<PAGE>
 
                           SCHEDULE 14A INFORMATION
 
                 PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
             THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.  )
 
Filed by the Registrant [X]
 
Filed by a Party other than the Registrant [_]
 
Check the appropriate box:
 
[_] Preliminary Proxy Statement
 
[_] Confidential, for Use of the Commission Only (as permitted by
    Rule 14a-6(e)(2))
 
[X] Definitive Proxy Statement
 
[_] Definitive Additional Materials
 
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
 
                         NORTHROP GRUMMAN CORPORATION
               (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 
   (NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
 
Payment of Filing Fee (Check the appropriate box):
 
[X] No fee required.
 
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
    (1) Title of each class of securities to which transaction applies:
 
    (2) Aggregate number of securities to which transaction applies:
 
    (3) Per unit price or other underlying value of transaction computed
        pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
        filing fee is calculated and state how it was determined):
 
    (4) Proposed maximum aggregate value of transaction:
 
    (5) Total fee paid:
 
[_] Fee paid previously with preliminary materials.
 
[_] Check box if any part of the fee is offset as provided by Exchange Act
    Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
    paid previously. Identify the previous filing by registration statement
    number, or the Form or Schedule and the date of its filing.
 
    (1) Amount Previously Paid:
 
    (2) Form, Schedule or Registration Statement No.:
 
    (3) Filing Party:
 
    (4) Date Filed:

<PAGE>
 
                          [LOGO OF NORTHROP GRUMMAN]
 

                   NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                              AND PROXY STATEMENT
 
                                    NOTICE
 
  The Annual Meeting of Stockholders of Northrop Grumman Corporation (the
"Company") will be held on Tuesday, June 30, 1998 at 10:00 a.m. at the Museum
of Flying, 2772 Donald Douglas Loop North, Santa Monica, California 90405.
 
  Stockholders at the close of business on May 26, 1998, are entitled to vote
at the Annual Meeting. The following items are on the agenda:
 
    (1) Election of four Class I directors, each for a three year term
  expiring in 2001;
 
    (2) Proposal to ratify the appointment of Deloitte & Touche LLP as the
  Company's independent auditors for fiscal year ending December 31, 1998;
 
    (3) Stockholder proposal regarding foreign military sales;
 
    (4) Stockholder proposal regarding executive severance arrangements; and
 
    (5) Other business as may properly come before the Annual Meeting or any
  adjournments thereof.
 
                                          By order of the Board of Directors,
 
                                          /s/ John H. Mullan

                                          John H. Mullan
                                          Acting Secretary
 
1840 Century Park East
Los Angeles, California 90067
 
J
une 3, 1998
 
 
                                   IMPORTANT
 
 TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
 RETURN THE ENCLOSED PROXY CARD FOR WHICH A RETURN ENVELOPE IS PROVIDED. NO
 POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.

<PAGE>
 
                                PROXY STATEMENT
 
                              GENERAL INFORMATION
 
  This proxy statement is issued in connection with solicitation of the
enclosed proxy by the Board of Directors of Northrop Grumman Corporation (the
"Company" or "Northrop Grumman") for use at the Company's 1998 Annual Meeting
of Stockholders (the "Annual Meeting"). The Company's principal office is
located at 1840 Century Park East, Los Angeles, California, 90067. This proxy
material will be sent to stockholders beginning approximately June 3, 1998.
 
OUTSTANDING SECURITIES
 
  On March 31, 1998, there were 67,616,912 shares of the Company's common
stock, par value $1.00 per share ("Common Stock"), outstanding. Holders of
record at the close of business on that date are entitled to vote at the
Annual Meeting. Each share is entitled to one vote.
 
VOTING AT THE MEETING OR BY PROXY
 
  Shares represented by a properly executed proxy in the accompanying form
will be voted at the meeting in accordance with the stockholder's
instructions. If no instructions are given, the shares will be voted according
to the Board of Directors' recommendations. Therefore, if no instructions are
given, the persons named on the card will vote FOR Proposal One to elect the
four director nominees listed under "Election of Directors", FOR Proposal Two
to ratify the appointment of Deloitte & Touche LLP as auditors of the Company
for the year ending December 31, 1998, AGAINST Proposal Three, the stockholder
proposal concerning foreign military sales and AGAINST Proposal Four, the
stockholder proposal concerning executive severance arrangements.
 
  A stockholder who executes a proxy may revoke it at any time before its
exercise by delivering a written notice of revocation to the Corporate
Secretary or by signing and delivering another proxy that is dated later. A
stockholder attending the meeting in person may revoke the proxy by giving
notice of revocation to an inspector of election at the meeting or voting at
the meeting. If any other matters are properly brought before the meeting, the
enclosed proxy card gives discretionary authority to the persons named on the
card to vote the shares in their best judgment. At this time, the Company does
not know of any other such business.
 
  With respect to the election of directors, stockholders may vote in favor of
all nominees, or withhold their votes as to all nominees or specific nominees.
There is no box to "abstain," but checking the box on the enclosed proxy card
that withholds authority to vote for a nominee is the equivalent of
abstaining. The four nominees receiving the greatest number of votes cast for
the election of directors by shares entitled to vote and present in person or
by proxy at the Annual Meeting will be elected directors.
 
  With respect to any proposal other than the election of directors,
stockholders may vote in favor of the proposal, or against the proposal, or
abstain from voting. The affirmative vote of the majority of shares entitled
to vote and present in person or by proxy at the Annual Meeting is required
for approval. A stockholder who signs and submits a ballot or proxy is
"present," so an abstention will have the same effect as a vote against the
proposal.
 
  Brokers who hold shares for the accounts of their clients may vote such
shares either as directed by their clients or in their own discretion if
permitted by the stock exchange or other organization of which they are
members. Members of the New York Stock Exchange ("NYSE") are permitted to vote
their clients' proxies in their own discretion as to the election of directors
if the clients have not furnished voting instructions within ten days of the
meeting. Certain proposals other than the election of directors are "non-
discretionary" and brokers who have received no instructions from their
clients do not have discretion to vote on those items. When a broker votes a
client's shares on some but not all of the proposals at a meeting, the missing
votes are referred to as "broker non-votes." Those shares will be included in
determining the presence of a quorum at the meeting, but are not considered
"present" for purposes of voting on the non-discretionary proposals. They have
no impact on the outcome of any proposals included within this Proxy
Statement.

<PAGE>
 

VOTING SECURITIES
 
  On December 31, 1997, the following entities beneficially owned, to the
Company's knowledge, more than five percent of the outstanding Common Stock:
 

<TABLE>
<CAPTION>
 
                                                    AMOUNT AND NATURE
                                                       OF BENEFICIAL   PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER                     OWNERSHIP     OF CLASS
- ------------------------------------                 ----------------- --------
<S>                                                  <C>               <C>
Wellington Management Company, LLP(a)............... 4,692,215 shares    6.97%
 75 State Street, Boston, MA 02109
U.S. Trust Company of California, N.A.(b)(c)........ 4,125,187 shares    6.13%
 555 So. Flower St., Los Angeles, CA 90071-2429
FMR Corp.(d)........................................ 4,102,879 shares    6.10%
 82 Devonshire Street, Boston, MA 02109
</TABLE>

- --------
(a) This information was provided by Wellington Management Company ("WMC") in
    a Schedule 13G filed with the Securities and Exchange Commission ("SEC")
    on February 10, 1998. According to WMC, as of the date set forth above,
    WMC had shared dispositive power over 4,692,215 shares but shared voting
    power over only 1,555,500 shares.
(b) This information was provided by U.S. Trust Company of California, N.A.
    ("U.S. Trust Company") in a Schedule 13G filed with the SEC on February 3,
    1998. U.S. Trust Company is an Investment Manager (the "Investment
    Manager") for the Northrop Grumman Pension Plan and the pension plans for
    certain divisions of the Company (the "Pension Plans"); under the Trust,
    the Investment Manager has responsibility for the management and control
    of the Northrop Grumman shares held in the Trust as assets of the Pension
    Plans. The Investment Manager has shared dispositive and voting power over
    4,125,187 shares.
(c) These shares are held for the account of (but not beneficially owned by)
    the Trustee (Bankers Trust Company; effective January 1, 1998, State
    Street Bank and Trust Company has been appointed by the Board of Directors
    of the Company as Trustee). The Investment Manager has voting power over
    these shares, except in the event of a contested election of directors or
    in connection with a tender offer. In such cases, the shares are voted in
    accordance with instructions received from eligible participants in the
    Pension Plans and undirected shares are voted in the same proportion as
    shares for which instructions are received.
(d) This information was provided by FMR Corp. ("FMR") in a Schedule 13G filed
    with the SEC on February 11, 1998. According to FMR, as of the date set
    forth above, FMR had sole dispositive power over 4,102,879 shares but sole
    voting power over only 415,379 shares.
 
  Based on records of the Northrop Grumman Savings and Investment Plan, as of
December 31, 1997, a total of approximately 5,268,461 shares (7.83%) was held
for the account of employee participants in the Employee Stock Ownership Plan
portion of the Savings and Investment Plan for which Bankers Trust Company
acts as a trustee.
 
                                       2

<PAGE>
 

STOCK OWNERSHIP OF OFFICERS AND DIRECTORS
 
  The following table shows beneficial ownership (as defined by applicable
rules for proxy statement reporting purposes) of the Common Stock as of March
31, 1998 by each director, by the Chief Executive Officer (the "CEO") and the
other four most highly compensated executive officers (collectively, the
"Named Executive Officers") and all directors and executive officers as a
group. Each individual owned less than 1% of the outstanding Common Stock with
the exception of Mr. Kresa, who owned 1.37% of the outstanding Common Stock.
Unless otherwise indicated, each individual has sole investment power and sole
voting power with respect to the shares owned by such person. No family
relationship exists between any of the directors or executive officers of the
Company.

<TABLE>
<CAPTION>
 
                                          NUMBER OF          PERCENTAGE OF
                                             SHARES         OUTSTANDING SHARES
                                       BENEFICIALLY OWNED   BENEFICIALLY OWNED
                                       ------------------   ------------------
<S>                                    <C>                  <C>
Directors
  Jack R. Borsting....................         3,995(1)               *
  John T. Chain, Jr. .................         4,104                  *
  Jack Edwards........................         3,470                  *
  Phillip Frost.......................        12,176                  *
  Robert A. Lutz......................         1,561                  *
  Aulana L. Peters....................         6,559                  *
  John E. Robson......................         6,565                  *
  Richard M. Rosenberg................         5,463                  *
  John Brooks Slaughter...............         3,104                  *
  Richard J. Stegemeier...............         6,108(2)               *
Named Executive Officers
  Kent Kresa(3).......................       927,595(4)            1.37%
  Richard B. Waugh, Jr. ..............        89,148(5)               *
  Richard R. Molleur..................        91,334                  *
  James G. Roche......................        70,876                  *
  Ralph D. Crosby.....................        47,828                  *
Directors and Executive Officers as a
 Group (23 persons)...................     1,626,892(6)(7)         2.41%
</TABLE>

- --------
*  The percentage of shares of Common Stock beneficially owned does not exceed
   one percent of the outstanding shares of Common Stock.
(1) Includes 1,200 shares held in the Borsting Family Trust of which Dr.
    Borsting is trustee.
(2) Includes 1,000 shares held in the Richard J. Stegemeier Family Trust of
    which Mr. Stegemeier and his wife are trustees.
(3) Mr. Kresa also serves as Chairman of the Board.
(4) Includes 217,212 shares held by the Kresa Family Trust of which Mr. Kresa
    is trustee.
(5) Includes 12,324 shares held by the Waugh Family Trust of which Mr. Waugh
    and his wife are trustees.
(6) Includes options exercisable within 60 days and shares or share
    equivalents beneficially owned under one or more of the Company's
    compensation or benefit plans, respectively, as follows: J.R. Borsting--
    2,000 and 0 shares; J.T. Chain--2,500 and 0 shares; J. Edwards--2,500 and
    331 shares; P. Frost--2,000 and 0 shares; R. Lutz--1,500 and 0 shares;
    A.L. Peters--2,500 and 3,038 shares; J.E. Robson--2,500 and 1,112 shares;
    R.M. Rosenberg--2,500 and 628 shares; J. Slaughter--2,500 and 0 shares;
    R.J. Stegemeier--2,500 and 323 shares; K. Kresa--661,400 and 5,057 shares;
    R.B. Waugh--60,400 and 3,147 shares; R. Molleur--70,000 and 0 shares; J.G.
    Roche--49,700 and 616 shares; and R. Crosby--42,680 and 2,622 shares.
(7) Directors and executive officers as a group owned approximately 2.41% of
    the outstanding shares as of March 31, 1998.
 
                                       3

<PAGE>
 

                      PROPOSAL ONE: ELECTION OF DIRECTORS
 
  The Company's Certificate of Incorporation provides for a classified Board
of Directors. Four directors in Class I will be elected at the 1998 Annual
Meeting to hold office for three years until the 2001 Annual Meeting of
Stockholders and until their successors have been elected and qualified.
Unless instructed otherwise, the persons named in the accompanying proxy will
vote the shares represented by such proxy for the election of the four Class I
Director Nominees listed in the table below. If any nominee becomes
unavailable for election to the Board of Directors, an event which is not
anticipated, the persons named as proxies have full discretion and authority
to vote or refrain from voting for any other nominee in accordance with their
judgment.
 
  Under the Company's Bylaws, a stockholder may nominate a person for election
as a director at a meeting only if the stockholder has given written notice to
the Corporate Secretary no later than the tenth day following the date of
public disclosure of the date of the meeting or the date of mailing of this
Proxy Statement, whichever occurs first. The notice must include the
information required by the Bylaws including the name and address of the
stockholder as they appear on the books of the Company, all information
relating to the nominee required to be disclosed in the solicitation of
proxies pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended, and the consent of the nominee to serve.
 
  The following information, furnished with respect to each of the four
nominees for election as a Class I director, and each of the four Class II and
three Class III directors whose terms continue after the Annual Meeting, is
obtained from the Company's records or from information furnished directly by
the individual to the Company. All the nominees are presently serving on the
Board of Directors. Members of the Board of Directors are generally ineligible
to stand for election if they will have attained age 70 by the date of the
Company's Annual Meeting of Stockholders at which such election is held.
Because of the uncertainties associated with the proposed merger with Lockheed
Martin Corporation ("Lockheed Martin"), the Board is particularly concerned
with the need to maintain stability and continuity in the oversight of the
Company. Accordingly, the Company has waived the age limitation in asking Mr.
Stegemeier to stand for re-election to the Board.
 
                        NOMINEES FOR DIRECTOR--CLASS I
 
JACK R. BORSTING, 69. E. Morgan Stanley professor of Business Administration
                      and Director of the Center for Telecommunications
                      Management, University of Southern California.
 
 Elected 1991
 
  Dr. Jack R. Borsting was at the Naval Postgraduate School in Monterey,
California from 1959 to 1980. During his tenure at Monterey, he was professor
of Operations Research, Chairman of the Department of Operations Research and
Administration Science, and Provost and Academic Dean. Dr. Borsting was
Assistant Secretary of Defense (Comptroller) from 1980 to 1983 and Dean of the
School of Business at the University of Miami from 1983 to 1988. From 1988 to
1994, he was the Robert R. Dockson professor and Dean of the School of
Business Administration at the University of Southern California, Los Angeles.
He is past president of both the Operations Research Society of America and
the Military Operations Research Society. He is currently Chairman of the
Board of Trustees of the Orthopaedic Hospital Foundation of Los Angeles and
serves as a director of Whitman Education Group, TRO Learning, Inc. and
Bristol Retail Systems. He is also a trustee of the Rio Hondo Foundation.
 
AULANA L. PETERS, 56. Partner, Gibson, Dunn & Crutcher.
 
 Elected 1992
 
  Aulana L. Peters joined the law firm of Gibson, Dunn & Crutcher in 1973. In
1980, she was named a partner in the firm and continued in the practice of law
until 1984 when she accepted an appointment as Commissioner of the Securities
and Exchange Commission. In 1988, after serving four years as a Commissioner,
she returned to Gibson, Dunn & Crutcher. Ms. Peters is a director of Callaway
Golf Company, Minnesota Mining and
 
                                       4

<PAGE>
 
Manufacturing Company, Mobil Corporation and Merrill Lynch & Co., Inc. She is
also a member of the Legal Advisory Board of the National Association of
Securities Dealers.
 
RICHARD M. ROSENBERG, 68.  Chairman of the Board and Chief Executive Officer
                           (Retired), BankAmerica Corporation and Bank of
                           America NT&SA.
 
 Elected 1991
 
  Richard M. Rosenberg was the Chairman of the Board and Chief Executive
Officer of BankAmerica Corporation ("BAC") and Bank of America ("BoA") from
1990 to 1996. He had served as President since February 1990 and as Vice
Chairman of the Board and a director of BAC and BoA since 1987. Before joining
BAC, Mr. Rosenberg served as President and Chief Operating Officer of Seafirst
Corporation and Seattle-First National Bank, which he joined in 1986. Mr.
Rosenberg is a retired Commander in the U.S. Navy Reserve, a director of
Airborne Express Corporation, SBC Communications, Potlatch Corporation and
BankAmerica Corporation and a member of the Board of Trustees of the
California Institute of Technology.
 
RICHARD J. STEGEMEIER, 70. Chairman Emeritus of the Board of Directors, Unocal
                           Corporation, an integrated petroleum company.
 
 Elected 1990
 
  Richard J. Stegemeier joined Union Oil Company of California, the principal
operating subsidiary of Unocal Corporation ("Unocal"), in 1951. Mr. Stegemeier
was Chairman of the Board for Unocal from April 1989 to May 1995 and was Chief
Executive Officer from 1988 to 1994. From 1985 to 1992, he was President and,
from 1985 to 1988, he was Chief Operating Officer of Unocal. Mr. Stegemeier is
a member of the National Academy of Engineering and a director of Foundation
Health Systems, Inc., Halliburton Company, Pacific Enterprises, Wells Fargo
Bank, N.A. and Montgomery Watson, Inc.
 
                        CONTINUING DIRECTORS--CLASS II
 
PHILLIP FROST, 61. Chairman of the Board and Chief Executive Officer, IVAX
                   Corporation, a pharmaceutical company
 
 Elected 1996
 
  Dr. Phillip Frost has served as Chairman of the Board of Directors and Chief
Executive Officer of IVAX Corporation since 1987. He was the Chairman of the
Department of Dermatology at Mt. Sinai Medical Center of Greater Miami, Miami
Beach, Florida from 1972 to 1990. Dr. Frost was Chairman of the Board of
Directors of Key Pharmaceuticals, Inc. from 1972 to 1986. He is Chairman of
Whitman Education Group, and is Vice Chairman of the Board of Directors of
North American Vaccine, Inc., and Continucare Corporation. He is also a Vice
Chairman of the University of Miami and a member of the Board of Governors of
the American Stock Exchange.
 
ROBERT A. LUTZ, 66. Vice Chairman of the Board of Directors, Chrysler
                    Corporation.
 
 Elected 1997
 
  Robert A. Lutz joined Chrysler Corporation in 1986 as Executive Vice
President of Chrysler Motors Corporation and was elected a director of
Chrysler Corporation that same year. He was elected President of Chrysler
Corporation in 1991 and Vice Chairman in 1996. Prior to joining Chrysler
Corporation, Mr. Lutz held senior positions with Ford Motor Company, General
Motors Corporation Europe and Bayerische Motoren Werke AG. He is an executive
director of the National Association of Manufacturers and is a member of the
National Advisory Council of the University of Michigan School of Engineering,
the Board of Trustees of the U.S. Marine Corps University Foundation and the
Advisory Board of the University of California-Berkeley, Haas School of
Business. Mr. Lutz is also a director of ASCOM Holdings, A.G. and Silicon
Graphics, Inc.
 
                                       5

<PAGE>
 
JOHN E. ROBSON, 67. Senior Advisor, Robertson, Stephens & Company, investment
                    bankers.
 
 Elected 1993
 
  From 1989 to 1993, John E. Robson served as Deputy Secretary of the United
States Treasury. He was Dean and Professor of Management at the Emory
University School of Business Administration from 1986 to 1989 and President
and Chief Executive Officer and Executive Vice President and Chief Operating
Officer of G.D. Searle & Co., a pharmaceutical company, from 1977 to 1986.
Previously, he held government posts as Chairman of the U.S. Civil Aeronautics
Board, regulator of the airline industry and Under Secretary of the Department
of Transportation, and engaged in the private practice of law as a partner of
Sidley and Austin. Mr. Robson earned his B.A. from Yale University and his
J.D. from Harvard Law School. Mr. Robson is a director of Monsanto Company and
Security Capital Industrial Trust. He is also a Distinguished Visiting Fellow
of the Hoover Institution at Stanford University, a Visiting Fellow at the
Heritage Foundation and a Trustee of St. John's College.
 
JOHN BROOKS SLAUGHTER, 64.   President, Occidental College.
 
 Elected 1993
 
  Dr. John Brooks Slaughter earned his B.S.E.E. from Kansas State University,
an M.S. in Engineering from the University of California at Los Angeles and a
Ph.D. in Engineering Sciences from the University of California at San Diego.
He began his career as an electronics engineer with General Dynamics Convair
in San Diego in 1956. He joined the U.S. Navy Electronics Laboratory in San
Diego in 1960. In 1975, he became Director of the Applied Physics Laboratory
of the University of Washington. In 1977, he was appointed Assistant Director
for Astronomics, Atmospherics, Earth and Ocean Sciences at the National
Science Foundation. From 1979 to 1980, he served as Academic Vice President
and Provost of Washington State University. In 1980, he returned to the
National Science Foundation as its Director and served in that capacity until
1982 when he became Chancellor of the University of Maryland, College Park. In
1988, Dr. Slaughter became President of Occidental College in Los Angeles. He
is a member of the National Academy of Engineering, a fellow of the American
Academy of Arts and Sciences and serves as a director of Atlantic Richfield
Company, Avery Dennison Corporation, Solutia, Inc. and International Business
Machines Corporation.
 
                        CONTINUING DIRECTORS--CLASS III
 
JOHN T. CHAIN, JR., 63. General, United States Air Force (Ret.) and Chairman of
                        the Board of Thomas Group, Inc., a mangement consulting
                        company.
 
 Elected 1991
 
  During his military career, General Chain held a number of Air Force
commands. In 1978, he became military assistant to the Secretary of the Air
Force. In 1984, he became the Director of Politico-Military Affairs,
Department of State. General Chain has been Chief of Staff for Supreme
Headquarters Allied Powers Europe, and Commander in Chief, Strategic Air
Command, the position from which he retired in February 1991. In March 1991,
he became Executive Vice President for Burlington Northern Railroad, serving
in that capacity until February 1996. In December 1996, he assumed the
position of President of Quarterdeck Equity Partners, Inc. and in May 1998 he
became Chairman of the Board of Thomas Group, Inc. He is a director of RJR
Nabisco, Inc., and Nabisco, Inc.
 
JACK EDWARDS, 69.  Member, Hand Arendall, L.L.C.
 
 Elected 1991
 
  Jack Edwards was elected in 1964 to the U.S. House of Representatives and
served in Congress for twenty years, representing the First District of
Alabama. During his tenure in the House, Mr. Edwards served on the
Appropriations Committee for sixteen years, including ten years as Senior
Republican on the Defense Subcommittee and sixteen years on the Transportation
Subcommittee. He also served on the Banking, Finance
 
                                       6

<PAGE>
 
and Urban Affairs Committee. He retired from Congress in January 1985 and
became a member of his current law firm, Hand Arendall, L.L.C. He is a
director of The Southern Company, Holnam Inc. and QMS, Inc. Mr. Edwards is
also President Pro Tempore of the Board of Trustees of the University of
Alabama System.
 
KENT KRESA, 60. Chairman, President and Chief Executive Officer.
 
 Elected 1987
 
  Before joining the Company, Kent Kresa was associated with the Lincoln
Laboratories of the Massachusetts Institute of Technology, and the Defense
Advanced Research Projects Agency. In 1975, he joined the Company as Vice
President and Manager of the Company's Research and Technology Center. He
became General Manager of the Ventura Division in 1976, Group Vice President
of the Aircraft Group in 1982 and Senior Vice President for Technology and
Development in 1986. Mr. Kresa was elected President and Chief Operating
Officer of the Company in 1987. He was named Chief Executive Officer in 1989
and Chairman of the Board in 1990. Mr. Kresa is a member of the National
Academy of Engineering and is past Chairman of the Board of Governors of the
Aerospace Industries Association. He is also a Fellow of the American
Institute of Aeronautics and Astronautics. He serves on the Board of Directors
of the W.M. Keck Foundation and on the Board of Trustees of the California
Institute of Technology, and serves as a director of Chrysler Corporation,
Atlantic Richfield Company, the Los Angeles World Affairs Council, the John
Tracy Clinic and the Board of Governors of the Los Angeles Music Center.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
  The Board of Directors has Audit, Compensation and Management Development,
Nominating, Finance, and Executive and Public Policy Committees. The
membership of these committees is usually determined at the organizational
meeting of the Board held in conjunction with the Annual Meeting. The
membership of each committee is as follows, with the chairman listed first:
 

<TABLE>
<CAPTION>
                          COMPENSATION AND                                                   EXECUTIVE AND
        AUDIT          MANAGEMENT DEVELOPMENT      NOMINATING             FINANCE            PUBLIC POLICY
        -----          ----------------------      ----------             -------            -------------
<S>                    <C>                    <C>                   <C>                  <C>
Jack Edwards           Richard J. Stegemeier  Jack R. Borsting      Richard M. Rosenberg Aulana L. Peters
Jack R. Borsting       Jack R. Borsting       John T. Chain, Jr.    John T. Chain, Jr.   Phillip Frost
Aulana L. Peters       John T. Chain, Jr.     Richard M. Rosenberg  Jack Edwards         Robert A. Lutz
John Brooks Slaughter  Jack Edwards           John Brooks Slaughter Phillip Frost        John Brooks Slaughter
Richard J. Stegemeier  John E. Robson                               Robert A. Lutz       Richard J. Stegemeier
                                                                    John E. Robson
</TABLE>

 
AUDIT COMMITTEE
 
  The Audit Committee meets periodically with both the Company's independent
auditors and the Company's chief internal auditor to review audit results and
the adequacy of the Company's systems of internal controls. In addition, the
Audit Committee recommends to the Board of Directors the appointment or
discharge of the Company's independent auditors, and reviews professional
services of a non-audit nature to be provided by the independent auditors to
evaluate the impact on the independence of the auditors of undertaking such
added services. The Audit Committee held four meetings in 1997.
 
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
 
  The Compensation and Management Development Committee (the "Compensation
Committee") recommends to the Board of Directors the base salary and incentive
compensation of all elected officers and takes final action with respect to
base salary and incentive compensation for certain other officers and key
employees. It reviews the Company's compensation policies and management
actions to assure the succession of qualified officers. The Committee also
establishes the Company's annual performance objectives under the incentive
compensation plans and recommends to the Board of Directors the amounts to be
appropriated for awards under such plans and under the Company's 1973
Incentive Compensation Plan (the "1973 Incentive Plan"). The Committee grants
awards under and administers the Company's Stock Plans (as defined below) and
recommends to the Board of Directors all compensation plans in which Company
officers are eligible to participate. The Compensation and Management
Development Committee held seven meetings in 1997.
 
                                       7

<PAGE>
 
NOMINATING COMMITTEE
 
  The Nominating Committee reviews candidates to serve as directors and
r
ecommends to the Board of Directors nominees for election. The activities and
associations of each candidate are examined to ensure that there is no legal
impediment, conflict of interest or other consideration that might prevent
service on the Board of Directors. In making its selection, the Board of
Directors bears in mind that the foremost responsibility of a Northrop Grumman
director is to represent the interests of the stockholders as a whole. The
Nominating Committee will consider nominees recommended by stockholders if
such nominations have been submitted in writing, accompanied both by a
description of the proposed nominee's qualifications and an indication of the
consent of the proposed nominee and relevant biographical information. The
recommendation should be addressed to the Nominating Committee in care of the
Secretary of the Company. In addition, the Nominating Committee makes
recommendations to the Board of Directors concerning the composition and size
of the Board of Directors, candidates to fill vacancies, the performance of
incumbent directors, and the remuneration of non-employee directors. The
Nominating Committee held two meetings in 1997.
 
FINANCE COMMITTEE
 
  The Finance Committee reviews and makes recommendations concerning proposed
dividend actions and issuance of debt or equity securities. The Finance
Committee considers and makes recommendations for final action by the Board on
contracts, programs, acquisitions, mergers or divestments of an unusual or
material nature. The Finance Committee also reviews the investment performance
of the employee benefit plans, capital asset requirements and short-term
investment policy when appropriate. The Finance Committee held two meetings in
1997.
 
EXECUTIVE AND PUBLIC POLICY COMMITTEE
 
  The Executive and Public Policy Committee reviews and monitors the Northrop
Grumman Employees Political Action Committee and makes policy and budget
recommendations to the Board on proposed charitable contributions and aid to
higher education. The Executive and Public Policy Committee reviews and
approves the Company's policy for engaging the services of consultants and
commission agents. The Executive and Public Policy Committee held three
meetings in 1997.
 
BOARD AND COMMITTEE MEETINGS
 
  During 1997, the Board held 16 meetings and the committees described above
held 18 meetings. Average attendance at all such meetings was 92%. Each
incumbent director attended at least 76% of the total number of board and
committee meetings he or she was eligible to attend.
 

COMPENSATION OF DIRECTORS
 
  The Company paid each director an annual retainer of $28,000 and an
additional $1,000 for each Board and committee meeting attended during 1997.
Committee chairmen are paid an annual retainer of $3,000. Any director who
performs extraordinary services for the Board at the request of the Chairman
of the Board or the chairman of a committee is paid $1,000 per day. Directors
are reimbursed for all reasonable expenses in attending these meetings and in
performing extraordinary services. Directors who are employees of the Company
do not receive any compensation for their service as directors.
 
  The 1993 Stock Plan For Non-Employee Directors provides that 30% of the
retainer earned by each director is paid in shares of the Common Stock, issued
following the close of the fiscal year. In addition, directors may defer
payment of all or a portion of their remaining retainer fees, Committee
Chairman retainer fees and/or Board and committee meeting fees. Deferred
compensation may either be distributed in shares of the Common Stock, issued
after the close of the fiscal year, or placed in a Stock Unit account until
the conclusion of a director-specified deferral period, generally for a
minimum of two years from the time the compensation is earned. All deferral
elections must be made prior to the beginning of the year for which the
retainer and fees will be paid.
 
                                       8

<PAGE>
 
Directors are credited with dividend equivalents in connection with the shares
of the Common Stock which are distributed early in the year following the year
earned or deferred into the Stock Unit account. The Board has adopted a
Company stock ownership guideline for outside directors which provides that
directors should hold shares of Common Stock equal in market value to three
times the annual retainer, to be achieved within five years of joining the
Board (for existing directors, five years from the 1995 date of adoption).
 
  The 1995 Stock Option Plan for Non-Employee Directors, as amended, provides
for the annual grant of options to each non-employee director to purchase
1,500 shares of the Common Stock with an exercise price equal to the fair
market value of the Common Stock on the grant date. The options have a term of
ten years. If the individual ceases to serve as a director, the options
continue to be exercisable for the lesser of five years or the expiration of
the original term of the options. If termination is for cause, the options
terminate when the director ceases to serve.
 
  The Northrop Grumman Corporation Board of Directors Retirement Plan (the
"Retirement Plan") provides that outside directors, as defined in the
Company's Bylaws, are eligible to receive a retirement benefit if they retire
from the Board following completion of at least five or more consecutive years
of service as an outside Board member. Outside directors are also eligible for
benefits if they are ineligible to stand for election because they will have
attained age 70 prior to the Annual Meeting of Stockholders and have not
completed at least five consecutive years of service as an outside director.
The annual benefit payable is equal to the annual retainer then being paid to
active directors or such lesser amount as is provided for under the Retirement
Plan. Benefits are payable for ten years or less (as set forth in the
Retirement Plan), from the director's retirement date. In the case of a
director's death while receiving benefits, the benefits are payable to the
director's surviving spouse, as defined in the Retirement Plan. In the event
of a change in control, all outside directors serving on the Board at that
time shall be immediately vested and entitled to an annual benefit amount for
each year of consecutive service. In addition, benefits payable under the
Retirement Plan have been funded through the establishment of a grantor trust.
In March 1997, the Board of Directors terminated the Retirement Plan with
respect to future outside directors.
 
  On March 19, 1997, the Board of Directors adopted the Northrop Grumman Non-
Employee Directors Equity Participation Plan (the "Equity Plan" and, together
with the Retirement Plan, collectively, the "Directors Plans"). The Equity
Plan is applicable to outside directors who become such after March 1, 1997
and directors serving prior to that date who elect to participate in the
Equity Plan. Directors who elect to participate in the Equity Plan must
terminate their participation in the Retirement Plan. Under the Equity Plan,
outside directors shall have an amount equal to 50% of their annual retainer
credited to an equity participation account and converted into stock units
based on the then fair market value of the Common Stock. Existing directors
who elect to participate in the Equity Plan will receive a special accrual
into the equity participation account equal to the present value of accrued
benefits under the Retirement Plan. Each stock unit will be credited with
dividend equivalents, which will be deemed reinvested in additional stock
units. Each outside director who terminates service after three or more years
of service shall be entitled to receive cash payments from the equity
participation account in a number of annual installments equal to the number
of years for which benefits have been accrued (not to exceed ten), each
installment to be in an amount equal to the dollar value of the equity
participation account based on Common Stock value as of the date of
determination of the installment payment, divided by the number of
installments then remaining to be paid. Upon a change in control, benefits
under the Equity Plan immediately vest. The Board of Directors believes that
the Equity Plan will further align the interests of the directors with the
interests of the stockholders by making this part of the directors' benefits
dependent upon the value of the Common Stock.
 
  On April 26, 1998, the Board of Directors adopted resolutions pursuant to
the applicable provisions of the Directors Plans that provide that the Merger
Vote (as defined on page 17 below) did not constitute a "Change in Control"
for purposes of the Directors Plans unless and until the Merger closes. The
Directors Plans were further amended to provide that a "Change in Control"
involving a merger will occur only upon consummation of such merger under
applicable state law.
 
                                       9

<PAGE>
 
VOTE REQUIRED
 
  The vote of a plurality of the shares of Common Stock voting at the Annual
Meeting (with each share entitled to one vote), is required for the election
of directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOUR NOMINEES
FOR DIRECTOR LISTED ABOVE.
 
COMPENSATION COMMITTEE
 
REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
 
  The Compensation Committee has furnished the following report on executive
compensation applicable to employees elected as executive officers of the
Company. The Compensation Committee is comprised exclusively of outside
directors.
 
COMPENSATION PHILOSOPHY
 
  The Company's executive compensation program is designed to promote
recruitment and retention of key employees of exceptional ability. It is
comprised of linked plans that encourage participants to concentrate their
attention, energy and skill on achieving superior current performance,
financial results exceeding specific thresholds and long-term prosperous
growth.
 
  Major components of executive compensation are at risk and vary directly in
their amount with each executive's impact on desired business results.
Successful accomplishment of business goals in both annual operating
performance and stockholder value can produce significant individual rewards.
Failure to attain business goals will have a negative effect on rewards.
 
  In addition to variations attributable to individual and Company performance
against business goals and Company performance in equity markets, executive
total compensation is influenced directly by competitive considerations. Base
salaries of executives are targeted at a competitive market median on a job-
by-job basis with individual variations explained by differences in
experience, skills and sustained performance. Annual incentive compensation
and long-term incentive stock compensation vary with individual job level,
scope and overall influence on Company business results.
 
  Normalized for these individual variations, annual total cash compensation--
the sum of base salary and annual incentive compensation--will be lower than
the competitive market median in years of below target performance, and above
the competitive market median in years in which performance exceeds target.
 
DEDUCTIBILITY OF COMPENSATION
 
  Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation over $1 million paid to the Named Executive Officers. Qualifying
performance-based compensation is not subject to the deduction limit.
 
  In 1995 and 1996, stockholders approved amendments to the Company's 1993
Long-Term Incentive Stock Plan, as amended (the "1993 Stock Plan"), to meet
the performance-based criteria of Section 162(m). All awards to date under the
1993 Stock Plan, except the November 1993 award of restricted performance
stock rights ("RPSRs") to other than the CEO and 13,000 restricted stock
rights ("RSRs"), meet these criteria. Therefore, the loss of any deduction
associated with compensation under the 1993 Stock Plan should not be material.
 
  The 1973 Incentive Plan is also subject to Section 162(m) of the Code. The
CEO elected to defer 1996, 1997 and 1998 cash compensation to the extent that
it would cause the loss of a deduction under Section 162(m). Loss of a tax
deduction for 1997 attributable to cash compensation of other officers should
not be material.
 
                                      10

<PAGE>
 
MEASURING COMPANY PERFORMANCE
 
  Consistent with the Company's business plan, management in each
organizational element has an Annual Operating Plan containing Financial and
Supplemental Goals based on defined performance measures and numerical
weights.
 
  .  Financial Goals focus on operating earnings, cash flow and stockholder
     value metrics.
 
  .  Supplemental Goals focus on such factors as new product development, new
     business initiatives, productivity, quality improvement, workplace
     diversity, management development and environmental management.
 
  These goals are communicated within each organizational element, resulting
in the formation of individual performance goals specific to each salaried
employee. Documented and approved in accordance with the Company's Performance
Management Process, accomplishments against individual goals are evaluated at
year-end.
 
  For the executive officers, three weighted Performance Measurement Factors
are used to determine annual incentive compensation. For 1997, these factors
and their relative weightings were:
 
  1. Pre-tax return on 3-year average stockholder equity--weighted 30%;
 
  2. Value creation as measured by Warranted Equity Value (a measure of
     stockholder value)--weighted 50%;
 
  3. Supplemental Goals such as delineated above--weighted 20%.
 
  Factors (1) and (2) above have specific numerical thresholds approved by the
Committee, below which no credit is earned.
 
  Annually, the Committee reviews, approves and--at its discretion--modifies
the CEO's written proposal of goals and numerical values for each Performance
Measurement Factor. Performance highlights against 1997 goals can be found
below in 1997 Chief Executive Officer Compensation.
 
DETERMINING COMPETITIVE COMPENSATION
 
  In determining base salaries and incentive compensation for the Named
Executive Officers, sources of competitive compensation information are
independent surveys of industry peer companies. Peer companies include:
 
  .  Companies comprising the aerospace and defense group depicted in the
     performance graph in the Shareowner Return Performance Presentation
     following this Report;
 
  .  Other companies designated by the Committee.
 
  Hewitt Associates is the Company's primary source of executive compensation
surveys, which include the Management Compensation Services Project 777
Survey, the Summit Survey of Aerospace Companies and a periodic custom survey
of aerospace and defense companies selected by the Committee.
 
  Competitive award guidelines contained in the Company's Long-Term Incentive
Stock Plan Guide to Administration have been established by the Committee with
the assistance of Frederic W. Cook, Inc., an independent compensation
consulting firm.
 
ESTABLISHING EXECUTIVE COMPENSATION--A MANAGEMENT PROCESS
 
  The Company's executive officer compensation program includes the following
linked plans:
 
  .  Base Salary
 
  .  Annual Incentive Compensation
 
  .  Long-Term Incentive Compensation
 
                                      11

<PAGE>
 
 Base Salary
 
  Annually, the Committee reviews, and accepts or modifies as it deems
appropriate, base salary recommendations submitted by the CEO for the
Company's executive officers (other than the CEO). This salary plan is based
on independent market surveys of compensation and evaluation of past
performance and expected future contributions of the individual executives.
 
  Separately, the Committee reviews the base salary of the CEO, considering
competitive compensation data and the Committee's assessment of past
performance and its expectation of future contributions. The Board (absent all
employee-directors) then approves or modifies the Committee's recommendations
for the senior executives and the CEO.
 
  The CEO is paid a base salary at approximately the competitive market
median, measured by independent compensation surveys of the aerospace and
defense industry. From sources of competitive compensation information, the
Committee has determined that the average base salary paid by the Company to
the senior executive group, on average, does not exceed the competitive market
median.
 
 Annual Incentive Compensation
 
  Executive officers are eligible for incentive compensation annually under
the Company's stockholder-approved 1973 Incentive Plan. No awards, however,
may be earned or paid for years in which the pre-tax return on 3-year average
stockholder equity is not at least 10%, or in which no dividend is declared on
common stock. The aggregate amount of awards payable may not exceed 3% of the
pre-tax adjusted gross margin for that year.
 
  In years in which incentive compensation awards are payable, the Committee
decides individual awards for the executive officers following its
consideration of the CEO's report of overall corporate performance against the
Performance Measurement Factors delineated above. Annual incentive awards for
executive officers are the product of individual base salary, target bonus
percentage based on position, Unit Performance Factor and an individual
performance score between 0.00 and 1.50, termed Individual Performance Factor.
The Unit Performance Factor represents the Committee's assessment of overall
Company performance as a single numerical value between 0.00 and 2.00.
 
  To accompany his performance report, the CEO submits recommendations to the
Committee for individual incentive awards for the executive officers, except
the CEO, which reflect their contributions to the accomplishment of annual
goals and the Company's long-term business plan. Separately, the Committee
considers an incentive compensation award for the CEO based on its assessment
of his recent-year performance. The Board (absent all employee-directors) then
approves or modifies the Committee's recommendations for the executive
officers and the CEO.
 
 Long-Term Incentive Compensation
 
  Annually, the Committee considers granting executive officers awards under
the current stockholder-approved 1993 Stock Plan.
 
  The 1993 Stock Plan provides the flexibility to grant awards spanning a
number of years in a variety of forms, including stock options, RSRs and
RPSRs. The purpose of this form of compensation is to establish long-term
performance horizons for 1993 Stock Plan participants. By promoting ownership
of the Common Stock, the 1993 Stock Plan creates stockholder-managers
interested in the sustained growth and prosperity of the Company.
 
  The performance variable governing the future payments and the ultimate
value of RPSRs is linked to Company total stockholder return compared to that
of companies charted in the Industry Peer Group performance graph depicted in
the Shareowner Return Performance Presentation that follows this Report.
 
                                      12

<PAGE>
 
  As a result of the February 26, 1998 vote by the Company's stockholders to
approve an Agreement and Plan of Merger (the "Merger Agreement") with Lockheed
Martin, all stock awards under the 1993 Stock Plan and the 1987 Long-Term
Incentive Plan, as amended (the "1987 Stock Plan"), automatically vested. In
light of the U.S. Government's decision to challenge the Lockheed Martin
merger (the "Merger") on antitrust grounds, the Compensation Committee
concluded that it was in the Company's best interests to adopt a program to
preserve the incentive and employee-retention benefits of such stock awards.
Accordingly, the Compensation Committee proposed, and the Board of Directors
adopted, a voluntary program under which executive officers and key employees
would be encouraged to place their shares (net of tax withholding calculated
at 50% of the value of the shares as of the February 26, 1998 vote) into
escrow until the earlier of (i) March 1, 2000; (ii) an actual Change in
Control of the Company; or (iii) the executive officer's death, qualifying
Retirement (as defined therein), disability or termination by the Company
other than for Cause. See Executive Compensation--Change In Control
Arrangements--1998 Restricted Stock Rights Plan.
 
1997 CHIEF EXECUTIVE OFFICER COMPENSATION
 
  In evaluating the performance of the CEO and establishing his annual
incentive compensation, the Committee reviewed the overall performance of the
Company and Mr. Kresa's individual contributions. The Committee noted that
overall performance exceeded targets for the Company's three Performance
Measurement Factors and gave special recognition to the following 1997
accomplishments realized under Mr. Kresa's leadership:
 
  .  The Company's financial performance, including record sales, net income,
     debt reduction, and growth of warranted equity value, exceeded
     established targets.
 
  .  The Company strengthened its position as a key supplier of information
     technology through the successful acquisition of the Logicon
     Corporation.
 
  .  New business acquisition goals were exceeded in the areas of commercial
     aircraft doors and nacelle products, C-17 aircraft, tactical aircraft,
     B-2 upgrades and support, space structures, combat electronics, airspace
     management systems, surveillance sensors and airborne early warning
     systems.
 
  .  Across the Company, measured customer satisfaction continued at already
     high levels established the previous year.
 
  .  Research and development contract acquisitions significantly exceeded
     the annual operating plan targets, thereby providing critical leverage
     for future business opportunities.
 
  .  The continuing successful performance of the Company led to execution of
     the Merger Agreement, pursuant to which Northrop Grumman has agreed,
     subject to receipt of applicable regulatory approvals, to merge with a
     wholly-owned subsidiary of Lockheed Martin. The Merger Agreement
     contains terms providing for the best interest of the Northrop Grumman
     stockholders.
 
                                      13

<PAGE>
 
             THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
 
                        RICHARD J. STEGEMEIER, CHAIRMAN
                                JACK R. BORSTING
                               JOHN T. CHAIN, JR.
                                  JACK EDWARDS
                                 JOHN E. ROBSON
 
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
 
  The line graph below compares the relative change in the cumulative total
stockholder return on the Company's Common Stock against the cumulative total
return of the S&P Composite-500 Stock Index, and an industry peer group index
(the "Industry Peer Group") comprised of The Boeing Company, General Dynamics
Corporation, Lockheed Martin, Raytheon Company and United Technologies
Corporation.
 
                    COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
                        AMONG NORTHROP GRUMMAN CORP.,
                      S&P 500 INDEX AND PEER GROUP INDEX
 
                        PERFORMANCE GRAPH APPEARS HERE

<TABLE>
<CAPTION>
Measurement Period                                          S&P
(Fiscal Year Covered)        NORTHROP       PEER GROUP   500 INDEX
- -------------------          ----------     ----------   ---------
<S>                          <C>            <C>          <C>
1992                         $100           $100         $100
1993                         $115           $129         $110
1994                         $134           $135         $112
1995                         $210           $214         $153
1996                         $278           $272         $189
1997                         $394           $289         $252
</TABLE>

 
ASSUMES $100 INVESTED AT THE BEGINNING OF THE PERIOD IN THE COMMON STOCK,
S&P COMPOSITE-500 STOCK INDEX AND INDUSTRY PEER GROUP.
 
* TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS.
 
                                       14

<PAGE>
 
                            EXECUTIVE COMPENSATION
 
  The table below shows the annual and long-term compensation for services in
all capacities to the Company for the years ended December 31, 1997, 1996 and
1995 of the Named Executive Officers at December 31, 1997:
 
                          SUMMARY COMPENSATION TABLE
 

<TABLE>
<CAPTION>
                                                           LONG-TERM COMPENSATION
                                                     -----------------------------------
                               ANNUAL COMPENSATION           AWARDS            PAYOUTS
                              ---------------------- ------------------------ ----------
                                                        OTHER      RESTRICTED SECURITIES
       NAME AND                                         ANNUAL       STOCK    UNDERLYING                ALL OTHER
       PRINCIPAL                                     COMPENSATION   AWARD(S)   OPTIONS/      LTIP      COMPENSATION
       POSITION          YEAR SALARY($)(5) BONUS($)      ($)         ($)(1)    SARS(#)   PAYOUTS($)(2)    ($)(3)
       ---------         ---- ------------ --------- ------------  ---------- ---------- ------------- ------------
<S>                      <C>  <C>          <C>       <C>           <C>        <C>        <C>           <C>
Kent Kresa(4)..........  1997   889,167    1,711,125   66,308(6)                                          6,400
 Chairman of the Board,  1996   835,000    1,200,000   58,544(7)                45,000                    6,339
 President and Chief     1995   730,000    1,000,000                            42,000      480,000       5,625
 Executive Officer
Richard B. Waugh, Jr...  1997   370,833      530,000                                                      6,400
 Corporate Vice          1996   338,333      345,000                            13,000                    6,000
 President
 and Chief Financial     1995   275,000      350,000                            10,000      148,400       6,000
 Officer
Richard R. Molleur.....  1997   334,167      490,000                                                      6,000
 Corporate Vice          1996   302,500      275,500                            11,000                    5,625
 President
 and General Counsel     1995   288,333      330,000                            10,000      153,700       6,000
James G. Roche.........  1997   358,333      450,000                                                      6,400
 Corporate Vice          1996   310,417      320,000    674,384(8)  315,625     12,500                    6,000
 President
 and General Manager,    1995   243,333      330,000                            10,000      116,870       6,000
 Electronic Sensors and
 Systems Divisions
Ralph D. Crosby, Jr. ..  1997   316,666      385,000                                                      6,400
 Corporate Vice          1996   280,000      295,000                189,375     12,500                    6,000
 President
 and General Manager,    1995   235,000      300,000                            10,000      127,200       6,000
 Commercial Aircraft
 Division
</TABLE>

- --------
(1) RSRs generally provide for the issuance of unrestricted Common Stock in
    yearly increments equal to 20% of the total grant, commencing within one
    year of the grant date. The entire RSR grant is therefore issued within
    five (5) years from the date of grant. Restricted shares or rights held by
    Named Executive Officers, valued at December 31, 1997, were: K. Kresa,
    3,750 shares at $431,250; J. Roche, 4,000 shares at $460,000; and R.
    Crosby, 2,400 shares at $276,000. Upon the Merger Vote (as defined on page
    17 below), (a) all Stock Options (as defined below) under the Stock Plans
    (as defined below) vested and became fully exercisable; (b) the RPSRs
    under the Stock Plans vested and became payable in shares of Common Stock,
    which payment is calculated based upon attainment of certain stock price
    performance targets; and (c) the RSRs and restricted award shares ("RASs")
    under the Stock Plans vested and became distributable.
(2) Awards granted pursuant to the Transition Project Incentive Plan the
    performance period for which ended December 31, 1995.
(3) "All Other Compensation" consists of Company contributions to the Northrop
    Grumman Savings and Investment Plan for the Named Executive Officers.
(4) Annual Compensation in excess of $1,000,000 attributable to 1997 that
    would be disallowed for tax deduction under Section 162(m) of the Code
    will be deferred in accordance with the Company's Executive Deferred
    Compensation Plan, which provides for interest on the deferred amount and
    payment in installments or lump sum at the election of the participant.
(5) The amounts listed in this column do not include amounts paid for vacation
    hours accrued but not used for the following individuals in the following
    years: Mr. Waugh: $10,096 in 1997 and $30,078 in 1996; Mr. Molleur: $4,692
    in 1997, $5,865 in 1996 and $22,697 in 1995; Mr. Roche: $19,903 in 1997,
    $33,497 in 1996 and $14,135 in 1995; and Mr. Crosby: $3,692 in 1997 and
    $1,615 in 1996.
(6) Amount includes $19,872 for car allowance.
(7) Amount includes $14,953 for premium amounts paid on behalf of Mr. Kresa
    for life, accidental death and dismemberment, medical, dental and long-
    term disability insurance.
(8) Amount includes $352,172 in relocation expenses incurred by Dr. Roche in
    his transfer to the Electronics Sensors and Systems Division and $291,387
    constituting reimbursement for payment of taxes related to those expenses.
 
                                      15

<PAGE>
 
   AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
 

<TABLE>
<CAPTION>
                                                                                                 VALUE OF
                                                                                               UNEXERCISED
                                                                        NUMBER OF              IN THE MONEY
                                                                  SECURITIES UNDERLYING         OPTIONS AT
                                                                  UNEXERCISED OPTIONS AT        FY END($)
                          SHARES ACQUIRED ON                            FY END(#)              EXERCISABLE/
NAME                         EXERCISE (#)    VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE*   UNEXERCISABLE(1)
- ----                      ------------------ ------------------ -------------------------- --------------------
<S>                       <C>                <C>                <C>                        <C>
Kent Kresa..............           0                  0              556,300/105,100       52,593,650/5,501,050
Richard B. Waugh, Jr. ..           0                  0                30,900/29,500        2,521,675/1,553,250
Richard R. Molleur......           0                  0                44,000/26,000        3,692,500/1,372,625
James G. Roche..........           0                  0                22,200/27,500        1,739,275/1,424,375
Ralph D. Crosby, Jr. ...           0                  0                16,830/25,850        1,331,710/1,293,612
</TABLE>

- --------
(1) Based on the market value at December 31, 1997 of $115.
*  By virtue of the Merger Vote (as defined below), all Stock Options (as
   defined below) under the 1993 Stock Plan and 1987 Stock Plan vested and
   became fully exercisable.
 
PENSION PLANS
 
  For purposes of illustration, the following table shows the amount of annual
retirement benefits that would be accrued at age 65 under the Northrop Grumman
Pension Plan (the "Pension Plan"), as supplemented by the Northrop Corporation
ERISA Supplemental Plan I ("ERISA 1") and the ERISA Supplemental Program 2
("ERISA 2") (collectively, the "Supplemental Retirement Plans").
 

<TABLE>
<CAPTION>
ANNUAL
AVERAGE
COMPENSATION
(HIGHEST                         YEARS OF BENEFIT SERVICE
3 YEARS OUT   --------------------------------------------------------------
OF LAST 10)      5        10       15       20       25       30       35
- ------------  -------- -------- -------- -------- -------- -------- --------
<S>           <C>      <C>      <C>      <C>      <C>      <C>      <C>
$  100,000    $  8,300 $ 16,700 $ 25,000 $ 33,300 $ 41,700 $ 50,000 $ 50,000
   150,000      12,500   25,000   37,500   50,000   62,500   75,000   75,000
   200,000      16,700   33,300   50,000   66,700   83,300  100,000  100,000
   250,000      20,800   41,700   62,500   83,300  104,200  125,000  125,000
   300,000      25,000   50,000   75,000  100,000  125,000  150,000  150,000
   400,000      33,300   66,700  100,000  133,300  166,700  200,000  200,000
   500,000      41,700   83,300  125,000  166,700  208,300  250,000  250,000
   600,000      50,000  100,000  150,000  200,000  250,000  300,000  300,000
 1,000,000      83,300  166,700  250,000  333,300  416,700  500,000  500,000
 1,400,000     116,700  233,300  350,000  466,700  583,300  700,000  700,000
 1,800,000     150,000  300,000  450,000  600,000  750,000  900,000  900,000
</TABLE>

 
  Compensation covered by the plans for executive officers is substantially
equivalent to salary and bonuses as reflected in the Summary Compensation
Table. Benefit Service earned after January 1, 1995 in excess of 30 years will
not be taken into account for accrual of retirement benefits. Benefits payable
under the Supplemental Retirement Plans have been secured through the
establishment of two grantor trusts. The credited years of service under the
Pension Plan and Supplemental Retirement Plans of the five individuals named
in the Summary Compensation Table are as follows: Mr. Kresa, 23 years; Mr.
Waugh, 19 years; Mr. Molleur, 7 years; Dr. Roche, 14 years; and Mr. Crosby, 17
years. Benefits are calculated on a straight life annuity basis at selected
compensation levels and years of service reflected in the table above. The
listed benefit amounts are not subject to any reduction for Social Security
benefits or other offset amounts.
 
  The Company maintains a Supplemental Retirement Income Program for Senior
Executives ("SRI"), under which certain employees are designated by the Board
of Directors to receive benefits in lieu of benefits otherwise payable under
the Pension Plan and the Supplemental Retirement Plans. The amount of the
supplemental benefit
 
                                      16

<PAGE>
 
under the SRI is equal to the greater of (1) the participant's benefit under
the Pension Plan, calculated without regard to the limits imposed under
Sections 415 and 401(a)(17) of the Code, or (2) a fixed percentage of the
participant's final average salary (which term includes bonus and is based on
the highest 3 years out of the last 5) equal to 30% at age 55, increasing 4%
for each year up to and including age 60, and increasing 2% for each year
beyond age 60 to 65, in each case offset by the benefit allowable under the
Pension Plan. Mr. Kresa, who is eligible to receive an annual benefit
(estimated to be $1,566,675 payable at age 65, assuming continued employment
and based upon estimated levels of final average salary) under SRI, is the
only Named Executive Officer currently participating in the SRI. SRI
eligibility, in addition to designation by the Board of Directors, requires
the attainment of age 55 and 10 years of vesting service. The vesting service
requirement may be waived by the CEO.
 
  On July 2, 1997, the Northrop Grumman Board adopted the Northrop Grumman
Executive Retirement Plan (the "SERP"), which had been under consideration
since 1995. The SERP is applicable to elected officers who report directly to
the CEO (which group currently consists of ten of the fourteen elected
executive officers of Northrop Grumman). The SERP provides to each participant
a pension accrual of 1.667% of final average pay for each year or portion
thereof that the participant has served as an elected officer reporting to the
CEO. This provides a pension accrual to the elected officer for the period
that he has served as such, in addition to regular pension benefits payable
from Northrop Grumman's tax qualified and supplemental retirement plans on the
basis of all creditable years of service. Assuming that the current group of
SERP participants were to retire from Northrop Grumman as of March 31, 1998
(or, in the case of Richard B. Waugh, Jr., were to terminate employment as of
March 31, 1998 and commence benefits as of September 1, 1998, the earliest
date at which benefits could commence) and elected a fifty percent joint and
survivor retirement annuity, the amount of annual retirement benefits for the
named executive officers would consist of the following approximate amounts:
Richard B. Waugh, Jr. ($27,963, starting September 1, 1998); Richard R.
Molleur ($70,995); James G. Roche ($48,937); and Ralph D. Crosby, Jr. ($16,012
starting October 1, 2002). In addition, if the other six elected executive
officers who participate in the SERP were to retire as of March 31, 1998 or
were to terminate employment March 31, 1998 and commence benefits at their
earliest retirement date, and elected a fifty percent joint and survivor
retirement annuity, the highest amount of annual retirement benefits from the
SERP for such other six elected executive officers, in the aggregate, would be
$169,656.
 
CHANGE IN CONTROL ARRANGEMENTS
 
  Special Agreements. In August 1996, the Company entered into special
severance agreements (the "Special Agreements") with its executive officers,
including Messrs. Kresa, Waugh, Molleur, Roche and Crosby. The purpose of the
Special Agreements is to encourage these key executives to continue to carry
out their duties in the event of the possibility of a change in control of the
Company.
 
  Under the Special Agreements, a "Change in Control," inter alia, is deemed
to occur when the stockholders approve a merger of the Company and the Company
is not the surviving corporation or the Company's stockholders do not own more
than 75% of the voting stock of the surviving corporation. The February 26,
1998 vote in favor of the Merger (the "Merger Vote") constituted a "Change in
Control" for purposes of the Special Agreements.
 
  Although the Merger Vote constituted a "Change in Control" under the Special
Agreements, executives are generally entitled to certain benefits under the
Special Agreements only upon termination of the executive's employment by
Northrop Grumman for any reason other than "Cause" (as defined below) or by
the executive for "Good Reason" (as defined below) within two years following
a "Change in Control." Severance benefits consist of : (1) an amount equal to
three times the executive's highest annual base salary in effect at any time
up to and including the effective date of termination; (ii) an amount equal to
three times the greater of (a) the executive's average annual bonus for the
three full fiscal years prior to the effective date of termination, or (b) the
executive's target annual bonus established for the bonus plan year during
which the executive's termination occurs; (iii) an amount equal to the
executive's unpaid base salary and accrued vacation pay through the effective
date of termination, together with a pro rata portion of the executive's
target bonus for the bonus plan year during
 
                                      17

<PAGE>
 
which termination occurs; (iv) continuation for thirty-six months following
the effective date of termination of all benefits pursuant to all welfare
benefit plans under which the executive or his family is eligible to receive
benefits as of the effective date of the "Change in Control," and further
continuation of medical benefits for the lives of the executive and spouse;
(v) a lump sum cash payment representing the present value of benefits accrued
under Northrop Grumman's qualified defined benefit pension plan and
supplemental retirement plans (calculated as though the executive's employment
had continued for three years) offset by the actuarial present value
equivalent of benefits payable to the executive from Northrop Grumman's
qualified defined benefit pension plan accrued through the effective date of
termination; and (vi) a lump sum cash payment equal to the entire balance of
the executive's deferred compensation, if any, together with any interest
thereon. The Special Agreements define "Good Reason" to include the assignment
of the executive to duties materially inconsistent with the executive's
authorities, duties, responsibilities and status (including titles and
reporting requirements) as an officer of Northrop Grumman; a reduction of the
executive's base salary as in effect on the date of the agreement; a
significant reduction of the executive's aggregate incentive opportunities
under the Northrop Grumman short and/or long term incentive programs as such
opportunities exist on the date of the agreement or as increased thereafter;
the failure to maintain the executive's relative level of coverage and
accruals under the Northrop Grumman employee benefit and/or retirement plans,
policies, practices or arrangements in which the executive participates as of
the date of the agreement; the failure of Northrop Grumman to obtain a
satisfactory agreement from any successor to assume and agree to perform
Northrop Grumman obligations under the agreement; and any purported
termination of the executive's employment with Northrop Grumman that is not
effected pursuant to the procedures set forth in the agreement. "Cause" is
defined in the Special Agreements as (i) the executive's conviction for fraud,
embezzlement, theft or another felony, or (ii) the willful engaging by the
executive in gross misconduct materially and demonstrably injurious to
Northrop Grumman, provided that no act or failure to act on the executive's
part can be considered willful unless done or omitted to be done by that
executive not in good faith and without reasonable belief that the act or
omission was in the best interest of Northrop Grumman. The Special Agreements
also provide that if, following a "Change in Control," excise taxes under
Section 4999 of the Code, apply to payments made under the Special Agreements
or other plans or agreements, the executive will be entitled to receive an
additional payment (net of income, Medicare and excise taxes) to compensate
the executive for any excise tax imposed.
 
  Long-Term Incentive Stock Plans. The 1993 Stock Plan and the 1987 Stock Plan
(collectively, the "Stock Plans"), permit grants to selected employees of the
Company consisting of stock options ("Stock Options"), RPSRs, RSRs and RASs. A
Stock Option granted under the Stock Plans is a right to purchase a number of
shares of Common Stock for a specified period of time at a price per share not
less than the fair market value on the date of grant. An RPSR is a right to
receive a number of shares of Common Stock on a specified future date
conditioned upon continued employment and Northrop Grumman's achievement of
specified performance in relation to a list of peer companies. RSRs are the
right to receive a specified number of shares of Common Stock contingent upon
continued employment with the Company and other terms set forth in the Stock
Plans. RASs are restricted shares of Common Stock granted under the 1987 Stock
Plan.
 
  Under the Stock Plans, a "Change in Control" has the same definition as used
in the Special Agreements. Consequently, the Merger Vote constituted a "Change
in Control" for purposes of the Stock Plans, and, upon the Merger Vote, (a)
all Stock Options under the Stock Plans vested and became fully exercisable;
(b) the RPSRs under the Stock Plans vested and became payable in shares of
Common Stock, which payment is calculated based upon attainment of certain
stock price performance targets; and (c) the RSRs and RASs under the Stock
Plans vested and became distributable.
 
  1998 Restricted Stock Rights Plan. In response to the acceleration of RPSR,
RSR and RAS stock awards under the Stock Plans caused by the Merger Vote, the
uncertainty created by the Government's decision to challenge the Merger on
antitrust grounds and the Company's agreement to defer the closing of the
Merger pending resolution of the Government's antitrust challenge, the
Compensation Committee and the Board of Directors of the Company concluded
that it was in the Company's best interests to adopt a program to preserve the
incentive and employee-retention benefits of such stock awards. The
Compensation Committee and the Board of Directors also concluded that a
program pursuant to which the shares of Common Stock issuable pursuant to
 
                                      18

<PAGE>
 
such stock awards ("Shares") were placed into escrow for a period of time
would have the effect of creating an incentive for such persons to remain with
the Company and to create additional value in the Company in other ways in the
event that the Merger is not consummated. Accordingly, on March 24, 1998, the
Board of Directors adopted the 1998 Restricted Stock Rights Plan and related
Ownership Retention Agreements (the "1998 Plan"). All executive officers of
the Company (including the Named Executive Officers) have voluntarily agreed
to participate in the 1998 Plan and have placed their Shares (net of tax
withholding as described below) into escrow until the earlier of (i) March 1,
2000, (ii) a "Change in Control" (which includes consummation of the Merger)
or (iii) the executive officer's death, qualifying Retirement (as defined
therein) prior to March 1, 1999, disability or termination by the Company
other than for Cause. They have also agreed to forfeit their Shares if they
voluntarily leave the Company other than for Good Reason (which has the same
definition as in the Special Agreements) or if they are terminated for Cause.
Pursuant to the 1998 Plan, applicable tax owed with respect to receipt of the
Shares is deemed to equal the value of the remaining 50% of vested Shares as
of the vesting date (February 26, 1998), with any amount in excess of the
amount the executive officers previously instructed the Company to withhold
for taxes paid to the executive officer in cash.
 
  The 1998 Plan also applies to the vested Shares received by Northrop Grumman
key employees other than executive officers, with the addition that, if such
key employee voluntarily places 50% of his or her Shares into escrow, any such
key employee also will receive an award of additional shares ("Additional
Shares") of Common Stock if the Merger has not been consummated on or prior to
July 1, 1998, and on the same restrictions and limitations described in the
previous paragraph. The awards made to key employees will consist of a
restricted stock right (the "Right") to receive, subject to the terms and
conditions of the 1998 Plan, a number of Additional Shares equal to 14.5% of
the total number of his or her Shares. Not more than 102,992 Additional Shares
are subject to issuance under the 1998 Plan.
 
  Of the 710,963 Shares issued to the Company's executive officers and key
employees, as of April 22, 1998, 524,546 Shares (approximately 74%) have been
placed into escrow.
 
  The Compensation Committee of the Board is responsible for administering the
1998 Plan, and shall have full and exclusive power to interpret the 1998 Plan
and to adopt such rules, regulations and guidelines for carrying out the 1998
Plan as it may deem necessary or proper, all of which power shall be executed
in the best interests of the Company and in keeping with the objectives of the
1998 Plan.
 
  The 1998 Plan will terminate on March 24, 2000, unless previously terminated
by the Board of Directors of the Company.
 
C
ERTAIN TRANSACTIONS
 
  Ms. Peters is a partner of the law firm of Gibson, Dunn & Crutcher. Another
partner of Gibson, Dunn & Crutcher is a consultant for the Company, providing
analysis and advice with respect to pending and proposed legislation. The firm
also provided legal counsel in connection with various corporate matters.
 
  Mr. Lutz is the Vice Chairman of Chrysler Corporation ("Chrysler"). Mr.
Kresa is a director of Chrysler. In December 1996, Chrysler awarded the
Company's Electronics Sensors and Systems Division facility in Puerto Rico a
contract for power trains for Chrysler's electric vehicle program. The total
amount paid by Chrysler to the Company in 1997 under this contract was
$19,916,149.
 
S
ECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
  Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the
NYSE. The SEC requires officers, directors and greater than ten percent
beneficial owners to furnish the Company with copies of all Forms 3, 4 and 5
they file.
 
 
                                      19

<PAGE>
 
  The Company believes that its officers, directors and greater than ten
percent beneficial owners complied with all of their applicable filing
requirements for 1997 transactions. This is based on the Company's review of
copies of Forms 3, 4 and 5 it has received and written representations from
certain reporting persons that they were not required to file a Form 5.
 
 
              PROPOSAL TWO: APPOINTMENT OF INDEPENDENT AUDITORS
 
  The Board of Directors recommends that the stockholders ratify the Board's
appointment of Deloitte & Touche LLP as the Company's independent auditors for
1998. Deloitte & Touche LLP served the Company as its independent auditors for
1997. Should the stockholders fail to ratify the appointment of Deloitte &
Touche LLP, the Board of Directors will consider this an indication to select
other auditors for the following year.
 
  A representative of Deloitte & Touche LLP will be present at the Annual
Meeting of Stockholders and will be available to answer appropriate questions
from stockholders.
 
VOTE REQUIRED
 
  The affirmative vote of a majority of the shares of Common Stock voting at
the annual meeting (with each share entitled to one vote), is required for
approval of this proposal.
 
 
 THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
 

                     PROPOSAL THREE: STOCKHOLDER PROPOSAL
 
  The proponent of a stockholder proposal has stated that the proponent
intends to present a proposal at the Annual Meeting. The name, address and
number of shares held by the proponent will be furnished by the Company upon
request to the Corporate Secretary. The proposal and supporting statement, for
which the Board of Directors accepts no responsibility, is set forth below.
The Board of Directors opposes the proposal for the reasons stated after the
proposal.
 
P
ROPOSAL
 
  "Whereas the proponents of this resolution believe that the Board of
Northrop Grumman should establish criteria to guide management in their
defense contract bidding and implementation activities;
 
  Whereas we believe that economic decision making has both an ethical and
financial component;
 
  Whereas we believe our Company's ethical responsibilities include analyzing
the effects of its decisions with respect to employees, communities, and
nations;
 
  Whereas we believe decisions to develop and produce weapons can have grave
consequences to the lives and/or freedoms of people worldwide if the Company
has not considered its ethical responsibilities ahead of time; therefore be it
 
  Resolved that the shareholders request the Board of Directors to establish a
committee to research this issue and to develop criteria for bidding,
acceptance, and implementation of military contracts and to report the results
of its study to shareholders at its 1999 annual meeting. Proprietary
information may be omitted and the cost limited to a reasonable amount."
 
                                      20

<PAGE>
 
STOCKHOLDER SUPPORTING STATEMENT
 
  "The proponents of this resolution believe that all human beings are called
to seek justice and peace. An ethic of stewardship of the earth must include
respect for humanity and for creation. Because we believe that corporate
social responsibility in a successful free enterprise system demands ethical
reflection and action upon activities that are socially useful as well as
economically profitable, we recommend that the Board study include the
following subjects:
 
  .  Arms sales to governments that repress their citizens.
 
  .  The connection between arms sales and geographical or political
     instability.
 
  .  Lobbying and marketing activities, both in the United States and abroad,
     including costs.
 
  .  Sales of weapons, parts, technology, and components convertible to
     military use to foreign governments.
 
  .  Transfer of technology, including co-production agreements.
 
  The criteria proposed by the committee should include guidance for Company
management regarding these subjects.
 
  A YES vote recommends that the Board consider the above-listed criteria in a
study of our Company's military sales and production activities."
 
BOARD OF DIRECTORS' RESPONSE
 
  Northrop Grumman sells military equipment and services only in compliance
with stringent United States regulations that control where products can be
sold overseas and what products may be exported. Further, a report on
procedures used to negotiate sales would be disadvantageous to the Company and
contrary to national security interests through the revelation of proprietary
business information, the disclosure of which would not be in the best
interest of the Company and its stockholders.
 
 
 THE BOARD RECOMMENDS THAT YOU VOTE "AGAINST" THIS PROPOSAL.
 

                      PROPOSAL FOUR: STOCKHOLDER PROPOSAL
 
  The proponent of a stockholder proposal has stated that the proponent
intends to present a proposal at the Annual Meeting. The name, address and
number of shares held by the proponent will be furnished by the Company upon
request to the Corporate Secretary. The proposal and supporting statement, for
which the Board of Directors accepts no responsibility, is set forth below.
The Board of Directors opposes the proposal for the reasons stated after the
proposal.
 
P
ROPOSAL
 
  "Resolved: Limit golden parachutes for executives of Northrop Grumman and
successor company(s) paid in 1998 and future years, and/or deferred to future
years for any position exceeding $100,000 total annual pay and benefits. The
limit is 10-times average employee lay-off severance and applies to successor
company(s), requiring a majority shareholder vote as a stand-alone issue to
change.
 
  The purpose of this resolution is to give shareholders assurance that the
Lockheed buy-out is a good value for shareholders and not adopted mainly
because of golden parachutes for top management. The Los Angeles Times
reported a $50 million golden parachute for the Northrop Chief Executive
Officer.
 
                                      21

<PAGE>
 
  Northrop management is already well compensated:
 
  .  The Northrop Chief Executive Officer has more than $36 Million
     ($36,764,550) in unexercised stock options.
 
     Internet--http://www.paywatch.org
 
  On the other side, Northrop expects to make a "hefty" $130 Million
($130,000,000) profit on Northrop employee pensions in 1997, according to
Value Line, October 3, 1997.
 
  The Lockheed sell-out is a business risk for major Northrop profit and
employment centers. Northrop risks losing highly profitable contracts as a
major supplier to its future sole rival--Boeing.
 
  Northrop is a major Boeing-supplier on enormous programs:
 

<TABLE>
   <S>                                  <C>
   . Boeing 747 jumbo-airliner          $100 Billion ($100,000,000,000) program
   . Boeing C-17 jumbo cargo-plane      $50 Billion ($50,000,000,000) program
   . Boeing F/A-18 fighter aircraft     $25 Billion ($25,000,000,000) program
</TABLE>

 
  Meanwhile, Lockheed gets a massive Pentagon bail-out for closing Northrop
plants--with negative impact on Northrop shareholder-employees.
 
  "If employees, bankers, suppliers and management sense you've taken care of
  yourself--but are asking them to sacrifice--you won't save the company."
 
    Gerald Greenwald               CEO United Airlines
    Investor's Business Daily      August 27, 1997
 
  Boeing traditionally limits contracts with its competitors and their
affiliates. Boeing would thus have a greater incentive to transfer Northrop
work overseas (to get critical foreign airline orders) and/or eventually
transfer Northrop work back to Boeing factories.
 
  Also, Lockheed would arguably limit sales efforts on the Northrop-Boeing
F/A-18 (40%--built by Northrop) when Lockheed can sell its competing Lockheed
F-16 (100%--built by Lockheed).
 
  Shareholders need guarantees that golden parachutes are not the motive for
Northrop management to agree to:
 
  .  A Lockheed buy-out in the first place or
 
  .  Secondly to favor buy-out terms more advantageous to the acquiring
     company, Lockheed.
 
  Buy-outs need thorough management scrutiny to avoid the disasters of the
past.
 
  The New York Times said researchers determined that many big buy-outs failed
to deliver their projected benefits. For example, AT&T's acquisition of NCR,
Matsushita's acquisition of Columbia Pictures and General Motors' deal for
Nation Car Rental System.
 
  Northrop's adamant resistance to a buy-out, followed by its quick reversal--
argues that a $50 million Northrop golden parachute had significant impact.
 
  It will improve the credibility of Northrop Grumman management's advocacy of
the merger and its conditions, if management will agree to a golden parachute
limit of 10-times the average severance pay to laid-off Northrop employees.
 
  LIMIT MANAGEMENT GOLDEN PARACHUTES TO 10-TIMES AVERAGE EMPLOYEE LAY-OFF
SEVERANCE
 
  Vote YES on 4
 
- --End of Resolution--"
 
                                      22

<PAGE>
 
BOARD OF DIRECTORS' RESPONSE
 
  Legal counsel in Delaware, Northrop Grumman's state of incorporation, has
advised the Company that, if this stockholder proposal were construed to be
mandatory, it would not be a proper subject for action by stockholders under
Delaware law. Therefore, the Board construes this proposal solely as a
recommendation either that the Company breach its severance agreements with
its executive and other key employees or that it adhere to certain limitations
on the future adoption or implementation of such arrangements.
 
  The Board has been advised that under Delaware law it is the function of the
Board in the exercise of its business judgment to determine whether any such
recommendation, if adopted by the stockholders, should be put into practice or
implemented as Company policy. The Board believes that its severance
arrangements are valid, binding contracts and that the executive officers and
other key employees parties to them are entitled to the benefits thereunder.
Based upon the information available, the Board believes there is no basis to
abrogate these agreements and it does not intend to breach its lawful
commitments.
 
  The Board also believes that limitations on severance arrangements
recommended by the proponent of this resolution would severely compromise the
Company's ability to attract and retain competent and experienced individuals
necessary for the continued growth and success of the Company. Accordingly,
the Board believes that such limitations would not be in the best interests of
the Company and its stockholders.
 
  The Board also believes that the proponent's supporting statement contains
many factual inaccuracies, including inaccuracies with respect to unexercised
Stock Options, employee pension matters and existing severance arrangements,
business risks and customer relationships.
 
  The Northrop Grumman Board of Directors unanimously approved the Merger
because it believed that it is in the best interests of Northrop Grumman and
its stockholders, and not because of any existing severance arrangements. The
Board continues to believe that Northrop Grumman stockholders will benefit
from participation in the economic growth of a combined Northrop Grumman and
Lockheed Martin, and from the inherent increase in economies of scale, product
and market diversification and increased financial flexibility and strength of
the combined company. The Board notes that, as of March 6, 1998, the last
trading day prior to the announcement that the Government was "fundamentally
opposed" to the Merger, based on the exchange ratio provided for in the Merger
Agreement, the Merger would have resulted in each Northrop Grumman stockholder
receiving approximately $137, in the form of Lockheed Martin common stock, for
each share of Common Stock, based on the last reported sales price of Lockheed
Martin common stock as reported on the NYSE Composite Transactions Tape on
March 6, 1998. This represented a premium of approximately 50% over the last
reported sales price of Common Stock on the NYSE on July 2, 1997, the last
trading day prior to execution of the Merger Agreement. While there can be no
assurance of the value that stockholders will realize if and when the Merger
is consummated, the Board believes that the foregoing data is indicative of
the stockholder value that would be created by the successful consummation of
the Merger.
 
 
 THE BOARD RECOMMENDS THAT YOU VOTE "AGAINST" THIS PROPOSAL.
 
                                 MISCELLANEOUS
 
VOTING ON OTHER MATTERS
 
  Management is not aware of any other matters that will be presented for
action at the Annual Meeting other than proposals of stockholders that have
been omitted from this proxy statement in accordance with rules of the
Securities and Exchange Commission which may be sought to be presented. The
Company's By-Laws outline procedures, including minimum notice provisions, for
stockholder nomination of directors and submission of other stockholder
business to be brought before the Annual Meeting. A copy of the pertinent By-
Law provisions is available on request to the Office of the Corporate
Secretary, Northrop Grumman Corporation, 1840 Century Park East, Los Angeles,
California 90067. If any such stockholder proposals or other matters properly
come before the Annual Meeting, it is intended that the shares represented by
proxies will be voted in accordance with the judgment of the persons
authorized to vote them.
 
                                      23

<PAGE>
 
PROPOSAL OF STOCKHOLDERS
 
  Copies of proposals which stockholders of the Company wish to be included in
the Company's proxy statement relating to its Annual Meeting to be held in
1999 must be received by the Company no later than February 3, 1999.
 
  Copies of such proposals should be sent to the Corporate Secretary, Northrop
Grumman Corporation, 1840 Century Park East, Los Angeles, California 90067.
 
COST OF SOLICITING PROXIES
 
  The cost of soliciting proxies in the accompanying form will be paid by the
Company. In addition to solicitation by mail, arrangements will, where
appropriate, be made with brokerage houses and other custodians, nominees and
fiduciaries to send proxy materials to beneficial owners. The Company will,
upon request, reimburse them for reasonable expenses incurred. The Company has
retained Georgeson & Company Inc. of New York at an estimated fee of $12,000
plus reasonable disbursements. Officers, directors and regular employees of
the Company may request the return of proxies personally, by means of
materials prepared for stockholders and employee-stockholders or by telephone
or telegram to the extent deemed appropriate by the Board of Directors. No
additional compensation will be paid to such individuals for this activity.
The extent to which this solicitation will be necessary will depend upon how
promptly proxies are received; therefore, stockholders are urged to return
their proxies without delay.
 
                                          /s/ John H. Mullan

                                          John H. Mullan
                                          Acting Secretary
 
June 3, 1998
 
  NOTICE: THE COMPANY FILED AN ANNUAL REPORT ON FORM 10-K ON MARCH 30, 1998
AND AN AMENDMENT TO THE ANNUAL REPORT ON FORM 10-K/A ON APRIL 30, 1998.
STOCKHOLDERS OF RECORD ON MAY 26, 1998 MAY OBTAIN A COPY OF THESE REPORTS
WITHOUT CHARGE FROM THE CORPORATE SECRETARY, NORTHROP GRUMMAN CORPORATION,
1840 CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067.
 
                                      24