-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SrMV74d8LiLvXuCLqgP7LOfRWcGYHXLSq5hmWKS/9VeVbIGMyZpdOznAbLtM32rj oCwo/B82wwuzCv2XYL+dfw== 0000950152-96-004770.txt : 19960919 0000950152-96-004770.hdr.sgml : 19960919 ACCESSION NUMBER: 0000950152-96-004770 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960918 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRIS CORP /DE/ CENTRAL INDEX KEY: 0000202058 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 340276860 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03863 FILM NUMBER: 96631898 BUSINESS ADDRESS: STREET 1: 1025 W NASA BLVD CITY: MELBOURNE STATE: FL ZIP: 32919 BUSINESS PHONE: 4077279100 MAIL ADDRESS: STREET 1: 1025 W NASA BLVD CITY: MELBOURNE STATE: FL ZIP: 32919 FORMER COMPANY: FORMER CONFORMED NAME: HARRIS SEYBOLD CO DATE OF NAME CHANGE: 19600201 10-K405 1 HARRIS CORPORATION 10-K405 1 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 JUNE 30, 1996 COMMISSION FILE NUMBER 1-3863 HARRIS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 34-0276860 - -------------------------------------------------------------------------------------------------------------------- (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
1025 W. NASA Boulevard Melbourne, Florida 32919 --------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (407) 727-9100 --------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ----------------------------------------------- Common Stock, par value $1 per share New York Stock Exchange, Inc. 7 3/4% Sinking Fund Debentures due 2001 New York Stock Exchange, Inc. Preferred Stock Purchase Rights New York Stock Exchange, Inc.
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 Section 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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 voting stock held by non-affiliates of the registrant as of August 30, 1996 is $2,370,000,000. The number of shares outstanding of the registrant's class of common stock, as of August 30, 1996 is 38,955,394. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement filed September 16, 1996 (Incorporated by Reference into Part III). 2 PART I ITEM 1. BUSINESS THE COMPANY Harris Corporation was incorporated in Delaware in 1926 as the successor to three companies founded in the 1890's. The executive offices of the Company are located at 1025 W. NASA Boulevard, Melbourne, Florida 32919, and the telephone number is (407) 727-9100. Harris Corporation, along with its subsidiaries (hereinafter called "Harris" or the "Company"), is a worldwide company focused on four core businesses: advanced electronic systems, semiconductors, communications and an office equipment distribution network. The Company's four core businesses were carried out during fiscal 1996 through three business sectors and a subsidiary, which correspond to its business segments used for financial reporting purposes: Communications Sector, Semiconductor Sector, Lanier Worldwide, Inc. and Electronic Systems Sector. Harris structures its operations primarily around the markets it serves. Its operating divisions, which are the basic operating units, have been organized on the basis of technology and markets. For the most part, each operating division has its own marketing, engineering, manufacturing and service organizations. Reference is made to the Note Business Segments in the Notes to Financial Statements for further information with respect to business sectors and the subsidiary. Total sales in fiscal 1996 increased to $3.6 billion from $3.4 billion a year earlier. Total sales in the United States were relatively unchanged while international sales, which amounted to 33 percent of the corporate total, increased 19 percent. Net income increased 15 percent to $178.4 million from $154.5 million. The Company's three business sectors and the subsidiary and their principal products are as follows: Communications Sector: produces broadcast, radio-communication, and telecommunication products and systems, including transmitters and studio equipment for radio and television, Digital TV (formerly HDTV), HF, VHF and UHF radio-communication equipment, microwave radios, digital telephone switches, telephone subscriber-loop equipment, and in-building paging equipment. Semiconductor Sector: produces advanced analog, digital and mixed-signal integrated circuits and discrete semiconductors for power, signal processing, data-acquisition, and logic applications for automotive systems, wireless communications, telecommunications line cards, video and imaging systems, industrial equipment, computer peripherals, and military and aerospace systems. Lanier Worldwide, Inc.: sells, distributes, services, supports and provides supplies for copying systems, facsimile systems and networks, dictation systems, optical-based electronic-image management systems, continuous recording systems and PC-based health care management systems. Electronic Systems Sector: engages in advanced design and development, and produces leading-edge information processing and communication systems and software for defense, air traffic, aerospace, energy management, law enforcement, and newspaper composition market applications. The financial results shown in the tables on page 2 are presented to comply with current financial accounting standards relating to business segment reporting. Information concerning the identifiable assets of the Company's business segments is contained in the Note Business Segments in the Notes to Financial Statements. In calculating operating profit, allocations of certain expenses among the business segments involve the exercise of business judgment. Intersegment sales are accounted for at prices comparable to those paid by unaffiliated customers. 1 3 NET SALES AND OPERATING PROFIT BY BUSINESS SEGMENT (DOLLARS IN MILLIONS) NET SALES
YEAR ENDED COMMUNI- SEMI- LANIER ELECTRONIC JUNE 30 CATIONS CONDUCTOR WORLDWIDE SYSTEMS TOTAL ----------------------- ---------- -------- -------- ---------- --------- 1994................... $628.2 $635.3 $ 943.7 $1,128.9 $ 3,336.1 1995................... 724.8 658.7 1,024.8 1,035.8 3,444.1 1996................... 841.6 707.7 1,117.2 954.7 3,621.2
OPERATING PROFIT
YEAR ENDED COMMUNI- SEMI- LANIER ELECTRONIC CORPORATE INTEREST JUNE 30 CATIONS CONDUCTOR WORLDWIDE SYSTEMS EXPENSE EXPENSE TOTAL ----------------------- ------- ------- ------- ------- ------- ------- ------ 1994................... $57.6 $ 70.2 $ 89.8 $101.3 $(67.1 )* $(58.3 ) $193.5 1995................... 68.5 83.0 105.7 95.5 (49.7 ) (65.4 ) 237.6 1996................... 82.4 101.0 120.7 76.7 (43.9 ) (62.5 ) 274.4
- --------------- *Corporate expense in 1994 includes a $17.8 million charge resulting from the write-off of securities received from the 1990 sale of a discontinued business. COMMUNICATIONS The Communications Sector of the Company designs, manufactures, and sells products characterized by three principal communication technologies: telecommunications, including microwave products and systems, digital telephone switches, telephone test equipment and auxiliary telecommunication products; broadcast, including radio and television products and transmission systems; and two-way radio, including high-frequency (HF), very high frequency (VHF) and ultra-high frequency (UHF) products, and complete turnkey communication systems. Sales in fiscal 1996 for this business segment increased 16 percent to $841.6 million from $724.8 million. The sector recorded operating profit of $82.4 million, up from $68.5 million in fiscal 1995. The sector contributed 23 percent of Company sales in fiscal 1996 and 21 percent in fiscal 1995. The sector is a worldwide supplier of voice and data digital network switches and private-branch exchanges (PBXs) to long-distance carriers, utilities, corporations and government agencies. The sector also supplies telecommunication products and systems under the Dracon trademark, including telephone test systems and tools. Under the Farinon trademark, the sector is the largest producer of low- and medium-capacity analog and digital microwave systems in North America. The sector is the leading supplier of radio and television broadcast transmission equipment and radio-studio equipment in the United States and provided the nation's first advanced television transmitter to broadcast digital television. The sector's products include radio and television transmitters, antennas, and audio, remote-control and video production systems. The sector is also a leading supplier of mobile broadcast units. The sector is a leading supplier of two-way HF, VHF and UHF radio equipment and offers a comprehensive line of products and systems for long- and short-distance communications. The sector also designs and installs turnkey communication systems involving a variety of communication technologies, including HF, VHF, microwave, and switching systems with command and control centers. The products are sold to commercial and government customers worldwide. Internationally, particularly in the emerging markets, the sector designs, sells, installs and services communication systems involving radio and television broadcasting equipment and long- and short-range radios on both a product and a turnkey system basis. 2 4 Principal customers for products of the Communications Sector include foreign and domestic commercial and industrial firms, radio and TV broadcasters, telephone companies, governmental and military agencies, utilities, construction companies and oil producers. In general, these products are sold and serviced domestically directly to customers through the sales organizations of the operating divisions and through established distribution channels. Internationally, the sector markets and sells its products and services through established distribution channels. See "International Business." The backlog of unfilled orders for this segment of Harris' business was $343 million at June 30, 1996, substantially all of which is expected to be filled during the 1997 fiscal year, compared with $309 million a year earlier. SEMICONDUCTOR The Semiconductor Sector of the Company produces advanced analog, digital, power and mixed-signal integrated circuits and discrete semiconductors for data-acquisition, signal processing, logic and power applications that demand the highest levels of performance in terms of speed, precision, low power consumption and reliability, often in harsh environments. Sales in fiscal 1996 for this business segment increased 7 percent to $707.7 million from $658.7 million in fiscal 1995. The sector's operating profit was $101.0 million in fiscal 1996, compared with $83.0 million in fiscal 1995. The sector contributed 20 percent of Company sales in fiscal 1996 and 19 percent of Company sales in fiscal 1995. The sector produces discrete-power products, including MOS (metal oxide semiconductors) power devices, transistors, rectifiers, power control circuits and transient suppression products. The sector pioneered development of "intelligent-power" technology which permits the combination of analog, logic and power circuits on the same chip. In addition to industrial and electronic data processing (EDP) applications for motor controllers and power supplies, these products are widely used in automotive electronic systems, such as automotive ignition systems, anti-lock braking and engine controls, and instrument displays. The sector is a major supplier of devices addressing the communications market through the provision of complex functions, including wireless, broadband and data conversion components. In addition, the sector is a leader in mixed-signal telecommunication line card applications, including SLICs (subscriber line interface circuits), CODECs (Coder/Decoder), and cross-point switches used in private-branch-exchange (PBX) systems and of other circuits for cellular communications, high resolution medical imaging, broadcast and interactive cable video, and military radar systems. The sector is a major supplier of integrated circuits and discrete devices to the military and aerospace markets, with an emphasis on commercial and military space applications, and radiation hardened circuits. The sector also supplies custom and semicustom integrated circuits, known as application specific integrated circuits (ASICs), designed for high-performance commercial and military applications. The sector's circuits are based on CMOS (complementary metal oxide semiconductor), bipolar analog, power analog/digital and other process technologies. Principal customers for the sector's products include video imaging, EDP, communications, telephone, industrial, medical and other electronic equipment manufacturers, automobile manufacturers, defense contractors and U.S. government agencies. In general, these products are sold directly to customers through a worldwide sales organization, which includes independent manufacturers' representatives, and to distributors, who, in turn, resell to their customers. Internationally, this sector also sells through distributors. See "International Business." The integrated circuit industry and technology are characterized by intense competition and rapid advances in product performance. In addition to its own research and development, Harris is a party to technology development and exchange agreements with other companies to develop new and expanded technologies. 3 5 The backlog of unfilled orders for this segment of Harris' business was $356 million at June 30, 1996, substantially all of which is expected to be filled during the 1997 fiscal year, compared with $354 million a year earlier. LANIER WORLDWIDE Lanier Worldwide, Inc. is a wholly-owned subsidiary of Harris which markets, sells, and services office equipment and business communication products. Sales in fiscal 1996 for this business segment increased 9 percent to $1,117.2 million from $1,024.8 million in fiscal year 1995. Operating profit was $120.7 million, up from $105.7 million last year. Lanier Worldwide contributed 31 percent of Company sales in fiscal 1996 and 30 percent in 1995. Through a global network of direct sales and service centers and authorized dealers, Lanier Worldwide provides copying, dictation, continuous recording, facsimile products and systems and multi-functional devices. The subsidiary also provides facilities management operations and other related services. Lanier Worldwide leases certain of these products to customers on a short-term basis. Due to the nature of its business, backlog of unfilled orders is not considered significant to an understanding of this segment's business. ELECTRONIC SYSTEMS The Electronic Systems Sector of Harris is composed of several operating divisions and is engaged in advanced research, design, development and production of advanced information processing and communication systems and sub-systems for government and commercial organizations in the United States and overseas. Applications of the sector's state-of-the-art technologies include air traffic control, advanced aerospace products, energy management systems, testing of complex electronics systems, newspaper composition and information management systems. The Electronic Systems Sector is a major supplier of advanced-technology and electronic systems to the United States Department of Defense, the Federal Aviation Administration, National Aeronautics and Space Administration, Federal Bureau of Investigation and other federal and local government agencies, aircraft manufacturers, airports, electric utilities, newspapers and publishing houses. Sales in fiscal 1996 for this business segment decreased 8 percent to $954.7 million from $1,035.8 million in fiscal 1995. Operating profit of $76.7 million decreased from $95.5 million in the previous year. This sector contributed 26 percent of Company sales in fiscal 1996 and 30 percent in 1995. The sector is a leading supplier of air-traffic control communication systems. The sector is also a major supplier of custom aircraft and spaceborne communication and information processing systems, a leading supplier of terrestrial and satellite communication systems and a preeminent supplier of super-high-frequency military satellite ground terminals for the Department of Defense. The sector is a major supplier of custom ground-based systems and software designed to collect, store, retrieve, process, analyze, display and distribute information for government, defense and law enforcement applications, including meteorological data processing systems and range management information systems. The sector also provides computer controlled electronic maintenance, logistic, simulation and test systems for military aircraft, ships and ground vehicles. The sector is a worldwide supplier of energy management and distribution automation systems for electric utilities and information-processing systems for newspapers and publishing houses. Most of the sales of this sector are made directly or indirectly to the United States government under contracts or subcontracts containing standard government clauses providing for redetermination of profits, if applicable, and for termination for the convenience of the government or for default of the contractor. These sales consist of a variety of contracts and programs with various governmental agencies, with no single program accounting for 10 percent or more of total Harris sales. 4 6 The backlog of unfilled orders for this segment of Harris' business was $607 million at June 30, 1996, substantially all of which is expected to be filled during the 1997 fiscal year, compared with $568 million a year earlier. INTERNATIONAL BUSINESS Sales in fiscal 1996 of products exported from the United States or manufactured abroad were $1,206 million or 33 percent of the corporate total, compared with $1,016 million or 30 percent of the corporate total in fiscal 1995 and $982 million (29 percent) in fiscal 1994. Exports from the United States, principally to Europe and Asia, totalled $632 million or 52 percent of the international sales in fiscal 1996, $525 million or 52 percent of the international sales in fiscal 1995 and $388 million or 40 percent in fiscal 1994 of the international sales. Foreign operations represented 16 percent of consolidated net sales and 21 percent of consolidated total assets as of June 30, 1996. Electronic products and systems are produced principally in the United States and international electronic revenues are derived primarily from exports. Semiconductor assembly facilities are located in Malaysia and Ireland and electronic products assembly facilities are located in Canada and England. International marketing activities are conducted through subsidiaries which operate in Canada, Europe, Central and South America, Asia and Australia. Reference is made to Exhibit 21 "Subsidiaries of the Registrant" for further information regarding foreign subsidiaries. Harris utilizes indirect sales channels, including dealers, distributors and sales representatives, in the marketing and sale of some lines of products and equipment, both domestically and internationally. These independent representatives may buy for resale, or, in some cases, solicit orders from commercial or governmental customers for direct sales by Harris. Prices to the ultimate customer in many instances may be recommended or established by the independent representative and may be on a basis which is above or below the Company's list prices. Such independent representative generally receives a discount from the Company's list prices and may mark-up such prices in setting the final sales prices paid by the customer. During the fiscal year, orders came from a large number of foreign countries, no one of which accounted for five percent of total orders. Certain of Harris' exports are paid for by letters of credit, with the balance either on an open account or installment note basis. Advance payments, progress payments or other similar payments received prior to or upon shipment often cover most of the related costs incurred. Performance guarantees by the Company are generally required on significant foreign government contracts. The particular economic, social and political conditions for business conducted outside the United States differ from those encountered by domestic business. Management believes that the composite business risk for the international business as a whole is somewhat greater than that faced by its domestic operations as a whole. International business may subject the Company to such risks as the laws and regulations of foreign governments relating to investments, operations, currency exchange controls, revaluations, taxes, and fluctuations of currencies; uncertainties as to local laws and enforcement of contract and intellectual property rights; occasional requirements for onerous contract clauses; and, in certain areas, rapid changes in governments and economic and political policies, the threat of international boycotts and United States anti-boycott legislation. Nevertheless, in the opinion of management, these risks are offset by the diversification of the international business and the protection provided by letters of credit and advance payments. Except for inconsequential matters involving road and utility rights-of-way, Harris has never been subjected to threat of government expropriation, either within the United States or abroad. Financial information regarding the Company's domestic and international operations is contained in the Note Business Segments in the Notes to Financial Statements. 5 7 COMPETITION; PRINCIPAL CUSTOMERS; BACKLOG The Company operates in highly competitive businesses that are sensitive to technological advances. While successful product and systems development is not necessarily dependent on substantial financial resources, some of Harris' competitors in each of the sectors of its business are larger and can maintain higher levels of expenditures for research and development than Harris. Harris concentrates in each of its sectors on the market opportunities which management believes are compatible with its resources, overall technological capabilities and objectives. Principal competitive factors in these sectors are cost-effectiveness, product quality and reliability, service and ability to meet delivery schedules as well as, in international areas, the effectiveness of dealers. Sales to the U.S. government, which is the Company's only customer accounting for 10 percent or more of total sales, were 26 percent, 30 percent, and 35 percent of total sales in 1996, 1995 and 1994 respectively. It is not expected that Defense Department budget cutbacks will have a material effect on the profitability of the Company due in part to the Company's efforts to diversify and reduce its reliance on defense contracts. Harris' backlog of unfilled orders was approximately $1.3 billion at June 30, 1996 and $1.2 billion at June 30, 1995. Substantially all of the backlog orders at June 30, 1996 are expected to be filled by June 30, 1997. RESEARCH AND ENGINEERING Research and engineering expenditures by Harris totaled approximately $603 million in 1996, $601 million in 1995 and $624 million in 1994. Company-sponsored research and product development costs were $160 million in 1996, $134 million in 1995 and $128 million in 1994. The balance was funded by government and commercial customers. Company-funded research is directed to the development of new products and to building technological capability in selected semiconductor, communications and electronic systems areas. Government-funded research helps strengthen and broaden the technical capabilities of Harris in its areas of interest. Almost all of the decentralized operating divisions maintain their own engineering and new product development departments, with scientific assistance provided by advanced-technology departments. Harris holds numerous patents which it considers, in the aggregate, to constitute an important asset. However, it does not consider its business or any sector to be materially dependent upon any single patent or any group of related patents. The Company is engaged in a pro-active patent licensing program especially in the Semiconductor Sector, and has entered into a number of unilateral license and cross-license agreements, many of which generate royalty income. Although existing license agreements have generated income in past years and will do so in the future, there can be no assurances the Company will enter into additional income producing agreements. ENVIRONMENTAL AND OTHER REGULATIONS The manufacturing facilities of Harris, in common with those of industry generally, are subject to numerous laws and regulations designed to protect the environment, particularly in regard to wastes and emissions. Harris has complied with these requirements and such compliance has not had a material adverse effect on its business or financial condition. Expenditures to protect the environment and to comply with current environmental laws and regulations over the next several years are not expected to have a material impact on the Company's competitive or financial position. If future laws and regulations contain more stringent requirements than presently anticipated, expenditures may be higher than the Company's present estimates of potential capital expenses. Waste treatment facilities and pollution control equipment have been installed to satisfy legal requirements and to achieve the Company's waste minimization and prevention goals. An estimated $.3 million was spent on environmental capital projects in fiscal 1996. The Company currently forecasts authorization for environmental-related capital projects totalling $2.2 million in fiscal 1997. Such amounts may increase in future years. The Company anticipates that capital expenditures may be required over the next several years for compliance costs under the new Clean Air Act; however, considerable uncertainty remains with regard to estimates of such capital expenditures because the regulations have not yet been issued. 6 8 EMPLOYEES As of June 30, 1996, Harris had approximately 27,600 employees. ITEM 2. PROPERTIES Harris operates approximately 41 plants and approximately 400 offices in the United States, Canada, Europe, Central and South America, Asia and Australia consisting of about 7.1 million square feet of manufacturing, administrative, engineering and office facilities that are owned and about 3.4 million square feet of sales, office and manufacturing facilities that are leased. The leased facilities are occupied under leases for terms ranging from one year to 30 years, a majority of which can be terminated or renewed at no longer than five-year intervals at Harris' option. The location of the principal manufacturing plants owned by the Company in the United States and the sectors which utilize such plants are as follows: Electronic Systems -- Malabar, Melbourne and Palm Bay, Florida; Semiconductor -- Palm Bay, Florida; Findlay, Ohio; and Mountaintop, Pennsylvania; Communications -- Novato and Redwood Shores, California; San Antonio, Texas; Quincy, Illinois; and Rochester, New York; and Lanier Worldwide -- Atlanta, Georgia. Harris considers its facilities to be suitable and adequate for the purposes for which they are used. As of June 30, 1996, the following facilities were in productive use by Harris:
SQ. FT. TOTAL SQ. FT. TOTAL SECTOR FUNCTION OWNED LEASED ------------------------- --------------------- ------------- ------------- Electronic Systems Office/Manufacturing 2,832,000 434,000 Semiconductor Office/Manufacturing 2,067,000 44,000 Communications Office/Manufacturing 855,000 671,000 Lanier Worldwide Office/Manufacturing 144,000 556,000 OTHER Corporate Offices 1,235,000 58,000 Sales/Service Offices 13,700 1,684,000 ------------- ------------- TOTALS 7,146,700 3,447,000
ITEM 3. LEGAL PROCEEDINGS From time to time, as a normal incident of the nature and kind of business in which the Company is engaged, various claims or charges are asserted and litigation commenced against the Company arising from or related to product liability; patents, trademarks, or trade secrets; breach of warranty; antitrust; distribution; or contractual relations. Claimed amounts may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court awards. In the opinion of management, final judgments, if any, which might be rendered against the Company in such litigation are reserved against or would not have a material adverse effect on the financial position or the business of the Company as a whole. Government contractors, such as the Company, engaged in supplying goods and services to the U.S. government are dependent on congressional appropriations and administrative allotment of funds and may be affected by changes in U.S. government policies. U.S. government contracts typically involve long-lead times for design and development and are subject to significant changes in contract scheduling and may be unilaterally modified or cancelled by the government. Often these contracts call for successful design and production of complex and technologically advanced items. The Company may participate in supplying goods and services to the U.S. government as either a prime contractor or a subcontractor to a prime contractor. Disputes may arise between the prime contractor and the government and the prime contractor and its subcontractor and may result in litigation between the contracting parties. From time to time, the Company, either individually or in conjunction with other U.S. government contractors, may be the subject of U.S. government investigations for alleged criminal or civil violations of procurement or other federal laws. These investigations may be conducted without the Company's knowledge. The Company is currently cooperating with certain government representatives in potential violations of the 7 9 federal procurement laws. The Company is unable to predict the outcome of such investigations or to estimate the amounts of resulting claims or other actions that could be instituted against it, its officers or employees. Under present government procurement regulations, if indicted or adjudged in violation of procurement or other federal civil laws, a government contractor could be suspended or debarred from eligibility for awards of new government contracts for up to three years. In addition, a government contractor's foreign export control licenses could be suspended or revoked. Management does not believe that the outcome of these disputes or investigations will have any material adverse effect on the financial position or the business of the Company as a whole. In addition, the Company is subject to numerous federal and state environmental laws and regulatory requirements and is involved from time to time in investigations or litigation of various potential environmental issues concerning the ongoing conduct of its facilities or the remediation as a result of past activities. The Company from time to time receives notices from the United States Environmental Protection Agency and equivalent state environmental agencies that it is a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act (commonly known as the "Superfund Act") and/or equivalent state legislation. Such notices assert potential liability for cleanup costs at various sites, most of which are non-Company owned treatment or disposal sites, allegedly containing hazardous substances attributable to the Company from past operations. The Company has been named as a PRP at only 10 such sites, excluding sites as to which the Company's records disclose no involvement or as to which the Company's liability has been finally determined; the Company expects to resolve most of such exposures on a de minimis basis. In the opinion of management, any payments the Company may be required to make as a result of these claims will not have a material adverse effect on the financial condition or the business of the Company as a whole. In August 1991, PLS, Inc., a California software company, filed suit against the Company in the Superior Court of California for San Diego County, alleging fraud, breach of contract and other charges. In December 1992, the jury returned a verdict in favor of the plaintiff. In May 1993, the court entered judgment against the Company for $13,379,000 in compensatory damages for eight years of lost profits, i.e. through September 1997 and $53,424,700 in punitive damages, together with attorney fees, interest and costs of suit. On July 23, 1996, the California Court of Appeal concluded there was insufficient evidence to support a finding of fraud and reversed the award of punitive damages. The Court of Appeal remanded the breach of contract matter to the lower court for retrial solely on the issue of compensatory damages with directions to limit the period of time for which damages can be awarded from approximately October 1989 to July 15, 1991. In light of the Court of Appeal's opinion, it is management's belief that the ultimate outcome of this litigation will not have a material effect on the Company's financial results. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 8 10 EXECUTIVE OFFICERS OF THE REGISTRANT AS OF SEPTEMBER 1, 1996.* (SEE ALSO ITEM 10 OF PART III).
EXECUTIVE BUSINESS EXPERIENCE DURING NAME AGE OFFICE HELD PAST FIVE YEARS - ------------------------------ ------------------------- ------------------------------------- Phillip W. Farmer 58 Chairman, President and Chairman of the Board and Chief Chief Executive Officer Executive Officer since July, 1995. President since April, 1993. Chief Operating Officer 1993-95. Executive Vice President and Acting President -- Semiconductor Sector, 1991 to 1993. President -- Electronic Systems Sector, 1989 to 1991. Senior Vice President -- Sector Executive, 1988 to 1989. Vice President -- Palm Bay Operations, 1986 to 1988. Vice President -- General Manager, Government Support Systems Division, 1982 to 1986. Director since 1993. Wesley E. Cantrell 61 President and President and Chief Executive Chief Executive Officer, Lanier Worldwide, Inc. Officer, since March, 1987. Senior Vice Lanier Worldwide, Inc. President -- Sector Executive, Lanier Business Products Sector, 1985 to 1987. President, Lanier Business Products, 1977 to 1987. Executive Vice President and National Sales Manager, Lanier Business Products, 1972 to 1977. Vice President, Lanier Business Products, 1966 to 1972. Employed by Lanier Business Products since 1955. John C. Garrett 53 President -- President -- Semiconductor Sector Semiconductor Sector since April, 1993. Formerly Executive Vice President, Industrial Business, Square D Company 1987 to 1993, and various general management assignments with General Electric Company 1964 to 1987. Guy W. Numann 64 President -- President -- Communications Sector Communications Sector since August, 1989. Senior Vice President -- Sector Executive, 1984 to 1989. Vice President -- Group Executive, RF Communications Group, 1983 to 1984. Vice President -- General Manager, RF Communications Division, 1974 to 1983. Vice President -- Engineering, RF Communications Division, 1970 to 1974.
- --------------- *This listing identifies the executive officers of the Company, as defined pursuant to the Securities Exchange Act of 1934, as well as all other corporate officers. 9 11
EXECUTIVE BUSINESS EXPERIENCE DURING NAME AGE OFFICE HELD PAST FIVE YEARS - ------------------------------ ------------------------- ------------------------------------- Albert E. Smith 46 President -- Electronics President -- Electronics System System Sector Sector since April, 1996. Formerly President -- Space Systems Division, Lockheed Martin, June 1994 to April 1996. Various management assignments with Lockheed Corporation, 1985 to June 1994. Bryan R. Roub 55 Senior Vice President -- Senior Vice President -- Finance Chief Financial Officer since July, 1984. Formerly with Midland-Ross Corporation in the capacities of Executive Vice President -- Finance, 1982 to 1984; Senior Vice President, 1981 to 1982; Vice President and Controller, 1977 to 1981; and Controller, 1973 to 1977. Richard L. Ballantyne 56 Vice President -- General Vice President -- General Counsel and Counsel and Secretary Secretary since November, 1989. Formerly Vice President -- General Counsel and Secretary, Prime Computer, Inc., 1982 to 1989. James L. Christie 44 Vice President -- Vice President -- Internal Audit Internal Audit since August, 1992. Director -- Internal Audit, 1986 to 1992. Formerly Director -- Internal Audit and Division Controller at Harris Graphics Corporation, 1985 to 1986. Various corporate and division financial positions at Harris, 1978 to 1985. Robert W. Fay 49 Vice President -- Vice President -- Controller since Controller January, 1993. Acting Vice President -- Controller, Semiconductor Sector, 1991 to 1993. Vice President -- Treasurer, 1988 to 1993. Treasurer, 1985 to 1988. Director -- Financial Operations, Semiconductor Sector, 1984 to 1985. Controller -- Bipolar Digital Semiconductor Division, 1981 to 1984. Manager -- Corporate Finance and Cash Management, 1978 to 1981. Nick E. Heldreth 54 Vice President -- Vice President -- Human Resources Human Resources since June, 1986. Formerly Vice President -- Personnel and Industrial Relations, Commercial Products Division, Pratt & Whitney and various related assignments with United Technologies Corporation, 1974 to 1986.
10 12
EXECUTIVE BUSINESS EXPERIENCE DURING NAME AGE OFFICE HELD PAST FIVE YEARS - ------------------------------ ------------------------- ------------------------------------- John G. Johnson 60 Vice President -- Vice President -- Quality and New Quality and Processes since 1994. Formerly Vice New Processes President and Program Manager of Core Program. Various management assignments with the Electronic Systems Sector, 1962-1994. Herbert N. McCauley 63 Vice President -- Vice President -- Information Information Management Management since August, 1980. In July 1996, also Vice President -- General Manager, Telecommunications Systems Division. Director -- Management Information Systems, 1976 to 1980. Ronald R. Spoehel 38 Vice President -- Vice President -- Corporate Corporate Development Development since October, 1994. Formerly, Senior Vice President, ICF Kaiser International, Inc., in various general management assignments including member of the office of the chairman, chief financial officer, and treasurer, 1990 to 1994; and, Vice President, Investment Banking, Lehman Brothers (formerly Shearson Lehman Hutton Inc.), 1985 to 1990. David S. Wasserman 53 Vice President -- Vice President -- Treasurer since Treasurer January, 1993. Vice President -- Taxes 1987 to 1993. Formerly Senior Vice President, Midland-Ross Corporation, 1979 to 1987.
There is no family relationship between any of the Company's executive officers or directors. All of the Company's executive officers are elected by and serve at the pleasure of the Board of Directors. 11 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Harris Corporation Common Stock, par value $1 per share (the "Common Stock"), is listed on the New York Stock Exchange, Inc. and is also traded on the Boston, Chicago, Philadelphia and Pacific Stock Exchanges and through the Intermarket Trading System. As of August 30, 1996, there were 9,125 holders of record of the Common Stock. The high and low closing prices as reported in the consolidated transaction reporting system and the dividends paid on the Common Stock for each quarterly period in the last two fiscal years are reported below:
PER SHARE AMOUNTS (IN DOLLARS) -------------------------------------------------------- QUARTERS ENDED -------------------------------------------------------- 9-30-95 12-31-95 3-31-96 6-30-96 TOTAL ----------- ----------- ----------- ----------- ----------- Fiscal 1996 Dividends................... $.34 $.34 $.34 $.34 $1.36 Stock prices (high/low)..... 61 3/8-51 1/2 60 5/8-50 3/4 68 7/8-48 7/8 68-57 5/8
9-30-94 12-31-94 3-31-95 6-30-95 TOTAL ----------- ----------- ----------- ----------- ----------- Fiscal 1995 Dividends................... $.31 $.31 $.31 $.31 $1.24 Stock Prices (high/low)..... 49 1/8-41 3/8 48 7/8-38 48 3/8-40 1/2 53 3/8-46 3/8
In August, 1996, the directors declared a quarterly cash dividend of 38 cents per share. The Company has paid cash dividends in every year since 1941. ITEM 6. SELECTED FINANCIAL DATA The following table summarizes selected financial information of Harris Corporation and its subsidiaries for each year during the five year period ended June 30, 1996. This table should be read in conjunction with other financial information of Harris, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and financial statements included elsewhere herein.
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED JUNE 30 ------------------------------------------------------------ 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Net sales..................... $3,621.2 $3,444.1 $3,336.1 $3,099.1 $3,004.0 Income from continuing operations before extraordinary item and cumulative effect of change in accounting principle..... 178.4 154.5 121.9 111.1 87.5 Discontinued operations....... -- -- -- -- (9.3) Extraordinary loss from early retirement of debt.......... -- -- -- -- (3.0) Cumulative effect of change in accounting principle........ -- -- (10.1) -- -- Net income.................... 178.4 154.5 111.8 111.1 75.2 Per share data: Income from continuing operations before extraordinary item and cumulative effect of change in accounting principle................ 4.58 3.95 3.07 2.82 2.24 Discontinued operations..... -- -- -- -- (.24) Extraordinary loss.......... -- -- -- -- (.08) Cumulative effect of accounting change........ -- -- (.25) -- -- Net income.................. 4.58 3.95 2.82 2.82 1.92 Cash dividends.............. 1.36 1.24 1.12 1.04 1.04 Net working capital........... 757.8 755.4 893.6 792.5 768.9 Total assets.................. 3,206.7 2,836.0 2,677.1 2,542.0 2,483.8 Long-term debt................ 588.5 475.9 661.7 612.0 612.5
12 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS The information in this review, along with Business Segment data shown on page 2, reflects the Company's continuing operations. RESULTS OF OPERATIONS FISCAL 1996 COMPARED WITH 1995 -- Sales in fiscal 1996 increased 5 percent while net income increased 15 percent. Communications segment sales increased 16 percent and net income increased 31 percent. The segment's strong growth in sales and earnings reflected strong demand in the segment's telecommunication and wireless businesses, particularly microwave systems, broadcast products, and telephone test equipment. International sales were higher than the previous year and account for 49 percent of total segment sales in fiscal 1996. Semiconductor segment sales increased 7 percent despite an industry-wide slowdown in new orders during the second half of the fiscal year. Strong sales of the segment's power control products, improved margins on military products, and increased royalty income contributed to the segment's 24 percent earnings growth. Sales in the Lanier Worldwide segment increased 9 percent while net income increased 24 percent. Sales and earnings were strong in both domestic and international markets. Electronic Systems segment sales and net income decreased 8 and 19 percent, respectively. Segment results were impacted by write-offs on development programs, whose production follow-on is unlikely, and significantly lower sales and losses in the segment's energy management business. Cost of sales, rentals, and services as a percentage of sales decreased to 66.4 percent from 67.6 percent in the prior year. Continuing margin improvement in the Semiconductor and Communications segments was offset in part by higher costs in the Electronic Systems segment. Engineering, selling, and administrative expenses as a percentage of sales increased to 25.2 percent from 24.3 percent last year. Higher marketing expenses and a 19 percent increase in corporation-sponsored research and development expenditures contributed to higher operating expenses. Interest income increased in 1996 due to an increase in the balance of notes receivable from customers. Interest expense decreased due to lower interest rates and an increase in the amount of interest capitalized. "Other-net" expense was $7.7 million lower in fiscal 1996 due to gains from foreign currency transactions. The provision for income taxes in fiscal 1996 and 1995 was 35.0 percent of income before income taxes. CAPITAL EXPENDITURES -- Expenditures for land, buildings, and equipment totaled $225 million in 1996, up from $139 million in the prior year. In addition, during fiscal 1996, $68 million was invested in equipment for rental to customers, up from $65 million invested in the prior year. Substantially all of this investment in rental equipment is related to Lanier Worldwide products. FISCAL 1995 COMPARED WITH 1994 -- Sales in fiscal 1995 increased 3 percent while income before cumulative effect of change in accounting principle increased 27 percent. Income for 1994 included a $17.8 million charge ($11.5 million after income taxes) for the Corporation's write-off of securities received from a prior-year sale of a discontinued business. Semiconductor segment sales increased 4 percent despite a significant decline in defense business. Strong sales of high-margin, commercial products more than offset the decline in military shipments. The segment reported a 37 percent increase in net income for the year. Segment earnings benefited from increased sales of core commercial products, continuing improvements in operating margins, and increased patent royalty income. These increases were partially offset by reduced gains from the ongoing sales of investment securities. Communications segment sales increased 15 percent and net income increased 19 percent. The increase in sales and earnings resulted from growth in the segment's radio communications, broadcast equipment, and microwave systems businesses. Domestic sales were up sharply for the year and international sales were maintained despite economic disruptions in certain major markets such as Mexico. 13 15 Sales in the Lanier Worldwide segment increased 9 percent while net income increased 27 percent. Sales were strong in both domestic and international markets. Segment earnings benefited from the increased profitability of Lanier's European and other international operations. Electronic Systems sales and net income decreased 8 and 12 percent, respectively. Prior-year results included a computer systems business which was spun off to shareholders in the first quarter of fiscal 1995. Excluding the computer systems business from fiscal 1994 results, sales and net income decreased 3 and 9 percent, respectively. Segment results were adversely impacted by lower sales to the U.S. Government and by delays in shipments of a new energy management system. Cost of sales, rentals, and services as a percentage of sales decreased to 67.6 percent from 68.2 percent in the prior year. Continuing margin improvement in the Semiconductor and Communications segments was offset in part by a higher cost ratio in the Electronic Systems segment. Engineering, selling, and administrative expenses as a percentage of sales were 24.3 percent in fiscal 1995, compared to 24.9 percent in the prior year. Electronic Systems segment operating expenses were sharply lower due to cost reduction efforts begun in the second quarter of fiscal 1995. Corporation-sponsored research and development expenditures were 5 percent more than the previous year's expenditures. Interest income and interest expense were higher in fiscal 1995 due to higher interest rates. "Other-net" expense was higher in fiscal 1995 because 1994 included a $15.6 million gain from the sale of a facility. The provision for income taxes in fiscal 1995 was 35.0 percent of income before income taxes compared to 37.0 percent in fiscal 1994. The lower rate in fiscal 1995 resulted from increased tax benefits associated with foreign income. CAPITAL EXPENDITURES -- Expenditures for land, buildings, and equipment totaled $139 million in 1995 up from $115 million in the prior year. In addition, during fiscal 1995, $65 million was invested in equipment for rental to customers, up from $51 million invested in the prior year. Substantially all of this investment in rental equipment is related to Lanier Worldwide products. FINANCIAL CONDITION Cash Position -- At June 30, 1996, cash and cash equivalents totaled $75 million, a decrease from $119 million at June 30, 1995. Marketable securities were $25 million at June 30, 1996. Receivables, Unbilled Costs, and Inventories -- Notes and accounts receivable amounted to $919 million at June 30, 1996, compared to $824 million a year earlier. The increase in receivables is proportionate with the increase in fourth quarter revenues. Unbilled costs and inventories increased $72 million over the prior year to $942 million. The increase in inventories and unbilled costs will support planned sales growth in fiscal 1997. Borrowing Arrangements -- The Corporation has available $500 million under revolving credit agreements until May 1, 2000. Under these agreements $208 million was outstanding at June 30, 1996. The Corporation also has available $238 million in open bank credit lines, of which $163 million was available at June 30, 1996. In addition, the Corporation filed a Registration Statement effective May 15, 1996 for $250 million of medium-term notes. No amounts are outstanding at June 30, 1996 for these notes; however, they may be offered to the public from time to time on terms to be determined by market conditions. Capitalization -- At June 30, 1996, debt totaled $772 million, representing 36.0 percent of total capitalization (defined as the sum of total debt plus shareholders' equity). A year earlier, debt of $646 million was 34.1 percent of total capitalization. Year-end long-term debt included $250 million of debentures, $317 million of notes payable to banks and insurance companies, and $22 million of other long-term debt. In 1996, the Corporation issued 319,902 shares of the Common Stock to employees under the terms of the Corporation's stock purchase, option, and incentive plans. The Corporation expects to maintain operating ratios, fixed-charge coverages, and balance-sheet ratios sufficient for retention of its present debt ratings. Retirement Plans -- Retirement benefits for substantially all of the Corporation's employees are provided primarily through a retirement plan having profit-sharing and savings elements. The Corporation also has non- 14 16 contributory defined-benefit pension plans and provides limited health-care benefits to retirees who have 10 or more years of service. All obligations under the Corporation's retirement plans have been fully funded by the Corporation's contributions, the provision for which totaled $78 million during the 1996 fiscal year. Deferred Income Taxes -- The liability for non-current deferred income taxes was $62 million at June 30, 1996, up from $56 million a year earlier. Impact of Foreign Exchange -- Approximately 80 percent of the Corporation's international business is transacted in local currency environments. The impact is included as a component of Shareholders' Equity. At June 30, 1996, the cumulative translation adjustment reduced Shareholders' Equity by $16 million compared to a reduction of $10 million at June 30, 1995. The Corporation utilizes exchange rate agreements with customers and suppliers and foreign currency hedging instruments to minimize the currency risks of international transactions. Gains and losses resulting from currency rate fluctuations did not have a material effect on the Corporation's results in 1996, 1995, or 1994. Impact of Inflation -- To the extent feasible, the Corporation has consistently followed the practice of adjusting its prices to reflect the impact of inflation on wages and salaries for employees and the cost of purchased materials and services. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by this Item are set forth in the pages indicated in Item 14(a)(1) and (2) below. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 15 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item, with respect to Directors of the Company, is incorporated herein by reference to the Company's Proxy Statement filed September 16, 1996. See also pages 9 through 11 of Part I above. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item, with respect to compensation of Directors and Executive Officers of the Company, is incorporated herein by reference to the Company's Proxy Statement filed September 16, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item, with respect to security ownership of certain beneficial owners and management, is incorporated herein by reference to the Company's Proxy Statement filed September 16, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the fiscal year ended June 30, 1996, there existed no relationships and there were no transactions reportable under this Item. 16 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report:
PAGE (1) Financial Statements: Consolidated Statement of Income -- Years ended June 30, 1996, 1995 and 1994........................................................... 23 Consolidated Statement of Retained Earnings -- Years ended June 30, 1996, 1995 and 1994.......................... 23 Consolidated Balance Sheet -- June 30, 1996 and 1995................ 24 Consolidated Statement of Cash Flows -- Years ended June 30, 1996, 1995 and 1994.......................... 25 Notes to Financial Statements....................................... 26 (2) Financial Statement Schedules: For each of the three years in the period ended June 30, 1996. Schedule II -- Valuation and Qualifying Accounts............... 33
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. (3) Exhibits (3)(a) Restated Certificate of Incorporation of Harris Corporation (December 1995) is incorporated by reference to Exhibit 3(i) to the Company's Form 10-Q Quarterly Report for the quarter ended March 31, 1996. (3)(b) By-Laws of Harris Corporation as in effect February 23, 1996 are incorporated by reference to Exhibit 3(ii) to the Company's Form 10-Q Quarterly Report for the quarter ended March 31, 1996. (4)(a) Specimen stock certificate for the Company's Common Stock is incorporated herein by reference to Exhibit 4(c) to the Company's Registration Statement on Form S-3 filed with the Securities and Exchange Commission on September 13, 1982 (Registration Number 2-79308). (4)(b) Rights Agreement dated as of November 24, 1986, between Harris Corporation and Ameritrust Company National Association, as Rights Agent, is incorporated herein by reference to Exhibit 1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 9, 1986. (4)(c) Registrant by this filing agrees, upon request, to furnish to the Securities and Exchange Commission copies of financial documents evidencing long-term debt. (10) Material Contracts: *(a) Form of Senior Executive Severance Agreement. *(b) Harris Corporation Annual Incentive Plan. *(c) Harris Corporation Stock Incentive Plan and Form of Performance Share Award Agreement. *(d) Harris Corporation 1981 Stock Option Plan for Key Employees is incorporated herein by reference to Exhibit 10(d) of the Company's Annual Report on Form 10-K for the year ended June 30, 1991. *(e) Lanier Worldwide, Inc. Key Contributor Bonus Plan is incorporated herein by reference to Exhibit 10(e) of the Company's Annual Report on Form 10-K for the year ended June 30, 1995. 17 19 *(f) Lanier Worldwide, Inc. Long-Term Incentive Plan for Key Employees is incorporated herein by reference to Exhibit 10(f) of the Company's Annual Report on Form 10-K for the year ended June 30, 1995. *(g) Harris Corporation Retirement Plan. *(h) Harris Corporation Supplemental Executive Retirement Plan. *(i) Lanier Worldwide, Inc. Pension Plan is incorporated herein by reference to Exhibit 10(i) of the Company's Annual Report on Form 10-K for the year ended June 30, 1994. *(j) Lanier Worldwide, Inc. Savings Incentive Plan is incorporated herein by reference to Exhibit 99 of the Company's Report on Form S-8, Commission file number 333-01747 filed March 15, 1996. *(k) Lanier Worldwide, Inc. Supplemental Executive Retirement Plan is incorporated herein by reference to Exhibit 10(k) of the Company's Annual Report on Form 10-K for the year ended June 30, 1994. *(l) Directors Retirement Plan. (11) Statement regarding computation of net income per share. (21) Subsidiaries of the Registrant. (23) Consent of Ernst & Young LLP. (27) Financial Data Schedule. (b) Reports on Form 8-K. (1) On May 23, 1996, the Registrant filed with the Commission a Current Report on Form 8-K containing an Item 5 report with respect to certain litigation. - ------------------ *Management contract or compensatory plan or arrangement. 18 20 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. HARRIS CORPORATION (Registrant) Dated: September 16, 1996 By /s/ BRYAN R. ROUB ---------------------------- Bryan R. Roub Senior Vice President-Chief Financial Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - --------------------------------------------------------------------------- ---------------- /s/ PHILLIP W. FARMER Chairman of the Board, President September 16, 1996 - -------------------------------- and Chief Executive Officer Phillip W. Farmer (Principal Executive Officer) /s/ BRYAN R. ROUB Senior Vice President -- Chief - -------------------------------- Financial Officer Bryan R. Roub (Principal Financial Officer) /s/ ROBERT W. FAY Vice President -- Controller - -------------------------------- (Principal Accounting Officer) Robert W. Fay /s/ ROBERT CIZIK Director - -------------------------------- Robert Cizik /s/ LESTER E. COLEMAN Director - -------------------------------- Lester E. Coleman /s/ ALFRED C. DECRANE, JR. Director - -------------------------------- Alfred C. DeCrane, Jr. /s/ RALPH D. DENUNZIO Director - -------------------------------- Ralph D. DeNunzio /s/ JOSEPH L. DIONNE Director - -------------------------------- Joseph L. Dionne /s/ JOHN T. HARTLEY Director - -------------------------------- John T. Hartley /s/ KAREN KATEN Director - -------------------------------- Karen Katen /s/ WALTER F. RAAB Director - -------------------------------- Walter F. Raab /s/ ALEXANDER B. TROWBRIDGE Director - -------------------------------- Alexander B. Trowbridge
21 ANNUAL REPORT ON FORM 10-K ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA YEAR ENDED JUNE 30, 1996 HARRIS CORPORATION MELBOURNE, FLORIDA 21 22 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To Harris Directors and Shareholders: We have audited the accompanying consolidated balance sheet of Harris Corporation and subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended June 30, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Harris Corporation and subsidiaries at June 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in the Accounting Changes note to the financial statements, effective July 1, 1993, the Corporation changed its method of accounting for postretirement benefits other than pensions. ERNST & YOUNG LLP Orlando, Florida July 23, 1996 22 23 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF INCOME
Years ended June 30 --------------------------------- In millions except per share amounts 1996 1995 1994 - ------------------------------------------------------------------------------------------------- REVENUE Revenue from product sales and rentals $ 3,189.2 $ 3,032.2 $ 2,972.0 Revenue from services 432.0 411.9 364.1 Interest 38.1 36.8 33.3 --------------------------------- 3,659.3 3,480.9 3,369.4 COSTS AND EXPENSES Cost of product sales and rentals 2,151.9 2,075.9 2,055.7 Cost of services 252.7 252.6 219.1 Engineering, selling, and administrative expenses 911.9 835.8 830.8 Interest 62.5 65.4 58.3 Write-off of securities -- -- 17.8 Other-net 5.9 13.6 (5.8) --------------------------------- 3,384.9 3,243.3 3,175.9 --------------------------------- Income before income taxes 274.4 237.6 193.5 Income taxes 96.0 83.1 71.6 --------------------------------- Income before cumulative effect of change in accounting principle 178.4 154.5 121.9 Cumulative effect of change in accounting principle--net of income taxes -- -- (10.1) --------------------------------- Net income $ 178.4 $ 154.5 $ 111.8 ================================= Income per share: Before cumulative effect of change in accounting principle $ 4.58 $ 3.95 $ 3.07 Cumulative effect of change in accounting principle -- -- (.25) --------------------------------- Net income per share $ 4.58 $ 3.95 $ 2.82 =========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Years ended June 30 ------------------------------- In millions except per share amounts 1996 1995 1994 - ----------------------------------------------------------------------------------------- Balance at beginning of year $ 969.4 $ 943.1 $ 906.7 Net income for the year 178.4 154.5 111.8 Cash dividends ($1.36 per share in 1996, $1.24 per share in 1995 and $1.12 per share in 1994) (52.8) (48.2) (44.2) Non-cash dividend -- (55.2) -- Treasury stock retired (22.3) (24.8) (31.2) ------------------------------- Balance at end of year $1,072.7 $ 969.4 $ 943.1 ========
See Notes to Financial Statements Harris Corporation 23 24 FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET
June 30 -------------------- In millions 1996 1995 - ----------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 74.6 $ 119.3 Marketable securities 24.8 22.3 Receivables 727.8 657.1 Unbilled costs and accrued earnings on fixed-price contracts 397.8 374.9 Inventories 544.1 494.9 Deferred income taxes 171.8 142.2 -------------------- Total current assets 1,940.9 1,810.7 OTHER ASSETS Plant and equipment 721.7 581.0 Notes receivable--net 190.7 166.6 Intangibles resulting from acquisitions 212.8 166.6 Other assets 140.6 111.1 -------------------- $3,206.7 $2,836.0 ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt $ 181.3 $ 37.7 Trade accounts payable 209.0 168.7 Compensation and benefits 209.3 193.4 Other accrued items 190.8 168.4 Advance payments by customers 95.2 89.4 Unearned leasing and service income 192.6 174.6 Income taxes 102.7 90.5 Current portion of long-term debt 2.2 132.6 -------------------- Total current liabilities 1,183.1 1,055.3 OTHER LIABILITIES Deferred income taxes 62.2 56.0 Long-term debt 588.5 475.9 SHAREHOLDERS' EQUITY Preferred Stock, without par value: 1,000,000 shares authorized; none issued Common Stock, $1.00 par value: 250,000,000 shares authorized; issued and outstanding 38,871,603 shares in 1996 and 38,877,019 shares in 1995 38.9 38.9 Other capital 266.0 240.3 Retained earnings 1,072.7 969.4 Net unrealized gain on securities available for sale 11.1 12.2 Unearned compensation .3 (1.7) Cumulative translation adjustments (16.1) (10.3) -------------------- Total Shareholders' Equity 1,372.9 1,248.8 -------------------- $3,206.7 $2,836.0 ========
See Notes to Financial Statements 24 Harris Corporation 25 FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended June 30 ------------------------------- In millions 1996 1995 1994 - -------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Income before cumulative effect of change in accounting principle $ 178.4 $ 154.5 $ 121.9 Adjustments to reconcile income to net cash provided by operating activities: Depreciation 158.1 155.0 145.7 Amortization 12.6 10.3 7.7 Non-current deferred income taxes 7.4 33.3 12.1 Changes in assets and liabilities: Receivables (88.1) (47.0) (41.5) Unbilled costs and inventories (65.0) (52.3) (64.6) Trade payables and accrued liabilities 63.7 (1.2) 39.5 Advance payments and unearned income 23.3 76.0 12.9 Income taxes (14.8) (35.9) (33.7) Other (13.8) 17.4 20.8 ------------------------------- Net cash provided by operating activities 261.8 310.1 220.8 INVESTING ACTIVITIES Cash paid for acquired businesses (69.9) (11.4) (16.6) Capital expenditures: Plant and equipment (225.4) (139.3) (115.2) Rental equipment (67.5) (64.9) (50.8) ------------------------------- Net cash used in investing activities (362.8) (215.6) (182.6) FINANCING ACTIVITIES Proceeds from borrowings 1,152.2 750.0 302.7 Payments of borrowings (1,025.3) (787.8) (267.1) Cash dividends (52.8) (56.6) (44.2) Purchase of Common Stock for treasury (26.0) (29.8) (36.7) Proceeds from sale of Common Stock 9.2 8.6 13.5 ------------------------------- Net cash provided by (used in) financing activities 57.3 (115.6) (31.8) ------------------------------- Effect of translation on cash and cash equivalents (1.0) 1.3 1.0 ------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (44.7) (19.8) 7.4 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 119.3 139.1 131.7 ------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 74.6 $ 119.3 $ 139.1 ========
See Notes to Financial Statements Harris Corporation 25 26 NOTES TO FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of the Corporation and its subsidiaries. These statements have been prepared in conformity with generally accepted accounting principles and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant intercompany transactions and accounts have been eliminated. CASH EQUIVALENTS--Cash equivalents are temporary cash investments with a maturity of three months or less when purchased. These investments include accrued interest and are carried at the lower of cost or market. MARKETABLE SECURITIES--Marketable securities are stated at fair value, with unrealized gains and losses, net of tax, included as a separate component of shareholders' equity. Realized gains and losses from marketable securities are determined using the specific identification method. The cost basis of marketable securities was $6.6 million at June 30, 1996, and $2.3 million at June 30, 1995. The amount of gross realized gains included in net income in 1996 and 1995 was not material. INVENTORIES--Inventories are priced at the lower of cost (determined by average and first-in, first-out methods) or market. PLANT AND EQUIPMENT--Plant and equipment are carried on the basis of cost. Depreciation of buildings, machinery, and equipment is computed by straight-line and accelerated methods. The estimated useful lives of buildings range between 5 and 50 years. The estimated useful lives of machinery and equipment range between 3 and 10 years. Depreciation of rental equipment is computed by the straight-line method using estimated useful lives between 3 and 5 years. INTANGIBLES--Intangibles resulting from acquisitions are being amortized by the straight-line method principally over periods between 15 and 40 years. Recoverability of intangibles is assessed using estimated undiscounted cash flows of related operations. INCOME TAXES--The Corporation follows the liability method of accounting for income taxes. REVENUE RECOGNITION--Revenue is recognized from sales other than on long-term contracts when a product is shipped, from rentals as they accrue, and from services when performed. Revenue on long-term contracts is accounted for principally by the percentage-of-completion method whereby income is recognized based on the estimated stage of completion of individual contracts. Unearned income on service contracts is amortized by the straight-line method over the term of the contracts. RETIREMENT BENEFITS--The Corporation and its subsidiaries provide retirement benefits to substantially all employees primarily through a retirement plan having profit-sharing and savings elements. Contributions by the Corporation to the retirement plan are based on profits and employees' savings with no other funding requirements. The Corporation may make additional contributions to the fund at its discretion. The Corporation also has non-contributory defined benefit pension plans which are fully funded. Retirement benefits also include an unfunded limited healthcare plan for U.S.-based retirees and employees on long-term disability. In 1994, the Corporation began accruing the estimated cost of these medical benefits during an employee's active service life. The Corporation previously expensed the cost of these benefits on a pay-as-you-go basis. FUTURES AND FORWARD CONTRACTS--Gains and losses on futures and forward contracts that qualify as hedges are deferred and recognized as an adjustment of the carrying amount of the hedged asset or liability or anticipated transaction. FOREIGN CURRENCY TRANSLATION--The functional currency for most international subsidiaries is the local currency. Assets and liabilities are translated at current rates of exchange, and income and expense items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are recorded as a separate component of shareholders' equity. UNEARNED COMPENSATION--Compensation resulting from performance shares granted under the Corporation's long-term incentive plan is amortized to expense over the vesting period of the performance shares and is adjusted for changes in the market value of the Common Stock. EARNINGS PER SHARE--Income per share is based upon the weighted average number of common shares outstanding during each year. RECLASSIFICATIONS--Certain prior-year amounts have been reclassified to conform with current year classifications. 26 Harris Corporation 27 ACCOUNTING CHANGES In 1996, the Corporation adopted Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This standard establishes the method for evaluating and measuring possible write-downs of the carrying value of long-lived assets and certain intangibles. The adoption of this standard had no effect on the consolidated financial statements. In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation." Under this standard, companies can elect, but are not required, to recognize compensation expense for all stock-based awards, using a fair value methodology. The Corporation intends to continue with its present method of providing compensation expense for certain stock-based performance awards while not providing compensation expense for stock options, and as required by the standard, in 1997 the Corporation will make pro forma disclosures of net income and earnings per share as if the new method had been applied. In 1994, the Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Healthcare benefits are provided on a limited cost-sharing basis to retirees who have 10 or more years of service and to employees on long-term disability. The cumulative effect at July 1, 1993, of adopting this standard resulted in a one-time charge of $10.1 million net of income tax benefits of $6.4 million. NONRECURRING ITEMS In 1994, the Corporation's residual holding in a company that acquired its 1989 discontinued data-communication business became impaired due to bankruptcy proceedings. Consequently, the Corporation provided $17.8 million ($11.5 million after income taxes or 29 cents per share) to write off its interest in equity securities and promissory notes of this company. Also in 1994, the Corporation sold a Semiconductor fabrication facility for $35.5 million in cash. This sale resulted in a gain of $15.6 million ($9.9 million after income taxes or 25 cents per share) and is included in "Other-net" expense in the Consolidated Statement of Income. CONTINGENCIES RESULTING FROM DISCONTINUED OPERATION In 1993, a jury in a California state court awarded a California software company $13.4 million in compensatory damages and $85.0 million in punitive damages against the Corporation. The court reduced the punitive damages to $53.4 million, and entered judgment for the compensatory and punitive damages, together with interest and costs of suit. The suit arose from an August 11, 1989, contract between the plaintiff and a discontinued operation of the Corporation. The Corporation appealed the award to the California Court of Appeal and on July 23, 1996, the court rendered its opinion. The court reversed the award of punitive damages. The breach of contract judgment was affirmed but remanded to the trial court solely on the issue of compensatory damages with directions to limit the period of time for which damages can be awarded. In light of the appeals court opinion, it is unlikely that the ultimate outcome of this litigation will have a material effect on the Corporation's financial results. RECEIVABLES Receivables are summarized below:
------------------- (In millions) 1996 1995 - -------------------------------------------------------------- Accounts receivable $653.5 $588.3 Notes receivable due within one year--net 105.6 98.8 ------ 759.1 687.1 Less allowances for collection losses 31.3 30.0 ------ $727.8 $657.1 ======
INVENTORIES AND UNBILLED COSTS Inventories are summarized below:
------------------- (In millions) 1996 1995 - -------------------------------------------------------------- Finished products $160.9 $184.4 Work in process 251.8 226.8 Raw materials and supplies 131.4 83.7 ------ $544.1 $494.9 ======
Unbilled costs and accrued earnings on fixed-price contracts are net of progress payments of $216.6 million in 1996 and $240.2 million in 1995. PLANT AND EQUIPMENT Plant and equipment are summarized below:
------------------- (In millions) 1996 1995 - -------------------------------------------------------------- Land $ 31.5 $ 30.2 Buildings 490.5 441.9 Machinery and equipment 1,241.1 1,133.4 Rental equipment 236.7 211.7 ------- 1,999.8 1,817.2 Less allowances for depreciation 1,278.1 1,236.2 ------- $ 721.7 $ 581.0 =======
INTANGIBLES Accumulated amortization of intangible assets at June 30 was $52.3 million for 1996 and $43.1 million for 1995. CREDIT ARRANGEMENTS The Corporation maintains revolving credit agreements which provide for borrowing up to $500.0 million until May 2000. These agreements provide for advances under a competitive advance facility and a committed facility at various interest rates, as determined by a pricing matrix based upon the Corporation's long-term debt ratings Harris Corporation 27 28 NOTES TO FINANCIAL STATEMENTS assigned by Standard and Poor's Ratings Group and Moody's Investors Service. A facility fee is payable on the credit and determined in the same manner as the interest rates. The Corporation is not required to maintain compensating balances in connection with these agreements. Under these agreements, $208.3 million was outstanding at June 30, 1996, $100 million of which has been classified as long-term based on the Corporation's intent to maintain borrowings of at least that amount for the next year. The Corporation also has lines of credit for short-term financing aggregating $238.2 million from various U.S. and foreign banks, of which $163.0 million was available on June 30, 1996. These arrangements provide for borrowing at various interest rates, are reviewed annually for renewal, and may be used on such terms as the Corporation and the banks mutually agree. These lines do not require compensating balances. Short-term debt is summarized below:
------------------- (In millions) 1996 1995 - -------------------------------------------------------------- Bank notes $168.1 $33.1 Other 13.2 4.6 ------- $181.3 $37.7 =======
LONG-TERM DEBT Long-term debt includes the following:
------------------- (In millions) 1996 1995 - -------------------------------------------------------------- Notes payable to bank $167.0 $150.0 10 3/8% debentures, due 2018 150.0 150.0 7% debenture, due 2028 100.0 -- Notes payable to insurance companies 150.0 150.0 Other 21.5 25.9 ------- $588.5 $475.9 ======= =======
The weighted average interest rate for notes payable to banks was 6.5 percent in 1996 and 6.2 percent in 1995. The weighted average interest rate for notes payable to insurance companies was 9.7 percent in 1996 and 1995. Indentures and note agreements contain certain financial covenants including maintenance of at least $800.0 million of tangible net worth and total debt not to exceed 45 percent of total capital. Maturities on long-term debt for the five years following 1996 are: $2.2 million in 1997, $6.2 million in 1998, $57.4 million in 1999, $170.0 million in 2000, and $65.5 million in 2001. SHAREHOLDERS' EQUITY Changes in shareholders' equity accounts other than retained earnings are summarized as follows:
----------------------------------------------------------------- Common Net Unrealized Cumulative Stock Other Gain on Unearned Translation (In millions) Amount Capital Securities Compensation Adjustments - ------------------------------------------------------------------------------------------------------------------------- BALANCE AT JULY 1, 1993 $ 39.6 $216.3 -- $ (8.3) $(13.0) Shares issued under Stock Option Plan (315,747 shares) .3 11.1 -- -- -- Shares granted under Stock Incentive Plans (257,909 shares) .3 9.6 -- (9.8) -- Compensation expense -- -- -- 10.7 -- Termination of shares granted under Stock Incentive Plans (126,638 shares) (.1) (4.1) -- 4.2 -- Shares sold under Employee Stock Purchase Plans (47,904 shares) -- 2.1 -- -- -- Foreign currency translation adjustments -- -- -- -- (8.5) Purchase and retirement of Common Stock for treasury (801,300 shares) (.8) (4.7) -- -- -- --------------------------------------------------------------- BALANCE AT JUNE 30, 1994 39.3 230.3 -- (3.2) (21.5) Adjustment to beginning balance for change in accounting method, net of income taxes of $7.1 -- -- 11.1 -- -- Shares issued under Stock Option Plan (136,058 shares) .1 4.0 -- -- -- Shares granted under Stock Incentive Plans (249,950 shares) .3 10.6 -- (10.9) -- Compensation expense -- -- -- 11.8 -- Termination and award of shares granted under Stock Incentive Plans (202,536 shares) (.2) (4.7) -- .6 -- Shares sold under Employee Stock Purchase Plans (98,929 shares) .1 4.4 -- -- -- Change in unrealized gain on securities, net of income taxes of $.7 -- -- 1.1 -- -- Foreign currency translation adjustments -- -- -- -- 11.2 Purchase and retirement of Common Stock for treasury (703,500 shares) (.7) (4.3) -- -- -- --------------------------------------------------------------- BALANCE AT JUNE 30, 1995 38.9 240.3 12.2 (1.7) (10.3) Shares issued under Stock Option Plan (110,945 shares) .1 3.6 -- -- -- Shares granted under Stock Incentive Plans (122,750 shares) .1 6.2 -- (6.3) -- Compensation expense -- -- -- 10.0 -- Termination and award of shares granted under Stock Incentive Plans (131,692 shares) (.1) (2.1) -- (1.7) -- Shares sold under Employee Stock Purchase Plans (86,207 shares) .1 5.0 -- -- -- Change in unrealized gain on securities, net of income taxes of $(.8) -- -- (1.1) -- -- Foreign currency translation adjustments -- -- -- -- (5.8) Purchase and retirement of Common Stock for treasury (481,000 shares) (.5) (3.2) -- -- -- Shares issued for acquisition of purchased company (287,374 shares) .3 16.2 -- -- -- --------------------------------------------------------------- BALANCE AT JUNE 30, 1996 $ 38.9 $266.0 $ 11.1 $ .3 $(16.1) ===============================================================
28 Harris Corporation 29 PREFERRED STOCK PURCHASE RIGHTS Each outstanding share of Common Stock includes one preferred share purchase right that entitles the holder to purchase one two-hundredth share of a new series of participating preferred stock at an exercise price of $125. The rights will not be exercisable, or transferable apart from the Common Stock, until 10 days following an announcement that a person or affiliated group has acquired, or obtained the right to acquire, beneficial ownership of 20 percent or more of the Common Stock or until 10 days following an announcement of a tender or exchange offer for 30 percent or more of the Common Stock. The rights, which do not have voting rights, will be exercisable by all holders except for a holder or affiliated group beneficially owning 20 percent or more of the Common Stock. All rights will expire on November 23, 1996, and may be redeemed by the Corporation at a price of $.01 per right at any time prior to either their expiration or such time that the rights become exercisable. In the event that the Corporation is acquired in a merger or other business combination or certain other events occur, provision shall be made so that each holder of a right shall have the right to receive, upon exercise thereof at the then-current exercise price, that number of shares of common stock of the surviving company which at the time of such transaction would have a market value of two times the exercise price of the right. NON-CASH DIVIDEND In 1995, the Corporation spun off as a tax-free dividend its computer systems business by distributing one share of Harris Computer Systems Corporation common stock for every twenty shares of the Corporation's Common Stock. Cash dividends shown in the Consolidated Statement of Cash Flows includes the $8.4 million cash balance of the Harris Computer System Corporation at the time of the spin-off; the remainder of the dividend was a non-cash transaction. STOCK OPTIONS AND AWARDS The following information relates to stock option and incentive stock awards. Option prices are 100 percent of market value on the date the options are granted. Option grants are for a maximum of ten years after dates of grant and may be exercised in installments.
-------------------------------- Number of Option Prices Shares Per Share - ----------------------------------------------------------------- Exercised during the year: 1994 504,203 $14.38 to $38.63 1995 283,604 $23.75 to $50.50 1996 224,807 $14.38 to $57.75 Granted during 1996 353,251 $50.75 to $67.13 Expired during 1996 - Terminations during 1996 46,717 $24.88 to $61.25 Outstanding at June 30, 1995 605,492 $21.88 to $52.88 Outstanding at June 30, 1996 687,219 $14.38 to $67.13 Exercisable at June 30, 1995 508,251 $21.88 to $51.00 Exercisable at June 30, 1996 354,243 $14.38 to $61.25 ================================
The Corporation has a stock incentive plan for directors and key employees. Awards under this plan may include the grant of performance shares, restricted stock, stock options, stock appreciation rights, or other stock-based awards. The aggregate number of shares of Common Stock which may be awarded under the plan in each fiscal year is one percent of the total outstanding shares of Common Stock plus shares available from prior years. Performance shares outstanding were 502,611 at June 30, 1996; 625,551 at June 30, 1995; and 735,966 at June 30, 1994. Shares of Common Stock reserved for future awards under the plan were 1,148,818 at June 30, 1996; 1,046,717 at June 30, 1995; and 864,970 at June 30, 1994. Under the Corporation's domestic retirement plan, employees may purchase a limited amount of the Corporation's Common Stock at 70 percent of current market value. Shares of Common Stock reserved for future purchases by the retirement plan were 1,275,361 at June 30, 1996. RETIREMENT PLANS Retirement and defined-benefit plans expense amounted to $77.6 million in 1996, $71.2 million in 1995, and $70.2 million in 1994. RESEARCH AND DEVELOPMENT Corporation-sponsored research and product development costs were $159.8 million in 1996, $133.9 million in 1995, and $127.7 million in 1994. INTEREST EXPENSE Total interest was $64.0 million in 1996, $65.4 million in 1995, and $58.6 million in 1994, of which $1.5 million was capitalized in 1996, and $.3 million was capitalized in 1994. Interest paid was $64.2 million in 1996, $64.8 million in 1995, and $59.0 million in 1994. LEASE COMMITMENTS Total rental expense amounted to $49.8 million in 1996, $52.7 million in 1995, and $52.9 million in 1994. Future minimum rental commitments under leases, primarily for land and buildings, amounted to approximately $156.0 million at June 30, 1996. These commitments for the years following 1996 are: 1997--$42.3 million, 1998--$26.4 million, 1999--$19.6 million, 2000--$14.5 million, 2001--$9.9 million, and $43.3 million thereafter. Harris Corporation 29 30 NOTES TO FINANCIAL STATEMENTS INCOME TAXES The provisions for income taxes are summarized as follows:
--------------------------------- (In millions) 1996 1995 1994 - ------------------------------------------------------------- Current: United States $ 82.3 $ 89.0 $50.0 International 19.3 19.9 11.3 State and local 17.3 11.7 4.9 ------ 118.9 120.6 66.2 ------ Deferred: United States (19.3) (32.5) (2.8) International - (4.7) 5.6 State and local (3.6) (.3) 2.6 ------ (22.9) (37.5) 5.4 ------ $ 96.0 $ 83.1 $71.6 ======
The components of deferred income tax assets (liabilities) at June 30 are as follows:
---------------------------------------------- 1996 1995 ---------------------------------------------- Current Non-Current Current Non-Current (In millions) Deferred Deferred Deferred Deferred - ----------------------------------------------------------------------- Completed contracts $ 18.7 $ -- $ 7.1 $ -- Inventory valuations 16.8 -- 13.5 -- Accruals 133.4 8.6 117.6 7.3 Depreciation -- (61.6) -- (54.3) Leases (.8) (20.5) (.5) (19.8) International tax loss carryforwards -- 6.5 -- 9.7 All other-net 3.7 11.3 4.5 16.8 ------------------ 171.8 (55.7) 142.2 (40.3) Valuation allowance -- (6.5) -- (15.7) ------------------ $171.8 $(62.2) $142.2 $(56.0) ==================
A reconciliation of the statutory United States income tax rate to the effective income tax rate follows:
------------------------------- (In millions) 1996 1995 1994 - ------------------------------------------------------------- Statutory U.S. income tax rate 35.0% 35.0% 35.0% State taxes 3.2 3.1 2.6 International income (3.2) (4.0) 1.2 Tax benefits related to export sales (2.1) (1.4) (3.1) Nondeductible amortization .7 .8 .9 Other items 1.4 1.5 .4 ---- Effective income tax rate 35.0% 35.0% 37.0% ====
United States income taxes have not been provided on $479.1 million of undistributed earnings of international subsidiaries because of the Corporation's intention to reinvest these earnings. The determination of unrecognized deferred U.S. tax liability for the undistributed earnings of international subsidiaries is not practicable. Pretax income of international subsidiaries was $74.2 million in 1996, $63.2 million in 1995, and $55.9 million in 1994. Income taxes paid were $95.6 million in 1996, $79.2 million in 1995, and $80.2 million in 1994. BUSINESS SEGMENTS The Corporation is structured primarily around the markets it serves and operates in four business segments: Communications, Semiconductor, Lanier Worldwide, and Electronic Systems. The Communications segment produces broadcast, radio communications and telecommunications products and systems. The Semiconductor segment produces advanced analog, digital and mixed signal integrated circuits and discrete semiconductors for power, signal processing, data-acquisition, and logic applications. Lanier Worldwide sells and services copying and facsimile products, and PC-based healthcare management systems. The Electronic Systems segment engages in advanced research and develops, designs and produces advanced information processing and communication systems. Communication and electronic products and systems are produced principally in the United States with international revenues derived primarily from exports. Copying and facsimile products are produced principally in Asia with international revenues derived from the Corporation's international subsidiaries. Net sales and operating profit by segment are on page 34. That information is an integral part of these financial statements. Sales made to the U.S. Government by all segments (primarily Electronic Systems segment) were 25.7 percent of total sales in 1996, 30.4 percent of total sales in 1995, and 34.8 percent of total sales in 1994. Intersegment sales, which are insignificant, are accounted for at prices comparable to unaffiliated customers. 30 Harris Corporation 31 Selected information by business segment and geographical area is summarized below:
------------------------------ (In millions) 1996 1995 1994 - --------------------------------------------------------------- IDENTIFIABLE ASSETS Communications $ 691.5 $ 442.5 $ 406.2 Semiconductor 746.6 639.2 609.3 Lanier Worldwide 867.1 831.6 738.6 Electronic Systems 658.1 672.3 730.8 Corporate 243.4 250.4 192.2 -------- $3,206.7 $2,836.0 $2,677.1 ======== CAPITAL EXPENDITURES Communications $ 33.8 $ 22.6 $ 17.5 Semiconductor 146.8 80.4 43.6 Lanier Worldwide 11.7 12.3 12.9 Electronic Systems 28.1 18.6 26.3 Corporate 5.0 5.4 14.9 -------- $ 225.4 $ 139.3 $ 115.2 ======== DEPRECIATION Communications $ 17.9 $ 14.8 $ 13.9 Semiconductor 47.6 44.5 47.5 Lanier Worldwide 10.3 10.0 7.0 Electronic Systems 24.2 25.7 29.0 Corporate 8.9 10.2 6.5 -------- $ 108.9 $ 105.2 $ 103.9 ======== GEOGRAPHICAL INFORMATION U.S. operations: Net sales $3,046.4 $2,952.4 $2,741.8 Operating profit 200.2 174.4 137.6 Identifiable assets 2,544.4 2,191.9 2,041.2 International operations: Net sales $ 574.8 $ 491.7 $ 594.3 Operating profit 74.2 63.2 55.9 Identifiable assets 662.3 644.1 635.9 ========
Capital expenditures and depreciation do not include equipment for rental to customers. Corporate assets consist primarily of cash, marketable securities, deferred income taxes, and plant and equipment. Export sales approximated $631.6 million in 1996, $524.6 million in 1995, and $387.6 million in 1994. Export sales and net sales of international operations were principally to Europe and Asia. FINANCIAL INSTRUMENTS The carrying values of cash equivalents, marketable securities, accounts receivable, notes receivable, accounts payable, and short-term debt approximates fair value. The fair value of long-term debt was $618.6 million at June 30, 1996. The Corporation uses foreign exchange contracts and options to hedge intercompany accounts and off-balance-sheet foreign currency commitments. Specifically, these foreign exchange contracts offset foreign currency denominated inventory and purchase commitments from suppliers, accounts receivable from--and future committed sales to--customers, and firm committed operating expenses. Management believes the use of foreign currency financial instruments should reduce the risks which arise from doing business in international markets. Contracts are for periods consistent with the terms of the underlying transaction, generally one year or less. At June 30, 1996, open foreign exchange contracts were $232.7 million (as described below), of which $194.6 million were to hedge off-balance-sheet commitments. Additionally, for the year ended June 30, 1996, the Corporation purchased and sold $809.7 million of foreign exchange forward and option contracts. Deferred gains and losses are included on a net basis in the Consolidated Balance Sheet as other assets and are recorded in income as part of the underlying transaction when it is recognized. At June 30, 1996, the Corporation had $11.8 million in open option contracts. Total open foreign exchange contracts at June 30, 1996, are described in the table below. COMMITMENTS TO BUY FOREIGN CURRENCIES
Contract Amount --------------- Foreign Deferred Gains Maturities (In millions) Currency U.S. and (Losses) (In months) - ----------------------------------------------------------------- Malaysian Ringgit 238.6 $92.0 $3.5 1-12 Irish Punt 13.2 20.8 .1 1-10 Swiss Franc 8.0 6.4 (.1) 1-5 German Mark 6.6 4.3 - 1-3 Japanese Yen 460.0 4.3 (.1) 1-4 Australian Dollar 3.2 2.4 .1 1-9 British Pound .9 1.3 - 1-6 =======================================
COMMITMENTS TO SELL FOREIGN CURRENCIES
Contract Amount --------------- Foreign Deferred Gains Maturities (In millions) Currency U.S. and (Losses) (In months) - ----------------------------------------------------------------- British Pound 26.8 $40.9 $(.4) 1-23 German Mark 38.4 26.8 1.8 1-11 French Franc 61.1 12.3 .5 1-11 Italian Lira 13,265.0 8.3 (.4) 1-4 Japanese Yen 654.4 6.3 .3 1-6 Canadian Dollar 5.7 4.2 - 1 Australian Dollar 1.8 1.4 - 1-10 Malaysian Ringgit 1.2 .5 - 1 European Currency Units .3 .3 - 1-3 Norwegian Krone 1.5 .2 - 1 =======================================
Harris Corporation 31 32 QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data is summarized below.
Quarters Ended --------------------------------------------------------------------- Dollars in millions except per share amounts 9-30-95 12-31-95 3-31-96 6-30-96 Total Year - -------------------------------------------------------------------------------------------------------------------- Fiscal 1996 Net sales $ 816.7 $ 916.6 $ 875.9 $ 1,012.0 $ 3,621.2 Gross profit 271.6 301.1 298.2 345.7 1,216.6 Income before income taxes 51.6 62.1 68.0 92.7 274.4 Net income 33.5 40.4 44.2 60.3 178.4 Per share: Net income .86 1.03 1.14 1.55 4.58 Cash dividends .34 .34 .34 .34 1.36 Stock prices (high/low) 61 3/8-51 1/2 60 5/8-50 3/4 68 7/8-48 7/8 68-57 5/8 ========================================================================= Quarters Ended --------------------------------------------------------------------- Dollars in millions except per share amounts 9-30-94 12-31-94 3-31-95 6-30-95 Total Year - -------------------------------------------------------------------------------------------------------------------- Fiscal 1995 Net sales $ 807.3 $ 863.1 $ 850.4 $ 923.3 $ 3,444.1 Gross profit 245.8 272.9 271.8 325.1 1,115.6 Income before income taxes 44.3 53.5 58.5 81.3 237.6 Net income 28.8 34.8 38.0 52.9 154.5 Per share: Net income .73 .88 .98 1.36 3.95 Cash dividends .31 .31 .31 .31 1.24 Stock prices (high/low) 49 1/8-41 3/8 48 7/8-38 48 3/8-40 1/2 53 3/8-46 3/8 =======================================================================
Harris Corporation 32 33 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS HARRIS CORPORATION AND SUBSIDIARIES (IN THOUSANDS) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------------------------------- ADDITIONS ------------------------- (1) (2) BALANCE CHARGED CHARGED AT TO COSTS TO OTHER BALANCE BEGINNING AND ACCOUNTS DEDUCTIONS-- AT END OF DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD - ------------------------------------------------------------------------------------------------------------- YEAR ENDED JUNE 30, 1996: Amounts Deducted From $ 40(A) Respective Asset Accounts 132(C) ----------- Allowances for collection losses........................... $29,976 $ 8,407 $ 172 $ 7,175(B) $31,380 ========= ========= =========== ============ ======== YEAR ENDED JUNE 30, 1995: Amounts Deducted From Respective Asset Accounts $ 7,746(B) 257(C) ------------ Allowances for collection losses........................... $29,492 $ 7,897 $ 590(A) $ 8,003 $29,976 ========= ========= =========== ============ ======== YEAR ENDED JUNE 30, 1994: Amounts Deducted From Respective Asset Accounts $ 891(A) 6,754(B) ------------ Allowances for collection losses........................... $28,245 $ 8,790 $ 102(C) $ 7,645 $29,492 ========= ========= =========== ============ ========
Note A -- Foreign currency translation gains and losses. Note B -- Uncollectible accounts charged off, less recoveries on accounts previously charged off. Note C -- Amounts reclassified to other accounts in the Consolidated Balance Sheet. 33 EX-10.A 2 EXHIBIT 10.A 1 Exhibit 10(a) FORM OF EXECUTIVE SEVERANCE AGREEMENT THIS AGREEMENT is entered into as of the 1st day of July, 1996 by and between Harris Corporation, a Delaware corporation (the "Company"), and ______________ ("Executive"). W I T N E S S E T H WHEREAS, the Company considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its stockholders; and WHEREAS, the Company recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may arise and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders; and WHEREAS, Executive currently serves as an officer of the Company; and WHEREAS, the Board (as defined in Section 1) has determined that it is in the best interests of the Company and its stockholders to secure Executive's continued services and to ensure Executive's continued and undivided dedication to his duties in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as defined in Section 1) of the Company, without being influenced by the Executive's uncertainty of the Executive's own situation; and WHEREAS, the Board has authorized the Company to enter into this Agreement. -1- 2 NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and Executive hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means (1) a material breach by Executive of the duties and responsibilities of Executive (other than as a result of incapacity due to physical or mental illness) which is (x) demonstrably willful, continued and deliberate on Executive's part, (y) committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and (z) not remedied within fifteen (15) days after receipt of written notice from the Company which specifically identifies the manner in which such breach has occurred or (2) the Executive's conviction of, or plea of NOLO CONTENDERE to, a felony involving willful misconduct which is materially and demonstrably injurious to the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. Cause shall not exist unless and until the Company has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire Board at a meeting of the Board called and held for such purpose (after thirty (30) days notice to Executive and an opportunity for Executive, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board an event set forth in clauses (1) or (2) has occurred and specifying the particulars thereof in detail. The Company must notify Executive of any event constituting Cause within ninety (90) days following the Company's knowledge of its existence or such event shall not constitute Cause under this Agreement. -2- 3 (c) "Change in Control" means the occurrence of any one of the following events: (i) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); PROVIDED, HOWEVER, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any Subsidiary, (B) by any employee benefit plan sponsored or maintained by the Company or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), or (E) pursuant to any acquisition by Executive or any group of persons including Executive; (ii) individuals who, on July 1, 1996, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to July 1, 1996, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors who remain on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall also be deemed to be an Incumbent Director; PROVIDED, HOWEVER, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board of Directors shall be deemed to be an Incumbent Director; -3- 4 (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Company or any such type of transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise) (a "Business Combination"), unless immediately following such Business Combination: (A) more than 80% of the total voting power of the Company resulting from such Business Combination (including, without limitation, any company which directly or indirectly has beneficial ownership of 100% of the Company Voting Securities) eligible to elect directors of such company is represented by shares that were Company Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Company Voting Securities immediately prior to the Business Combination, (B) no person (other than any publicly traded holding company resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Company (or the corporation resulting from such Business Combination)) becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the company resulting from such Business Combination, and (C) at least a majority of the members of the board of directors of the company resulting from such Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies the foregoing conditions specified in (A), (B) and (C) shall be deemed to be a "Non-Control Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or the direct or indirect sale or other disposition of all or substantially all of the assets of the Company and its Subsidiaries. -4- 5 Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; PROVIDED, THAT if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. Notwithstanding anything in this Agreement to the contrary, if Executive's employment is terminated prior to a Change in Control, and Executive reasonably demonstrates that such termination was at the request or suggestion of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control (a "Third Party") and a Change in Control involving such Third Party occurs, then for all purposes of this Agreement, the date of a Change in Control shall mean the date immediately prior to the date of such termination of employment. (d) "Date of Termination" means (1) the effective date on which Executive's employment by the Company terminates as specified in a prior written notice by the Company or Executive, as the case may be, to the other, delivered pursuant to Section 11, or (2) if Executive's employment by the Company terminates by reason of death, the date of death of Executive. (e) "Good Reason" means, without Executive's express written consent, the occurrence of any of the following events after a Change in Control: (1) (i) the assignment to Executive of any duties or responsibilities inconsistent in any material adverse respect with Executive's position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control (including any diminution of such duties or -5- 6 responsibilities) or (ii) a material adverse change in Executive's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control; (2) a reduction by the Company in Executive's rate of annual base salary or annual target bonus opportunity (including any adverse change in the formula for such annual bonus target) as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (3) any requirement of the Company that Executive (i) be based anywhere more than fifty (50) miles from the facility where Executive is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially greater than the travel obligations of Executive immediately prior to such Change in Control; (4) the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which Executive is participating immediately prior to such Change in Control, unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits, or the taking of any action by the Company which would adversely affect Executive's participation in or reduce Executive's benefits under any such plan, (ii) provide Executive and Executive's dependents with welfare benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for Executive and Executive's dependents immediately prior to such Change in Control or provide substantially comparable benefits at a substantially comparable cost to Executive, (iii) provide fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for Executive immediately prior to such Change in Control, or provide substantially comparable fringe benefits, or (iv) provide Executive -6- 7 with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for Executive immediately prior to such Change in Control; or (5) the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 10(b); or (6) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted hereby. Any event or condition described in this Section 1(e)(1) through (6) which occurs prior to a Change in Control, but was at the request or suggestion of a Third Party who effectuates a Change in Control, shall constitute Good Reason following a Change in Control for purposes of this Agreement notwithstanding that it occurred prior to the Change in Control. An isolated, insubstantial and inadvertent action taken in good faith and which is remedied by the Company within fifteen (15) days after receipt of notice thereof given by Executive shall not constitute Good Reason. Executive must provide notice of termination of employment within ninety (90) days of Executive's knowledge of an event constituting Good Reason or such event shall not constitute Good Reason under this Agreement. (f) "Nonqualifying Termination" means a termination of Executive's employment (1) by the Company for Cause, (2) by Executive for any reason other than Good Reason, (3) as a result of Executive's death, (4) by the Company due to Executive's absence from Executive's duties with the Company on a full-time basis for at least one hundred eighty (180) consecutive days as a result of Executive's incapacity due to physical or mental illness or (5) as a result of Executive's mandatory retirement (not including any mandatory early retirement) in accordance with the Company's retirement policy generally applicable to its salaried employees, as in effect immediately prior to the Change in Control, or in -7- 8 accordance with any retirement arrangement established with respect to Executive with Executive's written consent. (g) "Subsidiary" means any corporation or other entity in which the Company has a direct or indirect ownership interest of more than 50% of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors or in which the Company has the right to receive more than 50% of the distribution of profits or of the assets on liquidation or dissolution. (h) "Termination Period" means the period of time beginning with a Change in Control and ending two (2) years following such Change in Control. 2. OBLIGATIONS OF EXECUTIVE. (a) Executive agrees that if a Change in Control shall occur, Executive shall not voluntarily leave the employ of the Company without Good Reason for a period of six (6) months following the Change in Control. (b) Executive agrees to hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its Subsidiaries or affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its Subsidiaries or affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section 2(b) constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. -8- 9 3. PAYMENTS UPON TERMINATION OF EMPLOYMENT. (a) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, then the Company shall pay to Executive (or Executive's beneficiary or estate) within thirty (30) days following the Date of Termination, as compensation for services rendered to the Company: (1) a lump-sum cash amount equal to the sum of (i) Executive's base salary through the Date of Termination, to the extent not theretofore paid, (ii) a pro rata portion of Executive's annual bonus in an amount at least equal to: (A) the greatest of (x) not less than Executive's target bonus for the fiscal year in which the Change in Control occurs; (y) not less than Executive's target bonus for the fiscal year in which Executive's Date of Termination occurs; and (z) Executive's actual bonus payout for the fiscal year in which Executive's Date of Termination occurs, multiplied by (B) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator of which is three hundred sixty-five (365), and (iii) any compensation previously deferred by Executive other than pursuant to a tax-qualified plan (together with any interest and earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid; plus (2) a lump-sum cash amount equal to (i) _____ times Executive's highest annual rate of base salary during the 12-month period prior to the Date of Termination, plus (ii) _____ times the greatest of: (A) the highest bonus earned by Executive in respect of the three (3) fiscal years of the Company immediately preceding the fiscal year in which the Change in Control occurs; (B) not less than Executive's target bonus for the fiscal year in which the Change in Control occurs; or (C) not less than Executive's target bonus for the fiscal year in which Executive's Date of Termination occurs. Any amount paid pursuant to this Section 3(a)(2) shall be in lieu of any other -9- 10 amount of severance relating to salary or bonus continuation to be received by Executive upon termination of employment of Executive under any severance plan or policy of the Company. (b) If during the Termination Period the employment of Executive shall terminate, other than by reason of a Nonqualifying Termination, the Company shall continue to provide, for a period of two (2) years following the Date of Termination but in no event after Executive's attainment of age 65, Executive (and Executive's dependents if applicable) with the same level of medical, dental, accident, disability, life insurance and any other similar benefits in place as of the Date of Termination upon substantially the same terms and conditions (including contributions required by the Executive for such benefits) as existed immediately prior to Executive's Date of Termination (or, if more favorable to Executive, as such benefits and terms and conditions existed immediately prior to the Change in Control); PROVIDED, THAT, if Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, in the event Executive becomes employed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of Executive's eligibility, but only to the extent that the Company reimburses Executive for any increased cost and provides any additional benefits necessary to give Executive the benefits provided hereunder. Should the terminated Executive move his residence in order to pursue other business opportunities within two (2) years of the Date of Termination, the Company agrees to reimburse such Executive for any reasonable expenses incurred in that relocation (including taxes payable on the reimbursement) which are not reimbursed by another employer. Reimbursement shall include assistance in selling the Executive's home which was customarily provided by the Company to transferred executives prior to the Change in Control. The Executive shall be promptly reimbursed by the Company for up to $4,000 of fees and expenses charged to him by any executive recruiting, counseling or placement firms incurred in -10- 11 seeking new employment following the termination of employment as provided in this Agreement. The Company shall also pay to the Executive on demand in cash an "additional amount" such that the federal, state and local taxes on the aggregate of such reimbursements and the "additional amount" equal said "additional amount." The Company will also pay to the Executive on demand in cash up to $5,000 per year to provide the Executive with professional financial and tax planning assistance. If immediately prior to the Date of Termination the Company provided the Executive with any club memberships, the Executive will be entitled to continue such memberships at his sole expense. (c) If during the Termination Period the employment of Executive shall terminate by reason of a Nonqualifying Termination, then the Company shall pay to Executive within thirty (30) days following the Date of Termination, a cash amount equal to the sum of (1) Executive's base salary through the Date of Termination, to the extent not theretofore paid, (2) any benefits or awards which have been earned or become payable pursuant to the terms of any compensation plan but which have not yet been paid to the Executive, and (3) any compensation previously deferred by Executive other than pursuant to a tax-qualified plan (together with any interest and earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid. The Company may make such additional payments, and provide such additional benefits, to Executive as the Company and Executive may agree in writing. 4. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution by the Company or its affiliated companies to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 4) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive with respect to such excise tax (such -11- 12 excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes) including, without limitation, any income and employment taxes (and any interest and penalties imposed with respect thereto) and Excise Tax, imposed upon the Gross-Up Payment but before deduction for any federal, state or local income tax upon the Payments, Executive retains an amount (before deductions for any federal, state or local income or employment taxes on the Payments) equal to the sum of (x) the Payments and (y) an amount equal to the product of any deductions disallowed because of the inclusion of the Gross-up Payment in Executive's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made. Notwithstanding the foregoing, if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Executive, after taking into account the Payments and the Gross-Up Payment, would not receive net after-tax proceeds of at least $50,000 (taking into account income and employment taxes and any Excise Tax) in excess of the net after-tax proceeds to the Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced in the manner elected by the Executive to the Reduced Amount. For purposes of determining the amount of the Gross-up Payment, the Executive shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions -12- 13 for federal income tax purposes at least equal to those disallowed because of the increase of the Gross-up Payment in the Executive's adjusted gross income. (b) Subject to the provisions of Section 4(a), all determinations required to be made under this Section 4, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or the Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Executive may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-up Payment under this Section 4 with respect to any Payments shall be made no later than thirty (30) days following such Payments. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Executive's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Executive thereafter is required to make payment of any -13- 14 additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Executive. In the event the amount of the Gross-up Payment exceeds the amount necessary to reimburse the Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Executive to or for the benefit of the Company. Executive shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 5. WITHHOLDING TAXES. The Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 6. INDEMNIFICATION AND REIMBURSEMENT OF EXPENSES. The Company agrees to indemnify the Executive for litigation or arbitration proceedings brought to contest, or dispute of any provision of this Agreement. If any such contest or dispute shall arise under this Agreement involving termination of Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive for all legal fees and expenses, if any, incurred by Executive in connection with such contest or dispute (regardless of the result thereof), within thirty (30) days of receipt of evidence thereof, together with interest in an amount equal to the prime rate published in THE WALL STREET JOURNAL from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives Executive's statement for such fees and expenses through the date of payment thereof, regardless of whether or not Executive's claim is upheld by a court of competent jurisdiction; provided, -14- 15 however, Executive shall be required to repay any such amounts to the Company to the extent that a court issues a final and non-appealable order setting forth the determination that the position taken by Executive was frivolous or advanced by Executive in bad faith. 7. TERM OF AGREEMENT. This Agreement shall be effective on the date hereof and shall continue in effect until the Company shall have given three year written notice of cancellation; provided, that, notwithstanding the delivery of any such notice, this Agreement shall continue in effect for a period of twenty-four (24) months after a Change in Control, if such Change in Control shall have occurred during the term of this Agreement. Notwithstanding anything in this Section 7 to the contrary, this Agreement shall terminate if Executive or the Company terminates Executive's employment prior to a Change in Control except as provided in the last paragraph of Section 1(c). 8. TERMINATION OF AGREEMENT. This Agreement shall be effective on the date hereof and shall continue until the first to occur of (i) termination of Executive's employment with the Company prior to a Change in Control (except as otherwise provided hereunder), (ii) a Nonqualifying Termination, (iii) the end of the Termination Period or (iv) cancellation in accordance with Section 7. 9. SCOPE OF AGREEMENT. Nothing in this Agreement shall be deemed to entitle Executive to continued employment with the Company or its Subsidiaries, and if Executive's employment with the Company shall terminate prior to a Change in Control, Executive shall have no further rights under this Agreement (except as otherwise provided hereunder); PROVIDED, HOWEVER, that any termination of Executive's employment during the Termination Period shall be subject to all of the provisions of this Agreement. 10. SUCCESSORS; BINDING AGREEMENT. (a) This Agreement shall not be terminated by any Business Combination. In the event of any Business Combination, the provisions of this -15- 16 Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any Business Combination that does not constitute a Non-Control Transaction, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such Business Combination, shall be a breach of this Agreement and shall constitute Good Reason hereunder and shall entitle Executive to compensation and other benefits from the Company in the same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such Business Combination becomes effective shall be deemed the date Good Reason occurs, and shall be the Date of Termination if requested by Executive. (c) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate. -16- 17 11. NOTICE. (a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five (5) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: Harris Corporation 1025 W. NASA Boulevard Melbourne, Florida 32919 Attn: Corporate Secretary or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (b) A written notice of Executive's Date of Termination by the Company or Executive, as the case may be, to the other, shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) specify the termination date (which date shall be not less than fifteen (15) nor more than sixty (60) days after the giving of such notice). The failure by Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive's or the Company's rights hereunder. 12. FULL SETTLEMENT; RESOLUTION OF DISPUTES. The Company's obligation to make payments provided for in this Agreement and otherwise to perform its -17- 18 obligations hereunder shall be in lieu and in full settlement of all other payments to Executive under any previous severance or employment agreement between the Executive and the Company. The Company's obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and, except as provided in Section 3(b), such amounts shall not be reduced whether or not Executive obtains other employment. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Orlando, Florida by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 12. 13. EMPLOYMENT WITH SUBSIDIARIES. Employment with the Company for purposes of this Agreement shall include employment with any Subsidiary. 14. GOVERNING LAW; VALIDITY. THE INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO THE PRINCIPLE OF CONFLICTS OF LAWS. THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT, WHICH OTHER PROVISIONS SHALL REMAIN IN FULL FORCE AND EFFECT. -18- 19 15. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 16. MISCELLANEOUS. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, including without limitation, the right of Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Except as otherwise specifically provided herein, the rights of, and benefits payable to, Executive, his estate or his beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and Executive has executed this Agreement as of the day and year first above written. HARRIS CORPORATION By: ----------------------------- Title: -------------------------- -------------------------------- [Executive] -19- EX-10.B 3 EXHIBIT 10.B 1 Exhibit 10b HARRIS CORPORATION ANNUAL INCENTIVE PLAN AMENDED AS OF JUNE 28, 1996 1. PURPOSE. The purpose of the Harris Corporation Annual Incentive Plan (the "Plan") is to promote the growth and performance of Harris Corporation (the "Corporation") by linking a portion of the total compensation for certain key employees to attainment of such corporate, sector and division financial objectives as shall be approved by the Board of Directors, a Committee of the Board of Directors or the Chief Executive Officer, as appropriate, for each fiscal year. 2. DEFINITIONS. The following definitions are applicable to the Plan: "Board" means the Board of Directors of the Corporation. "Committee" means a committee of the Board to which the Board has delegated authority and responsibility under the Plan and which shall be appointed by, and serve at the pleasure of, the Board, and shall consist of members of the Board who are not employees of the Corporation or any affiliate thereof and who qualify as "outside directors" under Section 162(m) of the Internal Revenue Code, as amended from time to time, and the regulations promulgated thereunder. "Executive Officer" means a Participant the Board has designated as an executive officer of the Corporation for purposes of reporting under the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto. "Participant" means any salaried employee of the Corporation and its subsidiaries and affiliates designated by the Board, the Committee or the Chief Executive Officer of the Corporation to participate in the Plan. 3. ADMINISTRATION OF PLAN. With respect to participation in the Plan by the Chairman and President, the Plan shall be administered by the "outside directors" of the Board. With respect to participation in the Plan by the other Executive Officers, the Plan shall be administered by the Committee. With respect to participation in the Plan by Participants who are not Executive Officers, the Plan shall be administered by the Board, the Committee, or the Chief Executive Officer, in accordance with the Corporation's compensation practices, and all references herein to the "Committee" shall be deemed to mean the "outside directors" of the Board, the Committee, or the Chief Executive Officer, as the case may be. 4. DESIGNATION OF PARTICIPANTS. Participants in the Plan shall be selected by the Committee on an annual basis from among the salaried employees of the Corporation and its subsidiaries and affiliates. 2 5. ANNUAL INCENTIVE AWARDS. (a) Each Participant in the Plan shall be eligible to receive such annual incentive award, if any, for each Plan Year as may be payable pursuant to the performance criteria described below. Except as provided in Section 13 below, the Committee shall, on an annual basis, establish a "target annual incentive award" for each Participant, and the maximum amount of a target annual incentive award that may be awarded to a Participant for a Plan Year shall be 200% thereof. (b) Participants shall have their annual incentive awards, if any, determined on the basis of the degree of achievement of performance goals which shall be established by the Committee in writing and which goals shall be stated in terms of the attainment of specified levels of or percentage changes (as compared to a prior measurement period) in any one or more of the following measurements: the Corporation's revenue, earnings per share of Common Stock, net income, return on equity, return on capital, return on assets, total stockholder return or cash flow, or any combination thereof. The Committee shall, for each Plan Year, establish the performance goal or goals from among the foregoing to apply to each Participant and a formula or matrix prescribing the extent to which such Participant's annual incentive award shall be earned based upon the degree of achievement of such performance goal or goals. The Committee may determine that the annual incentive award payable to any Participant shall be based upon the attainment of performance goals comparable to those specified above but in whole or in part applied to the results of a subsidiary, division or sector of the Corporation for which such Participant has substantial management responsibility. (c) A Participant's target annual incentive award or performance goals may be changed by the Committee during the Plan Year to reflect a change in responsibilities provided that any such change shall be made in a manner consistent with Section 162(m) of the Internal Revenue Code as amended from time to time, and the regulations promulgated thereunder. (d) Except as provided in Section 6 below, the Committee may, in its sole discretion, (i) award or increase the amount of an annual incentive award payable to a Participant even though not earned in accordance with the performance goals established pursuant to this Section 5, or (ii) decrease the amount of an annual incentive award otherwise payable to a Participant even though earned in accordance with the performance goals established pursuant to this Section 5. 6. PARTICIPATION BY EXECUTIVE OFFICERS. Notwithstanding any other provisions of the Plan to the contrary, the following provisions shall be applicable to participation in the Plan by Executive Officers: 2 3 (a) Each such Participant's annual incentive award under this Plan for such Plan Year shall be based solely on achievement of one or more of the performance goals as established by the Committee pursuant to Section 5 above and the Committee shall not have the discretion provided in Section 5(d) to increase the amount of the award. (b) With respect to each such Participant, no annual incentive award shall be payable hereunder except upon written certification by the Committee that the performance goals have been satisfied to a particular extent and that any other material terms and conditions precedent to payment of an annual incentive award pursuant to the Plan have been satisfied. (c) The maximum annual incentive award payable to any such Participant for any Plan Year shall be $2,000,000. 7. PAYMENT OF ANNUAL INCENTIVE AWARD. Payment of any amount to be paid to a Participant based upon the degree of attainment of the applicable performance goals shall be made at such time(s) as the Committee may in its discretion determine. 8. PARTICIPANT'S INTERESTS. A Participant's interest in any annual incentive awards hereunder shall at all times be reflected on the Corporation's books as a general unsecured and unfunded obligation of the Corporation subject to the terms and conditions of the Plan. The Plan shall not give any person any right or security interest in any asset of the Corporation or any fund in which any deferred payment is deemed invested. Neither the Corporation, the Board, nor the Committee shall be responsible for the adequacy of the general assets of the Corporation to discharge the payment of its obligations hereunder nor shall the Corporation be required to reserve or set aside funds therefor. 9. NON-ALIENATION OF BENEFITS; BENEFICIARY DESIGNATION. All rights and benefits under the Plan are personal to the Participant and neither the Plan nor any right or interest of a Participant or any other person arising under the Plan is subject to voluntary or involuntary alienation, sale, transfer, or assignment without the Corporation's consent. Subject to the foregoing, the Corporation shall establish such procedures as it deems necessary for a Participant to designate one or more beneficiaries to whom any payment the Committee determines to make would be payable in the event of the Participant's death. 10. WITHHOLDING FOR TAXES. Notwithstanding any other provisions of this Plan, the Corporation may withhold from any payment made by it under the Plan such amount or amounts as may be required for purposes of complying with any federal, state and local tax or withholding requirements. 11. RIGHTS OF EMPLOYEES. Nothing in the Plan shall interfere with or limit in any way the right of the Corporation or any of its subsidiaries or affiliates to terminate a Participant's employment at any time, or confer upon any Participant any right to continued employment with the Corporation or any of its subsidiaries or affiliates. 3 4 12. DETERMINATIONS FINAL. Each determination provided for in the Plan shall be made by the Committee under such procedures as may from time to time be prescribed by the Committee and shall be made in the sole discretion of the Committee. Any such determination shall be conclusive. 13. CHANGE IN CONTROL. (a) Notwithstanding anything to the contrary provided elsewhere herein, in the event of a "change in control" of the Corporation, as defined in paragraph 13(b) below, then the Corporation shall as promptly as practicable pay any annual incentive awards payable to Participants. The payment to each Participant shall be an amount not less than the target annual incentive award as originally approved for the fiscal year, notwithstanding actual results or any changes or modifications occurring after any such change in control. (b) "Change in control" means the occurrence of any one of the following events: (i) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities eligible to vote for the election of the Board (the "Corporation Voting Securities"); PROVIDED, HOWEVER, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (a) by the Corporation or any subsidiary, (b) by any employee benefit plan sponsored or maintained by the Corporation or any subsidiary, (c) by any underwriter temporarily holding securities pursuant to an offering of such securities, (d) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), or (e) pursuant to any acquisition by a corporate officer of the Corporation or any group of persons including a corporate officer; (ii) individuals who, on July 1, 1996, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a Director subsequent to July 1, 1996, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors who remain on the Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for Director, without objection to such nomination) shall also be deemed to be an Incumbent Director; PROVIDED, HOWEVER, that no individual initially elected or nominated as a Director of the Corporation as a result of an actual or threatened election contest with respect to Directors or any other actual or threatened solicitation of proxies or consents by or on 4 5 behalf of any person other than the Board of Directors shall be deemed to be an Incumbent Director; (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Corporation or any such type of transaction involving the Corporation or any of its subsidiaries that requires the approval of the Corporation's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise) (a "Business Combination"), unless immediately following such Business Combination: (a) more than 80% of the total voting power of the publicly traded corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100% of the Corporation Voting Securities) eligible to elect Directors of such corporation is represented by shares that were Corporation Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Corporation Voting Securities immediately prior to the Business Combination, (b) no person (other than any publicly traded holding corporation resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Corporation (or the corporation resulting from such Business Combination)) becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect Directors of the corporation resulting from such Business Combination, and (c) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies the foregoing conditions specified in (a), (b) and (c) shall be deemed to be a "Non-Control Transaction"); or (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or the direct or indirect sale or other disposition of all or substantially all of the assets of the Corporation and its subsidiaries. Notwithstanding the foregoing, a "change in control" of the Corporation shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Corporation Voting Securities as a result of the acquisition of Corporation Voting Securities by the Corporation which reduces the number of Corporation Voting Securities outstanding; PROVIDED, THAT if after such acquisition by the Corporation such person becomes the beneficial owner of additional Corporation Voting Securities that increases the percentage of outstanding Corporation Voting Securities beneficially owned by such person, a "change in control" of the Corporation shall then occur. 14. ADJUSTMENT OF AWARDS. The Committee shall be authorized to make adjustments in the method of calculating attainment of performance goals in recognition of unusual or nonrecurring events affecting the Corporation or its financial statements or changes in applicable laws, regulations or accounting principles; provided, however, 5 6 that no such adjustment shall impair the rights of any Participant without his consent and that any such adjustments shall be made in a manner consistent with Section 162(m) of the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any annual incentive award in the manner and to the extent it shall deem desirable to carry it into effect. In the event the Corporation shall assume outstanding employee benefit awards or the right or obligation to make future such awards in connection with the acquisition of another corporation or business entity, the Committee may, in its discretion, make such adjustments in the terms of annual incentive awards under the Plan as it shall deem appropriate. 15. DEFERRAL. Notwithstanding anything contained herein to the contrary, in the event that an annual incentive award shall be ineligible for treatment as "other performance based compensation" under Section 162(m) of the Internal Revenue Code of 1986, as amended, the Committee, in its sole discretion, shall have the right, with respect to any Executive Officer who is a "covered employee" under Section 162(m) of the Internal Revenue Code of 1986, as amended from time to time, to defer, in whole or in part, such Executive Officer's receipt of his annual incentive award until the Executive Officer is no longer a "covered employee" or until such time as shall be determined by the Committee, provided that the Committee may effect such a deferral only in a situation where the Corporation would be prohibited a deduction under Section 162(m) and such deferral shall be limited to the portion of the award that is not deductible. 16. AMENDMENT OR TERMINATION. Until such time as a "change in control" shall have occurred, the Board or the Committee may, in its sole discretion, amend, suspend or terminate the Plan from time to time. No such termination or amendment shall alter a Participant's right to receive a distribution as previously earned, as to which this Plan shall remain in effect following its termination until all such amounts have been paid, except as the Corporation may otherwise determine. Approved by the Board of Directors this 28th day of June, 1996. ATTESTED: /s/ R.L. Ballantyne ---------------------------- Secretary 6 EX-10.C 4 EXHIBIT 10.C 1 Exhibit 10(c) HARRIS CORPORATION STOCK INCENTIVE PLAN AMENDED AS OF JUNE 28, 1996 1. PURPOSE. The purpose of the Harris Corporation Stock Incentive Plan (the "Plan") is to promote the long-term growth and performance of Harris Corporation (the "Corporation") and its affiliates and to attract and retain outstanding individuals by awarding directors and salaried employees performance-based stock awards, restricted stock, stock options, stock appreciation rights and/or other stock-based awards. 2. DEFINITIONS The following definitions are applicable to the Plan: "Award" means the grant of performance shares, restricted stock, stock options, stock appreciation rights or other share-based award under the Plan. "Board" means the Board of Directors of the Corporation. "Board Committee" means a committee of the Board consisting of Outside Directors. "Commission" means the Securities and Exchange Commission. "Committee" means a committee of the Board to which the Board has delegated authority and responsibility under the Plan and which shall be appointed by, and serve at the pleasure of, the Board, and shall be constituted so as to satisfy any applicable legal requirements, including the requirements of Rule 16b-3 promulgated by the Commission under the Securities Exchange Act of 1934, as amended from time to time, or under any successor rule adopted by the Commission and Section 162(m) of the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder. "Common Stock" means the common stock of the Corporation, $1.00 par value per share. "Executive Officer" means any Participant the Board has designated as an executive officer of the Corporation for purposes of reporting under the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto. "Grant Date" means the date on which the grant of an Option under Section 7.1 hereof or a SAR under Section 8.1 hereof becomes effective pursuant to the terms of the Stock Option Agreement or Stock Appreciation Rights Agreement, as the case may be, relating thereto. 2 "Non-employee Director" means a member of the Board who is not an employee of the Corporation or any affiliate thereof. "Option" means the option to purchase shares of Common Stock granted under Sections 7.1 and 10.1 hereof. "Option Price" means the purchase price of each share of Common Stock under an Option. "Outside Director" means a member of the Board who is not an employee of the Corporation or any affiliate thereof and who qualifies as an "outside director" under Section 162(m) of the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder. "Participant" means any salaried employee of the Corporation and its affiliates designated by the Board Committee to receive an Award under the Plan. "Performance Goal" means any of the following measurements: the Corporation's revenue, earnings per share of Common Stock, net income, return on equity, return on capital, return on assets, total shareholder return or cash flow, or any combination thereof. "Performance Period" means the period of time established by the Board Committee for achievement of certain objectives under Section 5.1 hereof. "Shares" means shares of Common Stock, subject to adjustments made under Section 3.2 or operation of law. "Restriction Period" means the period of time established by the Board Committee during which certain restrictions as to vesting and on the sale or other disposition of Shares awarded under the Plan remain in effect under Section 6.1 hereof. "Stock Appreciation Rights" or "SARs" means the right to receive a cash payment from the Corporation equal to the excess of the fair market value of a stated number of shares of Common Stock at the exercise date over a fixed price for such shares. "Units" means units under a share-based award that is payable solely in cash or is actually paid in cash, determined by reference to the number of shares by which the share-based award is measured. 3. SHARES AND UNITS SUBJECT TO PLAN 3.1 SHARES RESERVED UNDER THE PLAN. (a) The aggregate number of Shares which may be awarded under the Plan in each fiscal year of the Corporation, subject to adjustment as provided in Section 3.2 hereof, shall be one percent (1%) of the total outstanding Shares as of the first day of such year for which the Plan is in effect; provided that no more than two 2 3 million (2,000,000) Shares shall be cumulatively available for the grant of incentive stock options under the Plan. In addition, any Common Stock issued by the Corporation through the assumption or substitution of outstanding grants from an acquired corporation or entity shall not reduce the shares available for grants under the Plan. Shares to be issued pursuant to the Plan may be authorized and unissued Shares, treasury Shares, or any combination thereof. (b) AGGREGATE UNIT LIMIT. The aggregate number of Units which may be awarded under the Plan in each fiscal year of the Corporation, subject to adjustment as provided in Section 3.2 hereof, shall be one percent (1%) of the total outstanding Shares as of the first day of such year for which the Plan is in effect. (c) REISSUE OF SHARES AND UNITS. The number of Shares and Units shall be increased in any year by the number of Shares or Units available for grant hereunder in previous years but not subject of Awards granted hereunder in such year. Subject to Section 8.2 hereof, if any Shares or Units subject to an Award hereunder are forfeited or any such Award otherwise terminates without the issuance of such Shares or Units to a Participant, or if any Shares are surrendered by a Participant in full or partial payment of the Option Price of an Option, such Shares or Units, to the extent of any such forfeiture, termination or surrender, shall again be available for grant under the Plan 3.2 ADJUSTMENTS. Subject to Section 12 hereof, the aggregate number of Shares which may be awarded under the Plan and outstanding Awards shall be adjusted by the Board Committee to reflect a change in the capitalization of the Corporation, including but not limited to, a stock dividend or split, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, spin-off, spin-out or other distribution of assets to shareholders; provided that the number and price of shares subject to outstanding Options granted to Non-employee Directors pursuant to Section 10 hereof and the number of shares subject to future Options to be granted pursuant to Section 10 shall be subject to adjustment only as set forth in Section 10 hereof. 4. ADMINISTRATION OF PLAN 4.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board Committee; PROVIDED, HOWEVER, the Board Committee may delegate some or all of its authority and responsibility under the Plan to the Committee; PROVIDED, FURTHER, that the Board Committee may not delegate to the Committee any authority to make Awards hereunder to any Executive Officer who is also a member of the Board. The Board Committee shall have authority to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to prescribe the form of any agreement or instrument executed in connection herewith, and to make all other determinations necessary or advisable for the administration of the Plan. All such interpretations, rules, regulations and determinations shall be conclusive and binding on all persons and for all purposes. In addition, the Board Committee shall have authority, without amending the Plan, to grant Awards hereunder to Participants who are foreign nationals or employed outside the United States or both, on terms and conditions different from those specified herein as may, in the sole judgment and 3 4 discretion of the Board Committee, be necessary or desirable to further the purpose of the Plan or to comply with foreign legal or regulatory requirements. Notwithstanding the foregoing, neither the Board, the Board Committee nor the Committee shall have any discretion with respect to Options granted to Non-employee Directors pursuant to Section 10 hereof. 4.2 DESIGNATION OF PARTICIPANTS. Participants shall be selected, from time to time, by the Board Committee, from those salaried employees of the Corporation and its affiliates who, in the opinion of the Board Committee, have the capacity to contribute materially to the continued growth and successful performance of the Corporation. 5. PERFORMANCE SHARE AWARDS 5.1 AWARDS. Awards of Shares may be made, from time to time, to such salaried employees of the Corporation and its affiliates as may be selected by the Board Committee. The release of such Shares to the Participant subject to such Awards shall be contingent upon (i) the degree of attainment of the applicable Performance Goals during the Performance Period relative to such objectives as shall be established by the Board Committee and (ii) the expiration of the Performance Period. Except as provided in Section 11 hereof and the Performance Share Award Agreement between the Participant and the Corporation, Shares subject to such Awards under this Section 5.1 shall be released to the Participant only after the expiration of the relevant Performance Period. Each Award under this Section 5.1 shall be evidenced by a Performance Share Award Agreement between the Participant and the Corporation which shall specify the applicable Performance Goals, the Performance Period, any forfeiture conditions and such other terms and conditions as the Board Committee shall determine. 5.2 STOCK CERTIFICATES. Upon expiration of the Performance Period, the Corporation shall issue a certificate registered in the name of the Participant or his designee evidencing the Shares to which the Participant is entitled and release such Shares to the custody of the Participant. 5.3 RIGHTS AS SHAREHOLDERS. Subject to the provisions of the Performance Share Award Agreement between the Participant and the Corporation, during the Performance Period, Participants may exercise full voting rights with respect to all Shares awarded thereto under Section 5.1 hereof and shall be entitled to receive dividends and other distributions paid with respect to those Shares. 5.4 TRANSFERABILITY OF SHARES. Certificates evidencing the Shares under the Plan shall not be sold, exchanged, assigned, transferred, pledged, hypothecated or otherwise disposed of until the expiration of the Performance Period. 5.5 TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee of either the Corporation or of one of its affiliates, the number of Shares subject of the Award, if any, to which the Participant shall be entitled shall be determined in accordance with the Performance Share Award Agreement between the Participant and the Corporation. 4 5 5.6 TRANSFER OF EMPLOYMENT. If a Participant transfers employment from one business unit of the Corporation or any of its affiliates to another business unit during a Performance Period, such Participant shall be eligible to receive such number of Shares as the Board Committee may determine based upon such factors as the Board Committee in its sole discretion may deem appropriate. 5.7 INDIVIDUAL SHARE LIMITATION. The number of Shares for which a Performance Share Award may be granted to any Participant who is an Executive Officer shall not exceed 100,000 Shares in any fiscal year. 6. RESTRICTED STOCK AWARDS 6.1 AWARDS. Awards of Shares subject to such restrictions as to vesting and otherwise as the Board Committee shall determine, may be made, from time to time, to salaried employees of the Corporation and its affiliates as may be selected by the Board Committee. The Board Committee may in its sole discretion at the time of the Award or at any time thereafter provide for the early vesting of such Award prior to the expiration of the Restriction Period. Each Award under this Section 6.1 shall be evidenced by a Restricted Stock Award Agreement between the Participant and the Corporation which shall specify the vesting schedule, any rights of acceleration, any forfeiture conditions, and such other terms and conditions as the Board Committee shall determine. 6.2 STOCK CERTIFICATES. Upon expiration of the Restriction Period, the Corporation shall issue a certificate registered in the name of the Participant or his designee evidencing the Shares to which the Participant is entitled and release such Shares to the custody of the Participant. 6.3 RIGHTS AS SHAREHOLDERS. During the Restriction Period, Participants may exercise full voting rights with respect to all Shares awarded thereto under Section 6.1 hereof and shall be entitled to receive dividends and other distributions paid with respect to those Shares. 6.4 TRANSFERABILITY OF SHARES. Certificates evidencing the Shares awarded under the Plan shall not be sold, exchanged, assigned, transferred, pledged, hypothecated or otherwise disposed of until the expiration of the Restriction Period. 6.5 TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee of either the Corporation or of any of its affiliates, the number of Shares subject of the Award, if any, to which the Participant shall be entitled shall be determined in accordance with the Restricted Stock Award Agreement between the Participant and the Corporation. All remaining shares as to which restrictions apply at the date of termination of employment shall be forfeited subject to such exceptions, if any, authorized by the Board Committee. 5 6 7. STOCK OPTIONS 7.1 GRANTS. Options may be granted, from time to time, to such salaried employees of the Corporation and its affiliates as may be selected by the Board Committee. The Option Price shall be determined by the Board Committee effective on the Grant Date; PROVIDED HOWEVER, that such price shall not be less than one hundred percent (100%) of the fair market value of a Share on the Grant Date. The number of Shares subject to each option granted to each Participant, the terms of each option, and any other terms and conditions of an Option granted hereunder shall be determined by the Board Committee, in its sole discretion, effective on the Grant Date; PROVIDED, HOWEVER, that no Option shall be exercisable any later than ten (10) years from the Grant Date. Each Option shall be evidenced by a Stock Option Agreement between the Participant and the Corporation which shall specify the type of Option granted, the Option Price, the term of the Option, the number of Shares to which the Option pertains, the conditions upon which the Option becomes exercisable and such other terms and conditions as the Board Committee shall determine. 7.2 PAYMENT OF OPTION PRICE. No Shares shall be issued upon exercise of an Option until full payment of the Option Price therefor by the Participant. Upon exercise, the Option Price may be paid in cash, in Shares having a fair market value equal to the Option Price, or in any combination thereof. 7.3 RIGHTS AS SHAREHOLDERS. Participants shall not have any of the rights of a shareholder with respect to any shares subject to an Option until such Shares have been issued upon the proper exercise of such Option. 7.4 TRANSFERABILITY OF OPTIONS. Options granted under the Plan may not be sold, transferred, pledged, assigned, hypothecated or otherwise disposed of except to family members or trusts, by will or by the laws of descent and distribution, provided that the Options may not be transferred to family members or trusts except as permitted by applicable law or regulations. All Options granted to a Participant under the Plan shall be exercisable during the lifetime of such Participant only by such Participant, his agent, guardian or attorney-in-fact. 7.5 TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee of either the Corporation or of any of its affiliates, the Options granted hereunder shall be exercisable in accordance with the Stock Option Agreement between the Participant and the Corporation. 7.6 INDIVIDUAL SHARE LIMITATION. The number of Shares for which Options may be granted to any Participant who is an Executive Officer shall not exceed 500,000 Shares over any continuous five-year period. In addition, the number of Shares for which Options may be granted to any Participant who is an Executive Officer upon exercise by such Participant of an Option for which the Option Price is paid in whole or in part in Shares shall not exceed 500,000 Shares over any continuous five-year period. 6 7 8. STOCK APPRECIATION RIGHTS 8.1 GRANTS. Stock Appreciation Rights may be granted, from time to time, to such salaried employees of the Corporation and its affiliates as may be selected by the Board Committee. SARs may be granted at the discretion of the Board Committee either (i) in connection with an Option or (ii) independent of an Option. The price from which appreciation shall be computed shall be established by the Board Committee at the Grant Date; PROVIDED, HOWEVER, that such price shall not be less than one-hundred percent (100%) of the fair market value of the number of Shares subject of the grant on the Grant Date. In the event the SAR is granted in connection with an Option, the fixed price from which appreciation shall be computed shall be the Option Price. Each grant of a SAR shall be evidenced by a Stock Appreciation Rights Agreement between the Participant and the Corporation which shall specify the type of SAR granted, the number of SARs, the conditions upon which the SARs vest and such other terms and conditions as the Board Committee shall determine. 8.2 EXERCISE OF SARS. SARs may be exercised upon such terms and conditions as the Board Committee shall determine; PROVIDED, HOWEVER, that SARs granted in connection with Options may be exercised only to the extent the related Options are then exercisable. Notwithstanding Section 3.1 hereof, upon exercise of a SAR granted in connection with an Option as to all or some of the Shares subject of such Award, the related Option shall be automatically canceled to the extent of the number of Shares subject of the exercise, and such Shares shall no longer be available for grant hereunder. Conversely, if the related Option is exercised as to some or all of the Shares subject of such Award, the related SAR shall automatically be canceled to the extent of the number of Shares of the exercise, and such shares shall no longer be available for grant hereunder. 8.3 PAYMENT UPON EXERCISE. Upon exercise of a SAR, the holder shall be paid in cash and/or Shares the excess of the fair market value of the number of Shares subject of the exercise over the fixed price, which in the case of a SAR granted in connection with an Option shall be the Option Price for such Shares. 8.4 RIGHTS OF SHAREHOLDERS. Participants shall not have any of the rights of a shareholder with respect to any Options granted in connection with a SAR until Shares have been issued upon the proper exercise of an Option. 8.5 TRANSFERABILITY OF SARS. SARs granted under the Plan may not be sold, transferred, pledged, assigned, hypothecated or otherwise disposed of except to family members or trust, by will or by the laws of descent and distribution, provided that the SARs may not be transferred to family members or trusts except as permitted by applicable law or regulations. All SARs granted to a Participant under the Plan shall be exercisable during the lifetime of such Participant only by such Participant, his agent, guardian, or attorney-in-fact. 7 8 8.6 TERMINATION OF EMPLOYMENT. If a Participant ceases to be an employee of either the Corporation or of any of its affiliates, SARs granted hereunder shall be exercisable in accordance with the Stock Appreciation Rights Agreement between the Participant and the Corporation. 8.7 INDIVIDUAL SHARE LIMITATION. The number of Shares for which SARs may be granted to any Participant who is an Executive Officer shall not exceed 500,000 Shares over any continuous five-year period. 9. OTHER SHARE-BASED AWARDS Awards of Shares and other awards that are valued in whole or in part by reference to, or are otherwise based on, Shares (including, but not limited to, phantom stock or Units, performance units, bonus stock or similar securities or rights), may be made, from time to time, to salaried employees of the Corporation and its affiliates as may be selected by the Board Committee. Such Awards may be made alone or in addition to or in connection with any other Award hereunder. The Board Committee may in its sole discretion determine the terms and conditions of any such Award. Each such Award shall be evidenced by an agreement between the Participant and the Corporation which shall specify the number of Shares subject of the Award, any consideration therefor, any vesting or performance requirements and such other terms and conditions as the Board Committee shall determine. The number of shares or Units subject of any Awards under this Section 9 which may be granted to a Participant who is an Executive Officer shall not exceed 100,000 Shares or Units, as the case may be, in any fiscal year. 10. NON-EMPLOYEE DIRECTORS' OPTIONS 10.1 GRANTS. Effective the date of the 1990 Annual Meeting of Shareholders and on the date of each Annual Meeting thereafter, each Non-employee Director shall automatically be granted an Option to purchase 1,000 Shares. All such Options shall be nonstatutory stock options. The Option Price shall be one hundred percent (100%) of the fair market value of the Shares on the date of grant. 10.2 EXERCISE OF OPTIONS. Except as set forth in this Section 10, fifty percent (50%) of the total number of Shares subject of an Option granted to a Non-employee Director shall become exercisable on the first anniversary of the date of grant of the year in which the option is granted and twenty-five percent (25%) on the anniversary date of each of the next two succeeding years. The right to purchase Shares with respect to Shares which have become exercisable shall be cumulative during the term of the Option. Any Option granted to Non-employee Directors that has been outstanding for more than one (1) year shall immediately become exercisable in the event of a Change of Control, as hereinafter defined. The Option may be exercised by the Non-employee Director during the period that the Non-employee Director remains a member of the Board and for a period of three (3) years following retirement, provided that only those Options exercisable at the date of the Non-employee Director's retirement may be exercised during the period following retirement and, provided 8 9 further, that in no event shall the Option be exercisable more than ten (10) years after the date of grant. In the event of the death of a Non-employee Director, the Option shall be exercisable only within the twelve (12) months next succeeding the date of death, and then only (i) by the executor or administrator of the Non-employee Director's estate or by the person or persons to whom the Non-employee Director's rights under the Option shall pass by the Non-employee Director's will or the laws of descent and distribution, and (ii) if and to the extent that the Non-employee Director was entitled to exercise the Option at the date of the Non-employee Director's death, provided that in no event shall the Option be exercisable more than ten (10) years after the date of grant. 10.3 PAYMENT OF OPTION PRICE. No Shares shall be issued upon exercise of an Option until full payment of the Option Price therefor by the Non-employee Director. Payment for the Shares may be paid in cash, in Shares having a fair market value equal to the Option Price, or any combination thereof. 10.4 ADJUSTMENTS. In case there shall be a merger, reorganization, consolidation, recapitalization, stock dividend or other change in corporate structure such that the Shares are changed into or become exchangeable for a larger or smaller number of shares, thereafter the number of Shares subject to outstanding Options granted to Non-employee Directors and the number of Shares subject to Options to be granted to Non-employee Directors pursuant to the provisions of this Section 10 shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of Shares by reason of such change in corporate structure, provided that the number of shares shall always be a whole number, and the purchase price per Share of any outstanding Options shall, in the case of an increase in the number of Shares, be proportionately reduced, and in the case of a decrease in the number of Shares, shall be proportionately increased. 11. CHANGE OF CONTROL 11.1 DEFINITION OF CHANGE OF CONTROL. For purposes hereof, a "change of control" shall be deemed to have occurred if: (i) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities eligible to vote for the election of the Board (the "Corporation Voting Securities"); PROVIDED, HOWEVER, that the event described in this paragraph (i) shall not be deemed to be a Change of Control by virtue of any of the following acquisitions: (a) by the Corporation or any subsidiary, (b) by any employee benefit plan sponsored or maintained by the Corporation or any subsidiary, (c) by any underwriter temporarily holding securities pursuant to an offering of such securities, (d) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), 9 10 (e) pursuant to any acquisition by a corporate officer of the Corporation or any group of persons including a corporate officer; (ii) individuals who, on July 1, 1996, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to July 1, 1996, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors who remain on the Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director, without objection to such nomination) shall also be deemed to be an Incumbent Director; PROVIDED, HOWEVER, that no individual initially elected or nominated as a director of the Corporation as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board of Directors shall be deemed to be an Incumbent Director; (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Corporation or any such type of transaction involving the Corporation or any of its Subsidiaries that requires the approval of the Corporation's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise) (a "Business Combination"), unless immediately following such Business Combination: (a) more than 80% of the total voting power of the corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100% of the Corporation Voting Securities) eligible to elect directors of such corporation is represented by shares that were Corporation Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Corporation Voting Securities immediately prior to the Business Combination, (b) no person (other than any publicly traded holding Corporation resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Corporation (or the corporation resulting from such Business Combination)) becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the corporation resulting from such Business Combination, and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies the conditions specified in (a), (b) and (c) shall be deemed to be a "Non-Control Transaction"); or (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or the direct or indirect sale or other disposition of all or substantially all of the assets of the Corporation and its subsidiaries. Notwithstanding the foregoing, a "change of control" of the Corporation shall not be deemed to occur solely because any person acquires beneficial ownership of more than 10 11 20% of the Corporation Voting Securities as a result of the acquisition of Corporation Voting Securities by the Corporation which reduces the number of Corporation Voting Securities outstanding; PROVIDED, THAT if after such acquisition by the Corporation such person becomes the beneficial owner of additional Corporation Voting Securities that increases the percentage of outstanding Corporation Voting Securities beneficially owned by such person, a "change of control" of the Corporation shall then occur. 11.2 ACCELERATION OF BENEFITS. In the event of a "change of control" of the Corporation, all outstanding Awards shall be paid in such manner and in such amounts as determined by the Board Committee in its sole discretion at the time such Awards are made. 12. AMENDMENT OR TERMINATION OF PLAN Until such time as a "change of control" shall have occurred, the Board or the Board Committee may amend, suspend or terminate the Plan or any part thereof from time to time, provided that no change may be made which would impair the rights of a Participant to whom Shares have theretofore been awarded without the consent of said Participant; and provided, further, that neither the Board nor the Board Committee may make any alteration or amendment to the Plan which would materially increase the benefits accruing to Participants under the Plan, increase the aggregate number of Shares which may be issued under the Plan (other than an increase reflecting a change in capitalization of the Corporation), change the class of employees eligible to participate in the Plan, or amend, modify or delete Section 10 hereof, without the approval of the shareholders of the Corporation so long as such approval is required by applicable law or regulation. Further, Section 10 hereof may not be amended more frequently than once every six months, except to comply with changes to the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules promulgated thereunder. After a "change of control," the Board or the Board Committee shall no longer have the power to amend, suspend or terminate the Plan or any part thereof. 13. MISCELLANEOUS 13.1 RIGHTS OF EMPLOYEES. Nothing in the Plan shall interfere with or limit in any way the right of the Corporation or any of its subsidiaries or affiliates to terminate any Participant's employment at any time, nor confer upon any Participant any right to continued employment with the Corporation or any of its subsidiaries or affiliates. 13.2 WITHHOLDING FOR TAXES. The Corporation shall have the authority to withhold, or to require a Participant to remit to the Corporation, prior to issuance or delivery of any Shares or cash hereunder, an amount sufficient to satisfy federal, state and local tax or withholding requirements associated with any Award. In addition, the Corporation may, in its sole discretion, permit a Participant to satisfy any tax withholding requirements, in whole or in part, by (i) delivering to the Corporation Shares held by such Participant having a fair market value equal to the amount of the tax or (ii) directing the Corporation to retain Shares otherwise issuable to the Participant under the Plan. 11 12 13.3 STATUS OF AWARDS. Awards hereunder shall not be deemed compensation for purposes of computing benefits under any retirement plan of the Corporation or affiliate and shall not affect any benefits under any other benefit plan now or hereafter in effect under which the availability or amount of benefits is related to the level of compensation. 13.4 WAIVER OF RESTRICTIONS. The Board Committee may, in its sole discretion, based on such factors as the Board Committee may deem appropriate, waive in whole or in part, any remaining restrictions or vesting requirements in connection with any Award hereunder. 13.5 DELEGATION TO MANAGEMENT. The Board Committee may delegate to one or more officers of the Corporation or a committee of officers the right to grant Awards hereunder to employees who are not officers or directors of the Corporation and to cancel or suspend Awards to employees who are not officers or directors of the Corporation. 13.6 ADJUSTMENT OF AWARDS. Subject to Section 12, the Board Committee shall be authorized to make adjustments in the method of calculating attainment of Performance Goals or in the terms and conditions of other Awards (except Options granted pursuant to Section 10 hereof) in recognition of unusual or nonrecurring events affecting the Corporation or its financial statements or changes in applicable laws, regulations or accounting principles; provided, however, that no such adjustment shall impair the rights of any Participant without his consent and that any such adjustments shall be made in a manner consistent with Section 162(m) of the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder. The Board Committee may also make Awards hereunder in replacement of, or as alternatives to, Awards previously granted to Participants, including without limitation, previously granted Options having higher Option Prices and grants or rights under any other plan of the Corporation or of any acquired entity. The Board Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry it into effect. In the event the Corporation shall assume outstanding employee benefit awards or the right or obligation to make future such awards in connection with the acquisition of another corporation or business entity, the Board Committee may, in its discretion, make such adjustments in the terms of Awards under the Plan as it shall deem appropriate. Notwithstanding the above, neither the Board, the Board Committee nor any Committee shall have the right to make any adjustments in the terms or conditions of Options granted pursuant to Section 10. 13.7 CONSIDERATION FOR AWARDS. Except as otherwise required in any applicable agreement or by the terms of the Plan, Participants under the Plan shall not be required to make any payment or provide consideration for an Award other than the rendering of services. 13.8 DEFERRAL. Notwithstanding anything contained herein to the contrary, in the event that any Award shall be ineligible for treatment as "other performance based compensation" under Section 162(m) of the Internal Revenue Code of 1986, as amended, the Board Committee, in its sole discretion, shall have the right with respect to any Executive Officer who is in the year any Award hereunder becomes deductible by the Corporation, a 12 13 "covered employee" under Section 162(m) of the Internal Revenue Code of 1986, as amended, to defer, in whole or in part, such Executive Officer's receipt of such Award until the Executive Officer is no longer a "covered employee" or until such time as shall be determined by the Board Committee, provided that the Board Committee may effect such a deferral only in a situation where the Corporation would be prohibited a deduction under Section 162(m) and such deferral shall be limited to the portion of the Award that is not deductible. 13.9 EFFECTIVE DATE AND TERM OF PLAN. The Plan shall be effective as of July 1, 1996. Unless terminated under the provisions of Section 12 hereof, the Plan shall continue in effect until terminated by the Board. Approved by the Board of Directors this 28th day of June, 1996. Attested: /s/ R. L. Ballantyne --------------------- Secretary 13 14 FORM OF PERFORMANCE SHARE AWARD AGREEMENT FY'97-99 PERFORMANCE CYCLE This AGREEMENT made as of July 1, 1996, by and between Harris Corporation, a Delaware corporation (the "Corporation"), and _____________ an Executive Officer or Corporate Officer of the Corporation or of one of its subsidiaries or affiliates (the "Executive"). 1. DEFINITIONS. "Executive Officer" is any person so designated by the Board of Directors of Harris Corporation. "Corporate Officers" are all officers of the Corporation who have not been designated Executive Officers. 2. GRANT OF AWARD. Under and subject to the provisions of the Corporation's Stock Incentive Plan, as in effect from time to time (the "Plan"), the Corporation hereby grants to the Executive a Performance Share Award (the "Award") of ___________ shares of Common Stock, $1.00 par value, of the Corporation (the "Stock") subject to the terms and conditions hereinafter set forth: (a) For purposes of this Agreement, the "Performance Period" shall be the three (3) year period commencing July 1, 1996 and terminating June 30, 1999. (b) Upon the expiration of the Performance Period and satisfaction of the withholding obligations set forth in Section 6 hereof, the Corporation shall cause to be issued in the name of the Executive or his designee a stock certificate for such shares as to which the Executive is entitled pursuant to Section 2(c) hereof, and the certificate shall be released to the custody of the Executive. (c) (i) For Executive Officers, the Award shall be contingent upon the attainment during the Performance Period of the goals specified in the approved 1997 Strategic Plan covering the years FY'97-99 as set forth in Exhibit A hereto. The percentage attainment of the shares subject of the Award shall be determined upon the expiration of the Performance Period in accordance with the schedule specified in Exhibit A, which identifies the applicable definitions, targets and payout schedule. The final payout determination will be authorized by the Harris Board of Directors, or its designee. (ii) For Corporate Officers, the Award shall be contingent upon the attainment during the Performance Period of the goals specified in the approved 1997 Strategic Plan covering the years FY'97-99. The percentage attainment of the shares subject of the Award shall be determined upon the expiration of the Performance Period based on an assessment of performance in light of the relevant market, competitive, economic and other factors during the Performance Period. The final payout determination will be authorized by the Harris Board of Directors, or its designee. (d) Subject to Section 9 hereof, during the Performance Period, the Executive may exercise full voting rights with respect to all shares of Stock subject of the Award and shall be entitled to receive dividends and other distributions paid with respect to such shares. Upon the expiration of the Performance Period, the Executive may exercise voting rights and shall be entitled to receive dividends and other distributions with respect to the number of shares to which the Executive is entitled pursuant to Section 2(c) hereof. 15 (e) The number of shares subject of the Award is based upon the assumption that the Executive shall continue to perform substantially the same duties throughout the Performance Period, and such number of shares may be reduced or increased without formal amendment of this Agreement to reflect a change in duties during the Performance Period. 3. TERMINATION OF EMPLOYMENT. Other than in the event of a "change in control" covered in paragraph 7 herein, if the Executive ceases to be an employee of the Corporation or of one of its affiliates prior to the expiration of the Performance Period: (i) for any reason other than death, disability or retirement pursuant to an established retirement plan or policy of the Corporation or of its applicable affiliate, all shares of Stock awarded to the Executive hereunder shall be forfeited; or (ii) due to death, disability or retirement pursuant to an established retirement plan or policy of the Corporation or of its applicable affiliate, the Executive shall be eligible to receive a pro-rata proportion of the shares of Stock which would have been issued to the Executive under any outstanding Awards at the end of the Performance Period, such pro-rata proportion to be measured by a fraction of which the numerator is the number of months of the Performance Period during which the Executive's employment continued, and the denominator is the full number of months of the Performance Period. For purposes, hereof, employment for any period of a month shall be deemed employment for a full month. Any Stock to be issued to the Executive shall be issued thereto within a reasonable period following expiration of the Performance Period. 4. TRANSFER OF EMPLOYMENT. If the Executive transfers employment from one business unit of the Corporation or an affiliate to another business unit or affiliate during a Performance Period, such Executive shall be eligible to receive the number of shares of Stock determined by the Board of Directors or the Committee of the Board of Directors administering the Plan based upon such factors as the Board of Directors or the Committee, as the case may be, in its sole discretion may deem appropriate. 5. PROHIBITION AGAINST TRANSFER. The Award and the shares of Stock subject of the Award are nontransferable except by will or by the laws of descent and distribution. Without limiting the generality of the foregoing, the Award and such shares may not be sold, exchanged, assigned, transferred, pledged, hypothecated or otherwise disposed of until the expiration of the Performance Period, shall not be assignable by operation of law, and shall not be subject to execution, attachment or similar process. Any attempt to effect any of the foregoing shall be null and void and without effect. 6. TAX WITHHOLDING. Prior to the expiration of the Performance Period, the Executive shall make arrangements with the Corporation to pay or otherwise satisfy any federal, state and local tax withholding requirements on the Award. 7. CHANGE IN CONTROL. (a) Upon a "change in control" of the Corporation, the performance objectives applicable to the Award shall be conclusively deemed to have been attained. The Award shall be vested immediately prior to the occurrence of a "change in control." The Award shall be paid to the Executive at the end of the Performance Period, provided however: (i) in the event of death, disability, retirement, or involuntary termination other than for cause, the Award shall be paid IN STOCK as soon as practicable; (ii) in the event of resignation or termination for cause, the Award shall be forfeited; and (iii) in the event of a "change in the Corporation's capital structure," at the election of the Executive, the Award shall be paid IN STOCK or converted and paid IN CASH. The amount of the cash payment will be an amount equal to the number of shares in Paragraph 2 multiplied by the highest price per share paid in any transaction reported on the New York Stock Exchange Composite Index: (x) during the sixty (60) day period preceding and including the date of a "change in the Corporation's capital structure;" or (y) during the sixty (60) day period preceding and including the date of "change in control," whichever is higher. An Award in Stock or cash shall be paid as soon as practicable. 2 16 (b) For purposes hereof, a "change in the Corporation's capital structure" shall be deemed to have occurred if: (i) the Stock is no longer the only class of the Corporation's common stock; (ii) the Stock ceases to be, or is not readily, tradable on an established securities market (in the United States) within the meaning of Section 409(l)(1) of the Internal Revenue Code of 1986, as amended; (iii) the Corporation issues warrants, convertible debt, or any other security that is exercisable or convertible into common stock, except for rights granted under the Corporation's Stock Incentive Plan; or (iv) the ratio of total debt to total capitalization exceeds 45 percent. Total debt is the total debt for borrowed money. Total capitalization is consolidated total assets of the Corporation less consolidated total liabilities of the Corporation. (c) For purposes hereof, a "change in control" shall be deemed to have occurred if: (i) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities eligible to vote for the election of the Board (the "Corporation Voting Securities"); PROVIDED, HOWEVER, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (a) by the Corporation or any subsidiary, (b) by any employee benefit plan sponsored or maintained by the Corporation or any subsidiary, (c) by any underwriter temporarily holding securities pursuant to an offering of such securities, (d) pursuant to a Non-Control Transaction (as defined in paragraph (iii)), (e) pursuant to any acquisition by an Executive of the Corporation or any group of persons including an Executive; (ii) individuals who, on July 1, 1996, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to July 1, 1996, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors who remain on the Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director, without objection to such nomination) shall also be deemed to be an Incumbent Director; PROVIDED, HOWEVER, that no individual initially elected or nominated as a director of the Corporation as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board of Directors shall be deemed to be an Incumbent Director; (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Corporation or any such type of transaction involving the Corporation or any of its Subsidiaries that requires the approval of the Corporation's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise) (a "Business Combination"), unless immediately following such Business Combination: (a) more than 80% of the total voting power of the corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100% of the Corporation Voting Securities) eligible to elect directors of such corporation is represented by shares that were Corporation Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and 3 17 such voting power is in substantially the same proportion as the voting power of such Corporation Voting Securities immediately prior to the Business Combination, (b) no person (other than any publicly traded holding Corporation resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Corporation (or the corporation resulting from such Business Combination)) becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the corporation resulting from such Business Combination, and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies the conditions specified in (a), (b) and (c) shall be deemed to be a "Non-Control Transaction"); or (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or the direct or indirect sale or other disposition of all or substantially all of the assets of the Corporation and its subsidiaries. Notwithstanding the foregoing, a "change in control" of the Corporation shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Corporation Voting Securities as a result of the acquisition of Corporation Voting Securities by the Corporation which reduces the number of Corporation Voting Securities outstanding; PROVIDED, THAT if after such acquisition by the Corporation such person becomes the beneficial owner of additional Corporation Voting Securities that increases the percentage of outstanding Corporation Voting Securities beneficially owned by such person, a "change in control" of the Corporation shall then occur. (d) "Cause" shall mean (1) a material breach by the Executive of the duties and responsibilities of the Executive (other than as a result of incapacity due to physical or mental illness) which is (x) demonstrably willful, continued and deliberate on the employee's part, (y) committed in bad faith or without reasonable belief that such breach is in the best interests of the Corporation and (z) not remedied within fifteen (15) days after receipt of written notice from the Corporation which specifically identifies the manner in which such breach has occurred or (2) the Executive's conviction of, or plea of NOLO CONTENDERE to, a felony involving willful misconduct which is materially and demonstrably injurious to the Corporation. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Corporation shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Corporation. Cause shall not exist unless and until the Company has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire Board at a meeting of the Board called and held for such purpose (after thirty (30) days notice to Executive and an opportunity for Executive, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board an event set forth in clauses (1) or (2) has occurred and specifying the particulars thereof in detail. The Company must notify Executive of any event constituting Cause within ninety (90) days following the Company's knowledge of its existence or such event shall not constitute Cause under this Agreement. 8. MISCELLANEOUS. This Agreement (a) shall be binding upon and inure to the benefit of any successor of the Corporation, (b) shall be governed by the laws of the State of Florida and any applicable laws of the United States, and (c) except as permitted under Sections 4.1 and 13.6 of the Plan, may not be amended without the written consent of both the Corporation and the Executive. No contract or right of employment shall be implied by this Agreement. If this Award is assumed or a new award is substituted therefor in any corporate reorganization (including, but not limited to, any transaction of the type referred to in Section 424(a) of the Internal Revenue Code of 1986, as amended), employment by such assuming or substituting corporation or by a parent corporation or subsidiary thereof shall be considered for all purposes of this Award to be employment by the Corporation. 4 18 9. SECURITIES LAW REQUIREMENTS. The Corporation shall not be required to issue shares pursuant to the Award unless and until (a) such shares have been duly listed upon each stock exchange on which the Corporation's Stock is then registered; and (b) a registration statement under the Securities Act of 1933 with respect to such shares is then effective. 10. COMMITTEE. The Committee of the Board of Directors administering the Plan shall have authority, subject to the express provisions of the Plan as in effect from time to time, to construe this Agreement and the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to make all other determinations in the judgment of the Committee necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. 11. DEFERRAL. Notwithstanding anything contained herein to the contrary, in the event that the Award shall be ineligible for treatment as "other performance based compensation" under Section 162(m) of the Internal Revenue Code of 1986, as amended, the Committee, in its sole discretion, shall have the right, with respect to any Executive Officer who is in the year any Award hereunder becomes deductible by the Corporation, a "covered employee" under Section 162(m) of the Internal Revenue Code of 1986, as amended, to defer, in whole or in part, such Executive Officer's receipt of such Award until the Executive Officer is no longer a "covered employee" or until such time as shall be determined by the Committee, provided that the Committee may effect such a deferral only in a situation where the Corporation would be prohibited a deduction under Section 162(m) and such deferral shall be limited to the portion of the Award that is not deductible. 12. ADJUSTMENTS. Non-recurring losses or charges which are separately identified and quantified in the Corporation's audited financial statements and notes thereto including, but not limited to, extraordinary items, changes in tax laws, changes in generally accepted accounting principles, impact of discontinued operations, restructuring charges, restatement of prior period financial results, shall be excluded from the calculation of performance results for purposes of the Plan. However, the Committee can choose to include any or all such non-recurring items as long as inclusion of each such item causes the Award to be reduced. 13. INCORPORATION OF PLAN PROVISIONS. This Agreement is made pursuant to the Plan and is subject to all of the terms and provisions of the Plan as if the same were fully set forth herein. Capitalized terms not otherwise defined herein shall have the meanings set forth for such terms in the Plan. In the event of a conflict between the terms of this Agreement and the Plan, the terms of the Plan shall govern. HARRIS CORPORATION BY: _______________________________ 5 EX-10.G 5 EXHIBIT 10.G 1 EXHIBIT 10(g) July 1, 1996 Harris Corporation Retirement Plan 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 Accounts................................................................................. - 2 - 1.2 After-Tax Account........................................................................ - 2 - 1.3 After-Tax Contributions.................................................................. - 2 - 1.4 Basic Account............................................................................ - 2 - 1.5 Balanced Fund............................................................................ - 2 - 1.6 Beneficiary.............................................................................. - 2 - 1.7 Break-in-Service......................................................................... - 3 - 1.8 Code..................................................................................... - 3 - 1.9 Compensation............................................................................. - 3 - 1.10 Consolidated Subsidiaries................................................................ - 5 - 1.11 Corporation.............................................................................. - 6 - 1.12 Corporation Committee.................................................................... - 6 - 1.13 Disability............................................................................... - 6 - 1.14 Early Retirement Age .................................................................... - 6 - 1.15 Employment Unit.......................................................................... - 6 - 1.16 Employee................................................................................. - 6 -
-i- 3 1.17 ERISA -.................................................................................. - 7 - 1.18 Excess Compensation...................................................................... - 7 - 1.19 Fiscal Year.............................................................................. - 7 - 1.20 Full-time Employee....................................................................... - 7 - 1.21 Harris Stock Fund ....................................................................... - 8 - 1.22 Harris Stock After-Tax Account........................................................... - 8 - 1.23 Harris Stock Matching Account ........................................................... - 8 - 1.24 Harris Stock Pre-Tax Account............................................................. - 8 - 1.25 Highly Compensated Employee.............................................................. - 8 - 1.26 Hour of Service.......................................................................... - 8 - 1.27 Investment Funds ........................................................................ - 9 - 1.28 Layoff .................................................................................. - 9 - 1.29 Leave of Absence ........................................................................ - 9 - 1.30 Matching After-Tax Account.............................................................. - 10 - 1.31 Matching After-Tax Contributions ....................................................... - 10 - 1.32 Matching Contributions ................................................................. - 10 - 1.33 Matching Pre-Tax Account ............................................................... - 10 - 1.34 Matching Pre-Tax Contributions.......................................................... - 10 -
-ii- 4 1.35 Military Leave.......................................................................... - 10 - 1.36 Normal Retirement Age................................................................... - 11 - 1.37 Participant............................................................................. 11 - 1.38 Participating Company................................................................... - 11 - 1.39 Period of Service ...................................................................... - 11 - 1.40 Period of Severance .................................................................... - 11 - 1.41 Plan.................................................................................... - 12 - 1.42 Plan Year............................................................................... - 12 - 1.43 Predecessor Company..................................................................... - 12 - 1.44 Pre-Tax Account ........................................................................ - 12 - 1.45 Pre-Tax Contributions................................................................... - 13 - 1.46 Profit-Sharing Account ................................................................. - 13 - 1.47 Profit-Sharing Contributions ........................................................... - 13 - 1.48 Related Company......................................................................... - 13 - 1.49 Rollover Account........................................................................ - 13 - 1.50 Savings Account......................................................................... - 14 - 1.51 SERP.................................................................................... - 14 - 1.52 Severance from Service Date ............................................................ - 14 -
-iii- 5 1.53 Supplemental Account ................................................................... - 14 - 1.54 Taxable Wage Base ...................................................................... - 14 - 1.55 Trust Agreement ........................................................................ - 15 - 1.56 Trust Fund.............................................................................. - 15 - 1.57 Trustee ................................................................................ - 15 - 1.58 Valuation Date.......................................................................... - 15 - ARTICLE II PARTICIPATION 2.1 In General.............................................................................. - 16 - 2.2 Renewal of Participation on Reemployment................................................ - 16 - 2.3 Periods of Service on Reemployment...................................................... - 16 - 2.4 Service with Predecessor Company........................................................ - 17 - 2.5 Participation for Purposes of Rollover Contributions.................................... - 18 - ARTICLE III CONTRIBUTIONS AND ALLOCATIONS 3.1 Profit-Sharing Contributions............................................................ - 19 - 3.2 Allocation of Profit-Sharing Contributions to Participants.............................. - 22 - 3.3 Pre-Tax Contributions................................................................... - 23 -
-iv- 6 3.4 Matching Pre-Tax Contributions.......................................................... - 24 - 3.5 After-Tax Contributions................................................................. - 25 - 3.6 Matching After-Tax Contributions........................................................ - 26 - 3.7 Elections to Make Pre-Tax and After-Tax Contributions................................... - 26 - 3.8 Rollover Contributions.................................................................. - 28 - 3.9 Participating Company's Obligation to Make Contributions................................ - 28 - 3.10 Treatment of Forfeited Amounts.......................................................... - 29 - 3.11 Finality of Allocations................................................................. - 29 - ARTICLE IV LIMITATIONS ON CONTRIBUTIONS 4.1 In General.............................................................................. - 31 - 4.2 Pre-Tax Contributions................................................................... - 31 - 4.3 Percentage Limitation on Pre-Tax Contributions.......................................... - 32 - 4.4 Percentage Limitation on After-Tax and Matching Contributions........................... - 32 - 4.5 Multiple Use of Alternative Limitations................................................. - 34 - 4.6 Limitations on Annual Additions......................................................... - 34 -
ARTICLE V VESTING AND FORFEITURES -v- 7 5.1 In General..................................................................................... - 37 - 5.2 Vesting on Retirement, Death or Disability..................................................... - 37 - 5.3 Vesting on Other Termination of Employment..................................................... - 37 - 5.4 Effect of In-Service Withdrawals on a Participant's Vested Percentage.......................... - 39 - 5.5 Forfeitures.................................................................................... - 39 - ARTICLE VI ACCOUNTS AND INVESTMENTS 6.1 Establishment of Accounts...................................................................... - 41 - 6.2 Investment of Profit-Sharing Account........................................................... - 42 - 6.3 Investment of Accounts Other than Profit-Sharing Account....................................... - 43 - 6.4 Allocation of Earnings and Losses.............................................................. - 45 - 6.5 Special Rules Concerning Harris Stock Fund..................................................... - 46 - ARTICLE VII DISTRIBUTIONS 7.1 In General..................................................................................... - 49 - 7.2 Small Benefit Cash-out......................................................................... - 49 - 7.3 Form of Payment................................................................................ - 50 - 7.4 Time of Payment................................................................................ - 51 -
-vi- 8 7.5 Direct Rollover................................................................................ - 51 - 7.6 Payments on Death.............................................................................. - 52 - 7.7 Benefit Amount and Withholding................................................................. - 53 - 7.8 Order of Distributions......................................................................... - 54 - 7.9 Statutory Requirements......................................................................... - 54 - 7.10 Designating Beneficiaries...................................................................... - 57 - 7.11 Payment of Group Insurance Premiums............................................................ - 58 - 7.12 Inability to Locate Participant................................................................ - 59 - ARTICLE VIII LOANS 8.1 In General..................................................................................... - 60 - 8.2 Loan Administration............................................................................ - 60 - 8.3 Terms and Conditions of Loans.................................................................. - 61 - 8.4 Interest Rate.................................................................................. - 63 - 8.5 Repayment and Default.......................................................................... - 63 - 8.6 Mechanics...................................................................................... - 65 - 8.7 Special Powers................................................................................. - 65 -
ARTICLE IX -vii- 9 IN-SERVICE WITHDRAWALS 9.1 At-Will Withdrawals from Savings Account and After-Tax Account................................. - 67 - 9.2 Hardship Withdrawals from Pre-Tax Account...................................................... - 67 - 9.3 Emergency Withdrawals.......................................................................... - 69 - 9.4 Reduction of Investment Fund Balances.......................................................... - 70 - ARTICLE X TOP-HEAVY PROVISIONS 10.1 In General..................................................................................... - 71 - 10.2 Minimum Allocation............................................................................. - 71 - 10.3 Minimum Vesting................................................................................ - 72 - 10.4 Definitions.................................................................................... - 73 - ARTICLE XI ADMINISTRATION 11.1 Named Fiduciaries.............................................................................. - 79 - 11.2 Corporation Committee.......................................................................... - 79 - 11.3 Powers and Duties of Committee................................................................. - 79 - 11.4 Actions of Committee........................................................................... - 79 - 11.5 Finality of Decisions.......................................................................... - 80 -
-viii- 10 11.6 Immunities of Committee........................................................................ - 80 - 11.7 Advisers and Agents............................................................................ - 80 - 11.8 Committee Member who is Participant............................................................ - 81 - 11.9 Information Provided by Participating Companies................................................ - 81 - 11.10 Expenses....................................................................................... - 81 - 11.11 Trust Fund Available to Pay All Plan Benefits.................................................. - 82 - ARTICLE XII AMENDMENT AND TERMINATION AND CHANGE OF CONTROL 12.1 Amendment...................................................................................... - 83 - 12.2 Termination of Plan............................................................................ - 84 - 12.3 Discontinuance of Contributions................................................................ - 84 - 12.4 Vesting on Termination or Discontinuance of Contributions...................................... - 84 - 12.5 Distribution on Termination.................................................................... - 85 - 12.6 Change of Control.............................................................................. - 85 - ARTICLE XIII MISCELLANEOUS PROVISIONS 13.1 Restrictions on Alienation; Qualified Domestic Relations Orders................................ - 92 - 13.2 Exclusive Benefit Requirement.................................................................. - 93 -
-ix- 11 13.3 Return of Contributions........................................................................ - 94 - 13.4 No Contract of Employment...................................................................... - 94 - 13.5 Payment of Benefits on Incapacity.............................................................. - 94 - 13.6 Merger......................................................................................... - 95 - 13.7 Construction................................................................................... - 96 - 13.8 Governing Law.................................................................................. - 95 - 13.9 Mistaken Payments.............................................................................. - 96 - ARTICLE XIV SPECIAL PROVISIONS FOR EMPLOYEES OF HARRIS TECHNICAL SERVICES DIVISION OF HARRIS TECHNICAL SERVICES CORPORATION 14.1 Participation.................................................................................. - 97 - 14.2 Profit-Sharing Contributions................................................................... - 97 - 14.3 Pre-Tax Contributions.......................................................................... - 98 - 14.4 No Matching Pre-Tax Contributions.............................................................. - 98 - 14.5 No Investment in the Harris Stock Fund......................................................... - 98 - 14.6 Vesting........................................................................................ - 98 -
-x- 12 APPENDIX A Investment Funds................................................ - 101- APPENDIX B Special Provisions For Transferred Participants................. - 104- APPENDIX A Participating Companies......................................... - 106- - xi- 13 INTRODUCTION The Harris Corporation Retirement Plan (the "Plan") is hereby amended and restated effective July 1, 1996. Those Participants in the Plan who are Employees on July 1, 1996 shall continue to participate in the Plan, as restated. Those Participants in the Plan who are not Employees on July 1, 1996 shall not be participants in the Plan, as restated, and their benefits shall be determined under the terms of the Plan that were in effect when they ceased to be Employees unless they are reemployed as Employees on or after July 1, 1996 by a Participating Company. The Plan and the related trust are intended to be a tax-exempt plan and trust under sections 401(a) and 501(a) of the Code, respectively. The Plan also is intended to be a profit-sharing plan that contains a qualified cash or deferred arrangement under section 401(k) of the Code. - 1 - 14 ARTICLE I DEFINITIONS 1.1 Accounts -- means all of the accounts described in section 6.1, and such other accounts that may be established on behalf of each Participant, to be credited with contributions made on behalf of a Participant, adjusted for earnings and losses as provided in the Plan and debited by Plan expenses allocable to the Accounts, distributions, withdrawals and loans to the Participant. 1.2 After-Tax Account -- means the account established to record After-Tax Contributions made on the Participant's behalf other than those invested in the Harris Stock Fund. 1.3 After-Tax Contributions -- means the contributions described in section 3.5. 1.4 Basic Account -- means the account established to record the portion of the Profit-Sharing Contributions allocable to a Participant's Compensation. -2- Harris Retirement Plan 15 Definitions 1.5 Balanced Fund -- means the Balanced Fund described in Appendix A. 1.6 Beneficiary -- means the person or persons entitled to receive any benefits payable under the Plan on account of a Participant's death. 1.7 Break-in-Service -- means a Period of Severance, as defined below. 1.8 Code -- means the Internal Revenue Code of 1986, as amended from time to time. 1.9 Compensation -- means the following items of remuneration which an Employee earns for work or personal services performed for a Participating Company: (a) salary or wage; (b) commission paid pursuant to a sales incentive plan; (c) overtime premium, shift differential or, additional compensation in lieu of overtime premium; (d) compensation in lieu of vacation; -3- Harris Retirement Plan 16 Definitions (e) any annual bonus or incentive compensation payable in the form of cash pursuant to the Annual Incentive Plan or any successor thereto or other similar plan adopted by the Corporation from time to time or any stock award made in lieu of an annual cash bonus or incentive compensation; (f) any cash bonus or incentive compensation payable in the form of cash or any stock awards made pursuant to an established plan of the Corporation or Employee's Employment Unit, including but not limited to, bonus awards, spot awards, lump sum, profit sharing, team awards and gain sharing awards; (g) any compensation of a type described in items (a) through (f) above which is paid as an employee contribution to the Plan; (h) any salary reduction contributions to aSection 125 plan maintained by a Participating Company; but excluding: (i) any extraordinary compensation of a recurring or non-recurring nature not included under items (a) to (f) above; -4- Harris Retirement Plan 17 Definitions (ii) any extraordinary compensation in the nature of bonus, commission or incentive compensation which is not paid pursuant to an established plan of the Employee's Employment Unit or pursuant to an established sales incentive plan; (iii) any award made or amount paid pursuant to the Stock Incentive Plan or any successor thereto, including, but not limited to, performance shares, stock options, restricted stock, SARs, or other stock-based awards or dividend equivalents; (iv) severance pay or special retirement pay; (v) retention bonuses or completion bonuses unless authorized by the appropriate officer of the Corporation in a uniform and nondiscriminatory manner; (vi) reimbursement or allowances with respect to expenses incurred in connection with employment, such as tax equalization, reimbursement for moving expenses, mileage or expense allowance or education refund. In no event does the term "Compensation" include indirect compensation such as employer paid group insurance premiums, or contributions under this or other -5- Harris Retirement Plan 18 Definitions qualified employee benefit plan, other than as a contribution described in item (g) above. Only Compensation not in excess of the amount allowed under Code section 401(a)(17), which is $150,000 for 1996, shall be taken into account. In addition, in the year in which an Employee becomes a Participant, only Compensation received after he becomes a Participant shall be taken into account. For purposes of any test imposed under any section of the Code, the Plan authorizes the use of any definition of Compensation that satisfies the requirements of such section. 1.10 Consolidated Subsidiaries -- means those subsidiaries of the Corporation which are included in the consolidated annual financial statement for the Corporation. 1.11 Corporation -- means Harris Corporation. 1.12 Corporation Committee -- means the committee established under section 11.2. -6- Harris Retirement Plan 19 Definitions 1.13 Disability -- means a disability that qualifies a Participant for disability benefits under title II or title XVI of the Federal Social Security Act, and occurs on the effective date determined by the Social Security Administration. 1.14 -- Early Retirement Age -- means age 55. 1.15 Employment Unit -- means any division or other readily identifiable segment of the operations of a Participating Company, for example, as identified in the annual report or such other segments as may be established for purposes of the Plan by the Corporation, in its discretion. 1.16 Employee -- means an individual who is employed by a Participating Company, or division or operation thereof, designated in Appendix C; provided that the individual is not covered by a retirement plan which is maintained by the Participating Company pursuant to a collective bargaining agreement and which was in effect on or after July 1, 1990. With respect to a Participating Company not all of whose employees are eligible to be participants (a "Limited Participating Company"), the term "Employee" shall include those employees of the Participating Company who were Participants -7- Harris Retirement Plan 20 Definitions prior to their employment by the Limited Participating Company. Solely for Plan qualification testing, the term "Employee" includes a "leased employee" only to the extent required in section 414(n) of the Code. 1.17 ERISA -- means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.18 Excess Compensation -- means the portion of a Participant's Compensation that exceeds the Taxable Wage Base for the year in which the Compensation is received. 1.19 Fiscal Year -- means the fiscal year of the Corporation commencing on July 1 and ending on June 30. 1.20 Full-time Employee -- means an Employee who is hired by a Participating Company to work 30 or more hours per week. -8- Harris Retirement Plan 21 Definitions 1.21 Harris Stock Fund -- means the Fund described in Appendix A that is designed to be invested in qualifying employer securities within the meaning of section 407 of ERISA, as it applies to an eligible individual account plan. 1.22 Harris Stock After-Tax Account -- means the portion of the After-Tax Contributions made on the Participant's behalf invested in the Harris Stock Fund. 1.23 Harris Stock Matching Account -- means the portion of the Matching Contributions made on the Participant's behalf invested in the Harris Stock Fund. 1.24 Harris Stock Pre-Tax Account -- means the portion of the Pre-Tax Contributions made on the Participant's behalf invested in the Harris Stock Fund. 1.25 Highly Compensated Employee -- means a "highly compensated employee" for a Plan Year as defined in section 414(q) of the Code, including the family aggregation rules contained therein. -9- Harris Retirement Plan 22 Definitions 1.26 Hour of Service -- means each hour for which an Employee is paid or entitled to payment for the performance of duties for a Participating Company or Related Company. 1.27 Investment Funds -- means the funds described in Appendix A to the Plan. 1.28 Layoff -- means a temporary suspension of the active employment of an Employee with the understanding that the Employee will be recalled to active employment if and when his services are again required. A period of Layoff terminates, and a Participant who is not recalled is deemed to terminate employment, on the earliest of the following dates: (a) the expiration date specified in a notice of recall delivered to the Employee; (b) the first anniversary of the date the Layoff began, or (c) the election of an Employee to terminate the Layoff by written notice delivered to the Corporation. -10- Harris Retirement Plan 23 Definitions 1.29 Leave of Absence -- means a period of interruption of the active employment of an Employee granted by the Participating Company or Predecessor Company with the understanding that the Employee will return to active employment at the expiration of the period of time. A Leave of Absence is of definite duration, but may be extended by the Participating Company or Predecessor Company for additional periods. The term Leave of Absence does not include a Military Leave. 1.30 Matching After-Tax Account -- means the account established to record Matching After-Tax Contributions made on the Participant's behalf other than those invested in the Harris Stock Fund. 1.31 Matching After-Tax Contributions -- means the contributions made on behalf of a Participant under section 3.6. 1.32 Matching Contributions -- means the aggregate of the Matching After-Tax Contributions and the Matching Pre-Tax Contributions. -11- Harris Retirement Plan 24 Definitions 1.33 Matching Pre-Tax Account -- means the account established to record the Matching Pre-Tax Contributions made on the Participant's behalf other than those invested in the Harris Stock Fund. 1.34 Matching Pre-Tax Contributions -- means the contributions made on behalf of a Participant under section 3.4. 1.35 Military Leave -- means an interruption of active employment of an Employee with a Participating Company or Predecessor Company to enter the Armed Forces of the United States under such circumstances that the Employee thereby becomes entitled to reemployment rights under Federal law. Military Leave terminates on the expiration of such reemployment rights. 1.36 Normal Retirement Age -- means age 65. 1.37 Participant -- means an Employee who satisfies the requirements of Section 2.1. -12- Harris Retirement Plan 25 Definitions 1.38 Participating Company -- means the Corporation and any Related Company or division or operation thereof so designated by the Corporation, including a foreign subsidiary. Appendix C, as it may be amended from time to time, lists each Participating Company, or division thereof, whose Employees may become Participants. 1.39 Period of Service -- means the period of time that begins on the Employee's employment or reemployment date, whichever is applicable, and ends on his Severance from Service Date. The Employee's employment or reemployment date is the date on which the Employee first performs an Hour of Service. 1.40 Period of Severance -- means the period of time commencing on the Severance from Service Date and ending on the date on which the Employee again performs an Hour of Service. 1.41 Plan -- means the Harris Corporation Retirement Plan. 1.42 Plan Year -- means the Fiscal Year. -13- Harris Retirement Plan 26 Definitions 1.43 Predecessor Company -- means any corporation (a) of which a Related Company is a successor by reason of having acquired all or substantially all of its business and assets by purchase, merger, consolidation or liquidation, or (b) from which a Related Company acquired a business formerly conducted by such corporation; provided, however, that in the case of any such corporation that continued to conduct a trade or business subsequent to the acquisition by a Related Company referred in (a) or (b) above, the status of such corporation as a Predecessor Company relates only to the period of time prior to the date of such acquisition. 1.44 Pre-Tax Account -- means the account established to record the Pre-Tax Contributions made on the Participant's behalf other than those invested in the Harris Stock Fund. 1.45 Pre-Tax Contributions -- means the contributions made on behalf of a Participant under section 3.3. -14- Harris Retirement Plan 27 Definitions 1.46 Profit-Sharing Account -- means the account established to record the Profit-Sharing Contributions made on a Participant's behalf, and includes the Basic Account and the Supplemental Account. 1.47 Profit-Sharing Contributions -- means the contributions described in section 3.1. 1.48 Related Company -- means the Corporation and any corporation that is a member of a controlled group of corporations (as defined in section 414(b) of the Code) with the Corporation; any trade or business (whether or not incorporated) which is under common control (as defined in section 414(c) of the Code) with the Corporation; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in section 414(m) of the Code) which includes the Corporation, and any other entity required to be aggregated with the Corporation under section 414(o) of the Code. 1.49 Rollover Account -- means the account established to record the Rollover Contributions made by a Participant from another tax-qualified plan. -15- Harris Retirement Plan 28 Definitions 1.50 Savings Account -- means the account established under section 6.1(f). 1.51 SERP -- means the Harris Corporation Supplemental Executive Retirement Plan. 1.52 Severance from Service Date -- means, with respect to a Related Company, the earlier of (a) the date on which the Employee quits, retires, is discharged or dies, or (b) the first anniversary of the first date of a period in which an Employee remains absent from service (with or without pay) for any reason other than quitting, retirement, discharge or death; provided that "second anniversary" shall be substituted for "first anniversary" if the absence is due to maternity or paternity reasons as defined in section 410(a)(5)(E) of the Code. The period between the first and the second anniversary shall not be a Period of Service or a Period of Severance. 1.53 Supplemental Account -- means the account established to record the portion of the Profit-Sharing Contribution allocable to a Participant's Excess Compensation. -16- Harris Retirement Plan 29 Definitions 1.54 Taxable Wage Base -- means the maximum amount of earnings that may be considered wages under section 3121(a)(1) of the Code, except for purposes of Medicare taxes, as in effect on the first day of the Plan Year. In the case of an Employee who was a Participant for only a portion of a particular Plan Year, the Taxable Wage Base shall be multiplied by the ratio of the number of calendar months (including a fraction of a month as a full month) in the Plan Year during which he was a Participant to 12 months. 1.55 Trust Agreement -- means the Trust Agreement relating to the Harris Corporation Retirement Plan, entered into between the Corporation and the Trustee, as it may be amended from time to time. 1.56 Trust Fund -- means the assets held by the Trustee in accordance with the Trust Agreement. 1.57 Trustee -- means Boston Safe Deposit & Trust Company, or such successor (or successors) thereto designated by the Corporation to act as trustee under the provisions of the Trust Agreement, who shall agree to act as such by executing the Trust Agreement. -17- Harris Retirement Plan 30 Definitions 1.58 Valuation Date -- means the last day of each calendar month. -18- Harris Retirement Plan 31 ARTICLE II PARTICIPATION 2.1 In General. An Employee shall become a Participant in the Plan on the date he completes a one-year Period of Service, provided that he is employed by a Participating Company on that date. Notwithstanding the above, and solely for purposes of making Pre-Tax Contributions, After-Tax Contributions and Rollover Contributions, a Full-time Employee shall become a Participant in the Plan on the date he first performs an Hour of Service. 2.2 Renewal of Participation on Reemployment. An Employee who terminates employment after he completes a one-year Period of Service and is reemployed by a Participating Company shall become a Participant immediately on reemployment. An Employee who terminates employment before he completes a one-year Period of Service shall become a Participant as provided in section 2.1, provided that his Period of Service prior to reemployment shall be used to satisfy the one-year Period of Service requirement of section 2.1 to the extent provided under section 2.3. -19- Harris Retirement Plan 32 Participation 2.3 Periods of Service on Reemployment. The following rules shall apply to an Employee who terminates employment before he completes a one-year Period of Service and is reemployed by a Related Company: (a) Credit for Prior Period of Service. If the Employee is reemployed by a Related Company before his Period of Severance equals or exceeds the greater of his Period of Service before he terminated employment or five years, his Period of Service before he terminated employment shall be counted as service. (b) Credit for Period of Severance. If the Employee terminates employment due to quitting, discharge, or retirement and is reemployed by a Related Company within 12 months of his termination date, his Period of Severance shall be counted as service. If the Employee terminates employment for any reason other than quitting, discharge, or retirement, and subsequently quits, is discharged, or retires, his Period of Severance shall be counted as service only if he is reemployed by a Related Company within 12 months of when he first terminated employment. -20- Harris Retirement Plan 33 Participation 2.4 Service with Predecessor Company. In the case of a corporation (other than a Related Company) which becomes a Predecessor Company by reason of the acquisition of all or substantially all of the assets and business of such corporation by a Related Company, an Employee's Period of Service shall include employment with such Predecessor Company, as provided in the corporate documents effecting the acquisition. 2.5 Participation for Purposes of Rollover Contributions. Full-time Employees of a Participating Company who do not satisfy the requirements of section 2.1 may, nevertheless, be Participants solely for purposes of making Rollover Contributions under section 3.8. -21- Harris Retirement Plan 34 ARTICLE III CONTRIBUTIONS AND ALLOCATIONS 3.1 Profit-Sharing Contributions. (a) Basic. The amount of Profit-Sharing Contributions made on behalf of Participating Companies for a Fiscal Year with respect to Participants in this Plan and the Harris Corporation Union Retirement Plan shall equal 11-1/2 percent of the adjusted consolidated net income of the Corporation and its Consolidated Subsidiaries before net income taxes for such Fiscal Year as determined in subsection (d), reduced by the portion of such amount with respect to Participants' Compensation that would have been allocable under section 3.2 of this Plan or section 3.2 of the Harris Corporation Union Retirement Plan, if Compensation were determined without regard to statutory limits under section 401(a)(17) or 415 of the Code. (b) Special. The Corporation, in its discretion, may provide for an additional Profit-Sharing Contribution in a specified dollar amount or pursuant to a formula with respect to any Fiscal Year. (c) Apportionment Between the Plan and the Harris Union Retirement Plan. Profit-Sharing Contributions for a Plan Year shall be apportioned for accounting and payment purposes between the Plan and the Harris Corporation Union Retirement Plan (the "Union Plan") based on the ratio of -22- Harris Retirement Plan 35 Contributions and Allocations the total Compensation plus Excess Compensation for the Plan Year of participants in each plan to the total Compensation plus Excess Compensation of all participants in the Plan and the Union Plan for the Plan Year. (d) Adjusted Consolidated Net Income. The adjusted consolidated net income of the Corporation and its Consolidated Subsidiaries before net income taxes shall be determined on the basis of the annual audit report prepared by the Corporation's independent public accountants by adjusting the consolidated net income shown in the report to eliminate the effect, if any, of the following items: (1) any provision for taxes on or measured by income for such years required by the laws of the United States or of any state or political subdivision thereof (including the Ohio Franchise Income Tax, whether or not in fact measured by income), or any provision for similar taxes required by the laws of any other country; (2) all items consisting of credits or deficiencies relating to taxes described in clause (1) above on or measured by income for prior Fiscal Years: -23- Harris Retirement Plan 36 Contributions and Allocations (3) any provision for contributions for such Fiscal Year under this Plan or under any profit-sharing retirement plan of a Consolidated Subsidiary of the Corporation; (4) all dividends received during such Fiscal Year with respect to stock of a Related Company which is not included among the Consolidated Subsidiaries; (5) gains or losses from the sale, exchange or other disposition of capital or depreciable property, as defined in the Code; (6) any income from the use of the "lifo" inventory method resulting from either a reduction in inventory or a decrease in the cost index; (7) all items of income and expense which relate directly to the conduct by a Related Company of a business (i) which was formerly conducted by a corporation which was not then a Related Company, and (ii) the net income (or loss) of which was included for the first time in determining the consolidated net income of the -24- Harris Retirement Plan 37 Contributions and Allocations Corporation and its Consolidated Subsidiaries for the Fiscal Year in question; (8) all exchange adjustments resulting from translating to United States currency those year-end balance sheet items of subsidiaries which are denominated in a foreign currency; (9) any item of income or expense relating to the right of any employee to receive cash upon cancellation of an unexercised stock option, and (10) the net of all items of income and expense, other than tax items described in subsection (1) and (2) above, relating to Lanier Business Products, Inc. and any subsidiary thereof which is a Related Company. 3.2 Allocation of Profit-Sharing Contributions to Participants. (a) In General. The Profit-Sharing Contributions for a Plan Year with respect to an Employment Unit shall be allocated among eligible Participants described in subsection (c) who are employed by the Employment Unit during some part or all of the Plan Year based on the ratio of each eligible -25- Harris Retirement Plan 38 Contributions and Allocations Participant's Compensation plus Excess Compensation for the Plan Year to the Compensation plus Excess Compensation of all eligible Participants for the Plan Year. (b) Limitation On Amount. Notwithstanding subsection (a), the amount allocated to an eligible Participant with respect to Excess Compensation shall not exceed the "base contribution percentage" by more than the lesser of (i) the base contribution percentage or (ii) 5.7% (or if greater, the percentage equal to the Old Age portion of the tax under section 3111(a) of the Code, as in effect on the first day of the Plan Year). The term "base contribution percentage" means the percentage of Compensation contributed by the Participating Company with respect to each Participant's Compensation not in excess of the Participant's Taxable Wage Base. (c) Limitation On Eligibility. A Participant shall be eligible to receive an allocation of Profit-Sharing Contributions for a Plan Year if (1) the Participant is employed on the last day of the Plan Year or (2) the Participant terminates employment during the Plan Year on or after Early Retirement Age or Normal Retirement Age, or due to Disability, death, Lay-off, Leave of Absence or Military Leave, or is transferred by the Corporation as a Release Employee to an entity that is not a Participating Company. -26- Harris Retirement Plan 39 Contributions and Allocations 3.3 Pre-Tax Contributions. (a) Maximum Election. A Participant may elect to reduce his Compensation by an amount equal to any whole percentage not to exceed 12 percent and have that amount contributed to the Plan as a Pre-Tax Contribution. A Participant's Pre-Tax Contribution to the Plan and any other plan of the Participating Company or Related Company for any calendar year shall not exceed $7,000 (as adjusted in accordance with Code section 402(g)(5) for increases in the cost of living) including the full fair market value of any Common Stock contributed as a Pre-Tax Contribution. For Pre-Tax Contributions invested in the Harris Stock Fund, the normal form of contribution shall be cash; provided, however, that the Corporation, in its discretion, may make the contribution in common stock of the Corporation, which may be contributed at a discount from fair market value. (b) Contributions in Excess of the Maximum. If the Pre-Tax Contributions on behalf of a Participant for a calendar year reach the limit described in subsection (a), any additional contributions to be made during the calendar year pursuant to the Participant's election shall be made as After-Tax Contributions and any Matching Pre-Tax Contributions with respect to that -27- Harris Retirement Plan 40 Contributions and Allocations amount shall be made as Matching After-Tax Contributions. Notwithstanding the above, if the Pre-Tax Contributions for a calendar year on behalf of a Participant who is eligible to participate in the SERP reach the limit described in subsection (a), such Participant may elect (i) that any additional contributions be made as After-Tax Contributions and any Matching Pre-Tax Contributions with respect to that amount be made as Matching After-Tax Contributions or (ii) that such amounts (including the amount of the Matching Contributions) be credited to the Participant's account under the SERP. Such election shall be made in accordance with procedures established by the Corporation Committee. 3.4 Matching Pre-Tax Contributions. The Participating Company shall make a Matching Pre-Tax Contribution on behalf of each Participant who is employed by it and has completed a one-year Period of Service in the amount of 100 percent of the first six percent of the Pre-Tax Contributions made on behalf of the Participant during the Plan Year. The normal form of matching contribution for Pre-Tax Contributions invested in the Harris Stock Fund shall be in cash; provided, however, that the Corporation in its discretion, may make the contribution in common stock of the Corporation, which may be contributed at -28- Harris Retirement Plan 41 Contributions and Allocations a discount from fair market value. The Trustee is authorized to purchase common stock of the Corporation in the open market, and to give effect to the discount, if any, that has been established from time to time by allocating shares to Participants' Accounts in addition to the number of shares purchased on the open market by means of a given contribution. 3.5 After-Tax Contributions. A Participant may elect to reduce his Compensation by an amount equal to any whole percentage not to exceed 12 percent and have that amount contributed to the Plan as an After-Tax Contribution, provided that a Participant with less than a one-year Period of Service may make After-Tax Contributions only to the extent necessary pursuant to sections 3.3(b) or 4.2. A Participant who makes Pre-Tax Contributions for a Plan Year may not make After-Tax Contributions for that Plan Year other than pursuant to sections 3.3(b) or 4.2. 3.6 Matching After-Tax Contributions. The Participating Company shall make a Matching After-Tax Contribution on behalf of each Participant who is employed by one of its constituent Employment Units (and effective prior to April 1, 1995 has completed a one-year Period of Service) in the amount of 100 -29- Harris Retirement Plan 42 Contributions and Allocations percent of the first six percent of the After-Tax Contributions on behalf of the Participant, reduced by the amount of the Matching Pre-Tax Contribution made on behalf of the Participant during the Plan Year. The normal form of matching contribution for After-Tax Contributions invested in the Harris Stock Fund shall be in cash; provided, however, that the Corporation in its discretion, may make the contribution in common stock of the Corporation, which may be contributed at a discount from fair market value. The Trustee is authorized to purchase common stock of the Corporation in the open market, and to give effect to the discount, if any, that has been established from time to time by allocating shares to Participants' Accounts in addition to the number of shares purchased on the open market by means of a given contribution. 3.7 Elections to Make Pre-Tax and After-Tax Contributions. (a) Written Elections. A Participant's initial election to reduce his Compensation and have Pre-Tax Contributions and/or After-Tax Contributions made on his behalf shall be made in writing by filing the appropriate form, which shall specify the effective date of the election. The initial election shall take effect as of the first payroll period commencing immediately after the effective date of the election. -30- Harris Retirement Plan 43 Contributions and Allocations (b) Changing Elections. A Participant may change the percentage (in increments of one percent) of future Pre-Tax Contributions and/or After-Tax Contributions made on his behalf by filing the appropriate form or by following the appropriate telephone procedures for changing elections as established by the Corporation Committee. A change may be made not more than once each month. A change of election shall become effective as of the first payroll period commencing immediately after the effective date of the election. (c) Terminating Elections. A Participant may terminate his election to have Pre-Tax Contributions and/or After-Tax Contributions made on his behalf by filing the appropriate form. The termination election shall become effective as of the first payroll period commencing immediately after the effective date of the election. (d) Corporation's Discretion to Limit Elections. The Corporation Committee may direct that Participant elections with respect to Pre-Tax Contributions and/or After-Tax Contributions be changed in any manner the Corporation Committee, in its discretion, shall determine appropriate to preserve the qualification of the Plan under section 401(a) of the Code and as a cash or deferred arrangement under section 401(k) of the Code. -31- Harris Retirement Plan 44 Contributions and Allocations 3.8 Rollover Contributions. A Participant, with the consent of the Corporation Committee or its delegate, may at any time make a rollover contribution to the Plan. Rollover contributions shall include only (a) cash funds transferred directly from a tax-qualified plan within the meaning of section 401 of the Code, and (b) cash funds distributed from a tax-qualified plan or a conduit individual retirement account that are eligible for rollover treatment and are transferred to the Plan within 60 days of the Participant's receipt thereof. A Participant may be required to establish that the transfer of amounts into a Rollover Account will not require any changes to the terms of the Plan or risk adverse consequences for the Plan or Trust. 3.9 Participating Company's Obligation to Make Contributions. (a) Contributions. Each Participating Company agrees to pay to the Trustee the contributions that are required with respect to Participants who are employed by one of its constituent Employment Units. Profit-Sharing Contributions with respect to a Fiscal Year shall be paid to the Trustee no later Contributions and Allocations than the time for filing the Participating Company's federal income tax return for such Fiscal Year, including extensions. Pre-Tax Contributions and After-Tax Contributions shall be withheld and paid by the Employment Unit, and Matching -32- Harris Retirement Plan 45 Contributions and Allocations Contributions shall be paid by the Participating Company to the Trustee no later than 20 days following the last day of the calendar month in which the amounts were withheld from the Participants' Compensation, or sooner as required by Federal law. (b) Limitation. Contributions under this Article III shall not be required to the extent they exceed the limitations of section 404 of the Code, in which case they shall be reduced to the extent allowable and necessary in the following order: (1) Profit-Sharing Contributions; (2) Matching Contributions, and (3) Pre-Tax Contributions. 3.10 Treatment of Forfeited Amounts. (a) Reduction of Contributions. Forfeitures shall be allocated to Employment Units as provided in subsection (b) and used to reduce Profit-Sharing Contributions and Matching Contributions of the Participating Companies in which the Employment Units are included. (b) Allocation of Forfeitures to Employment Units. Forfeitures of Profit-Sharing Contributions and Matching Contributions shall be credited to the -33- Harris Retirement Plan 46 Contributions and Allocations Employment Unit with which the Participant was last employed before the forfeiture occurred. 3.11 Finality of Allocations. The Corporation Committee shall give a written benefit statement to each Participant at least annually setting forth the amount of the contributions allocated to his Accounts; provided, however, that if any such Participant is deceased, such statement shall be given to his Beneficiary. Any Participant or Beneficiary claiming that an error has been made in a benefit statement shall notify the Corporation Committee in writing within 90 days following the delivery or mailing of such statement. The Corporation Committee shall review the claim and advise the Participant or Beneficiary of its decision in writing. If no such notice of error is filed, the benefit statement shall be presumed to be correct. -34- Harris Retirement Plan 47 ARTICLE IV LIMITATIONS ON CONTRIBUTIONS 4.1 In General. Notwithstanding any provisions of Article III to the contrary, the contributions provided for in Article III shall be limited to the extent necessary to meet the requirements of this Article IV. 4.2 Pre-Tax Contributions. (a) Treatment of Certain Contributions as After-Tax. If the Corporation Committee determines that a Participant's Pre-Tax Contributions for a calendar year have reached the dollar limit of section 402(g) of the Code, any additional contributions for that calendar year pursuant to the Participant's Pre-Tax Contribution election shall be treated in the manner provided under Section 3.3. (b) Return of Excess Deferrals. In the event that a Participant's Pre-Tax Contributions already made to the Plan for a calendar year exceed the limits of section 402(g) of the Code, the excess amount, as adjusted for income and loss, may, in the discretion of the Corporation Committee, be distributed to the Participant no later than April 15 of the following year in accordance with the requirements of section 402(g) of the Code and Treasury Regulation section -35- Harris Retirement Plan 48 Limitations on Contributions 1.402(g)-1 (including return by transfer to the SERP in accordance with a timely election filed by the Participant). 4.3 Percentage Limitation on Pre-Tax Contributions. (a) Satisfying the Actual Deferral Percentage Test. The Pre-Tax Contributions made on behalf of Participants with respect to a Plan Year shall satisfy the "actual deferral percentage test" of section 401(k)(3) of the Code and Treasury regulation section 1.401(k)-1(b)(2), the provisions of which are incorporated herein by reference. (b) Treatment of Excess Contributions as After-Tax. In the event it is necessary to reduce or limit the amount of any Participant's Pre-Tax Contributions, the amount of Pre-Tax Contributions made on behalf of Highly Compensated Employees shall be deemed to be After-Tax Contributions and any Matching Pre-Tax Contributions made with respect to those Contributions shall be deemed to be Matching After-Tax Contributions. The Highly Compensated Employees to whom this recharacterization is applicable shall be determined in accordance with Treasury regulation section 1.401(k)-1(f)(2), the provisions of which are incorporated herein by reference. -36- Harris Retirement Plan 49 Limitations on Contributions 4.4 Percentage Limitation on After-Tax and Matching Contributions. (a) Satisfying the Actual Contribution Percentage Test. The After-Tax Contributions and Matching Contributions made on behalf of Participants with respect to a Plan Year shall satisfy the "actual contribution percentage test" of section 401(m)(3) of the Code and Treasury regulation section 1.401(m)-1(b), the provisions of which are incorporated herein by reference. (b) Reduction and Forfeiture of After-Tax Contributions and Matching Contributions. In the event it is necessary to reduce or limit a Participant's After-Tax Contributions and Matching Contributions to satisfy the actual contribution percentage test, the amount of such contributions, as adjusted for income and losses, on behalf of Highly Compensated Employees shall be reduced in accordance with Treasury regulation section 1.401(m)-1(e)(2), the provisions of which are incorporated herein by reference. The amount of the After-Tax Contributions and Matching Contribution shall be returned to the Highly Compensated Employees (including return by transfer to the SERP in accordance with a timely election filed by the Participant) or forfeited as follows: -37- Harris Retirement Plan 50 Limitations on Contributions (1) After-Tax Contributions in excess of six percent of Compensation shall be returned, and (2) Remaining After-Tax Contributions and Matching After-Tax Contributions attributable thereto. After-Tax Contributions shall be returned. Matching After-Tax Contributions to the extent vested shall be returned and to the extent not vested shall be forfeited and used to reduce contributions in accordance with section 3.10. 4.5 Multiple Use of Alternative Limitations. Multiple use of the alternative limitations of sections 401(k)(3)(A)(iii)(II) and 401(m)(A)(ii) of the Code shall be restricted in accordance with Treasury Regulation 1.401(m)-2, the provisions of which are incorporated herein by reference. 4.6 Limitations on Annual Additions. (a) The Defined Contribution Limit. The "annual addition," as defined herein, for any Plan Year, to a Participant's Accounts in all defined contribution plans maintained by the Participating Company or Related -38- Harris Retirement Plan 51 Limitations on Contributions Company shall not exceed the lesser of (1) 25 percent of the Participant's Compensation for the Plan Year, or (2) $30,000 (as adjusted in accordance with section 415(d) of the Code). The term "annual additions" means the sum of all contributions and forfeitures allocated to a Participant's Accounts (other than his Rollover Account). (b) The Combined Limit. If the Participant also has participated in a defined benefit plan maintained by a Related Company, the limitations of section 415(e) of the Code shall apply. If the limitations of section 415(e) are exceeded, the benefits under any defined benefit plan maintained by the Participating Company or Related Company shall be reduced before the annual additions to the Plan are reduced. (c) Reduction of Contributions. If the Corporation Committee determines at any time that the annual addition to any Participant's Accounts exceeds such limitation for any Plan Year, the contributions on behalf of the Participant shall be reduced, to the extent necessary, in the following order: (1) Pre-Tax Contributions in excess of six percent; (2) Remaining Pre-Tax Contributions and Matching Pre-Tax Contributions attributable thereto shall be reduced proportionately; -39- Harris Retirement Plan 52 Limitations on Contributions (3) Profit-Sharing Contributions; (4) After-Tax Contributions in excess of six percent; (5) Remaining After-Tax Contributions and Matching After-Tax Contributions attributable thereto shall be reduced proportionately. After-Tax Contributions and Pre-Tax Contributions, as adjusted for gains, shall be returned to the Participant (including return by transfer to the SERP in accordance with a timely election filed by the Participant). Profit-Sharing Contributions and Matching Contributions, as adjusted for gains, to the extent allowable shall be held in a suspense account and allocated to the Accounts of such Participant in the next Plan Year; provided that if the Participant is not covered by the Plan in the next Plan Year, the amount shall be allocated to the remaining Participants in the Plan who are employed by the Employment Unit that employed the Participant. (d) Limits on Limits. The limits stated on this Article IV shall apply only to the extent required under the Code. Except as otherwise specifically provided in this section 4.6, all of the requirements of section 415 of the Code, and limitations thereon, including the transitional rules and grandfather rules, are incorporated herein by reference. -40- Harris Retirement Plan 53 ARTICLE V VESTING AND FORFEITURES 5.1 In General. A Participant shall have a fully vested interest at all times in his Pre-Tax Account, After-Tax Account, Harris Stock Pre-Tax Account, Harris Stock After-Tax Account and Savings Account (other than the portion attributable to matching contributions made after October 1, 1984) and Rollover Account. 5.2 Vesting on Retirement, Death or Disability. A Participant shall have a fully vested interest in his Profit Sharing Account, Matching Pre-Tax Account, Matching After-Tax Account, Harris Stock Matching Account, and portion of his Savings Account attributable to matching contributions made after October 1, 1984, on termination of employment by any Related Company in the event of: (a) retirement on or after Normal Retirement Age; (b) retirement on or after Early Retirement Age; (c) retirement on or after the effective date of a Participant's Disability determination by the Social Security Administration; (d) death. 5.3 Vesting on Other Termination of Employment. -41- Harris Retirement Plan 54 Vesting and Forfeitures (a) Vesting Schedule. A Participant who terminates employment other than on the occurrence of one of the events described in section 5.2 shall have a vested interest in his Profit-Sharing Account, Matching Pre-Tax Account, Matching After-Tax Account, Harris Stock Matching Account and the portion of his Savings Account attributable to matching contributions made after October 1, 1984 in accordance with the following schedule: Period of Service Vested Percentage Less than 3 years 0% 3 years but less than 4 years 30% 4 years but less than 5 years 40% 5 years but less than 6 years 60% 6 years but less than 7 years 80% 7 years or more 100% (b) Computing a Participant's Period of Service. All Periods of Service shall be taken into account for purposes of subsection (a). In addition, any Period of Severance shall be treated as service as provided in Section 2.3(b). -42- Harris Retirement Plan 55 Vesting and Forfeitures (c) Vesting on Sale of Business. In the event of the sale or disposition of a business or a sale of substantially all of the assets of a trade or business, the Corporation may, in its discretion, provide for accelerated vesting with respect to those Participants affected by the sale. 5.4 Effect of In-Service Withdrawals on a Participant's Vested Percentage. If a Participant receives a withdrawal under Article IX or a distribution under Article VII from his Profit-Sharing Account at a time when the Participant has less than a fully vested interest in that account, the dollar amount of his vested interest in his Profit-Sharing Account (X) shall be determined at any time by the following formula: X = P(AB + D) - D For the purpose of applying the formula, P is the Participant's vested interest in his Profit-Sharing Account at the time the determination is made, AB is the balance credited to the Profit-Sharing Account at the time the determination is made, and D is the amount of the withdrawal. 5.5 Forfeitures. -43- Harris Retirement Plan 56 Vesting and Forfeitures (a) Timing of Forfeiture. A Participant who terminates employment with less than a fully vested interest in his Accounts shall forfeit the nonvested interest on the earlier of the date on which the Participant: (1) receives a lump sum distribution of all or a portion of the vested interest in such Accounts, provided that such distribution is made no later than the close of the second Plan Year following the year in which the Participant terminates employment; (2) incurs five consecutive one-year Periods of Severance; or (3) at any earlier date allowable under the Code. (b) Effect of Partial Distribution on a Participant's Vested Percentage. If the Participant elects to receive a lump sum distribution of less than the full amount of his vested interest, the part of his nonvested interest that shall be forfeited under subsection (a)(1) is the total nonvested interest multiplied by a fraction, the numerator of which is the amount of the distribution and the denominator of which is the total value of his vested interest in his Accounts other than his After-Tax Account, Harris Stock After-Tax Account and Rollover Account. -44- Harris Retirement Plan 57 Vesting and Forfeitures (c) Effect of Repayment of Distribution. If a Participant incurs a forfeiture under subsection (a)(1), then returns to employment with a Participating Company and becomes a Participant in the Plan before incurring five consecutive one-year Periods of Severance, the forfeited amount shall be restored by the Employment Unit of the Participating Company with which the Participant is reemployed. -45- Harris Retirement Plan 58 ARTICLE VI ACCOUNTS AND INVESTMENTS 6.1 Establishment of Accounts. The Committee shall establish and maintain for each Participant the following Accounts showing the Participant's interest under the Plan: (a) Profit-Sharing Account, which shall consist of (1) a Basic Account to reflect the portion of Profit-Sharing Contributions allocable to the Participant's Compensation, and (2) a Supplemental Account to reflect the portion of Profit-Sharing Contributions allocable to the Participant's Excess Compensation; (b) Pre-Tax Account to reflect Pre-Tax Contributions made on the Participant's behalf other than those invested in the Harris Stock Fund; (c) After-Tax Account to reflect After-Tax Contributions made on the Participant's behalf other than those invested in the Harris Stock Fund; (d) Matching Pre-Tax Account to reflect Matching Pre-Tax Contributions made on the Participant's behalf other than those invested in the Harris Stock Fund; -46- Harris Retirement Plan 59 Accounts and Investments (e) Matching After-Tax Account to reflect Matching After-Tax Contributions made on the Participant's behalf other than those invested in the Harris Stock Fund; (f) Savings Account to reflect the Savings Contributions under the Plan as in effect prior to July 1, 1990, and the aggregate of the Participant's voluntary and required contributions to the Harris Video Systems Savings/Incentive Plan less withdrawals, as of June 30, 1990; (g) Harris Stock Pre-Tax Account to reflect the portion of the Pre-Tax Contributions made on the Participant's behalf invested in the Harris Stock Fund; (h) Harris Stock After-Tax Account to reflect the portion of the After-Tax Contributions made on the Participant's behalf invested in the Harris Stock Fund; (i) Harris Stock Matching Account to reflect the portion of the Matching Pre-Tax Contributions and Matching After-Tax Contributions made on the Participant's behalf and invested in the Harris Stock Fund, and (j) Rollover Account to reflect the Participant's Rollover Contributions. -47- Harris Retirement Plan 60 Accounts and Investments 6.2 Investment of Profit-Sharing Account. (a) In General. Except as provided in subsection (b), the amounts allocated to a Participant's Profit-Sharing Account shall be invested in the Balanced Fund. (b) Participant-Directed Investments at Age 55. On attaining age 55, a Participant shall be entitled to direct the investment of his Profit-Sharing Account in accordance with the procedures set out in section 6.3. The Profit-Sharing Account shall remain invested in the Balanced Fund until the Participant files an election with respect thereto in accordance with procedures set out in section 6.3. 6.3 Investment of Accounts Other than Profit-Sharing Account. Except as provided in section 6.2, effective October 1, 1993, each Participant shall have the right to direct the investment of his Accounts and future contributions to his Accounts among the Investment Funds in accordance with the following procedures and such other procedures provided in the documents pertaining to each Investment Fund: (a) Written or Telephonic Direction. Each election shall be completed by filing the appropriate election form or by following the -48- Harris Retirement Plan 61 Accounts and Investments appropriate telephone procedures for direct transfer as established by the Corporation Committee. (b) Elections in 10% Increments for Current Balances. An election with respect to current account balances, including the Participant's initial election with respect to the balance arising from a Rollover Contribution, shall be made in increments of ten percent of the account balance; (c) Elections in 10% Increments for Future Contributions. An election with respect to future contributions shall be made in increments of ten percent of the contribution (after the contribution is reduced by the dollar amount directed into the Harris Stock Fund), provided that the combined Pre-Tax Contributions and After-Tax Contributions invested in the Harris Stock Fund shall equal no more than one percent of Compensation. To the extent Pre-Tax Contributions and After-Tax Contributions are invested in the Harris Stock Fund, the Matching Contributions attributable thereto also shall be invested in the Harris Stock Fund; (d) Changing Elections. A change of election may be made at any time; provided that an election change shall become effective only on the first day of the month. To be effective on the first day of any month, a written election must be made on or before the 20th day of the preceding -49- Harris Retirement Plan 62 Accounts and Investments month, and a telephonic election must be made on or before the 25th day of the preceding month. If more than one election change is made on or before the applicable deadline, the most recent election change shall be given effect. (e) Elections Apply to All Accounts. Each of the Participant's Accounts (including his Profit-Sharing Account after the Participant has filed an initial election under section 6.2(b)) shall be invested among the Investment Funds in the same manner, such that each election by a Participant with respect to the Investment Funds shall apply to all of his Accounts in the same proportion. (f) Investment in Balanced Fund Absent Election. A Participant's Accounts and contributions made on behalf of the Participant shall be invested in the Balanced Fund until the Participant makes a valid investment election pursuant to this section 6.3 and any other procedures established by the Corporation Committee. 6.4 Allocation of Earnings and Losses. Earnings and losses shall be allocated at least annually. In determining a Participant's share of the earnings or losses of each of the Investment Funds as of any Valuation Date, the total -50- 63 Accounts and Investments earnings or losses of the particular Investment Fund, net of expenses allocable to that fund, shall be allocated among the Participants' Accounts invested in that Investment Fund based on the ratio of each Participant's Accounts to the aggregate of the Accounts of all Participants, before taking into account any contributions that are required to be but are not yet made as of the Valuation Date and before taking into account any distributions, withdrawals or loans to Participants for the period coinciding with the Valuation Date. Contributions to Accounts are not credited with earnings in the month in which they are credited to any Account. 6.5 Special Rules Concerning Harris Stock Fund. Notwithstanding any other provision of sections 6.2 and 6.3 to the contrary, the following rules shall apply to investments in the Harris Stock Fund: (a) Availability. Only Pre-Tax Contributions, After-Tax Contributions and Matching Contributions made with respect to Compensation earned on or after October 1, 1993 may be invested in this fund. For any Plan Year, the combined Pre-Tax Contributions and After-Tax Contributions invested in this fund on behalf of a Participant in each Plan Year shall equal no more than one percent of the Participant's Compensation for such Plan Year. An -51- Harris Retirement Plan 64 Accounts and Investments election to invest in the Harris Stock Fund shall take effect as soon as administratively feasible after the election is received. (b) Restrictions on Transfers. A Participant may not transfer amounts from other Investment Funds to the Harris Stock Fund. Any contributions invested in this Fund must remain in this fund for a minimum of 36 months, provided that amounts invested in this fund may be distributed to the Participant before the expiration of the 36-month period, if the Participant is otherwise entitled to a distribution under the Plan. (c) Dividends. A Participant's allocable share of cash dividends (and other cash earnings) credited to the Harris Stock Fund, will be reinvested in the Harris Stock Fund unless the Participant elects with respect to the dividends credited to his Account for a quarter to invest such cash dividends (and other cash earnings) among the Investment Funds other than the Harris Stock Fund in increments of ten percent of the amount of the dividends (and other earnings). Only cash dividends (and earnings) that have been credited to the Participant's Accounts for at least one month are subject to the Participant's investment election under this subsection (c). Each election shall be completed by filing the appropriate form or by following the appropriate telephone procedures as established by the Corporation Committee, pursuant to section -52- Harris Retirement Plan 65 Accounts and Investments 6.3(d). Dividends paid in the form of stock shall be retained in a Participant's Account until liquidated, in the sole discretion of the Trustee. Such liquidated dividends shall be cash earnings subject to investment elections in accordance with this subsection of the Plan. (d) Contributions. The normal form of contributions for amounts invested in the Harris Stock Fund shall be in cash; provided, however, that the Corporation, in its discretion, may make the contribution in common stock of the Corporation, which may be contributed at a discount from fair market value. The Trustee is authorized to purchase common stock of the Corporation on the open market, and to give effect to the discount, if any, that has been established from time to time by allocating shares to Participants' Accounts in addition to the number of shares purchased on the open market by means of a given contribution. (e) Distributions. Distributions from the Harris Stock Fund shall be in the form of cash or shares of Harris Stock at the election of the Participant. Fractional shares and distributions of a de minimis amount as determined by the Corporation Committee shall be paid in cash. -53- Harris Retirement Plan 66 Accounts and Investments (f) Voting. Participants may submit non-binding proxies to the Trustee, which will vote the shares in the Harris Stock Fund in the exercise of its sole discretion. -54- Harris Retirement Plan 67 ARTICLE VII DISTRIBUTIONS 7.1 In General. A Participant shall be entitled to receive a distribution of the vested interest in his Accounts on the earlier of termination of employment or attainment of age 59 1/2, except that his Pre-Tax Contributions and Matching Pre-Tax Contributions are distributable only as allowed under section 401(k) of the Code. Distributions shall be made upon the sale or disposition of the stock in a subsidiary, or the sale or disposition of substantially all the assets of a trade or business, as provided, under the corporate documents effecting the sale or disposition and in accordance with section 401(k)(10) of the Code. A termination of employment shall not be deemed to occur for purposes of this section 7.1 and section 7.2 until the Participant is no longer employed by a Related Company. A Participant may elect to receive any amount invested in the Harris Stock Fund in the form of stock; provided that fractional shares and distributions of a de minimis amount as determined by the Corporation Committee shall be paid in cash. 7.2 Small Benefit Cash-out. Except as provided in section 7.5, in any case in which a Participant's vested interest in his Accounts does not (and did not at the time of any prior distributions) exceed $3,500 (or such larger amount -55- Harris Retirement Plan 68 Distributions as may be permitted by law), the vested interest shall be paid to the Participant in a lump sum as soon as reasonably practicable upon termination of employment. 7.3 Form of Payment. (a) Options. In any case in which a Participant's vested interest in his Accounts exceeds the amount provided in section 7.2, the Participant (or in the event of death, his Beneficiary) may elect at any time to receive payment in: (1) a lump sum of any portion or all of the balance of the Participant's Accounts; (2) substantially equal periodic installment payments over a period of time to be elected by the Participant; (3) a combination of (a) and (b), or (4) with respect to the Participant or the Participant's spouse, a direct rollover. (b) Changes Allowed. A Participant (or, in the event of death, his Beneficiary) may change his election with respect to the form of payment at -56- Harris Retirement Plan 69 Distributions any time before or after distribution of benefits commences, subject to the provisions of section 7.9. (c) Effect of Failure to Specify an Option. If a Participant fails to file an election under this section 7.3, his benefits shall be paid in accordance with section 7.4. 7.4 Time of Payment. On termination of employment, a Participant, other than one described in section 7.2, may elect that payment of benefits begin immediately or at any other time. If a Participant fails to file an election under this section 7.4 and payment of benefits has not already commenced, payment of his benefits shall commence on April 1 of the calendar year following the year in which the Participant attains 70 1/2 and shall be paid in accordance with the minimum distributions requirements of section 401(a)(9) of the Code. 7.5 Direct Rollover. (a) A Participant or "distributee" may elect at any time to have any portion of an "eligible rollover distribution" paid in a direct rollover to the trustee or custodian of an "eligible retirement plan" specified by the Participant -57- Harris Retirement Plan 70 Distributions or distributee, whichever is applicable. Payment of a direct rollover in the form of a check payable to the trustee or custodian of an eligible retirement plan, for the benefit of the Participant or distributee, may be mailed to the Participant or distributee. (b) For purposes of this section 7.5, the following terms shall have the following meanings: (1) "Distributee" means a surviving spouse or a spouse or former spouse who is an alternate payee under a Qualified Domestic Relations Order defined in section 414(p) of the Code. (2) "Eligible retirement plan" means an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, an annuity plan described in section 403(a) of the Code, or a qualified trust described in section 401(a) of the Code that accepts an eligible rollover distribution. (3) "Eligible rollover distribution" means any distribution of all or a portion of the Participant's Accounts, -58- Harris Retirement Plan 71 Distributions other than the portion of his After-Tax Account and Harris Stock After-Tax Account attributable to After-Tax Contributions, but does not include a distribution (i) in installments over a period of ten years or more or over a period described in section 7.9(c), or (ii) to the extent the distribution is required under section 401(a)(9) of the Code. 7.6 Payments on Death. If a Participant dies before he has received the full amount of the vested interest in his Accounts, the unpaid amount shall be paid to his Beneficiary. If the unpaid amount does not exceed $3,500, it shall be paid to the Beneficiary as soon as reasonably practicable upon the Participant's death. If the unpaid amount exceeds $3,500, it shall be paid to the Beneficiary as provided in sections 7.3, 7.4 and, if the Beneficiary is the spouse, section 7.5; provided that, if the Beneficiary fails to file an election, the unpaid amount shall be paid in a lump sum as soon as reasonably practicable after the fifth anniversary of the Participant's death. 7.7 Benefit Amount and Withholding. -59- Harris Retirement Plan 72 Distributions (a) Vested Amount and Adjustments. For purposes of this Article VII, a Participant's vested interest in his Accounts shall be determined as of the Valuation Date coinciding with or immediately following the date of the event giving rise to the distribution, plus any Profit-Sharing Contribution to which the Participant may be entitled under section 3.2 that has not yet been credited to the Participant's Profit-Sharing Account. Any unpaid amount in the Participant's Accounts shall continue to be adjusted for earnings and losses as provided in section 6.4 until it is distributed. (b) Withholding. The amount of any distribution shall be reduced to the extent necessary to comply with Federal, state and local income tax withholding requirements. 7.8 Order of Distributions. Any distribution under this Plan shall be charged against the Participant's Accounts pursuant to administrative procedures designed to maximize the tax benefits to the Participant by distributing to him first his After-Tax Contributions to the extent permitted by law. -60- Harris Retirement Plan 73 Distributions 7.9 Statutory Requirements. Notwithstanding any other provisions of the Plan to the contrary, the following rules shall apply to all payments under the Plan: (a) Latest Commencement Date. Unless the Participant files a written election to defer payment of benefits, benefits payments with respect to any Participant shall commence no later than the 60th day after the close of the Plan Year in which the latest of the following occurs: (1) the date on which the Participant attains Normal Retirement Age; (2) the 10th anniversary of the date on which the Participant commenced participation in the Plan, or (3) the date on which the Participant terminated employment. Failure to file an election under section 7.4 for payment of benefits to commence shall be deemed to be a written election to defer payment of benefits under this subsection (a). (b) Required Beginning Date. Notwithstanding subsection (a) above, payment of benefits to a Participant shall commence no later than April -61- Harris Retirement Plan 74 Distributions 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2. (c) Maximum Duration of Distributions. Payment of a Participant's benefit shall be made over a period not to exceed one of the following periods: (1) the life of the Participant; (2) the life of the Participant and the Participant's Beneficiary; (3) a period certain not extending beyond the life expectancy of the Participant, or (4) a period certain not extending beyond the joint and last survivor expectancy of the Participant and his Beneficiary. The amount to be distributed each year must be at least equal to the quotient obtained by dividing the Participant's benefit by the life expectancy of the Participant or the joint and last survivor expectancy of the Participant and his Beneficiary. Life expectancy and joint and last survivor expectancy shall be computed by the use of the return multiples contained in Treasury regulation section 1.72-9. For purposes of this computation, a Participant's and a spouse's -62- Harris Retirement Plan 75 Distributions life expectancy may be recalculated annually; however, the life expectancy of a Beneficiary, other than the Participant's spouse, may not be recalculated. If the Participant's spouse is not the Beneficiary, the method of distribution selected must ensure that at least 50 percent of the present value of the amount available for distribution is paid within the life expectancy of the Participant. (d) Distribution after the Participant's Death. In the event a Participant who is receiving benefits dies, the remaining balance of his benefits shall be distributed at least as rapidly as under the method of distribution elected by the Participant. If a Participant dies before distribution of benefits commences, the Participant's entire interest will be distributed no later than five years after the Participant's death, except to the extent that an election is made to receive distributions in accordance with (1) or (2) below: (1) if any portion of the Participant's benefit is payable to a Beneficiary, installment distributions may be made over the life or life expectancy of the Beneficiary, provided that the installments -63- Harris Retirement Plan 76 Distributions commence no later than one year after the Participant's death, and (2) if the Beneficiary is the Participant's spouse, the commencement of distributions may be delayed until the date on which the Participant would have attained age 70 1/2. If the spouse dies before payments begin, subsequent distribution shall be made as if the spouse had been the Participant. For purposes of the foregoing, payments may be calculated by use of the return multiples specified in Treasury regulation section 1.72-9. Life expectancy of a spouse may be recalculated annually. However, in the case of any other Beneficiary, such life expectancy shall be calculated at the time payment first commences without further recalculation. Any amount paid to a child of the Participant shall be treated as if it had been paid to the surviving spouse if the amount becomes payable to the spouse when the child reaches the age of majority. (e) Limit on Limits. All distributions under this section 7.9 shall be determined and made in accordance with section 401(a)(9) of the Code, including the minimum distribution incidental benefit requirement -64- Harris Retirement Plan 77 Distributions of Treasury regulation section 1.401(a)(9)-2, the provisions of which are incorporated herein by reference. 7.10 Designating Beneficiaries. (a) Written Designation. Each Participant may, by filing a written notice with the Corporation Committee, designate a Beneficiary or Beneficiaries to receive any benefits payable as a result of the death of the Participant. This designation may be changed by the Participant at any time by giving written notice to the Corporation Committee. Any designation of a Beneficiary other than the Participant's spouse must be consented to by the spouse in writing and witnessed by a notary public (or a representative of the Plan prior to October 1, 1993). Any consent required under this section 7.10 shall be valid only with respect to the spouse who signed it. Spousal consent shall not be required if the Participant establishes to the satisfaction of a Plan representative that such consent may not be obtained because (a) there is no spouse; (b) the spouse cannot be located, or (c) there exists such other circumstances as the Secretary of the Treasury may prescribe as excusing the requirement for such consent. A Participant may revoke any prior election without obtaining the consent of the spouse to such revocation. In the absence -65- Harris Retirement Plan 78 Distributions of a new election that meets the requirements of this section 7.10, the spouse shall be the Beneficiary. (b) Death Prior to Designating Beneficiary. In the event the Participant dies with no beneficiary designation on file, the Participant's Beneficiary shall be the Participant's surviving spouse, if any, and if there is no surviving spouse, the Participant's estate. 7.11 Payment of Group Insurance Premiums. If a retired Participant is eligible to be included in any contributory group insurance program maintained or sponsored by an Employment Unit, a retired Participant who is receiving benefits under the Plan in installments and who elects to be covered under such contributory group insurance program may direct that a specified portion of the installment payments be withheld and paid by the Trustee on his behalf to the Employment Unit as his contribution under such group insurance program. Such direction by a retired Participant shall be in writing on a form prescribed by the Corporation Committee. Any such direction may be revoked by the retired Participant not less than 15 days prior to the effective date of such revocation. Any withholding and payment of insurance costs on behalf of a retired -66- Harris Retirement Plan 79 Distributions Participant shall be made in accordance with Treasury regulation section 1.401(a)-13. 7.12 Inability to Locate Participant. If, when any payment becomes due, the Corporation Committee is unable to locate the Participant or Beneficiary after exercising reasonable diligence, payment shall be stopped and future payments to such individual discontinued. Any remaining unpaid benefits with respect to such Participant or Beneficiary shall be deemed to be forfeited, provided that if the Participant or Beneficiary later notifies the Corporation Committee of his address, to the extent required by law payment of the forfeited amount shall be reinstated by the Participating Company with which the Participant was last employed. -67- Harris Retirement Plan 80 ARTICLE VIII LOANS 8.1 In General. Each "party in interest," as defined in section 3(14) of ERISA, with respect to the Plan for whom a Pre-Tax Account, After-Tax Account and/or Rollover Account is maintained may request that a loan be made to him from his Pre-Tax Account, After-Tax Account and/or Rollover Account by filing an appropriate application, pursuant to procedures adopted by the Corporation Committee. All loan requests shall be approved on a reasonably equivalent basis (within the meaning of section 4975(d)(1)(A) of the Code and section 408(b)(1)(A) of ERISA), subject to the conditions set forth in this Article VIII. 8.2 Loan Administration. The Corporation Committee shall be responsible for administering the loan program, but may delegate the operation of the program to the Plan's record-keeper. The procedures for applying for a loan and the basis on which loans will be approved or denied shall be described in the summary plan description for the Plan or in other documents prepared by or at the direction of the Corporation for this purpose and such additional documents are hereby incorporated by reference to the extent required by the Department of Labor. -68- Harris Retirement Plan 81 Loans 8.3 Terms and Conditions of Loans. The terms and conditions of each loan shall be set forth in the promissory note and security agreement evidencing the loan and shall include, but not be limited to, the following: (a) Maximum Amount. The principal amount of a loan made under this Plan to any individual together with the outstanding principal amount of any other loan made to such individual under any other qualified plan under section 401(a) of the Code maintained by a Related Company shall not exceed the lesser of (1) 50 percent of the individual's vested interest in his Accounts, (2) $50,000 reduced by the highest outstanding balance of any previous loans from the Plan and any other plans of a Related Company during the one-year period ending immediately before the date on which the current loan is made, and (3) such amount that repayment of principal plus interest does not exceed 25 percent of the individual's gross pay. -69- Harris Retirement Plan 82 Loans (b) Minimum Amount. The minimum loan amount shall be $500 and all loan amounts shall be in increments of $100. (c) Period. No loan shall be made for a period less than 12 months or longer than four and one-half years or such other periods as may be established from time to time under the Corporation Committee's written loan procedures. (d) Security. A loan shall be secured by the Participant's Accounts up to the amount of the outstanding balance of the loan. (e) Number of Loans. Two loans shall be available under the Plan to a Participant at any time, but no third loan shall be made to an individual within 30 days following the repayment in full of a prior loan, or such other time period as may be provided from time to time under Plan procedures. (f) Participant Covers Loan Expenses. Any loan made under the Plan shall be subject to such other terms and conditions as the Corporation Committee shall deem necessary or appropriate, including the condition that he reimburse the Plan for any state documentary stamps and other taxes, and any other reasonable expenses specified by the Corporation Committee, which the Plan incurs to extend, make and service the loan. -70- Harris Retirement Plan 83 Loans (g) How to Apply. A loan may be initiated by following the appropriate telephonic or other procedures established by the record-keeper, as the delegate of the Corporation Committee. 8.4 Interest Rate. The interest rate for a loan made under this Plan shall be fixed for the term of each loan, and shall be set as determined by the Corporation Committee on a quarterly basis at a rate which it deems reasonable at the time for a fully secured loan and which is consistent with applicable Department of Labor regulations. 8.5 Repayment and Default. (a) Payments. A loan made under the Plan shall require that repayment be made in substantially level installments through payroll withholding while the individual is an Employee and through such other means (not less frequently than quarterly) as the Corporation Committee deems appropriate for an individual who is not an Employee. Nevertheless, any individual who terminates employment for any reason other than retirement, discharge or lay-off must repay all of the outstanding principal balance of his loan, plus interest due, within 90 days of the date of termination. -71- Harris Retirement Plan 84 Loans (b) Prepayment. An individual may repay, at any time, all of the outstanding principal balance of his loan, plus interest due, without penalty. (c) Crediting Payments. Principal and interest payments shall be credited to the Participant's Pre-Tax Account, After-Tax Account and/or Rollover Account and shall be invested in the same manner as Pre-Tax Contributions, After-Tax Contributions and Rollover Contributions. (d) Default. The events of default shall be set forth in the promissory note and security agreement which evidence the loan. Such events shall include, but not be limited to, the following: (1) an individual terminates employment as an Employee for any reason and does not make payments when due, subject to a 90-day grace period; (2) the Trustee concludes that the individual no longer is a good credit risk; (3) to the extent permissible under federal law, the individual's obligation to repay the loan has been discharged through bankruptcy or any other legal -72- Harris Retirement Plan 85 Loans process of action which did not actually result in payment in full, and (4) the individual does not make payments when due, subject to the applicable 90 day grace period. (e) Effect of Default. Upon the existence or occurrence of an event of default, the loan may become due and payable in full and, if such loan is not actually repaid in full, shall be cancelled on the books and records of the Plan and the amount otherwise distributable to such individual shall be reduced, as of the date his Accounts otherwise become distributable, by the principal amount of the loan then due plus any accrued but unpaid interest. Such principal and interest shall be determined without regard to whether the loan had been discharged through bankruptcy or any other legal process or action which did not actually result in payment in full; however, interest shall continue to accrue on such loan only to the extent permitted under applicable law. Cancellation of the amount distributable to an individual under this subsection (e) shall not occur until a distributable event occurs under the Plan. In the event a default occurs before a distributable event occurs, the Corporation Committee shall take such other steps to cure the default as it deems appropriate under the circumstances to preserve Plan assets. -73- Harris Retirement Plan 86 Loans 8.6 Mechanics. A loan to an individual under this Plan shall be made from his Pre-Tax Account, After-Tax Account and Rollover Account, and the loan shall be an asset of the respective accounts. For investment purposes, the principal amount of the loan shall be deducted from the Participant's Investment Funds other than the Harris Stock Fund in proportion to their value in his Accounts as of the Valuation Date immediately preceding the loan. 8.7 Special Powers. The Corporation Committee shall have the power to take such action as it deems necessary or appropriate to stop the benefit payments to or on behalf of an individual who fails to repay a loan (without regard to whether the obligation to repay the loan had been discharged through bankruptcy or other legal process or action) until his Pre-Tax Account, After-Tax Account and/or Rollover Account has been reduced by the principal due (without regard to such discharge) on such loan or to distribute the note which evidences such loan in full satisfaction of any interest in the Pre-Tax Account, After-Tax Account, and/or Rollover Account which is attributable to the unpaid balance of such loan. -74- Harris Retirement Plan 87 ARTICLE IX IN-SERVICE WITHDRAWALS 9.1 At-Will Withdrawals from Savings Account and After-Tax Account. (a) Availability. Subject to section 9.4, a Participant may elect to withdraw at any time in a lump sum all or a portion of the balance in his Savings Account and After-Tax Account for any purpose by filing the appropriate election with the Local Committee. (b) Limitations. A Participant may make a withdrawal under this subsection (a) not more than once every three months. A Participant's election to make After-Tax Contributions shall be suspended, and no After-Tax Contributions or Matching After-Tax Contributions shall be credited to the Participant's Account, for a period of three months after the date of a Participant's withdrawal from the After-Tax Account. The Participant's election shall automatically be reinstated at the expiration of such three-month period, unless the Participant has filed a change of election pursuant to section 3.7. 9.2 Hardship Withdrawals from Pre-Tax Account. (a) Availability. Subject to section 9.4, a Participant who has taken all loans and withdrawals under section 9.1, may elect to withdraw in a lump sum up to 100 percent of his Pre-Tax Contributions, and/or his Rollover -75- Harris Retirement Plan 88 In-Service Withdrawals Account to satisfy an immediate and heavy financial need, by filing an election with the Corporation Committee. Withdrawals under this section 9.3 shall be authorized by the Corporation Committee in the event of financial need meeting the safe harbor standards of Treasury regulation section 1.401(k)-1(d)(2), which is incorporated herein by reference. A withdrawal shall be deemed to be made on account of an immediate and heavy financial need under those regulations if the withdrawal is for: (1) expenses for medical care previously incurred by the Participant, his spouse or any of his dependents or necessary for these persons to obtain medical care; (2) purchase (excluding mortgage payments) of a principal residence for the Participant; (3) payment of tuition and related education fees for the next 12 months of post-secondary education for the Participant, his spouse, children or dependents; (4) payment to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. -76- Harris Retirement Plan 89 In-Service Withdrawals (5) any other event determined by the Commissioner of Internal Revenue. A withdrawal shall be deemed necessary to satisfy an immediate and heavy financial need of the Participant if: (i) the withdrawal is not in excess of the amount required to meet the financial need of the Participant, including taxes and additions to tax applicable to such withdrawal, and (ii) the Participant has obtained all other distributions, withdrawals, and all nontaxable loans currently available under this Plan and any other plans maintained by a Related Company. (b) Limitations. A Participant may take a withdrawal under this section 9.2 no more than once in a six-month period. 9.3 Emergency Withdrawals. Subject to section 9.4, a Participant who has taken all withdrawals available under sections 9.1 and 9.2 above may elect to withdraw in a lump sum all or a portion of the balance in his Basic -77- Harris Retirement Plan 90 In-Service Withdrawals Account and Supplemental Account if the withdrawal otherwise satisfies the requirements of section 9.2(a). An election to withdraw under this section 9.3 is subject to the approval of the "sector executive" which shall be granted on a uniform and nondiscriminatory basis. 9.4 Reduction of Investment Fund Balances. The Investment Funds in which a Participant's Accounts are invested, other than the Harris Stock Fund, shall be reduced proportionately to reflect the amount of the Participant's withdrawals under this Article IX, except that a Participant may not withdraw contributions invested in the Harris Stock Fund, and no more than 80 percent of the balance determined as of the Valuation Date immediately preceding the withdrawal shall be available to be withdrawn from equity and fixed income fund balances; provided that the amount remaining in the equity and fixed income funds determined as of the Valuation Date coinciding with or next following the withdrawal may be withdrawn as part of the withdrawal request. -78- Harris Retirement Plan 91 ARTICLE X TOP-HEAVY PROVISIONS 10.1 In General. Notwithstanding any other provisions of the Plan to the contrary, for any Plan Year in which this Plan is "top-heavy," as defined herein, the provisions of this Article X shall apply. If the Plan is top-heavy and then ceases to be top-heavy, except as otherwise provided in section 10.3, the provisions of this Article X shall cease to apply. 10.2 Minimum Allocation. (a) Amount. For any Plan Year for which the Plan is top-heavy, a minimum allocation shall be made for each "non-key employee" who is employed by a Participating Company on the last day of the Plan Year in an amount equal to the lesser of (1) three percent of Compensation or (2) the largest percentage of Compensation allocated to any "key employee" during the Plan Year. The minimum allocation is determined without regard to any Social Security contribution. The minimum allocation shall not apply to any non-key employee who receives a minimum contribution or minimum benefit under any other plan of a Related Company. (b) Allocation. To satisfy subsection (a), the Profit-Sharing Contributions for such Plan Year first shall be allocated to all Participants -79- Harris Retirement Plan 92 Top-Heavy Provisions employed on the last day of the Plan Year in an amount that meets the minimum allocation amount, and any remaining Profit-Sharing Contribution then shall be allocated in accordance with section 3.2. 10.3 Minimum Vesting. For any Plan Year for which the Plan is top-heavy, the vested interest of a Participant who is employed by a Participating Company during any part of the Plan Year shall be determined under the following schedule: Period of Service Vested Percentage Less than 2 years 0% 2 years but less than 3 years 20% 3 years but less than 4 years 40% 4 years but less than 5 years 60% 5 years but less than 6 years 80% 6 years or more 100% -80- Harris Retirement Plan 93 Top-Heavy Provisions If the Plan becomes top-heavy and ceases to be top-heavy, a Participant who have a five-year Period of Service as determined under section 5.3 may elect to have his vested interest continue to be determined under this section 10.3, notwithstanding that the Plan is no longer top-heavy. 10.4 Definitions. For purposes of this Article X, the following terms shall have the following meanings: (a) "Determination date" means the last day of the preceding Plan Year. (b) "Determination period" means the Plan Year containing the determination date and the four preceding Plan Years. (c) "Key employee" means an Employee or former employee (and their Beneficiaries) who, at any time during the determination period, is (1) an officer of the Participating Company and has annual compensation greater than 50 percent of the dollar limitation in effect under section 415(b)(1)(A) of the Code for any such Plan Year, (2) one of the ten Employees having annual compensation in excess of the limitation in effect -81- Harris Retirement Plan 94 Top-Heavy Provisions under section 415(c)(1)(A) of the Code and owning (or considered as owning with the meaning of section 318 of the Code) the largest interests in the Participating Company, (3) a five-percent owner (within the meaning of section 416(i)(1)(B) of the Code) of the Participating Company, or (4) a one-percent owner of the Participating Company having annual compensation from the Participating Company of more than $150,000. The determination of "key employee" shall be made under section 416(i)(1) of the Code, the terms of which are incorporated herein by reference. (d) "Non-key employee" means any Employee who is not a key employee. (e) "Permissive aggregation group" means the "required aggregation group" and any other plans of the Participating Company which, when considered as a group with the required aggregation group, would continue to satisfy the requirements of sections 401(a)(4) and 410 of the Code. -82- Harris Retirement Plan 95 Top-Heavy Provisions (f) "Required aggregation group" means (1) each qualified plan of the Participating Company in which at least one key employee participates or participated at any time during the determination period (regardless of whether the plan has terminated), and (2) any other qualified plan of the Participating Company which enables a plan described in (1) to meet the requirements of sections 401(a) and 410 of the Code. (g) "Top-heavy" means: (1) the top-heavy ratio for the Plan exceeds 60 percent and the Plan is not part of any required aggregation group or permissive aggregation group; (2) the Plan is part of a required aggregation group but not a permissive aggregation group and the top-heavy ratio for the required aggregation group exceeds 60 percent; (3) the Plan is part of a required aggregation group and a permissive aggregation group and the top-heavy ratio for the permissive aggregation group exceeds 60 percent. (h) "Top-heavy ratio" means: -83- Harris Retirement Plan 96 Top-Heavy Provisions (1) If the Participating Company or Related Company has not maintained any defined benefit plan which during the five-year period ending on the determination date had accrued benefits, the top-heavy ratio is a fraction, the numerator of which is the sum of the account balances of all key employees as of the determination date (including any part of any account balance distributed in the five-year period ending on the determination date), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the five-year period ending on the determination date). (2) If a Related Company maintains or has maintained a defined benefit plan which during the five-year period ending on the determination date had accrued benefits, the top-heavy ratio is a fraction, the numerator of which is the sum of account balances under the defined contributions plans for -84- Harris Retirement Plan 97 Top-Heavy Provisions all key employees (including any part of any account balance distributed in the five-year period ending on the determination date), and the present value of accrued benefits under the defined benefit plans for all key employees as of the determination date, and the denominator of which is the sum of the account balances under the defined contribution plans for all participants (including any part of any account balance distributed in the five-year period ending on the determination date), and the present value of accrued benefits under the defined benefit plans for all participants as of the determination date. (3) For purposes of (1) and (2) above, the value of account balances and the present value of accrued benefits shall be determined as of the most recent "valuation date" that falls within or ends with the 12-month period ending on the determination date, except as provided in section 416 of the Code -85- Harris Retirement Plan 98 Top-Heavy Provisions for the first and second plan years of a defined benefit plan. In the case of a defined benefit plan, the "present value of accrued benefits" shall be determined under the terms of the applicable defined benefit plan. The account balances and accrued benefits of a Participant who is not a key employee but who was a key employee in a prior year, or who has not been credited with at least an Hour of Service with any Participating Company maintaining the plan at any time during the five-year period ending on the determination date shall be disregarded. When aggregating plans, the value of account balances and accrued benefits shall be calculated with reference to the determination dates that fall within the same calendar year. (4) The calculation of the top-heavy ratio shall be determined in accordance with section 416 of the -86- Harris Retirement Plan 99 Top-Heavy Provisions Code, the provisions of which are incorporated herein by reference. (i) "Valuation date" means the last day of the Plan Year. -87- Harris Retirement Plan 100 ARTICLE XI ADMINISTRATION 11.1 Named Fiduciaries. The Corporation shall be the "named fiduciary" responsible for the control, management and administration of the Plan. 11.2 Corporation Committee. The Corporation shall establish a Corporation Committee to administer the Plan. The members of the Corporation Committee shall be appointed, and removed at any time, by the appropriate officers of the Corporation. A member of the Corporation Committee may resign at any time by giving written notice to the Corporation at least 15 days prior to the effective date of the resignation. 11.3 Powers and Duties of Committee. The Corporation Committee shall have the powers and duties conferred on it by the terms of the Plan. The Corporation Committee may establish such rules and regulations as it deems necessary to enable it to administer the Plan. The Corporation Committee shall have the discretionary authority to determine eligibility for benefits and construe the terms of the Plan. -88- Harris Retirement Plan 101 Administration 11.4 Actions of Committee. No formal meeting and no minutes shall be required with respect to actions taken by the Corporation Committee. 11.5 Finality of Decisions. All decisions and directions made by the Corporation Committee, in the discretionary exercise of its powers and duties, shall be final and binding on all parties concerned. 11.6 Immunities of Committee. Except as otherwise provided by law, no member of the Corporation Committee shall be liable to a Participating Company or to any Participant or Beneficiary by reason of the exercise in good faith of any power or discretion vested in him by the terms of the Plan. 11.7 Advisers and Agents. The Corporation, or the Corporation Committee, with the consent of the Corporation, may employ one or more persons to render advice with respect to any responsibility that the Corporation, or the Corporation Committee, respectively, has under the Plan. The Corporation, or the Corporation Committee, may appoint unrelated parties to carry out trustee, investment management and record-keeping responsibilities with respect to the Plan. The Corporation shall indemnify any person, including -89- Harris Retirement Plan 102 Administration an employee of the Corporation, who is acting on behalf of the Corporation or the Corporation Committee in this capacity with respect to liability that may arise by reason of his action or failure to act concerning the Plan, excepting any willful or gross misconduct or criminal acts, to the extent required in the respective contracts governing such arrangements. 11.8 Committee Member who is Participant. A member of the Corporation Committee who also is a Participant shall have no right to vote with respect to any action that pertains solely to him as a Participant. In the event a majority of the remaining members are unable to agree as to the action to be taken with respect to the Participant, the chief executive officer of the Corporation shall appoint an impartial person to arbitrate the matter between the remaining members and to reach a decision. 11.9 Information Provided by Participating Companies. Each Participating Company and Employment Unit shall provide the Corporation, the Corporation Committee and the Trustee with complete and timely information regarding employment data for each Employee and Participant needed by the Corporation, Corporation Committee or Trustee to administer the Plan, -90- Harris Retirement Plan 103 Administration including, but not limited to, information concerning Compensation, date of employment, date of termination of employment, reason for termination and any other information required by the Corporation, Corporation Committee, or Trustee. 11.10 Expenses. All reasonable and proper expenses of the Plan and the Trust, including, but not limited to, investment advisory fees, record-keeping fees, and Trustee's fees shall be paid from Participants' Accounts in a uniform and nondiscriminatory manner, which may be ratably, unless otherwise paid by the Corporation. The Corporation may seek reimbursement of any expense which it pays that is properly payable by the Trust Fund. 11.11 Trust Fund Available to Pay All Plan Benefits. The Plan is intended to be a single plan under Treasury regulation section 1.414(l)-1(b)(1). The maintenance of Accounts as required by the terms of the Plan shall be for record-keeping purposes only. All of the Trust Fund shall be available to pay benefits to all Participants and Beneficiaries. -91- Harris Retirement Plan 104 ARTICLE XII AMENDMENT AND TERMINATION AND CHANGE OF CONTROL 12.1 Amendment. The Corporation reserves the right to amend the Plan by action of its Board of Directors or the appropriate committee thereof at any time and from time to time, subject to the following limitations: (a) no amendment shall be made which vests in any Participating Company any interest in any assets of the Plan other than as specifically provided in section 12.2; (b) no amendment shall be made which would have the effect of decreasing a Participant's "accrued benefit" as proscribed in section 411(d)(6) of the Code; and (c) no amendment shall have the effect of reducing a Participant's vested interest in his Accounts. If the Plan is amended to change the vesting schedule, each Participant with at least a three-year Period of Service shall have the right to elect to have his vested interest computed without regard to the amendment. Each Participant shall be permitted to make this election during the period ending 60 days after the latest of the date (1) the -92- Harris Retirement Plan 105 Amendment and Termination and Change of Control amendment is adopted; (2) the amendment is effective, and (3) the Participant is issued a written notice of the amendment by the Corporation or its delegate. Amendments will normally be initiated by the Corporation Committee, approved by upper management of the Corporation, then adopted by resolution of the Retirement Plan Investment Committee of the Board of Directors. 12.2 Termination of Plan. This Plan is intended to be permanent, and it is the expectation of the Corporation that it will continue indefinitely. However, the Corporation reserves the right to terminate the Plan by resolution of its Board of Directors or the appropriate committee thereof. In the case of a complete termination of the Plan, previously unallocated forfeitures shall be allocated as otherwise provided in the Plan. To the extent previously unallocated forfeitures cannot be allocated because all Participants have reached the limitations of section 415 of the Code, the unallocated amount shall revert back to the appropriate Participating Company, as provided in section 3.10. -93- Harris Retirement Plan 106 Amendment and Termination and Change of Control 12.3 Discontinuance of Contributions. The Corporation reserves the right to discontinue contributions to the Plan by amendment or by resolution of the Board of Directors or the appropriate committee thereof. 12.4 Vesting on Termination or Discontinuance of Contributions. As of the date of the partial or complete termination of the Plan or upon the complete discontinuance of contributions to the Plan, each affected Participant shall become fully vested in his Accounts and no further allocations of contributions or forfeitures shall be made after such date on behalf of an affected Participant. 12.5 Distribution on Termination. Upon the complete termination of the Plan, the Trustee shall distribute to each affected Participant the full amount standing to the credit of his Accounts; provided that if such amount exceeds (or at the time of any prior distribution exceeded) $3,500 and the Participant is not yet age 65, such lump sum shall not be paid without his consent. If the Participant does not consent, an annuity contract shall be purchased for and distributed to the Participant. -94- Harris Retirement Plan 107 Amendment and Termination and Change of Control 12.6 Change of Control. (a) Definition. Change in Control means the occurrence of any one of the following events: (i) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20 percent or more of the combined voting power of the Corporation's then outstanding securities eligible to vote for the election of the Board of Directors (the "Board") of the Corporation (the "Corporation Voting Securities"); provided however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (A) by the Corporation or any Subsidiary, (B) by any employee benefit plan sponsored or maintained by the Corporation or any Subsidiary, (C) by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a "Non-Control Transaction" (as defined in paragraph (iii)) or (E) pursuant to any acquisition by a corporate officer of the Corporation or any group of persons including the Corporate officer; -95- Harris Retirement Plan 108 Amendment and Termination and change of Control (ii) individuals who, on July 1, 1996, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to July 1, 1996, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors who remain on the Board (either by a specific vote or by approval of the proxy statement of the Corporation in which such person is named as a nominee for director, without objection to such nomination) shall also be deemed to be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Corporation as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Corporation or any such type of transaction involving the Corporation or any of its Subsidiaries that requires the approval of the Corporation's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise) (a "Business -96- Harris Retirement Plan 109 Amendment and Termination and Change of Control Combination"), unless immediately following such Business Combination: (A) more than 80 percent of the total voting power of the corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100 percent of the Corporation Voting Securities) eligible to elect directors of such corporation is represented by shares that were Corporation Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Corporation Voting Securities immediately prior to the Business Combination, (B) no person (other than any publicly traded holding company resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Corporation (or the corporation resulting from such Business Combination)), becomes the beneficial owner, directly or indirectly, of 20 percent or more of the total voting power of the outstanding voting securities eligible to elect directors of the corporation resulting from such Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business -97- Harris Retirement Plan 110 Amendment and Termination and Change of Control Combination which satisfies the conditions specified in (A), (B) and (C) shall be deemed to be a "Non-Control Transaction"); or (iv) the stockholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or the direct or indirect sale or other disposition of all or substantially all of the assets of the Corporation and its Subsidiaries. Notwithstanding the foregoing, a Change in Control of the Corporation shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20 percent of the Corporation Voting Securities as a result of the acquisition of Corporation Voting Securities by the Corporation which reduces the number of Corporation Voting Securities outstanding, provided that if after such acquisition by the Corporation such person becomes the beneficial owner of additional Corporation Voting Securities that increases the percentage of outstanding Corporation Voting Securities beneficially owned by such person, a Change in Control of the Corporation shall then occur. For purposes of the definition of a "Change of Control", the term "Subsidiary" shall mean any corporation or other entity in which the Corporation has a direct or indirect ownership interest of 50 percent or more of the total -98- Harris Retirement Plan 111 Amendment and Termination and Change of Control combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors or in which the Corporation has the right to receive 50 percent or more of the distribution of profits or 50 percent of the assets on liquidation or dissolution. Notwithstanding any other provisions of the Plan to the contrary, if a Change in Control occurs, then during the period commencing on the date of acquisition of said voting power, control of the Board, or consummation of a Business Combination, and ending at the close of business on the next following June 30 (the "Restriction Period"), the provisions of this section 12.6 shall apply. (b) Effect. During the Restriction Period, the Plan may not be terminated or amended to the extent the amendment would: (1) reduce coverage under the Plan; (2) reduce the amount of Profit-Sharing Contributions required to be made for the Plan Year ending on the last day of the Restriction Period; (3) reduce the amount of After-Tax Contributions eligible for a matching contribution that a Participant is permitted to make or the amount of -99- Harris Retirement Plan 112 Amendment and Termination and Change of Control the Matching After-Tax Contributions required under sections 3.5 and 3.6; or (4) reduce the amount of Pre-Tax Contributions that a Participant is permitted to make or the amount of Matching Pre-Tax Contributions required under sections 3.3 and 3.4. (c) For the purpose of computing the amount of the Profit-Sharing Contributions for the twelve-month period ending on the last day of a Restriction Period, the adjusted consolidated net income of the Corporation and its Consolidated Subsidiaries before net income taxes for the Fiscal Year ending on such date is deemed to be the forecast of the consolidated net income of the Corporation and its Consolidated Subsidiaries for such Fiscal Year as set forth in the annual operating plan of the Corporation for such Fiscal Year. (d) During the Restriction Period, any person who was an Employee on the day preceding the first day of the Restriction Period shall be deemed to be an Employee so long as he is employed by a member of a "controlled group of corporations" which includes, or by a trade or business that is under common control with (as those terms are defined in sections 414(b) and -100- Harris Retirement Plan 113 Amendment and Termination and Change of Control (c) of the Code) the Corporation, any corporation which is the survivor of any merger or consolidation to which the Corporation was a party, or any corporation into which the Corporation has been liquidated. -101- Harris Retirement Plan 114 ARTICLE XIII MISCELLANEOUS PROVISIONS 13.1 Restrictions on Alienation; Qualified Domestic Relations Orders. Except as otherwise may be required for Federal, state or local income tax withholding purposes, no benefit or interest under this Plan shall be subject to assignment or alienation, either voluntarily or involuntarily. The preceding sentence shall apply to the creation, assignment or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order, unless such order is determined to be a Qualified Domestic Relations Order, as defined in section 414(p) of the Code. In accordance with uniform and nondiscriminatory procedures established by the Corporation Committee from time to time, the Corporation Committee upon the receipt of a domestic relations order which seeks to require the distribution of a Participant's Account in whole or in part to an "alternative payee" (as that term is defined in Code section 414(p)(8)) shall: (1) promptly notify the Participant and such "alternate payee" of the receipt of such order and of the procedure which the Corporation Committee will follow to determine whether such order constitutes a "Qualified Domestic Relations Order" within the meaning of Code section 414(p), -102- Harris Retirement Plan 115 Miscellaneous Provisions (2) determine whether such order constitutes a "Qualified Domestic Relations Order" and notify the Participant and the "alternate payee" of the results of such determination and, (3) if the Corporation Committee determines that such order does constitute a "Qualified Domestic Relations Order," distribute to such "alternate payee" under the terms of such order the amount called for under the order in a single sum within 60 days of the date such order is determined to constitute a Qualified Domestic Relations Order, without regard to whether a distribution would be permissible to the Participant at such time under this Plan. The determination and the distribution made by, or at the direction of, the Corporation Committee under this section 13.1 shall be final and binding on the Participant and on all other persons interested in such order. An "alternate payee" under this section 13.1 shall not be an eligible person for purposes of obtaining a loan pending the distribution of such alternate payee's entire interest under this Plan. 13.2 Exclusive Benefit Requirement. Except as provided in sections 12.2 and 13.3, no assets of the Plan shall revert to a Participating Company or -103- Harris Retirement Plan 116 Miscellaneous Provisions be used for or diverted to purposes other than providing benefits to Participants and their Beneficiaries and defraying reasonable costs of administering the Plan. 13.3 Return of Contributions. (a) Mistake of fact. Any contribution made by a Participating Company due to a mistake of fact shall be returned to the Participating Company within one year of the date the contribution was made. (b) Nondeductible Contributions. In the event the deduction of a contribution made by a Participating Company is disallowed under section 404 of the Code, such contribution (to the extent disallowed) shall be returned to the Participating Company within one year of the disallowance of the deduction. 13.4 No Contract of Employment. Neither the establishment and maintenance of the Plan nor the participation in the Plan by any Employee shall be construed as a contract between the Employee and any Participating Company so as to give any Employee the right to be retained by any Participating Company, or to interfere with the rights of any Participating Company to discharge the Employee at any time. -104- Harris Retirement Plan 117 Miscellaneous Provisions 13.5 Payment of Benefits on Incapacity. In the event the Corporation Committee determines that any person to whom a distribution is to be made is unable to care for his affairs by reason of illness or other disability, any amount distributable to such person (unless prior claim thereto shall have been made by a duly qualified guardian or other legal representative) may, in the discretion of the Corporation Committee, be paid to such other person deemed by the Corporation Committee to be responsible for such person. Any such payment made under this section 13.5 shall constitute a complete discharge of any liability under this Plan. 13.6 Merger. In the event of a merger or consolidation with, or transfer of assets or liabilities to any other plan, each Participant shall receive a benefit immediately after such merger, consolidation or transfer (if the Plan then terminated) which is at least equal to the benefit the Participant was entitled to receive immediately before such merger, consolidation or transfer (if the Plan had then terminated). 13.7 Construction. The headings and subheadings in this Plan have been inserted for convenience of reference only and are to be ignored in the -105- Harris Retirement Plan 118 Miscellaneous Provisions construction of its provisions. Wherever appropriate, the masculine shall be read as the feminine, the plural as the singular, and the singular as the plural. References in this Plan to a section shall be to a section in this Plan unless otherwise indicated. References in this Plan to a section of the Code, ERISA or any other federal law shall also refer to the regulations issued under such section. 13.8 Governing Law. This Plan shall be construed, to the extent to which state law is applicable, in accordance with the laws of the State of Florida. Venue for any action arising under this Plan shall be in Brevard County, Florida. 13.9 Mistaken Payments. If a mistake is made in favor of a Participant or Beneficiary in the payment of benefits under this Plan, the Corporation or the Trustee (acting at the Corporation direction and on behalf of the Plan) shall take such action against the Participant or Beneficiary to remedy such mistake and to make the Plan whole as the Corporation deems proper and appropriate under the circumstances, and any mistake in favor of the Plan shall promptly be corrected by, or at the direction of, the Corporation. -106- Harris Retirement Plan 119 ARTICLE XIV SPECIAL PROVISIONS FOR EMPLOYEES OF HARRIS TECHNICAL SERVICES DIVISION OF HARRIS TECHNICAL SERVICES CORPORATION Notwithstanding the provisions of any other Article of this Plan to the contrary, the following special provisions apply to Participants who are employees of the Harris Technical Services Division of Harris Technical Services Corporation. 14.1 Participation. Notwithstanding section 2.1, an Employee shall become a Participant on the first day on which the Employee performs an Hour of Service. 14.2 Profit-Sharing Contributions. (a) Notwithstanding section 3.1, a Profit-Sharing Contribution shall be made for each Plan Year on behalf of Employees of the Employment Unit consisting of the Harris Technical Services Division in an amount equal to 7 percent of before-tax M-2 profits. Ten (10) percent of the estimated Profit-Sharing Contribution for each Plan Year shall be -107- Harris Retirement Plan 120 made no later than the last day of October, January, and April of each year. The remaining Profit-Sharing Contribution for each Plan Year shall be made no later than the last day of September. (b) Notwithstanding any provision to the contrary in section 3.2, Profit-Sharing Contributions shall be allocated pro rata to each Participant on the basis of the number of full months of his or her Period of Service completed during the Plan Year, provided that fractional months shall be aggregated. The limitation in eligibility in section 3.2(c) shall not apply. 14.3 Pre-Tax Contributions. Section 3.3(a) shall apply, provided, however, that a Participant may elect to reduce his Compensation by an amount equal to any whole percentage not to exceed 15 percent and have the amount of such reduction contributed to the Plan as a Pre-Tax Contribution. 14.4 No Matching Pre-Tax Contributions. Notwithstanding any other provision of the Plan to the contrary, no Matching Pre-Tax Contributions will be made on behalf of Participants. -108- Harris Retirement Plan 121 Miscellaneous Provisions 14.5 No Investment in the Harris Stock Fund. Notwithstanding any provision of the Plan to the contrary, Participants may not direct investments into the Harris Stock Fund. 14.6 Vesting. The Vesting Schedule in section 5.3(a) shall be replaced by the following vesting schedule: Period of Service Vested Percentage Less than 1 year 0% 1 year but less than 2 years 20% 2 years but less than 3 years 40% 3 years but less than 4 years 60% 4 years but less than 5 years 80% 5 years or more 100% -109- Harris Retirement Plan 122 Miscellaneous Provisions HARRIS CORPORATION Date: 6/28/96 By: /s/ D.S. Wasserman ----------------------------- ------------------------------- Attest: /s/ E.T. Golitko Title: Vice President - Treasurer --------------------------- --------------------------- -110- Harris Retirement Plan 123 APPENDIX A Investment Funds. The Investment Funds available under the plan as of October 1, 1993 are as follows: (a) Balanced Fund. Assets held in this fund will be invested in a variety of stocks, bonds, mortgages, fixed-income securities such as U.S. Treasury bills, certificates of deposit, commercial paper and real estate. (b) Short-Term Bond Fund. Assets in this fund will be invested in shorter-term fixed-income securities such as government bonds, U.S. Treasury bills and notes, certificates of deposit, federal agency obligations, mortgage securities and corporate bonds. (c) Money Market Fund. Assets in this fund will be invested in a diversified portfolio of high-quality, short-term fixed instruments such as U.S. Treasury bills, federal agency obligations, commercial paper, certificates of deposit and banker's acceptances. -111- Harris Retirement Plan 124 (d) Stable Value Fund. Assets held in this fund will be invested in a diversified portfolio of investment contracts and short-term, high-quality fixed income instruments that guarantee principal and a specified rate of return for a specified period. (e) Equity Income Fund. Assets held in this fund will be invested primarily in dividend-paying common stocks of established companies but may also be invested in convertible bonds and/or convertible preferred stock. (f) Indexed Equity Fund. Assets held in this fund will be invested in a stock portfolio that mirrors the Standard & Poor's 500 Stock Index. (g) Growth Fund. Assets in this fund will be invested for the longer term, primarily in common stocks of companies which are currently experiencing an above-average rate of earnings growth. The fund's stock selection criteria include a requirement that each company have a five-year average performance record of sales, earnings, dividend growth, pre-tax margins, return on equity. (h) Harris Stock Fund. Assets in this fund will be invested in common stock of the Corporation. -112- Harris Retirement Plan 125 The Investment Funds may be changed at any time and from time to time. -113- Harris Retirement Plan 126 APPENDIX B SPECIAL PROVISIONS FOR TRANSFERRED PARTICIPANTS The provisions of this Appendix B are effective as of January 1, 1990. (a) For purposes of this Appendix B, the following terms shall have the following meanings: (1) "Transferred Participants" means those former Employees whose employment with a Participating Company ceased due to a sale of the stock or assets of a Sold Operation. (2) "Sold Operation" means (i) the Data Communications Division and (ii) the Chatsworth Operation. -114- Harris Retirement Plan 127 (3) "Closing Date" means the date as of which the sale of the relevant Sold Operation was effective. (b) Each Transferred Participant shall be fully vested in his Accounts as of the relevant Closing Date. -115- Harris Retirement Plan 128 APPENDIX C PARTICIPATING COMPANIES As of July 1, 1996, the Related Companies that are Participating Companies are: Harris Corporation Harris Data Services Corporation R.F. Communications, Inc. Scientific Calculations, Inc. Harris Semiconductor International, Inc. Harris Technical Services Corporation Harris International Sales Corporation Harris Space Systems Corporation Harris Video Communications Systems, Inc. Harris Data Communications Division of Lanier Worldwide, Inc. Baseview Products, Inc. -116- Harris Retirement Plan EX-10.H 6 EXHIBIT 10.H 1 Exhibit 10(h) HARRIS CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE I - PURPOSE AND EFFECTIVE DATE 1.1 Purpose. The Harris Corporation Supplemental Executive Retirement Plan (the "SERP") is intended to provide deferred compensation for a "select group of management or highly compensated employees" as defined in section 201(2) of ERISA. In particular, the SERP is intended to provide participants in the Harris Corporation Retirement Plan (the "Retirement Plan") with contributions that would have been made on their behalf, but for the limitations of sections 401(a)(17), 401(k)(3), 402(g) and 415 of the Code. 1.2 Effective Date. The SERP, as amended herein, is effective as of July 1, 1996. ARTICLE II - DEFINITIONS Each term used in this Plan shall have the definition given to it in the Retirement Plan, unless otherwise specifically provided herein. 2.1 Account - means the account established under section 5.1 for each Participant. 2.2 Code - means the Internal Revenue Code of 1986, as amended from time to time. 2.3 Committee - means the Corporation Committee, the members of which shall be appointed in the exercise of discretion of the Retirement Plan Investment Committee of the Board of Directors of the Corporation. 2.4 Corporation - means Harris Corporation. 2.5 ERISA - means the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.6 Participant - means an individual who meets the requirements of sections 3.1 or 3.2 and, where applicable, enters into a salary deferral agreement pursuant to Article IV. 2.7 Retirement Plan - means the Harris Corporation Retirement Plan, as amended from time to time. 2.8 SERP - means the Harris Corporation Supplemental Executive Retirement Plan, as amended from time to time. -1- 2 ARTICLE III - PARTICIPATION 3.1 Continued Participation. Any individual who is a participant in the Harris Corporation Supplemental Executive Retirement Plan as of June 30, 1996 shall continue to participate in this SERP. 3.2 General Participation. The following shall be eligible to participate: Any employee who receives compensation for a Plan Year from the Corporation of at least $120,000 (as indexed for inflation in a manner to be determined in the sole discretion of the Committee) and (a) for whom contributions under the Retirement Plan are reduced as a result of sections 401(a)(17), 401(k)(3), 402(g) or 415 of the Code, or (b) who is designated by the Committee as a Participant. ARTICLE IV - CONTRIBUTIONS 4.1 In General. (a) Subject to the provisions of subsection 4.2, whenever contributions to the Retirement Plan on behalf of a Participant are reduced pursuant to sections 401(a)(17), 401(k)(3), 402(g) or 415 of the Code, the amount of the reduction shall be credited to the Participant's Account. (b) For any Plan Year during which a Participant is not a participant in the Retirement Plan and has filed a Salary Deferral Agreement under Section 4.3, contributions shall be made to the SERP in an amount equal to the Profit-Sharing Contribution that he would have received under Section 3.2 of the Retirement Plan had he been a participant in the Retirement Plan (without regard to sections 401(a)(17), 401(k), 402(g) and 415 of the Code) and any other contributions attributable to his salary deferral agreement under Section 4.3 of this SERP, had it been made under Section 3.7 of the Retirement Plan (without regard to sections 401(a)(17), 401(k), 402(g) and 415 of the Code). 4.2 Salary Deferral Agreement by Retirement Plan Participant. Pre-Tax Contributions and Matching Pre-Tax Contributions under the Retirement Plan that are reduced pursuant to sections 401(a)(17), 401(k)(3, 402(g) or 415 of the Code shall be credited to the Participant's Account only if he or she timely enters into a deferral election on the form and in the manner prescribed by the Committee. 4.3 Salary Deferral Agreement by Non-Retirement Plan Participant. A Participant who is not a participant in the Retirement Plan may enter into a salary deferral agreement, electing to defer into the SERP a percentage of his or her Compensation, in one percent increments up to 12 percent, without regard to any limitation under section 401(a)(17) of the Code. The salary deferral agreement shall be made on the form and in the manner prescribed by the Committee. A Participant described in this Section 4.3 may increase or decrease the deferral percentage for a subsequent Plan Year by filing a new deferral election prior to the first day of the Plan Year to which the new deferral election applies. Any deferral election made by the Participant will remain in effect for subsequent Plan Years unless the Participant timely files a new deferral election. -2- 3 4.4 Special Award Amounts. The Corporation, in its sole discretion, may make additional special award contributions on behalf of some or all Participants. 4.5 Transferred Accounts. A Participant's Account under this SERP may include amounts transferred directly from a prior employer's nonqualified deferred compensation plan, subject to the sole discretion of the Committee, and shall be held, managed and distributed under the terms of this SERP; provided, however, that such transferred amounts shall be fully vested at all times. 4.6 Individual Arrangements. A Participant's Account under this SERP may include additional amounts of salary deferrals pursuant to a written individual deferred compensation agreement between the Corporation and the Participant, subject to the sole discretion of the Committee. Such arrangements must be memorialized in a writing signed before the Participant performs the services for which the compensation is to be deferred. Such amounts shall be held, managed and distributed under the terms of this SERP; provided, however, that such amounts shall be fully vested at all times. ARTICLE V - ACCOUNTS AND INVESTMENTS 5.1 Establishment of Accounts. The Account established for each Participant shall be credited with contributions, then adjusted for earnings, losses, expenses and distributions as provided herein at least annually or more frequently as determined by the Committee. 5.2 Investments. Amounts credited to the Account of a Participant shall be deemed to be invested pursuant to the Participant's investment election under the Retirement Plan. If a Participant's investment election under the Retirement Plan directs that a portion of additions to his or her account under the Retirement Plan is invested in Harris Stock, earnings and losses for a corresponding portion of additions to the Participant's SERP Account shall reflect the performance of Harris Stock; however, the Participant's SERP Account is not required to be invested in Harris Stock and the Participant shall have no right to a distribution of his or her Account in the form of Harris Stock. If a Participant who is also a participant in the Retirement Plan has no investment election in effect under the Retirement Plan, such Participant's Account shall be deemed to be invested in the Balanced Fund. If a Participant is not a participant in the Retirement Plan, the Participant may file an investment election under the SERP, directing the deemed investment of his Account in conformity with the terms of the Retirement Plan, except that such Participant may not direct the investment of his SERP Account to reflect performance of Harris Stock. ARTICLE VI - VESTING AND DISTRIBUTIONS 6.1 Vesting. Contributions shall have the character that they would have had if they been made to the Retirement Plan and shall become vested in accordance with the terms of the Retirement Plan. -3- 4 6.2 Time of Payment. A Participant shall begin to receive payment of benefits on the attainment of age 55 or termination of employment, if later; provided, however, that if a Participant makes an election under section 6.3(a), benefits shall not commence earlier than 30 days after the date the election is filed with the Committee. 6.3 Form of Payment. (a) A Participant who has attained age 60 by June 30, 1994, or who has not participated in the Retirement Plan may elect the form in which benefits shall be paid by filing an election with the Committee on the form and in the manner prescribed by the Committee. A Participant who has not attained age 60 by June 30, 1994 may elect the form in which benefits shall be paid by filing an election with the Committee on the form and in the manner prescribed by the Committee when he or she becomes a Participant. An election period shall be provided for each Participant during the period commencing on the 90th day and ending on the 30th day preceding such Participant's retirement date. During this period, a Participant may elect the form in which benefits shall be paid or may change a prior election. All elections shall become irrevocable on the 30th day preceding a Participant's retirement date. (b) Except as provided in 6.3(c), a Participant who has not filed an election under section 6.3(a) shall receive benefits either (i) at the same time and in the same manner that benefits are paid under the Retirement Plan; or (ii) if such Participant has not participated in the Retirement Plan, in annual installments over ten years. A Participant who makes an election under section 6.3(a) may elect to receive benefits in the following forms: (1) Except as provided in section 6.3(c), payment of benefits at the same time and in the same manner that benefits are paid under the Retirement Plan; (2) Payment of benefits in annual installments over a five year period; or (3) Payment of benefits in annual installments over a ten year period. (c) If a Participant elects payment of benefits at the same time and in the same manner that benefits are paid under the Retirement Plan or if benefits will be paid in such manner because a Participant has not filed an election under section 6.3(a), and: (1) after separating from service, elects to have a substantial amount, as determined in the sole discretion of the Committee, of his or her benefits under the Retirement Plan paid as a direct distribution to the Participant, the balance of the Participant's Account under this SERP shall be paid in a lump sum; or (2) after separating from service, elects to have a substantial amount, as determined in the sole discretion of the Committee, of his or her benefit under the Retirement Plan paid as a direct rollover under section 401(a)(31) of the Code, the balance of the Participant's Account under this SERP shall be paid in annual installments over a period of ten years. (d) Notwithstanding any provision in this SERP to the contrary, if a Participant's vested interest in his Account is a de minimis amount, as determined by the Committee, it shall be paid to the Participant in a lump sum as soon as reasonably practicable upon entitlement to a distribution. 6.4 Death. Any amounts credited to the Participant's Account at death shall be paid to the Participant's beneficiary, determined under section 6.5 below, in the same manner that they would have been paid to the Participant. -4- 5 6.5 Designation of Beneficiary. Each Participant may designate a beneficiary to receive any benefits payable as a result of the Participant's death. The beneficiary designation shall be effective only if it is made on the form and in the manner prescribed by the Committee. A beneficiary designation may be revoked or changed by the Participant at any time by filing a new form with the Committee. Absent a valid beneficiary designation hereunder, the Participant's beneficiary shall be determined under the terms of the Retirement Plan. 6.6 Financial Hardship. All or a portion of any amounts credited to the Participant's Account may be immediately paid to the Participant if the Participant incurs a financial hardship, as determined in the sole discretion of the Committee. 6.7 Payment on Incapacity. In the event the Committee determines that any person to whom a distribution is to be made is unable to care for his or her affairs by reason of illness or other dis ability, any amount distributable to such person hereunder may be paid to such other person deemed by the Committee, in its sole discretion, to be responsible for such person (unless prior claim thereto has been made by a duly qualified guardian or other legal representative). Any such payment made under this section 6.7 shall constitute a complete discharge of any liability under this Plan. 6.8 Overpayments. In the event the benefits actually paid with respect to a Participant exceed the benefits to which he or she is entitled under the terms of this Plan, future benefits shall be reduced in any manner which the Committee, in its sole discretion, deems equitable. 6.9 Withholding for Taxes. The Corporation shall have the right to deduct any Federal, state or local income, employment, or other taxes required by law to be withheld with respect to any benefits payable under this SERP, and to withhold such amounts from any payment otherwise due the Participant (or beneficiary). ARTICLE VII - ADMINISTRATION 7.1 Committee. This Plan shall be administered by the Committee. 7.2 Authority of Committee. The Committee shall, in its sole and absolute discretion, have the complete authority to interpret this SERP, to adopt rules for carrying out the purposes of this SERP and to make all other determinations necessary or advisable for the administration of this SERP. To the extent practicable, the Committee shall conform the administration of this SERP to the provisions of the Retirement Plan. Any decision or interpretation of any provision of this SERP made by the Committee, the Corporation, or their delegates, shall be final and conclusive, and shall be binding on all Participants (and their beneficiaries). A Participant who is a member of the Committee may participate in a decision of the Committee that may affect his or her rights or obligations under this SERP only if the decision does not require a vote of the Committee. 7.3 Delegation of Authority. The Committee may delegate any of its administrative powers or duties with respect to this SERP to any person or committee designated by it and may employ such attorneys, agents, and advisors as it may deem necessary or advisable to assist it in carrying out its duties hereunder. -5- 6 7.4 Liability of Committee. No member of the Committee and no individual to whom the Committee has delegated authority to administer this SERP shall be liable for any action or failure to act under this SERP, except where such action or failure to act was due to gross negligence or fraud. ARTICLE VIII - GENERAL PROVISIONS 8.1 Amendment and Termination. The Corporation may amend or terminate this Plan at any time, in whole or in part. Amendments will normally be initiated by the Committee, approved by upper management of the Corporation, then adopted by resolution of the Retirement Plan Investment Committee of the Board of Directors. -6- 7 8.2 Anti-Alienation. A Participant's rights and interest under this SERP may not be assigned or transferred except by will or the laws of descent or distribution. Any other purported transfer, assignment, pledge or other encumbrance or attachment of any payments or benefits under this SERP shall not be permitted or recognized. 8.3 Funding. The Corporation may, but is not required to, establish a trust to fund the benefits under this SERP, provided that the assets in such trust are subject to the claims of the Corporation's general creditors in the event of insolvency. To the extent benefits are not funded by a trust, a Participant (and beneficiary) shall have no interest in any fund or specific asset of the Corporation, and the rights of a Participant (and beneficiary) to any benefits under this SERP shall be solely those of an unsecured creditor of the Corporation. 8.4 Separability. If any provision of this SERP is found unlawful by any court having proper jurisdiction, such provision shall be construed by such court to most nearly reflect the Corporation's original intent in adopting this SERP, consistent with applicable law. 8.5 Not a Contract of Employment. This SERP shall not constitute a contract of continuing employment or in any manner obligate the Corporation to continue or discontinue the service of an employee. 8.6 Construction of SERP. This SERP shall be construed in accordance with the laws of the State of Florida. IN WITNESS WHEREOF, Harris Corporation does hereby adopt this SERP, as amended, effective July 1, 1996. Date: 6/28/96 By: /s/ D.S. Wasserman ----------------- ----------------------------------- -7- EX-10.L 7 EXHIBIT 10.L 1 Exhibit 10(l) DIRECTORS RETIREMENT PLAN ARTICLE I INTRODUCTION In order to assist in the attraction and retention of the best-qualified persons available to serve on the Board of Directors of Harris Corporation, this Directors Retirement Plan is adopted to provide retirement benefits to members of the Board of Directors who are not employees of Harris Corporation. ARTICLE II DEFINITIONS For the purpose of this Plan, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise. Section 2.01 "Actuarial Equivalent" shall mean a benefit of equivalent value when computed on the basis of 8% interest compounded annually and the unadjusted 1983 group mortality tables determined separately by sex. In the event of a Change of Control, the definitions of this Section 2.01 cannot be changed. Section 2.02 "Board" means the Board of Directors of Harris Corporation. Section 2.03 "Change of Control" means any of the following events: (i) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, is or becomes a "beneficial owner" (as defined in Rule 2 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (a) by the Company or any subsidiary, (b) by any employee benefit plan sponsored or maintained by the Company or any subsidiary, (c) by any underwriter temporarily holding securities pursuant to an offering of such securities, (d) pursuant to a Non- Control Transaction (as defined in paragraph (iii), or (e) pursuant to any acquisition by a corporate officer of the Company or any group of persons including a corporate officer; (ii) individuals who, on July 1, 1996, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to July 1, 1996, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors who remain on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall also be deemed to be an Incumbent Board; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board of Directors shall be deemed to be an Incumbent Director; (iii) the consummation of a merger, consolidation, share exchange or similar form of corporate reorganization of the Company or any such type of transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders (whether for such transaction or the issuance of securities in the transaction or otherwise), or the consummation of the direct or indirect sale or other disposition of all or substantially all of the assets, of the Company and its Subsidiaries (a "Business Combination"), unless immediately following such Business Combination: (a) more than 80% of the total voting power of the corporation resulting from such Business Combination (including, without limitation, any corporation which directly or indirectly has beneficial ownership of 100% of the Company Voting Securities eligible to elect directors of such corporation is represented by shares that were Company Voting Securities immediately prior to such Business Combination (either by remaining outstanding or being converted), and such voting power is in substantially the same proportion as the voting power of such Company Voting Securities immediately prior to the Business Combination, (b) no person (other than any publicly traded holding company resulting from such Business Combination, any employee benefit plan sponsored or maintained by the Company (or the corporation resulting from such Business Combination)) becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the corporation resulting from such Business Combination, and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Director at the time of the Board's approval 2 3 of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies the conditions specified in (a), (b) and (c) shall be deemed to be a "non-Control Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or the direct or indirect sale or other disposition of all or substantially all of the assets of the Company and its subsidiaries. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that, if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. Section 2.04 "Committee" means the Management Development and Nominating Committee of the Board, or a successor committee responsible for similar policy issues. Section 2.05 "Company" means Harris Corporation, its successors, and any organization into which or with which Harris Corporation may merge or consolidate or to which all or substantially all of its assets may be transferred. Section 2.06 "Disability" means that a physician acceptable to the Committee has concluded that the Outside Director is unable to engage in substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. Section 2.07 "Effective Date" means the date the Plan is adopted by the Board of Directors. Section 2.08 "Participant" means any member of the Board who becomes a participant under the Plan pursuant to Article III. 3 4 Section 2.09 "Plan" means the Harris Corporation Directors Retirement Plan. Section 2.10 "Retirement Date" means the first day of the month coincident with or immediately following the date the Participant attains age 65. Section 2.11 "Retainer" means the annual amount payable to members of the Board as compensation for their services in that capacity as of a Participant's Retirement Date (but excluding attendance fees and committee retainer and attendance fees). Section 2.12 "Service" means the period (or periods) during which a person serves as a member of the Board, excluding any portion of the period (or periods) during which such person was also an employee of the Company. A partial year of service shall be deemed a full year of service. ARTICLE III PARTICIPATION Section 3.01 Eligibility for Participation. In addition to the eligibility provisions in Section 4.04(b), any member of the Board on or after the Effective Date who (a) is not an employee of the Company, and (b) has completed at least five years of service, shall become a Participant and thereupon shall become eligible for an annual retirement benefit or a disability benefit in accordance with the provisions of Section 4.01 or 4.02 as applicable. 4 5 ARTICLE IV BENEFITS Section 4.01 Retirement Benefit. (a) Each Participant who ceases to be a member of the Board shall be entitled to an annual retirement benefit based on the following percentage of his Retainer:
Years of Service % of Retainer less than 5 0% 5 50% 6 60% 7 70% 8 80% 9 90% 10 or more 100%
(b) A Participant's retirement benefit shall be paid in equal monthly installments for the life of the Participant, commencing on the first day of the month immediately following the later of: (i) the date the Participant ceases to be a member of the Board; or, (ii) the Participant's Retirement Date, and ending in the month immediately following the date of Participant's death. 5 6 Section 4.02 Disability Benefit. (a) In the event a Participant ceases to be a member of the Board prior to his Retirement Date by reason of Disability, the Participant shall be entitled to receive disability benefits as determined under Section 4.01(a). (b) The Participant's disability benefit shall be paid in equal monthly installments for the life of the Participant, commencing on the first day of the month immediately following the date the Participant ceases to be a member of the Board and ending in the month immediately following the date of Participant's death. Section 4.03 Joint and Survivor Form of Payment. Notwithstanding the provisions of Sections 4.01 and 4.02, a Participant may, by written election to the Committee at least 30 days prior to the date he ceases to be a member of the Board, elect to receive payment of his retirement or disability benefit in the joint and survivor form. Such form, which shall be the Actuarial Equivalent of the normal form of payment under Section 4.01 or 4.02, as applicable, shall provide for a reduced amount paid to the Participant in equal monthly installments for the Participant's life, with payments continuing to the Participant's spouse after the death of the Participant, for the life of the spouse, in an amount equal to 50% of the monthly installments paid to the Participant. No survivor benefits shall be payable if the Participant dies before he ceases to be a member of the Board. Section 4.04 Acceleration of Payment - Change of Control. (a) In lieu of the benefits payable under Sections 4.01 through 4.03, in the event of a Change of Control, (i) each Participant or beneficiary who is then receiving 6 7 a retirement benefit or a disability benefit shall be paid immediately upon such change of control a lump sum payment equal to the Actuarial Equivalent of such benefit measured as of the date of the Change of Control; (ii) each other Participant who does not continue as a member of the Board shall receive an immediate lump sum payment equal to the Actuarial Equivalent of the retirement benefit to which that Participant would be entitled commencing at that Participant's Retirement Date, based on the years of Service completed by the Participant as of the date that Participant ceases to be a member of the Board; and (iii) each other Participant who continues as a member of the Board shall receive a lump sum payment, at the time he ceases to be a member of the Board, equal to the Actuarial Equivalent of the retirement benefit or disability benefit to which that Participant would be entitled commencing at that Participant's Retirement Date, or, in the case of Disability, the date that Participant ceases to be a member of the Board, based on the years of Service completed by the Participant as of the date that Participant ceases to be a member of the Board. (b) In the event of a Change of Control, any member of the Board as of the date of the Change of Control who (i) is not then a Participant, and (ii) is not an employee of the Company, shall become a Participant on the later of: (1) the date the member has completed one year of service, or (2) the date of the Change of Control. If such Participant ceases to be a member of the Board prior to completing 5 years of service, the amount of the lump sum payment equal to the Actuarial Equivalent of the 7 8 Participant's retirement benefit or disability benefit under Section 4.04(a) above shall be based on the following percentage of his Retainer:
Years of Service % of Retainer 1 10% 2 20% 3 30% 4 40%
The terms of Sections 6.01 and 6.02 hereof shall not be applicable following a Change of Control of the Company. The reasonable legal fees and expenses incurred by any Participant to enforce his or her valid rights under this Section 4.04 shall be paid for by the Company in addition to sums due hereunder. Section 4.05 Acceleration of Payment - Participant's Election. In lieu of the benefits payable under Section 4.01 or 4.02, a Participant who becomes entitled to a retirement or disability benefit or, in lieu of benefits payable under Section 4.03, the spouse of a deceased current or former Participant who becomes entitled to a death benefit under the Plan may, at his or her option, elect to receive a cash-out distribution of such benefit. Such distribution shall be a lump sum payment, equal to the Actuarial Equivalent of the retirement benefit or disability benefit to which the Participant or such spouse would be entitled commencing at that Participant's Retirement Date, or in the case of disability, the date the Participant ceases to be a member of the Board based on the years of service completed by Participant as of the date that Participant ceases to be a 8 9 member of the Board. A cash-out distribution under the Plan shall, when made to the person entitled thereto, constitute full satisfaction of the Company's obligation to pay such benefit. ARTICLE V ADMINISTRATION Section 5.01 Duties of the Committee. The Plan shall be administered by the Committee. The Committee shall have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions, including interpretations of this Plan, as may arise in connection with the Plan. Section 5.02 Binding Effect of Decisions. The decision or action of the Committee 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 shall be final, conclusive and binding upon all persons having any interest in the Plan, unless a written appeal is received by the Committee within sixty days of the disputed action. The appeal will be reviewed by the Committee and the decision of the Committee shall be final, conclusive and binding on the Participant and all persons claiming by, through or under the Participant. 9 10 ARTICLE VI AMENDMENT AND TERMINATION OF PLAN Section 6.01 Amendment. The Board may at any time amend the Plan in whole or in part; provided, however, that no amendment shall be effective to decrease or restrict any benefits then being paid under the Plan at the time of such amendment. Section 6.02 Company's Right to Terminate. The Board may at any time terminate this Plan. Upon any such termination, (a) each Participant who is then receiving a retirement benefit or disability benefit shall receive an immediate lump sum payment equal to the Actuarial Equivalent of such benefit as of the date of termination, and (b) each other Participant shall receive a lump sum payment equal to the Actuarial Equivalent of the retirement benefit to which that Participant would be entitled commencing at that Participant's Retirement Date, based on years of service completed by the Participant as of such termination. ARTICLE VII MISCELLANEOUS Section 7.01 Unsecured General Creditor. Participants shall have no legal or equitable rights, interest or claims in any property or assets of the Company, nor shall they be beneficiaries of, or have any rights, claims or interests in any life insurance policies, 10 11 annuity contracts or the proceeds therefrom owned or which may be acquired by the Company ("Policies"). Such Policies or other assets of the Company shall not be held under any trust for the benefit of Participants or their Beneficiaries or held in any way as collateral security for the fulfilling of the obligations of the Company under this Plan. Any and all of the Company's obligations under the Plan shall be merely unfunded and unsecured promises of the Company to pay money in the future. Section 7.02 Nonassignability. 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 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 shall, prior to actual payment, 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 be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. Section 7.03 Normal Retirement Policy for Members of Board. Nothing in this Plan shall be deemed to change or amend the Company's normal retirement policy for non-employee members of the Board which policy currently provides that no non-employee member shall be elected to, or reelected to, the Board after such member attains age 72. 11 12 APPROVED AND AUTHORIZED BY THE BOARD OF DIRECTORS this 28th day of June, 1996. /s/ Phillp W. Farmer ---------------------------------------- Phillip W. Farmer Chairman of the Board Harris Corporation ATTEST: /s/ R.L. Ballantyne - ----------------------------- Corporate Secretary 12 EX-11 8 EXHIBIT 11 1 EXHIBIT 11 COMPUTATION OF NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED JUNE 30, ---------------------------------- 1996 1995 1994 -------- -------- -------- Primary: Average shares outstanding.......................... 38,975 39,146 39,720 ======== ======== ======== Income before cumulative effect of change in accounting principle............................. $178,367 $154,466 $121,880 Cumulative effect of change in accounting principle........................................ -- -- (10,063) -------- -------- -------- Net Income.......................................... $178,367 $154,466 $111,817 ======== ======== ======== Per share amounts: Income before cumulative effect of change in accounting principle........................... $4.58 $3.95 $3.07 Cumulative effect of change in accounting principle...................................... -- -- (.25) -------- -------- -------- Total............................................ $4.58 $3.95 $2.82 ======== ======== ======== Fully diluted: Total primary average shares outstanding............ 38,975 39,146 39,720 Dilutive stock options and employee stock purchase plan shares -- based on treasury stock method using the greater of year-end market price or average market price............................. 128 132 154 -------- -------- -------- Total fully diluted average shares outstanding...... 39,103 39,278 39,874 ======== ======== ======== Per share amounts: Income before cumulative effect of change in accounting principle........................... $4.56 $3.93 $3.05 Cumulative effect of change in accounting principle...................................... -- -- (.25) -------- -------- -------- Total............................................ $4.56 $3.93 $2.80 ======== ======== ========
34 EX-21 9 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Each of the below listed subsidiaries is 100% directly or indirectly owned by Harris Corporation except as otherwise indicated, and all are included in the consolidated financial statements.
STATE OR OTHER JURISDICTION NAME OF SUBSIDIARY OF INCORPORATION - ---------------------------------------------------------------------------------------------- Harris K.K. ............................................................. Japan Harris S.A. ............................................................. Belgium Harris S.A. de C.V. ..................................................... Mexico Harris Srl............................................................... Italy Harris Advanced Technology (Malaysia) Sdn. Bhd. ......................... Malaysia Harris Airport Systems Sdn. Bhd. ........................................ Malaysia Harris Australia Pty. Ltd. .............................................. Australia Harris Broadcast Systems (Nigeria) Limited (40% of voting securities owned)................................................................. Nigeria Harris Canada, Inc....................................................... Canada Harris Communications Honduras, S.A. de C.V. ............................ Honduras Harris Communications Ltd. .............................................. Hong Kong Harris Controls Australia Limited........................................ Australia Harris Data Services Corporation......................................... Delaware Harris do Brasil Limitada................................................ Brazil Harris Far East Limited.................................................. Delaware Harris Foreign Sales Corporation, Inc. .................................. Virgin Islands Harris International Sales Corporation................................... Delaware Harris International Systems, Inc........................................ Delaware Harris Investments of Delaware, Inc. .................................... Delaware Harris Ireland Development Company Limited............................... Ireland Harris Ireland Ltd....................................................... Ireland Harris Italiana, Inc. ................................................... Delaware Harris Mauritius Limited................................................. Mauritius Harris Pension Management Limited........................................ England Harris Publishing Systems Corporation.................................... Delaware Harris Semiconducteurs Sarl.............................................. France Harris Semiconductor B.V. ............................................... Netherlands Harris Semiconductor GmbH................................................ Germany Harris Semiconductor Limited............................................. England Harris Semiconductor China, Ltd. ........................................ Hong Kong Harris Semiconductor Y.H. ............................................... Korea Harris Semiconductor, Inc. .............................................. Delaware Harris Semiconductor (Florida), Inc. .................................... Delaware Harris Semiconductor (Ohio), Inc. ....................................... Delaware Harris Semiconductor Patents, Inc. ...................................... Delaware Harris Semiconductor (Pennsylvania), Inc. ............................... Delaware Harris Semiconductor Pte. Ltd. .......................................... Singapore Harris Semiconductor (Taiwan) Ltd. ...................................... Taiwan Harris Solid-State (Malaysia) Sdn. Bhd. ................................. Malaysia Harris Southwest Properties, Inc. ....................................... Delaware Harris Space Systems Corporation......................................... Delaware Harris Systems Limited................................................... England Harris Technical Services Corporation.................................... Delaware Allied Broadcast Equipment Canada, Ltd. ................................. Canada Harris Semiconductor (Suzhou) Co., Ltd. ................................. China
35 2
STATE OR OTHER JURISDICTION NAME OF SUBSIDIARY OF INCORPORATION - ---------------------------------------------------------------------------------------------- Harris Semiconductor Design & Sales Pte. Ltd. ........................... Singapore American Coastal Insurance Ltd. ......................................... Bermuda Anshan Harris Broadcast Equipment Company, Limited (51%)................. China ARM Harris Communications (India) Pvt. Ltd. (51%)........................ India Baseview Products, Inc. ................................................. Michigan Communication & Information Processing Harris S.A........................ Argentina ECCO Parent Limited...................................................... Ireland Executive Conference Center, Inc. ....................................... Georgia GE-Harris Railway Electronics, LLC (49%)................................. Delaware Guangzhou Harris Telecommunications Company Ltd. (51%)................... China Inversiones Harris Chile Limitada S.R.L. ................................ Chile Lanier (Australia) Pty. Ltd. ............................................ Australia Lanier Business Products, Inc. .......................................... Georgia Lanier Financial Services, Inc. ......................................... Georgia Lanier Holdings Pty. Ltd. ............................................... Australia Lanier Holdings, Inc. ................................................... Delaware Lanier International, Inc. .............................................. Delaware Lanier Pacific Pty. Ltd. ................................................ Australia Lanier Professional Services, Inc. ...................................... Delaware Lanier Worldwide, Inc. .................................................. Delaware Lanier Leasing, Inc. .................................................... Delaware Lanier Europe, B.V. ..................................................... Netherlands Lanier United Kingdom Ltd. .............................................. England Lanier Canada, Inc. ..................................................... Canada Lanier de Chile, S.A. ................................................... Chile Lanier S.A. ............................................................. Colombia Lanier de El Salvador, S.A. de C.V. ..................................... El Salvador Lanier de Guatemala, S.A. ............................................... Guatemala Lanier de Dominicana, S.A. .............................................. Dominican Republic Lanier de Panama, S.A. .................................................. Panama Lanier Puerto Rico, Inc. ................................................ Puerto Rico Lanier de Costa Rica S.A. ............................................... Costa Rica Lanier Espana S.A. ...................................................... Spain Lanier Belgium S.A. ..................................................... Belgium Lanier Danmark A/S....................................................... Denmark Lanier Deutschland GmbH.................................................. Germany Lanier Italia S.p.A. .................................................... Italy Lanier Hellas AEBE....................................................... Greece Lanier Norge A/S ........................................................ Norway Lanier Holdings A.G. .................................................... Switzerland Lanier Finance A.G....................................................... Switzerland Lanier (Schweiz) A.G. ................................................... Switzerland Lanier Singapore Pte. Ltd. .............................................. Singapore RF Communications, Inc. ................................................. Delaware RF Communications, Inc. ................................................. New York Shenzhen Harris Telecom Co. Ltd. (55% of voting securities owned) ....... China
36 EX-23 10 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the following registration statements of Harris Corporation and in each related Prospectus of our report dated July 23, 1996, with respect to the consolidated financial statements and schedule of Harris Corporation and subsidiaries included in this Annual Report (Form 10-K) for the year ended June 30, 1996: Form S-8 No. 2-74551 Harris Corporation 1981 Stock Option Plan for Key Employees Form S-8 No. 33-50169 Harris Corporation Retirement Plan Form S-8 No. 33-50167 Harris Corporation Union Retirement Plan Form S-8 Nos. 33-37969; Harris Corporation Stock Incentive Plan 33-51171; and 333-7985 Form S-3 No. 333-3111 Harris Corporation Debt Securities Form S-8 No. 333-01747 Lanier Worldwide, Inc. Savings Incentive Plan
ERNST & YOUNG LLP Orlando, Florida September 12, 1996 37 EX-27 11 EXHIBIT 27
5 1,000 12-MOS JUN-30-1996 JUL-01-1995 JUN-30-1996 74,600 24,800 759,100 31,300 544,100 1,940,900 1,999,800 1,278,100 3,206,700 1,183,100 588,500 38,900 0 0 1,334,000 3,206,700 3,621,200 3,659,300 2,404,600 911,900 5,900 0 62,500 274,400 96,000 178,400 0 0 0 178,400 4.58 4.56
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