IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN AND FOR NEW CASTLE COUNTY IN RE RAYTHEON COMPANY SHAREHOLDERS LITIGATION CONSOLIDATED C.A. NO. 19018 NC NOTICE OF PROPOSED SETTLEMENT OF SHAREHOLDER DERIVATIVE ACTION AND SETTLEMENT HEARING TO: ALL OWNERS OF RAYTHEON COMPANY ( RAYTHEON OR THE COMPANY ) COMMON STOCK PLEASE READ THIS NOTICE CAREFULLY THIS NOTICE RELATES TO THE PENDENCY AND PROPOSED SETTLEMENT OF THIS SHAREHOLDER DERIVATIVE LITIGATION YOU ARE HEREBY NOTIFIED of a proposed settlement (the Settlement ), as set forth in the Stipulation and Agreement of Settlement dated June 3, 2005 (the Stipulation ) in the above-captioned litigation (the Action ). Plaintiffs, who are shareholders of Raytheon, brought the Action derivatively for the benefit of nominal defendant Raytheon. Defendants are (1) Raytheon s auditor, PricewaterhouseCoopers LLP ( PwC ), and (2) present and former officers and/or directors of Raytheon (the Individual Defendants ; together with Raytheon as a nominal defendant and PwC, the Defendants ). The Action sought to recover damages allegedly caused to the Company by the Individual Defendants breaches of fiduciary duty and PwC s alleged breach of contract, breach of its duty of due care and professional negligence with respect to its preparation and/or approval of the financial statements of Raytheon Engineers and Constructors, Inc. ( RE&C ). The benefits to the Company of the proposed Settlement, which is subject to Court approval, includes payment of two million dollars ($2,000,000) to Raytheon by the Individual Defendants directors and officers liability insurance carrier (the Insurer ), less any amounts the Court awards to Plaintiffs Counsel, as defined below, for attorneys fees and reimbursement of expenses, not to exceed five hundred thousand dollars ($500,000) (the Fee and Expense Application ), incurred in connection with prosecuting the Action. If the Court approves, the Action will be finally dismissed with prejudice. A hearing (the Settlement Hearing ) will be held on September 9, 2005, at 2:30 p.m., in the Court of the Chancery Courthouse, 34 The Circle, Georgetown, Delaware 19947, for the purpose of considering: (1) whether the Settlement and Stipulation is fair, reasonable, adequate, and in the best interests of Raytheon and all Raytheon shareholders (the Shareholders ), and should be approved by the Court; (2) whether to enter judgment giving final approval to the Settlement, dismissing the Action with prejudice, and effectuating the release as to the Settling Parties, as described below; (3) whether the Fee and Expense Application should be granted pending the Court s approval of the Settlement; and (4) such other necessary and proper matters. No Claims Procedure This case was brought to protect the equity interest of Raytheon s Shareholders. Its resolution will result in payment to the Company, not in payment to individuals, and hence there will be no claims procedure.
I. THE ACTION A. Background Two Raytheon shareholders filed separate actions in July 2001, generally alleging, among other things, breaches of fiduciary duties by the Individual Defendants, and breaches of professional and contractual duties in connection with the RE&C financial statements by PwC. In September 2002, the Court consolidated those two actions under the caption styled above in an order and appointed Plaintiffs to manage the prosecution of the Action, and appointed the law firms of Weiss & Lurie 1 and Schiffrin & Barroway, LLP as Co-Lead Counsel ( Co-Lead Counsel, together with all other counsel who have appeared on behalf of Plaintiffs, Plaintiffs Counsel ). B. The Pleadings On January 30, 2004, Plaintiffs filed a Consolidated Amended Derivative Complaint (the Complaint ). The Complaint alleges that: (1) the Individual Defendants failed to institute proper controls to prevent Raytheon s senior management from preparing misleading RE&C financial statements in order to induce Washington Group International, Inc. to purchase RE&C, and (2) PwC failed to render services to RE&C in accordance with the Generally Accepted Auditing Standards and approved the RE&C financial statements that were not prepared in accordance with the Generally Accepted Accounting Principles. All Defendants deny liability and any wrongdoing. On March 1, 2004, all Defendants and Raytheon (as a nominal defendant) filed motions to dismiss the Complaint which have not been resolved. C. Co-Lead Counsel s Investigation and Discovery Co-Lead Counsel conducted an investigation relating to the claims and the underlying events and transactions alleged in the Complaint, particularly the allegations of wrongdoing pertaining to each of the Individual Defendants and PwC, and the alleged damages suffered by Raytheon. Among other things, Co- Lead Counsel reviewed and analyzed the public records and hundreds of pages of documents produced by the Company. The parties exchanged correspondence, and participated in meetings to facilitate and expedite discovery. Plaintiffs also took deposition testimony from RE&C s former Vice President of Finance for Special Projects in order to confirm the fairness of the Settlement. Plaintiffs and Co-Lead Counsel believe that this investigation provides an adequate and satisfactory basis for the settlement described herein. D. Benefits to Raytheon From the Settlement Following discovery and analysis described above, Co-Lead Counsel engaged in arm s-length negotiation with Defendants counsel. The Settlement provides for payment of $2,000,000 in cash recovery to Raytheon, plus interest earned thereon, less (1) all taxes, including expenses and costs incurred on its payment, arising out of or related to the income earned by the Settlement Amount; (2) the reasonable costs of giving the notice prescribed in the Stipulation; and (3) any attorneys fees and reimbursement of expenses the Court awards to Plaintiffs Counsel. Plaintiffs and Co-Lead Counsel believe that the terms and conditions of the Settlement provide a fair, adequate, and reasonable recovery for Raytheon and its Shareholders based upon discovery and analysis, as set forth above, including: (1) the claims asserted against the Individual Defendants and PwC; (2) the recoverable damages that might be proven at trial; (3) the attendant risks of continued litigation, especially in complex actions such as this, as well as the difficulties and delays inherent in such litigation; (iv) the substantial benefits that the Company and its Shareholders will receive from the Settlement of the Action; and (v) the desirability of permitting the Settlement to be consummated, as provided by the terms of the Stipulation. 1 On November 10, 2004, Weiss & Yourman changed its name to Weiss & Lurie. 2
E. Defendants Denial of Wrongdoing Each Defendant denies all charges of wrongdoing or liability. Nothing in the Stipulation shall be construed or deemed to be evidence of, or an admission or concession on the part of Raytheon as a nominal defendant, any Individual Defendant, or PwC with respect to any claim of any fault or liability or wrongdoing or damage whatsoever alleged, or that could have been alleged, in the Action, or any infirmity in the defenses that any Defendant could have asserted. Each Defendant denies that he, she, or it committed any act or omitted to perform any act that gives rise to any liability and/or violation of law, and states that he, she, or it is entering into the Settlement to eliminate the burden and expense of further litigation. II. DISMISSAL AND RELEASES The full terms of the Dismissal and Release of Claims are set forth in the Stipulation. The following is only a summary. If the Court approves the Settlement following the Settlement Hearing, the Court will enter a Final Order and Judgment of Dismissal With Prejudice that: 1. Finds the mailing of the Notice, as described in the Stipulation, to have been accomplished as directed and to have provided the best notice practicable under the circumstances and have met the requirements of due process; 2. Approves the Settlement as fair, reasonable, and adequate to and in the best interest of Raytheon and its Shareholders; 3. Dismisses the Action with prejudice and without costs, except as otherwise provided in the Stipulation, as to each of the Settling Parties, and releases and discharges each of the Released Parties from any and all liability with respect to the Released Claims, as defined below; and 4. Permanently bars and enjoins the institution or prosecution against the Released Parties any action asserting, or relating in any way, to the Released Claims. If the Court approves the Settlement, Plaintiffs and the Shareholders will release any and all claims, rights, demands, liabilities, causes of action, suits, and matters of every kind and nature whatsoever, arising out of or related to any conduct, statements, acts or omissions alleged, or that could have been alleged, whether known or unknown, in the Action against the Released Parties (the Released Claims ). Moreover, the judgment to be entered upon approval of the Settlement will dismiss the Action with prejudice and preclude the filing of any action purporting to litigate the Released Claims. The Released Parties are: Defendants and each of their respective agents, consultants, insurers, attorneys, accountants, financial and institutional advisors, controlling persons, affiliates, associates, parents, subsidiaries, general partners, limited partners, partners, principals, officers, directors, employees, partnerships, predecessors, successors, heirs, assigns, executors, personal representatives, and immediate families. III. ATTORNEY S FEES AND EXPENSES Plaintiffs intend to apply to the Court for attorney s fees and reimbursement of expenses in connection with the prosecution of the Action in an amount not to exceed five hundred thousand dollars ($500,000) to be paid from the two million dollar ($2,000,000) Settlement Amount (the Fee and Expense Application ). The Settling Parties, including Raytheon, will not take any position with respect to the Fee and Expense Application. 3
IV. THE HEARING AND YOUR RIGHTS AS SHAREHOLDERS The Settlement Hearing will be held on September 9, 2005 at 2:30 p.m. before the Honorable William B. Chandler III, Chancellor of the Delaware Court of Chancery, in the Court of Chancery Courthouse, 34 The Circle, Georgetown, Delaware 19947, for the purposes described on page 1 of this Notice. The Court may adjourn the hearing from time to time without further notice other than by announcement of such adjournment. Any current beneficial owner of the shares of Raytheon common stock may appear at the Settlement Hearing and be heard as to whether (1) the proposed Settlement should be approved and the Action dismissed with prejudice; and/or (2) the Fee and Expense Application should be granted; provided, however, that no Shareholder shall be heard or entitled to contest the approval of the terms and conditions of the Settlement, or, if approved, the judgment to be entered thereon, unless he, she, or it has, no later than ten (10) days before the Settlement Hearing (unless the Court in its discretion shall thereafter otherwise direct, upon application of such person and for good cause shown), filed with the Register in Chancery, New Castle County Courthouse, 500 North King Street, Ste. 1551, Wilmington, Delaware 19801, and served (by hand, first class mail, or express service) on Plaintiffs Co-Lead Counsel and Defendants counsel, at the addresses below, the following: (1) proof of current ownership of Raytheon stock, (2) a notice of the objector s intention to appear, (3) a detailed statement of the objections to any matter before the Court, and (4) a detailed statement of all of the grounds therefor and the reasons for the objector s desiring to appear and to be heard, as well as all documents or writings which the objector desires the Court to consider. Plaintiffs Co-Lead Counsel: Weiss & Lurie Schiffrin & Barroway, LLP 551 Fifth Avenue, Suite 1600 280 King of Prussia Road New York, NY 10176 Radnor, PA 19087 Attn: Richard A. Acocelli, Esq. Attn: Eric L. Zagar, Esq. Defendants Counsel: Morris, James, Hitchens & Williams LLP Richards, Layton & Finger, P.A. 222 Delaware Avenue, 10th Floor One Rodney Square P.O. Box 2306 920 North King Street Wilmington, DE 19899 Wilmington, DE 19801 Attn: Edward M. McNally, Esq. Attn: Jesse A. Finkelstein, Esq. Smith Katzenstein & Furlow LLP The Corporate Plaza 800 Delaware Avenue P.O. Box 410 Wilmington, DE 19899 Attn: Robert J. Katzenstein, Esq. Any Shareholder who does not make his, her, or its objection in the manner provided above shall be deemed to have waived such objection and shall forever be foreclosed from making any objection to the fairness, reasonableness, or adequacy of the proposed Settlement, and to the Fee and Expense Application, but shall otherwise be bound by the judgment to be entered and the releases to be given. 4
V. SPECIAL NOTICE TO BROKERS, BANKS AND OTHER NOMINEES Brokerage firms, banks and other persons or entities who are current record Raytheon common stock shareholders, but are not beneficial owners, are requested to send this Notice promptly to beneficial owners, or provide the names and last-known addresses of such persons, for mailing by the Settlement Administrator, preferably in an MS Excel data table, or electronically in MS Word or WordPerfect files (label size Avery #5162), setting forth: (1) title/registration, (2) street address, (3) city/state/zip; or on computergenerated mailing labels. Alternatively, additional copies of this Notice for transmittal by record owners to beneficial owners are available on request directed to the Settlement Administrator at: Raytheon Company Shareholders Litigation c/o Berdon Claims Administation LLC P.O. Box 9014 Jericho, NY 11753-8914 Telephone: (800) 766-3330 Fax: (516) 931-0810 VI. EXAMINATION OF PAPERS AND INQUIRIES For a more detailed statement of the matters involved in this Action, reference is made to the Complaint, to the Stipulation and to all other papers publicly filed in this Action, which may be inspected at the Register in Chancery, New Castle County Courthouse, 500 North King Street, Ste. 1551, Wilmington, Delaware 19801 during regular business hours of each business day. Any inquiry concerning the Action should be addressed to Co-Lead Counsel at: Weiss & Lurie 551 Fifth Avenue, Suite 1600 New York, NY 10176 Attn: Richard A. Acocelli, Esq. PLEASE DO NOT WRITE OR CALL THE COURT. Dated: July 26, 2005 BY ORDER OF THE COURT REGISTER IN CHANCERY 5