. Allen
Vice President and Treasurer
|
EXHIBIT 10-a-2
[TERMS AND CONDITIONS -- NON-COMPETE, ISOS, PRIORITY, NQ]
ROCKWELL COLLINS, INC.
2001 LONG-TERM INCENTIVES PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words and phrases shall have the respective meanings ascribed to them below unless the context in which any of them is used clearly indicates a contrary meaning:
(a) Cashless Exercise: Cashless Exercise shall have the meaning set forth in Section 3(a)(ii) herein.
(b) Change of Control: Change of Control shall have the same meaning as such term has in Section 2(d) of the Plan.
(c) Charles Schwab: Charles Schwab & Co., Inc., the Stock Option Administrator whom Rockwell Collins has engaged to administer and process all Option exercises.
(d) Committee: The Compensation and Management Development Committee of the Board of Directors of Rockwell Collins.
(e) Corporation: Rockwell Collins and its Subsidiaries (as such term is defined in the Plan).
(f) Customer Service Center: Charles Schwab's Customer Service Center that is used to facilitate Option transactions. Contact Charles Schwab at (888) 852-2135.
(g) Employee: Employee shall have the same meaning as such term has in
Section 2(j) of the Plan.
(h) Exercise Request and Attestation Form: The form attached as Exhibit 1 or any other form accepted by Charles Schwab in connection with the use of already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options.
(i) Options: The stock options listed in the first paragraph of the letter dated [ ], to which these Stock Option Terms and Conditions are attached and which together with these Stock Option Terms and Conditions constitute the Stock Option Agreement.
(j) Option Shares: The shares of Rockwell Collins Common Stock issuable or transferable on exercise of the Options.
(k) Plan: Rockwell Collins 2001 Long-Term Incentives Plan, as such Plan may be amended and in effect at the relevant time.
(l) Rockwell Collins: Rockwell Collins, Inc., a Delaware corporation, and any successor thereto.
(m) Schwab OptionCenter(R) : Charles Schwab's stock option management website which you can use to access your stock option account and to facilitate stock option transactions securely on the web at www.schwab.com/optioncenter.
(n) Shares: Shares of Rockwell Collins Common Stock.
(o) Stock Option Agreement: These Stock Option Terms and Conditions together with the letter dated [ ], to which they are attached.
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole
number of shares) and at one time or from time to time, as to one-third
(rounded to the nearest whole number) of the Option Shares granted
pursuant to nonqualified stock options (NQs) and incentive stock options
(ISOs) during the period beginning on [ ] and ending on [ ], as to an
additional one-third (rounded to the nearest whole number) of the Option
Shares granted pursuant to NQs and ISOs during the period beginning on [ ]
and ending on [ ] and as to the balance of the Option Shares granted
pursuant to NQs and ISOs during the period beginning on [ ] and ending on
[ ], and only during those periods, and provided that:
(a) if you die while an Employee, any person who holds the Options as permitted by Section 4 herein may exercise all the Options not theretofore exercised within (and only within) the period beginning on your date of death (even if you die before you have become entitled to exercise all or any part of the Options) and ending three years thereafter; and
(b) if your employment by the Corporation terminates other than by death, then:
(i) if your retirement or other termination date is before [ ], the Options shall lapse on your retirement or other termination and may not be exercised at any time;
(ii) if your employment by the Corporation is terminated for cause, as determined by the Committee, the Options shall expire forthwith upon your termination and may not be exercised thereafter;
(iii) if your employment by Rockwell Collins terminates on or after
[ ] by reason of your retirement under a retirement plan of
Rockwell Collins, or under a retirement plan of a subsidiary
or affiliate of Rockwell Collins, you (or any person who holds
the Options as permitted by Section 4 herein) may thereafter
exercise Options which are exercisable prior to the date of
your retirement or that will become exercisable within (and
only within) the period between the date of your retirement
and ending on the fifth anniversary of your retirement date;
or if you retire prior to age 62, the earlier of (x) the fifth
anniversary of your retirement date or (y) such earlier date
as the Committee shall determine by action taken not later
than 60 days after your retirement date; and
(iv) if your employment by the Corporation terminates on or after
[ ] for any reason not specified in subparagraph (a) or in
clauses (ii) or (iii) of this subparagraph (b), you (or any
person who holds the Options as permitted by Section 4 herein)
may thereafter exercise the Options within (and only within)
the period ending three months after your termination date but
only to the extent such Options were exercisable on your
termination date.
In no event shall the provisions of the foregoing subparagraphs (a) and (b) extend to a date after [ ], the period during which the Options may be exercised.
Notwithstanding any other provision of this Agreement, if a Change of Control shall occur, then all Options then outstanding pursuant to this Agreement shall forthwith become fully exercisable whether or not then otherwise exercisable in accordance with their terms.
3. Exercise Procedure
(a) To exercise all or any part of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must contact the Stock Option Administrator, Charles Schwab, by using the Customer Service Center or Schwab OptionCenter(R), as follows:
(i) contact the Customer Service Center by calling (888) 852-2135 Monday through Friday, 9:00 a.m. to 9:00 p.m. Eastern Time and follow the instructions provided, or exercise via the Web through the Schwab OptionCenter(R) at www.schwab.com/ optioncenter;
(ii) confirm the Option transaction through the Customer Service Center or Schwab OptionCenter(R);
(iii) at any time you may speak to a Customer Service Representative for assistance by calling 888-852-2135;
(iv) full payment of the exercise price for the Option Shares to be purchased on exercise of the Options may be made by:
- check (wire) to your Charles Schwab account; or
- in already-owned Shares; or
- by authorizing Charles Schwab or a third party approved by Rockwell Collins to sell the Shares (or a sufficient portion of the Shares) acquired upon exercise of the Option ("Cashless Exercise"); or
- in a combination of check (wire) to your Charles Schwab account and Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise); and
(v) in the case of an exercise of the Options by any person other than you seeking to exercise the Options, such documents as Charles Schwab or the Secretary of Rockwell Collins shall require to establish to their satisfaction that the person seeking to exercise the Options is entitled to do so.
(b) An exercise of the whole or any part of the Options shall be effective:
(i) if you elect (or any person who holds the Options as permitted by Section 4 herein elects) to pay the exercise price for the Option Shares entirely by check (wire), upon (A) completion of your transaction by using the Customer Service Center or Schwab OptionCenter(R) and full payment of the exercise price and withholding taxes (if applicable) are received by Charles Schwab within three business days following the exercise; and (B) receipt of any documents required pursuant to Section 3(a)(v) herein; and
(ii) if you elect (or any person who holds the Options as permitted by Section 4 herein elects) to pay the exercise price of the Option Shares in Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise) or in a combination of Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise) and check, upon (A) completion of your transaction by
using the Customer Service Center or Schwab OptionCenter(R)
and full payment of the exercise price (as described in
Section 3(d)(i) herein) and withholding taxes (if applicable)
are received by Charles Schwab within three business days
following the exercise; and (B) receipt of any documents
required pursuant to Section 3(a)(v) herein.
(c) If you choose (or any person who holds the Options as permitted by
Section 4 herein chooses) to pay the exercise price for the Option
Shares to be purchased on exercise of any of the Options entirely by
check, payment must be made by:
- delivering to Charles Schwab a check (wire) in the full amount of the exercise price for those Option Shares; or
- arranging with a stockbroker, bank or other financial institution to deliver to Charles Schwab full payment, by check or (if prior arrangements are made with Charles Schwab) by wire transfer, of the exercise price of those Option Shares.
In either event, in accordance with Section 3(e) herein, full payment of the exercise price for the Option Shares purchased must be made within three business days after the exercise has been completed through the Customer Service Center or Schwab OptionCenter(R).
(d) (i) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must deliver to Charles Schwab an Exercise Request and Attestation Form and cash to cover the purchase of one Option Share as specified in such form. To perform such a transaction, the Exercise Request and Attestation Form must be submitted via fax ((720) 785-8874) by 4:00 p.m. Eastern Time on the date of exercise and any questions concerning this type of transaction should be referred to (877) 636-7551 (Stock Option Administration Group Hotline). The Exercise Request and Attestation Form must attest to your ownership of Shares representing:
- at least the number of Shares whose value, based on the closing price of Common Stock of Rockwell Collins on the New York Stock Exchange -- Composite Transactions on the day you have exercised your Options through the Customer Service Center or Schwab OptionCenter(R), equals the exercise price for the Option Shares; or
- any lesser number of Shares you desire (or any
person who holds the Options as permitted by
Section 4 herein desires) to use to pay the
exercise price for those Option Shares and a check
in the amount of such exercise price less the
value of the Shares delivered, based on the
closing price of Common Stock of Rockwell Collins
on the New York Stock Exchange -- Composite
Transactions on the day you have exercised your
Options through the Customer Service Center or
Schwab OptionCenter(R).
(ii) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use Option Shares obtained by Cashless Exercise to pay all or part of the exercise price for the remaining Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must contact the Customer Service Center at (888) 852-2135 or Schwab OptionCenter(R).
(iii) Charles Schwab will advise you (or any other person who, being entitled to do so, exercises the Options) of the exact number of Shares, valued at the closing price on the New York Stock Exchange -- Composite Transactions on the effective date of exercise under Section 3(b)(ii) herein, and any funds required to pay in full the exercise price for the Option Shares purchased. In accordance with Section 3(e) herein, you (or such other person) must pay, by check, in Shares or in a combination of check and Shares, any balance required to pay in full the exercise price of the Option Shares purchased within three business days following the effective date of such exercise of the Options under Section 3(b)(ii) herein.
(iv) Notwithstanding any other provision of this Stock Option Agreement, the Secretary of Rockwell Collins may limit the number, frequency or volume of successive exercises of any of the Options in which payment is made, in whole or in part, by delivery of Shares pursuant to this subparagraph (d) to prevent unreasonable pyramiding of such exercises.
(e) An exercise completed through the Customer Service Center or Schwab OptionCenter(R), whether or not full payment of the exercise price for the Option Shares is received by Charles Schwab, shall constitute a binding contractual obligation by you (or the other person entitled to exercise the Options) to proceed with and complete that exercise of the Options (but only so long as you continue, or the other person entitled to exercise the Options continues, to be entitled to exercise the Options on that date). By your acceptance of this Stock Option Agreement, you agree (for yourself
and on behalf of any other person who becomes entitled to exercise the Options) to pay to Charles Schwab in full the exercise price for those Option Shares, that payment being by check, wire transfer, in Shares or in a combination of check and Shares, on or before the third business day after the date on which you complete the transaction through the Customer Service Center. If such payment is not made, you (for yourself and on behalf of any other person who becomes entitled to exercise the Options) authorize Rockwell Collins, in its discretion, to set off against salary payments or other amounts due or which may become due you (or the other person entitled to exercise the Options) any balance of the exercise price for those Option Shares remaining unpaid thereafter.
(f) An Exercise Confirmation representing the number of Option Shares purchased will be issued the third business day (trade date plus three business days) (i) after Charles Schwab has received full payment therefor or (ii) at Rockwell Collins' or Charles Schwab's election in their sole discretion, after Rockwell Collins or Charles Schwab has received (x) full payment of the exercise price of those Option Shares and (y) any reimbursement in respect of withholding taxes due pursuant to Section 5 herein.
4. Transferability; Nonassignability
You are not entitled to transfer the Options except by will or by the laws of descent and distribution.
5. Withholding
Rockwell Collins or Charles Schwab shall have the right, in connection with the exercise of the Options, in whole or in part, to deduct from any payment to be made by Rockwell Collins or Charles Schwab an amount equal to the taxes required to be withheld by law with respect to such exercise or to require you (or any other person entitled to exercise the Options) to pay to it an amount sufficient to provide for any such taxes so required to be withheld. By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) that if Rockwell Collins or Charles Schwab elects to require you (or such other person) to remit an amount sufficient to pay such withholding taxes, you (or such other person) must remit that amount within three business days after the completion of the Option exercise as provided in Section 3(a)(ii) herein. If such payment is not made, Rockwell Collins, in its discretion, shall have the same right of set-off as provided under Section 3(e) herein with respect to payment of the exercise price for Option Shares.
6. Headings
The section headings contained in these Stock Option Terms and Conditions are solely for the purpose of reference, are not part of the agreement of the parties and shall in no way affect the meaning or interpretation of this Stock Option Agreement.
7. References
All references in these Stock Option Terms and Conditions to Sections, paragraphs, subparagraphs or clauses shall be deemed to be references to Sections, paragraphs, subparagraphs and clauses of these Stock Option Terms and Conditions unless otherwise specifically provided.
8. Entire Agreement
This Stock Option Agreement and the other terms applicable to Stock Options granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the Options, and there are no representations, promises, covenants, agreements or understandings with respect to the Options other than those expressly set forth in this Stock Option Agreement and the Plan.
9. Applicable Laws and Regulations
This Stock Option Agreement and Rockwell Collins obligation to issue Option Shares hereunder are subject to applicable laws and regulations.
Exhibit 1 Exercise Request and Attestation Form (For Use With Already-
Owned Shares)
-8-
|
2001 LONG-TERM INCENTIVES PLAN
FORM OF OPTION AGREEMENT
[EXISTING ARBITRATION AGREEMENT]
[Grant Date]
|
To:
Social Security/Account Number:
Dear Optionee:
We are pleased to notify you that you have been granted the following stock options under the 2001 Long-Term Incentives Plan (the "Plan"):
Date of Grant Type of Grant Number of Shares Option Price ------------- ------------- ---------------- ------------ |
These stock options (the "Options") have been granted under and may be exercised only upon the terms and conditions of this Stock Option Agreement, subject in all respects to the provisions of the Plan, as it may be amended. The enclosed Stock Option Terms and Conditions are incorporated in and are part of this Stock Option Agreement.
A copy of the Plan and Plan Prospectus are enclosed. Please carefully read the enclosed documents and retain them for future reference.
ROCKWELL COLLINS, INC.
By:
2001 LONG-TERM INCENTIVES PLAN
FORM OF OPTION AGREEMENT
[NON-COMPETE, NEW ARBITRATION AGREEMENT]
[Grant Date]
To:
Social Security/Account Number:
Dear Optionee:
We are pleased to notify you that you have been granted the following stock options under the 2001 Long-Term Incentives Plan (the "Plan"):
Date of Grant Type of Grant Number of Shares Option Price ------------- ------------- ---------------- ------------ |
These stock options (the "Options") have been granted under and may be exercised only upon the terms and conditions of this Stock Option Agreement, subject in all respects to the provisions of the Plan, as it may be amended. The enclosed Stock Option Terms and Conditions are incorporated in and are part of this Stock Option Agreement.
In partial consideration for the grant of the Options to you, you undertake and agree by your acceptance of this Stock Option Agreement that
(a) during your employment with the Corporation (as defined in the Plan) and for two years after the date of your retirement or other termination of such employment, you shall not (i) directly or indirectly, except with the approval of the Corporation, engage or otherwise participate in any business which is competitive with any significant line of business of the Corporation or any of its affiliates (otherwise than through ownership of not more than 5% of the voting securities of any such competitive business) or (ii) solicit or induce any employee of the Corporation or any of its affiliates to leave his or her employment with the Corporation or any of its affiliates to accept employment or other engagement with any such competitive business; and
(b) in the event that you breach this undertaking, in addition to any and all other remedies the Corporation may have, (i) the Corporation shall have the right to determine by written notice to you that any of the Options then outstanding shall immediately lapse and cease to be exercisable; and (ii) you agree to pay the Corporation upon written demand the amount of the excess
of the Fair Market Value (as defined in the Plan) of any shares of the Corporation's Common Stock you acquired upon exercise of any of the Options (other than Options exercised more than two years before the date of your retirement or other termination of employment) over the exercise price for those Shares.
If a Change of Control (as defined in the Plan) shall occur, however, the foregoing provisions (a) and (b) shall immediately terminate as of, and shall not limit your activities after, the date of such Change of Control.
This stock option grant is also subject to the condition that you sign and return one copy of the Mutual Agreement to Arbitrate Claims to:
Rockwell Collins, Inc. Office of the Secretary 400 Collins Road NE Cedar Rapids, IA 52398
A copy of the Plan and Plan Prospectus are enclosed. Please carefully read the enclosed documents and retain them for future reference.
The Options will lapse and be of no effect if a copy of this Stock Option Agreement and a copy of the Mutual Agreement to Arbitrate Claims, each properly signed by you, are not received by the Secretary of Rockwell Collins, Inc. at the above address on or before November 30, 2001, unless Rockwell Collins, Inc. (in its sole discretion) elects in writing to extend that date.
Agreed to: ROCKWELL COLLINS, INC. Date:______________________ ___________________________ By: Employee Signature [Social Security No.] |
[TERMS AND CONDITIONS -- INSIDER, ISOS, PRIORITY, NQ]
ROCKWELL COLLINS, INC.
2001 LONG-TERM INCENTIVES PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words and phrases shall have the respective meanings ascribed to them below unless the context in which any of them is used clearly indicates a contrary meaning:
(a) Cashless Exercise: Cashless Exercise shall have the meaning set forth in Section 3(a)(ii) herein.
(b) Change of Control: Change of Control shall have the same meaning as such term has in Section 2(d) of the Plan.
(c) Charles Schwab: Charles Schwab & Co., Inc., the Stock Option Administrator whom Rockwell Collins has engaged to administer and process all Option exercises.
(d) Committee: The Compensation and Management Development Committee of the Board of Directors of Rockwell Collins.
(e) Corporation: Rockwell Collins and its Subsidiaries (as such term is defined in the Plan).
(f) Customer Service Center: Charles Schwab's Customer Service Center that is used to facilitate Option transactions. Contact Charles Schwab at (888) 852-2135.
(g) Employee: Employee shall have the same meaning as such term has in
Section 2(j) of the Plan.
(h) Exercise Request and Attestation Form: The form attached as Exhibit 2 or any other form accepted by Charles Schwab in connection with the use of already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options.
(i) Notice of Exercise Form: The form attached as Exhibit 1 or any other form accepted by the Secretary of Rockwell Collins in his sole discretion.
(j) Options: The stock options listed in the first paragraph of the letter dated [ ], to which these Stock Option Terms and Conditions are attached and which together with these Stock Option Terms and Conditions constitute the Stock Option Agreement.
(k) Option Shares: The shares of Rockwell Collins Common Stock issuable or transferable on exercise of the Options.
(l) Plan: Rockwell Collins 2001 Long-Term Incentives Plan, as such Plan may be amended and in effect at the relevant time.
(m) Rockwell Collins: Rockwell Collins, Inc., a Delaware corporation, and any successor thereto.
(n) Shares: Shares of Rockwell Collins Common Stock.
(o) Stock Option Agreement: These Stock Option Terms and Conditions together with the letter dated [ ], to which they are attached.
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole
number of shares) and at one time or from time to time, as to one-third
(rounded to the nearest whole number) of the Option Shares granted
pursuant to nonqualified stock options (NQs) and incentive stock options
(ISOs) during the period beginning on [ ] and ending on [ ], as to an
additional one-third (rounded to the nearest whole number) of the Option
Shares granted pursuant to NQs and ISOs during the period beginning on [ ]
and ending on [ ] and as to the balance of the Option Shares granted
pursuant to NQs and ISOs during the period beginning on [ ] and ending on
[ ], and only during those periods, and provided that:
(a) if you die while an Employee, any person who holds the Options as permitted by Section 4 herein may exercise all the Options not theretofore exercised within (and only within) the period beginning on your date of death (even if you die before you have become entitled to exercise all or any part of the Options) and ending three years thereafter; and
(b) if your employment by the Corporation terminates other than by death, then:
(i) if your retirement or other termination date is before [ ], the Options shall lapse on your retirement or other termination and may not be exercised at any time;
(ii) if your employment by the Corporation is terminated for cause, as determined by the Committee, the Options shall expire forthwith upon your termination and may not be exercised thereafter;
(iii) if your employment by Rockwell Collins terminates on or after
[ ] by reason of your retirement under a retirement plan of
Rockwell Collins, or under a retirement plan of a subsidiary
or affiliate of Rockwell Collins, you (or any person who holds
the Options as permitted by Section 4 herein) may thereafter
exercise Options which are exercisable prior to the date of
your retirement or that will become exercisable within (and
only within) the period between the date of your retirement
and ending on the fifth anniversary of your retirement date;
or if you retire prior to age 62, the earlier of (x) the fifth
anniversary of your retirement date or (y) such earlier date
as the Committee shall determine by action taken not later
than 60 days after your retirement date; and
(iv) if your employment by the Corporation terminates on or after
[ ] for any reason not specified in subparagraph (a) or in
clauses (ii) or (iii) of this subparagraph (b), you (or any
person who holds the Options as permitted by Section 4 herein)
may thereafter exercise the Options within (and only within)
the period ending three months after your termination date but
only to the extent such Options were exercisable on your
termination date.
In no event shall the provisions of the foregoing subparagraphs (a) and (b) extend to a date after [ ], the period during which the Options may be exercised.
Notwithstanding any other provision of this Agreement, if a Change of Control shall occur, then all Options then outstanding pursuant to this Agreement shall forthwith become fully exercisable whether or not then otherwise exercisable in accordance with their terms.
3. Exercise Procedure
(a) To exercise all or any part of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must first obtain authorization from Rockwell Collins' Office of the Secretary by submitting a Notice of Exercise Form to Rockwell Collins' Office of the Secretary (Attention: Stock Option Administration; facsimile number (319) 295-3599) or by other means acceptable to the Secretary of Rockwell Collins and then contact the Stock Option Administrator, Charles Schwab, by using the Customer Service Center, as follows:
(i) contact the Customer Service Center by calling (888) 852-2135 Monday through Friday, 9:00 a.m. to 9:00 p.m. Eastern Time and follow the instructions provided;
(ii) full payment of the exercise price for the Option Shares to be purchased on exercise of the Options may be made by:
- check (wire) to your Charles Schwab account; or
- in already-owned Shares; or
- by authorizing Charles Schwab or a third party approved by Rockwell Collins to sell the Shares (or a sufficient portion of the Shares) acquired upon exercise of the Option ("Cashless Exercise"); or
- in a combination of check (wire) to your Charles Schwab account and Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise); and
(iii) in the case of an exercise of the Options by any person other than you seeking to exercise the Options, such documents as Charles Schwab or the Secretary of Rockwell Collins shall require to establish to their satisfaction that the person seeking to exercise the Options is entitled to do so.
(b) An exercise of the whole or any part of the Options shall be effective:
(i) if you elect (or any person who holds the Options as permitted by Section 4 herein elects) to pay the exercise price for the Option Shares entirely by check (wire), upon (A) completion of your transaction by using the Customer Service Center and full payment of the exercise price and withholding taxes (if applicable) are received by Charles Schwab within three business days following the exercise; and (B) receipt of any documents required pursuant to Section 3(a)(iii) herein; and
(ii) if you elect (or any person who holds the Options as permitted
by Section 4 herein elects) to pay the exercise price of the
Option Shares in Shares (whether already-owned Shares or
Shares issued and subsequently sold in connection with a
Cashless Exercise) or in a combination of Shares (whether
already-owned Shares or Shares issued and subsequently sold in
connection with a Cashless Exercise) and check, upon (A)
completion of your transaction by using the Customer Service
Center and full payment of the exercise price (as described in
Section 3(d)(i) herein) and withholding taxes (if
applicable) are received by Charles Schwab within three business days following the exercise; and (B) receipt of any documents required pursuant to Section 3(a)(iii) herein.
(c) If you choose (or any person who holds the Options as permitted by
Section 4 herein chooses) to pay the exercise price for the Option
Shares to be purchased on exercise of any of the Options entirely by
check, payment must be made by:
- delivering to Charles Schwab a check (wire) in the full amount of the exercise price for those Option Shares; or
- arranging with a stockbroker, bank or other financial institution to deliver to Charles Schwab full payment, by check or (if prior arrangements are made with Charles Schwab) by wire transfer, of the exercise price of those Option Shares.
In either event, in accordance with Section 3(e) herein, full payment of the exercise price for the Option Shares purchased must be made within three business days after the exercise has been completed through the Customer Service Center.
(d) (i) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must deliver to Charles Schwab an Exercise Request and Attestation Form and cash to cover the purchase of one Option Share as specified in such form. To perform such a transaction, the Exercise Request and Attestation Form must be submitted via fax ((720) 785-8874) by 4:00 p.m. Eastern Time on the date of exercise and any questions concerning this type of transaction should be referred to (877) 636-7551 (Stock Option Administration Group Hotline). The Exercise Request and Attestation Form must attest to your ownership of Shares representing:
- at least the number of Shares whose value, based on the closing price of Common Stock of Rockwell Collins on the New York Stock Exchange -- Composite Transactions on the day you have exercised your Options through the Customer Service Center, equals the exercise price for the Option Shares; or
- any lesser number of Shares you desire (or any
person who holds the Options as permitted by
Section 4 herein desires) to
use to pay the exercise price for those Option Shares and a check in the amount of such exercise price less the value of the Shares delivered, based on the closing price of Common Stock of Rockwell Collins on the New York Stock Exchange -- Composite Transactions on the day you have exercised your Options through the Customer Service Center.
(ii) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use Option Shares obtained by Cashless Exercise to pay all or part of the exercise price for the remaining Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must contact the Customer Service Center at (888) 852-2135.
(iii) Charles Schwab will advise you (or any other person who, being entitled to do so, exercises the Options) of the exact number of Shares, valued at the closing price on the New York Stock Exchange -- Composite Transactions on the effective date of exercise under Section 3(b)(ii) herein, and any funds required to pay in full the exercise price for the Option Shares purchased. In accordance with Section 3(e) herein, you (or such other person) must pay, by check, in Shares or in a combination of check and Shares, any balance required to pay in full the exercise price of the Option Shares purchased within three business days following the effective date of such exercise of the Options under Section 3(b)(ii) herein.
(iv) Notwithstanding any other provision of this Stock Option Agreement, the Secretary of Rockwell Collins may limit the number, frequency or volume of successive exercises of any of the Options in which payment is made, in whole or in part, by delivery of Shares pursuant to this subparagraph (d) to prevent unreasonable pyramiding of such exercises.
(e) An exercise completed through the Customer Service Center, whether or not full payment of the exercise price for the Option Shares is received by Charles Schwab, shall constitute a binding contractual obligation by you (or the other person entitled to exercise the Options) to proceed with and complete that exercise of the Options (but only so long as you continue, or the other person entitled to exercise the Options continues, to be entitled to exercise the Options on that date). By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) to pay to Charles Schwab in full the exercise price for those Option Shares, that payment being by check, wire transfer, in Shares or in a combination of check and Shares, on or before the third business day after the date on which you complete the
transaction through the Customer Service Center. If such payment is not made, you (for yourself and on behalf of any other person who becomes entitled to exercise the Options) authorize Rockwell Collins, in its discretion, to set off against salary payments or other amounts due or which may become due you (or the other person entitled to exercise the Options) any balance of the exercise price for those Option Shares remaining unpaid thereafter.
(f) An Exercise Confirmation representing the number of Option Shares purchased will be issued the third business day (trade date plus three business days) (i) after Charles Schwab has received full payment therefor or (ii) at Rockwell Collins' or Charles Schwab's election in their sole discretion, after Rockwell Collins or Charles Schwab has received (x) full payment of the exercise price of those Option Shares and (y) any reimbursement in respect of withholding taxes due pursuant to Section 5 herein.
4. Transferability; Nonassignability
You are not entitled to transfer the Options except by will or by the laws of descent and distribution.
5. Withholding
Rockwell Collins or Charles Schwab shall have the right, in connection with the exercise of the Options, in whole or in part, to deduct from any payment to be made by Rockwell Collins or Charles Schwab an amount equal to the taxes required to be withheld by law with respect to such exercise or to require you (or any other person entitled to exercise the Options) to pay to it an amount sufficient to provide for any such taxes so required to be withheld. By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) that if Rockwell Collins or Charles Schwab elects to require you (or such other person) to remit an amount sufficient to pay such withholding taxes, you (or such other person) must remit that amount within three business days after the completion of the Option exercise as provided in Section 3(a)(ii) herein. If such payment is not made, Rockwell Collins, in its discretion, shall have the same right of set-off as provided under Section 3(e) herein with respect to payment of the exercise price for Option Shares.
6. Headings
The section headings contained in these Stock Option Terms and Conditions are solely for the purpose of reference, are not part of the agreement of the parties and shall in no way affect the meaning or interpretation of this Stock Option Agreement.
7. References
All references in these Stock Option Terms and Conditions to Sections, paragraphs, subparagraphs or clauses shall be deemed to be references to Sections, paragraphs, subparagraphs and clauses of these Stock Option Terms and Conditions unless otherwise specifically provided.
8. Entire Agreement
This Stock Option Agreement and the other terms applicable to Stock Options granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the Options, and there are no representations, promises, covenants, agreements or understandings with respect to the Options other than those expressly set forth in this Stock Option Agreement and the Plan.
9. Applicable Laws and Regulations
This Stock Option Agreement and Rockwell Collins obligation to issue Option Shares hereunder are subject to applicable laws and regulations.
Exhibit 1 Notice of Exercise Form
Exhibit 2 Exercise Request and Attestation Form (For Use With Already-
Owned Shares)
|
EXHIBIT 1
NOTICE OF EXERCISE FORM
To: Rockwell Collins, Inc.
Office of the Secretary
400 Collins Road NE
Cedar Rapids, IA 52398
Fax No. (319) 295-3599
1. OPTIONS EXERCISED: Subject to the terms and conditions of the Stock Option Agreement dated [ ] with Rockwell Collins, Inc. (Rockwell Collins) thereunder, I hereby exercise the following stock option(s):
Date of Number of Exercise Total
Grant Shares Price Purchase Price
------- ---------- ---------- --------------
$ $
------- ---------- ---------- --------------
$ $
------- ---------- ---------- --------------
$ $
------- ---------- ---------- --------------
|
2. PAYMENT: The following must be received by Charles Schwab & Co., Inc. (Charles Schwab) within three business days following the date of exercise:
- A check payable to Rockwell Collins Employee Stock Option Program or a wire transfer to Charles Schwab for credit to the Rockwell Collins Employee Stock Option Program in the amount of the Total Purchase Price of the above-itemized stock option(s); or
- A number of shares of Rockwell Collins Common Stock surrendered or sold to pay the Total Purchase Price of the above-itemized stock option(s); or
- A combination of (i) check payable to Rockwell Collins Employee Stock Option Program or a wire transfer to Charles Schwab for credit to the Rockwell Collins Employee Stock Option Program, and (ii) a number of Shares surrendered or sold, which together amount to the Total Purchase Price of the above-itemized stock option(s).
Notice of Exercise Form For Officers and Directors Only
If full payment of the Total Purchase Price of the stock option(s) listed in Item 1 is not delivered within three (3) business days after the exercise date, Rockwell Collins is authorized forthwith to set off the balance due against any amounts due or which may become due me to satisfy my obligation to pay the Total Purchase Price.
This Stock Option Exercise may not be revoked or changed after delivery of this form, properly completed, dated and signed, to Rockwell Collins whether or not payment accompanies this form and whether this form is dated before, on or after the date of such receipt.
Printed Name_____________________________
Dated:___________________________________
[TERMS AND CONDITIONS -- NON-COMPETE, PRIORITY, NQ]
ROCKWELL COLLINS, INC.
2001 LONG-TERM INCENTIVES PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words and phrases shall have the respective meanings ascribed to them below unless the context in which any of them is used clearly indicates a contrary meaning:
(a) Cashless Exercise: Cashless Exercise shall have the meaning set forth in Section 3(a)(ii) herein.
(b) Change of Control: Change of Control shall have the same meaning as such term has in Section 2(d) of the Plan.
(c) Charles Schwab: Charles Schwab & Co., Inc., the Stock Option Administrator whom Rockwell Collins has engaged to administer and process all Option exercises.
(d) Committee: The Compensation and Management Development Committee of the Board of Directors of Rockwell Collins.
(e) Corporation: Rockwell Collins and its Subsidiaries (as such term is defined in the Plan).
(f) Customer Service Center: Charles Schwab's Customer Service Center that is used to facilitate Option transactions. Contact Charles Schwab at (888) 852-2135.
(g) Employee: Employee shall have the same meaning as such term has in
Section 2(j) of the Plan.
(h) Exercise Request and Attestation Form: The form attached as Exhibit 1 or any other form accepted by Charles Schwab in connection with the use of already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options.
(i) Options: The stock options listed in the first paragraph of the letter dated [ ], to which these Stock Option Terms and Conditions are attached and which together with these Stock Option Terms and Conditions constitute the Stock Option Agreement.
(j) Option Shares: The shares of Rockwell Collins Common Stock issuable or transferable on exercise of the Options.
(k) Plan: Rockwell Collins 2001 Long-Term Incentives Plan, as such Plan may be amended and in effect at the relevant time.
(l) Rockwell Collins: Rockwell Collins, Inc., a Delaware corporation, and any successor thereto.
(m) Schwab OptionCenter(R) : Charles Schwab's stock option management website which you can use to access your stock option account and to facilitate stock option transactions securely on the web at www.schwab.com/optioncenter.
(n) Shares: Shares of Rockwell Collins Common Stock.
(o) Stock Option Agreement: These Stock Option Terms and Conditions together with the letter dated [ ], to which they are attached.
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole number of shares) and at one time or from time to time, as to one-third (rounded to the nearest whole number) of the Option Shares during the period beginning on [ ] and ending on [ ], as to an additional one-third (rounded to the nearest whole number) of the Option Shares during the period beginning on [ ] and ending on [ ] and as to the balance of the Option Shares during the period beginning on [ ] and ending on [ ], and only during those periods, and provided that:
(a) if you die while an Employee, any person who holds the Options as permitted by Section 4 herein may exercise all the Options not theretofore exercised within (and only within) the period beginning on your date of death (even if you die before you have become entitled to exercise all or any part of the Options) and ending three years thereafter; and
(b) if your employment by the Corporation terminates other than by death, then:
(i) if your retirement or other termination date is before [ ], the Options shall lapse on your retirement or other termination and may not be exercised at any time;
(ii) if your employment by the Corporation is terminated for cause, as determined by the Committee, the Options shall expire forthwith upon your termination and may not be exercised thereafter;
(iii) if your employment by Rockwell Collins terminates on or after
[ ] by reason of your retirement under a retirement plan of
Rockwell Collins, or under a retirement plan of a subsidiary
or affiliate of Rockwell Collins, you (or any person who holds
the Options as permitted by Section 4 herein) may thereafter
exercise Options which are exercisable prior to the date of
your retirement or that will become exercisable within (and
only within) the period between the date of your retirement
and ending on the fifth anniversary of your retirement date;
or if you retire prior to age 62, the earlier of (x) the fifth
anniversary of your retirement date or (y) such earlier date
as the Committee shall determine by action taken not later
than 60 days after your retirement date; and
(iv) if your employment by the Corporation terminates on or after
[ ] for any reason not specified in subparagraph (a) or in
clauses (ii) or (iii) of this subparagraph (b), you (or any
person who holds the Options as permitted by Section 4 herein)
may thereafter exercise the Options within (and only within)
the period ending three months after your termination date but
only to the extent such Options were exercisable on your
termination date.
In no event shall the provisions of the foregoing subparagraphs (a) and (b) extend to a date after [ ], the period during which the Options may be exercised.
Notwithstanding any other provision of this Agreement, if a Change of Control shall occur, then all Options then outstanding pursuant to this Agreement shall forthwith become fully exercisable whether or not then otherwise exercisable in accordance with their terms.
3. Exercise Procedure
(a) To exercise all or any part of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must contact the Stock Option Administrator, Charles Schwab, by using the Customer Service Center or Schwab OptionCenter(R), as follows:
(i) contact the Customer Service Center by calling (888) 852-2135 Monday through Friday, 9:00 a.m. to 9:00 p.m. Eastern Time and follow the instructions provided, or exercise via the Web through the Schwab OptionCenter(R) at www.schwab.com/ optioncenter;
(ii) confirm the Option transaction through the Customer Service Center or Schwab OptionCenter(R);
(iii) at any time you may speak to a Customer Service Representative for assistance by calling 888-852-2135;
(iv) full payment of the exercise price for the Option Shares to be purchased on exercise of the Options may be made by:
- check (wire) to your Charles Schwab account; or
- in already-owned Shares; or
- by authorizing Charles Schwab or a third party approved by Rockwell Collins to sell the Shares (or a sufficient portion of the Shares) acquired upon exercise of the Option ("Cashless Exercise"); or
- in a combination of check (wire) to your Charles Schwab account and Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise); and
(v) in the case of an exercise of the Options by any person other than you seeking to exercise the Options, such documents as Charles Schwab or the Secretary of Rockwell Collins shall require to establish to their satisfaction that the person seeking to exercise the Options is entitled to do so.
(b) An exercise of the whole or any part of the Options shall be effective:
(i) if you elect (or any person who holds the Options as permitted by Section 4 herein elects) to pay the exercise price for the Option Shares entirely by check (wire), upon (A) completion of your transaction by using the Customer Service Center or Schwab OptionCenter(R) and full payment of the exercise price and withholding taxes (if applicable) are received by Charles Schwab within three business days following the exercise; and (B) receipt of any documents required pursuant to Section 3(a)(v) herein; and
(ii) if you elect (or any person who holds the Options as permitted by Section 4 herein elects) to pay the exercise price of the Option Shares in Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise) or in a combination of Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise) and check, upon (A) completion of your transaction by using the Customer Service Center or Schwab OptionCenter(R) and full payment of the exercise price (as described in Section 3(d)(i) herein) and withholding taxes (if applicable) are received by Charles
Schwab within three business days following the exercise; and (B) receipt of any documents required pursuant to Section 3(a)(v) herein.
(c) If you choose (or any person who holds the Options as permitted by
Section 4 herein chooses) to pay the exercise price for the Option
Shares to be purchased on exercise of any of the Options entirely by
check, payment must be made by:
- delivering to Charles Schwab a check (wire) in the full amount of the exercise price for those Option Shares; or
- arranging with a stockbroker, bank or other financial institution to deliver to Charles Schwab full payment, by check or (if prior arrangements are made with Charles Schwab) by wire transfer, of the exercise price of those Option Shares.
In either event, in accordance with Section 3(e) herein, full payment of the exercise price for the Option Shares purchased must be made within three business days after the exercise has been completed through the Customer Service Center or Schwab OptionCenter(R).
(d) (i) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must deliver to Charles Schwab an Exercise Request and Attestation Form and cash to cover the purchase of one Option Share as specified in such form. To perform such a transaction, the Exercise Request and Attestation Form must be submitted via fax ((720) 785-8874) by 4:00 p.m. Eastern Time on the date of exercise and any questions concerning this type of transaction should be referred to (877) 636-7551 (Stock Option Administration Group Hotline). The Exercise Request and Attestation Form must attest to your ownership of Shares representing:
- at least the number of Shares whose value, based on the closing price of Common Stock of Rockwell Collins on the New York Stock Exchange -- Composite Transactions on the day you have exercised your Options through the Customer Service Center or Schwab OptionCenter(R), equals the exercise price for the Option Shares; or
- any lesser number of Shares you desire (or any
person who holds the Options as permitted by
Section 4 herein desires) to
use to pay the exercise price for those Option Shares and a check in the amount of such exercise price less the value of the Shares delivered, based on the closing price of Common Stock of Rockwell Collins on the New York Stock Exchange -- Composite Transactions on the day you have exercised your Options through the Customer Service Center or Schwab OptionCenter(R).
(ii) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use Option Shares obtained by Cashless Exercise to pay all or part of the exercise price for the remaining Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must contact the Customer Service Center at (888) 852-2135 or Schwab OptionCenter(R).
(iii) Charles Schwab will advise you (or any other person who, being entitled to do so, exercises the Options) of the exact number of Shares, valued at the closing price on the New York Stock Exchange -- Composite Transactions on the effective date of exercise under Section 3(b)(ii) herein, and any funds required to pay in full the exercise price for the Option Shares purchased. In accordance with Section 3(e) herein, you (or such other person) must pay, by check, in Shares or in a combination of check and Shares, any balance required to pay in full the exercise price of the Option Shares purchased within three business days following the effective date of such exercise of the Options under Section 3(b)(ii) herein.
(iv) Notwithstanding any other provision of this Stock Option Agreement, the Secretary of Rockwell Collins may limit the number, frequency or volume of successive exercises of any of the Options in which payment is made, in whole or in part, by delivery of Shares pursuant to this subparagraph (d) to prevent unreasonable pyramiding of such exercises.
(e) An exercise completed through the Customer Service Center or Schwab OptionCenter(R), whether or not full payment of the exercise price for the Option Shares is received by Charles Schwab, shall constitute a binding contractual obligation by you (or the other person entitled to exercise the Options) to proceed with and complete that exercise of the Options (but only so long as you continue, or the other person entitled to exercise the Options continues, to be entitled to exercise the Options on that date). By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) to pay to Charles Schwab in full the exercise price for those Option Shares, that payment being by check, wire transfer, in Shares or in a
combination of check and Shares, on or before the third business day after the date on which you complete the transaction through the Customer Service Center. If such payment is not made, you (for yourself and on behalf of any other person who becomes entitled to exercise the Options) authorize Rockwell Collins, in its discretion, to set off against salary payments or other amounts due or which may become due you (or the other person entitled to exercise the Options) any balance of the exercise price for those Option Shares remaining unpaid thereafter.
(f) An Exercise Confirmation representing the number of Option Shares purchased will be issued the third business day (trade date plus three business days) (i) after Charles Schwab has received full payment therefor or (ii) at Rockwell Collins' or Charles Schwab's election in their sole discretion, after Rockwell Collins or Charles Schwab has received (x) full payment of the exercise price of those Option Shares and (y) any reimbursement in respect of withholding taxes due pursuant to Section 5 herein.
4. Transferability; Nonassignability
You are not entitled to transfer the Options except by will or by the laws of descent and distribution.
5. Withholding
Rockwell Collins or Charles Schwab shall have the right, in connection with the exercise of the Options, in whole or in part, to deduct from any payment to be made by Rockwell Collins or Charles Schwab an amount equal to the taxes required to be withheld by law with respect to such exercise or to require you (or any other person entitled to exercise the Options) to pay to it an amount sufficient to provide for any such taxes so required to be withheld. By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) that if Rockwell Collins or Charles Schwab elects to require you (or such other person) to remit an amount sufficient to pay such withholding taxes, you (or such other person) must remit that amount within three business days after the completion of the Option exercise as provided in Section 3(a)(ii) herein. If such payment is not made, Rockwell Collins, in its discretion, shall have the same right of set-off as provided under Section 3(e) herein with respect to payment of the exercise price for Option Shares.
6. Headings
The section headings contained in these Stock Option Terms and Conditions are solely for the purpose of reference, are not part of the agreement of the parties and shall in no way affect the meaning or interpretation of this Stock Option Agreement.
7. References
All references in these Stock Option Terms and Conditions to Sections, paragraphs, subparagraphs or clauses shall be deemed to be references to Sections, paragraphs, subparagraphs and clauses of these Stock Option Terms and Conditions unless otherwise specifically provided.
8. Entire Agreement
This Stock Option Agreement and the other terms applicable to Stock Options granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the Options, and there are no representations, promises, covenants, agreements or understandings with respect to the Options other than those expressly set forth in this Stock Option Agreement and the Plan.
9. Applicable Laws and Regulations
This Stock Option Agreement and Rockwell Collins obligation to issue Option Shares hereunder are subject to applicable laws and regulations.
Exhibit 1 Exercise Request and Attestation Form (For Use With Already- Owned Shares)
2001 LONG-TERM INCENTIVES PLAN
FORM OF OPTION AGREEMENT
[NEW ARBITRATION AGREEMENT]
[Grant Date]
To:
Social Security/Account Number:
Dear Optionee:
We are pleased to notify you that you have been granted the following stock options under the 2001 Long-Term Incentives Plan (the "Plan"):
Date of Grant Type of Grant Number of Shares Option Price ------------- ------------- ---------------- ------------ |
These stock options (the "Options") have been granted under and may be exercised only upon the terms and conditions of this Stock Option Agreement, subject in all respects to the provisions of the Plan, as it may be amended. The enclosed Stock Option Terms and Conditions are incorporated in and are part of this Stock Option Agreement.
This stock option grant is also subject to the condition that you sign and return one copy of the Mutual Agreement to Arbitrate Claims to:
Rockwell Collins, Inc. Office of the Secretary 400 Collins Road NE Cedar Rapids, IA 52498
These stock option(s) will be of no effect if the copy of the Mutual Agreement to Arbitrate Claims, properly signed by you, is not received by the Secretary of Rockwell Collins, Inc. on or before [ ], unless Rockwell Collins, Inc. (in its sole discretion) elects in writing to extend that date.
A copy of the Plan and Plan Prospectus are enclosed. Please carefully read the enclosed documents and retain them for future reference.
ROCKWELL COLLINS, INC.
By:
[TERMS AND CONDITIONS -- STANDARD, NQ]
ROCKWELL COLLINS, INC.
2001 LONG-TERM INCENTIVES PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words and phrases shall have the respective meanings ascribed to them below unless the context in which any of them is used clearly indicates a contrary meaning:
(a) Cashless Exercise: Cashless Exercise shall have the meaning set forth in Section 3(a)(ii) herein.
(b) Change of Control: Change of Control shall have the same meaning as such term has in Section 2(d) of the Plan.
(c) Charles Schwab: Charles Schwab & Co., Inc., the Stock Option Administrator whom Rockwell Collins has engaged to administer and process all Option exercises.
(d) Committee: The Compensation and Management Development Committee of the Board of Directors of Rockwell Collins.
(e) Corporation: Rockwell Collins and its Subsidiaries (as such term is defined in the Plan).
(f) Customer Service Center: Charles Schwab's Customer Service Center that is used to facilitate Option transactions. Contact Charles Schwab at (800) 654-2593.
(g) Employee: Employee shall have the same meaning as such term has in
Section 2(j) of the Plan.
(h) Exercise Request and Attestation Form: The form attached as Exhibit 1 or any other form accepted by Charles Schwab in connection with the use of already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options.
(i) Options: The stock options listed in the first paragraph of the letter dated [ ], to which these Stock Option Terms and Conditions are attached and which together with these Stock Option Terms and Conditions constitute the Stock Option Agreement.
(j) Option Shares: The shares of Rockwell Collins Common Stock issuable or transferable on exercise of the Options.
(k) Plan: Rockwell Collins 2001 Long-Term Incentives Plan, as such Plan may be amended and in effect at the relevant time.
(l) Rockwell Collins: Rockwell Collins, Inc., a Delaware corporation, and any successor thereto.
(m) Schwab OptionCenter(R) : Charles Schwab's stock option management website which you can use to access your stock option account and to facilitate stock option transactions securely on the web at www.schwab.com/optioncenter.
(n) Shares: Shares of Rockwell Collins Common Stock.
(o) Stock Option Agreement: These Stock Option Terms and Conditions together with the letter dated [ ], to which they are attached.
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole number of shares) and at one time or from time to time, as to one-third (rounded to the nearest whole number) of the Option Shares during the period beginning on [ ] and ending on [ ], as to an additional one-third (rounded to the nearest whole number) of the Option Shares during the period beginning on [ ] and ending on [ ] and as to the balance of the Option Shares during the period beginning on [ ] and ending on [ ], and only during those periods, and provided that:
(a) if you die while an Employee, any person who holds the Options as permitted by Section 4 herein may exercise all the Options not theretofore exercised within (and only within) the period beginning on your date of death (even if you die before you have become entitled to exercise all or any part of the Options) and ending three years thereafter; and
(b) if your employment by the Corporation terminates other than by death, then:
(i) if your retirement or other termination date is before [ ], the Options shall lapse on your retirement or other termination and may not be exercised at any time;
(ii) if your employment by the Corporation is terminated for cause, as determined by the Committee, the Options shall expire forthwith upon your termination and may not be exercised thereafter;
(iii) if your employment by Rockwell Collins terminates on or after
[ ] by reason of your retirement under a retirement plan of
Rockwell Collins, or under a retirement plan of a subsidiary
or affiliate of Rockwell Collins, you (or any person who holds
the Options as permitted by Section 4 herein) may thereafter
exercise Options which are exercisable prior to the date of
your retirement or that will become exercisable within (and
only within) the period between the date of your retirement
and ending on the fifth anniversary of your retirement date;
or if you retire prior to age 62, the earlier of (x) the fifth
anniversary of your retirement date or (y) such earlier date
as the Committee shall determine by action taken not later
than 60 days after your retirement date; and
(iv) if your employment by the Corporation terminates on or after
[ ] for any reason not specified in subparagraph (a) or in
clauses (ii) or (iii) of this subparagraph (b), you (or any
person who holds the Options as permitted by Section 4 herein)
may thereafter exercise the Options within (and only within)
the period ending three months after your termination date but
only to the extent such Options were exercisable on your
termination date.
In no event shall the provisions of the foregoing subparagraphs (a) and (b) extend to a date after [ ], the period during which the Options may be exercised.
Notwithstanding any other provision of this Agreement, if a Change of Control shall occur, then all Options then outstanding pursuant to this Agreement shall forthwith become fully exercisable whether or not then otherwise exercisable in accordance with their terms.
3. Exercise Procedure
(a) To exercise all or any part of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must contact the Stock Option Administrator, Charles Schwab, by using the Customer Service Center or Schwab OptionCenter(R), as follows:
(i) contact the Customer Service Center by calling (800) 654-2593 Monday through Friday, 9:00 a.m. to 9:00 p.m. Eastern Time and follow the instructions provided, or exercise via the Web through the Schwab OptionCenter(R) at www.schwab.com/ optioncenter;
(ii) confirm the Option transaction through the Customer Service Center or Schwab OptionCenter(R);
(iii) at any time you may speak to a Customer Service Representative for assistance by calling (800) 654-2593;
(iv) full payment of the exercise price for the Option Shares to be purchased on exercise of the Options may be made by:
- check (wire) to your Charles Schwab account; or
- in already-owned Shares; or
- by authorizing Charles Schwab or a third party approved by Rockwell Collins to sell the Shares (or a sufficient portion of the Shares) acquired upon exercise of the Option ("Cashless Exercise"); or
- in a combination of check (wire) to your Charles Schwab account and Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise); and
(v) in the case of an exercise of the Options by any person other than you seeking to exercise the Options, such documents as Charles Schwab or the Secretary of Rockwell Collins shall require to establish to their satisfaction that the person seeking to exercise the Options is entitled to do so.
(b) An exercise of the whole or any part of the Options shall be effective:
(i) if you elect (or any person who holds the Options as permitted by Section 4 herein elects) to pay the exercise price for the Option Shares entirely by check (wire), upon (A) completion of your transaction by using the Customer Service Center or Schwab OptionCenter(R) and full payment of the exercise price and withholding taxes (if applicable) are received by Charles Schwab within three business days following the exercise; and (B) receipt of any documents required pursuant to Section 3(a)(v) herein; and
(ii) if you elect (or any person who holds the Options as permitted by Section 4 herein elects) to pay the exercise price of the Option Shares in Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise) or in a combination of Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise) and check, upon (A) completion of your transaction by using the Customer Service Center or Schwab OptionCenter(R) and full payment of the exercise price (as described in Section 3(d)(i) herein) and withholding taxes (if applicable) are received by Charles
Schwab within three business days following the exercise; and (B) receipt of any documents required pursuant to Section 3(a)(v) herein.
(c) If you choose (or any person who holds the Options as permitted by
Section 4 herein chooses) to pay the exercise price for the Option
Shares to be purchased on exercise of any of the Options entirely by
check, payment must be made by:
- delivering to Charles Schwab a check (wire) in the full amount of the exercise price for those Option Shares; or
- arranging with a stockbroker, bank or other financial institution to deliver to Charles Schwab full payment, by check or (if prior arrangements are made with Charles Schwab) by wire transfer, of the exercise price of those Option Shares.
In either event, in accordance with Section 3(e) herein, full payment of the exercise price for the Option Shares purchased must be made within three business days after the exercise has been completed through the Customer Service Center or Schwab OptionCenter(R).
(d) (i) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must deliver to Charles Schwab an Exercise Request and Attestation Form and cash to cover the purchase of one Option Share as specified in such form. To perform such a transaction, the Exercise Request and Attestation Form must be submitted via fax ((720) 785-8874) by 4:00 p.m. Eastern Time on the date of exercise and any questions concerning this type of transaction should be referred to (877) 636-7551 (Stock Option Administration Group Hotline). The Exercise Request and Attestation Form must attest to your ownership of Shares representing:
- at least the number of Shares whose value, based on the closing price of Common Stock of Rockwell Collins on the New York Stock Exchange -- Composite Transactions on the day you have exercised your Options through the Customer Service Center or Schwab OptionCenter(R), equals the exercise price for the Option Shares; or
- any lesser number of Shares you desire (or any
person who holds the Options as permitted by
Section 4 herein desires) to
use to pay the exercise price for those Option Shares and a check in the amount of such exercise price less the value of the Shares delivered, based on the closing price of Common Stock of Rockwell Collins on the New York Stock Exchange -- Composite Transactions on the day you have exercised your Options through the Customer Service Center or Schwab OptionCenter(R).
(ii) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use Option Shares obtained by Cashless Exercise to pay all or part of the exercise price for the remaining Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must contact the Customer Service Center at (800) 654-2593 or Schwab OptionCenter(R).
(iii) Charles Schwab will advise you (or any other person who, being entitled to do so, exercises the Options) of the exact number of Shares, valued at the closing price on the New York Stock Exchange -- Composite Transactions on the effective date of exercise under Section 3(b)(ii) herein, and any funds required to pay in full the exercise price for the Option Shares purchased. In accordance with Section 3(e) herein, you (or such other person) must pay, by check, in Shares or in a combination of check and Shares, any balance required to pay in full the exercise price of the Option Shares purchased within three business days following the effective date of such exercise of the Options under Section 3(b)(ii) herein.
(iv) Notwithstanding any other provision of this Stock Option Agreement, the Secretary of Rockwell Collins may limit the number, frequency or volume of successive exercises of any of the Options in which payment is made, in whole or in part, by delivery of Shares pursuant to this subparagraph (d) to prevent unreasonable pyramiding of such exercises.
(e) An exercise completed through the Customer Service Center or Schwab OptionCenter(R), whether or not full payment of the exercise price for the Option Shares is received by Charles Schwab, shall constitute a binding contractual obligation by you (or the other person entitled to exercise the Options) to proceed with and complete that exercise of the Options (but only so long as you continue, or the other person entitled to exercise the Options continues, to be entitled to exercise the Options on that date). By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) to pay to Charles Schwab in full the exercise price for those Option Shares, that payment being by check, wire transfer, in Shares or in a
combination of check and Shares, on or before the third business day after the date on which you complete the transaction through the Customer Service Center. If such payment is not made, you (for yourself and on behalf of any other person who becomes entitled to exercise the Options) authorize Rockwell Collins, in its discretion, to set off against salary payments or other amounts due or which may become due you (or the other person entitled to exercise the Options) any balance of the exercise price for those Option Shares remaining unpaid thereafter.
(f) An Exercise Confirmation representing the number of Option Shares purchased will be issued the third business day (trade date plus three business days) (i) after Charles Schwab has received full payment therefor or (ii) at Rockwell Collins' or Charles Schwab's election in their sole discretion, after Rockwell Collins or Charles Schwab has received (x) full payment of the exercise price of those Option Shares and (y) any reimbursement in respect of withholding taxes due pursuant to Section 5 herein.
4. Transferability; Nonassignability
You are not entitled to transfer the Options except by will or by the laws of descent and distribution.
5. Withholding
Rockwell Collins or Charles Schwab shall have the right, in connection with the exercise of the Options, in whole or in part, to deduct from any payment to be made by Rockwell Collins or Charles Schwab an amount equal to the taxes required to be withheld by law with respect to such exercise or to require you (or any other person entitled to exercise the Options) to pay to it an amount sufficient to provide for any such taxes so required to be withheld. By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) that if Rockwell Collins or Charles Schwab elects to require you (or such other person) to remit an amount sufficient to pay such withholding taxes, you (or such other person) must remit that amount within three business days after the completion of the Option exercise as provided in Section 3(a)(ii) herein. If such payment is not made, Rockwell Collins, in its discretion, shall have the same right of set-off as provided under Section 3(e) herein with respect to payment of the exercise price for Option Shares.
6. Headings
The section headings contained in these Stock Option Terms and Conditions are solely for the purpose of reference, are not part of the agreement of the parties and shall in no way affect the meaning or interpretation of this Stock Option Agreement.
7. References
All references in these Stock Option Terms and Conditions to Sections, paragraphs, subparagraphs or clauses shall be deemed to be references to Sections, paragraphs, subparagraphs and clauses of these Stock Option Terms and Conditions unless otherwise specifically provided.
8. Entire Agreement
This Stock Option Agreement and the other terms applicable to Stock Options granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the Options, and there are no representations, promises, covenants, agreements or understandings with respect to the Options other than those expressly set forth in this Stock Option Agreement and the Plan.
9. Applicable Laws and Regulations
This Stock Option Agreement and Rockwell Collins obligation to issue Option Shares hereunder are subject to applicable laws and regulations.
Exhibit 1 Exercise Request and Attestation Form (For Use With Already- Owned Shares)
Exhibit 10-a-3
ROCKWELL COLLINS, INC.
2001 LONG-TERM INCENTIVES PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words and phrases shall have the respective meanings ascribed to them below unless the context in which any of them is used clearly indicates a contrary meaning:
(a) Cashless Exercise: Cashless Exercise shall have the meaning set forth in Section 3(a)(ii) herein.
(b) Change of Control: Change of Control shall have the same meaning as such term has in Section 2(d) of the Plan.
(c) Charles Schwab: Charles Schwab & Co., Inc., the Stock Option Administrator whom Rockwell Collins has engaged to administer and process all Option exercises.
(d) Committee: The Compensation and Management Development Committee of the Board of Directors of Rockwell Collins.
(e) Customer Service Center: Charles Schwab's Customer Service Center that is used to facilitate Option transactions. Contact Charles Schwab at (877) 804-3529.
(f) Director: A member of the Board of Directors of Rockwell Collins.
(g) Exercise Request and Attestation Form: The form attached as Exhibit 2 or any other form accepted by Charles Schwab in connection with the use of already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options.
(h) Notice of Exercise Form: The form attached as Exhibit 1 or any other form accepted by the Secretary of Rockwell Collins in his sole discretion.
(i) Options: The stock options listed in the first paragraph of the letter dated [ ], to which these Stock Option Terms and Conditions are attached and which together with these Stock Option Terms and Conditions constitute the Stock Option Agreement.
(j) Option Shares: The shares of Rockwell Collins Common Stock issuable or transferable on exercise of the Options.
(k) Plan: Rockwell Collins 2001 Long-Term Incentives Plan, as such Plan may be amended and in effect at the relevant time.
(l) Rockwell Collins: Rockwell Collins, Inc., a Delaware corporation.
(m) Shares: Shares of Rockwell Collins Common Stock.
(n) Stock Option Agreement: These Stock Option Terms and Conditions together with the letter dated [ ], to which they are attached.
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole number of shares) and at one time or from time to time, as to one-third (rounded to the nearest whole number) of the Option Shares during the period beginning on [ ] and ending on [ ], as to an additional one-third (rounded to the nearest whole number) of the Option Shares during the period beginning on [ ] and ending on [ ] and as to the balance of the Option Shares during the period beginning on [ ] and ending on [ ], and only during those periods, provided that:
(a) if you die while a Director, any person who holds the Options as permitted by Section 4 herein may exercise all the Options not theretofore exercised within (and only within) the period beginning on your date of death (even if you die before you have become entitled to exercise all or any part of the Options) and ending three years thereafter or on [ ], if earlier;
(b) if you retire as a Director after attaining age 70 or at an earlier age but after completing at least 5 years of service as a Director, you (or any person who holds the Options as permitted by Section 4 herein) may thereafter exercise all the Options not theretofore exercised within (and only within) the period beginning on your retirement date (even if you retire before you have become entitled to exercise all or any part of the Options) and ending five years thereafter or on [ ], if earlier;
(c) if your service as a Director terminates as a result of your disability or as a result of your resignation for reasons of the antitrust laws, compliance with Rockwell Collins' conflict of interest policies or other circumstances that the Committee may determine as serving the best interests of Rockwell Collins, you (or any person who holds the Options as permitted by Section 4 herein) may thereafter exercise all the Options not theretofore exercised within (and only within) the period beginning on your termination date (even if the Options were not exercisable at such termination date) and ending one year
thereafter or until [ ], if earlier, unless otherwise determined by the Committee;
(d) if your service as a Director terminates for any reason not specified above, the Options shall be void on the date of termination of your service as a Director and shall not be exercised thereafter; and
provided, further, that notwithstanding any other provision of the Stock Option Agreement, if a Change of Control shall occur, then all outstanding Options shall become fully exercisable whether or not otherwise then exercisable and shall be and remain exercisable for the applicable period hereinabove provided in this Section 2.
3. Exercise Procedure
(a) To exercise all or any part of the Options, you (or any person who
holds the Options as permitted by Section 4 herein) must submit a
Notice of Exercise Form to Rockwell Collins' Office of the Secretary
(Attention: Stock Option Administration; facsimile number (319)
295-3599) and then contact the Stock Option Administrator, Charles
Schwab, as follows:
(i) contact the Customer Service Center by calling (877) 804-3529 Monday through Friday, 9:00 a.m. to 9:00 p.m. Eastern Time and follow the instructions provided;
(ii) full payment of the exercise price for the Option Shares to be purchased on exercise of the Options may be made by:
- check; or
- in already-owned Shares; or
- by authorizing a third party approved by Rockwell Collins to sell the Shares (or a sufficient portion of the Shares) acquired upon exercise of the Option ("Cashless Exercise"); or
- in a combination of check and Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise); and
(iii) in the case of an exercise of the Options by any person other than you seeking to exercise the Options, such documents as Charles Schwab or the Secretary of Rockwell Collins shall require to establish to their satisfaction that the person seeking to exercise the Options is entitled to do so.
(b) An exercise of the whole or any part of the Options shall be effective:
(i) if you elect (or any person who holds the Options as permitted by Section 4 herein elects) to pay the exercise price for the Option Shares entirely by check, (A) upon confirmation of your transaction by using the Customer Service Center and full payment of the exercise price and withholding taxes (if applicable) are received by Charles Schwab within three business days following the exercise; and (B) receipt of any documents required pursuant to Section 3(a)(iii) herein; and
(ii) if you elect (or any person who holds the Options as permitted
by Section 4 herein elects) to pay the exercise price of the
Option Shares in Shares (whether already-owned Shares or
Shares issued and subsequently sold in connection with a
Cashless Exercise) or in a combination of Shares (whether
already-owned Shares or Shares issued and subsequently sold in
connection with a Cashless Exercise) and check, (A) upon
confirmation of your transaction by using the Customer Service
Center and full payment of the exercise price (as described in
Section 3(d)(i) herein) and withholding taxes (if applicable)
are received by Charles Schwab within three business days
following the exercise; and (B) receipt of any documents
required pursuant to Section 3(a)(iii) herein.
(c) If you choose (or any person who holds the Options as permitted by
Section 4 herein chooses) to pay the exercise price for the Option
Shares to be purchased on exercise of any of the Options entirely by
check, payment must be made by:
- delivering to Charles Schwab a check in the full amount of the exercise price for those Option Shares; or
- arranging with a stockbroker, bank or other financial institution to deliver to Charles Schwab full payment, by check or (if prior arrangements are made with Charles Schwab) by wire transfer, of the exercise price of those Option Shares.
In either event, in accordance with Section 3(e) herein, full payment of the exercise price for the Option Shares purchased must be made within three business days after the exercise has been conducted and confirmed through the Customer Service Center.
(d) (i) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the
Options as permitted by Section 4 herein) must deliver to Charles Schwab an Exercise Request and Attestation Form and cash to cover the purchase of one Option Share as specified in such form. To perform such a transaction, the Exercise Request and Attestation Form must be submitted via fax ((720) 785-8874) by 4:00 p.m. Eastern Time on the date of exercise and any questions concerning this type of transaction should be referred to (877) 636-7551 (Stock Option Administration Group Hotline) plus:
- at least the number of Shares whose value, based on the closing price of Common Stock of Rockwell Collins on the New York Stock Exchange -- Composite Transactions on the day you have exercised your Options through the Customer Service Center, equals the exercise price for the Option Shares; or
- any lesser number of Shares you desire (or any
person who holds the Options as permitted by
Section 4 herein desires) to use to pay the
exercise price for those Option Shares and a check
in the amount of such exercise price less the
value of the Shares delivered, based on the
closing price of Common Stock of Rockwell Collins
on the New York Stock Exchange -- Composite
Transactions on the day you have exercised your
Options through the Customer Service Center.
(ii) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use Option Shares obtained by Cashless Exercise to pay all or part of the exercise price for the remaining Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must contact the Customer Service Center at (877) 804-3529.
(iii) Charles Schwab will advise you (or any other person who, being entitled to do so, exercises the Options) of the exact number of Shares, at the closing price on the New York Stock Exchange -- Composite Transactions on the effective date of exercise under Section 3(b)(ii) herein, and any funds required to pay in full the exercise price for the Option Shares purchased. In accordance with Section 3(e) herein, you (or such other person) must pay, by check, in Shares or in a combination of check and Shares, any balance required to pay in full the exercise price of the Option Shares purchased within three business days following the effective date of such exercise of the Options under Section 3(b)(ii) herein.
(iv) Notwithstanding any other provision of this Stock Option Agreement, the Secretary of Rockwell Collins may limit the number, frequency or volume of successive exercises of any of the Options in which payment is made, in whole or in part, by delivery of Shares pursuant to this subparagraph (d) to prevent unreasonable pyramiding of such exercises.
(e) An exercise conducted through the Customer Service Center, whether or not full payment of the exercise price for the Option Shares is received by Charles Schwab, shall constitute a binding contractual obligation by you (or the other person entitled to exercise the Options) to proceed with and complete that exercise of the Options (but only so long as you continue, or the other person entitled to exercise the Options continues, to be entitled to exercise the Options on that date). By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) to pay to Charles Schwab in full the exercise price for those Option Shares, that payment being by check, wire transfer, in Shares or in a combination of check and Shares, on or before the third business day after the date on which you conduct the transaction through the Customer Service Center. If such payment is not made, you (for yourself and on behalf of any other person who becomes entitled to exercise the Options) authorize Rockwell Collins, in its discretion, to set off against retainer payments or other amounts due or which may become due you (or the other person entitled to exercise the Options) any balance of the exercise price for those Option Shares remaining unpaid thereafter.
(f) A book-entry statement representing the number of Option Shares purchased will be issued as soon as practicable after Charles Schwab has received full payment of the exercise price of those Option shares.
4. Transferability; Nonassignability
You are not entitled to transfer the Options except (i) by will or by the laws of descent and distribution; or (ii) by gift to any member of your immediate family or to a trust for the benefit of one or more members of your immediate family or to a family charitable trust established by you or a member of your family; provided, however, that no transfer pursuant to this clause (ii) shall be effective unless you have notified Rockwell Collins' Office of the Secretary (Attention: Stock Option Administration) in writing specifying the Option or Options transferred, the date of the gift or transfer and the name and Social Security or other Taxpayer Identification Number of the donee or transferee. During your lifetime, only you are entitled to exercise the Options unless you have transferred any Option in accordance with this paragraph to a member of your immediate family, a trust for the benefit of one or more members of your immediate family, or a family charitable trust established by you or a member of your family, in which case only
that transferee (or the legal representative of the estate or the heirs or legatees of that transferee) shall be entitled to exercise that Option. For purposes of this paragraph, your "immediate family" shall mean your spouse and natural, adopted or step-children and grandchildren.
5. Withholding
Rockwell Collins or Charles Schwab shall have the right, in connection with the exercise of the Options, in whole or in part, to deduct from any payment to be made by Rockwell Collins or Charles Schwab an amount equal to the taxes required to be withheld by law with respect to such exercise or to require you (or any other person entitled to exercise the Options) to pay to it an amount sufficient to provide for any such taxes so required to be withheld. By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) that if Rockwell Collins or Charles Schwab elects to require you (or such other person) to remit an amount sufficient to pay such withholding taxes, you (or such other person) must remit that amount within three business days after the date of the Option exercise as provided in Section 3(a)(ii) herein. If such payment is not made, Rockwell Collins, in its discretion, shall have the same right of set-off as provided under Section 3(e) herein with respect to payment of the exercise price for Option Shares.
6. Headings
The section headings contained in these Stock Option Terms and Conditions are solely for the purpose of reference, are not part of the agreement of the parties and shall in no way affect the meaning or interpretation of this Stock Option Agreement.
7. References
All references in these Stock Option Terms and Conditions to Sections, paragraphs, subparagraphs or clauses shall be deemed to be references to Sections, paragraphs, subparagraphs and clauses of these Stock Option Terms and Conditions unless otherwise specifically provided.
8. Entire Agreement
This Stock Option Agreement and the other terms applicable to Stock Options granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the Options, and there are no representations, promises, covenants, agreements or understandings with respect to the Options other than those expressly set forth in this Stock Option Agreement and the Plan.
9. Applicable Laws and Regulations
This Stock Option Agreement and Rockwell Collins obligation to issue Option Shares hereunder are subject to applicable laws and regulations.
Exhibit 1 Notice of Exercise Form
Exhibit 2 Exercise Request and Attestation Form (For Use With Already-
Owned Shares)
|
EXHIBIT 1
NOTICE OF EXERCISE FORM
To: Rockwell Collins, Inc.
Office of the Secretary
400 Collins Road NE
Cedar Rapids, IA 52398
Fax No. (319) 295-3599
1. OPTIONS EXERCISED: Subject to the terms and conditions of the Stock Option Agreement dated [ ] with Rockwell Collins, Inc. (Rockwell Collins) thereunder, I hereby exercise the following stock option(s):
Date of Number of Exercise Total
Grant Shares Price Purchase Price
----- ------ ----- --------------
$ $
------ --------- --------- -
$ $
------ --------- --------- -
$ $
------ --------- --------- -
|
2. PAYMENT: The following must be received by Charles Schwab & Co., Inc. ("Charles Schwab") within three business days following the date of exercise:
- A check payable to Rockwell Collins Employee Stock Option Program or a wire transfer to Charles Schwab for credit to the Rockwell Collins Employee Stock Option Program in the amount of the Total Purchase Price of the above-itemized stock option(s); or
- A number of shares of Rockwell Collins Common Stock surrendered or sold to pay the Total Purchase Price of the above-itemized stock option(s); or
- A combination of (i) check payable to Rockwell Collins Employee Stock Option Program or a wire transfer to Charles Schwab for credit to the Rockwell Collins Employee Stock Option Program, and (ii) a number of Shares surrendered or sold, which together amount to the Total Purchase Price of the above-itemized stock option(s).
Notice of Exercise Form For Officers and Directors Only
If full payment of the Total Purchase Price of the stock option(s) listed in Item 1 is not delivered within three (3) business days after the exercise date, Rockwell Collins is authorized forthwith to set off the balance due against any amounts due or which may become due me to satisfy my obligation to pay the Total Purchase Price.
This Stock Option Exercise may not be revoked or changed after delivery of this form, properly completed, dated and signed, to Rockwell Collins whether or not payment accompanies this form and whether this form is dated before, on or after the date of such receipt.
Printed Name __________________________
Dated:
EXHIBIT 10-a-4
ROCKWELL COLLINS, INC.
RESTRICTED STOCK AGREEMENT
To: [ ]
In accordance with the 2001 Long-Term Incentives Plan (the Plan) of Rockwell Collins, Inc. (the Corporation), resolutions adopted at the [ ] meeting of the Compensation and Management Development Committee (the "[ ] Resolutions") and [ ], the Corporation has transferred to you as of [ ], [ ] shares of Common Stock of the Corporation as restricted stock representing $[ ] of the annual retainer as compensation for your service as non-executive Chairman of the Board of Directors (the Board) of the Corporation for the period [ ] through [ ]. The number of shares granted was calculated in accordance with the Plan by valuing the shares at the closing price on the New York Stock Exchange -- Composite Transactions (Closing Price) on [ ]. Additional shares shall be granted to you as restricted stock pursuant to the Plan and the [ ] Resolutions on [ ], in lieu of the quarterly fees otherwise payable to you on such date in respect of your service on the Board, the number of shares whose value (based on the Closing Price on such date) equals the amount of fees then otherwise payable to you.
In this Restricted Stock Agreement, the shares granted today and to be granted on the future date set forth above are collectively called Restricted Shares.
The Restricted Shares have been or will be granted to you upon the following terms and conditions:
1. Earning of Restricted Shares
(a) If (i) you shall continue as a director of the Corporation until you retire from the Board after attaining age 70 and having served at least three years service as a director; or (ii) you shall cease to be a director of the Corporation by reason of the antitrust laws, compliance with the Corporation's conflict of interest policies, death or disability, or (iii) a Change of Control as defined in Article III, Section 13 (I)(1) of the Corporation's By-Laws (or any successor provision) shall occur, then you shall be deemed to have fully earned all the Restricted Shares subject to this Restricted Stock Agreement.
(b) If you resign from the Board or cease to be a director of the Corporation for any other reason, you shall be deemed not to have earned any of the Restricted Shares and shall have no further rights with respect to them unless the Board of Directors shall determine, in its sole discretion, that you have resigned from the Board or ceased to be a director by reason of circumstances that the Board determines not to be adverse to the best interests of the Corporation.
2. Retention of Certificates for Restricted Shares
Certificates for the Restricted Shares and any dividends or distributions thereon or in respect thereof that may be paid in additional shares of Common Stock, other securities of the Corporation or securities of another entity (Stock Dividends) shall be delivered to and held by the Corporation, or shall be registered in book entry form subject to the Corporation's instructions, until you shall have earned the Restricted Shares in accordance with the provisions of paragraph 1. To facilitate implementation of the provisions of this Restricted Stock Agreement, you undertake to sign and deposit with the Corporation's Office of the Secretary (a) a Stock Transfer Power in the form of Attachment 1 hereto with respect to the Restricted Shares and any Stock Dividends thereon and (b) such other documents appropriate to effectuate the purpose and intent of this Restricted Stock Agreement as the Corporation may reasonably request from time to time.
3. Dividends and Voting Rights
Notwithstanding the retention by the Corporation of certificates (or the right to give instructions with respect to shares held in book entry form) for the Restricted Shares and any Stock Dividends, you shall be entitled to receive any dividends that may be paid in cash on, and to vote, the Restricted Shares and any Stock Dividends held by the Corporation (or subject to its instructions) in accordance with paragraph 2, unless and until such shares have been forfeited in accordance with paragraph 5.
4. Delivery of Earned Restricted Shares
As promptly as practicable after you shall have been deemed to have earned the Restricted Shares in accordance with paragraph 1, the Corporation shall deliver to you (or in the event of your death, to your estate or any person who acquires your interest in the Restricted Shares by bequest or inheritance) the Restricted Shares, together with any Stock Dividends then held by the Corporation (or subject to its instructions).
5. Forfeiture of Unearned Restricted Shares
Notwithstanding any other provision of this Restricted Stock Agreement, if at any time it shall become impossible for you to earn any of the Restricted Shares in accordance with this Restricted Stock Agreement, all the Restricted Shares, together with any Stock Dividends, then being held by the Corporation (or subject to its instructions) in accordance with paragraph 2 shall be forfeited, and you shall have no further rights of any kind or nature with respect thereto. Upon any such forfeiture, the Restricted Shares, together with any Stock Dividends, shall be transferred to the Corporation.
6. Transferability
The Restricted Shares and any Stock Dividends shall be deliverable, during your lifetime, only to you and, except as otherwise provided by the Compensation and Management Development Committee, are not assignable or transferable by you other than by will or by the laws of descent and distribution.
7. Withholding
The Corporation shall have the right, in connection with the delivery
of the Restricted Shares and any Stock Dividends subject to this
Restricted Stock Agreement, (i) to deduct from any payment otherwise
due by the Corporation to you or any other person receiving delivery of
the Restricted Shares and any Stock Dividends an amount equal to any
taxes required to be withheld by law with respect to such delivery,
(ii) to require you or any other person receiving such delivery to pay
to it an amount sufficient to provide for any such taxes so required to
be withheld or (iii) to sell such number of the Restricted Shares and
any Stock Dividends as may be necessary so that the net proceeds of
such sale shall be an amount sufficient to provide for any such taxes
so required to be withheld.
8. Applicable Law
This Restricted Stock Agreement and the Corporation's obligation to deliver Restricted Shares and any Stock Dividends hereunder shall be governed by and construed and enforced in accordance with the laws of Delaware and the Federal law of the United States.
ROCKWELL COLLINS, INC.
By:_________________________________________
Attachment 1 - Stock Transfer Power
Dated:
Agreed to as of the [ ] day of [ ]
Address:
Social Security No.:
Attachment 1
STOCK TRANSFER POWER SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, [ ], hereby sell, assign and transfer unto Rockwell Collins, Inc. (i) the [ ] shares (the Granted Shares) of the Common Stock of Rockwell Collins, Inc. (the Corporation) standing in my name on the books of the Corporation evidenced by book entry dated [ ], granted to me on that date as Restricted Shares pursuant to the Corporation's 2001 Long-Term Incentives Plan; and (ii) the additional shares (together with the Granted Shares, the Shares) of the Common Stock of the Corporation to be granted to me on [ ] as Restricted Shares pursuant to the Corporation's 2001 Long-Term Incentives Plan, and to be registered in my name on the books of the Corporation and evidenced by book entries dated those respective dates; and (iii) any additional shares of the Corporation's Common Stock, other securities issued by the Corporation or securities of another entity (Stock Dividends) distributed, paid or payable on or in respect of the Shares and Stock Dividends during the period the Shares and Stock Dividends are held by the Corporation pursuant to a certain Restricted Stock Agreement dated [ ], with respect to the Shares; and I do hereby irrevocably constitute and appoint _______________________________________, attorney with full power of substitution in the premises to transfer the Shares on the books of the Corporation. Dated: [ ]
Exhibit 10-b-2
ROCKWELL COLLINS, INC.
DIRECTORS STOCK PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
1. Definitions
As used in these Stock Option Terms and Conditions, the following words and phrases shall have the respective meanings ascribed to them below unless the context in which any of them is used clearly indicates a contrary meaning:
(a) Cashless Exercise: Cashless Exercise shall have the meaning set forth in Section 3(a)(ii) herein.
(b) Change of Control: Change of Control shall have the same meaning as such term has in Article III, Section 13(I)(1) of Rockwell Collins' By-laws.
(c) Charles Schwab: Charles Schwab & Co., Inc., the Stock Option Administrator whom Rockwell Collins has engaged to administer and process all Option exercises.
(d) Committee: The Compensation and Management Development Committee of the Board of Directors of Rockwell Collins.
(e) Customer Service Center: Charles Schwab's Customer Service Center that is used to facilitate Option transactions. Contact Charles Schwab at (888) 852-2135.
(f) Director: A member of the Board of Directors of Rockwell Collins.
(g) Exercise Request and Attestation Form: The form attached as Exhibit 2 or any other form accepted by Charles Schwab in connection with the use of already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options.
(h) Notice of Exercise Form: The form attached as Exhibit 1 or any other form accepted by the Secretary of Rockwell Collins in his sole discretion.
(i) Options: The stock options listed in the first paragraph of the letter dated [ ], to which these Stock Option Terms and Conditions are attached and which together with these Stock Option Terms and Conditions constitute the Stock Option Agreement.
(j) Option Shares: The shares of Rockwell Collins Common Stock issuable or transferable on exercise of the Options.
(k) Plan: Rockwell Collins Directors Stock Plan, as such Plan may be amended and in effect at the relevant time.
(l) Rockwell Collins: Rockwell Collins, Inc., a Delaware corporation.
(m) Shares: Shares of Rockwell Collins Common Stock.
(n) Stock Option Agreement: These Stock Option Terms and Conditions together with the letter dated [ ], to which they are attached.
2. When Options May be Exercised
The Options may be exercised, in whole or in part (but only for a whole number of shares) and at one time or from time to time, as to one-third (rounded to the nearest whole number) of the Option Shares during the period beginning on [ ] and ending on [ ], as to an additional one-third (rounded to the nearest whole number) of the Option Shares during the period beginning on [ ] and ending on [ ] and as to the balance of the Option Shares during the period beginning on [ ] and ending on [ ], and only during those periods, provided that:
(a) if you die while a Director, any person who holds the Options as permitted by Section 4 herein may exercise all the Options not theretofore exercised within (and only within) the period beginning on your date of death (even if you die before you have become entitled to exercise all or any part of the Options) and ending three years thereafter or on [ ], if earlier;
(b) if you retire as a Director after attaining age 70 or at an earlier age but after completing at least 5 years of service as a Director, you (or any person who holds the Options as permitted by Section 4 herein) may thereafter exercise all the Options not theretofore exercised within (and only within) the period beginning on your retirement date (even if you retire before you have become entitled to exercise all or any part of the Options) and ending five years thereafter or on [ ], if earlier;
(c) if your service as a Director terminates as a result of your disability or as a result of your resignation for reasons of the antitrust laws, compliance with Rockwell Collins' conflict of interest policies or other circumstances that the Committee may determine as serving the best interests of Rockwell Collins, you (or any person who holds the Options as permitted by Section 4 herein) may thereafter exercise all the Options not theretofore exercised within (and only within) the period beginning on your termination date (even if the Options were not exercisable at such termination date) and ending one year thereafter or until [ ], if earlier, unless otherwise determined by the Committee;
(d) if your service as a Director terminates for any reason not specified above, the Options shall be void on the date of termination of your service as a Director and shall not be exercised thereafter; and
provided, further, that notwithstanding any other provision of the Stock Option Agreement, if a Change of Control shall occur, then all outstanding Options shall become fully exercisable whether or not otherwise then exercisable and shall be and remain exercisable for the applicable period hereinabove provided in this Section 2.
3. Exercise Procedure
(a) To exercise all or any part of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must obtain authorization from Rockwell Collins' Office of the Secretary by submitting a Notice of Exercise Form to Rockwell Collins' Office of the Secretary (Attention: Stock Option Administration; facsimile number (319) 295-3599) or by other means acceptable to the Secretary of Rockwell Collins and then contact the Stock Option Administrator, Charles Schwab, as follows:
(i) contact the Customer Service Center by calling (888) 852-2135 Monday through Friday, 9:00 a.m. to 9:00 p.m. Eastern Time and follow the instructions provided;
(ii) full payment of the exercise price for the Option Shares to be purchased on exercise of the Options may be made by:
- check (wire) to your Charles Schwab account; or
- in already-owned Shares; or
- by authorizing Charles Schwab or a third party approved by Rockwell Collins to sell the Shares (or a sufficient portion of the Shares) acquired upon exercise of the Option ("Cashless Exercise"); or
- in a combination of check (wire) and Shares (whether already-owned Shares or Shares issued and subsequently sold in connection with a Cashless Exercise); and
(iii) in the case of an exercise of the Options by any person other than you seeking to exercise the Options, such documents as Charles Schwab or the Secretary of Rockwell Collins shall require to establish to their satisfaction that the person seeking to exercise the Options is entitled to do so.
(b) An exercise of the whole or any part of the Options shall be effective:
(i) if you elect (or any person who holds the Options as
permitted by Section 4 herein elects) to pay the exercise
price for the Option Shares entirely by check, upon (A)
completion of your transaction by using the Customer
Service Center and full payment of the exercise price and
withholding taxes (if applicable) are received by Charles
Schwab within three business days following the exercise;
and (B) receipt of any documents required pursuant to
Section 3(a)(iii) herein; and
(ii) if you elect (or any person who holds the Options as permitted
by Section 4 herein elects) to pay the exercise price of the
Option Shares in Shares (whether already-owned Shares or
Shares issued and subsequently sold in connection with a
Cashless Exercise) or in a combination of Shares (whether
already-owned Shares or Shares issued and subsequently sold in
connection with a Cashless Exercise) and check, upon (A)
completion of your transaction by using the Customer Service
Center and full payment of the exercise price (as described in
Section 3(d)(i) herein) and withholding taxes (if applicable)
are received by Charles Schwab within three business days
following the exercise; and (B) receipt of any documents
required pursuant to Section 3(a)(iii) herein.
(c) If you choose (or any person who holds the Options as permitted by
Section 4 herein chooses) to pay the exercise price for the Option
Shares to be purchased on exercise of any of the Options entirely by
check, payment must be made by:
- delivering to Charles Schwab a check (wire) in the full amount of the exercise price for those Option Shares; or
- arranging with a stockbroker, bank or other financial institution to deliver to Charles Schwab full payment, by check or (if prior arrangements are made with Charles Schwab) by wire transfer, of the exercise price of those Option Shares.
In either event, in accordance with Section 3(e) herein, full payment of the exercise price for the Option Shares purchased must be made within three business days after the exercise has been completed through the Customer Service Center.
(i) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use already-owned Shares to pay all or part of the exercise price for the Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as
permitted by Section 4 herein) must deliver to Charles Schwab an Exercise Request and Attestation Form and cash to cover the purchase of one Option Share as specified in such form. To perform such a transaction, the Exercise Request and Attestation Form must be submitted via fax ((720) 785-8874) by 4:00 p.m. Eastern Time on the date of exercise and any questions concerning this type of transaction should be referred to (888) 852-2135 (Stock Option Administration Group Hotline). The Exercise Request and Attestation Form must attest to your ownership of Shares representing:
- at least the number of Shares whose value, based on the closing price of Common Stock of Rockwell Collins on the New York Stock Exchange -- Composite Transactions on the day you have exercised your Options through the Customer Service Center, equals the exercise price for the Option Shares; or
- any lesser number of Shares you desire (or any person who holds the Options as permitted by Section 4 herein desires) to use to pay the exercise price for those Option Shares and a check in the amount of such exercise price less the value of the Shares delivered, based on the closing price of Common Stock of Rockwell Collins on the New York Stock Exchange -- Composite Transactions on the day you have exercised your Options through the Customer Service Center.
(ii) If you choose (or any person who holds the Options as permitted by Section 4 herein chooses) to use Option Shares obtained by Cashless Exercise to pay all or part of the exercise price for the remaining Option Shares to be purchased on exercise of any of the Options, you (or any person who holds the Options as permitted by Section 4 herein) must contact the Customer Service Center at (888) 852-2135.
(iii) Charles Schwab will advise you (or any other person who, being entitled to do so, exercises the Options) of the exact number of Shares, at the closing price on the New York Stock Exchange -- Composite Transactions on the effective date of exercise under Section 3(b)(ii) herein, and any funds required to pay in full the exercise price for the Option Shares purchased. In accordance with Section 3(e) herein, you (or such other person) must pay, by check, in Shares or in a combination of check and Shares, any balance required to pay in full the exercise price of the Option Shares purchased within three business days following the
effective date of such exercise of the Options under Section 3(b)(ii) herein.
(iv) Notwithstanding any other provision of this Stock Option Agreement, the Secretary of Rockwell Collins may limit the number, frequency or volume of successive exercises of any of the Options in which payment is made, in whole or in part, by delivery of Shares pursuant to this subparagraph (d) to prevent unreasonable pyramiding of such exercises.
(d) An exercise completed through the Customer Service Center, whether or not full payment of the exercise price for the Option Shares is received by Charles Schwab, shall constitute a binding contractual obligation by you (or the other person entitled to exercise the Options) to proceed with and complete that exercise of the Options (but only so long as you continue, or the other person entitled to exercise the Options continues, to be entitled to exercise the Options on that date). By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) to pay to Charles Schwab in full the exercise price for those Option Shares, that payment being by check, wire transfer, in Shares or in a combination of check and Shares, on or before the third business day after the date on which you complete the transaction through the Customer Service Center. If such payment is not made, you (for yourself and on behalf of any other person who becomes entitled to exercise the Options) authorize Rockwell Collins, in its discretion, to set off against retainer payments or other amounts due or which may become due you (or the other person entitled to exercise the Options) any balance of the exercise price for those Option Shares remaining unpaid thereafter.
(e) An Exercise Confirmation representing the number of Option Shares purchased will be issued the third business day (trade date plus three business days) (i) after Charles Schwab has received full payment therefor or (ii) at Rockwell Collins' or Charles Schwab's election in their sole discretion, after Rockwell Collins or Charles Schwab has received (x) full payment of the exercise price of those Option Shares and (y) any reimbursement in respect of withholding taxes due pursuant to Section 5 herein.
4. Transferability; Nonassignability
You are not entitled to transfer the Options except (i) by will or by the laws of descent and distribution; or (ii) by gift to any member of your immediate family or to a trust for the benefit of one or more members of your immediate family or to a family charitable trust established by you or a member of your family; provided, however, that no transfer pursuant to this clause (ii) shall be effective unless you
have notified Rockwell Collins' Office of the Secretary (Attention: Stock Option Administration) in writing specifying the Option or Options transferred, the date of the gift or transfer and the name and Social Security or other Taxpayer Identification Number of the donee or transferee. During your lifetime, only you are entitled to exercise the Options unless you have transferred any Option in accordance with this paragraph to a member of your immediate family, a trust for the benefit of one or more members of your immediate family, or a family charitable trust established by you or a member of your family, in which case only that transferee (or the legal representative of the estate or the heirs or legatees of that transferee) shall be entitled to exercise that Option. For purposes of this paragraph, your "immediate family" shall mean your spouse and natural, adopted or step-children and grandchildren.
5. Withholding
Rockwell Collins or Charles Schwab shall have the right, in connection with the exercise of the Options, in whole or in part, to deduct from any payment to be made by Rockwell Collins or Charles Schwab an amount equal to the taxes required to be withheld by law with respect to such exercise or to require you (or any other person entitled to exercise the Options) to pay to it an amount sufficient to provide for any such taxes so required to be withheld. By your acceptance of this Stock Option Agreement, you agree (for yourself and on behalf of any other person who becomes entitled to exercise the Options) that if Rockwell Collins or Charles Schwab elects to require you (or such other person) to remit an amount sufficient to pay such withholding taxes, you (or such other person) must remit that amount within three business days after the date of the Option exercise as provided in Section 3(a)(ii) herein. If such payment is not made, Rockwell Collins, in its discretion, shall have the same right of set-off as provided under Section 3(e) herein with respect to payment of the exercise price for Option Shares.
6. Headings
The section headings contained in these Stock Option Terms and Conditions are solely for the purpose of reference, are not part of the agreement of the parties and shall in no way affect the meaning or interpretation of this Stock Option Agreement.
7. References
All references in these Stock Option Terms and Conditions to Sections, paragraphs, subparagraphs or clauses shall be deemed to be references to Sections, paragraphs, subparagraphs and clauses of these Stock Option Terms and Conditions unless otherwise specifically provided.
8. Entire Agreement
This Stock Option Agreement and the other terms applicable to Stock Options granted under the Plan embody the entire agreement and understanding between Rockwell Collins and you with respect to the Options, and there are no representations, promises, covenants, agreements or understandings with respect to the Options other than those expressly set forth in this Stock Option Agreement and the Plan.
9. Applicable Laws and Regulations
This Stock Option Agreement and Rockwell Collins' obligation to issue Option Shares hereunder are subject to applicable laws and regulations.
Exhibit 1 Notice of Exercise Form
Exhibit 2 Exercise Request and Attestation Form (For Use With Already-Owned
Shares)
|
EXHIBIT 1
NOTICE OF EXERCISE FORM
FOR NON-EMPLOYEE DIRECTORS
To: Rockwell Collins, Inc.
Office of the Secretary
400 Collins Road NE
Cedar Rapids, IA 52398
Fax No. (319) 295-3599
1. OPTIONS EXERCISED: Subject to the terms and conditions of the Stock Option Agreement dated [ ] with Rockwell Collins, Inc. (Rockwell Collins) thereunder, I hereby exercise the following stock option(s):
Date of Number of Exercise Total
Grant Shares Price Purchase Price
----- ------ ----- --------------
$ $
--------- ------------ ---------- ----------------
$ $
--------- ------------ ---------- ----------------
$ $
--------- ------------ ---------- ----------------
|
2. PAYMENT: The following must be received by Charles Schwab & Co., Inc. ("Charles Schwab") within three business days following the date of exercise:
- A check payable to Rockwell Collins Employee Stock Option Program or a wire transfer to Charles Schwab for credit to the Rockwell Collins Employee Stock Option Program in the amount of the Total Purchase Price of the above-itemized stock option(s); or
- A number of shares of Rockwell Collins Common Stock surrendered or sold to pay the Total Purchase Price of the above-itemized stock option(s); or
- A combination of (i) a check payable to Rockwell Collins Employee Stock Option Program or a wire transfer to Charles Schwab for credit to the Rockwell Collins Employee Stock Option Program and (ii) a number of shares surrendered or sold, which together amount to the Total Purchase Price of the above-itemized stock option(s).
Notice of Exercise Form For Officers and Directors Only
If full payment of the Total Purchase Price of the stock option(s) listed in Item 1 is not delivered within three (3) business days after the exercise date, Rockwell Collins is authorized forthwith to set off the balance due against any amounts due or which may become due me to satisfy my obligation to pay the Total Purchase Price.
This Stock Option Exercise may not be revoked or changed after delivery of this form, properly completed, dated and signed, to Rockwell Collins whether or not payment accompanies this form and whether this form is dated before, on or after the date of such receipt.
Printed Name:
Dated:
Exhibit 10-b-3
ROCKWELL COLLINS, INC.
RESTRICTED STOCK AGREEMENT
To: [ ]
In accordance with the Directors Stock Plan (the Plan) of Rockwell
Collins, Inc. (the Corporation), the Corporation has transferred to you as of [
], [ ] shares of Common Stock of the Corporation as restricted stock
representing $[ ], the pro-rata ([ ] days) annual stock retainer for fiscal year
[ ] as compensation for your service on the Board of Directors (the Board) of
the Corporation for the period from [ ] through [ ], and $[ ] for the annual
retainer as compensation for your service on the Board for the period from [ ]
through [ ]. The number of shares granted was calculated in accordance with the
Plan by valuing the shares at the closing price on the New York Stock Exchange -
Composite Transactions (Closing Price) on [ ].
In this Restricted Stock Agreement, the shares granted today are called Restricted Shares.
The Restricted Shares have been granted to you upon the following terms and conditions:
1. Earning of Restricted Shares
(a) If (i) you shall continue as a director of the Corporation until you retire from the Board after attaining age 70 and having served at least three years service as a director; or (ii) you shall cease to be a director of the Corporation by reason of the antitrust laws, compliance with the Corporation's conflict of interest policies, death or disability, or (iii) a Change of Control as defined in Article III, Section 13(I) (1) of the Corporation's By-Laws (or any successor provision) shall occur, then you shall be deemed to have fully earned all the Restricted Shares subject to this Restricted Stock Agreement.
(b) If you resign from the Board or cease to be a director of the Corporation for any other reason, you shall be deemed not to have earned any of the Restricted Shares and shall have no further rights with respect to them unless the Board of Directors shall determine, in its sole discretion, that you have resigned from the Board or ceased to be a director by reason of circumstances that the Board determines not to be adverse to the best interests of the Corporation.
2. Retention of Certificates for Restricted Shares
Certificates for the Restricted Shares and any dividends or distributions thereon or in respect thereof that may be paid in additional shares of Common Stock, other securities of the Corporation or securities of another entity (Stock Dividends) shall be delivered to and held by the Corporation, or shall be registered in book entry form subject to the Corporation's instructions, until you shall have earned the Restricted Shares in accordance with the provisions of paragraph 1. To facilitate implementation of the provisions of this Restricted Stock Agreement, you undertake to sign and deposit with the Corporation's Office of the Secretary (a) a Stock Transfer Power in the form of Attachment 1 hereto with respect to the Restricted Shares and any Stock Dividends thereon and (b) such other documents appropriate to effectuate the purpose and intent of this Restricted Stock Agreement as the Corporation may reasonably request from time to time.
3. Dividends and Voting Rights
Notwithstanding the retention by the Corporation of certificates (or the right to give instructions with respect to shares held in book entry form) for the Restricted Shares and any Stock Dividends, you shall be entitled to receive any dividends that may be paid in cash on, and to vote, the Restricted Shares and any Stock Dividends held by the Corporation (or subject to its instructions) in accordance with paragraph 2, unless and until such shares have been forfeited in accordance with paragraph 5.
4. Delivery of Earned Restricted Shares
As promptly as practicable after you shall have been deemed to have earned the Restricted Shares in accordance with paragraph 1, the Corporation shall deliver to you (or in the event of your death, to your estate or any person who acquires your interest in the Restricted Shares by bequest or inheritance) the Restricted Shares, together with any Stock Dividends then held by the Corporation (or subject to its instructions).
5. Forfeiture of Unearned Restricted Shares
Notwithstanding any other provision of this Restricted Stock Agreement, if at any time it shall become impossible for you to earn any of the Restricted Shares in accordance with this Restricted Stock Agreement, all the Restricted Shares, together with any Stock Dividends, then being held by the Corporation (or subject to its instructions) in accordance with paragraph 2 shall be forfeited, and you shall have no further rights of any kind or nature with respect thereto. Upon any such forfeiture, the Restricted Shares, together with any Stock Dividends, shall be transferred to the Corporation.
6. Transferability
The Restricted Shares and any Stock Dividends shall be deliverable, during your lifetime, only to you and are not transferable by you other than (i) by will or by the laws of descent and distribution; or (ii) by gift to your spouse or natural, adopted or step-children or grandchildren (Immediate Family Members) or to a trust for the benefit of one or more of your Immediate Family Members or to a family charitable trust established by you or a member of your family.
7. Applicable Law
This Restricted Stock Agreement and the Corporation's obligation to deliver Restricted Shares and any Stock Dividends hereunder shall be governed by and construed and enforced in accordance with the laws of Delaware and the Federal law of the United States.
ROCKWELL COLLINS, INC.
Attachment 1 - Stock Transfer Power
Dated:
Agreed to as of the [ ] day of [ ]
Address:
Social Security No:
ATTACHMENT 1
STOCK TRANSFER POWER SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, [ ], hereby sell, assign and transfer unto Rockwell Collins, Inc. (i) the [ ] shares (the Granted Shares) of the Common Stock of Rockwell Collins, Inc. (the Corporation) standing in my name on the books of the Corporation evidenced by book entry dated [ ], granted to me on that date as Restricted Shares pursuant to the Corporation's Directors Stock Plan, and (ii) any additional shares of the Corporation's Common Stock, other securities issued by the Corporation or securities of another entity (Stock Dividends) distributed, paid or payable on or in respect of the Shares and Stock Dividends during the period the Shares and Stock Dividends are held by the Corporation pursuant to a Restricted Stock Agreement dated [ ], with respect to the Shares; and I do hereby irrevocably constitute and appoint __________________________, attorney with full power of substitution in the premises to transfer the Shares on the books of the Corporation.
Dated: [ ]
WITNESS:
EXHIBIT 10-d-1
ROCKWELL COLLINS, INC.
INCENTIVE COMPENSATION PLAN
1. PURPOSES
The purposes of the Incentive Compensation Plan (the "Plan") are to provide a reward and an incentive to employees of the Corporation in managerial, staff or technical capacities who have contributed and in the future are likely to contribute to the success of the Corporation and to enhance the Corporation's ability to attract and retain outstanding persons to serve in such capacities.
2. DEFINITIONS
For the purpose of the Plan, the following terms shall have the meanings shown:
(a) Board of Directors. The Board of Directors of Rockwell Collins.
(b) Committee. The Compensation and Management Development Committee of Rockwell Collins or such other Incentive Compensation Committee as may be designated by the Board of Directors, consisting of members of the Board of Directors who are not eligible to participate in the Plan.
(c) Corporation. Rockwell Collins and its subsidiaries.
(d) Employees. Persons in the salaried employ of the Corporation (including those on authorized leave of absence) during some part of the fiscal year for which an award is made. Unless he or she is also an employee of the Corporation, no member of the Board of Directors shall be eligible to participate in the Plan.
(e) Rockwell Collins. Rockwell Collins, Inc.
(f) Senior Executive Plan. Rockwell Collins' Annual Incentive Compensation Plan for Senior Executive Officers.
3. AWARDS
(a) The Chief Executive Officer of Rockwell Collins shall submit to the Committee, within three months after the end of each fiscal year, recommendations concerning awards for that fiscal year.
(b) The Committee, in its discretion, following its receipt of a
recommendation described in paragraph (a), shall determine (i) the extent to
which awards, if any, shall be made for the immediately preceding fiscal year;
(ii) the employees to whom any such awards shall be made; (iii) the amount of
any award; and (iv) the terms and conditions of such awards.
(c) The Corporation shall promptly notify each person to whom an award has been made and pay the award in accordance with the determinations of the Committee.
(d) A cash award may be made with respect to an employee who has died. Any such award shall be paid to the legal representative or representatives of the estate of such employee.
(e) No unpaid installment of any award shall bear interest.
(f) No employee who is eligible for an award under the Senior Executive Plan for any fiscal year of the Corporation shall be eligible for an award under this Plan for that fiscal year.
4. FINALITY OF DETERMINATIONS
The Committee shall have the power to administer and interpret the Plan. All determinations, interpretations and actions of the Committee and all actions of the Board of Directors under or in connection with the Plan shall be final, conclusive and binding upon all concerned.
5. AMENDMENT OF THE PLAN
The Board of Directors and the Committee shall each have the power, in its sole discretion, to amend, suspend or terminate the Plan at any time, except that no such action shall adversely affect rights under an award already made, without the consent of the person affected.
6. MISCELLANEOUS
(a) A majority of the members of the Committee shall constitute a quorum. The Committee may act by the vote of a majority of a quorum at a meeting, or by a writing or writings signed by a majority of the members of the Committee.
(b) Notwithstanding any other provision of the Plan, if a Change in Control (as defined in Article III, Section 13 (I) (1) of Rockwell Collins By-Laws) shall occur, then unless prior to the occurrence thereof the Board of Directors shall determine otherwise by vote of at least two-thirds of its members, all unpaid installments of any awards made under the Plan prior to such Change of Control shall forthwith become due and payable.
(c) The Corporation shall bear all expenses and costs in connection with the operation of the Plan.
EXHIBIT 10-f-1
ROCKWELL COLLINS
DEFERRED COMPENSATION PLAN
The purpose of this Plan is to provide certain specified benefits to a select group of management and highly compensated employees who contribute materially to the continued growth, development and future business success of Rockwell International Corporation and its affiliates. This Plan is unfunded for tax purposes and for purposes of Title I of ERISA.
This Plan is a continuation of the Rockwell International Corporation Deferred Compensation Plan. Effective as of June 29, 2001, Rockwell Collins, Inc. assumed such plan and all liabilities thereunder with respect to the Rockwell Collins Participants (as defined in the Employee Matters Agreement). Such plan has been renamed as the Rockwell Collins Deferred Compensation Plan.
ARTICLE I: DEFINITIONS
1.010 ACCOUNT means one of the accounts established for the purpose of measuring and determining a Participant's interest in this Plan, such accounts being the Participant's Deferral Account and Company Match Account.
1.020 ACCOUNT BALANCE means, with respect to each Participant, an account in the records of the Company equal to the sum of the Participant's:
(a) Deferral Account balance, and
(b) Company Match Account balance.
The Account Balance (and each underlying balance making up such Account Balance) is a bookkeeping entry only and will be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his designated Beneficiary, pursuant to this Plan.
1.030 AFFILIATE means:
(a) any corporation incorporated under the laws of one of the United States of America of which the Company owns, directly or indirectly, eighty percent (80%) or more of the combined voting power of all classes of stock or eighty percent (80%) or more of the total value of the shares of all classes of stock (all within the meaning of Code Section 1563);
(b) any partnership or other business entity organized under such laws, of which the Company owns, directly or indirectly, eighty percent (80%) or more of the voting power or eighty percent (80%) or more of the total value (all within the meaning of Code Section 414(c)); and
(c) any other company deemed to be an Affiliate by the Company's Board of Directors.
1.040 ANNUAL COMPANY MATCH AMOUNT for any Plan Year means the amount determined in accordance with Section 3.030.
1.050 ANNUAL DEFERRAL AMOUNT means that portion of a Participant's Base Annual
Salary and/or Incentive Compensation which a Participant elects to have
deferred, in accordance with Article III, for any one Plan Year. In the event of
a Participant's Retirement, Disability (if deferrals cease in accordance with
Section 9.020), death or a Termination of Employment prior to the end of a Plan
Year, such year's Annual Deferral Amount will be the actual amount withheld
prior to such event.
1.060 ANNUAL INSTALLMENT METHOD means a benefit payment method involving a series of annual installment payments over the number of years selected by the Participant in accordance with this Plan, which will be calculated in the manner set forth in this Section. The Account Balance of the Participant will be determined as of the close of business on the last business day of the calendar year. The annual installment will be calculated by multiplying this balance by a fraction, the numerator of which is one (1), and the denominator of which is the remaining number of annual payments due the Participant. (By way of example, if a Participant were to elect a 10-year payment under the Annual Installment Method, the first payment would be one-tenth (1/10) of the Account Balance, calculated as described in this definition. The following year, the payment would be one-ninth (1/9) of the Account Balance, calculated as described in this definition.) Each annual installment will be paid within the first sixty (60) days of the calendar year following the applicable year.
1.070 BASE ANNUAL SALARY means the annual cash compensation relating to services performed during any calendar year, whether or not paid in such calendar year or included on the Federal Income Tax Form W-2 for such calendar year, excluding bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, directors fees and other fees, automobile and other allowances (whether or not such allowances are included in the Employee's gross income) paid to a Participant for employment services rendered. Base Annual Salary will be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or non-qualified plans of the Company or any Affiliate and will be calculated to include amounts not otherwise included in the Participant's gross income under Code Section 125, 402(e)(3), 402(h), or 403(b), pursuant to plans established by the Company or an Affiliate; provided, however, that all such amounts will be included in compensation only to the extent that, had there been no such plan, the amount would have been payable in cash to the Participant.
1.080 BENEFICIARY means one or more persons, trusts, estates or other entities, designated in accordance with Article X who or which are entitled to receive benefits under this Plan upon the death of a Participant.
1.090 BENEFICIARY DESIGNATION FORM means the form established from time to time by the Committee or its delegate that a Participant completes, signs and returns to the Committee or its delegate, in order to designate one or more Beneficiaries.
1.100 BOARD OF DIRECTORS means the Company's Board of Directors.
1.110 CHANGE OF CONTROL means any of the following occurring at any time after June 29, 2001:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (1) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (w) any acquisition directly from the
Company, (x) any acquisition by the Company, (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company, Rockwell
or any corporation controlled by the Company or Rockwell or (z) any acquisition
pursuant to a transaction which complies with clauses (1), (2) and (3) of
subsection (c) of this Section 1.110; or
(b) Individuals who, as of June 29, 2001, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to that date whose election, or nomination for election by the Company's shareowners, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or
(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a "Company Transaction"), in each case, unless, following such Company Transaction, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Company Transaction beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Company Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Company Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any employee benefit plan (or related trust) of the Company, of Rockwell or of such corporation resulting from such Company Transaction) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Company
Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Company Transaction and (3) at least a majority of the members of the board of directors of the corporation resulting from such Company Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Company Transaction; or
(d) Approval by the Company's shareowners of a complete liquidation or dissolution of the Company.
1.120 CODE means the Internal Revenue Code of 1986, as from time to time amended.
1.130 COMMITTEE means the Compensation and Management Development Committee of the Board of Directors.
1.140 COMPANY means Rockwell Collins, Inc., a Delaware corporation and its predecessor, Rockwell International Corporation.
1.150 COMPANY MATCH ACCOUNT means:
(a) the sum of all of a Participant's Annual Company Match Amounts,
(b) adjusted by amounts credited or debited (gains or losses) thereto, in accordance with the provisions of Section 4.020(b), as such provisions relate to such Company Match Account, and
(c) reduced by any amount debited thereon equal to the amount of all distributions made to the Participant or his Beneficiary pursuant to this Plan which are related to such Company Match Account.
1.160 DEDUCTION LIMITATION means the following described limitation on a benefit
that may otherwise be distributable pursuant to the provisions of this Plan.
Except as otherwise provided, this limitation will be applied to all
distributions that are "subject to the Deduction Limitation" under this Plan. If
the Company determines in good faith prior to a Change of Control that there is
a reasonable likelihood that any compensation paid to a Participant for a
taxable year of the Company would not be deductible by the Company solely by
reason of the limitation under Code Section 162(m), then, to the extent deemed
necessary by the Company to ensure that the entire amount of any distribution to
the Participant pursuant to this Plan prior to the Change of Control is
deductible, the Company may defer all or any portion of a distribution under
this Plan. Any amounts deferred pursuant to this limitation will continue to be
credited/debited with additional amounts in accordance with Section 4.020(b),
even if such amount is being paid out in installments. The amounts so deferred
and amounts credited thereon will be distributed to the Participant or his
Beneficiary (in the event of the Participant's death) at the earliest possible
date, as determined in good faith by the Company, on which the deductibility of
compensation paid or payable to the Participant for the taxable year of the
Company during which the distribution is made will not be limited by
Section 162(m), or if earlier, the effective date of a Change of Control.
Notwithstanding anything to the contrary in this Plan, the Deduction Limitation will not apply to any distributions made after a Change of Control.
1.170 DEFERRAL ELECTION means an election made pursuant to Article III by a Participant to defer receipt of a part of his Base Annual Salary or to defer receipt of all or a part of his Incentive Compensation.
1.180 DEFERRAL ELECTION FORM means the form established from time to time by the Committee or its delegate that a Participant completes, signs and returns to the Committee or its delegate to make a Deferral Election pursuant to Article III, in order to defer receipt of a part of his Base Annual Salary or to defer receipt of all or a part of his Incentive Compensation.
1.190 DETERMINATION DATE which only has applicability with respect to the provisions of Appendix A of this Plan, as such appendix applies to the interests of individuals who were participants in a Predecessor Plan and as it defines the value from time to time of amounts deferred under such Predecessor Plans prior to the Effective Date, means the last day of each calendar year quarter (i.e., March 31st, June 30th, September 30th and December 31st).
1.200 DISABILITY means a period of disability during which a Participant qualifies for permanent disability benefits under the Company's or an Affiliate's long-term disability plan, or, if a Participant does not participate in such a plan, a period of disability during which the Participant would have qualified for permanent disability benefits, if the Participant had been a participant in such a plan, as determined. If the Company and its Affiliates do not sponsor such a plan, or if they should discontinue sponsoring such a plan, Disability shall be determined by the Committee or its delegate.
1.210 EFFECTIVE DATE means June 1, 2000 for this Plan and means, respectively for Rockwell, April 3, 1985.
1.220 ELIGIBLE EMPLOYEE means any Employee who is employed in the United States by the Company or an Affiliate and whose Base Annual Salary as of the beginning of a Plan Year is equal to or greater than One Hundred Thousand Dollars ($100,000.00) and who is a Rockwell Collins Participant (as defined in the Employee Matters Agreement).
1.230 EMPLOYEE means any person who is employed by the Company or by an Affiliate.
1.240 EMPLOYEE MATTERS AGREEMENT means the Employee Matters Agreement dated as of June 29, 2001 Rockwell International Corporation, New Rockwell Collins, Inc. and Rockwell Scientific Company LLC.
1.250 ERISA means the Employee Retirement Income Security Act of 1974, as from time to time amended.
1.260 EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
1.270 INCENTIVE COMPENSATION means any award payable to a Participant under an Incentive Compensation Plan sponsored by the Company or an Affiliate which, but for a Deferral Election
under the Plan, would be paid to the Participant and considered to be "wages" for purposes of United States federal income tax withholding.
1.280 INCENTIVE COMPENSATION DEFERRAL means a deferral by a Participant of part or all of his Incentive Compensation otherwise payable to him with respect to a particular fiscal year of the Company.
1.290 INCENTIVE COMPENSATION DEFERRAL ACCOUNT means:
(a) the sum of all of a Participant's Incentive Compensation Deferrals,
(b) adjusted by amounts credited or debited (gains or losses) thereto, in accordance with the provisions of Section 4.020(b) which are related to such Incentive Compensation Deferral Account, and
(c) reduced by any amount debited thereon equal to the amount of all distributions made to the Participant or his Beneficiary pursuant to this Plan which are related to such Incentive Compensation Deferral Account.
1.300 INTEREST RATE. One-twelfth of the annual interest rate for quarterly compounding that is one hundred and twenty percent (120%) of the "applicable Federal long-term rate" determined by the Secretary of the Treasury pursuant to Code Section 1274(d), or any successor provision, as applicable for each of the months in the three-month period ending on the last day of each calendar year quarter.
1.310 MEASUREMENT FUNDS means the investment vehicles offered under this Plan which are identified and described in Appendix B, each of whose purpose is to mirror, to the greatest extent reasonably possible, the investment performance of a particular benchmark mutual fund sponsored and offered by Fidelity Investments, each of which benchmark mutual funds is also described in the said Appendix B.
1.320 NAMED FIDUCIARY means the Committee, its delegates, the Trustee and, following the occurrence of a Change of Control, the third-party fiduciary described in Section 13.020 of this Plan.
1.330 NON-QUALIFIED SAVINGS PLAN means the Rockwell Collins Non-Qualified Savings Plan, as amended from time to time.
1.340 PARTICIPANT means any (a) Rockwell Collins Participant (as defined in the Employee Matters Agreement) on whose behalf account balances were retained under this Plan effective as of June 29, 2001 and (b) an Eligible Employee:
(1) who is an employee of Rockwell Collins, Inc. (or one of its Affiliate);
(2) who elects to participate in the Plan;
(3) who signs a Participation Agreement Form and a Beneficiary Designation Form;
(4) whose signed Participation Agreement Form and Beneficiary Designation Form are accepted by the Committee or its delegate;
(5) who commences participation in the Plan; and
(6) who has not elected to terminate participation in the Plan.
A spouse or former spouse of a Participant will not be treated as a Participant in the Plan or have an Account Balance under the Plan, even if the spouse or former spouse has an interest in the Participant's benefits under the Plan as a result of applicable law or property settlements resulting from legal separation or divorce.
Notwithstanding any other provision of this Plan to the contrary, no Eligible Employee or any other person, individual or entity shall become a Participant in this Plan on or after the day on which a Change of Control occurs.
1.350 PARTICIPATION AGREEMENT means a written agreement, as may be amended from time to time, which is provided by an Eligible Employee or Participant to Committee or its delegate and is then accepted and approved by the said Committee or delegate. Each such Participation Agreement will provide for the entire benefit to which such Participant is entitled under the Plan. The Participation Agreement bearing the latest date of acceptance by the Committee or its delegate will supersede all previous such Participation Agreements in their entirety and will govern the Eligible Employee's or Participant's entitlement to benefits hereunder. The terms of any such Participation Agreement may be different for a particular Participant and may provide additional benefits not set forth in the Plan or may limit the benefits otherwise provided under the Plan; provided, however, that any such additional benefits or benefit limitations must be agreed to by both the Committee or its delegate and the Participant.
1.360 PLAN means this Rockwell Collins Deferred Compensation Plan, which is evidenced by this instrument and by the forms associated with the said instrument, as they may be amended from time to time.
1.370 PLAN YEAR means each twelve-month period ending on the last day of December.
1.380 PREDECESSOR PLAN means the deferred compensation arrangements (namely the Rockwell International Corporation Deferred Compensation Plan) which were in effect and applicable to certain of the Participants hereunder immediately prior to the Effective Date of this Plan, as such arrangements were administered during the period preceding such Effective Date, it being specifically understood and herein provided that such Predecessor Plans form parts of this Plan. To the extent a Predecessor Plan remains in effect with respect to a Participant, it will be governed by the terms of this Plan, except as otherwise provided in Appendix A.
1.390 PRE-RETIREMENT SURVIVOR BENEFIT means the benefit set forth in Article VII.
1.400 QUALIFIED SAVINGS PLAN means the Rockwell Collins Salaried Savings Plan, as amended from time to time.
1.410 RETIREMENT, RETIRE(S) or RETIRED means, with respect to an Employee, severance from employment with the Company and all of its Affiliates for any reason other than a leave of absence, death or Disability on or after the attainment of his normal retirement or early retirement age.
1.420 RETIREMENT BENEFIT means the benefit set forth in Article VI.
1.430 SALARY DEFERRAL ACCOUNT means:
(a) the sum of all of a Participant's Annual Salary Deferral Amounts,
(b) adjusted by amounts credited or debited (gains or losses) thereto, in accordance with the provisions of Section 4.020(b), as such provisions relate to such Salary Deferral Account, and
(c) reduced by any amount debited thereon equal to the amount of all distributions made to the Participant or his Beneficiary pursuant to this Plan which are related to such Salary Deferral Account.
1.440 SHORT-TERM PAYOUT means the payout set forth in Section 5.010 of the Plan.
1.450 TERMINATION BENEFIT means the benefit set forth in Article VIII.
1.460 TERMINATION OF EMPLOYMENT means the severing of a Participant's employment with the Company and all Affiliates, voluntarily or involuntarily, for any reason other than Retirement, Disability, death or an authorized leave of absence.
1.470 THIRD-PARTY ADMINISTRATOR means an independent third party selected by the Trustee and approved by the individual who, immediately prior to a Change of Control, was the Company's Chief Executive Officer or, if not so identified, the Company's highest ranking officer (the "Ex-CEO").
1.480 TRUST means the master trust established by agreement between the Company and the Trustee, which will be a grantor trust.
1.490 TRUSTEE means Wells Fargo Bank N.A., or any successor trustee of the Trust described in Section 1.480 of this Plan.
1.500 UNFORESEEABLE FINANCIAL EMERGENCY means an unanticipated emergency that is caused by an event beyond the control of the Participant which would result in severe financial hardship to the Participant and which itself results from:
(a) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant,
(b) a loss of the Participant's property due to casualty, or
(c) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the discretion of the Committee or its delegate.
ARTICLE II: PARTICIPATION
2.010 SELECT GROUP DEFINED. Since participation in the Plan is intended to be limited to a select group of management and highly compensated Employees, the Plan is only available to Eligible Employees of the Company and its Affiliates.
2.020 COMMENCEMENT OF PARTICIPATION. As a condition to initial participation in this Plan, each Eligible Employee who wishes to participate in the Plan will be required to complete, execute and return to the Committee or its delegate a Participation Agreement Form and a Beneficiary Designation Form.
In the case of such an Eligible Employee's initial election to become a Participant in a particular Plan Year, such documentation must be provided by the Eligible Employee to the Committee or its delegate within sixty (60) days following his being notified of his status as an Eligible Employee.
Notwithstanding the above, in the case of the Plan Year commencing on January 1, 2000, each Eligible Employee will be required to provide the Committee or its delegate with the above Participation Agreement Form and Beneficiary Designation Form on or before May 15, 2000, in order to evidence his desire to participate in the Plan in such Plan Year.
If an Eligible Employee has met all enrollment requirements set forth in this Plan and required by the Committee or its delegate (including returning all required documents to the Committee or its delegate) in the time frames described in the above subsections, that the Eligible Employee will become a Plan Participant on the first day of the month following the month in which he completes all such enrollment requirements, except that, if an individual becomes an Eligible Employee during the last three months of a calendar year, that Eligible Employee will become a Plan Participant on the first day of the next calendar year.
If an Eligible Employee fails to meet all such requirements within the period required, in accordance with subsections (a) and (b) of this Section, that Eligible Employee will not be entitled to participate in the Plan until the first day of a subsequent Plan Year following the delivery to and acceptance by the Committee or its delegate of the required documents. In addition, the Committee or its delegate will establish from time to time such other enrollment requirements as it determines in its sole discretion are necessary.
2.030 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee or its delegate determines in good faith that a Participant no longer qualifies as a member of a select group of management or highly compensated employees, as membership in such group is determined in accordance with ERISA Sections 201(2), 301(a)(3) and 401(a)(1), the Committee will have the right, in its sole discretion, to:
(a) terminate any deferral election the Participant has made for the remainder of the Plan Year in which the Participant's membership status changes,
(b) prevent the Participant from making future deferral elections and/or
(c) immediately distribute the Participant's then Account Balance as a Termination Benefit and terminate the Participant's participation in the Plan.
ARTICLE III: DEFERRAL AND COMPANY MATCH CREDITS
3.010 BASE ANNUAL SALARY DEFERRAL. Each Plan Participant will be permitted to make an irrevocable election to defer (such Deferral Election to be made in whole percentages) receipt of an amount equal to one percent (1%) through fifty percent (50%) of his Base Annual Salary.
(a) If an Eligible Employee first becomes a Participant after the first day of a Plan Year, or in the case of the Plan Year beginning on January 1, 2000, if such Base Annual Salary Deferral Election goes into effect for the period between June 1, 2000 through December 31, 2000, the Base Annual Salary Deferral will be for an amount equal to the percentage set forth above, multiplied by a fraction, the numerator of which is the number of complete months remaining in the Plan Year and the denominator of which is twelve (12), with the effect that the Participant's deferred Base Annual Salary would be limited to the amount of salary not yet earned by the Participant as of the date the Participant submits a Participation Agreement Form to the Company or an Affiliate for acceptance.
(b) For each succeeding Plan Year, a Participant, will be permitted, in his sole discretion, to make a similar irrevocable election for the following Plan Year (and such other elections as the Committee or its delegate deems necessary or desirable) and must deliver such Deferral Election to the Company or an Affiliate on a new Deferral Election Form before December 1st of the Plan Year immediately preceding the Plan Year for which the deferral is intended. If no such Deferral Election Form is timely delivered for a Plan Year, the Annual Deferral Amount will be zero for that Plan Year.
(c) During each Plan Year, the Base Annual Salary Deferral Amount will be withheld from each regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Annual Salary.
3.020 INCENTIVE COMPENSATION DEFERRAL. In addition to the Base Annual Salary deferral described in the preceding Section, each Participant will be permitted to irrevocably elect to defer receipt of an amount equal to one percent (1%) through one hundred percent (100%), such Deferral Election to be made in whole percentages, of the amount of any Incentive Compensation which he might be awarded.
In general, such Deferral Election will be made on a Deferral Election Form and will apply to Incentive Compensation to which the Participant might be entitled for the fiscal year immediately following such Deferral Election.
Notwithstanding the above, however, in the case of deferral of Incentive Compensation awarded for the Company's 2000 fiscal year, such Deferral Election will be effective for that said 2000 fiscal year, provided that the Deferral Election is made on or before May 15, 2000.
The Incentive Compensation Deferral Amount will be withheld at the time the said Incentive Compensation are or otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself.
3.030 ANNUAL COMPANY MATCH AMOUNT. A Participant's Annual Company Match Amount for any Plan Year will be equal to the amount that the Company would have contributed to the Participant's account in the Qualified Savings Plan as a matching contribution or other employer contribution to that Plan or would have credited to such Participant's account in the Non-Qualified Savings Plan as a matching credit or other similar credit, but for the fact that the Participant elected to defer Base Annual Salary pursuant to the provisions of Section 3.010 of this Plan. The Annual Company Match Amount which is attributable to a Participant's Annual Salary Deferral Amount for a particular Plan Year will be calculated in the first month of the immediately succeeding Plan Year and will be credited to the Participant's Company Match Account no later than January 31st of such succeeding Plan Year.
(a) In the event of a Participant's Retirement or death, the Participant's Company Match Account will be credited with the Annual Company Match Amount for the Plan Year in which he Retires or dies.
(b) If a Participant is not employed by the Company or an Affiliate as of the last day of a Plan Year for any reason other than the Participant's Retirement or death, the Annual Company Match Amount for such Plan Year will be zero.
ARTICLE IV: PLAN ACCOUNTS
4.010 VESTING.
(a) A Participant will have a one hundred percent (100%) vested interest in his Deferral Account and in his Company Match Account.
(b) Notwithstanding anything to the contrary contained in this Plan from time to time, in the event of a Change of Control, a Participant's Deferral Account, Company March Account and any other interest of his under this Plan at the time of the occurrence of the Change of Control will remain one hundred percent (100%) vested, if such interest is already 100% vested at that time and, if such interest is not one hundred percent (100%) vested at that time, will immediately become one hundred (100%) vested.
4.020 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee or its delegate, in its sole discretion, amounts will be credited or debited to a Participant's Account Balance in the manner set forth in the provisions of this Section; provided, however, that the said provisions will apply individually to, and be administered separately for, on the one hand, the Participant's Salary
Deferral and Company Match Accounts and, on the other hand, his Incentive Compensation Deferral Account, with the intention that that the Participant will be permitted to make separate elections with respect to each.
(a) Allocation to Measurement Funds. A Participant, in connection with his initial Deferral Election in accordance with Section 3.010 or 3.020 above, will be permitted to also elect to have one or more Measurement Funds used to determine the amounts to be credited to his Account Balance and his election will continue to be in effect thereafter, unless it should be changed in accordance with subsection (c).
(b) Crediting or Debiting Method. The performance (either positive or negative) of each elected Measurement Fund will be determined by the Committee or its delegate, based on the performance of the Measurement Funds themselves. A Participant's Account Balance will be credited or debited on a daily basis based on the performance of each Measurement Fund selected by the Participant, as determined by the Committee or its delegate in its sole discretion, as though:
(1) a Participant's Account Balance were actually invested in the Measurement Fund(s) selected by the Participant as of the close of business on any business day, at the closing price on that day;
(2) the portion of the Annual Deferral Amount that was actually deferred during any calendar quarter were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable on such day, no later than the close of business on the first business day after the day on which such amounts are actually deferred from the Participant's Base Annual Salary through reductions in his payroll, at the closing price on such date; and
(3) any distribution made to a Participant that decreases such Participant's Account Balance ceased being invested in the Measurement Fund(s), in the applicable percentages, no earlier than one business day prior to the distribution, at the closing price on such date.
(c) Transfers among Measurement Funds. The Participant will be permitted to change, on a daily basis, any previous Measurement Fund election or elections he has made with regard to his Account Balance. The elections and changes to such elections which a Participant makes pursuant to this subsection will be made by means of any method (including any available telephonic or electronic method which is acceptable to the Committee or its delegate at the time the election or change is made by the Participant), and may be made at any time and will be effective as of the New York Stock Exchange closing immediately following the making of that election or change; provided, however, if it is determined by the Committee or its delegate that an investment election made by a Participant is invalid or defective, the Participant's election, until duly corrected by him, will be deemed to have been made in favor of whatever short-term, money market vehicle is available under the Plan at that time.
(d) No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant's election of any such Measurement Fund, the allocation to his Account
Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant's Account Balance will not be considered or construed in any manner as an actual investment of his Account Balance in any such Measurement Fund. In the event that the Company or the Trustee, in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant will have any rights in or to such investments themselves. Without limiting the foregoing, a Participant's Account Balance will at all times be a bookkeeping entry only and will not represent any investment made on his behalf by the Company or the Trust. The Participant will at all times remain an unsecured creditor of the Company.
(e) Company Reservation of Rights. Consistent with the preceding sentence, nothing to the contrary in this Plan or any of its forms or communication material, nor in any document associated with the Trust, should be interpreted or understood to provide Participants or their Beneficiaries with any current, direct rights with respect to the assets held by the Trustee in the Trust.
4.030 AMOUNTS CREDITED PURSUANT TO PREDECESSOR PLANS. Notwithstanding the provisions of Section 4.020, in the case of amounts which were credited to any Predecessor Plan prior to the Effective Date as incentive compensation plan deferrals, such amounts will be separately accounted for hereunder and will continue to be adjusted and administered (specifically including application, on a quarterly basis, of the Interest Rate to a Participant's account in such Predecessor Plan) in the manner previously in effect under such Predecessor Plan and as set forth in Appendix A; provided, however, that, unless otherwise provided in the said Appendix A, administration of such Predecessor Plan deferrals will be in accordance with the provisions of this Plan as they apply to amounts deferred after the Effective Date.
4.040 FICA AND OTHER TAXES.
(a) Annual Deferral Amounts. For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Company or any Affiliate employing the Participant will withhold from that portion of the Participant's Base Annual Salary and Incentive Compensation which is not being deferred the Participant's share of FICA and other employment taxes on such Annual Deferral Amount.
(b) Company Match Amounts. When a participant becomes vested in a portion of his Company Match Account, the Company or any Affiliate employing the Participant will withhold from the Participant's Base Annual Salary and/or Incentive compensation that is not deferred the Participant's share of FICA and other employment taxes.
(c) Distributions. The Company or any Affiliate employing the Participant, or the Trustee of the Trust, will withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Company and the trustee of the Trust.
ARTICLE V: SHORT-TERM PAYOUTS AND WITHDRAWALS
5.010 SHORT-TERM PAYOUTS. In connection with each election to defer an Annual Deferral Amount, a Participant may irrevocably elect to receive a future Short-Term Payout from the Plan with respect to such Annual Deferral Amount.
(a) Subject to the Deduction Limitation, the said Short-Term Payout will be a lump sum payment in an amount that is equal to the Annual Deferral Amount, as adjusted for amounts credited or debited in the manner provided in Section 4.020 on that amount, determined at the time that the Short-Term Payout becomes payable (rather than at the date of a Termination of Employment).
(b) Subject to the Deduction Limitation and the other terms and conditions of this Plan, each Short-Term Payout elected will be paid out during a sixty (60) day period commencing immediately after the last day of any Plan Year designated by the Participant that is at least three Plan Years after the Plan Year in which the Annual Deferral Amount is actually deferred. By way of example, if a three-year Short-Term Payout is elected for Annual Deferral Amounts that are deferred in the Plan Year commencing January 1, 2001, the three-year Short-Term Payout would become payable during a sixty (60) day period commencing January 1, 2005.
(c) Should an event occur that triggers a benefit under Article VI or VII, any Annual Deferral Amount, plus amounts credited or debited thereon, that is subject to a Short-Term Payout election under this Section will not be paid in accordance with this Section, but will instead be paid in accordance with the other applicable Article.
(d) Notwithstanding any other provision in this Plan to the contrary, the Short-Term Payout described in this Section will only be available with respect to Annual Deferral Amounts which are deferred after the Effective Date and will specifically not be available to amounts which were deferred by a Participant pursuant to the provisions of a Predecessor Plan.
5.020 WITHDRAWAL FOR UNFORESEEABLE FINANCIAL EMERGENCIES. In the event that any Participant should encounter an Unforeseeable Financial Emergency, such Participant may:
petition the Committee or its delegate to suspend any deferrals required to be made on his behalf, and/or
(b) petition the Committee or its delegate to permit him to receive a partial or full payout from the Plan. Such a payout will not exceed the lesser of --
(1) the Participant's Account Balance, calculated as if the Participant were receiving a Termination Benefit, or
(2) the amount reasonably needed to satisfy the Unforeseeable Financial Emergency.
If, subject to the sole discretion of the Committee or its delegate, the petition for a suspension and/or payout is approved, suspension will take effect on the date of approval and any payout
will be made within sixty (60) days of the date of approval. The payment of any amount under this Section will not be subject to the Deduction Limitation.
5.030 WITHDRAWAL ELECTION. A Participant (or, after a Participant's death, the Participant's Beneficiary) may elect, at any time, to withdraw some or all of the Participant's Account Balance, even though the Participant (or the Participant's Beneficiary) has not encountered an Unforeseeable Financial Emergency at the time of such withdrawal, but the withdrawal will be subject to the provisions of this Section.
(a) The amount of the withdrawal will be subject to imposition of a withdrawal penalty equal to ten percent (10%) of such amount (the net amount being referred to in this Section as the "Withdrawal Amount").
(b) Such an election may be made at any time, before or after the Participant's Retirement, Disability, death or Termination of Employment, and whether or not the Participant (or Beneficiary) is in the process of being paid pursuant to an installment payment schedule.
The Participant (or his Beneficiary) will be required to make this election by
giving the Committee or its delegate advance written notice of the election in a
form determined from time to time by the Committee or its delegate. The
Participant (or his Beneficiary) will be paid the Withdrawal Amount within sixty
(60) days of his election. Once a Withdrawal Amount has been paid, the
Participant's participation in the Plan will be suspended and the Participant
will not be eligible to elect Base Annual Salary Deferrals and Incentive
Compensation Deferrals, nor will he be eligible to have Annual Company Match
Amounts credited to his Company Match Account, during the three-year period
immediately following payment of the Withdrawal amount; provided, however, that
such Participant will be eligible to have a pro rata portion of the Company
Match Amount attributable to the portion of the Plan Year immediately prior to
such a withdrawal credited to his Company Match Account. The payment of this
Withdrawal Amount will not be subject to the Deduction Limitation.
ARTICLE VI: RETIREMENT BENEFITS
6.010 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant who Retires will receive, as a Retirement Benefit, his Account Balance.
6.020 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his commencement of participation in the Plan, may elect in his Participation Agreement to receive the Retirement Benefit in a lump sum or pursuant to an Annual Installment Method of periods of from two (2) through fifteen (15) years. The Participant may change any election he has previously made to a different payout period permitted hereunder, but only one such a change may be made with respect to any single election. Such change will be accomplished by the Participant submitting a new Participation Agreement to the Committee or its delegate, but such change will not be valid, unless it has been submitted by the Participant and accepted by the Committee or its delegate (in the Committee's or delegate's discretion) at least one (1) year prior to the Participant's Retirement. The Participation Agreement most recently accepted by the Committee or its delegate shall govern the payout of the Retirement Benefit. If a Participant does not make any
election with respect to the payment of the Retirement Benefit, then such benefit shall be payable in a lump sum. The lump sum payment shall be made, or installment payments shall commence, no later than sixty (60) days after the last day of the Plan Year in which the Participant Retires. Any payment made shall be subject to the Deduction Limitation.
6.030 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies after Retirement but before the Retirement Benefit is paid in full, the Participant's unpaid Retirement Benefit payments shall continue and shall be paid to the Participant's Beneficiary:
(a) over the remaining number of years and in the same amounts as that benefit would have been paid to the Participant had the Participant survived, or
(b) in a lump sum, if requested by the Beneficiary and allowed in the sole discretion of the Committee or its delegate, which is equal to the Participant's unpaid remaining Account Balance.
ARTICLE VII: PRE-RETIREMENT SURVIVOR BENEFIT
7.010 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation, the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance if the Participant dies before he Retires, experiences a Termination of Employment or suffers a Disability.
7.020 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. A Participant, in connection with his commencement of participation in the Plan, may elect in his Participation Agreement whether the Pre-Retirement Survivor Benefit should be received by his Beneficiary in a lump sum or pursuant to an Annual Installment Method of periods of from 2 through 15 years. The Participant may annually change this election to an allowable alternative payout period by submitting a new Participation Agreement to the Committee or its delegate. The Beneficiary Designation Form most recently filed with the Committee or its delegate prior to the Participant's death will govern the payout of the Participant's Pre-Retirement Survivor Benefit. If a Participant does not make any election with respect to the payment of the Pre-Retirement Survivor Benefit, then such benefit will be paid in a lump sum. Despite the foregoing, if the Participant's Account Balance at the time of his death is less than $25,000, payment of the Pre-Retirement Survivor Benefit may be made, in the sole discretion of the Committee or its delegate, in a lump sum or pursuant to an Annual Installment Method of not more than five (5) years. The lump sum payment will be made, or installment payments will commence, no later than sixty (60) days after the last day of the Plan Year in which the Committee or its delegate is provided with proof that is satisfactory to the Committee or its delegate of the Participant's death. Any payment made will be subject to the Deduction Limitation.
ARTICLE VIII: TERMINATION BENEFIT
8.010 TERMINATION BENEFIT. Subject to the Deduction Limitation, the Participant will receive a Termination Benefit, which will be equal to the Participant's Account Balance if a Participant experiences a Termination of Employment prior to his Retirement, death or Disability.
8.020 PAYMENT OF TERMINATION BENEFIT. The form of payment of a Participant's Account Balance, if such payment is due to the Participation's Termination of Employment will in all cases be a lump sum.
ARTICLE IX: DISABILITY WAIVER AND BENEFIT
9.010 DISABILITY WAIVER.
(a) Waiver of Deferral. A Participant who is determined by the Committee or its delegate to be suffering from a Disability will be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from his Base Annual Salary and/or Incentive Compensation for the Plan Year during which he first suffers a Disability. During the period of Disability, such Participant will not be permitted to make any additional deferral elections, but will continue to be considered a Participant for all other purposes of this Plan.
(b) Return to Work. If a Participant returns to employment after a Disability ceases, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his return to employment or service and for every Plan Year thereafter while he is a Participant in the Plan.
9.020 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a Disability will, for benefit purposes under this Plan, continue to be considered to be employed and will be eligible for the benefits provided for hereunder. Notwithstanding the above, the Committee or its delegate will have the right to, in its sole and absolute discretion and for purposes of this Plan only, and must in the case of a Participant who is otherwise eligible to Retire, deem the Participant to have experienced a Termination of Employment, or in the case of a Participant who is eligible to Retire, to have Retired, at any time (or in the case of a Participant who is eligible to Retire, as soon as practicable) after such Participant is determined to be suffering a Disability, in which case the Participant will receive a Disability Benefit equal to his Account Balance at the time of the Committee's or its delegate's determination; provided, however, that should the Participant otherwise have been eligible to Retire, he or she will be paid in accordance with Article VI. The Disability Benefit will be paid in a lump sum within sixty (60) days of the Committee's or its delegate's exercise of such right. Any payment made will be subject to the Deduction Limitation.
ARTICLE X: BENEFICIARY DESIGNATION
10.010 BENEFICIARY. Each Participant will have the right, at any time, to designate his Beneficiary or Beneficiaries (both primary and contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates.
10.020 BENEFICIARY DESIGNATION OR CHANGE OF DESIGNATION. A Participant will be permitted to designate his Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its delegate. A Participant will have the right to change a
Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's or its delegate's rules and procedures, as in effect from time to time. Upon the acceptance by the Committee or its delegate of a new Beneficiary Designation Form, all Beneficiary designations previously filed will be canceled. The Committee or its delegate will be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee or its delegate prior to the Participant's death.
10.030 SPOUSAL CONSENT REQUIRED. If a Participant names someone other than his spouse as a Beneficiary, a spousal consent, in the form designated by the Committee or its delegate, must be signed by that Participant's spouse and returned to the Committee or its delegate.
10.040 ACKNOWLEDGMENT. No designation or change in designation of a Beneficiary will be effective until received and acknowledged in writing by the Committee or its delegate.
10.050 ABSENCE OF VALID BENEFICIARY DESIGNATION. If a Participant fails to designate a Beneficiary as provided in the preceding Sections or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary will be deemed to be his surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary will be payable to the executor or personal representative of the Participant's estate.
10.060 DOUBT AS TO BENEFICIARY. If the Committee or its delegate has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee or its delegate will have the right, exercisable in its discretion, to withhold such payments until this matter is resolved to the Committee's or the delegate's satisfaction.
10.070 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a Beneficiary will fully and completely discharge the Company and all of its Affiliates and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant's participation in this Plan will terminate upon such full payment of benefits.
ARTICLE XI: LEAVE OF ABSENCE
11.010 PAID LEAVE OF ABSENCE. If a Participant is authorized by the Company or the Affiliate employing the Participant for any reason to take a paid leave of absence, the Participant will continue to be considered to be an Employee and the Annual Deferral Amount will continue to be withheld during such paid leave of absence.
11.020 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the Company or the Affiliate employing the Participant to take an unpaid leave of absence, the Participant will continue to be considered to be an Employee and the Participant will be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals will resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. If no election was made for that Plan Year, no deferral will be withheld.
ARTICLE XII: TERMINATION, AMENDMENT OR MODIFICATION
12.010 TERMINATION. Although the Company and each Affiliate anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that the Company or any such Affiliate will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, the Company reserves the right to discontinue sponsorship of the Plan and/or to terminate the Plan at any time with respect to any or all of its participating Employees, by action of the Board of Directors. Upon the termination of the Plan, the participation of affected Participants will terminate and their Account Balances, determined as if they had experienced a Termination of Employment on the date of Plan termination or, if Plan termination occurs after the date upon which a Participant was eligible to Retire, then with respect to that Participant as if he had Retired on the date of Plan termination, will be paid to the Participants as follows:
Prior to a Change of Control, if the Plan is terminated with respect to all of its Participants, the Company will have the right, in its sole discretion, and notwithstanding any elections made by the Participant, to pay such benefits in a lump sum or pursuant to an Annual Installment Method of up to 15 years, with amounts credited and debited during the installment period as provided herein. If the Plan is terminated with respect to less than all of its Participants, the Company or the Affiliate employing an affected Participant will be required to pay such benefits in a lump sum.
12.020 AMENDMENT. The Company may, at any time, amend or modify the Plan in whole or in part by action of the Board of Directors; provided, however, that:
no amendment or modification shall be effective to decrease or restrict the value of a Participant's Account Balance in existence at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification;
(b) no amendment or modification of this Section 12.020 Plan shall be effective; and
(c) the amendment or modification of the Plan shall not affect any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification
12.030 AMENDMENT OF INDIVIDUAL PARTICIPATION AGREEMENT FORMS. Despite the provisions of Sections 12.010 and 12.020, if a Participant's Participation Agreement Form contains benefits or limitations that are not contained in this Plan document, the Company or Affiliate may only amend or terminate such provisions with the consent of the Participant.
12.040 EFFECT OF PAYMENT. The full payment of all applicable benefits hereunder shall completely discharge all obligations to a Participant and his Beneficiaries under this Plan.
ARTICLE XIII: ADMINISTRATION
13.010 COMMITTEE DUTIES. Except as otherwise provided in this Article, this Plan will be administered by the Committee and its delegates. Members of the Committee may be Participants under this Plan. The Committee will also have the discretion and authority to:
(a) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan, and
(b) decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan.
Any individual serving on the Committee who is a Participant will not be permitted to vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee will be entitled to rely on information furnished by a Participant or the Company.
13.020 ADMINISTRATION UPON CHANGE OF CONTROL. Notwithstanding any other provision of this Plan to the contrary, upon and after the occurrence of a Change of Control, the Plan will be administered by the Third-Party Administrator. The Third-Party Administrator so selected will have the discretionary power to determine all questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited, to benefit entitlement determinations; provided, however, upon and after the occurrence of a Change of Control, such administrator will have no power to direct the investment of Plan or Trust assets or select any investment manager or custodial firm for the Plan or Trust.
Upon and after the occurrence of a Change of Control, the Company will be required to:
(a) pay all reasonable administrative expenses and fees of the Third-Party Administrator;
indemnify the Third-Party Administrator against any costs, expenses and liabilities including, without limitation, attorney's fees and expenses arising in connection with the performance of such administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the said administrator or its employees or agents; and
supply full and timely information to the Third-Party Administrator on all matters relating to the Plan, the Trust, the Participants and their Beneficiaries, the Account Balances of the Participants, the date of circumstances of the Retirement, Disability, death or Termination of Employment of the Participants, and such other pertinent information as the Third-Party Administrator may reasonably require.
Upon and after a Change of Control, the Third-Party Administrator may not be terminated by the Company and may only be terminated (and a replacement appointed) by the Trustee, but only with the approval of the Ex-CEO.
13.030 AGENTS. In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting
through a duly appointed representative) and may from time to time consult with counsel who may be counsel to any Employer. The Company's Vice President, Compensation will at all times, unless otherwise determined by the Committee, be deemed to be and shall be specifically referred to herein as the Committee's delegate for all purposes herein.
13.040 BINDING EFFECT OF DECISIONS. The decision or action of the Committee or its delegate with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder will be final and conclusive and binding upon all persons having any interest in the Plan.
13.050 INDEMNITY OF COMMITTEE. The Company and its Affiliates shall indemnify and hold harmless the members of the Committee, any Employee to whom the duties of the Committee may be delegated, and the Committee or its delegate against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members, or such Employee.
13.060 EMPLOYER INFORMATION. To enable the Committee and its delegates to perform their functions, the Company will supply full and timely information to the Committee and delegates on all matters relating to the compensation of its Participants, the date and circumstances of the Retirement, Disability, death or circumstances of the Retirement, Disability, death or Termination of Employment of its Participants, and such other pertinent information as the Committee or its delegate may reasonably require.
ARTICLE XIV: OTHER BENEFITS AND AGREEMENTS
14.010 COORDINATION WITH OTHER BENEFITS. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Company and its Affiliates. The Plan will supplement and will not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.
ARTICLE XV: CLAIMS PROCEDURE
15.010 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a "Claimant") may deliver to the Committee or its delegate a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within sixty (60) days after such notice was received by the Claimant. All other claims must be made within one hundred and eighty (180) days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.
15.020 NOTIFICATION OF DECISION. The Committee or its delegate will consider a Claimant's claim within a reasonable time, and will notify the Claimant in writing:
(a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or
(b) that the Committee or its delegate has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant;
(c) the specific reason(s) for the denial of the claim, or any part of it;
(1) specific reference(s) to pertinent provisions of the Plan upon which such denial was based;
(2) a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary; and
(3) an explanation of the claim review procedure set forth in Section 15.030 below.
15.030 REVIEW OF A DENIED CLAIM. Within sixty (60) days after receiving a notice from the Committee or its delegate that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee or its delegate a written request for a review of the denial of the claim. Thereafter, but not later than thirty (30) days after the review procedure began, the Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee or its delegate, in its sole discretion, may grant.
15.040 DECISION ON REVIEW. The Committee or its delegate will render any decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's or its delegate's decision must be rendered within one hundred and twenty (120) days after such date. Such decision must be written in a manner calculated to be understood by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and
(c) such other matters as the Committee or its delegate deems relevant.
15.050 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of this Article 14 is a mandatory prerequisite to a Claimant's right to commence any legal action with respect to any claim for benefits under this Plan.
ARTICLE XVI: TRUST
16.010 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust (which may be referred to herein as a "Rabbi Trust"). The Trust shall become irrevocable upon a Change of Control (to the extent not then irrevocable). After the Trust has become irrevocable with respect to the Plan, except as otherwise provided in Section 12 of the Trust, the Trust shall remain irrevocable with respect to the Plan until all benefits due under the Plan and benefits and account balances due to participants and beneficiaries under any other plan covered by the Trust have been paid in full. Upon establishment of the Trust, the Company shall provide for funding of the Trust in accordance with the terms of the Trust.
16.020 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and each Participant's Participation Agreement Form will govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust will govern the rights of the Company and its Affiliates, Participants and the creditors of the Company and its Affiliates to the assets transferred to the Trust. The Company and each of its Affiliates employing any Participant will at all times remain liable to carry out their obligations under the Plan.
16.030 DISTRIBUTIONS FROM THE TRUST. The Company's and each of its Affiliate's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution will reduce their obligations under this Plan.
16.040 RABBI TRUST. The Rabbi Trust shall:
(a) be a non-qualified grantor trust which satisfies in all material respects the requirement of Revenue Procedure 92-64, 1992-2 CB 122 (or any successor Revenue Procedure or other applicable authority);
(b) become irrevocable upon a Change of Control (to the extent not then irrevocable); and
(c) provide that any successor trustee shall be a bank trust department or other party that may be granted corporate trustee powers under state law.
ARTICLE XVII: MISCELLANEOUS
17.010 STATUS OF PLAN. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that "is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employee" within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan will be administered and interpreted to the extent possible in a manner consistent with that intent.
17.020 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Company or its Affiliates. For purposes of the payment of benefits under this Plan, any and all of the Company's or Affiliate's assets shall be, and remain, the general, unpledged unrestricted
assets of the Company or Affiliate. The Company or Affiliate's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.
17.030 COMPANY LIABILITY. The Company's or an Affiliate's liability for the payment of benefits will be defined only by the Plan and the Participant's specific Participation Agreement Form. The Company and its Affiliates will have no obligation to a Participant under the Plan, except as expressly provided in the Plan and the Participant's Participation Agreement Form.
17.040 NONASSIGNABILITY. Neither a Participant nor any other person will have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable will, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise.
17.050 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company or any of its Affiliates and the Participant. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any the Company or an Affiliate or to interfere with the right of the Company or an Affiliate to discipline or discharge the Participant at any time.
17.060 FURNISHING INFORMATION. A Participant or his Beneficiary will cooperate with the Committee or its delegate by furnishing any and all information requested by the Committee or its delegate and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee or its delegate may deem necessary.
17.070 TERMS. Whenever any words are used herein in the masculine, they should be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they should be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.
17.080 CAPTIONS. The captions of the articles, sections and paragraphs of this Plan are for convenience only and do not control or affect the meaning or construction of any of its provisions.
17.090 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the laws of the State of Wisconsin.
17.100 NOTICE. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:
Vice President, Compensation
Rockwell Collins, Inc.
400 Rockwell Collins Road NE
Cedar Rapids, Iowa 52498
Such notice will be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.
17.110 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns and the Participant and the Participant's designated Beneficiaries.
17.120 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant will automatically pass to the Participant and will not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor will such interest pass under the laws of intestate succession.
17.130 VALIDITY. In case any provision of this Plan should be found to be illegal or invalid for any reason, said illegality or invalidity will not affect the remaining parts hereof, but this Plan should be construed and enforced as if such illegal or invalid provision had never been inserted herein.
17.140 MINORS, INCOMPETENT PERSONS, ETC. If the Committee or its delegate determines that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee or its delegate may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee or its delegate may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and will be a complete discharge of any liability under the Plan for such payment amount.
17.150 COURT ORDER. The Committee or its delegate is authorized to make any payments directed by court order in any action in which the Plan or the Committee has been named as a party. In addition, if a court determines that a spouse or former spouse of a Participant has an interest in the Participant's benefits under the Plan in connection with a property settlement or otherwise, the Committee or its delegate, in its sole discretion, will have the right, notwithstanding any election made by a Participant, to immediately distribute the spouse's or
former spouse's interest in the Participant's benefits under the Plan to that spouse or former spouse.
17.160 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) In General. If, for any reason, all or any portion of a Participant's benefits under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee or its delegate before a Change of Control, or the Trustee of the Trust after a Change of Control, for a distribution of that portion of his benefit that has become taxable. Upon the grant of such a petition, which grant should not be unreasonably withheld (and, after a Change of Control, must be granted), the Company or, as applicable, its Affiliate will distribute to the Participant immediately available funds in an amount equal to the taxable portion of his benefit (which amount will not exceed a Participant's unpaid Account Balance under the Plan). If the petition is granted, the tax liability distribution will be made within 90 days of the date when the Participant's petition is granted. Such a distribution will affect and reduce the benefits to be paid under this Plan.
(b) Trust. If the Trust terminates in accordance with provisions thereof and benefits are distributed from the Trust to a Participant in accordance therewith, the Participant's benefits under this Plan will be reduced to the extent of such distributions.
17.170 INSURANCE. The Company, on its own behalf or on behalf of the trustee of the Trust, and, in its discretion, may apply for and procure insurance on the life of the Participant, in such amounts and in such forms as the Trust may choose. The Company or the trustee of the Trust, as the case may be, will be the sole owner and beneficiary of any such insurance. The Participant will have no interest whatsoever in any such policy or policies, and at the request of the Company will submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to which the Company has applied for insurance.
17.180 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE OF CONTROL. The Company is aware that upon the occurrence of a Change of Control, the Board of Directors (which might then be composed of new members) or a shareholder of the Company or of any successor corporation might then cause or attempt to cause the Company, an Affiliate or such successor to refuse to comply with its obligations under the Plan and might cause or attempt to cause the Company or the Affiliate to institute, or may institute, litigation seeking to deny Participants the benefits intended under the Plan. In these circumstances, the purpose of the Plan could be frustrated. Accordingly, if, following a Change of Control, it should appear to any Participant that the Company, an Affiliate of the Company or any successor corporation has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company, such Affiliate or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company irrevocably authorizes such Participant to retain counsel of his choice at the expense of the Company to represent such Participant in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, one or more of its Affiliates or any director, officer,
shareholder or other person affiliated with the Company, any such Affiliate any successor thereto in any jurisdiction.
17.190 REQUIREMENT FOR RELEASE. Any payment to any Participant or a Participant's present, future or former spouse or Beneficiary in accordance with the provisions of this Plan will, to the extent thereof, be in full satisfaction of all claims against the Plan, the Trustee and the Company, and the Trustee may require such Participant or Beneficiary, as a condition precedent to such payment to execute a receipt and release to such effect.
APPENDIX A
PREDECESSOR PLAN PROVISIONS
The following provisions shall apply with respect to the Participants, as applicable, in the Allen Bradley and Rockwell Predecessor Plans.
I. ACCOUNTS.
With respect to a Participant's incentive compensation deferrals under one of the Predecessor Plans for periods prior to the Effective Date, the value of any such Participant's account will be determined as of the last day of a calendar year quarter (the "Determination Date") and will be equal to the total of the Participant's Lump Sum Payment and Installment Payment Sub-Accounts.
The value of each such Sub-Account will consist of:
(1) the balance of such Sub-Account as of the last preceding Determination Date, plus
(2) any Deferred Compensation credited to such Sub-Account since the last preceding Determination date, plus
(3) the sum of the three (3) monthly amounts determined by multiplying the average daily balance of such Sub-Account during each of the three calendar months since the last preceding Determination Date by the Interest Rate applicable to such month, minus
(4) the amount of all Plan Benefits, if any, paid during the period since the last preceding Determination Date.
Interest, determined as provided in (3) above, will be credited to each such Sub-Account as of the Determination Date as of which such Sub-Account is valued.
II. RETIREMENT DISTRIBUTIONS AND WITHDRAWALS OF PREDECESSOR PLAN ACCOUNTS.
(a) With respect to the provisions of the Predecessor Plans which were in effect immediately prior to the Effective Date of this Plan as they regard benefits payable at retirement or employment termination to a Participant, or at the time of a Participant's death, to his Beneficiary, such provisions shall remain in effect hereunder, but only with respect to amounts deferred prior to the Effective Date of this Plan (and earnings thereon pursuant to the preceding Section of this Appendix).
(b) No Plan Benefit shall be payable prior to a Participant in one of the Predecessor Plans prior to his termination of employment, except that, in the case of the Rockwell Predecessor Plan, the Committee or its delegate may permit a Participant or, after a Participant's death, a Participant's Beneficiary or other person or entity entitled to receive such Predecessor Plan benefit to withdraw from his Account prior to his termination of employment:
(1) an amount necessary to meet a financial hardship, or
(2) his entire Account balance
Either type of withdrawal shall be requested by written notice to the Committee
or its delegate and the amount of the withdrawal shall be paid within forty-five
(45) days after receipt of the written notice.
III. FUNDING OF RABBI TRUST FOR ACCOUNT BALANCES UPON CHANGE OF CONTROL.
The Company shall fund the Trust in immediately available funds for the benefit of each Participant, surviving spouse, joint annuitant or beneficiary with respect to Accounts under the Predecessor Plans in accordance with the terms of the Trust. Such Trust, as it regards such Predecessor Plan amounts, shall:
(a) be a non-qualified grantor trust which satisfies in all material respects the requirement of Revenue Procedure 92-64, 1992-2 CB 122 (or any successor Revenue Procedure or other applicable authority);
(b) become irrevocable upon change of Control (to the extent not then irrevocable); and
(c) provide that any successor trustee shall be a bank trust department or other party that may be granted corporate trustee powers under state law.
APPENDIX B
MEASUREMENT FUNDS
Measurement Funds (and their underlying benchmark mutual funds) are listed below in alphabetical order:
- BALANCED FUND
Fidelity Puritan Fund
The objective of this balanced mutual fund is to obtain income and capital growth consistent with reasonable risk.
This fund invests approximately 60% of its assets in stocks and other equity securities and the remainder in investment grade bonds and other investment grade debt securities, including medium and high quality debt securities. The fund will invest at least 25% of total assets in fixed-income senior securities (including debt securities and preferred stock). The fund may invest in domestic and foreign issuers.
- BLUE CHIP GROWTH FUND
Fidelity Blue Chip Growth Fund
The objective of this growth mutual fund is to increase the value of investments over the long term through capital growth.
The fund invests primarily in common stocks of well-known and established companies. Normally at least 65% of the fund's total assets are invested in blue chip companies. The fund may also invest in companies with above-average growth potential that the fund's manager believes are positioned to become the blue chips of the future.
- CAPITAL & INCOME FUND
Fidelity Capital & Income Fund
The objective of this income mutual fund is to obtain a combination of current income and capital growth.
This fund invests in equity and debt securities, including defaulted securities, with an emphasis on lower-quality debt securities. The fund may also invest in securities of domestic and foreign issuers. This fund carries a "short-term trading fee" which is charged to discourage short-term buying and selling of fund shares. If shares are sold after being held for less than 365 days, the fund will deduct a short-term trading fee equal to 1.5% of the value of the shares sold.
- DIVERSIFIED INTERNATIONAL FUND
Fidelity Diversified International Fund
The objective of this growth mutual fund, which invests overseas, is to increase the value of investments over the long term through capital growth.
This fund normally invests at least 65% of total assets in foreign securities. In selecting securities the fund employs computer-aided quantitative analysis supported by fundamental research. This fund will carry a "short-term trading fee" which will be charged to discourage short-term buying and selling of fund shares. If shares are sold after being held for less than 30 days, the fund will deduct a short-term trading fee from your account equal to 1.0% of the value of the shares sold.
- EQUITY INCOME FUND
Fidelity Equity Income Fund
The objective of this growth and income mutual fund is to obtain reasonable income to while considering the potential for capital appreciation. It seeks to provide a yield that exceeds the yield of the securities in the Standard & Poors 500 Index.
The fund normally invests at least 65% of total assets in income-producing equity securities, which tend to lead to investments in large cap stocks. The fund potentially invests in other types of equity and debt securities, including lower-quality debt securities. The fund may invest in securities of domestic and foreign issuers.
- FIDELITY FUND
Fidelity Fund
This growth and income mutual fund strives to obtain long-term capital growth.
The fund invests primarily in common stocks. It potentially invests a portion of its assets in bonds, including lower-quality debt securities. The fund invests in domestic and foreign issuers.
- INVESTMENT GRADE BOND FUND
Fidelity Investment Grade Bond Fund
The objective of this income mutual fund is to obtain high current income.
This fund normally invests in U.S. dollar-denominated investment-grade bonds (those of medium and high quality). The fund is managed to have similar overall interest rate risk to the Lehman
Brothers Aggregate Bond Index. Assets are allocated across different market sectors and maturities.
- MARKET INDEX FUND
Spartan(R) 500Market Index Fund
This mutual fund seeks to obtain investment results that correspond to the total return (i.e. the combination of capital changes and income) of common stocks publicly traded in the United States, as represented by the Standard & Poors 500 Index (S&P 500(R)), while keeping transaction costs and other expenses low.
The fund normally invests at least 80% of its assets in common stock included in the S&P 500. The fund may lend securities to earn income for the fund. This fund carries a "short-term trading fee" which is charged to discourage short-term buying and selling of fund shares. If shares are sold after being held for less than 90 days, the fund will deduct a short-term trading fee from your account equal to 0.50% of the value of the shares sold.
- MID-CAP STOCK FUND
Fidelity Mid-Cap Stock Fund
The objective of this growth mutual fund is to increase the value of investments over the long term through capital growth.
The fund normally invests at least 65% of total assets in common stocks of companies with medium market capitalizations (those with market capitalizations similar to companies in the S&P MidCap 400). The fund may invest in companies with smaller or larger market capitalizations. The fund may also invest in domestic and foreign issuers.
- SMALL CAP FUND
Fidelity Small Cap Selector
This mutual fund seeks to obtain capital appreciation.
This fund normally invests at least 65% of total assets in securities of companies with small market capitalizations (those with market capitalizations similar to companies in the Russell 2000(R) Index). The fund will primarily invest in common stock. The fund may also invest in domestic and foreign issuers. This fund carries a "short-term trading fee" which is charged to discourage short-term buying and selling of fund shares. If shares are sold after being held for less than 90 days, the fund will deduct a short-term trading fee from your account equal to 1.5% of the value of the shares sold.
- US GOVT. MONEY MARKET FUND
Spartan US Government Money Market Fund
The objective of this fund is to obtain as high a level of current income as is consistent with preservation of capital and liquidity.
This fund invests in U.S. Government securities and repurchase agreements for those securities, and enters reverse repurchase agreements. The fund invests in compliance with industry-standard requirements for money market funds for the quality, maturity and diversification of investments.
EXHIBIT 10-g-1
ROCKWELL COLLINS
NON-QUALIFIED SAVINGS PLAN
This Plan is a continuation of the Rockwell International Corporation Non-Qualified Savings Plan. Effective as of June 29, 2001, Rockwell Collins, Inc. assumed such plan and all liabilities thereunder with respect to the Rockwell Collins Participants (as defined in the Employee Matters Agreement) and such plan has been renamed as the Rockwell Collins Non-Qualified Savings Plan.
ARTICLE I
DEFINITIONS
1.010 ACCOUNT means the account or accounts established for a Participant pursuant to Article II hereof.
1.020 AFFILIATE means:
(a)any corporation incorporated under the laws of one of the United States of America of which the Company owns, directly or indirectly, eighty percent (80%) or more of the combined voting power of all classes of stock or eighty percent (80%) or more of the total value of the shares of all classes of stock (all within the meaning of Code Section 1563);
(b)any partnership or other business entity organized under such laws, of which the Company owns, directly or indirectly, eighty percent (80%) or more of the voting power or eighty percent (80%) or more of the total value (all within the meaning of Code Section 414(c)); and
(c)any other company deemed to be an Affiliate by the Board of Directors.
1.030 ANNUAL ADDITION LIMITATION means the limitation on the annual additions to
the account of a participant in the Qualified Savings Plan imposed by
Section 415(c) of the Code.
1.040 BASE COMPENSATION means Base Compensation, as that term is defined in the Qualified Savings Plan.
1.050 BASE COMPENSATION DEFERRAL means the difference between:
(a)the amount which, but for application of the Compensation Limit or the Annual Addition Limitation, a Participant would have contributed as a Participant Contribution to the Qualified Savings Plan with respect to each payroll period, pursuant to his then existing election under that Plan; and
(b)the Participant's actual Participant Contribution to the Qualified Savings Plan with respect to such payroll period as a result of imposition of the Compensation Limit or the Annual Addition Limitation.
1.060 BOARD OF DIRECTORS means the Company's Board of Directors.
1.070 CHANGE OF CONTROL means any of the following occurring at any time after June 29, 2001:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (1) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following acquisitions
shall not constitute a Change of Control: (w) any acquisition directly from the
Company, (x) any acquisition by the Company, (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company, Rockwell
or any corporation controlled by the Company or Rockwell or (z) any acquisition
pursuant to a transaction which complies with clauses (1), (2) and (3) of
subsection (c) of this Section 1.070; or
(b) Individuals who, as of June 29, 2001, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to that date whose election, or nomination for election by the Company's shareowners, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or
(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a "Company Transaction"), in each case, unless, following such Company Transaction, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Company Transaction beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Company Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Company Transaction of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (2) no Person (excluding any employee benefit plan (or related trust) of the Company, of Rockwell or of such corporation resulting from such Company Transaction) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Company Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Company Transaction and (3) at least a majority of the members of the board of directors of the corporation resulting from such Company Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Company Transaction; or
(d) Approval by the Company's shareowners of a complete liquidation or dissolution of the Company.
1.080 CODE means the Internal Revenue Code of 1986, as amended.
1.090 COMMITTEE means the Compensation and Management Development Committee of the Board of Directors.
1.100 COMPANY means Rockwell Collins, Inc., a Delaware corporation, and its predecessor, Rockwell International Corporation.
1.110 COMPENSATION LIMIT means the limitation imposed by Section 401(a)(17) of the Code on the amount of Base Compensation which can be considered in determining the amount of an individual's Participant Contributions to the Qualified Savings Plan.
1.120 EMPLOYEE means any person who is employed by the Company or by an Affiliate, including, to the extent permitted by Section 406 of the Code, any United States citizen regularly employed by a foreign Affiliate of the Company.
1.130 EMPLOYEE MATTERS AGREEMENT means the Employee Matters Agreement dated as of June 29, 2001 by and among Rockwell International Corporation, New Rockwell Collins, Inc. and Rockwell Scientific Company LLC.
1.140 ERISA means the Employee Retirement Income Security Act of 1974, as amended.
1.150 MATCHING CREDIT means an amount to be credited to the Plan by the Company, which shall be equal to the applicable Matching Company Contribution percentage applied to a Participant's Participant Contribution under the Qualified Savings Plan.
1.160 PARTICIPANT means any (a) Rockwell Collins Participant (as defined in the Employee Matters Agreement) on whose behalf account balances were retained under this Plan effective as of June 29, 2001 and (b) individual who is a participant in the Qualified Savings Plan and whose Participant Contributions to that Plan are restricted by the Compensation Limit or the Annual Addition Limitation and who has elected in the Plan Year immediately preceding the current Plan Year to have one or more Base Compensation Deferrals credited to his Account pursuant to
Article II; provided, however, that in the case of this Plan's initial Plan Year, such election shall be made prior to the pay period in which such a restriction comes into effect. Notwithstanding any other provision of this Plan or the Qualified Savings Plan to the contrary, no Employee or any other person, individual or entity shall become a Participant in this Plan on or after the day on which a Change of Control occurs.
1.170 PLAN means this Rockwell Collins Non-Qualified Savings Plan and its predecessor, the Rockwell International Corporation Non-Qualified Savings Plan.
1.180 PLAN ADMINISTRATOR means the person from time to time so designated by name or corporate office by the Board of Directors.
1.190 PLAN YEAR means each twelve-month period ending on the last day of September.
1.200 QUALIFIED SAVINGS PLAN means the Rockwell Collins Salaried Savings Plan.
1.210 SECURITIES EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
1.220 SUB-ACCOUNT refers to one of this Plan's investment vehicles (corresponding to the Qualified Savings Plan Investment Funds) to which a Participant's Base Compensation Deferrals and the Company's Matching Credits are assigned.
1.230 THIRD-PARTY ADMINISTRATOR means an independent third party selected by the Trustee and approved by the individual who, immediately prior to a Change of Control, was the Company's Chief Executive Officer or, if not so identified, the Company's highest ranking officer (the "Ex-CEO").
1.240 TRUST means the master trust established by agreement between the Company and the Trustee, which trust will be a grantor trust.
1.250 TRUSTEE means Wells Fargo Bank, N.A., or any successor trustee of the Trust described in Section 1.240 of this Plan.
Terms which are not otherwise defined in this Article I shall have the meanings set forth in the Qualified Savings Plan document.
ARTICLE II
CREDITING, VALUATION AND DISTRIBUTION OF ACCOUNTS
2.010 The Company will establish on its books a Non-Qualified Savings Plan Account for each Participant who elects a Base Compensation Deferral.
(a)The amount of such Base Compensation Deferral shall be credited to such Account and allocated to one or more of this Plan's Sub-Accounts in the manner set forth in this Section.
(1) Each such credit shall be made to such Account no later than the date on which the corresponding contribution to the Qualified Savings Plan is made or would have been made, but for imposition of the Compensation Limit or the Annual Addition Limitation; provided, however, that any such credits made as a result of any retroactive amendment to the Plan shall be made upon adoption thereof, but in amounts which reflect the value such credits would have had if that amendment had been in effect on its effective date and such contributions had been made on the respective dates of the corresponding contributions to the Qualified Savings Plan.
(2) The Base Compensation Deferral shall, in increments of one percent (1%) and with the total of the percentage increments equaling one hundred percent (100%), be allocated to the Sub-Account or Sub-Accounts under this Plan pursuant to separate Participant elections made in a method identical to the method in which the Participant's elections are made among Investment Funds under the Qualified Savings Plan.
(3) A Participant may change any previous election he has made regarding investment of his Base Compensation Deferrals under this Plan in the same manner as he may change his previous elections regarding investment of his Participant Contributions in the Qualified Savings Plan.
(b)At the time each Base Compensation Deferral is credited to a Participant's Account, a Matching Credit shall also be made to such Account. Such Matching Credit shall be allocated to the Sub-Accounts under this Plan in the same manner in which Matching Contributions are allocated under the Qualified Savings Plan.
2.020 With respect to Base Compensation Deferrals:
(a)A Participant may elect to make the Sub-Account transfers in the same manner as is described in the Qualified Savings Plan and, in such case, the value of the Participant's interest in the Sub-Accounts hereunder shall be similarly transferred (in one percent (1%) increments) to one or more of the other Sub-Accounts.
(b)A Participant who has attained age fifty-nine and one-half (59-1/2) may elect to make a transfer of his interest in his Stock Fund A Sub-Account to one or more of the other Sub-Accounts. If, as a result of such an election, one hundred percent (100%) of the Participant's interest in his Stock Fund A Sub-Account has been transferred to other Sub-Accounts, all subsequent Matching Credits, if any, hereunder after the effective date of his election shall allocated in the same manner as are the investments under Section 2.010(a). If less than one hundred percent (100%) of the Participant's interest in the Stock Fund A Sub-Account has been so transferred, such Matching Credits shall continue to be made in the manner described in Section 2.010(b).
2.030 Each of a Participant's Sub-Accounts shall be accounted for in the manner and valued at the times and pursuant to the method provided in the Qualified Savings Plan for the Qualified Savings Plan Investment Fund corresponding to such Sub-Account. A Participant's rights in and
to his Sub-Accounts shall be governed by the provisions of the Qualified Savings Plan which are applicable to the Investment Fund corresponding to such Sub-Account.
2.040 The distribution and withdrawal provisions of the Qualified Savings Plan shall have no application to this Plan. Distribution to a Participant of his Sub-Accounts hereunder shall only be made upon the Participant's termination of employment or retirement. All such distributions to Participants, as well as distributions made to beneficiaries here under, shall be made in the form of lump sum payments, subject to the following:
(a)A Participant may make a one-time, irrevocable election to have the value of such interest paid in no more than ten (10) annual installments, such installments to be equal to the value of the Participant's Sub-Accounts divided by the number of installments remaining at the time of distribution; provided, however, that such election must be made by the Participant at least one (1) year prior to the Participant's retirement or termination of employment.
(b)As of the date of the commencement of installment payments described above, all amounts in the Participant's Stock Fund A and Stock Fund B Sub-Accounts shall be transferred to such Sub-Account as the Participant shall duly elect prior to that date. Following such transfer, no portion of the Participant's interest in the Plan may be transferred into the Stock Fund A and B Sub-Accounts.
2.050 A Participant or beneficiary who is currently receiving installment payments from this Plan may elect to have his interest in and to Sub-Accounts hereunder paid in a lump sum, in the event of the occurrence of a Change of Control, subject to the following:
(a)To be effective, the election of a Participant or beneficiary pursuant to this Section must be made in writing and filed with the Committee prior to the occurrence of a Change of Control.
(b)Such election shall be revocable by the Participant or his beneficiary until such time as a Change of Control shall have occurred at which point the said election shall be irrevocable.
(c)Notwithstanding any provision of this Plan to the contrary, such election may only be made by a Participant or beneficiary of a Participant who first became eligible to participate in the Rockwell International Corporation Non-Qualified Savings Plan prior to June 29, 2001.
2.060 With respect to distributions which are payable to a Participant or, in the event of the Participant's death, to his beneficiary:
(a)Subject to subsection (c), lump sum payments shall be paid no later than within sixty (60) days following the close of the calendar year which includes the Participant's retirement, termination of employment or, if applicable, death.
(b)Subject to subsection (c), each annual installment payable shall be paid within sixty (60) days following the close of each calendar year during the payment period, commencing with the calendar year following the year which includes the Participant's retirement, termination of employment or, if applicable, death.
(c)Lump sum payments which are to be made on account of the occurrence of a Change of Control shall be made within forty-five (45) days following a Change of Control.
All distributions from the Stock Fund A and B Sub-Accounts, whether in the form of lump sum or installment payments, shall be made in cash.
2.070 A Participant shall have the right, at any time, to designate any person or persons as his beneficiary or beneficiaries (both principal as well as contingent) to whom distribution under this Plan shall be made in the event of his death prior to distribution of his Account. In the absence of such designation, the beneficiary designation filed by him under the Qualified Savings Plan shall be controlling, except that if the Participant has a spouse and his beneficiary designation under the Qualified Savings Plan specifies a beneficiary other than such spouse, such designation, to the extent permitted by applicable law, shall be effective under this Plan notwithstanding the fact that such spouse may not have consented to such designation as required by the Qualified Savings Plan.
2.080 Each Participant shall receive a statement of his Account at the times and in the form in which his Qualified Savings Plan statement is provided.
ARTICLE III
CLAIMS PROCEDURE
3.010 Any person claiming a right to participate in this Plan, claiming a benefit under this Plan or requesting information under this Plan shall present the claim or request in writing to the Committee, who shall respond in writing within ninety (90) days following his receipt of the request.
3.020 If the claim or request is denied, the written notice of denial shall state:
(a)the reasons for denial;
(b)a description of any additional material or information required and an explanation of why it is necessary; and
(c)an explanation of this Plan's claim review procedure.
3.030 Any person whose claim or request is denied may make a request for review by notice given in writing to the Committee.
3.040 A decision on a request for review shall normally be made within ninety
(90) days after the date of such request. If an extension of time is required
for a hearing or other special circumstances, the claimant shall be notified and
the time limit shall be extended by an additional
sixty (60) days from the date of such request. The decision shall be in writing and shall be final and binding on all parties concerned.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.010 The Board of Directors shall have the power to amend, suspend or terminate this Plan at any time, except that no such action shall adversely affect rights with respect to any Account without the consent of the person affected.
4.020 This Plan shall be interpreted and administered by the Committee; provided, that interpretations by the Plan Administrator of those provisions of the Qualified Savings Plan which are also applicable to this Plan shall be binding on the Committee.
Notwithstanding any other provision of this Plan to the contrary, upon and after the occurrence of a Change of Control, the Plan will be administered by the Third-Party Administrator. The Third-Party Administrator will have the discretionary power to determine all questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited, to Account balance determinations; provided, however, upon and after the occurrence of a Change of Control, such administrator will have no power to direct the investment of Plan or Trust assets or select any investment manager or custodial firm for the Plan or Trust.
Upon and after the occurrence of a Change of Control, the Company will be required to:
(a)pay all reasonable administrative expenses and fees of the Third-Party Administrator;
(b)indemnify the Third-Party Administrator against any costs, expenses and liabilities including, without limitation, attorney's fees and expenses arising in connection with the performance of such administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the said administrator or its employees or agents; and
(c)supply full and timely information to the Third-Party Administrator on all matters relating to the Plan, the Trust, the Participants and their beneficiaries, the Account balances of the Participants, the date of circumstances of the retirement, disability, death or termination of employment of the Participants, and such other pertinent information as the Third-Party Administrator may reasonably require.
(d)Upon and after a Change of Control, the Third-Party Administrator may not be terminated by the Company and may only be terminated (and a replacement appointed) by the Trustee, but only with the approval of the Ex-CEO (as defined in Section 1.230).
4.030 This Plan is an unfunded employee benefit plan primarily for providing
deferred compensation to an identified group of management or highly compensated
employees of the Company and is also an excess benefit plan (as defined by
Section 3(36) of ERISA). This Plan is
intended to be unfunded for tax purposes and for purposes of Title I of ERISA. Participants and their beneficiaries, estates, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of the Company or any of its Affiliates. Any and all of the assets of the Company and its Affiliates shall be, and remain, the general, unpledged, unrestricted assets of the Company and its Affiliates. The Company's and any Affiliate's sole obligation under this Plan shall be merely that of an unfunded and unsecured promise of the Company or such Affiliate to pay money in the future.
4.040 Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey, in advance of actual receipt, any interest in an Account. Each Account and all rights therein are and shall be nonassignable and nontransferable prior to actual distribution as provided by this Plan. Any such attempted assignment or transfer shall be ineffective with respect to the Company and with respect to any Affiliate, and the Company's and any Affiliate's sole obligation shall be to distribute Accounts to Participants, their beneficiaries or estates as appropriate. No part of any Account shall, prior to actual payment as provided by this Plan, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor shall any Account be transferable by operation of law in the event of a Participant's or any other persons bankruptcy or insolvency, except as otherwise required by law.
4.050 This Plan shall not be deemed to constitute a contract of employment between the Company or any of its Affiliates and any Participant, and no Participant, beneficiary or estate shall have any right or claim against the Company or any of its Affiliates under this Plan except as may otherwise be specifically provided in this Plan. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Company or any Affiliate or to interfere with the right of the Company or any Affiliate to discipline, discharge or change the status of a Participant at any time.
4.060 A Participant will cooperate with the Committee by furnishing any and all information requested by the Committee or its delegates in order to facilitate the distribution of his Accounts under this Plan and by taking such other action as may be reasonably requested by the Committee or its delegates.
4.070 Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the laws of the State of California. In the event that any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan, which shall be construed and enforced as if such illegal or invalid provision were not included in this Plan. The provisions of this Plan shall bind and obligate the Company and its Affiliates and their successors, including, but not limited to, any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of the Company or its Affiliates and the successors of any such company or other business entity.
4.080 The Company shall bear all expenses and costs in connection with the operation and administration of this Plan. The Company, its Affiliates, the Committee and any employee of the
Company or any of its Affiliates shall be fully protected in relying in good faith on the computations and reports made pursuant to or in connection with this Plan by the independent certified public accountants who audit the Company's accounts.
4.090 All words used in this Plan in the masculine gender shall be construed as if used in the feminine gender where appropriate. All words used in this Plan in the singular or plural shall be construed as if used in the plural or singular where appropriate.
ARTICLE V
TRUST
5.010 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust (which may be referred to herein as a "Rabbi Trust"). The Trust shall become irrevocable upon a Change of Control (to the extent not then irrevocable). After the Trust has become irrevocable with respect to the Plan, except as otherwise provided in Section 12 of the Trust, the Trust shall remain irrevocable with respect to the Plan until all the Account balances due under this Plan and all benefits and/or account balances due to the participants (and their beneficiaries) in any other plan covered by the Trust have been paid in full. Upon establishment of the Trust, the Company shall provide for funding of the Trust in accordance with the terms of the Trust.
5.020 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and any Participants Participation Agreement Form will govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust will govern the rights of the Company and its Affiliates, Participants and the creditors of the Company and its Affiliates to the assets transferred to the Trust. The Company and each of its Affiliates employing any Participant will at all times remain liable to carry out their obligations under the Plan.
5.030 DISTRIBUTIONS FROM THE TRUST. The Company's and each of its Affiliate's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution will reduce their obligations under this Plan.
5.040 RABBI TRUST. The Rabbi Trust shall:
(a)be a non-qualified grantor trust which satisfies in all material respects the requirement of Revenue Procedure 92-64, 1992-2 CB 122 (or any successor Revenue Procedure or other applicable authority);
(b)be irrevocable upon a Change of Control (to the extent not then irrevocable); and
(c)provide that any successor trustee shall be a bank trust department or other party that may be granted corporate trustee powers under state law.
EXHIBIT 10-h-1
ROCKWELL COLLINS
NON-QUALIFIED PENSION PLAN
This Plan is a continuation of the Rockwell International Corporation Non-Qualified Pension Plan. Effective as of June 29, 2001, Rockwell Collins, Inc. assumed such plan and all liabilities thereunder with respect to the Rockwell Collins Participants (as defined in the Employee Matters Agreement). Such plan has been renamed as the Rockwell Collins Non-Qualified Pension Plan.
ARTICLE I
DEFINITIONS
1.005 AFFILIATE means:
(a) any company incorporated under the laws of one of the United States of America of which the Company owns, directly or indirectly, eighty percent (80%) or more of the combined voting power of all classes of stock or eighty percent (80%) or more of the total value of the shares of all classes of stock (all within the meaning of Code Section 1563);
(b) any partnership or other business entity organized under such laws, of which the Company owns, directly or indirectly, eighty percent (80%) or more of the voting power or eighty percent (80%) or more of the total value (all within the meaning of Code Section 414(c)); and
(c) any other company deemed to be an Affiliate by the Board of Directors.
1.010 BENEFIT LIMITATION means the limitations on benefits payable from Defined Benefit Plans which are imposed by Section 415 of the Code.
1.020 BOARD OF DIRECTORS means the Company's Board of Directors.
1.030 CHANGE OF CONTROL means any of the following occurring at any time after June 29, 2001:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Securities ExCHange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (1) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following acquisitions
shall not constitute a Change of Control: (w) any acquisition directly from the
Company, (x) any acquisition by the Company, (y) any
acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, Rockwell or any corporation controlled by the Company or Rockwell or (z) any acquisition pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (c) of this Section 1.030; or
(b) Individuals who, as of June 29, 2001, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to that date whose election, or nomination for election by the Company's shareowners, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or
(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a "Company Transaction"), in each case, unless, following such Company Transaction, (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Company Transaction beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Company Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Company Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding any employee benefit plan (or related trust) of the Company, of Rockwell or of such corporation resulting from such Company Transaction) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Company Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Company Transaction and (3) at least a majority of the members of the board of directors of the corporation resulting from such Company Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Company Transaction; or
(d) Approval by the Company's shareowners of a complete liquidation or dissolution of the Company.
1.040 CODE means the Internal Revenue Code of 1986, as amended.
1.050 COMMITTEE means the Compensation and Management Development Committee of the Board of Directors.
1.060 COMPANY means Rockwell Collins, Inc., a Delaware corporation and its predecessor, Rockwell International Corporation.
1.070 COMPANY PENSION PLAN means the Rockwell Collins Pension Plan.
1.080 COMPENSATION LIMIT means the limitation imposed by Section 401(a)(17) of THe Code on the amount of compensation which can be considered in determining the amount of a participant's benefit under the Company Pension Plan.
1.090 DEFINED BENEFIT PLAN has the same meaning given that term in Section 3(35) of ERISA.
1.100 EMPLOYEE means any person who is employed by the Company or by an Affiliate, including, to the extent permitted by Section 406 of the Code, any UNIted States citizen regularly employed by a foreign Affiliate of the Company.
1.110 EMPLOYEE MATTERS AGREEMENT means the Employee Matters Agreement dated as of June 29, 2001 by and among Rockwell International Corporation, New Rockwell Collins, Inc. and Rockwell Scientific Company LLC.
1.120 ERISA means the Employee Retirement Income Security Act of 1974, as amended.
1.130 HIGHLY COMPENSATED EMPLOYEE means a participant in or retiree under the Company Pension Plan whose compensation would otherwise be considered under either such Plan in determining his benefits thereunder in excess of the Compensation Limit.
1.140 PARTICIPANT means any (a) Rockwell Collins Participant (as defined in the Employee Matters Agreement) on whose behalf accrued benefits were retained under this Plan effective as of June 29, 2001 and (b) any employee of Rockwell Collins, Inc. (or its Affiliates) who is a participant in the Company Pension Plan and whose benefits payable therefrom are restricted by the Benefit Limitation or the Compensation Limit. Notwithstanding any other provision of this Plan or the Company Pension Plan to the contrary, no Employee or any other person, individual or entity shall become a Participant in this Plan on or after the day on which a Change of Control occurs.
1.150 PLAN means this Rockwell Collins Non-Qualified Pension Plan and its predecessor, the Rockwell International Corporation Non-Qualified Pension Plan.
1.160 PLAN ADMINISTRATOR means the person from time to time so designated by name or corporate office by the Board of Directors.
1.170 SECURITIES EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
1.180 THIRD PARTY ADMINISTRATOR means an independent third party selected by the Trustee and approved by the individual who, immediately prior to a Change of Control, was the Company's
Chief Executive Officer or, if not so identified, the Company's highest ranking officer (the "Ex-CEO").
1.190 TRUST means the master trust established by agreement between the Company and the Trustee, which will be a grantor trust.
1.200 TRUSTEE means Wells Fargo Bank, N.A., or any successor trustee of the Trust described in Section 1.190 of this Plan.
ARTICLE II
DETERMINATION OF BENEFITS
2.010 This Plan has been established by the Company as a non-qualified pension plan for those employees of the Company and its Affiliates whose retirement benefits under the Company Pension Plan are, in the determination of those benefits, reduced by reason of application of the Compensation Limit and/or the Benefit Limitation.
2.020 If the monthly benefit for which a Participant would have been otherwise eligible at retirement under the Company Pension Plan is reduced because of application of the Compensation Limit or the Benefit Limitation, the Company will pay from its general assets or from the Trust, as the case maybe, to each Participant, or to the surviving spouse or joint annuitant of the Participant, a benefit which is equal to the amount of such reduction. For purposes of determining the benefit payable under this Plan, a Participant's Average Earnings, as otherwise defined in Section 1.140 of the Company Pension Plan shall mean the highest amount that can be determined by averaging the Participant's Earnings (as defined in the said Section) for any five (5) calendar years within the ten (10) calendar years (or lesser period, if applicable) of active employment which immediately precede the earliest of the dates on which the Participant retires, dies, his employment terminates or his approved absence for disability commences in accordance with Section 4.040 of the Company Pension Plan. In determining Average Annual Earnings (as defined in the Company Pension Plan), any calendar year in which the Participant has less than a full year of Credited Service (as defined in the Company Pension Plan) may be disregarded. In addition, in determining the benefit payable to a Participant under this Plan, amounts awarded to the Participant under the Company's incentive compensation plan (including both the amount of cash and the value of Employer stock awarded thereunder) will be included as compensation to be considered hereunder.
2.025 In the case of a Participant who first becomes an Employee on or after January 1, 1993 and, prior to his retirement from the Company, either:
(a) becomes a Company Officer, or
(b) is an employee who attains Salary Grade 21 or higher and is approved in writing by the Company's Chief Executive Officer (authority for which approval can be delegated by
him to the Company's Senior Vice President, Human Resources) for the enhanced benefit treatment set forth in this Section,
the monthly benefit payable to such Participant from this Plan shall be calculated pursuant to the same formula as is set forth in Section 5.010(a) of the Company Pension Plan for participants in that Plan who were first employed by the Company prior to January 1, 1993.
2.030 Subject to the provisions of Section 2.040, any benefit payable under this Plan shall be paid to or in respect of the Participant in the same manner and at the same times that benefits become payable under the Company Pension Plan.
2.040 A Participant (including, for purposes of this Section 2.040, a retiree who is currently receiving benefits under this Plan) or his surviving spouse or joint annuitant may elect to have the present value of the benefits due hereunder (such present value to be based upon the interest and mortality assumptions in effect for the Company Retirement Plan at the time of the Participant's retirement or death, as applicable) paid in a lump sum in the event of the occurrence of a Change of Control, subject to the following:
(a) To be effective, the election of a Participant or his surviving spouse or joint annuitant pursuant to this Section must be made in writing and filed with the Committee prior to the occurrence of a Change of Control.
(b) An election made hereunder shall be revocable by the Participant or his surviving spouse or joint annuitant until such time as a Change of Control shall have occurred at which point the said election shall be irrevocable.
(c) Lump sum payments to be made under this Section 2.040 to Participants
or, in the case of the Participant's death, to the Participant's
surviving spouse or joint annuitant shall be made within forty-five
(45) days following the Participant's retirement, termination of
employment or death; provided, however, that lump sum payments which
are to be made under this Section to Participants, surviving spouses or
joint annuitants who are currently receiving benefits at the time of a
Change of Control shall be made within forty-five (45) days following
the Change of Control.
Notwithstanding any provision of this Plan to the contrary, such election may only be made by a Participant or beneficiary of a Participant who first became eligible to participate in the Rockwell International Corporation Non-Qualified Pension Plan prior to June 29, 2001.
ARTICLE III
CLAIMS PROCEDURE
3.010 Any person claiming a right to participate in this Plan, claiming a benefit under this Plan or requesting information under this Plan shall present the claim or request in writing to the
Committee, who shall respond in writing within ninety (90) days following his receipt of the request.
3.020 If the claim or request is denied, the written notice of denial shall state:
(a) the reasons for denial;
(b) a description of any additional material or information required and an explanation of why it is necessary; and
(c) an explanation of this Plan's claim review procedure.
3.030 Any person whose claim or request is denied may make a request for review by notice given in writing to the Committee.
3.040 A decision on a request for review shall normally be made within ninety
(90) days after the date of such request. If an extension of time is required
for a hearing or other special circumstances, the claimant shall be notified and
the time limit shall be extended by an additional sixty (60) days from the date
of such request. The decision shall be in writing and shall be final and binding
on all parties concerned.
ARTICLE IV
AMENDMENT AND TERMINATION; MISCELLANEOUS PROVISIONS
4.010 The Board of Directors shall have the power to amend, suspend or terminate this Plan at any time, except that no such action shall adversely affect rights with respect to any benefit without the consent of the person affected.
4.020 This Plan shall be interpreted and administered by the Committee; provided, that interpretations by the Plan Administrator of those provisions of the Company Pension Plan which are also applicable to this Plan shall be binding on the Committee.
Notwithstanding any other provision of this Plan to the contrary, upon and after the occurrence of a Change of Control, the Plan will be administered by the Third-Party Administrator. The Third-Party Administrator will have the discretionary power to determine all questions arising in connection with the administration of the Plan and the interpretation of the Plan and Trust including, but not limited, to benefit entitlement determinations; provided, however, upon and after the occurrence of a Change of Control, such administrator will have no power to direct the investment of Plan or Trust assets or select any investment manager or custodial firm for the Plan or Trust.
Upon and after the occurrence of a Change of Control, the Company will be required to:
(a) pay all reasonable administrative expenses and fees of the Third-Party Administrator;
(b) indemnify the Third-Party Administrator against any costs, expenses and liabilities including, without limitation, attorney's fees and expenses arising in connection with the performance of such administrator hereunder, except with respect to matters resulting from the gross negligence or willful misconduct of the said administrator or its employees or agents; and
(c) supply full and timely information to the Third-Party Administrator on all matters relating to the Plan, the Trust, the Participants and any surviving spouses and contingent annuitants, the benefits of the Participants, the date of circumstances of the retirement, disability, death or termination of employment of the Participants, and such other pertinent information as the Third-Party Administrator may reasonably require.
(d) upon and after a Change of Control, the Third-Party Administrator may not be terminated by the Company and may only be terminated (and a replacement appointed) by the Trustee, but only with the approval of the Ex-CEO (as defined in Section 1.180).
4.030 This Plan is an unfunded employee benefit plan primarily for providing
deferred compensation to an identified group of management or highly compensated
employees of the Company and is also an excess benefit plan (as defined by
Section 3(36) of ERISA). This Plan is intended to be unfunded for tax purposes
and for purposes of Title I of ERISA. Participants and their beneficiaries,
estates, heirs, successors and assigns shall have no legal or equitable rights,
interest or claims in any property or assets of the Company or its Affiliates.
Any and all of the assets of the Company and its Affiliates shall be, and
remain, the general, unpledged, unrestricted assets of the Company and its
Affiliates. The Company's and any Affiliate's sole obligation under this Plan
shall be merely that of an unfunded and unsecured promise of the Company or such
Affiliate to pay money in the future.
4.040 Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey, in advance of actual receipt, any interest he may have hereunder. A Participant's rights to benefits described herein are and shall be nonassignable and nontransferable prior to actual distribution as provided by this Plan. Any such attempted assignment or transfer shall be ineffective with respect to the Company and with respect to any Affiliate, and the Company's and any Affiliate's sole obligation shall be to distribute benefits to Participants, their beneficiaries or estates as appropriate. No part of any Participant's benefits hereunder shall, prior to actual payment as provided by this Plan, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor shall any such benefits be transferable by operation of law in the event of a Participant's or any other persons bankruptcy or insolvency, except as otherwise required by law.
4.050 This Plan shall not be deemed to constitute a contract of employment between the Company or any of its Affiliates and any Participant, and no Participant, beneficiary or estate shall have any right or claim against the Company or any of its Affiliate under this Plan except as may otherwise be specifically provided in this Plan. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Company or any Affiliate or to interfere
with the right of the Company or any Affiliate to discipline, discharge or change the status of a Participant at any time.
4.060 A Participant will cooperate with the Committee by furnishing any and all information requested by the Committee or its delegates in order to facilitate proper administration (including distributions to and in respect of Participants) of this Plan and by taking such other action as may be reasonably requested by the Committee or its delegate.
4.070 Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the laws of the State of California. In the event that any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions of this Plan, which shall be construed and enforced as if such illegal or invalid provision were not included in this Plan. The provisions of this Plan shall bind and obligate the Company and its Affiliates and their successors, including, but not limited to, any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of the Company or its Affiliates and their successors of any such company or other business entity.
4.080 All words used in this Plan in the masculine gender shall be construed as if used in the feminine gender where appropriate. All words used in this Plan in the singular or plural shall be construed as if used in the plural or singular where appropriate.
ARTICLE V
TRUST
5.010 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust (which may be referred to herein as a "Rabbi Trust"). The Trust shall become irrevocable upon a Change of Control (to the extent not then irrevocable). After the Trust has become irrevocable with respect to the Plan, except as otherwise provided in Section 12 of the Trust, the Trust shall remain irrevocable with respect to the Plan until all benefits due under this Plan and benefits and account balances due to any participants and beneficiaries under any other plan covered by the Trust have been paid in full. Upon establishment of the Trust, the Company shall provide for funding of the Trust in accordance with the terms of the Trust.
5.020 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan and any Participant's Participation Agreement Form will govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust will govern the rights of the Company and its Affiliates, Participants and the creditors of the Company and its Affiliates to the assets transferred to the Trust. The Company and each of its Affiliates employing any Participant will at all times remain liable to carry out their obligations under the Plan.
5.030 DISTRIBUTIONS FROM THE TRUST. The Company's and each of its Affiliate's obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution will reduce their obligations under this Plan.
5.040 RABBI TRUST. The Rabbi Trust shall:
(a) be a non-qualified grantor trust which satisfies in all material respects the requirement of Revenue Procedure 92-64, 1992-2 CB 122 (or any successor Revenue Procedure or other applicable authority);
(b) be irrevocable upon a Change of Control (to the extent not then irrevocable); and
(c) provide that any successor trustee shall be a bank trust department or other party that may be granted corporate trustee powers under state law.
EXHIBIT 10-i-1
ROCKWELL COLLINS MASTER TRUST -
DEFERRED COMPENSATION AND
NON-QUALIFIED SAVINGS AND
NON-QUALIFIED PENSION PLANS
This AGREEMENT made this 15th day of June, 2001 between ROCKWELL INTERNATIONAL CORPORATION, a Delaware corporation ("Rockwell") and WELLS FARGO BANK, N.A., a national banking association (the "Trustee");
(a) WHEREAS, Rockwell has adopted certain deferred compensation and non-qualified savings and non-qualified retirement plans for the benefits of its employees and former employees and employees and former employees of certain of its affiliates, and their beneficiaries, including without limitation, plans maintained for Rockwell Collins Participants as defined in the Employee Matters Agreement (the "Employee Matters Agreement") to be entered into by and among Rockwell, New Rockwell Collins, Inc., a Delaware corporation to be renamed as Rockwell Collins, Inc. ("Rockwell Collins" or the "Company") (such plans for Rockwell Collins Participants are hereinafter referred to as the "Rockwell Collins Plans" or "Plans" and are listed in Annex A hereto);
(b) WHEREAS, by action of its Board of Directors on December 8, 2000, the Company approved in principal the transaction pursuant to which Rockwell would distribute its shareholders common stock of Rockwell Collins (such transaction is hereinafter referred to as the "Collins Spin-off");
(c) WHEREAS, pursuant to the Employee Matters Agreement to be entered into by and among Rockwell, Rockwell Collins and Rockwell Scientific Company LLC, Rockwell Collins has agreed to continue effective as of the Time of Distribution (as defined in such Employee Matters Agreement) the Rockwell Collins Plans;
(d) WHEREAS, Rockwell desires to establish a master trust (hereinafter called the "TRUST") to provide for the payment of benefits to participants and beneficiaries under the Rockwell Collins Plans and to provide that the Trust assets shall be held therein, subject to the claims of the Company's creditors in the event of the Company's Insolvency, as herein defined, until paid to participants in the respective Rockwell Collins Plans and their beneficiaries in such manner and at such times as specified in the respective Rockwell Collins Plans;
(e) WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement and that such Trust shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974;
(f) WHEREAS, it is the intention of Rockwell to contribute on behalf of Rockwell Collins to the Trust an initial amount as the Board of Directors of Rockwell shall determine in
respect of compensation deferred on behalf of the Rockwell Collins Participants (as defined in the Employee Matters Agreement) under the Rockwell Collins Deferred Compensation Plan (formerly known as the Rockwell International Corporation Deferred Compensation Plan) (and any earnings deemed credited thereon) for the period from and after June 1, 2000;
(g) WHEREAS, after the Time of Distribution, it is the intention of the Company to make monthly contributions to the Trust in an amount equal to the total compensation deferred on behalf of the Rockwell Collins Participants (and any other participants who are employees of the Company hired after the Time of Distribution) under the Rockwell Collins Deferred Compensation Plan (and any earnings deemed credited thereon) for the period beginning on June 1, 2000 and ending on the last day of the immediately preceding calendar month, less the fair market value of the assets held under such Trust in respect of such plan as of the last day of the immediately preceding calendar month; and
WHEREAS, conditioned upon the completion of the Collins Spin-Off, it is the intention of Rockwell that this Trust Agreement will be assumed by Rockwell Collins;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) Prior to the Time of Distribution, the Company shall deposit with the Trustee in trust an initial amount as the Board of Directors of Rockwell shall determine in respect of compensation deferred on behalf of the Rockwell Collins Participants under the Rockwell Collins Deferred Compensation Plan (and any earnings deemed credited thereon) for the period from and after June 1, 2000, which shall become the principal of the Trust to be held, administered and disposed of by the Trustee as provided in this Trust Agreement.
(b) Within three (3) business days after the end of each calendar month beginning on or after July 1, 2001, without need for any further action by the Board of Directors of the Company (the "Board"), the Company shall deposit with the Trustee in trust an amount equal to the total compensation deferred on behalf of the Rockwell Collins Participants (and any other participants who are employees of the Company hired after the Time of Distribution) under the Rockwell Collins Deferred Compensation Plan (and any earnings deemed credited thereon) for the period beginning on June 1, 2000 and ending on the last day of such calendar month less the fair market value of the assets held under the Trust in respect of such plan as of the last day of such calendar month.
(c) The Trust hereby established is revocable by Rockwell prior to the Time of Distribution and is revocable by the Company subsequent to the Time of Distribution; it shall become irrevocable upon a Change of Control, as defined herein.
(d) The Trust is intended to be a grantor trust, of which the Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter l, subtitle A of the Internal Revenue Code of 1986, as amended (the "CODE"), and shall be construed accordingly.
(e) The principal of the Trust, and any earnings thereon, shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against the Company. Any assets held by the Trust will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency (as defined in Section 3(a) herein).
(f) Upon a Change of Control (as defined in Section 13(d) herein), the Company shall, as soon as possible and without any further action by the Board, but in no event later than three (3) business days after such Change of Control, make an irrevocable contribution to the Trust in an amount equal to (1) the total amount of account balances, and benefits accrued and unpaid, as of the date of the Change of Control for each Plan participant or beneficiary under each Plan minus (2) the fair market value of the assets held under the Trust as of such date. Within one hundred and fifty (150) days after the last day of: (1) the calendar year in which such Change of Control occurs and (2) each calendar year thereafter, the Company shall contribute an additional amount to the Trust equal to (A) the total amount of account balances, and benefits accrued and unpaid, as of such last day of such calendar year for each Plan participant or beneficiary under each Plan minus (B) the fair market value of the assets held under the Trust as of such date. Notwithstanding any other provision of this Trust Agreement or any Plan to the contrary, upon a Change of Control no Plan other than a Plan listed on Appendix A on the day before the day on which the Change of Control occurs shall participate in or have any right under the Trust.
(g) Notwithstanding any provision of this Trust Agreement, the Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property, acceptable to the Trustee, in trust with the Trustee to augment the principal to be held, administered and disposed of by the Trustee as provided in this Trust Agreement. Neither the Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits.
Section 2. Payments to Plan Participants and Their Beneficiaries.
(a) The Company shall deliver to the Trustee a schedule (the "PAYMENT SCHEDULE") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to the Trustee for determining the amounts so payable, the form in which such amount is to be paid (as provided for or available under the respective Plan), and the time of commencement for payment of such amounts. Except as otherwise provided herein, the Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes (including without limitation any FICA and FUTA taxes) that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the respective Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by the Company. Within sixty (60) days after the end of each calendar year, the Company shall deliver an updated Payment Schedule as of the end of such calendar year. Within ten (10) days after the
Company determines that a Change of Control is imminent, the Company shall deliver an updated Payment Schedule as of the date such determination is made.
(b) The entitlement of a Plan participant or his or her beneficiaries to benefits under each Plan shall be determined by the Company or such party as it shall designate under such Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in such Plan.
(c) The Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the respective Plan. Notwithstanding any other provision of this Agreement to the contrary, prior to a Change of Control, any payments of account balances and benefits due under any Plan shall be paid from the general assets of the Company instead of from the Trust and the Trust shall reimburse the Company for such payments within thirty (30) days after the end of the month in which such payments are made. The Company shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of a Plan, the Company shall make the balance of each such payment as it falls due. The Trustee shall notify the Company when principal and earnings are not sufficient.
Section 3. The Trustee's Responsibility Regarding Payments to Trust Beneficiary When the Company is Insolvent.
(a) The Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. The Company shall be considered "Insolvent" for purposes of this Trust Agreement if:
(i) the Company is unable to pay its debts as they become due, or
(ii) the Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(i) The Board of Directors and the Chief Executive Officer of the Company shall have the duty to inform the Trustee in writing of the Company's Insolvency. If a person claiming to be a creditor of the Company alleges in writing to the Trustee that the Company has become Insolvent, the Trustee shall determine whether the Company is Insolvent and, pending such determination, the Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries.
(ii) Unless the Trustee has actual knowledge of the Company's Insolvency, or has received notice from the Company or a person claiming to be a creditor alleging that the Company is Insolvent, the Trustee shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such evidence concerning the Company's solvency as may be furnished to the Trustee, if that evidence provides the Trustee with a reasonable basis for making a determination concerning the Company's solvency.
(iii) If at any time the Trustee has determined that the Company is Insolvent, the Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of the Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to pursue their rights as general creditors of the Company with respect to benefits due under any Plan or otherwise.
(iv) The Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement, but only after the Trustee has determined that the Company is not Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to participants or their beneficiaries under each Plan under the terms of the respective Plan for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by the Company in lieu of the payments provided for hereunder during any such period of discontinuance.
Section 4. Payments to the Company. Except as provided in Section 2(c) or
Section 3 hereof, the Company shall have no right or power to direct the Trustee
to return to the Company or divert to others any of the Trust assets before all
payments of benefits have been made to Plan participants and their beneficiaries
pursuant to the terms of the respective Plan.
Section 5. Investment Authority:
(a) In the administration of the Trust, the Trustee shall have the following powers, all of which shall be exercised only in a fiduciary capacity:
(i) To hold and control the assets in the Trust;
(ii) To sell, exchange, assign, transfer, and convey any security or property held in the Trust, at public or private sale, at such time and price and upon such terms and conditions (including credit) as directed by the Investment Manager;
(iii) To invest and reinvest assets of the Trust (including
accumulated income) as directed by the Investment Manager (as defined in
(c) below);
(iv) To notify the Company with respect to any vote on any stock or securities held in the Trust;
(v) To consent to and participate in any plan for the liquidation, reorganization, consolidation, or merger of any corporation, any security of which is held in the Trust;
(vi) To sell or exercise any "rights" issued on any securities held in the Trust;
(vii) To cause all or any part of the assets of the Trust to be held in the name of the Trustee (which in such instance need not disclose its fiduciary capacity) or, as permitted by law, in the name of any nominee, and to acquire for the Trust any investment in bearer form, but the books and records of the Trust shall at all times show that all such investments are part of the Trust and the Trustee shall hold evidence of title to all such investments; and
(viii) To make such distributions to Participants (as such term is defined in the respective Plan) in accordance with the provisions of this Trust Agreement.
(b) In no event may the Trustee invest in securities (including stock or rights to acquire stock) or obligations issued by the Company, other than a de minimis amount held in common investment vehicles in which the Trustee invests. All rights associated with assets of the Trust shall be exercised by the Trustee or the person designated by the Trustee, and shall in no event be exercisable by or rest with Plan participants.
(c) From time to time the Company may appoint one or more investment managers who shall have investment management and control over all or a portion of the assets of the Trust ("Investment Managers"). Each Investment Manager shall be a (i) registered investment advisor under the Investment Advisors Act of 1940, (ii) bank, as defined in the Investment Advisors Act of 1940 or (iii) qualified insurance company under the laws of one state. The Company shall notify the Trustee of the appointment of the Investment Manager. In the event more than one Investment Manager is appointed, the Company shall determine which assets shall be subject to management and control by each Investment Manager and shall also determine the proportion in which funds withdrawn or disbursed shall be charged against the assets subject to each Investment Manager's management and control. As shall be provided in any contract between an Investment Manager and the Company, such Investment Manager shall hold a revocable proxy with respect to all securities which are held under the management of such Investment Manager pursuant to such contract and such Investment Manager shall report the voting of all securities subject to such proxy on an annual basis to the Company. In the event that the Company does not appoint an Investment Manager as provided in this Section 5(c), references in this Trust Agreement to "Investment Manager" shall mean the Company.
(d) Notwithstanding any other provision of this Agreement to the contrary, following a Change of Control, the Trustee shall have full discretionary powers to (i) appoint and remove Investment Managers, (ii) determine which assets shall be subject to management and control by each Investment Manager and (iii) determine the proportion in which funds withdrawn or disbursed shall be charged against the assets subject to each Investment Manager's management and control.
Section 6. Disposition of Income. During the term of this Trust, all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested.
Section 7. Accounting by the Trustee. The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within sixty (60) days following the close of each calendar year and within sixty (60) days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being show separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be.
Section 8. Responsibility of the Trustee.
(a) The Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that the Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by the Company which is contemplated by, and in conformity with, the terms of the respective Plan or this Trust and is given in writing by the Company. In the event of a dispute between the Company and a party, the Trustee may apply to a court of competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in connection with this Trust, the Company agrees to indemnify the Trustee against the Trustee's costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If the Company does not pay such costs, expenses and liabilities in a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel for the Company generally) with respect to any of its duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this Trust Agreement or to applicable law, the Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Code.
Section 9. Compensation and Expenses of the Trustee. All administrative and Trustee's fees and expenses shall be paid from the Trust. The Trustee shall have the right to require the Company to pay any administrative and Trustee's fees and expenses, to the extent assets are not sufficient to pay such fees and expenses from the Trust.
Section 10. Resignation and Removal of the Trustee.
(a) Prior to a Change of Control, the Trustee may resign at any time by written notice to the Company, which shall be effective sixty (60) days after receipt of such notice unless the Company and the Trustee agree otherwise.
(b) Prior to a Change of Control, the Trustee may be removed by the Company on thirty (30) days notice or upon shorter notice accepted by the Trustee.
(c) Notwithstanding any other provision of this Trust Agreement to the contrary, upon a Change of Control (as defined in Section 13(d) herein) the Trustee may not be removed by the Company for two (2) years after such Change of Control.
(d) Notwithstanding any other provision of this Trust Agreement to the contrary, if the Trustee resigns within two (2) years after a Change of Control (as defined in Section 13(d) herein) the Company shall apply to a court of competent jurisdiction for the appointment of a successor Trustee or for instructions.
(e) If the Trustee resigns or is removed more than two (2) years after a Change of Control (as defined in Section 13(d) herein), the Company shall appoint a successor Trustee in accordance with the provisions of Section 11(b) hereof prior to the effective date of the Trustee's resignation or removal.
(f) Upon resignation or removal of the Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within sixty (60) days after receipt of notice of resignation, removal or transfer, unless the Company extends the time limit.
(g) Except as otherwise provided in Sections 10(c) or (d) hereof, if Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 11 hereof, by the effective date of resignation or removal under paragraphs (a) or (b) of this section. If no such appointment has been made, the Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of the Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust.
Section 11. Appointment of Successor.
(a) If the Trustee resigns or is removed in accordance with Section 10(a) or (b) hereof, the Company may appoint any third party, such as a bank trust department or other party that may be granted corporate trustee powers under state law, as a successor to replace the Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the Company or the successor Trustee to evidence the transfer.
(b) If the Trustee resigns or is removed pursuant to the provisions of
Section 10(e) hereof, the Trustee shall appoint as a successor Trustee any third
party that is a bank trust department or other party that may be granted
corporate Trustee powers under state law. The appointment of a successor Trustee
shall be effective when accepted in writing by the new Trustee. The new Trustee
shall have all the rights and powers of the former Trustee, including ownership
rights in Trust assets. The former Trustee shall execute any instrument
necessary or reasonably requested by the successor Trustee to evidence the
transfer.
(c) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and the Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument executed by the Trustee and the Company. Notwithstanding the foregoing, no such amendment shall conflict with the terms of any Plan or shall make the Trust revocable after it has become irrevocable.
(b) This Trust Agreement may not be amended by the Company for two (2) years following a Change of Control, as defined in Section 13(d) herein.
(c) The Trust shall not terminate until the date on which Plan participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan. Upon termination of the Trust any assets remaining in the Trust shall be returned to the Company.
(d) Upon written approval of all participants or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, the Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be returned to the Company.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance with the laws of State of California.
(d) For purposes of this Trust Agreement, a Change of Control shall mean any of the following occurring at any time after the Time of Distribution:
(i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (1) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Company, (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, Rockwell or any corporation controlled by the Company or Rockwell or (z) any acquisition pursuant to a transaction which complies with clauses (w), (x) and (y) of subsection (iii) of this Section 13(d); or
(ii) Individuals who, as of the Time of Distribution, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to that date whose election, or nomination for election by the Company's shareowners, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or
(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a "Company Transaction"), in each case,
unless, following such Company Transaction, (w) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Company Transaction beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Company Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Company Transaction of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (x) no Person (excluding any employee benefit plan (or related trust) of the Company, of Rockwell or of such corporation resulting from such Company Transaction) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Company Transaction or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Company Transaction and (y) at least a majority of the members of the board of directors of the corporation resulting from such Company Transaction were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Company Transaction; or
(iv) Approval by the Company's shareowners of a complete liquidation or dissolution of the Company.
(e) This Trust Agreement shall be binding upon any successor to the Company and, upon a Change of Control, the term "the Company" shall be deemed to include any successor thereto.
(f) In the event of any inconsistency between this Trust Agreement and any Plan documents with respect to the duties and responsibilities of the Trustee, the Trust Agreement shall control.
Section 14. Effective Date.
The effective date of this Trust Agreement shall be June 15, 2001.
ROCKWELL INTERNATIONAL CORPORATION, WELLS FARGO BANK, N.A., the Company the Trustee By:___________________________ By:___________________________ Its:__________________________ Its:__________________________ |
APPENDIX A
1. Rockwell Collins Deferred Compensation Plan.
2. Rockwell Collins Non-Qualified Savings Plan.
3. Rockwell Collins Non-Qualified Retirement Plan.
EXHIBIT 10-o-2
Executives of the Company who are party to a Change of Control Agreement
1. C.M. Jones
2. B.M. Abzug
3. G.R. Chadick
4. R.M. Chiusano
5. L.A. Erickson
6. J.J. Gaspar
7. N.J. Keating
8. H.M. Reininga
9. W.J. Richter
Exhibit 12
ROCKWELL COLLINS, INC.
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in millions of dollars, except ratios)
Pro Forma
------------
Year Ended September 30, (1) Year Ended
---------------------------------------------------- September 30,
1997 1998 1999 2000 2001 2001(2)
-------- -------- -------- -------- -------- ------------
Earnings available for fixed charges:
Income before taxes and accounting change $ 220 $ 73 $ 437 $ 399 $ 224 $ 215
Add fixed charges included in earnings:
Total fixed charges 4 5 6 6 10 24
Less capitalized interest - - - - - -
-------- -------- -------- -------- -------- ------------
Total 4 5 6 6 10 24
Total earnings available for fixed charges $ 224 $ 78 $ 443 $ 405 $ 234 $ 239
======== ======== ======== ======== ======== ============
Fixed charges:
Interest expense $ - $ - $ - $ - $ 3 $ 17
Interest element of rentals 4 5 6 6 7 7
Capitalized interest - - - - - -
-------- -------- -------- -------- -------- ------------
Total fixed charges $ 4 $ 5 $ 6 $ 6 $ 10 $ 24
======== ======== ======== ======== ======== ============
Ratio of Earnings to Fixed Charges (3) 56.0 15.6 73.8 67.5 23.4 10.0
======== ======== ======== ======== ======== ============
|
(1) The financial information for all periods presented is based upon the financial statements included in this Annual Report on Form 10-K for the year ended September 30, 2001. This financial information should be read in conjunction with these documents. In connection with the Distribution, Rockwell transferred substantially all of the assets and liabilities associated with its former avionics and communications business to us. In addition, Rockwell transferred to us certain other assets and liabilities previously unrelated to the avionics and communications business, including certain assets and liabilities of Rockwell-sponsored employee benefit plans and a 50% ownership interest in Rockwell Scientific Company LLC. Financial information prior to the Distribution may not be indicative of what the financial position, results of operations and cash flows would have been if we had been a stand-alone, independent public company for all periods presented.
(2) Pro forma financial information is presented as if the Distribution occurred on October 1, 2000. Pro forma adjustments include interest expense on $300 million of commercial paper borrowings used to fund a pre-Distribution payment to Rockwell and income and costs related to employee benefit plan obligations related to active and former Rockwell employees not associated with the avionics and communications business that were assumed by us in connection with the Distribution.
(3) "Earnings" are defined as income before income taxes and accounting change, adjusted for income or loss attributable to minority interests in subsidiaries, undistributed earnings of less than majority owned subsidiaries, and fixed charges excluding capitalized interest. "Fixed Charges" are defined as interest on borrowings (whether expensed or capitalized) and that portion of rental expense applicable to interest. Our ratio of earnings to combined fixed charges and preferred stock dividends for the periods above are the same as our ratio of earnings to fixed charges because we had no shares of preferred stock outstanding for the periods presented and currently have no shares of preferred stock outstanding.
Exhibit 13
Portions of Rockwell Collins 2001 Annual
Report to Shareowners incorporated
by reference in our Form 10-K:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW AND OUTLOOK
Fiscal year 2001 has been both challenging and successful for Rockwell Collins. Our spin-off from Rockwell International Corporation (Rockwell) was completed in June and we have become an independent, publicly traded company that is focused on delivering aviation electronic and airborne and mobile communication solutions through our two businesses, Commercial Systems and Government Systems. Our sales increased 12 percent to a record $2.8 billion and we achieved segment operating margins of 17 percent. In addition, we acquired and successfully integrated Kaiser Aerospace and Electronics Corporation (Kaiser) into our Government Systems business.
Unfortunately, the terrorist attacks of September 11th have created a great deal of uncertainty for our business and the entire commercial aerospace industry. However, we acted quickly to address the impact of these events on our business. These actions included:
- A comprehensive restructuring plan, including a reduction in our workforce of approximately 2,800, or 16 percent of our employees, and closure or consolidation of several facilities. This plan is expected to be substantially completed by the end of the second quarter of 2002. In connection with this action, we recorded a restructuring charge of $34 million ($22 million after taxes, or 12 cents per share) in the fourth quarter of 2001.
- No salary increases for 2002, coupled with a significant reduction in management bonuses.
- A 25 percent reduction in planned capital expenditures in 2002.
- An evaluation of the carrying value of certain long-lived assets, principally those related to recent acquisitions of our in-flight entertainment product line. Due to a sharp and anticipated prolonged decline in discretionary spending by the airline industry, we recorded asset impairment charges of $149 million ($108 million after taxes, or 58 cents per share) in the fourth quarter of 2001.
Although these actions were difficult, they were necessary to provide for the long-term financial growth of our Company. Together, we believe that these actions will result in pre-tax savings of approximately $180 million in 2002 increasing to approximately $220 million in 2003 and will position us to maintain strong operating returns during this industry downturn.
Based upon the assumptions outlined below, we currently anticipate the following financial results for 2002:
- Revenues of approximately $2.5 billion. Our projection assumes a 20 percent revenue decline in our Commercial Systems business, offset somewhat by moderate growth in our Government Systems business. Our projection assumes new production by Boeing and Airbus of 650 aircraft in the aggregate. We expect the build rates of business and regional aircraft to decline approximately 10 percent, although our sales into the business and regional market are expected to remain about flat as a result of a favorable mix of aircraft where we have higher avionics content. Aftermarket revenues in our air transport product line are expected to decline approximately 25 percent, while the business and regional aftermarket is expected to remain flat. Revenues related to our in-flight entertainment product line are expected to decline approximately 40 percent. Our Government Systems business is expected to grow in the mid single digit range with significant growth in the military aircraft display marketplace and modest growth in global positioning system applications and data link products.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- Earnings per share of $1.15 to $1.25, after considering the effect of adopting new accounting standards under which goodwill and certain intangible assets will no longer be amortized. Our earnings per share estimate is based on our projected revenues, successful implementation of our restructuring plan, and a reduction in our effective income tax rate. We currently estimate that our recurring effective income tax rate will be reduced from 34 percent in 2001 to 33 percent in 2002 as a result of adopting the non-amortization provisions of these new accounting standards, and we see opportunities for further reductions in our effective income tax rate due to the implementation of certain tax planning strategies.
- Free cash flow of $200 to $250 million, excluding a nonrecurring pension contribution to be made as a result of the spin-off. We define free cash flow as cash provided by operating activities and proceeds from dispositions of property, reduced by capital expenditures. Our definition of free cash flow may be different from definitions used by other companies. This free cash flow projection is dependent upon meeting our earnings target, reducing capital expenditures, and maintaining our current levels of working capital.
- Company funded research and development as a percentage of sales will be about 10 percent, approximately the same percentage as in 2001. Despite the industry downturn, we remain committed to our research and development efforts and believe these investments will position us for future growth.
RESULTS OF OPERATIONS
The following management discussion and analysis is based upon both reported and pro forma financial results and should be read in conjunction with our consolidated financial statements and the notes thereto. Pro forma net income includes adjustments necessary to present our results of operations as if the spin-off transaction had occurred at the beginning of each of the years presented. These adjustments include (1) interest expense on $300 million of commercial paper borrowings used to fund the pre-distribution payment to Rockwell, and (2) income and costs related to employee benefit obligations, including pension and other retirement benefits, related to former employees of Rockwell that were not associated with our business, which were assumed by us in connection with the spin-off. The financial information for periods prior to the spin-off are not necessarily indicative of what our results of operations, financial condition, or cash flows would have been if we had been an independent public company during each of the periods presented.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table presents both reported and pro forma consolidated results of operations for the years ended September 30, 2001, 2000, and 1999 (in millions, except per share amounts):
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
REPORTED PRO FORMA
----------------------------- -----------------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ------- ------- -------
Sales ......................................... $ 2,820 $ 2,510 $ 2,438 $ 2,820 $ 2,510 $ 2,438
Costs and Expenses:
Cost of sales ............................... 2,108 1,845 1,782 2,108 1,845 1,782
Selling, general, and administrative expenses 351 274 278 351 274 278
Asset impairment charges .................... 149 -- -- 149 -- --
Interest expense ............................ 3 -- -- 17 20 17
(Earnings) losses from equity affiliates .... (1) 3 (11) (1) 3 (11)
Other income ................................ (14) (11) (48) (19) (13) (46)
------- ------- ------- ------- ------- -------
Total costs and expenses .................. 2,596 2,111 2,001 2,065 2,129 2,020
======= ======= ======= ======= ======= =======
Income before income taxes .................... 224 399 437 215 381 418
Income tax provision .......................... (85) (130) (146) (82) (124) (139)
------- ------- ------- ------- ------- -------
Net income .................................... $ 139 $ 269 $ 291 $ 133 $ 257 $ 279
======= ======= ======= ======= ======= =======
Earnings per share:
Basic ....................................... $ 0.73 $ 1.37 $ 1.46
======= ======= =======
Diluted ..................................... $ 0.72 $ 1.35 $ 1.43
======= ======= =======
Weighted average common shares:
Basic ....................................... 182.9 187.8 190.5
======= ======= =======
Diluted ..................................... 185.5 190.6 195.6
======= ======= =======
|
Consolidated Pro Forma Financial Results for 2001 Compared to 2000
Sales increased $310 million, or 12 percent, to $2,820 million in 2001 compared to sales of $2,510 million in 2000. This increase resulted primarily from our acquisitions of the Sony Trans Com in-flight entertainment business in the fourth quarter of 2000 and Kaiser in the first quarter of 2001. Excluding these acquisitions, sales in 2001 increased slightly to $2,517 million.
We generate revenues from the sale of end products, including spare parts, as well as from the sale of services. In 2001, our sales of services increased 8 percent to $257 million from $239 million in 2000. The increase resulted primarily from our continued focus on providing an expanded range of services and support, the acquisition of Sony Trans Com, and the increasing installed base of in-flight entertainment systems.
International sales, which include U.S. export sales, declined 7 percent to $948 million in 2001 compared to $1,015 million in 2000. The sales decline resulted primarily from lower sales of commercial avionics and in-flight entertainment equipment to Asian and European customers and the completion of certain European government mandated retrofit programs. This decline was partially offset by increased sales to a Canadian manufacturer of business and regional jets.
Cost of sales were $2,108 million in 2001, including $27 million of restructuring charges. Excluding restructuring charges, cost of sales of $2,081 million were 73.8 percent of sales in 2001, compared to $1,845 million, or 73.5 percent of sales in 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Selling, general and administrative costs were $351 million in 2001, including $7 million of restructuring charges and $7 million of additional provisions for bad debts as a result of increased collection risks associated with the commercial airline industry. Excluding these items, selling, general and administrative costs were $337 million, or 11.9 percent of sales in 2001, compared to $274 million, or 10.9 percent of sales in 2000. This increase was driven primarily by higher marketing costs of recently acquired businesses and expenses associated with the spin-off from Rockwell.
Interest expense of $17 million in 2001 is based upon pro forma interest expense for the first nine months of 2001 associated with the $300 million of short-term debt incurred to fund the pre-distribution payment to Rockwell in connection with the spin-off and actual interest expense for the last three months of 2001. Interest expense of $20 million in 2000 is entirely pro forma interest associated with the $300 million of short-term debt. The lower interest expense in 2001 is the result of lower interest rates as well as a reduction in our short-term debt during the last three months of 2001.
Other income includes royalty income, gains and losses on the sale of property and businesses, income and costs related to employee benefit obligations unrelated to the Rockwell Collins business that were assumed in connection with the spin-off, and other miscellaneous income and expenses. Other income increased to $19 million in 2001 from $13 million in 2000 primarily as a result of higher pension income associated with pension obligations assumed in connection with the spin-off.
Net income in 2001 was $133 million after giving effect to $183 million ($130 million after taxes) of restructuring and asset impairment charges. Excluding these items, net income in 2001 was $263 million compared to $257 million in 2000. Net income as a percentage of sales in 2001, excluding the restructuring and asset impairment charges, decreased to 9.3 percent from 10.2 percent in 2000. This decrease resulted from higher warranty and product development costs primarily related to our in-flight entertainment product line, higher purchase accounting amortization resulting from recent acquisitions, and a higher effective income tax rate.
Earnings per share in 2001 was $0.72 compared to $1.35 in 2000. Excluding the restructuring and asset impairment charges, earnings per share in 2001 was $1.42 compared to $1.35 in 2000. Earnings per share in 2001 reflect the benefits of lower shares outstanding.
On an as reported basis, net income for 2001 was $139 million after giving effect to $183 million ($130 million after taxes) of restructuring and asset impairment charges. Excluding these items, net income on an as reported basis was $269 million in 2001, equal to the $269 million of as reported net income in 2000. Net income on an as reported basis is higher than pro forma net income in both 2001 and 2000 due primarily to the absence of pro forma interest expense adjustments associated with the $300 million of short-term debt incurred to fund the pre-distribution payment to Rockwell in connection with the spin-off.
Consolidated Pro Forma Financial Results for 2000 Compared to 1999
Our sales increased $72 million, or 3 percent, to $2,510 million in 2000 compared to sales of $2,438 million in 1999. This increase reflected favorable conditions in our served commercial markets, the acquisition of the Sony Trans Com in-flight entertainment business in the fourth quarter of 2000, and modest growth in the defense electronics markets we address despite overall flat defense spending in 2000.
In 2000, our sales of services grew at a faster rate than sales of products resulting primarily from our continued focus on providing an expanded range of services and support, as well as strong conditions in the aftermarket resulting from increased worldwide airline passenger traffic and government mandated retrofit programs. Sales of services increased 17 percent in 2000 to $239 million compared to $205 million in 1999.
International sales in 2000 of $1,015 million were 19 percent higher than the $852 million of international sales in 1999. This sales growth resulted primarily from demand for in-flight entertainment equipment in Asia, strong sales volume to a Canadian manufacturer of business and regional jets, and higher service and support revenues worldwide. New market positions with foreign airlines as well as retrofits related to European government mandates also contributed to international sales growth during 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Selling, general, and administrative costs were $274 million, or 10.9 percent of sales, in 2000 compared to $278 million, or 11.4 percent of sales in 1999. This decrease reflects benefits from our Lean Electronics(SM) initiative, including implementation of our enterprise resource planning system, and from our company-wide shared services model.
Interest expense in 2000 and 1999 is a pro forma adjustment associated with $300 million of short-term debt incurred to fund the pre-distribution payment to Rockwell in connection with the spin-off. Interest expense was $20 million in 2000 and $17 million in 1999.
Other income in 2000 was $13 million compared to $46 million in 1999. Other income in 1999 included a $32 million gain on the sale of our railroad electronics business.
Net income was $257 million in 2000 compared to net income of $279 million in 1999. Net income in 1999 benefited from a $32 million gain ($20 million after taxes) on the sale of the railroad electronics business. Excluding the gain on the sale of the railroad electronics business, net income was $259 million in 1999. Net income as a percentage of sales was 10.2 percent in 2000 compared to 10.6 percent in 1999, excluding the gain on sale of the railroad electronics business.
Earnings per share was $1.35 in 2000 compared to $1.43 in 1999. Excluding the gain on the sale of the railroad electronics business, earnings per share was $1.33 in 1999. Earnings per share in 2000 reflect the benefits of lower shares outstanding.
On an as reported basis, net income was $269 million in 2000 compared to $291 million in 1999. Net income in 1999 benefited from a $32 million gain ($20 million after taxes) on the sale of the railroad electronics business. Excluding the gain on the sale of the railroad electronics business, net income on an as reported basis was $271 million in 1999. Net income on an as reported basis is higher than pro forma net income in both 2000 and 1999 due primarily to the absence of pro forma interest expense adjustments associated with the $300 million of short-term debt incurred to fund the pre-distribution payment to Rockwell in connection with the spin-off.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SEGMENT PERFORMANCE
The following table presents reported and pro forma segment sales and operating earnings information (in millions):
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
AS REPORTED PRO FORMA
----------------------------- -----------------------------
2001 2000 1999 2001 2000 1999
------- ------- ------- ------- ------- -------
SALES:
Commercial Systems ................... $ 1,696 $ 1,586 $ 1,546 $ 1,696 $ 1,586 $ 1,546
Government Systems ................... 1,124 924 892 1,124 924 892
------- ------- ------- ------- ------- -------
Total ......................... $ 2,820 $ 2,510 $ 2,438 $ 2,820 $ 2,510 $ 2,438
======= ======= ======= ======= ======= =======
SEGMENT OPERATING EARNINGS (1):
Commercial Systems ................... $ 292 $ 296 $ 285 $ 292 $ 296 $ 285
Government Systems ................... 187 144 139 187 144 139
------- ------- ------- ------- ------- -------
Total ......................... 479 440 424 479 440 424
Goodwill and purchase accounting items ... (39) (15) (10) (39) (15) (10)
Gain on disposition of a business ........ -- -- 32 -- -- 32
Interest expense ......................... (3) -- -- (17) (20) (17)
Earnings (losses) from equity affiliates . 1 (3) 11 1 (3) 11
Restructuring and asset impairment charges (183) -- -- (183) -- --
General corporate-net .................... (31) (23) (20) (26) (21) (22)
------- ------- ------- ------- ------- -------
Income before income taxes ............... 224 399 437 215 381 418
Income tax provision ..................... (85) (130) (146) (82) (124) (139)
------- ------- ------- ------- ------- -------
Net income ............................... $ 139 $ 269 $ 291 $ 133 $ 257 $ 279
======= ======= ======= ======= ======= =======
|
(1) Segment operating earnings, an internal performance measure, excludes unallocated general corporate expenses; incremental acquisition-related expenses resulting from purchase accounting adjustments such as goodwill and other intangible asset amortization, depreciation, inventory and purchased research and development charges; interest expense; gains and losses from the disposition of businesses; earnings and losses from enterprise-level equity affiliates; special charges related to comprehensive restructuring actions; and other special items as identified by management from time to time. Our definition of segment operating earnings may be different from definitions used by other companies.
Segment Pro Forma Financial Results for 2001 Compared to 2000
In 2001, Commercial Systems sales were $1,696 million, an increase of $110 million, or 7 percent, compared to $1,586 million of sales in 2000. Our Sony Trans Com acquisition contributed $96 million to the sales increase in 2001. Excluding this acquisition, sales in 2001 increased $14 million over the prior year. Sales of commercial avionics products were up 4 percent during this period resulting from continued demand in the air transport market and increased regional jet production but were partially offset by lower sales of wide-body in-flight entertainment products. Segment operating earnings for Commercial Systems were $292 million in 2001 compared with $296 million in 2000. Commercial Systems segment operating earnings as a percentage of sales in 2001 were 17.2 percent compared with 18.7 percent in 2000. This decrease was due to higher warranty and product development costs related primarily to our in-flight entertainment product line and higher provisions for bad debts as a result of increased collection risks associated with the commercial airline industry.
Government Systems reported sales of $1,124 million in 2001 compared with $924 million in 2000, an increase of $200 million or 22 percent. Kaiser, which was acquired in the first quarter of 2001, accounted for $207 million of sales in 2001. Excluding this acquisition, sales in 2001 were $7 million lower than in the prior year primarily due to the completion of the KC-135 flight deck retrofit program in early 2001, which was substantially offset by increased sales from global positioning system and data link related programs. Government Systems segment operating earnings were $187 million in 2001 compared with $144 million in the prior year. Segment operating earnings as a percentage of sales in 2001 increased to 16.6 percent from 15.6 percent in 2000. This increase was primarily due to the favorable resolution of a U.S. government contract matter.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Goodwill and purchase accounting items increased to $39 million in 2001 compared with $15 million in 2000. The increase was due primarily to higher goodwill and other intangible asset amortization resulting from our acquisitions of Sony Trans Com and Kaiser.
Restructuring and asset impairment charges relating to Commercial Systems and Government Systems were $177 million and $6 million, respectively, in 2001. General corporate-net increased to $26 million in 2001 compared with $21 million in 2000, primarily resulting from costs associated with the spin-off from Rockwell.
General corporate-net in 2001 includes an allocation from Rockwell for the first nine months of 2001 prior to the spin-off and three months of actual costs after the spin-off. General corporate-net also includes pension income related to pension obligations unrelated to our business that were assumed by us in connection with the spin-off.
Segment Pro Forma Financial Results for 2000 Compared to 1999
In 2000, Commercial Systems sales increased $40 million to $1,586 million from $1,546 million in 1999. This increase was driven primarily by market positions captured in the business and regional jet market, higher service and support revenues, and the acquisition of the Sony Trans Com in-flight entertainment business in the fourth quarter of 2000, which more than offset lower sales resulting from lower production in the large commercial aircraft market. Commercial Systems segment operating earnings in 2000 were $296 million, an increase of $11 million over 1999 segment operating earnings of $285 million. Commercial Systems segment operating earnings as a percentage of sales increased to 18.7 percent in 2000 compared to 18.4 percent in 1999, reflecting lower customer incentives, but were partially offset by research and development costs incurred in connection with our Integrated Information System (I2S) initiative.
Government Systems sales increased $32 million, or 4 percent, in 2000 to $924 million, while Government Systems segment operating earnings increased 4 percent to $144 million from $139 million in 1999. The increase in sales was primarily related to two flight deck retrofit programs for the C/KC-135 tanker aircraft as well as increased volume from the Sikorsky S-70 helicopter and ARC-210 Radio programs in 2000. Government Systems segment operating earnings as a percentage of sales were 15.6 percent in both 2000 and 1999.
Goodwill and purchase accounting items increased to $15 million in 2000 compared with $10 million in 1999, with the majority of the increase resulting from the acquisition of Sony Trans Com in 2000.
General corporate-net consists primarily of an allocation from Rockwell and pension income associated with pension obligations unrelated to our business assumed by us in connection with the spin-off. General corporate-net was $21 million in 2000 compared to $22 million in 1999.
RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
Restructuring
In September 2001, we announced a comprehensive restructuring plan to reduce our workforce and streamline certain operations. These actions were undertaken in response to the sharp and sudden decline in anticipated sales volumes in the commercial air transport market resulting from the September 11th terrorist attacks. The restructuring plan includes involuntary separations of approximately 2,800 employees, or 16 percent of our workforce. These employee separations are broad based and affect all business groups, with the largest number of reductions in the Commercial Systems business and organizations that support commercial product lines. Approximately 90 percent of these employee separations are expected to be completed by the end of the second quarter of 2002 with the remainder to be completed by the end of 2002. The restructuring plan also includes the consolidation of the in-flight entertainment business into one facility in Pomona, California; the closure of certain service centers, sales and other offices in California, Illinois, Australia, and Southeast Asia; and the consolidation of certain manufacturing operations. As a result of this plan, we recorded a restructuring charge of $34 million ($22 million after taxes, or 12 cents per share) in the fourth quarter of 2001. This charge is comprised of $28 million of employee separation costs and $6 million of other costs related to the closure or consolidation of facilities. No employees were terminated and no employee separation costs or facility exit costs were paid in 2001. We expect to fund the restructuring plan using cash generated by operations with payments expected to be substantially completed by the end of the second quarter of 2002.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Asset Impairment Charges
In connection with our assessment of the business impact of the unexpected decline in the commercial air transport market as a result of the September 11th terrorist attacks, we performed reviews of the carrying values of long-lived assets, including related goodwill, to be held and used that are associated with the Commercial Systems business and recorded a total of $149 million ($108 million after taxes, or 58 cents per share) of non-cash asset impairment charges in the fourth quarter of 2001, primarily related to our in-flight entertainment product line. These reviews were performed pursuant to the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
These reviews focused on the long-lived assets recorded in connection with the Sony Trans Com and Hughes-Avicom acquisitions, which now comprise the in-flight entertainment product line. Expenditures on in-flight entertainment equipment by commercial airlines are discretionary in nature and given the financial instability of the commercial airlines, demand is expected to fall significantly to levels below those required to sustain the asset base of this product line for the foreseeable future. As a result of our review, we recorded asset impairment charges of $136 million related to the goodwill, intangible assets, and property of the in-flight entertainment product line. In addition, we recorded $13 million of charges related to software license agreements used in certain other product lines serving the commercial air transport market. Sales of these products are expected to be adversely affected by the downturn in the commercial air transport market with technological obsolescence outpacing any expected recovery in demand.
INCOME TAXES
Our effective income tax rate was determined on a stand-alone basis and was 37.9 percent in 2001 including non-deductible goodwill write-offs associated with the asset impairment charges. Excluding the effects of the asset impairment charges, the effective income tax rate in 2001 was 34.1 percent, compared to 32.5 percent in 2000 and 33.5 percent in 1999. The increase in the effective income tax rate in 2001 is primarily due to non-deductible goodwill amortization resulting from the Kaiser acquisition.
FINANCIAL CONDITION
Cash provided by operations was $193 million in 2001, $281 million in 2000 and $203 million in 1999. Free cash flow was $83 million in 2001, $183 million in 2000 and $83 million in 1999. We define free cash flow, an internal performance measure, as cash provided by operating activities and proceeds from dispositions of property, reduced by capital expenditures. Our definition of free cash flow may be different from definitions used by other companies. Cash provided by operations and free cash flow were lower in 2001 primarily as a result of working capital growth in receivables and inventories. Receivables increased in 2001 primarily due to the timing of sales as we posted record sales in the fourth quarter of 2001. Inventories increased in 2001 as a result of higher sales volumes combined with the implementation of our enterprise resource planning system at our in-flight entertainment business. We believe that cash generated by operations will be sufficient to fund future working capital needs.
Capital expenditures were $110 million in 2001, $98 million in 2000, and $127 million in 1999. Significant expenditures over the last three years included an investment in our enterprise resource planning system. During 1999, we received $80 million from the sale of our railroad electronics business and $7 million from the sale of other property. We believe that cash generated by operations will be sufficient to fund future capital expenditures.
Cash investments for strategic acquisitions were $292 million in 2001, $123 million in 2000, and $56 million in 1999. Major acquisitions included the purchase of Kaiser in the first quarter of 2001, Sony Trans Com in 2000, and the remaining 50 percent interest in Flight Dynamics that we did not already own in 1999. We continuously evaluate acquisition opportunities and expect to continue to acquire businesses and capabilities as an integral component of our overall growth strategy. We expect to finance future acquisitions using cash generated from operations, issuance of debt, common stock or other securities, or a combination thereof.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
We have access to $1 billion of unsecured credit facilities with various banks. These credit facilities will be used for future working capital needs and other general corporate purposes as well as to support our commercial paper program. In connection with the spin-off, we issued $302 million of commercial paper which was used to fund the $300 million pre-distribution payment to Rockwell. At September 30, 2001, our commercial paper borrowings outstanding decreased to $202 million as a result of strong free cash flow in the fourth quarter of 2001. The Company's debt-to-total capital ratio on September 30, 2001 was 15 percent.
In November 2001, we filed a shelf registration statement with the Securities and Exchange Commission covering up to $750 million in debt securities, common stock, preferred stock or warrants that may be offered in one or more offerings on terms to be determined at the time of sale. Net proceeds of any offering will be used for general corporate purposes, with possible uses including repayment of existing indebtedness, capital expenditures, acquisitions, and share repurchases.
We currently expect to make a tax-deductible cash contribution to our pension plan in order to satisfy certain U.S. government requirements resulting from the spin-off. The amount of the contribution is still being determined but is expected to be in the range of $35 million to $120 million. The contribution will be made no later than January 31, 2002 and will be funded using cash generated by operations.
We declared and paid cash dividends of nine cents per share, totaling $17 million, in the fourth quarter of 2001. We expect annual dividends to be $0.36 per share in 2002 and we expect to fund these dividends using cash generated by operations.
The downturn in the commercial air transport market, exacerbated by the terrorist attacks of September 11th, has adversely affected the financial condition of many of our commercial airline customers. Many of our customers have requested extended payment terms for future shipments and we have been reviewing and granting these requests on a case by case basis. We perform ongoing credit evaluations on the financial condition for all of our customers and maintain reserves for uncollectible accounts receivable based upon expected collectibility. Although we believe our reserves are adequate, we are not able to predict with certainty the changes in the financial stability of our customers. Any material change in the financial status of any one or group of customers could have a material adverse effect on our financial condition, results of operations, or cash flows. Extended payment terms granted to our customers may also negatively affect future cash flow.
ENVIRONMENTAL
Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes, and other activities affecting the environment have had and will continue to have an impact on our manufacturing operations. Thus far, compliance with environmental requirements and resolution of environmental claims have been accomplished without material effect on our liquidity and capital resources, competitive position or financial condition. Based upon our assessment, we believe expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on our business or financial condition. We cannot assess the possible effect of compliance with future requirements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141) and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 addresses financial accounting and reporting for business combinations and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. In addition, SFAS 141 further clarifies the criteria to recognize intangible assets separately from goodwill. SFAS 142 provides that goodwill and certain indefinite lived intangible assets will no longer be amortized but will be reviewed at least annually for impairment and written down and charged to income when their recorded value exceeds their estimated fair value. Separable intangible assets that do not have an indefinite life will continue to be amortized over their useful lives. We expect to adopt both SFAS 141 and SFAS 142 effective October 1, 2001. While the effect of adopting these standards is still being evaluated, we estimate that the effect of these new standards will be an increase to 2002 net income of approximately $9 million, or 5 cents per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143 is effective beginning in our fiscal year 2003 and requires recording of the fair value of liabilities associated with the retirement of long-lived assets in the period in which they are incurred. We do not expect the adoption of SFAS 143 to have a material effect on our results of operations or financial position.
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS 144). SFAS 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed of and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. SFAS 144 is effective beginning in our fiscal year 2003 and is not expected to materially change the methods used by us to measure impairment losses on long-lived assets, but may result in more matters being reported as discontinued operations than is permitted under current accounting principles.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk during the course of business from changes in interest rates and foreign currency exchange rates. The exposure to these risks is managed through a combination of normal operating and financial activities and in the case of risk associated with foreign currency exchange rates, derivative financial instruments in the form of foreign currency forward exchange contracts.
Interest Rate Risk
In addition to using cash provided by normal operating activities, we utilize short-term commercial paper borrowings to finance operations. At September 30, 2001, commercial paper outstanding was $202 million with a weighted average interest rate and maturity period of 3.5 percent and 44 days, respectively. Although the interest rates are fixed through the maturity date, we are exposed to interest rate risk upon maturity of this commercial paper as we will generally refinance all or a portion of this debt by issuing new commercial paper at market interest rates that may be higher or lower at that time. If market interest rates would have averaged 25 percent higher in either 2001 or 2000, the effects on pro forma results of operations would not have been material. Due to the short-term nature of commercial paper outstanding, the fair value of these obligations approximated carrying value at September 30, 2001.
Foreign Currency Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of our foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our objective is to minimize our exposure to these risks through a combination of normal operating activities (by requiring, where possible, export sales to be denominated in United States dollars) and utilizing foreign currency forward exchange contracts to manage our exposure on transactions denominated in currencies other than the applicable functional currency. In 2001, approximately 35 percent of our total sales consisted of sales outside of the United States, with less than 10 percent of total sales denominated in currencies other than the United States dollar. Foreign currency forward exchange contracts are executed with creditworthy banks and are denominated in currencies of major industrial countries. It is our policy not to enter into derivative financial instruments for speculative purposes. We do not hedge our exposure to the translation of reported results of our foreign subsidiaries from local currency to United States dollars.
At September 30, 2001 and 2000, we had outstanding foreign currency forward exchange contracts with notional amounts of $156 million and $140 million, respectively, primarily consisting of contracts to exchange the euro and pound sterling. Notional amounts are stated in the U.S. dollar equivalents at spot exchange rates at the respective dates. The use of these contracts allows us to manage transactional exposure to exchange rate fluctuations as the gains and losses incurred on the foreign currency forward exchange contracts will offset, in whole or in part, losses or gains on the underlying foreign currency exposure. The net liability at fair value of our foreign currency forward exchange contracts was $0 million and $1 million at September 30, 2001 and 2000, respectively. A hypothetical 10 percent adverse change in underlying foreign currency exchange rates associated with these contracts would not be material to our financial condition, results of operations, or cash flows.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
This Management's Discussion and Analysis, as well as other sections of this Annual Report to Shareowners, contains statements (including certain projections and business trends) accompanied by such phrases as "assumes", "anticipates", "believes", "expects", "estimates", "will" and other similar expressions, that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the impact of the terrorist attacks on September 11, 2001 and their aftermath; the timing related to restoring consumer confidence in air travel; the health of the commercial aerospace industry; domestic and foreign government spending, budgetary and trade policies; economic and political changes in international markets where the Company competes, such as changes in currency exchange rates, inflation rates, recession, foreign ownership restrictions and other external factors over which we have no control; demand for and market acceptance of new and existing products, including potential cancellation of orders by commercial customers; successful development of advanced technologies; competitive product and pricing pressures; and the uncertainties of litigation, as well as other risks and uncertainties, including but not limited to those set forth under "Certain Business Risks" and in other sections of our Annual Report on Form 10-K for the year ended September 30, 2001, as well as those detailed from time to time in our other Securities and Exchange Commission filings. These forward-looking statements are made only as of the date hereof.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of Rockwell Collins, Inc.
We have audited the accompanying consolidated statement of financial position of Rockwell Collins, Inc. and subsidiaries (formerly the avionics and communications business of Rockwell International Corporation - see Note 1) as of September 30, 2001 and 2000, and the related consolidated statements of operations, of cash flows, and of shareowners' equity and comprehensive income for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements were prepared to present the financial position and related results of operations and cash flows of Rockwell Collins, Inc., as described in Note 1 to the financial statements, and may not necessarily be indicative of the conditions that would have existed or the results of operations and cash flows if Rockwell Collins, Inc. had been operated as a stand-alone company during the periods presented.
In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Rockwell Collins, Inc. and subsidiaries as of September 30, 2001 and 2000, and the consolidated results of their operations and their cash flows for the each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
November 1, 2001
ROCKWELL COLLINS, INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30,
--------------------
2001 2000
------- -------
ASSETS
CURRENT ASSETS:
Cash ...................................................... $ 60 $ 20
Receivables ............................................... 628 495
Inventories ............................................... 738 640
Current deferred income taxes ............................. 189 133
Other current assets ...................................... 24 23
------- -------
Total current assets .............................. 1,639 1,311
PROPERTY ..................................................... 448 393
INTANGIBLE ASSETS ............................................ 285 148
OTHER ASSETS ................................................. 256 248
------- -------
TOTAL ASSETS ............................ $ 2,628 $ 2,100
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ........................................... $ 202 $ --
Accounts payable .......................................... 246 216
Compensation and benefits ................................. 231 204
Income taxes payable ...................................... 15 2
Product warranty costs .................................... 146 120
Other current liabilities ................................. 295 261
------- -------
Total current liabilities ......................... 1,135 803
------- -------
RETIREMENT BENEFITS .......................................... 341 363
OTHER LIABILITIES ............................................ 42 26
SHAREOWNERS' EQUITY:
Common stock ($0.01 par value; 1,000 shares authorized;
183.6 shares issued and outstanding) ................... 2 --
Additional paid-in capital ................................ 1,201 --
Retained deficit .......................................... (65) --
Accumulated other comprehensive loss ...................... (28) (29)
Rockwell International's net investment ................... -- 937
------- -------
Total shareowners' equity ......................... 1,110 908
------- -------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 2,628 $ 2,100
======= =======
|
See Notes to Consolidated Financial Statements.
ROCKWELL COLLINS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS)
YEAR ENDED SEPTEMBER 30,
---------------------------------------
2001 2000 1999
------- ------- -------
SALES ................................................... $ 2,820 $ 2,510 $ 2,438
COSTS AND EXPENSES:
Cost of sales (Note 16) .............................. 2,108 1,845 1,782
Selling, general and administrative expenses (Note 16) 351 274 278
Asset impairment charges (Note 16) ................... 149 -- --
Interest expense ..................................... 3 -- --
(Earnings) losses from equity affiliates ............. (1) 3 (11)
Other income ......................................... (14) (11) (48)
------- ------- -------
Total costs and expenses ........................... 2,596 2,111 2,001
------- ------- -------
INCOME BEFORE INCOME TAXES .............................. 224 399 437
Income tax provision .................................... 85 130 146
------- ------- -------
NET INCOME .............................................. $ 139 $ 269 $ 291
======= ======= =======
|
See Notes to Consolidated Financial Statements.
ROCKWELL COLLINS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
YEAR ENDED SEPTEMBER 30,
---------------------------------
2001 2000 1999
----- ----- -----
OPERATING ACTIVITIES:
Net income ............................................................. $ 139 $ 269 $ 291
Adjustments to arrive at cash provided by operating activities:
Depreciation ........................................................ 91 83 74
Amortization of intangible assets ................................... 40 16 12
Deferred income taxes ............................................... (26) 24 16
Gain on disposition of business (Note 17) ........................... -- -- (32)
Asset impairment charges (Note 16) .................................. 149 -- --
Changes in assets and liabilities, excluding effects of acquisitions,
divestitures, and foreign currency adjustments:
Receivables ..................................................... (104) 34 (80)
Inventories ..................................................... (49) 17 (44)
Accounts payable ................................................ 19 (46) 6
Income taxes payable ............................................ 8 (2) 4
Compensation and benefits ....................................... 9 (16) 12
Other assets and liabilities .................................... (83) (98) (56)
----- ----- -----
CASH PROVIDED BY OPERATING ACTIVITIES ......................... 193 281 203
----- ----- -----
INVESTING ACTIVITIES:
Property additions ..................................................... (110) (98) (127)
Acquisitions of businesses, net of cash acquired ....................... (292) (123) (56)
Investment in affiliates ............................................... (3) -- --
Proceeds from the dispositions of property and businesses .............. -- -- 87
----- ----- -----
CASH USED FOR INVESTING ACTIVITIES ............................ (405) (221) (96)
----- ----- -----
FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings ........................... 202 -- (14)
Cash dividends ......................................................... (17) -- --
Pre-Distribution payment to Rockwell International ..................... (300) -- --
Net transfers from (to) Rockwell International ......................... 366 (52) (94)
----- ----- -----
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES .............. 251 (52) (108)
----- ----- -----
Effect of exchange rate changes on cash ................................ 1 (8) 1
----- ----- -----
NET CHANGE IN CASH ..................................................... 40 -- --
CASH AT BEGINNING OF YEAR .............................................. 20 20 20
----- ----- -----
CASH AT END OF YEAR .................................................... $ 60 $ 20 $ 20
===== ===== =====
|
See Notes to Consolidated Financial Statements.
ROCKWELL COLLINS, INC.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
AND COMPREHENSIVE INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED SEPTEMBER 30,
2001 2000 1999
------- ------- -------
COMMON STOCK
Beginning balance ..................................... $ -- $ -- $ --
Common stock issued in connection with the Distribution 2 -- --
------- ------- -------
Ending balance ........................................ 2 -- --
------- ------- -------
ADDITIONAL PAID-IN CAPITAL
Beginning balance ..................................... -- -- --
Common stock issued in connection with the Distribution 1,188 -- --
Other Distribution adjustments ........................ 13 -- --
------- ------- -------
Ending balance ........................................ 1,201 -- --
------- ------- -------
RETAINED DEFICIT
Beginning balance ..................................... -- -- --
Net loss after the Distribution ....................... (48) -- --
Cash dividends (per share: $0.09) ..................... (17) -- --
------- ------- -------
Ending balance ........................................ (65) -- --
------- ------- -------
ACCUMULATED OTHER COMPREHENSIVE LOSS
Beginning balance ..................................... (29) (25) (20)
Currency translation gain (loss) ...................... 3 (8) (2)
Minimum pension liability adjustment .................. (2) 4 (3)
------- ------- -------
Ending balance ........................................ (28) (29) (25)
------- ------- -------
ROCKWELL INTERNATIONAL'S NET INVESTMENT
Beginning balance ..................................... 937 720 523
Net income prior to the Distribution .................. 187 269 291
Net transfers from (to) Rockwell International ........ 366 (52) (94)
Pre-Distribution payment to Rockwell International .... (300) -- --
Common stock issued in connection with the Distribution (1,190) -- --
------- ------- -------
Ending balance ........................................ -- 937 720
------- ------- -------
TOTAL SHAREOWNERS' EQUITY ............................. $ 1,110 $ 908 $ 695
======= ======= =======
COMPREHENSIVE INCOME
Net income ............................................ $ 139 $ 269 $ 291
Other comprehensive income (loss) ..................... 1 (4) (5)
------- ------- -------
Comprehensive income .................................. $ 140 $ 265 $ 286
======= ======= =======
|
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On June 29, 2001, Rockwell Collins, Inc. (the Company or Rockwell Collins) became an independent, separately traded, publicly-held company when Rockwell International Corporation (Rockwell) spun off its former avionics and communications business (Avionics and Communications) and certain other assets and liabilities of Rockwell by means of a distribution (the Distribution) of all the outstanding shares of common stock of the Company to the shareowners of Rockwell in a tax-free spin-off. In the Distribution, each Rockwell shareowner received one share of the Company's common stock for each share of Rockwell common stock owned as of the close of business on June 15, 2001.
In connection with the Distribution, Rockwell transferred substantially all assets and liabilities associated with Avionics and Communications to the Company. In addition, Rockwell transferred to the Company certain other assets and liabilities previously unrelated to Avionics and Communications, including certain assets and liabilities of Rockwell-sponsored employee benefit plans and a 50 percent ownership interest in Rockwell Scientific Company LLC (formerly Rockwell Science Center). Accordingly, the Statement of Financial Position includes these assets and liabilities. Additionally, the Company retained cash balances of $20 million at the Distribution date and made a pre-Distribution payment of $300 million to Rockwell, which was funded through the issuance of commercial paper. The Statement of Operations includes the results of operations of Avionics and Communications, as operated by Rockwell prior to the Distribution, and the results of operations of Rockwell Collins, operated as an independent public company after the Distribution. The Company's 50 percent share of the earnings and losses of Rockwell Scientific Company LLC are included in the Statement of Operations for all periods presented. The financial statements for periods prior to the Distribution are not necessarily indicative of what the financial position, results of operations and cash flows would have been if Rockwell Collins had been an independent public company during such periods. Financial data included in the accompanying financial statements, for periods subsequent to the Distribution, have been prepared on a basis that reflects the historical assets, liabilities, and operations of the business contributed to the Company by Rockwell.
Prior to the Distribution, Rockwell provided certain services to the Company, including payroll and employee benefits administration, data processing, telecommunications services and procurement. Rockwell also administered programs in which Rockwell Collins' domestic operations participated, including medical and insurance programs. The cost to the Company for these services totaled $7 million, $11 million and $7 million for the years ended September 30, 2001, 2000 and 1999, respectively. In addition, Rockwell provided advanced research and development services to the Company through the Rockwell Scientific Company LLC. Costs for these services and programs were billed to the Company based on actual usage and are included in the Company's Statement of Operations. Management believes that the methods of determining these costs are reasonable and that the costs billed approximate those that would have been incurred on a stand-alone basis. The Rockwell Scientific Company LLC continues to provide advanced research and development services to the Company pursuant to a services agreement.
Prior to the Distribution, Rockwell also provided management services to the Company, including corporate oversight, financial, legal, tax, corporate communications, and human resources. The costs of providing these services have been allocated to the Company based on Rockwell Collins' sales in proportion to total Rockwell sales and are included in Selling, General and Administrative Expenses in the Statement of Operations. These costs totaled $20 million for the year ended September 30, 2001 and $25 million for each of the years ended September 30, 2000 and 1999. Management believes that the method of allocating these costs to the Company is reasonable and the amounts approximate the costs that would have been incurred by the Company on a stand-alone basis.
Prior to the Distribution, the Company's domestic and certain international operations participated in Rockwell's centralized cash management systems. Accordingly, the financial statements exclude cash (other than $20 million retained at the Distribution date), debt and interest income and expense for countries participating in the centralized cash management systems. Accounts Payable on September 30, 2000 includes $17 million related to checks drawn on domestic centralized disbursement and payroll accounts which remained outstanding on that date.
Certain prior year amounts have been reclassified to conform with the current year presentation.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries in which the Company has control. The Company's investments in non-controlled entities in which it has the ability to exercise significant influence over operating and financial policies, including the Rockwell Scientific Company LLC, are accounted for under the equity method. All significant intracompany transactions have been eliminated. Intercompany accounts receivable and payable between Rockwell Collins and Rockwell or their subsidiaries at the date of the Distribution were generally canceled or otherwise eliminated and accordingly reflected in Shareowners' Equity on the Statement of Financial Position.
Revenue Recognition
Product and service sales are recognized when all of the following criteria are met: an agreement of sale exists, product delivery and acceptance have occurred or services have been rendered, pricing is fixed or determinable, and collection is reasonably assured. Sales under all cost-type and certain fixed-priced-type contracts requiring performance over several periods are accounted for under the percentage-of-completion method of accounting using the cost-to-cost or units-of-delivery methods. Anticipated losses on contracts are recognized in full in the period that the losses become probable and estimable. Anticipated losses related to fixed-price contract options for additional units are recognized in full as Cost of Sales on the Statement of Operations when it is considered probable that such options will be exercised, and are included in Other Current Liabilities on the Statement of Financial Position.
In October 2000, the Company adopted Securities and Exchange Commission Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (SAB 101). No accounting changes were required in connection with the adoption of SAB 101 and, accordingly, the adoption had no effect on the Company's financial position, results of operations or shareowners' equity.
Customer Incentives
Rockwell Collins provides sales incentives to certain commercial customers in connection with sales contracts. These incentives are recognized as a reduction of the sales price for customer account credits or charged to cost of sales for products or services to be provided. The liability for incentives relating to the future purchase of products or services is included in Other Current Liabilities on the Statement of Financial Position.
Research and Development
Research and development expenditures under Company-initiated programs are expensed as incurred. Customer-funded research and development expenditures are accounted for as contract costs.
Earnings Per Share Information
Earnings per share information has not been presented as the Company was not an independent company during each of the years presented. However, pro forma earnings per share has been presented in Note 23 as if the Distribution had occurred at the beginning of each year presented and giving effect to earnings adjustments resulting from certain assets and liabilities assumed or incurred by the Company in connection with the Distribution.
Cash
Cash includes time deposits and certificates of deposit with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market using standard costs which approximate the first-in, first-out method, less related progress payments received. Market is determined on the basis of estimated realizable values. Inventoried costs include direct costs of manufacturing, engineering and tooling, and allocable overhead costs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property
Property is stated at acquisition cost. Depreciation of property is generally provided using accelerated and straight-line methods over the following estimated useful lives: buildings and improvements, fifteen to forty years; machinery and equipment, eight years; and information systems software and hardware, three to ten years. Significant renewals and betterments are capitalized and replaced units are written off. Maintenance and repairs, as well as renewals of minor amounts, are charged to expense in the period incurred.
Purchased Intangibles
Goodwill and other intangible assets generally result from business acquisitions. All of the Company's business acquisitions have been accounted for under the purchase method by assigning the purchase price to tangible and intangible assets and liabilities, including research and development projects which have not yet reached technological feasibility and have no alternative future use (purchased research and development). Assets acquired and liabilities assumed are recorded at their fair values; the appraised value of purchased research and development is immediately charged to expense; and the excess of the purchase price over the amounts assigned is recorded as goodwill.
Intangible assets including goodwill, developed technology, patents, assembled workforce, trademarks and tradenames, and other intangible assets are amortized on a straight-line basis over their estimated useful lives, ranging from three to forty years.
Impairment of Long-Lived Assets
Long-lived assets, including goodwill, are reviewed for impairment when events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable and for all assets to be disposed of. Long-lived assets held for use are reviewed for impairment by comparing the carrying amount of an asset to the undiscounted future cash flows expected to be generated by the asset over its remaining useful life. If an asset is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. Management determines fair value using discounted future cash flow analysis or other accepted valuation techniques. In September 2001, the Company recorded asset impairment charges of $136 million related to its in-flight entertainment product line and $13 million related to certain software license agreements (see Note 16).
Derivative Financial Instruments
Effective July 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). The effect of adopting SFAS 133 was not material to the Company's financial position, results of operations or shareowners' equity.
The Company uses derivative financial instruments in the form of foreign currency forward exchange contracts to manage foreign currency risks. Foreign currency forward exchange contracts are used to offset changes in the fair value of certain assets and liabilities resulting from intercompany loans and transactions with third parties denominated in foreign currencies. It is the policy of the Company to execute such instruments with creditworthy banks and not to enter into derivative financial instruments for speculative purposes. All foreign currency forward exchange contracts are denominated in currencies of major industrial countries. All of the foreign currency forward exchange contracts entered into by the Company, although effective hedges from an economic perspective, have not been designated as hedges for accounting purposes. These contracts are recognized on the Statement of Financial Position at fair value with the changes in the fair value recognized in earnings as a component of Cost of Sales concurrently with the change in fair value of the underlying assets and liabilities.
Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. As stock options are granted at prices equal to the fair market value of the Company's common stock on the grant dates, no compensation expense is recognized in connection with stock options granted to employees.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign Currency Translation
Assets and liabilities of subsidiaries operating outside of the United States with a functional currency other than the U.S. dollar are translated into U.S. dollars using exchange rates at the end of the respective period. Sales, costs and expenses are translated at average exchange rates effective during the respective period. Foreign currency translation gains and losses are included as a component of Accumulated Other Comprehensive Loss. Currency transaction gains and losses are included in the Statement of Operations in the period incurred.
Concentration of Risks
Rockwell Collins is a provider of aviation electronics and airborne and mobile communications products for commercial and military applications. The Company's customers consist primarily of commercial and military aircraft manufacturers, commercial airlines, and the United States and other foreign governments. The Company is subject to certain risks associated with these industries. The commercial aerospace market has been historically cyclical and subject to downturns during periods of weak economic conditions. In addition, the terrorist acts of September 11, 2001 have resulted in sharp reductions in air travel, which will likely result in reduced demand for the products and services of the Commercial Systems business and may adversely affect the financial condition of its customers. The Company performs ongoing credit evaluations on the financial condition of its customers and maintains allowances for uncollectible accounts receivable based upon expected collectibility. Although management believes its allowances are adequate, the Company is not able to predict with certainty the changes in the financial stability of its customers. Any material change in the financial status of any one or group of customers could have a material adverse effect on the Company's results of operations.
Commercial Systems receivables at September 30, 2001 were $385 million, of which approximately $147 million was associated with commercial airlines. Sales to the United States and other foreign governments may be affected by changes in budget appropriations, procurement policies, political developments both domestically and abroad, and other factors. While management believes the Company's product offerings are well positioned to meet the needs of the United States and other foreign governments, any material changes in any of these areas could have a material adverse effect on the Company's results of operations.
Use of Estimates
The financial statements of Rockwell Collins have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Estimates are used in accounting for, among other items, long-term contracts, allowances for doubtful accounts, inventory obsolescence, product warranty costs, customer incentives, employee benefits, income taxes and contingencies. Estimates and assumptions are reviewed periodically and the effects, if any, are reflected in the Statement of Operations in the period that they are determined.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141) and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 addresses financial accounting and reporting for business combinations and requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. In addition, SFAS 141 further clarifies the criteria to recognize intangible assets separately from goodwill. SFAS 142 provides that goodwill and certain indefinite lived intangible assets will no longer be amortized but will be reviewed at least annually for impairment and written down and charged to income when their recorded value exceeds their estimated fair value. Separable intangible assets that do not have an indefinite life will continue to be amortized over their useful lives. The Company expects to adopt both SFAS 141 and SFAS 142 effective October 1, 2001. While the effect of adopting these standards is still being evaluated, the Company estimates that 2001 adjusted net income would have been approximately $154 million, assuming the non-amortization provisions of these standards had been adopted at the beginning of 2001.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143 is effective beginning in fiscal year 2003 and requires recording of the fair value of liabilities associated with the retirement of long-lived assets in the period in which they are incurred. Management does not expect the adoption of SFAS 143 to have a material effect on the Company's results of operations or financial position.
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS 144). SFAS 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed of and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. SFAS 144 is effective beginning in fiscal year 2003 and is not expected to materially change the methods used by the Company to measure impairment losses on long-lived assets, but may result in more matters being reported as discontinued operations than is permitted under current accounting principles.
4. ACQUISITIONS OF BUSINESSES
In December 2000, Rockwell Collins acquired Kaiser Aerospace and Electronics Corporation (Kaiser). Kaiser is a leading supplier of flight deck display solutions for tactical aircraft, optical technologies for instrumentation and communication, and specialized aircraft products for the defense and aerospace industry. The purchase price, net of cash acquired, was approximately $302 million, of which $171 million was allocated to goodwill and $83 million was allocated to other intangible assets, including developed technology, trademarks and tradenames, and assembled workforce. Goodwill is being amortized on a straight-line basis over twenty-five years and the other intangible assets are being amortized on a straight-line basis over periods ranging from seven to fifteen years. Through September 30, 2001, cash payments totaled $292 million with the remaining balance expected to be paid by the end of 2003.
In July 2000, Rockwell Collins acquired substantially all of the assets and assumed substantially all of the liabilities of Sony Trans Com Inc., a producer of in-flight entertainment systems for commercial aircraft. The purchase price was approximately $117 million, of which $57 million was allocated to goodwill and $26 million was allocated to other intangible assets, primarily developed technology and assembled workforce. Goodwill was amortized on a straight-line basis over ten years and the other intangible assets were amortized on a straight-line basis over periods ranging from three to nine years (see Note 16).
In August 1999, Rockwell Collins acquired Intertrade Limited, an avionics parts supplier. In March 1999, Rockwell Collins acquired the remaining 50 percent interest that it did not already own in Flight Dynamics, a market leader in Head-Up Guidance Systems for aircraft operations. The aggregate purchase price for these acquisitions was approximately $56 million of which $18 million was allocated to goodwill and $21 million was allocated to other intangible assets, primarily developed technology and assembled workforce. Goodwill is being amortized on a straight-line basis over periods of ten and fifteen years, respectively, and the other intangible assets are being amortized on a straight-line basis over periods ranging from five to seventeen years.
These acquisitions were accounted for as purchases and, accordingly, the results of operations of these businesses are included in the Statement of Operations since their respective dates of acquisition. The results of operations of Kaiser are included within the Government Systems segment and the results of operations of Sony Trans Com, Intertrade Limited and Flight Dynamics are included within the Commercial Systems segment. Pro forma financial information is not presented as the combined effect of these acquisitions was not material to the Company's results of operations or financial position.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RECEIVABLES
Receivables are summarized as follows (in millions):
SEPTEMBER 30,
-------------------------
2001 2000
--------- ---------
Billed............................................. $ 551 $ 445
Unbilled........................................... 139 102
Less progress payments............................. (42) (43)
--------- ---------
Total..................................... 648 504
Less allowance for doubtful accounts............... (20) (9)
--------- ---------
Receivables........................................ $ 628 $ 495
========= =========
|
Unbilled receivables principally represent sales recorded under the percentage-of-completion method of accounting and are billed to customers in accordance with applicable contract terms.
6. INVENTORIES
Inventories are summarized as follows (in millions):
SEPTEMBER 30,
-------------------------
2001 2000
--------- ---------
Finished goods..................................... $ 176 $ 160
Work in process.................................... 281 218
Raw materials, parts, and supplies................. 331 317
--------- ---------
Total..................................... 788 695
Less progress payments............................. (50) (55)
--------- ---------
Inventories........................................ $ 738 $ 640
========= =========
|
7. PROPERTY
Property is summarized as follows (in millions):
SEPTEMBER 30,
-------------------------
2001 2000
--------- ---------
Land................................................. $ 27 $ 3
Buildings and improvements........................... 208 183
Machinery and equipment.............................. 517 497
Information systems software and hardware............ 250 255
Construction in progress............................. 51 49
--------- ---------
Total....................................... 1,053 987
Less accumulated depreciation........................ (605) (594)
--------- ---------
Property............................................. $ 448 $ 393
========= =========
|
In September 2001, the Company recorded property impairment charges of $22 million related to its in-flight entertainment product line (see Note 16).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. INTANGIBLE ASSETS
Intangible assets are summarized as follows (in millions):
SEPTEMBER 30,
-------------------------
2001 2000
--------- ---------
Goodwill............................................ $ 204 $ 77
Developed technology and patents.................... 65 62
Assembled workforce................................. 20 12
Trademarks and tradenames........................... 19 -
Software license agreements......................... - 34
Other............................................... 9 13
--------- ---------
Total...................................... 317 198
Less accumulated amortization....................... (32) (50)
--------- ---------
Intangible assets................................... $ 285 $ 148
========= =========
|
In September 2001, the Company recorded goodwill and other intangible asset impairment charges of $74 million and $53 million, respectively, related to its in-flight entertainment product line and certain software license agreements (see Note 16). The increase in goodwill and other intangible assets in 2001 is the result of the acquisition of Kaiser in December 2000.
9. OTHER ASSETS
Other assets are summarized as follows (in millions):
SEPTEMBER 30,
-------------------------
2001 2000
--------- ---------
Long-term deferred income taxes (Note 18)............. $ 8 $ 59
Investments in equity affiliates...................... 53 38
Prepaid pension cost (Note 12)........................ 141 99
Other................................................. 54 52
--------- ---------
Other assets.......................................... $ 256 $ 248
========= =========
|
10. DEBT
On May 30, 2001, the Company entered into $1 billion of senior unsecured revolving credit facilities, consisting of a $500 million five-year facility and a $500 million 364-day facility, with various banks. These credit facilities are being used to support the Company's commercial paper program. These credit facilities contain, among other things, covenants, representations and warranties and events of default customary for facilities of this type, including a maximum leverage ratio based on consolidated debt to total capitalization. Borrowings under the credit facilities bear interest at the London Interbank Offered Rate (LIBOR) plus a variable margin based on the Company's unsecured long-term debt ratings or, at the Company's option, rates determined by competitive bid. In addition, short-term credit facilities available to foreign subsidiaries amounted to $44 million as of September 30, 2001. There were no significant commitment fees or compensating balance requirements under these facilities. At September 30, 2001, there were no borrowings outstanding under any of the Company's credit facilities.
Under the Company's commercial paper program, the Company may sell up to $1 billion face amount of unsecured short-term promissory notes in the commercial paper market. The commercial paper notes may bear interest or may be sold at a discount and will have a maturity of not more than 364 days from the time of issuance. In connection with the Distribution, the Company issued $302 million of commercial paper on June 29, 2001, of which $300 million was used to fund the pre-Distribution payment to Rockwell. At September 30, 2001, commercial paper borrowings outstanding were $202 million with a weighted average interest rate and maturity period of 3.5 percent and 44 days, respectively.
Interest paid in the fourth quarter of 2001 was $2 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. OTHER CURRENT LIABILITIES
Other current liabilities are summarized as follows (in millions):
SEPTEMBER 30,
-------------------------
2001 2000
--------- ---------
Customer incentives.............................. $ 101 $ 110
Contract loss reserves........................... 86 64
Advance payments from customers.................. 52 33
Other............................................ 56 54
--------- ---------
Other current liabilities........................ $ 295 $ 261
========= =========
|
12. RETIREMENT BENEFITS
Most employees participate in Company-sponsored pension plans and retiree medical and insurance plans (Other Retirement Benefits), which provide monthly pension and other benefits to eligible employees upon retirement. These plans are substantially similar to plans sponsored by Rockwell prior to the Distribution. Pension benefits for salaried employees generally are based on years of credited service and average earnings. Pension benefits for hourly employees generally are based on specified benefit amounts and years of service. Pension obligations are funded in conformity with the funding requirements of applicable laws and governmental regulations.
The components of net periodic benefit cost are as follows (in millions):
PENSION BENEFITS OTHER RETIREMENT BENEFITS
-------------------------- ---------------------------
2001 2000 1999 2001 2000 1999
------ ------- ------- ------- ------- -------
Service cost............................... $ 32 $ 29 $ 29 $ 4 $ 4 $ 4
Interest cost.............................. 113 96 85 16 14 14
Expected return on plan assets............. (154) (121) (105) (2) (1) (1)
Amortization
Prior service cost....................... 4 4 4 (13) (9) (11)
Net transition asset..................... - (3) (4) - - -
Net actuarial loss....................... - - 2 2 1 -
------ ------- ------- ------- ------- -------
Net periodic benefit (income) expense...... $ (5) $ 5 $ 11 $ 7 $ 9 $ 6
====== ======= ======= ======= ======= =======
|
In connection with the Distribution, the Company assumed Rockwell's domestic qualified pension plan (Rockwell Retirement Plan) which consisted of pension plan obligations and a proportionate share of pension plan assets attributable to all domestic active and former eligible employees of Avionics and Communications and certain active and former eligible employees of Rockwell (Non-Collins Participants) as of the Distribution date. Pension plan obligations attributable to remaining Rockwell and Rockwell Scientific Company LLC domestic active and former employees and a proportionate share of pension plan assets were transferred from the Rockwell Retirement Plan to two new pension plans established by Rockwell and the Rockwell Scientific Company LLC. The Company also assumed the obligation for all Other Retirement Benefits for active and former eligible employees of Avionics and Communications and Non-Collins Participants.
The accumulated benefit obligation associated with Non-Collins Participants that was assumed by the Company in connection with the Distribution was $628 million for pension benefits and $99 million for Other Retirement Benefits.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles the benefit obligations, plan assets, funded status, and net asset (liability) information of the Company's pension plans and the Other Retirement Benefits after giving effect to the transactions that occurred in connection with the Distribution (in millions):
OTHER
PENSION BENEFITS RETIREMENT BENEFITS
----------------------- -----------------------
2001 2000 2001 2000
------- ------- ------- -------
Benefit obligation at beginning of year ................ $ 1,499 $ 1,490 $ 272 $ 273
Service cost ........................................... 32 29 4 4
Interest cost .......................................... 113 96 16 14
Discount rate change ................................... 105 (100) 19 (14)
Actuarial losses ....................................... 42 33 53 43
Plan amendments ........................................ -- -- -- (26)
Acquisitions ........................................... 112 2 13 1
Curtailments ........................................... (26) -- -- --
Benefits paid .......................................... (79) (62) (41) (31)
Other (including currency translation) ................. 11 11 4 8
------- ------- ------- -------
Benefit obligation at end of year ...................... 1,809 1,499 340 272
------- ------- ------- -------
Plan assets at beginning of year ....................... 1,704 1,580 18 16
Actual return on plan assets ........................... (51) 182 (1) 2
Company contributions .................................. 7 6 39 30
Acquisitions ........................................... 142 -- -- --
Benefits paid .......................................... (79) (62) (41) (31)
Other (including currency translation) ................. -- (2) 1 1
------- ------- ------- -------
Plan assets at end of year ............................. 1,723 1,704 16 18
------- ------- ------- -------
Funded status of plans ................................. (86) 205 (324) (254)
Unamortized amounts:
Prior service cost ................................... 5 10 (138) (158)
Net transition asset ................................. -- (1) -- --
Net actuarial loss (gain) ............................ 168 (167) 162 90
------- ------- ------- -------
Net asset (liability) on statement of financial position $ 87 $ 47 $ (300) $ (322)
======= ======= ======= =======
Net asset (liability) consists of:
Prepaid benefit cost ................................... $ 141 $ 99 $ -- $ --
Accrued benefit liability .............................. (76) (71) (300) (322)
Deferred tax asset ..................................... 6 5 -- --
Intangible asset ....................................... 5 5 -- --
Accumulated other comprehensive loss ................... 11 9 -- --
------- ------- ------- -------
Net asset (liability) on statement of financial position $ 87 $ 47 $ (300) $ (322)
======= ======= ======= =======
|
Assets and liabilities are measured using a measurement date of June 30. Significant assumptions used in determining these benefit obligations are summarized as follows (in weighted averages):
OTHER
PENSION BENEFITS RETIREMENT BENEFITS
----------------------- -----------------------
2001 2000 2001 2000
------- ------- ------- -------
Discount rate ............................ 7.50% 8.00% 7.50% 8.00%
Compensation increase rate ............... 4.50% 4.50% -- --
Expected return on plan assets ........... 9.75% 9.50% 9.75% 9.50%
Pre-65 health care cost trend rate* ...... -- -- 8.00% 7.00%
Post-65 health care cost trend rate* ..... -- -- 9.60% 9.00%
|
* Decreasing gradually to 5.5% after 2016
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Underfunded Pension Benefits
The projected benefit obligation, accumulated benefit obligation and the fair value of plan assets for nonqualified and certain international pension plans with an accumulated benefit obligation in excess of the fair value of plan assets (underfunded plans) were $104 million, $93 million, and $17 million, respectively, as of September 30, 2001, and $102 million, $88 million, and $17 million, respectively, as of September 30, 2000.
Other Post Retirement Benefits
Assumed health care cost trend rates have a significant effect on amounts reported for the other postretirement benefits plans. A one-percentage point change in assumed health care cost trend rates would have the following effect (in millions):
ONE-PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
---------------- -----------------
2001 2000 2001 2000
---- ---- ---- ----
Increase (decrease) to total of service and
interest cost components ................ $ 2 $ 2 $ (2) $ (2)
Increase (decrease) to postretirement
benefit obligation ...................... 22 12 (17) (11)
|
Defined Contribution Savings Plans
The majority of employees participate in Company-sponsored defined contribution savings plans, which are substantially similar to those sponsored by Rockwell prior to the Distribution. The plans allow employees to contribute a portion of their compensation on a pre-tax and/or after-tax basis in accordance with specified guidelines. The Company matches a percentage of employee contributions up to certain limits. The Company's expense related to these savings plans was $29 million, $23 million and $20 million for 2001, 2000 and 1999, respectively.
13. SHAREOWNERS' EQUITY
Common Stock
The Company is authorized to issue one billion shares of common stock, par value $0.01 per share, and 25 million shares of preferred stock, without par value, of which 2.5 million shares are designated as Series A Junior Participating Preferred Stock for issuance in connection with the exercise of preferred share purchase rights. At September 30, 2001, 29.3 million shares of common stock were reserved for issuance under various employee incentive plans. In connection with the Distribution, 183.6 million shares of common stock were issued and remain outstanding at September 30, 2001.
Preferred Share Purchase Rights
Each outstanding share of common stock provides the holder with one Preferred Share Purchase Right (Right). The Rights will become exercisable only if a person or group acquires, or offers to acquire, without prior approval of the Board of Directors, 15% or more of the common stock, although the Board of Directors is authorized to reduce the 15% threshold for triggering the Rights to not less than 10%. Upon exercise, each Right entitles the holder to 1/100th of a share of Series A Junior Participating Preferred Stock of the Company (Junior Preferred Stock) at a price of $125, subject to adjustment.
Upon acquisition of the Company, each Right (other than Rights held by the acquirer) will generally be exercisable for $250 worth of either common stock of the Company or common stock of the acquirer for $125. In certain circumstances, each Right may be exchanged by the Company for one share of common stock or 1/100th of a share of Junior Preferred Stock. The Rights will expire on June 30, 2011, unless earlier exchanged or redeemed at $0.01 per Right. The rights have the effect of substantially increasing the cost of acquiring the Company in a transaction not approved by the Board of Directors.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consisted of the following (in millions):
SEPTEMBER 30,
2001 2000
------ ------
Foreign currency translation adjustments............... $ (17) $ (20)
Minimum pension liability adjustment, net of taxes..... (11) (9)
------ ------
Accumulated other comprehensive loss................... $ (28) $ (29)
====== ======
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14. STOCK OPTIONS
Options to purchase common stock of the Company have been granted under various incentive plans to directors, officers and other key employees. All of the Company's stock-based incentive plans require options to be granted at prices equal to or above the fair market value of such stock on the dates the options are granted. The plans provide that the option price for certain options granted under the plans may be paid in cash, shares of common stock or a combination thereof. Stock options generally expire ten years from the date they are granted and vest over three years (time-vesting options) or vesting occurs upon achieving pre-determined performance criteria or over time as described below (performance-vesting options).
In periods prior to the Distribution, certain employees of the Company were granted options to purchase common stock under Rockwell's various stock-based compensation plans. At the time of the Distribution, Rockwell options held by employees of the Company, as well as certain other current and former employees of Rockwell, were converted either in whole or in part to options to acquire common stock of the Company. The Company's 2001 Stock Option Plan, approved by the Board of Directors in connection with the Distribution, authorized the Company to issue up to 15 million options to purchase shares of the Company's common stock resulting from the conversion of Rockwell options. No stock options may be granted under the 2001 Stock Option Plan after the Distribution.
Rockwell options to purchase shares of common stock were converted into options to purchase shares of the Company using a formula designed to preserve the intrinsic value of the options. The Rockwell Collins stock options issued, as converted, have the same vesting provisions, option periods, and other terms and conditions as the Rockwell options and awards they replaced. Pursuant to this conversion, approximately 12.9 million options to purchase shares of common stock of the Company were issued under the 2001 Stock Option Plan. Approximately 2.0 million of these options are performance-vesting options that vest at the earlier of (a) the date the market price of the Company's common stock reaches a specified level for a pre-determined period of time or certain other financial performance criteria are met, or (b) a period of six to nine years from the date they are granted. As of September 30, 2001, approximately 0.6 million of these performance-vesting options have vested.
Under the Company's 2001 Long-Term Incentives Plan and Directors Stock Plan, up to 14.3 million shares of common stock may be issued by the Company as non-qualified options, incentive stock options, performance units, stock appreciation rights, and restricted stock. Shares available for future grant or payment under these plans were 11.3 million at September 30, 2001. Neither plan presently permits options to be granted after June 29, 2011.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the activity of the Company's stock options for 2001 (shares in thousands):
WTD. AVG.
EXERCISE
SHARES PRICE
------- ---------
Number of shares under option:
Outstanding at beginning of year................... - $ -
Converted in connection with the Distribution:
Time-vesting..................................... 10,929 21.89
Performance-vesting.............................. 2,010 23.09
Granted (time-vesting)............................. 2,990 22.35
Exercised.......................................... (52) 14.29
Canceled or expired................................ (90) 25.76
-------
Outstanding at end of year......................... 15,787 22.14
=======
Exercisable at end of year......................... 9,157 20.63
=======
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The following table summarizes the status of the Company's stock options outstanding at September 30, 2001 (shares in thousands; remaining life in years):
OPTIONS OUTSTANDING
----------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE -------------------
-------------------- WTD. AVG.
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
------------------------ ------- --------- -------- ------- ---------
$10.43 to $16.97........ 4,137 4.5 $ 15.43 3,652 $ 15.23
$17.97 to $22.08........ 4,042 7.4 19.73 2,811 20.22
$22.35 to $27.41........ 3,977 8.9 23.04 947 25.03
$27.87 to $37.78........ 3,631 7.2 31.46 1,747 30.19
------- -------
15,787 9,157
======= =======
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The Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation expense has been recognized for stock options granted to employees. If the Company accounted for its stock-based compensation plans using the fair value method provided by SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net income in 2001 would have been reduced by approximately $22 million, or 12 cents per pro forma share. The pro forma effect of stock options on net income for 2001 may not be indicative of the pro forma effect on net income had the Company been a separate stand-alone entity during the entire period presented or what the pro forma effect may be in future years.
The fair value of converted Rockwell options was calculated using the Black-Scholes pricing model and fair values as assigned by Rockwell, adjusted for the previously described conversion. The weighted average fair value of these options, as converted, was $8.73 per option. The fair value of options granted by the Company after the Distribution was $7.27 per option and was estimated using the Black-Scholes pricing model and the following assumptions:
2001
GRANTS
Average risk-free interest rate........... 5.32%
Expected dividend yield................... 1.77%
Expected volatility....................... 0.35
Expected life............................. 5 years
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. RESEARCH AND DEVELOPMENT
The Company performs research and development for its products and under contracts with customers. Research and development under contracts with customers is generally performed by the Government Systems business. Total Company-initiated research and development expenditures in 2001, 2000 and 1999 were $295 million, $265 million and $232 million, respectively, and are recorded in Cost of Sales. Company-initiated expenditures include advanced research and development performed by the Rockwell Scientific Company LLC on behalf of the Company in the amount of $9 million in each of 2001, 2000 and 1999. Total customer-funded research and development expenditures were $217 million, $203 million and $188 million in 2001, 2000 and 1999, respectively.
Customer-sponsored research and development is generally performed under long-term fixed price contracts with the U.S. Government. These contracts generally require the production of initial prototype units or limited production quantities to the government's specifications. The Company accounts for such contracts under the percentage-of-completion method of accounting using the cost-to-cost method.
16. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
Restructuring
In September 2001, the Company announced a comprehensive restructuring plan to reduce its workforce and streamline certain operations. These actions were undertaken in response to the sharp and sudden decline in anticipated sales volumes in the commercial air transport market resulting from the September 11, 2001 terrorist acts. As a result of this plan, the Company recorded charges of $34 million of which $27 million is included in Cost of Sales and $7 million is included in Selling, General, and Administrative Expenses in the Statement of Operations.
The components of the restructuring charges are as follows (in millions):
Employee separation costs.......................... $ 28
Facility exit costs................................ 4
Asset write-downs.................................. 2
---------
Total restructuring charges........................ $ 34
=========
|
The restructuring plan includes involuntary separations of approximately 2,800 employees. These employee separations are broad based and affect all business groups, with the largest number of reductions in the Commercial Systems business and organizations that support commercial product lines. Approximately 90 percent of these employee separations are expected to be completed by the end of the second quarter of 2002 with the remainder to be completed by the end of 2002. Employee separation costs include severance, fringe benefits during the severance period, and outplacement costs.
The restructuring plan also includes the consolidation of the in-flight entertainment product line into one facility in Pomona, California; the closure of certain service centers, sales and other offices in California, Illinois, Australia, and Southeast Asia; and the consolidation of certain manufacturing operations. Facility exit costs are comprised primarily of lease payment or cancellation costs pursuant to contractual obligations. The asset writedowns are comprised primarily of abandoned leasehold improvements at leased facilities. No employees were terminated and no employee separation costs or facility exit costs were paid in 2001.
Asset Impairment Charges
In connection with the Company's assessment of the business impact of the unexpected decline in the commercial air transport market, a review was performed of the carrying values of long-lived assets, including related goodwill, to be held and used that are associated with the Commercial Systems business. These reviews were performed pursuant to the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of these reviews, the Company recorded charges of $149 million which are presented as a separate line item in the Statement of Operations. The components of these asset impairment charges are as follows (in millions):
Goodwill............................................ $ 74
Developed technology and patents.................... 30
Property............................................ 22
Software license agreements......................... 13
Assembled workforce................................. 9
Non-compete agreements.............................. 1
---------
Total asset impairment charges...................... $ 149
=========
|
These reviews focused on the long-lived assets recorded in connection with the Sony Trans Com and Hughes-Avicom acquisitions, which now comprise the in-flight entertainment product line. Expenditures on in-flight entertainment equipment by commercial airlines are discretionary in nature and given the financial instability of the commercial airlines, demand is expected to fall significantly to levels below those required to sustain the asset base of this product line for the foreseeable future.
In addition to the asset impairment charges related to the in-flight entertainment product line, the Company recorded $13 million of asset impairment charges related to software license agreements used in certain other product lines serving the commercial air transport market. Sales of these products are expected to be adversely affected by the downturn in the commercial air transport market with technological obsolescence outpacing any expected recovery in demand.
These charges were determined by measuring the amount by which the carrying amount of these assets exceeded their fair values. Fair values were primarily determined using outside valuation experts utilizing accepted valuation techniques, including discounted cash flow analysis.
17. OTHER INCOME
Other income in 2001, 2000, and 1999 consisted principally of interest income, patent license royalty income and in 1999, a gain of $32 million on the sale of the Company's railroad electronics business.
18. INCOME TAXES
Prior to the Distribution, substantially all of the Company's operations were included in the consolidated or combined income tax returns of Rockwell. In connection with the Distribution, Rockwell is required to indemnify Rockwell Collins for all income tax liabilities and retains rights to all tax refunds related to substantially all operations included in consolidated or combined tax returns for periods through the date of the Distribution. Accordingly, the Statement of Financial Position does not include current or prior period income tax receivables or payables related to the Company's operations which were included in consolidated or combined tax filings of Rockwell prior to the Distribution. The income tax provisions have been determined as if the Company were a separate taxpayer prior to the Distribution.
The components of the income tax provision are as follows (in millions):
2001 2000 1999
-------- --------- ---------
Current:
United States.................... $ 97 $ 94 $ 113
Non-United States................ 5 4 7
State and local.................. 9 8 10
-------- --------- ---------
Total current...................... 111 106 130
-------- --------- ---------
Deferred:
United States.................... (24) 22 15
Non-United States................ - - -
State and local.................. (2) 2 1
-------- --------- ---------
Total deferred..................... (26) 24 16
-------- --------- ---------
Income tax provision............... $ 85 $ 130 $ 146
======== ========= =========
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net current deferred income tax benefits consist of the tax effects of temporary differences related to the following (in millions):
SEPTEMBER 30,
-------------------------
2001 2000
--------- ---------
Compensation and benefits.................... $ 30 $ 35
Product warranty costs....................... 50 39
Inventory.................................... 49 34
Contract loss reserves....................... 23 9
Other - net.................................. 37 16
--------- ---------
Current deferred income taxes................ $ 189 $ 133
========= =========
|
Net long-term deferred income tax benefits included in Other Assets in the Statement of Financial Position consist of the tax effects of temporary differences related to the following (in millions):
SEPTEMBER 30,
-------------------------
2001 2000
--------- ---------
Retirement benefits........................ $ 70 $ 113
Property................................... (34) (16)
Other - net................................ (28) (38)
--------- ---------
Long-term deferred income taxes............ $ 8 $ 59
========= =========
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Management believes it is more likely than not that current and long-term deferred tax assets will be realized through the reduction of future taxable income. Significant factors considered by management in its determination of the probability of the realization of the deferred tax assets include: (a) the historical operating results of Rockwell Collins ($957 million of United States taxable income over the past three years), (b) expectations of future earnings, and (c) the extended period of time over which the retirement medical liability will be paid.
The effective income tax rate differed from the United States statutory tax rate for the reasons set forth below:
2001 2000 1999
------ ------ ------
Statutory tax rate..................................................... 35.0% 35.0% 35.0%
State and local income taxes........................................... 2.0 1.6 1.6
Extraterritorial income exclusion / foreign sales corporation benefit.. (6.2) (3.9) (3.1)
Non-deductible goodwill amortization................................... 1.9 - -
Non-deductible goodwill impairment charge.............................. 5.8 - -
Research and development credit........................................ (0.9) - -
Other.................................................................. 0.3 (0.2) -
------ ----- -----
Effective income tax rate.............................................. 37.9% 32.5% 33.5%
====== ===== =====
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The income tax provisions were calculated based upon the following components of income before income taxes (in millions):
2001 2000 1999
-------- -------- --------
United States income............. $ 209 $ 388 $ 418
Non-United States income......... 15 11 19
-------- -------- --------
Total............................ $ 224 $ 399 $ 437
======== ======== ========
|
No provision has been made for United States, state, or additional foreign income taxes related to approximately $35 million of undistributed earnings of foreign subsidiaries which have been or are intended to be permanently reinvested.
Income taxes paid in 2001, 2000 and 1999 were not significant.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash equivalents, foreign currency forward exchange contracts and short-term commercial paper borrowings. The fair values of cash equivalents and short-term commercial paper borrowings were approximately equal to their carrying values at September 30, 2001.
Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at specified future dates at specified exchange rates. At September 30, 2001 and 2000, the Company had outstanding foreign currency forward exchange contracts with notional amounts of $156 million and $140 million, respectively. These notional values consist primarily of contracts for the euro and pound sterling, and are stated in U.S. dollar equivalents at spot exchange rates at the respective dates. At September 30, 2001 and 2000, the net liability related to foreign currency forward exchange contracts was $0 million and $1 million, respectively, and was equal to their fair value based upon quoted market prices for contracts with similar maturities. As of September 30, 2001 and 2000, the foreign currency forward exchange contracts are recorded in Other Current Assets in the amounts of $4 million in each period, and Other Current Liabilities in the amounts of $4 million and $5 million, respectively. Management does not anticipate any material adverse effect on its financial position or results of operations relating to these foreign currency forward exchange contracts.
20. LEASE COMMITMENTS
Minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $35 million at September 30, 2001 and are payable as follows: 2002, $10 million; 2003, $7 million; 2004, $5 million; 2005, $3 million; 2006, $3 million; and after 2006, $7 million.
Rent expense for 2001, 2000, and 1999 was $22 million, $18 million, and $17 million, respectively.
21. CONTINGENT LIABILITIES
Pursuant to the terms of the distribution agreement entered into among Rockwell, the Company and Rockwell Scientific Company LLC, the Company assumed all responsibility for current and future litigation, including environmental proceedings, against Rockwell or its subsidiaries with respect to the operations of the Company's business.
Litigation
On January 15, 1997, a civil action was filed against the Company in the United States District Court for the District of Arizona in Tucson, Universal Avionics Systems Corp. v. Rockwell International Corp. and Rockwell Collins, Inc., in which Universal, a manufacturer and marketer of aviation electronics, including Flight Management Systems (FMS), asserted four claims against the Company arising out of its participation in the FMS business: (1) attempted monopolization under Section 2 of the Sherman Act; (2) anticompetitive conduct (exclusive dealing and tying) under Section 1 of the Sherman Act and Section 3 of the Clayton Act; (3) tortious interference with business relationships and prospective economic business advantage under the common law of Arizona; and (4) unfair competition under the common law of Arizona. Universal seeks damages of approximately $35 million before trebling for the alleged antitrust violations; actual damages of an unspecified amount for the alleged common law violations; punitive damages; attorneys' fees and injunctive relief. The Company and Rockwell have denied the allegations and have asserted counterclaims against Universal for defamation and unfair competition. On July 17, 2001, the district court granted defendants' motion for partial summary judgment for failure to allege a relevant market entitling plaintiff to relief, certified that ruling for appeal, dismissed as moot other motions for summary judgment filed by defendants challenging plaintiff's attempted monopolization, exclusive dealing and tying claims, and stayed further proceedings, including rulings on motions for summary judgment filed by defendants as to plaintiff's other claims, pending appeal. On July 19, 2001, plaintiff filed a notice of appeal with the Ninth Circuit Court of Appeals.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 3, 2000, a civil action was filed against the Company in the Court of Common Pleas of Pennsylvania for Allegheny County, Westinghouse Air Brake Technologies Corp. v. Rockwell Collins, Inc., asserting various claims arising out of the plaintiff's purchase of the Company's former Railroad Electronics Business pursuant to a Sale Agreement on October 5, 1998. Specifically, the plaintiff alleges that it is entitled under provisions of the Sale Agreement to a post-closing adjustment of approximately $7 million in the purchase price, and that it is entitled to unspecified damages for alleged misrepresentations, breaches of warranty, mistake of fact, and failure by the Company to turn over certain assets and to provide certain post-closing support. On December 13, 2000, the trial court ordered that the claim for a post-closing adjustment in the purchase price be submitted to mandatory arbitration pursuant to provisions of the Sale Agreement, but declined to stay court proceedings on the other issues during pendency of the arbitration proceeding. The parties are in the early stages of discovery in the lawsuit and are in the process of initiating arbitration of the post-closing purchase price adjustment claim.
On December 14, 1995, a civil action was filed in the United States District Court for the Western District of Texas, El Paso Division, United States ex. rel Staines v. Rockwell International Corp., under the qui tam provisions of the False Claims Act seeking unspecified damages for alleged violations of the Act on two contracts with agencies of the U.S. Government under which an electronics fabricating plant in El Paso now owned by The Boeing Company performed work on subcontract for Boeing, and two contracts where the plant performed work on subcontract for the Company's Dallas, Texas facility. Specifically with respect to the work performed at the El Paso plant for the Company, the plaintiff alleges that certain components were improperly tested and that certain components removed from circuit boards for testing were thereafter reinstalled when they should not have been. The Boeing Company has agreed to defend and indemnify the Company and Rockwell for claims relating to work performed on Boeing contracts, and for any wrongdoing that may have occurred at the El Paso plant relating to work performed there for the Company, but not for wrongdoing, if any, that may have occurred at or under the direction of the Company's Dallas facility. In October 1998 the United States declined to intervene in the action on its own behalf and the plaintiff has since proceeded to prosecute the action himself with private counsel. Rockwell and Boeing have denied wrongdoing and are vigorously defending the action. Discovery is not yet complete. On May 11, 1999 Boeing and Rockwell filed a motion to dismiss the case on the pleadings, which motion is still pending. On July 27, 2001, the court entered an order requiring expedited discovery. The Company anticipates the trial will commence in the first quarter of calendar year 2002.
In addition, various other lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to the conduct of its business, including those pertaining to product liability, intellectual property, environmental, safety and health, contract and employment matters.
Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably to the Company, management believes the disposition of matters which are pending or asserted will not have a material adverse effect on the Company's business or financial condition.
Environmental
Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes, and other activities affecting the environment have had and will continue to have an impact on the Company's manufacturing operations. Thus far, compliance with environmental requirements and resolution of environmental claims have been accomplished without material effect on the Company's liquidity and capital resources, competitive position or financial condition.
Based on its assessment, management believes that the Company's expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on the Company's business or financial condition. Management cannot assess the possible effect of compliance with future requirements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Matters
Various claims (whether based upon United States government or Company audits and investigations or otherwise) have been or may be instituted or asserted against the Company related to its United States government contract work, including claims based on business practices and cost classifications. Although such claims are usually resolved by detailed fact-finding and negotiation, on those occasions when they are not resolved, civil or criminal legal or administrative proceedings may ensue. Depending on the circumstances and the outcome, such proceedings could result in fines, the cancellation of or suspension of payments under one or more United States government contracts, suspension or debarment proceedings affecting the Company's potential further business with the United States government, or alteration of the Company's procedures relating to the performance or obtaining of United States government contracts. Management of the Company believes there are no claims, audits or investigations currently pending which will have a material adverse effect on the Company's business or financial condition.
22. BUSINESS SEGMENT INFORMATION
Rockwell Collins is a supplier of aviation electronics and airborne and mobile communication systems, service and support solutions for commercial and military applications. The Company has two operating segments consisting of the Commercial Systems and Government Systems businesses.
Products sold by the Commercial Systems business include flight deck systems, consisting of liquid crystal multi-function displays, communications systems, such as data links and satellite communications, navigation systems, such as flight management systems and global positioning systems (GPS), surveillance systems such as weather radar and traffic collision avoidance systems (TCAS), automatic flight control systems, as well as in-flight entertainment and information management systems. Customers include aircraft manufacturers and airlines throughout the world.
The Government Systems business supplies defense electronics products and systems including advanced communication and navigation solutions for air, ground and sea, narrow and wide-band communications systems for interoperability and situational awareness, data link terminals and military GPS-based navigation. Major customers are the United States Department of Defense and foreign militaries around the world.
Sales made to the United States Government by all segments (primarily the Government Systems segment) were 28 percent, 27 percent, and 28 percent of sales for the years ending 2001, 2000, and 1999, respectively. Sales made to The Boeing Company by all segments (primarily the Commercial Systems segment) were 8 percent, 9 percent, and 11 percent of sales for the years ending 2001, 2000, and 1999, respectively.
The following table reflects the sales and operating results for each of the Company's operating segments (in millions):
2001 2000 1999
-------- -------- --------
Sales:
Commercial Systems................................... $ 1,696 $ 1,586 $ 1,546
Government Systems................................... 1,124 924 892
-------- -------- --------
Total......................................... $ 2,820 $ 2,510 $ 2,438
======== ======== ========
Segment Operating Earnings:
Commercial Systems................................... $ 292 $ 296 $ 285
Government Systems................................... 187 144 139
-------- -------- --------
Total......................................... 479 440 424
Goodwill and purchase accounting amortization.......... (39) (15) (10)
Gain on disposition of a business (Note 17)............ - - 32
Interest expense....................................... (3) - -
Earnings (losses) from equity affiliates............... 1 (3) 11
Restructuring and asset impairment charges (Note 16)... (183) - -
General corporate-net.................................. (31) (23) (20)
-------- -------- --------
Income before income taxes............................. $ 224 $ 399 $ 437
======== ======== ========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intersegment sales are not material and have been eliminated. Among other considerations, Rockwell Collins evaluates performance and allocates resources based upon segment operating earnings before income taxes; unallocated general corporate expenses; incremental acquisition-related expenses resulting from purchase accounting adjustments such as goodwill and other intangible asset amortization, depreciation, inventory and purchased research and development charges; interest expense; gains and losses from the disposition of businesses; earnings and losses from enterprise-level equity affiliates; special charges related to comprehensive restructuring actions; and other special items as identified by management from time to time. The accounting policies used in preparing the segment information are consistent with those described in Note 2.
Restructuring and asset impairment charges related to the operating segments are as follows: Commercial Systems, $177 million; Government Systems, $6 million.
The following tables summarize the identifiable assets at September 30, and the provision for depreciation and amortization and the amount of capital expenditures for property for the years ended September 30 for each of the operating segments and Corporate (in millions):
2001 2000 1999
-------- -------- --------
Identifiable assets:
Commercial Systems................................... $ 1,295 $ 1,271 $ 1,084
Government Systems................................... 963 447 547
Corporate............................................ 370 382 402
-------- -------- --------
Total......................................... $ 2,628 $ 2,100 $ 2,033
======== ======== ========
Depreciation and amortization:
Commercial Systems................................... $ 64 $ 64 $ 53
Government Systems................................... 31 22 24
-------- -------- --------
Total......................................... 95 86 77
Purchase accounting depreciation and amortization.... 36 13 9
-------- -------- --------
Total......................................... $ 131 $ 99 $ 86
======== ======== ========
Capital expenditures for property:
Commercial Systems................................... $ 70 $ 72 $ 86
Government Systems................................... 40 26 41
-------- -------- --------
Total......................................... $ 110 $ 98 $ 127
======== ======== ========
|
The majority of the Company's businesses are centrally located and share many common resources, infrastructures and assets in the normal course of business. Certain assets, principally property, plant and equipment, have been allocated between the operating segments primarily based upon occupancy or usage. Identifiable assets at Corporate consist principally of cash, net deferred income tax assets, prepaid pension cost and investments in equity affiliates.
The following table summarizes sales by product category for the years ended September 30 (in millions):
2001 2000 1999
-------- -------- --------
Commercial avionics products........................................... $ 1,274 $ 1,231 $ 1,213
In-flight entertainment products....................................... 422 355 333
Defense electronics products........................................... 1,124 924 892
-------- -------- --------
Total......................................................... $ 2,820 $ 2,510 $ 2,438
======== ======== ========
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflects sales for the years ended September 30 and property at September 30 by geographic region (in millions):
SALES PROPERTY
-------------------------- ------------------
2001 2000 1999 2001 2000 1999
------ ------- ------- ---- ---- ----
United States.......... $1,872 $ 1,495 $ 1,586 $408 $355 $346
Europe................. 484 552 503 26 23 4
Asia-Pacific........... 188 234 168 10 11 11
Canada................. 205 156 117 - - -
Africa / Middle East... 47 47 42 - - -
Latin America.......... 24 26 22 4 4 4
------ ------- ------- ---- ---- ----
Total......... $2,820 $ 2,510 $ 2,438 $448 $393 $365
====== ======= ======= ==== ==== ====
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Sales are attributed to the geographic regions based on the country of destination.
23. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following pro forma financial information is presented as though the Distribution occurred at the beginning of each year presented. Pro forma adjustments include interest expense on $300 million of commercial paper borrowings used to fund the pre-Distribution payment to Rockwell and income and costs related to employee benefit obligations, including pension and other retirement benefits, related to active and former Rockwell employees not associated with the Avionics and Communications business that were assumed by the Company in connection with the Distribution. Interest expense, including debt issuance costs, was accrued at 6.0 percent for the first nine months of 2001 prior to the Distribution and 6.8 percent and 5.7 percent for the years ended September 30, 2000 and 1999, respectively. Lower pro forma retirement benefit expense is attributable to the assumption of pension plan assets in excess of benefit obligations. The unaudited pro forma financial data is not necessarily indicative of the financial results of the Company had the Distribution occurred at the beginning of each year presented.
In connection with the Distribution, outstanding options to purchase Rockwell common stock held by Rockwell Collins employees generally were converted into options to purchase shares of Rockwell Collins common stock based on a formula designed to preserve the intrinsic value of the options. In addition, outstanding options to purchase Rockwell common stock held by certain other option holders who were not Rockwell Collins employees were replaced with options to purchase shares of Rockwell common stock and, in some cases, Rockwell Collins common stock, based on a formula also designed to preserve the intrinsic value of the options. Pursuant to these adjustments, the Company issued options for approximately 12.9 million shares of Rockwell Collins common stock in connection with the Distribution.
For the years ended September 30, 2000 and 1999, the number of pro forma
weighted average shares outstanding used in the pro forma basic and diluted
earnings per share calculations below were based upon the weighted average
number of Rockwell shares outstanding for the applicable period and the
distribution ratio of one share of the Company's common stock for each share of
Rockwell's common stock. The number of pro forma weighted average common share
equivalents used in the pro forma diluted earnings per share calculations below
were based upon the number of Rockwell common share equivalents outstanding for
the applicable year, adjusted for the Distribution as described in the preceding
paragraph. For the year ended September 30, 2001, the pro forma weighted average
shares outstanding and common share equivalents were determined based upon the
weighted average of (1) Rockwell's shares outstanding and common share
equivalents for the first through third quarters as previously described, and
(2) the actual Rockwell Collins share activity for the fourth quarter.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro forma basic and diluted earnings per share is calculated as follows (in millions, except per share amounts):
2001 2000 1999
------ ------ ------
Net income - reported........................ $ 139 $ 269 $ 291
Pro forma adjustments:
Retirement benefits, net of taxes.......... 3 1 (1)
Interest expense, net of taxes............. (9) (13) (11)
------ ------ ------
Net income - pro forma....................... $ 133 $ 257 $ 279
====== ====== ======
Pro forma earnings per share:
Basic...................................... $ 0.73 $ 1.37 $ 1.46
====== ====== ======
Diluted.................................... $ 0.72 $ 1.35 $ 1.43
====== ====== ======
Pro forma weighted average common shares:
Basic...................................... 182.9 187.8 190.5
====== ====== ======
Diluted.................................... 185.5 190.6 195.6
====== ====== ======
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Dilutive common share equivalents resulted in an increase in the weighted average common shares outstanding of 2.6 million in 2001, 2.8 million in 2000, and 5.1 million in 1999.
24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables summarize quarterly financial information (in millions, except per share amounts):
2001 QUARTERS
--------------------------------
FIRST SECOND THIRD FOURTH 2001
----- ------ ------- ------ -------
Sales............................................. $ 587 $ 690 $ 727 $ 816 $ 2,820
Cost of sales..................................... 429 515 535 629 2,108
Net income (loss)................................. 58 61 68 (48) 139
PRO FORMA INFORMATION (EXCEPT FOURTH QUARTER):
Net income (loss)................................. 56 58 67 (48) 133
Basic earnings (loss) per share................... 0.31 0.32 0.37 (0.26) 0.73
Diluted earnings (loss) per share................. 0.30 0.31 0.36 (0.26) 0.72
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Net loss for the fourth quarter of 2001 includes; (a) a $34 million ($22 million after taxes, or 12 cents per share) restructuring charge and (b) a $149 million ($108 million after taxes, or 59 cents per share) charge for asset impairments (see Note 16). Stock options in the fourth quarter are anti-dilutive due to the net loss, resulting in identical basic and diluted earnings per share amounts.
2000 QUARTERS
-------------------------------
FIRST SECOND THIRD FOURTH 2000
----- ------ ----- ------ ------
Sales.............................................. $ 563 $ 618 $ 627 $ 702 $2,510
Cost of sales...................................... 409 456 451 529 1,845
Net income......................................... 67 59 69 74 269
PRO FORMA INFORMATION:
Net income......................................... 63 57 66 71 257
Basic earnings per share........................... 0.33 0.30 0.35 0.39 1.37
Diluted earnings per share......................... 0.32 0.30 0.35 0.38 1.35
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Per share information is calculated for each quarterly and annual period using average outstanding shares for that period. Therefore, the sum of the quarterly per share amounts will not necessarily equal the annual per share amounts presented.
SELECTED FINANCIAL DATA
The following selected financial data have been derived from our financial statements. The data should be read in conjunction with the financial statements and notes thereto included elsewhere in this annual report. The Statement of Operations data for the years ended September 30, 2001, 2000, 1999 and 1998 and the Statement of Financial Position data as of September 30, 2001, 2000 and 1999 have been derived from our audited financial statements. The Statement of Operations data for the year ended September 30, 1997 and the Statement of Financial Position data as of September 30, 1997 and 1998 have been derived from our unaudited financial information.
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
2001(1) 2000 1999(3) 1998(4) 1997
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA: (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Sales................................................ $ 2,820 $ 2,510 $ 2,438 $ 2,026 $ 1,701
Cost of sales........................................ 2,108 1,845 1,782 1,603 1,255
Selling, general and administrative expenses......... 351 274 278 256 237
Asset impairment charges (2)......................... 149 - - - -
Purchased research and development (5)............... - - - 103 -
Income before income taxes and accounting change..... 224 399 437 73 220
Net income (6)....................................... 139 269 291 32 144
STATEMENT OF FINANCIAL POSITION DATA:
Working capital (7).................................. $ 504 $ 508 $ 451 $ 334 $ 286
Property............................................. 448 393 365 322 229
Intangible assets.................................... 285 148 126 119 57
Total assets......................................... 2,628 2,100 2,033 1,841 1,412
Short-term debt...................................... 202 - - - -
Shareowners' equity.................................. 1,110 908 695 503 322
OTHER DATA:
Capital expenditures................................. $ 110 $ 98 $ 127 $ 143 $ 72
Goodwill amortization................................ 18 6 4 4 -
Other depreciation and amortization.................. 113 93 82 62 58
Cash dividends per share (8)......................... 0.09 - - - -
STOCK PRICE: (8)
High................................................. $ 24.23 - - - -
Low.................................................. 11.80 - - - -
PRO FORMA FINANCIAL INFORMATION: (9)
Net Income........................................... $ 133 $ 257 $ 279 - -
Basic earnings per share............................. 0.73 1.37 1.46 - -
Diluted earnings per share........................... 0.72 1.35 1.43 - -
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(1) Includes a $34 million ($22 million after taxes) restructuring charge.
(2) Asset impairment charges of $149 million ($108 million after taxes) include $136 million related to the in-flight entertainment product line and $13 million related to certain software license agreements.
(3) Includes a $32 million ($20 million after taxes) gain on sale of a business.
(4) Includes (a) $65 million ($43 million after taxes) of realignment charges and (b) $53 million ($33 million after taxes) of charges for estimated losses on two government contracts.
(5) Purchased research and development of $103 million ($65 million after taxes) relates to the acquisition of the in-flight entertainment business of Hughes-Avicom International, Inc. in December 1997.
(6) Effective October 1, 1997, we changed our method of accounting for certain inventoriable general and administrative costs related to government contracts. The cumulative effect of this change in accounting principle was a $17 million reduction of net income.
(7) Working capital consists of all current assets and liabilities, including cash and short-term debt.
(8) Cash dividends per share and stock price information reflect activity since the spin-off date of June 29, 2001.
(9) Pro forma financial information is presented as if the spin-off transaction occurred on October 1, 1999. Pro forma adjustments include interest expense on $300 million of commercial paper borrowings used to fund a pre-distribution payment to Rockwell International and income and costs related to employee benefit plan obligations related to active and former Rockwell International employees not associated with the avionics and communications business that were assumed by us in connection with the spin-off. Pro forma information prior to 1999 is not presented.
EXHIBIT 21
LIST OF SUBSIDIARIES OF ROCKWELL COLLINS, INC.
Name State of Incorporation ---- ---------------------- K-Systems, Inc. California Kaiser Aerospace & Electronics Corporation Nevada (d/b/a Kaiser Electronics) Rockwell HUD Systems, Inc. Delaware (d/b/a Flight Dynamics) Kaiser Electro-Optics, Inc. California Kaiser Optical Systems, Inc. Michigan Polhemus Incorporated Delaware Kaiser Vision Systems, Inc. California Kaiser Fluid Technologies, Inc. North Carolina Intertrade Limited Iowa |
Listed above are certain consolidated subsidiaries included in the consolidated financial statements of the Company. Unlisted subsidiaries, considered in the aggregate, do not constitute a significant subsidiary.
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos. 333-63100, 333-63120 and 333-72814 on Form S-8 and Nos. 333-63142 and 333-72914 on Form S-3 of Rockwell Collins, Inc. of our reports dated November 1, 2001 (which report on the consolidated financial statements expresses an unqualified opinion and includes an explanatory paragraph noting that Rockwell Collins, Inc. had not previously operated as a stand-alone company during the periods presented), appearing in and incorporated by reference in the Annual Report on Form 10-K of Rockwell Collins, Inc. for the year ended September 30, 2001.
/s/ DELOITTE & TOUCHE LLP Chicago, Illinois December 19, 2001 |
EXHIBIT 24
POWER OF ATTORNEY
I, the undersigned Director and/or Officer of Rockwell Collins, Inc., a Delaware corporation (the "Company"), hereby constitute GARY R. CHADICK, LAWRENCE A. ERICKSON, PATRICK E. ALLEN and PETER R. KOLYER, and each of them singly, my true and lawful attorneys with full power to them and each of them to sign for me, and in my name and in the capacity or capacities indicated below, the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2001, and any amendments thereto.
Signature Title Date
--------- ----- ----
/s/ CLAYTON M. Jones President and Chief Executive November 19, 2001
------------------------- Officer (principal executive
Clayton M. Jones officer) and Director
/s/ DONALD R. Beall Non-Executive Chairman of November 22, 2001
------------------------- the Board of Directors
Donald R. Beall
/s/ ANTHONY J. CARBONE Director November 20, 2001
-------------------------
Anthony J. Carbone
/s/ MICHAEL P.C. CARNS Director November 17, 2001
-------------------------
Michael P.C. Carns
/s/ RICHARD J. Ferris Director November 20, 2001
-------------------------
Richard J. Ferris
/s/ JOSEPH F. TOOT, JR. Director November 26, 2001
-------------------------
Joseph F. Toot, Jr.
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POWER OF ATTORNEY
I, the undersigned Officer of Rockwell Collins, Inc., a Delaware corporation (the "Company"), hereby constitute GARY R. CHADICK, LAWRENCE A. ERICKSON, PATRICK E. ALLEN and PETER R. KOLYER, and each of them singly, my true and lawful attorneys with full power to them and each of them to sign for me, and in my name and in the capacity or capacities indicated below, the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2001, and any amendments thereto.
Signature Title Date
--------- ----- ----
/s/ LAWRENCE A. ERICKSON Senior Vice President and November 20, 2001
-------------------------- Chief Financial Officer
Lawrence A. Erickson (principal financial officer)
/s/ PATRICK E. Allen Vice President Finance and November 20, 2001
-------------------------- Treasurer (principal
Patrick E. Allen accounting officer)
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