SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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/ / Preliminary Proxy Statement
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14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
NORTHROP GRUMMAN CORPORATION
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(Name of Registrant as Specified In Its Charter)
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[NORTHROP GRUMMAN LOGO]
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 Wednesday, May 21, 1997, 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 March 25, 1997, are entitled to
vote at the Annual Meeting. The following items are on the agenda:
(1) Election of three Class III directors, each for a three year term
expiring in 2000;
(2) Proposal to amend the Company's 1993 Long-Term Incentive Stock Plan;
(3) Proposal to ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors;
(4) Stockholder proposal regarding foreign military sales; and
(5) Other business as may properly come before the Annual Meeting or any
adjournments thereof.
By order of the Board of Directors,
[SIGNATURE]
JAMES C. JOHNSON
CORPORATE VICE PRESIDENT, SECRETARY
AND
ASSISTANT GENERAL COUNSEL
1840 Century Park East
Los Angeles, California 90067
April 4, 1997
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.
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") for use at the Company's 1997 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 April 4, 1997.
OUTSTANDING SECURITIES
On March 25, 1997 there were 58,007,567 shares of the Company's Common
Stock, par value $1.00 per share, 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 the election of the three director nominees
listed under "Election of Directors", FOR the proposal to amend the Company's
1993 Long-Term Incentive Stock Plan, FOR the proposal to ratify the appointment
of Deloitte & Touche LLP as auditors of the Company for the year ending December
31, 1997 and AGAINST the stockholder proposal concerning foreign military sales.
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 for "abstain," but checking the box that withholds authority to
vote for a nominee is the equivalent of abstaining. The three 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,
shareholders 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 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 such
proposals.
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VOTING SECURITIES
On December 31, 1996 the following entities beneficially owned to the
Company's knowledge more than five percent of the Company's outstanding Common
Stock.
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ----------------------------------------------------------------- ----------------------- -----------
Wellington Management Company, LLP............................... 5,562,620 shares(a) 9.63%
75 State Street, Boston, MA 02109
U.S. Trust Company of California, N.A.(b)........................ 4,793,323 shares(c) 8.29%
555 So. Flower St., Los Angeles, CA 90071-2429
FMR Corp......................................................... 3,741,296 shares(d) 6.47%
82 Devonshire Street, Boston, MA 02109
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(a) This information was provided by Wellington Management Company ("WMC").
According to WMC, as of the date set forth above, WMC had shared dispositive
power over 5,562,620 shares but shared voting power over only 1,888,630
shares.
(b) 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.
(c) These shares are held for the account of (but not beneficially owned by) the
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"). According to FMR, as of
the date set forth above, FMR had sole dispositive power over 3,741,296
shares but sole voting power over only 150,127 shares.
Based on records of the Northrop Grumman Savings and Investment Plan, as of
December 31, 1996, a total of approximately 5,072,215 shares (8.78%) were 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.
STOCK OWNERSHIP OF OFFICERS AND DIRECTORS
The following table shows beneficial ownership (as defined by applicable
rules for proxy statement reporting purposes) of the Company's Common Stock as
of March 3, 1997 by each director and nominee, by the Chief Executive Officer
and the other five 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 1.28% of the outstanding Common Stock. Unless
otherwise indicated, each individual has sole
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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.
NUMBER OF
SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(5)
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Directors
Jack R. Borsting........................................................................ 3,179(1)
John T. Chain, Jr....................................................................... 2,516
Jack Edwards............................................................................ 1,864
Phillip Frost........................................................................... 20,588
Aulana L. Peters........................................................................ 4,453
John E. Robson.......................................................................... 4,499
Richard M. Rosenberg.................................................................... 3,864
Brent Scowcroft......................................................................... 2,116
John Brooks Slaughter................................................................... 1,516
Richard J. Stegemeier................................................................... 4,169(2)
Named Executive Officers
Kent Kresa*............................................................................. 742,476(3)
John E. Harrison........................................................................ 5,286
James G. Roche.......................................................................... 30,602
Wallace C. Solberg*..................................................................... 84,351
Richard B. Waugh, Jr.................................................................... 32,344(4)
Gordon L. Williams...................................................................... 6,645
Directors and Executive Officers as a Group(6)...................................... 1,108,522
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* Mr. Kresa also serves as Chairman of the Board and Mr. Solberg served as a
director until his retirement from the Board of Directors on February 28,
1997.
(1) Includes 1,500 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) Includes 185,936 shares held by the Kresa Family Trust of which Mr. Kresa is
trustee.
(4) Includes 4,221 shares held by the Waugh Family Trust of which Mr. Waugh and
his wife are trustees.
(5) 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 -- 1000 and 0 shares;
J.T. Chain -- 1000 and 0 shares; J. Edwards -- 1000 and 234 shares; P. Frost
-- 500 and 0 shares; A.L. Peters -- 1000 and 2,520 shares; J.E. Robson --
1000 and 1,379 shares; R.M. Rosenberg -- 1000 and 617 shares; B. Scowcroft
-- 1000 and 0 shares; J. Slaughter -- 1000 and 0 shares; R.J. Stegemeier --
1000 and 1,653 shares; K. Kresa -- 527,200 and 5,015 shares; J.E. Harrison
-- 3000 and 173 shares; J.G. Roche -- 13,260 and 621 shares; W.C. Solberg --
34,300 and 10,188 shares; R.B. Waugh -- 20,800 and 3,086 shares; G.L.
Williams -- 0 and 0 shares;
(6) Directors and officers as a group owned approximately 1.91% of the
outstanding shares.
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ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a classified Board
of Directors. Three directors in Class III will be elected at the 1997 Annual
Meeting to hold office for three years until the 2000 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 three Class III
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 and the consent of the nominee to
serve.
The following information, furnished with respect to each of the three
nominees for election as a Class III director, and each of the four Class I and
Class II 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. It is the Company's policy that members of the Board of Directors
are 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. Brent Scowcroft, a current Class III director, is ineligible to stand for
election by reason of this policy.
NOMINEES FOR DIRECTOR -- CLASS III
JOHN T. CHAIN, JR., 62. GENERAL, USAF (RET.) AND PRESIDENT, QUARTERDECK EQUITY
PARTNERS, INC., AN INVESTMENT 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. He is a director of Kemper National Corporation, RJR Nabisco,
Thomas Group and Nabisco, Inc.
JACK EDWARDS, 68. MEMBER, HAND ARENDALL, L.L.C.
ELECTED 1991
Jack Edwards was elected in 1964 to the U.S. House of Representatives and served
in the 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 and Urban Affairs Committee. He retired from
the Congress in January 1985 and became a member of his current law firm. He is
a director of 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.
4
KENT KRESA, 59. CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER.
ELECTED 1987
Before joining the Company, Kent Kresa was associated with the Lincoln
Laboratories of M.I.T. and the Defense Advanced Research Projects Agency. In
1975, he joined the Company as Vice President and Manager of the Corporation'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 Massachusetts Institute of Technology Visiting Committee for the
Department of Aeronautics and Astronautics, a Fellow of the American Institute
of Aeronautics and Astronautics, serves on the Board of Governors of the
Aerospace Industries Association, the Board of Trustees of the California
Institute of Technology, and on the Board of Directors of Chrysler Corporation,
Atlantic Richfield Company, the Los Angeles World Affairs Council and the John
Tracy Clinic.
CONTINUING DIRECTORS -- CLASS I
JACK R. BORSTING, 68. 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 Medical, TROLearning and Bristol Technology.
AULANA L. PETERS, 55. 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 3M, Mobil
Corporation and Merrill Lynch & Co.
RICHARD M. ROSENBERG, 66. 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 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 the Bank since 1987. Before joining BankAmerica Corporation,
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, Pacific Telesis Group, Potlatch Corporation and
K-2 Incorporated and a member of the Board of Trustees of the California
Institute of Technology.
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RICHARD J. STEGEMEIER, 68. CHAIRMAN EMERITUS OF THE BOARD OF DIRECTORS, UNOCAL
CORPORATION, AN INTEGRATED PETROLEUM COMPANY.
ELECTED 1990
Richard J. Stegemeier joined Union Oil Company of California, principal
operating subsidiary of Unocal Corporation, in 1951. Mr. Stegemeier was Chairman
of the Board for Unocal Corporation 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. Mr. Stegemeier is a member of the
National Academy of Engineering and a director of Foundation Health Corporation,
Halliburton Company, Outboard Marine Corporation, Pacific Enterprises and Wells
Fargo Bank.
CONTINUING DIRECTORS -- CLASS II
PHILLIP FROST, 60. 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, Vice Chairman of the Board of Directors of North
American Vaccine, Inc., Pan Am Corporation and Continucare Corporation. He is
also a director of American Exploration Company and NaPro BioTherapeutics, Inc.,
a trustee of the University of Miami and a member of the Board of Governors of
the American Stock Exchange.
ROBERT A. LUTZ, 65. VICE CHAIRMAN OF THE BOARD OF DIRECTORS, CHRYSLER
CORPORATION.
ELECTED 1997
Mr. 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 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 BMW. 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.
JOHN E. ROBSON, 66. SENIOR ADVISOR, ROBERTSON, STEPHENS & COMPANY, INVESTMENT
BANKERS.
ELECTED 1993
From 1989 to 1993, Mr. 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 Calgene, Inc., 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, 62. 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
6
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, Avery Dennison, Monsanto and IBM.
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 in conjunction with the Annual Meeting. The membership of each committee
is as follows, with the chairman listed first:
COMPENSATION AND
MANAGEMENT EXECUTIVE AND
AUDIT DEVELOPMENT NOMINATING FINANCE PUBLIC POLICY
- ----------------------- --------------------- --------------------- --------------------- ---------------------
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 John Brooks Slaughter
John Brooks Slaughter Jack Edwards John Brooks Slaughter Phillip Frost Richard J. Stegemeier
Richard J. Stegemeier John E. Robson John E. Robson
Brent Scowcroft Brent Scowcroft
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 each professional
service 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 six meetings in 1996.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
The Compensation and Management Development 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, 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
Long-Term Incentive Plans 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 eight meetings in 1996.
7
NOMINATING COMMITTEE
The Nominating Committee reviews candidates to serve as directors and
recommends 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
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 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 three
meetings in 1996.
FINANCE COMMITTEE
The Finance Committee reviews and makes recommendations concerning proposed
dividend actions and issuance of debt or equity securities. The 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 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 six meetings in 1996.
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 Committee reviews and approves the Company's policy for
engaging the services of consultants and commission agents. The Executive and
Public Policy Committee held seven meetings in 1996.
BOARD AND COMMITTEE MEETINGS
During 1996, the Board held twelve meetings and the committees described
above held thirty. Average attendance at all such meetings was 94%. Each
incumbent director attended at least 82% 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 1996.
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 Company's 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 Company's 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, 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. Directors are credited with dividend
8
equivalents in connection with the shares of the Company's 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 of 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 Company's 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
"Directors 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 Directors Plan. Benefits are payable
for ten years or less (as set forth in the Directors 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
Directors 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 Directors Plan have been funded through the
establishment of a grantor trust. In March, the Board of Directors terminated
the Directors Plan with respect to future outside directors.
The Board of Directors has adopted the Northrop Grumman Non-Employee
Directors Equity Participation Plan ("Equity Plan"). 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 Directors 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 Company's 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
Directors 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 Company Common Stock
value as of the date of determination of the installment payment, divided by the
number of installments then remaining to be paid. 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 Company's Common Stock.
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 THREE NOMINEES FOR
DIRECTOR LISTED ABOVE.
9
COMPENSATION COMMITTEE
REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
The Compensation and Management Development Committee of the Board of
Directors (the "Committee") has furnished the following report on executive
compensation applicable to employees elected as executive officers of the
Company. The 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 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 incentive compensation -- will be lower than the
competitive market median in years of below target performance, and above the
competitive market median in years performance exceeds target.
DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended ("Code")
generally disallows a tax deduction to public companies for compensation over $1
million paid to the corporation's chief executive officer ("CEO") and the four
other most highly compensated executive officers. Qualifying performance-based
compensation is not subject to the deduction limit.
In 1995 and 1996 shareholders approved amendments to the Company's Long-Term
Incentive Stock Plan ("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, meet these criteria. Therefore,
the loss of any deduction associated with compensation under the Stock Plan
should not be material.
The 1973 Incentive Compensation Plan ("1973 Incentive Plan") is also subject
to Section 162(m) of the Code. The CEO elected to defer 1996 and 1997 cash
compensation to the extent that it would cause the loss of a deduction under
Section 162(m). Loss of tax deduction for 1996 attributable to cash compensation
of other officers covered by Section 162(m) is de minimis.
MEASURING COMPANY PERFORMANCE
Consistent with the Company's business plan, management in each
organizational element prepares and submits for assessment an Annual Operating
Plan containing Financial and Supplemental Goals together with defined
performance measures and numerical weights.
- FINANCIAL GOALS focus on operating earnings, cash flow and shareholder
value metrics.
10
- 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 1996, these factors and
their relative weightings were:
1. PRE-TAX RETURN ON 3-YEAR AVERAGE SHAREHOLDER EQUITY -- weighted 30%;
2. VALUE CREATION as measured by Warranted Equity Value (a measure of
shareholder 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 1996 goals can be
found below in 1996 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:
- Those in the Standard & Poor's Aerospace and Defense Index;
- 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 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.
In the fall of 1996, the Committee engaged Hewitt Associates to complete a
special study examining the competitiveness of all aspects of compensation for
elected officers of the Company. In reviewing results of the study, the
Committee determined that total compensation of this group, in the aggregate,
does not exceed the industry median.
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
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 Corporation's shareholder-approved 1973 Incentive Plan. However, no awards
may be earned or paid for years in which the pre-tax return on 3-year average
shareholder 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.
Accompanying 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 shareholder-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, restricted stock
rights and restricted performance stock rights ("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 Company's Common Stock,
the 1993 Stock Plan creates shareholder-managers interested in the sustained
growth and prosperity of the Company.
In the Company's fiscal year ended December 31, 1996, the Committee granted
stock options, restricted stock rights and RPSRs to selected key managers. The
performance variable governing the
12
future payments and the ultimate value of RPSRs is linked to Company total
shareholder 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.
In establishing grants for individuals, including the executive officers
other than the CEO, the Committee reviewed the CEO's recommendations for
individual awards. The Committee approved awards taking into account the scope
of accountability, record of achievement and contribution, and anticipated
future influence on Company performance of each recipient.
Awards under the 1993 Stock Plan in 1996 were granted on December 17, 1996.
Applying established guidelines for the size of annual long-term incentive
awards for executive officers, actual grants of such awards in 1996 -- on
average -- do not exceed the competitive market median according to sources
cited earlier.
1996 CHIEF EXECUTIVE OFFICER COMPENSATION
In evaluating 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 1996 accomplishments
realized under Mr. Kresa's leadership:
- The Company strengthened its position as a key supplier of defense
electronics through the acquisition and effective assimilation of the
former Electronics Systems Group of the Westinghouse Electric Corporation.
- The Company's financial performance including that for debt reduction
exceeded established targets.
- Growth of warranted equity value exceeded target and the response of
investors to the Company's first public stock offering exceeded
expectations.
- In commercial aerostructures, the Company strengthened its position by
signing new long-term agreements with The Boeing Company.
- The Department of Defense approved the purchase of nineteen more Joint
STARS aircraft; additionally, the successful peacekeeping deployment to
Bosnia further strengthened the Company's international sales prospects.
- Other significant defense electronics contract awards included ALQ-135
electronic countermeasures, full rate production for E-3 Airborne Radar
System Improvements for NATO, and the Space Based Infrared System.
- Contract Research and Development acquisitions significantly exceeded the
annual operating plan targets thereby providing critical leverage for
future business opportunities.
- In the military aircraft segment, the loss of the JSF was a
disappointment. However, there were also important accomplishments. The
F/A 18E/F program received Navy approval to initiate the Low Rate Initial
Production phase, paving the way for increased future aircraft production.
The B-2 program achieved or exceeded key performance milestones and the
successful tests of the GPS Aided Munitions showcased the B-2's ability to
deliver near-precision weapons.
Considering competitive market compensation practice derived from sources
cited in the Competitive Compensation Information section of this Report and Mr.
Kresa's performance as outlined in this section, the Committee submitted
recommendations to the Board (absent employee-directors) for
13
Mr. Kresa's 1996 compensation. Board approved recommendations included an annual
incentive compensation award, a long-term incentive stock award, and a base
salary increase. The Summary Compensation Table following this Report contains
information detailing these actions.
THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
RICHARD J. STEGEMEIER, CHAIRMAN
JACK R. BORSTING
JOHN T. CHAIN, JR.
JACK EDWARDS
JOHN E. ROBSON
BRENT SCOWCROFT
14
SHAREOWNER RETURN PERFORMANCE PRESENTATION
The line graph below compares the relative change in the cumulative total
shareowner return on the Company's Common Stock against the cumulative total
return of the S&P Composite-500 Stock Index, the S&P Aerospace & Defense
Composite Index (the "A&D Index"), and an industry peer group index (the
"Industry Peer Group") comprised of Boeing, General Dynamics, Lockheed Martin,
McDonnell Douglas, Raytheon and United Technologies. The Industry Peer Group
includes companies that historically were included in the A&D Index, but which
in 1996 were reassigned by Standard & Poors' from the A&D Index to other
industry groups. Because the Company believes that the composition of the A&D
Index prior to those reassignments better represents the Company's competitors,
the Company has elected to continue to include those companies in the Industry
Peer Group for purposes of presenting relative total shareowner return. The A&D
Index also differs from the Industry Peer Group by including the Company and, on
a historic basis, by including companies that have been acquired or have
divested their aerospace and defense operations.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NORTHROP GRUMMAN S&P 500 INDEX INDUSTRY PEER GROUP S&P AEROSPACE/DEFENSE INDEX
1991 $100 $100 $100 $100
1992 136 108 98 105
1993 156 118 134 137
1994 182 120 145 148
1995 286 165 235 245
1996 379 203 303 328
ASSUMES $100 INVESTED AT THE BEGINNING OF THE PERIOD IN THE COMPANY'S COMMON
STOCK,
S&P 500 INDEX, PEER GROUP INDEX AND S&P AEROSPACE/DEFENSE INDEX.
* TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS.
15
EXECUTIVE COMPENSATION
The table below shows the annual and long-term compensation for services in
all capacities to the Company for the years ended December 31, 1996, 1995 and
1994 of the named executive officers at December 31, 1996.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION OTHER
--------------------------------- ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)
- --------------------------------------------- ---- -------------- ---------- -----------
KENT KRESA(4)................................ 1996 835,000 1,200,000 58,544(5)
Chairman of the Board, 1995 730,000 1,000,000
President and Chief Executive 1994 700,000 850,000 56,344
Officer
GORDON L. WILLIAMS........................... 1996 450,903 380,000 1,202,818(8)
Corporate Vice President and 1995 238,688(6) 428,000 481,742(8)
General Manager, Commercial 1994 120,344(7) 126,000
Aircraft Division
WALLACE C. SOLBERG........................... 1996 390,000 380,000
Corporate Vice President and 1995 336,667 320,000
General Manager, Military Aircraft 1994 305,833 300,000
Systems Division
RICHARD B. WAUGH, JR......................... 1996 338,333(9) 345,000
Corporate Vice President and 1995 275,000 350,000
Chief Financial Officer 1994 245,833 360,000
JOHN E. HARRISON............................. 1996 314,167 320,000
Corporate Vice President 1995 256,666 250,000
and General Manager, 1994 222,500 160,000
Electronics and Systems Integration
Division
JAMES G. ROCHE............................... 1996 310,417(10) 320,000 674,384(11)
Corporate Vice President and 1995 243,333 330,000
General Manager Electronic 1994 232,167 215,000
Sensors and Systems Division
LONG-TERM COMPENSATION
--------------------------------------------
AWARDS PAYOUTS
---------------------------- --------------
SECURITIES
RESTRICTED UNDERLYING
STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION AWARD(S) ($)(1) SARS (#) PAYOUTS ($)(2) COMPENSATION ($)(3)
- --------------------------------------------- --------------- ---------- -------------- ------------------
KENT KRESA(4)................................ 0 45,000 6,339
Chairman of the Board, 0 42,000 480,000 5,625
President and Chief Executive 0 40,000 6,000
Officer
GORDON L. WILLIAMS........................... 0 0
Corporate Vice President and 485,000 10,000 267,120
General Manager, Commercial 0 12,000
Aircraft Division
WALLACE C. SOLBERG........................... 0 0 6,000
Corporate Vice President and 0 10,000 180,200 6,000
General Manager, Military Aircraft 0 12,000 6,000
Systems Division
RICHARD B. WAUGH, JR......................... 0 13,000 6,000
Corporate Vice President and 0 10,000 148,400 6,000
Chief Financial Officer 0 12,000 5,997
JOHN E. HARRISON............................. 0 12,500 6,000
Corporate Vice President 0 10,000 137,800 6,000
and General Manager, 0 12,000 3,600
Electronics and Systems Integration
Division
JAMES G. ROCHE............................... 315,625 12,500 6,000
Corporate Vice President and 0 10,000 116,870 6,000
General Manager Electronic 0 10,000 6,000
Sensors and Systems Division
- ------------------------------
(1) Restricted Stock Rights ("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.
An RSR with vesting dates of less than three (3) years was granted to
G.L. Williams on August 25, 1995 for 8,000 shares. Aggregate restricted
shares or rights held by Named Executive Officers, valued at December
31, 1996, were: K. Kresa 21,250 shares at $1,758,438, R.B. Waugh, Jr.;
800 shares at $66,200; J.G. Roche, 7,720 shares at $638,830.
(2) Awards granted pursuant to the Transition Project Incentive Plan whose
performance period 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 1996 that
would be disallowed for tax deduction under Internal Revenue Code
Section 162(m) 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) 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.
(6) In 1995, Mr. Williams received $196,439 pursuant to the Vought Aircraft
Supplemental Executive Retirement Plan, adopted by Vought in 1992 (the
"Vought Supplemental Plan") which, pursuant to his employment contract,
reduced his salary in 1995 by an equal amount.
(7) Mr. Williams was elected Corporate Vice President and General Manager,
Commercial Aircraft Division in September 1994. The compensation
reported for 1994 reflects salary paid following the Corporation's
acquisition of Vought Aircraft Company in September 1994. Mr. Williams
received $21,909 pursuant to the Vought Supplemental Plan which,
pursuant to his employment contract, reduced his salary in 1994 by an
equal amount.
(8) Amount includes $936,269 in 1996 and $424,018 in 1995 constituting
reimbursements for payment of taxes primarily related to required
reimbursements for Company funding of the Vought Supplemental Plan.
(9)Amount does not include $30,075 paid for vacation hours accrued but not
used.
(10) Amount does not include $33,497 paid for vacation hours accrued but not
used.
(11) Amount includes $352,172 in relocation expenses incurred by Dr. Roche in
his transfer to the Electronic Sensors and Systems Division and $291,387
constituting reimbursement for payment of taxes related to those
expenses.
16
OPTION GRANTS IN LAST FISCAL YEAR
The table below shows individual grants of stock options made in 1996 to
each named executive officer.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
- ----------------------------------------------------------------------------------------------- --------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE EXPIRATION
NAME GRANTED(#) (2) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- ------------------------------- --------------- ----------------- ------------- ----------- --------- ---------
KENT KRESA..................... 45,000 4.58 $ 80.50 12/17/06 2,278,553 5,774,265
GORDON L. WILLIAMS............. 0 0
WALLACE C. SOLBERG............. 0 0
RICHARD B. WAUGH, JR........... 13,000 1.32 80.50 12/17/06 658,249 1,668,121
JOHN E. HARRISON............... 12,500 1.27 80.50 12/17/06 632,931 1,603,963
JAMES G. ROCHE................. 12,500 1.27 80.50 12/17/06 632,931 1,603,963
- ------------------------------
(1) The potential realizable value of each grant of options assuming that the
market price of the Company's Common Stock from the date of the grant to the
end of the option term (10 years) appreciates in value at an annualized rate
of 5% and 10%.
(2) The first installment of 25% of the total grant becomes exercisable two
years after the date of the grant, with 25% vesting annually thereafter.
OPTION EXERCISES AND VALUES
Shown below is aggregated information with respect to the exercise of stock
options during the year ending December 31, 1996 by each named executive
officer, and the value at December 31, 1996 of unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE (1)
- ---------------------------------------- ----------------- ------------- --------------- --------------------
KENT KRESA.............................. 0 0 527,200/134,200 33,580,900/3,183,650
GORDON L. WILLIAMS...................... 0 0 14,500/0 541,375/0
WALLACE C. SOLBERG...................... 11,200 448,000 20,200/30,600 1,035,450/1,214,350
RICHARD B. WAUGH, JR.................... 0 0 20,800/39,600 1,109,925/1,017,100
JOHN E. HARRISON........................ 0 0 3,000/31,500 119,250/643,375
JAMES G. ROCHE.......................... 3,300 155,100 13,260/36,440 660,535/900,290
- ------------------------------
(1) Based on the market value at December 31, 1996 of $82.75
17
RESTRICTED PERFORMANCE STOCK RIGHTS GRANTS IN LAST FISCAL YEAR
There is shown below information concerning grants of Restricted Performance
Stock Rights made to named executive officers during the last completed fiscal
year.
LONG- TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR
NUMBER OF OTHER PERIOD ESTIMATED FUTURE PAYOUTS
SHARES, UNITS UNTIL UNDER NON-STOCK PRICE-BASED PLANS
OR OTHER MATURATION OR ---------------------------------------------------
NAME RIGHTS (#)(1) PAYOUT THRESHOLD (#) TARGET (#) MAXIMUM (#)
- --------------------------------------- --------------- --------------- --------------------- ----------- ---------------
KENT KRESA............................. 45,000 5 yrs. 0 45,000 67,500
RICHARD B. WAUGH, JR................... 13,000 5 yrs. 0 13,000 19,500
JOHN E. HARRISON....................... 12,500 5 yrs. 0 12,500 18,750
JAMES G. ROCHE......................... 12,500 5 yrs. 0 12,500 18,750
- ------------------------
(1) The number of Restricted Performance Stock Rights which may be earned under
the 1993 Stock Plan is based on Company total stockholder return compared to
that of companies in the Industry Peer Group. Earnouts over a five year
performance period range from 0% to 150% of the rights awarded. Dividend
equivalents will be distributed in shares on those shares earned over the
five year period. Interim payments may be made if earned by prorata
performance at the end of years 3 and 4. Interim payments are reconciled
with and offset by any final payment due at the end of year 5 based on
performance. In the unlikely event that the sum of interim payments made at
the end of years 3 and 4 exceed the final payment due, no restoration of
shares received will be required.
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").
ANNUAL
AVERAGE
COMPENSATION
(HIGHEST YEARS OF BENEFIT SERVICE
3 YEARS OUT --------------------------------------------------------------------------------
OF LAST 10) 5 10 15 20 25 30 35
- ------------- -------- -------- -------- -------- -------- -------- --------
$ 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
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 five of the six individuals named in the
Summary Compensation Table are as follows: Mr. Kresa, 22 years; Mr. Solberg, 13
years; Mr. Waugh, 18 years, Mr. Harrison, 7 years and Dr. Roche, 13 years. Mr.
Williams does not participate in the Pension Plan or Supplemental Retirement
Plans. In addition, Mr. Solberg will receive an annual retirement benefit of
$32,059 under a separate retirement plan of a Company division.
18
Mr. Harrison is also a participant in the Grumman Supplemental Retirement Plan.
The Annual benefit payable at age 65 under that plan is estimated to be $51,631.
Mr. Harrison will also receive an estimated annual benefit of $62,430 under
ERISA 2 to provide for additional retirement benefits due him from Grumman
Corporation. 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 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 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 less the benefit allowable under the
Pension Plan. Mr. Kresa, who is eligible to receive an annual benefit (estimated
to be $1,391,993 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 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
Chief Executive Officer.
Benefits paid to Mr. Williams pursuant to the Vought Supplemental Plan are
determined on an actuarial basis based on 50% of the participant's average
monthly compensation (based on highest total compensation over a three year
period) subject to offsets for amounts paid or payable under defined benefit
retirement plans. Mr. Williams commenced receiving benefits pursuant to the
Vought Supplemental Plan in 1996, and he is currently eligible to receive an
annual benefit (estimated to be not less than $400,000) under this plan for life
with a 50% spousal survivor benefit thereafter. Mr. Williams is the only named
executive officer currently participating in the Vought Supplemental Plan.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into special severance agreements ("Agreements")
with its executive officers, including Messrs. Kresa, Solberg (which will expire
December 31, 1997), Waugh, Harrison and Roche. The purpose of the 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. Payments under
the Agreements would be made only if there is a Change in Control of the Company
and the executive's employment is thereafter terminated, within a period of 24
months other than for narrowly defined causes.
Generally, a "Change in Control" shall be deemed to have occurred if (i)
there is a consolidation or 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, (ii) there is a sale, lease or
transfer of substantially all of the assets of the Company, (iii) the
shareholders approve a plan or proposal for the liquidation or dissolution of
the Company, (iv) any person (other than a trust established pursuant to an
employee benefit plan of the Company) becomes the beneficial owner of 15% or
more of the Company's outstanding stock, or (v) during any two-year period
individuals who at the beginning of such period (including new directors whose
election was approved by at least two-thirds (2/3) of the directors then in
office or whose election was so approved) cease for any reason to be a majority
of the board of directors.
The executive shall be entitled to certain benefits upon a termination of
employment within the twenty-four month period following a Change in Control
except a termination of employment resulting from the executive's death, a
termination by the Company for "cause" or "disability," or a termination by the
executive other than for "good reason."
19
In the event of a termination which requires the Company to make payments
under an Agreement, the executive shall be entitled, subject to certain
exceptions, to: (i) full base salary through the date of termination and any
other sums owed the executive, (ii) severance pay equal to 3.0 X the executive's
highest annual base salary in effect at any time through the date of
termination, (iii) 3.0 X the higher of the executive's average bonus over a
three year period or the target bonus for the year in which the termination
occurs; (iv) medical, dental and life insurance benefits substantially similar
to those which the executive was receiving as of the Change in Control for a
period of 36 months, (v) all deferred and accrued bonus and vacation pay
pursuant to policies in effect as of designated alternative dates, and (vi) a
cash payment representing the present value of benefits accrued under the
Company's supplemental and excess benefit plans (calculated as though the
executive's employment had continued for three years). The Company will make a
payment to the executive to ensure that the amounts received attributable to a
Change in Control are not subject to net reductions due to imposition of excise
taxes under Section 4999 of the Code.
MANAGEMENT CONTRACTS
In August, 1995, the Company entered into an employment agreement with
Gordon L. Williams, Corporate Vice President and General Manager, Commercial
Aircraft Division. Under the Agreement, which terminated with Mr. Williams'
retirement on December 20, 1996, he was entitled to an annual base salary,
commencing in 1996, of $420,000 which was not offset by amounts payable under
the Vought Supplemental Plan, and was eligible to participate in the Company's
Incentive Compensation Plan. Pursuant to the contract, Mr. Williams received a
grant of 8,000 shares of restricted stock under the Company's 1993 Plan of which
3,000 shares vested on February 16, 1996 and the remaining shares vested
coincident with his retirement on December 20, 1996.
In December, 1996, the Company entered into an agreement with Wallace C.
Solberg in connection with his retirement as an officer and director effective
February 28, 1997, pursuant to which Mr. Solberg became entitled to receive upon
retirement benefits equivalent to a single life annuity of $342,665 per year. In
addition, the Company agreed to accelerate the vesting of options with respect
to 5,600 shares, to pay 3,600 shares pursuant to an RPSR granted in 1993,
representing pro rata shares attributable to the portion of the performance
period during which Mr. Solberg was employed, to permit continued participation
in designated benefit plans and certain compensation arrangements during the
balance of 1997 and to acquire a Company owned automobile.
CERTAIN 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, and the
firm provided legal counsel in connection with the acquisition of the Electronic
Systems Group of Westinghouse Electric Corporation in 1996, as well as assisted
in other acquisition activities and corporate matters.
SECTION 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 Securities and
Exchange Commission (SEC) and the New York Stock Exchange. 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.
The Company believes that its officers, directors and greater than ten
percent beneficial owners complied with all their applicable filing requirements
for 1996 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 Forms 5.
20
PROPOSAL TO APPROVE AMENDMENTS TO THE NORTHROP GRUMMAN
1993 LONG-TERM INCENTIVE STOCK PLAN TO EXTEND THE TERM OF THE PLAN AND INCREASE
THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
On February 17, 1993, the Board of Directors adopted the Northrop Grumman
1993 Long-Term Incentive Stock Plan (the "1993 Stock Plan"), which was
subsequently approved by the stockholders in May, 1993. In May 1995, the
stockholders approved amendments to the Stock Plan to increase the number of
shares available under the Plan by 1,800,000 and to place individual grant
limits on stock options. In May 1996 the stockholders approved amendments to the
Stock Plan to specifically describe in the plan stock awards in the form of
Restricted Performance Stock Rights ("RPSRs") and to impose a limit on the
number of RPSRs which may be granted to a participant during any three
consecutive years and to limit eligibility for any award under the 1993 Stock
Plan to key employees. As of March 3, 1997, 650,648 shares of Common Stock
remained available for grants of incentive awards under the 1993 Stock Plan.
The full text of the 1993 Stock Plan, with the proposed amendments, is
attached to this Proxy Statement as Exhibit A. Principal features are described
below, but such description is qualified in its entirety by reference to the
text. Except as otherwise described herein, all other provisions of the 1993
Stock Plan are not materially changed.
PROPOSED PLAN AMENDMENTS
The Board of Directors has amended the 1993 Stock Plan, subject to
stockholder approval, to (i) provide that the term of the 1993 Stock Plan shall
be extended to 2002 and (ii) increase the number of shares available for
issuance under the 1993 Stock Plan. The Board of Directors has also amended the
1993 Stock Plan, subject to stockholder approval, to provide that "Peer
Companies" as defined in Section 8 of the 1993 Stock Plan shall consist of those
companies designated as such by the Compensation and Management Development
Committee within the first 90 days of the Performance Period.
EXTENSION OF TERM AND INCREASE IN AUTHORIZED SHARES
The Board of Directors believes that the 1993 Stock Plan has been important
in securing for the Company and its stockholders the benefits arising from stock
ownership by officers and other key employees. However, because of the recent
acquisition of Westinghouse ESG and a porportionate increase on the number of
Plan participants, the Board of Directors believes the number of shares
presently available for grant of incentive awards and those which may become
available in the future will be insufficient for the number of awards to be made
by the Company in future years pursuant to its normal compensation practices.
Therefore, for each year commencing on the date of the Annual Meeting of
Stockholders in 1997, there would become available for the grant of incentive
awards a number of shares of Common Stock equal to 1.5% of the total issued and
outstanding Common Stock as of the end of the preceding fiscal year. To the
extent that the actual number of shares granted is less than the maximum
allowed, the excess number of shares may be utilized in subsequent periods. In
addition, the amendment would include in the count of shares available for award
shares of Common Stock repurchased by the Company with proceeds received from
option exercises.
DEFINITION OF "PEER COMPANIES"
The 1993 Stock Plan permits the grant of stock awards in the form of
Restricted Performance Stock Rights ("RPSR's"). An RPSR is a right to receive a
share of the Company's Common Stock on a specified future date conditioned upon
continued employment and changes in the Company's Total Shareholder Return
compared to that of "Peer Companies" as a group. The 1993 Stock Plan defined
"Peer Companies" as those that comprised the Standard & Poor's Aerospace/Defense
Group. Since 1995, two companies in the S&P Aerospace/Defense Group have been
dropped from that index (Raytheon and United Technologies) even though they
continue to engage in a substantial amount of defense work and remain
competitors of the Company. The amendment will allow the Compensation
21
and Management Development Committee to determine the composition of the "Peer
Companies" within the first 90 days of the Performance Period. For 1997, subject
to approval of these amendments by stockholders, the Compensation and Management
Development Committee has elected to restore the two companies removed from the
S&P Aerospace/Defense group to the index and to eliminate the Company from the
group of Peer Companies.
1993 PLAN DESCRIPTION
The primary objectives of the 1993 Stock Plan are to: (1) link significant
ownership-creating opportunities for key employees to successful execution of
strategic business goals and growth in stockholder value; (2) create the energy,
enthusiasm and incentive to position the Company for sustained growth; (3)
retain outstanding performers and those with critical skills; and (4) support a
philosophy of fairness, reasonableness and pay for results.
The 1993 Stock Plan is administered by the Company's Compensation and
Management Development Committee (the "Committee") consisting of at least three
non-employee members of the Board of Directors who qualify as non-employee
directors under Rule 16b-3 and as outside directors under Section 162(m) of the
Code. The Committee, in addition to selecting participants, is empowered, within
certain limitations set forth in the 1993 Stock Plan, to determine the number of
shares to be covered by awards and the terms (including form of settlement) of
all awards. The Committee also interprets, makes rules, regulations and
determinations, and otherwise administers the 1993 Stock Plan to carry out its
intent. No amendment to the 1993 Stock Plan, which would increase the number of
shares available for issuance thereunder (other than for changes in the
corporate structure explained below)or would otherwise cause the 1993 Stock Plan
not to comply with Rule 16b-3, may be effected without the approval of
stockholders.
Any key employee of the Company (or of any subsidiary or other entity which
the Committee determines meets the 1993 Stock Plan eligibility requirement) is
eligible to receive awards. While the concept of a "key employee" is necessarily
and intentionally flexible, approximately 360 employees are considered eligible
at this time. Awards received under the 1993 Stock Plan by the Named Executive
Officers in 1996, 1995 and 1994 are disclosed in the Summary Compensation Table.
Under the 1993 Stock Plan, all executive officers as a group have received
options to purchase 569,100 shares and all employees (including current officers
who are not executive officers) as a group have received options to purchase
2,223,700 shares.
Subject to appropriate adjustment in the event of certain changes in the
Company's corporate structure, including stock dividends, recapitalizations,
mergers or similar transactions or events, as determined by the Committee, the
number of shares of Common Stock of the Company available for issuance under the
1993 Plan is 4,100,000, plus any shares which are available but not issued under
the Prior Plans (as defined in the 1993 Plan), plus any shares which are
forfeited back to the Company or used by a participant as payment, whether full
or partial, in connection with the exercise of a stock option or other award
plus, subject to stockholder approval (i) during each of the five years
commencing on the date of the Annual Meeting of Stockholders in 1997, a number
of shares equal to 1.5% of the total issued and outstanding shares as of the end
of the preceding fiscal year and (ii) any shares of Common Stock which the
Company repurchases with the proceeds received from option exercises. The
closing price of Common Stock on March 3, 1997, as reported on the New York
Stock Exchange, was $72.875 per share. Amounts of awards to be made to Named
Executive Officers in 1997 and future years cannot be determined at this time.
The 1993 Plan provides for three general types of stock incentive awards:
STOCK OPTIONS: The Committee may award non-qualified stock options or
incentive stock options ("ISOs") which qualify for specified tax status under
Section 422 of the Code. A stock option entitles the recipient to purchase a
specified number of shares of the Company's Common Stock at a fixed price
subject to terms and conditions set by the Committee. The purchase price of
shares covered by a stock option may not be less than 100% of fair market value
on the date the option is awarded, except that in
22
situations where a non-qualified option is awarded retroactively in tandem with
or as substitution for another award, the purchase price may be the same as the
purchase or designated price of the other award. There are statutory limits on
the number of shares for which ISOs may be awarded to any participant.
Currently, the aggregate fair market value of such ISO shares (determined at the
time the option is awarded) may not exceed $100,000 for all shares covered by
options awarded to a participant which become exercisable for the first time in
any calendar year.
STOCK APPRECIATION RIGHTS: A stock appreciation right ("SAR") permits its
recipient, subject to such terms and conditions as the Committee may set for
each award, to receive in shares, cash or a combination of both, an amount up to
the positive aggregate difference, if any, between the value of the covered
shares, based on the closing price as of the exercise date, and the designated
price of a specified number of shares. The designated price of the SARs may be
not less than the closing price of the Company's Common Stock on the date of
award, except that if a SAR is awarded retroactively in tandem with or in
substitution for another award, the designated price may be the same as the
purchase or designated price of the other award.
STOCK AWARDS: The Committee may award to selected participants shares of
the Company's Common Stock or share equivalents under such terms and conditions
as it may determine. These awards may require that the recipients remain in the
Company's employ for specified future periods of time for the shares or share
equivalents to vest. Additionally, the Committee may require that the awards
vest only if certain levels of shareholder returns or other measurable financial
performance, determined in advance, are achieved. Stock awards also may be used
by the Committee as a form of payment to key employees for salary or for
incentive compensation awarded under other Company plans (e.g., annual
incentives).
Any awards under the 1993 Stock Plan may carry dividend or dividend
equivalent rights as determined by the Committee. Further, the Committee is
empowered to permit participants to defer award payments and settlements under
such terms as it may unilaterally establish.
Generally, all awards under the 1993 Stock Plan are non-transferable except
by will or in accordance with the laws of descent and distribution or pursuant
to a qualified domestic relations order. During the life of a participant,
awards may be exercised only by such participant, and the Committee may permit a
participant to designate a beneficiary to exercise or receive any rights that
may exist upon the participant's death. In the event of a change in control of
the Company, all outstanding stock options and restricted stock awards vest
immediately; all RPSRs vest (with an earnout based on actual performance).
Awards granted under the 1993 Stock Plan include (1) non-qualified stock
options, (2) stock awards including stock awards in the form of RPSRs. An RPSR
is a right to receive a share of the Company's Common Stock on a specified
future date conditioned upon continued employment and the change in the
Company's Total Shareholder Return ("TSR") compared to that of Peer Companies as
a group. RPSRs can be earned over the five-year Performance Period. The number
earned versus the number granted will be determined by measurement at the end of
the Performance Period of changes in the Company TSR compared to that of Peer
Companies as a group. This will occur by taking the value of a theoretical $100
investment in the Company and a $100 investment in Peer Companies (as a
portfolio) at the start of the Performance Period at the Base Period Price and
comparing it to the value of those investments at the end of the Performance
Period. TSR equals the value at the end of the Performance Period of $100
invested in a company's stock at the company Base Period Price at the beginning
of the Performance Period, with dividends reinvested and converted into
additional shares of stock. The Performance Period for earning RPSRs is the five
full calendar years following the initial Date of Grant.
Under present Federal income tax law, the Company believes that the award of
a stock option or SAR generally creates no Federal tax consequences for the
recipient or the Company. In general, the optionee has no Federal taxable income
upon exercising an ISO (except that the alternative minimum tax may apply), and
the Company receives no deduction when an ISO is exercised. Upon exercising a
non-qualified stock option, the recipient must recognize ordinary income equal
to the difference between the
23
exercise price and the fair market value of the stock on the date of exercise,
and the Company generally will be entitled to a deduction for the same amount.
The tax consequences to a recipient of a disposition of shares acquired through
the exercise of an option depends on how long the shares have been held and on
whether such shares were acquired by exercising an ISO or by exercising a
non-qualified stock option. Generally, there are no Federal income tax
consequences to the Company in connection with a disposition of shares acquired
under an option except that the Company may be entitled to a deduction in the
case of a disposition of shares acquired under an ISO before the applicable ISO
holding periods have been satisfied.
With respect to other awards made under the 1993 Plan that are settled in
cash, stock or other property that is either transferable or not subject to
substantial risk of forfeiture, the participant must recognize ordinary income
equal to the cash or the fair market value of the shares or other property
received at that time, and the Company generally will be entitled to a deduction
for the same amount. Under present Federal income tax law, the Company believes
that the recipient of RPSRs granted under the 1993 Plan must recognize ordinary
income equal to the fair market value of the shares received on the payment date
of such shares. Dividend equivalents earned on RPSRs also constitute ordinary
income when such dividends are paid at the end of the five-year performance
period. The Company generally will be entitled to a deduction equal to the
ordinary income recognized by the recipient. With respect to awards that are
settled in stock or other property that is restricted as to transferability and
subject to substantial risk of forfeiture, unless a special election to be taxed
is made, the participant must recognize ordinary income equal to the fair market
value of the shares or other property received at the time the shares or other
property become transferable or not subject to substantial risk of forfeiture,
whichever occurs earlier, over the amount (if any) paid by the participant, and
the Company will be entitled to a deduction for the same amount at that time.
Different Federal income tax rules may apply with respect to participants who
are subject to Section 16 of the Securities Exchange Act of 1934.
The preceding discussion is only a general summary of certain Federal income
tax consequences arising from participation in the 1993 Plan and should not be
used for a determination of an individual's unique tax situation. It is
suggested that the individual consult with a tax advisor regarding the
application of Federal, state and local tax laws to his/her particular
situation.
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 A VOTE FOR THIS
PROPOSAL.
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
1997. Deloitte & Touche LLP served the Company as its independent auditors for
1996. 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 A VOTE FOR THIS
PROPOSAL.
24
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.
PROPOSAL
WHEREAS in fiscal year 1995 the United States supplied $9.930 billion worth of
weapons in actual deliveries of arms sales abroad,
WHEREAS the last three times the U.S. sent troops into combat in significant
numbers (Panama, Iraq and Somalia), they faced adversaries that
received U.S. weapons or military technology in the period leading to
the conflict,
WHEREAS U.S. weapons supplied to anti-Communist rebels in Angola and
Afghanistan under the Reagan Doctrine have been used for devastating
civil wars; in the Afghan case, U.S.-supplied Stinger missiles turned
up on the International black market as prized items sought by all
manner of rebel groups and terrorist organizations. ("Sale of the
Century," COMMONWEAL, William D. Hartung, 5/20/94)
"U.S. Weapons at War: United States Arms Deliveries to Regions in
Conflict," (World Policy Institute, 1995) shows that the U.S. was a
major arms supplier in one-third of the 50 ethnic and territorial
conflicts currently raging. The study says some 45 parties involved in
the conflicts purchased over $42 billion in U.S. arms in the last ten
years,
WHEREAS our company ranked number 8 among Department of Defense leading
corporations with contracts in excess of $3 billion,
RESOLVED the shareholders request the Board of Directors to provide a
comprehensive report on Northrop Grumman's foreign military sales. The
report, prepared at reasonable cost, should be available to all
shareholders by December, 1997, and may omit classified and
proprietary information.
STOCKHOLDER SUPPORTING STATEMENT
Global security is security of people. The cold-war notion of using arms
sales to maintain balances of power or to support allies has been discredited by
1990s experience, when alliances, governments and boundaries in large parts of
the world are in flux.
We are disturbed at industry's claims and lobbying efforts asserting that
the only way to keep jobs is to promote foreign military sales. We believe such
statements are inconsistent with co-production agreements and transfers of
technology to foreign companies. Offset arrangements on major sales often give
business to overseas suppliers. Such contracts with foreign
companies/governments have harsh repercussions on U.S. workers during this time
of accelerated down-sizing of our workforce.
Therefore, it is reasonable for shareholders to ask:
1. Criteria used to promote foreign military sales;
2. Procedures used to negotiate sales, directly with foreign governments or
through the U.S. government. For example, what determines which weapons
are direct commercial arms sales and what must be negotiated through the
Pentagon? What percentage is commercial military sales and what is
foreign military sales?
3. Categories of military equipment exported for the past three years, with
as much statistical information as is permissible; contracts for
servicing/maintaining equipment; offset agreements; and licensing and/or
co-production with foreign governments.
4. Analysis of legislation establishing a code for U.S. arms transfers
(e.g., no sales to governments that violate human rights of their own
citizens, engage in aggression against neighbors, come to power through
undemocratic means or ignore international arms-control negotiations).
25
MANAGEMENT'S POSITION
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 through the
revelation of business information, the disclosure of which may not be in the
best interest of the Company and its stockholders.
THE BOARD RECOMMENDS A 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. If a stockholder
complies with the Bylaw requirement to notify the Company no later than the
tenth day following the date of public disclosure of the date of the Annual
Meeting or the date of mailing this Proxy Statement, whichever occurs first, of
the intent to present any matter for action and the matter is a proper item of
business for stockholder action, the matter would be entitled to be voted upon
at the meeting. 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.
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 1998
must be received by the Company no later than December 5, 1997.
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 $10,000
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.
[SIGNATURE]
James C. Johnson
CORPORATE VICE PRESIDENT, SECRETARY
AND
ASSISTANT GENERAL COUNSEL
April 4, 1997
NOTICE: THE COMPANY FILED AN ANNUAL REPORT ON FORM 10-K ON FEBRUARY 25,
1997. STOCKHOLDERS OF RECORD ON MARCH 25, 1997, MAY OBTAIN A COPY OF THIS REPORT
WITHOUT CHARGE FROM THE CORPORATE SECRETARY, NORTHROP GRUMMAN CORPORATION, 1840
CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067.
26
EXHIBIT A
NORTHROP GRUMMAN 1993 LONG-TERM INCENTIVE STOCK PLAN
1. PURPOSE
The purpose of the Northrop Grumman 1993 Long-Term Incentive Stock Plan (the
"Plan") is to promote the long-term success of Northrop Grumman Corporation (the
"Company") and to increase shareholder value by providing its officers and
selected employees with incentives to create excellent performance and to
continue service with the Company, its subsidiaries and affiliates. Both by
encouraging such officers and employees to become owners of the common stock of
the Company and by providing actual ownership through Plan awards, it is
intended that Plan participants will view the Company from an ownership
perspective. Additionally, the Company believes the Plan will assist in
attracting and retaining in its employ outstanding people of training,
experience and ability.
2. TERM
The Plan shall become effective upon the approval by the stockholders of the
Company. Unless previously terminated by the Company's Board of Directors (the
"Board"), the Plan shall terminate at the close of business on the fifth
anniversary of such stockholder approval of the 1997 amendments to this Plan.
After termination of the Plan, no future awards may be granted but previously
granted awards shall remain outstanding in accordance with their applicable
terms and conditions and the terms and conditions of the Plan.
3. PLAN ADMINISTRATION
A Committee (the "Committee") appointed by the Board shall be responsible
for administering the Plan. The Committee shall be comprised of three or more
non-employee members of the Board who qualify to administer the Plan as
contemplated by Rule 16b-3 under the Securities and Exchange Act of 1934 (the
"1934 Act") or any successor rule and as outside directors under Section 162(m)
of the Internal Revenue Code of 1986, as amended. The Committee shall have full
and exclusive power to interpret the Plan and to adopt such rules, regulations
and guidelines for carrying out the 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 Plan. This power includes, but is not limited
to, selecting award recipients, establishing all award terms and conditions and
adopting modifications, amendments and procedures, including subplans and the
like as may be necessary to comply with provisions of the laws and applicable
regulatory rulings of countries in which the Company operates in order to assure
the viability of awards granted under the Plan and to enable participants
employed in such countries to receive advantages and benefits under the Plan and
such laws and rulings. In no event, however, shall the Committee or its designee
have the right to cancel outstanding stock options for the purpose of replacing
or regranting such options with a purchase price that is less than the purchase
price of the original option.
4. ELIGIBILITY
Any key employee of the Company shall be eligible to receive one or more
awards under the Plan. "Key Employee" shall also include any former key employee
of the Company eligible to receive an assumed or replacement award as
contemplated in Sections 5 and 8, and "Company" includes any entity that is
directly or indirectly controlled by the Company or any entity in which the
Company has a significant equity interest, as determined by the Committee.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN AND GRANT LIMITS
(a) Subject to Section 6 of the Plan, the aggregate number of additional
shares of common stock of the Company ("Common Stock") which may be issued or
transferred pursuant to awards under the Plan, or reserved for such issuance or
transfer, shall not exceed the sum of (i) 4,100,000 shares
A-1
previously authorized under the Plan, (ii) during the year commencing on the
date of the Annual Meeting of Stockholders in 1997 and on each of four
succeeding years commencing on the anniversary date of such date, a number of
shares of Common Stock equal to 1.5% of the total issued and outstanding shares
of Common Stock as of the end of the preceding fiscal year of the Company, (iii)
any shares of Common Stock which as of the effective date of the Plan are
reserved for issuance under the Company's 1981 and 1987 Long-Term Incentive
Plans (the "Prior Plans") and which are not thereafter issued, and (iv) any
shares of Common Stock which the Company repurchases with proceeds received from
option exercises. For purposes of this Plan, (x) any shares of Common Stock
which are forfeited back to the Company under the Plan or the Prior Plans; (y)
any shares which have been exchanged by a participant as full or partial payment
to the Company in connection with any award under the Plan or the Prior Plans,
and (z) any shares which could be made subject to awards under the Plan in any
year pursuant to subparagraph (ii) above which are not made so subject, shall be
available for issuance under the Plan, in subsequent periods.
(b) In no event, however, shall more than one-half of all Common Stock
available for issuance pursuant to the Plan be issued pursuant to stock awards
granted under Section 8(c) of the Plan.
(c) In instances where a stock appreciation right ("SAR") or other award is
settled in cash or a form other than shares, the shares that would have been
issued had there been no cash or other settlement shall nevertheless be deemed
issued and shall no longer be available for issuance under the Plan. However,
the payment of cash dividends and dividend equivalents in conjunction with
outstanding awards shall not be counted against the shares available for
issuance. Any shares that are issued by the Company, and any awards that are
granted by, or become obligations of, the Company, through the assumption by the
Company or an affiliate of, or in substitution for, outstanding awards
previously granted by an acquired company shall not, except in the case of
awards granted to employees who are subject to Section 16 of the 1934 Act, be
counted against the shares available for issuance under the Plan.
(d) Any shares issued under the Plan may consist in whole or in part of
authorized and unissued shares or of treasury shares, and no fractional shares
shall be issued under the Plan. Cash may be paid in lieu of any fractional
shares in settlements of awards under the Plan.
(e) In no event shall the total number of shares of Common Stock that may be
awarded to any eligible participant during any three year period pursuant to
stock option grants hereunder exceed 400,000 shares and in no event shall the
total number of Restricted Performance Stock Rights ("RPSRs") which may be
granted to any eligible participant during any three consecutive years exceed
133,000 (maximum 199,500 shares of Common Stock) plus the number of shares
distributable as dividend equivalents on earned RPSRs for the period of time the
RPSRs were outstanding.
6. ADJUSTMENTS AND REORGANIZATIONS
Other than in a change of control, in the event of any stock dividend, stock
split, combination or exchange of shares, merger, consolidation, spin-off,
recapitalization or other distribution (other than normal cash dividends) of
Company assets to stockholders, or any other change affecting shares or share
price, such proportionate adjustments, if any, as the Committee in its
discretion may deem appropriate to reflect such change shall be made with
respect to (a) the aggregate number of shares that may be issued under the Plan;
(b) the Grant Limits established under the Plan; (c) each outstanding award made
under the Plan; and (d) the exercise price per share for any outstanding stock
options, SARs or similar awards under the Plan.
If the Company undergoes a Change in Control, as defined herein, (i) all
outstanding grants and awards under the Stock Option provisions of this Plan
shall vest fully and completely, any and all restrictions on exercisability or
otherwise shall lapse, and such options shall be fully exercisable upon such
Change in Control; (ii) all outstanding grants and awards of SARs under this
Plan shall vest fully and completely, any and all restrictions on such SARs
shall lapse, and such SARs shall be converted completely into cash at a price
per share-unit equal to the higher of (x) the highest price paid for a share of
the Company's common stock, as reported in the New York Stock Exchange Composite
Transactions,
A-2
during the 120 days prior to and including the date of the Change in Control,
and (y) the highest price paid (on a national stock exchange or as quoted in the
NASDAQ National Market Issues) for a share of stock of the corporation or other
entity with which or into which the Company is merged, or if such corporation or
other entity is not publicly traded, then the highest price paid on an exchange
or as quoted in the NASDAQ National Market Issues for a share of stock of a
publicly traded corporation or other entity that owns 50% or more (directly or
indirectly) of such corporation or other entity on the date of the Change in
Control; and (iii) all outstanding grants and awards under the Stock Awards
provision of this Plan, other than RPSRs, shall immediately vest fully and
completely, and all restrictions shall lapse and (iv) with respect to RPSRs, all
outstanding awards shall vest and the number of shares to be issued, as of the
date of the Change in Control, to each holder of a restricted performance stock
right shall be computed by multiplying (x) the number of RPSRs received by that
individual by (y) the actual percentage of performance conditions established
for such grant or award that has been achieved to the date of the Change in
Control.
For purposes of this Section 6, "Change in Control" of the Company shall be
deemed to have occurred as of the first day that any one or more of the
following conditions shall have been satisified:
(i) Any Person (other than those Persons in control of the Company as
of November 15, 1995, or other than a trustee or fiduciary holding
securities under an employee benefit plan of the Company), becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
representing fifteen percent (15%) or more of the combined voting power of
the Company's then outstanding securities and for purposes of this section,
"Person" shall have the meaning ascribed to such term in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended, and as used in Section
13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) and
for purposes of this subsection (i) "person" or "group" shall not include
underwriters acquiring newly-issued voting shares (or securities convertible
into voting shares) directly from the Company with a view to distribution;
or
(ii) During any period of two (2) consecutive years (not including any
period prior to November 15, 1995), individuals who at the beginning of such
period constitute the Board (and any new Director, whose election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3)
of the Directors then still in office who either were Directors at the
beginning of the period or whose election or nomination for election was so
approved), cease for any reason to constitute a majority thereof; or
(iii) The stockholders of the Company approve: (a) a plan of complete
liquidation of the Company; or (b) an agreement for the sale or disposition
of all or substantially all of the Company's assets in one or a series of
related transactions; or (c) a merger, consolidation, or reorganization of
the Company with or involving any other corporation, other than a merger,
consolidation, or reorganization that would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than seventy-five percent (75%) of
the combined voting power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger, consolidation,
or reorganization.
7. FAIR MARKET VALUE
Fair Market Value for all purposes under the Plan shall mean the closing
price of a share of Common Stock as reported on the composite tape for
securities listed on the New York Stock Exchange (the "Exchange") for the date
in question. If no sales of Common Stock were made on the Exchange on that date,
the closing price of a share of Common Stock as reported on said composite tape
for the preceding day on which sales of Common Stock were made on the Exchange
shall be substituted.
A-3
8. AWARDS
The Committee shall determine the type or types of award(s) to be made to
each participant. Awards may be granted singly, in combination or in tandem.
Awards also may be made in combination or in tandem with, in replacement of, as
alternatives to, or as the payment form for grants or rights under any other
employee or compensation plan of the Company, including the plan of any acquired
entity. The types of awards that may be granted under the Plan are:
(a) Stock Options -- A grant of a right to purchase a specified number
of shares of Common Stock during a specified period as determined by the
Committee. The purchase price per share for each option shall be not less
than 100% of Fair Market Value on the date of grant, except that, in the
case of a stock option granted retroactively in tandem with or as a
substitution for another award, the exercise or designated price may be no
lower than the Fair Market Value of a share on the date such other award was
granted. A stock option may be in the form of an incentive stock option
("ISO") which, in addition to being subject to applicable terms, conditions
and limitations established by the Committee, complies with Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). If an ISO is
granted, the aggregate Fair Market Value (determined on the date the option
is granted) of Common Stock subject to an ISO granted to a participant by
the Committee which first becomes exercisable in any calendar year shall not
exceed $100,000.00. The price at which shares of Common Stock may be
purchased under a stock option shall be paid in full at the time of the
exercise in cash or such other method permitted by the Committee, including
(i) tendering (either actually or by attestation) Common Stock; (ii)
surrendering a stock award valued at Fair Market Value on the date of
surrender; (iii) authorizing a third party to sell the shares (or a
sufficient portion thereof) acquired upon exercise of a stock option and
assigning the delivery to the Company of a sufficient amount of the sale
proceeds to pay for all the shares acquired through such exercise; or (iv)
any combination of the above. The Committee may grant stock options that
provide for the award of a new option when the exercise price has been paid
for by tendering shares of Common Stock to the Company. This new option
grant would cover the number of shares tendered with the option purchase
price set at the then current Fair Market Value and would never extend
beyond the remaining term of the originally exercised option.
(b) SARs -- A right to receive a payment, in cash and/or Common Stock,
equal to the excess of the Fair Market Value of a specified number of shares
of Common Stock on the date the SAR is exercised over the Fair Market Value
on the date the SAR was granted as set forth in the applicable award
agreement, except that, in the case of a SAR granted retroactively in tandem
with or as a substitution for another award, the exercise or designated
price may be no lower than the Fair Market Value of a share on the date such
other award was granted.
(c) Stock Awards -- An award made or denominated in stock or units of
stock. All or part of any stock award may be subject to conditions and
restrictions established by the Committee, and set forth in the award
agreement, which may include, but are not limited to, continuous service
with the Company, achievement of specific business objectives, and other
measurements of individual, business unit or Company performance. Stock
Awards may include RPSRs. An RPSR is a right to receive a share of Company
stock on a specified future date conditioned upon continued employment and
the change in the Company's Total Shareholder Return ("TSR") compared to
that of Peer Companies as a group. RPSRs can be earned over the five-year
Performance Period. The number earned versus the number granted will be
determined by measurement at the end of the Performance Period of changes in
Northrop Grumman TSR compared to that of Peer Companies as a group. This
will occur by taking the value of a theoretical $100 investment in Northrop
Grumman and a $100 investment in Peer Companies (as a portfolio) at the
start of the Performance Period at the Base Period Price and comparing it to
the value of those investments at the end of the Performance Period. TSR
equals the value at the end of the Performance Period of $100 invested in a
company's stock at the company Base Period Price at the beginning of the
Performance Period, with dividends reinvested and converted into additional
shares of stock. The Performance Period for earning RPSRs is the five full
calendar years following the initial Date of Grant. The Base Period is the
A-4
immediate three calendar years preceding a Performance Period. The Base
Period Price for the Company and each Peer Company is the average of the
year-end closing stock prices for the three-year period preceding the
Performance Period. Peer Companies shall consist of a group of companies
designated by the Committee.
9. DIVIDENDS AND DIVIDEND EQUIVALENTS
The Committee may provide that any awards under the Plan earn dividends or
dividend equivalents. Such dividends or dividend equivalents may be paid
currently or may be credited to a participant's account. Any crediting of
dividends or dividend equivalents may be subject to such restrictions and
conditions as the Committee may establish, including reinvestment in additional
shares or share equivalents.
10. DEFERRALS AND SETTLEMENTS
Payment of awards may be in the form of cash, stock, other awards or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose. The Committee may also require or permit
participants to elect to defer the issuance of shares or the settlement of
awards in cash under such rules and procedures as it may establish under the
Plan. It may also provide that deferred settlements include the payment or
crediting of interest on the deferral amounts, or the payment or crediting of
dividend equivalents where the deferral amounts are denominated in shares.
11. TRANSFERABILITY AND EXERCISABILITY
All awards under the Plan shall be nontransferable and shall not be
assignable, alienable, saleable or otherwise transferable by the participant
other than by will or the laws of descent and distribution, pursuant to a
qualified domestic relations order (as defined by the Code) or unless otherwise
determined by the Committee. However, in the event that a participant terminates
employment with the Company to assume a position with a governmental,
charitable, educational or similar non-profit institution, the Committee may
subsequently authorize a third party, including but not limited to a "blind"
trust, to act on behalf of and for the benefit of the respective participant
regarding any outstanding awards held by the participant subsequent to such
termination of employment. If so permitted by the Committee, a participant may
designate a beneficiary or beneficiaries to exercise the rights of the
participant and receive any distributions under the Plan upon the death of the
participant.
12. AWARD AGREEMENTS
Awards under the Plan shall be evidenced by agreements that set forth the
terms, conditions and limitations for each award which may include the term of
an award (except that in no event shall the term of any ISO exceed a period of
ten years from the date of its grant), the provisions applicable in the event
the participant's employment terminates, and the Company's authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind any award;
provided, however, that such authority shall not extend to the reduction of the
exercise price of a previously granted option, except as provided in Section 6
hereof. The Committee need not require the execution of any such agreement, in
which case acceptance of the award by the respective participant shall
constitute agreement to the terms of the award.
13. PLAN AMENDMENT
The plan may only be amended by a disinterested majority of the Board of
Directors as it deems necessary or appropriate to better achieve the purpose of
the Plan, except that no such amendment shall be made without the approval of
the Company's stockholders which would increase the number of shares available
for issuance in accordance with Sections 5 and 6 of the Plan or otherwise cause
the Plan not to comply with Rule 16b-3, or any successor rule, under the 1934
Act.
A-5
14. TAX WITHHOLDING
The Company shall have the right to deduct from any settlement of an award
made under the Plan, including the delivery or vesting of shares, a sufficient
amount to cover withholding of any Federal, state or local taxes required by law
or to take such other action as may be necessary to satisfy any such withholding
obligations. The Committee may permit shares to be used to satisfy required tax
withholding and such shares shall be valued at the Fair Market Value as of the
settlement date of the applicable award.
15. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee, settlements of
awards received by participants under the Plan shall not be deemed a part of a
participant's regular, recurring compensation for purposes of calculating
payments or benefits from any Company benefit plan, severance program or
severance pay law of any country. Further, the Company may adopt other
compensation programs, plans or arrangements as it deems appropriate or
necessary.
16. UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be unfunded and
shall not create (or be construed to create) a trust or a separate fund or
funds. The Plan shall not establish any fiduciary relationship between the
Company and any participant or other person. To the extent any person holds any
rights by virtue of a grant awarded under the Plan, such rights (unless
otherwise determined by the Committee) shall be no greater than the rights of an
unsecured general creditor of the Company.
17. FUTURE RIGHTS
No person shall have any claim or rights to be granted an award under the
Plan, and no participant shall have any rights under the Plan to be retained in
the employ of the Company.
18. GOVERNING LAW
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
State of California and applicable Federal law.
19. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a participant,
including, without limitation, the estate of such participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the participant's creditors.
20. RIGHTS AS A SHAREHOLDER
Except as otherwise provided in the award agreement, a participant shall
have no rights as a shareholder until he or she becomes the holder of record of
shares of Common Stock.
A-6
[Paste-up of map displaying directions to Annual Meeting location]
Traveling WEST on the Santa Monica Traveling EAST on the Santa Monica
Fwy. (10): Exit at Bundy Dr. South. Fwy. (10): exit at Centinela. Turn
Take Bundy South to Ocean Park Blvd. right onto Pico Blvd. Continue to 28th
Turn right on Ocean Park and continue Street. Turn left onto 28th Street.
to 28th Street. Turn left on 28th.
PROXY NORTHROP GRUMMAN
ANNUAL MEETING OF STOCKHOLDERS MAY 21, 1997
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints R. R. Molleur and J. C. Johnson, and each
of them, proxies of the undersigned, with full power of substitution in each of
them, to vote all shares of Common Stock of Northrop Grumman Corporation which
the undersigned may be entitled to vote at the Annual Meeting of Stockholders to
be held at the Museum of Flying, 2772 Donald Douglas Loop North, Santa Monica,
California, on May 21, 1997 at 10:00 A.M., and at any adjournments thereof, with
all the powers the undersigned would possess if personally present and voting,
as specified below, and in their discretion on any other matters that may
properly come before the Meeting.
Election of Directors: Nominees, J. Chain, Jr., J. Edwards, K. Kresa.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY, EVEN IF YOU
PLAN TO ATTEND THE MEETING.
(Continued and to be Signed on the other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
/x/ PLEASE MARK
YOUR CHOICES
LIKE THIS
THIS PROXY WILL BE VOTED AS DIRECTED. IF NOT OTHERWISE DIRECTED,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND AGAINST
PROPOSAL 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
Proposal 1 - Election of Class III directors to hold office for three years and
until their respective successors are elected and qualified.
FOR / / AGAINST / /
WITHHELD for the following nominee(s) only, write name(s) below:
________________________________________________________________
Proposal 2 - Proposal to amend the 1993 Long Term Incentive Stock Plan.
FOR / / AGAINST / / ABSTAIN / /
Proposal 3 - Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors.
FOR / / AGAINST / / ABSTAIN / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 4.
Proposal 4 - Stockholder Stock regarding foreign military sales.
FOR / / AGAINST / / ABSTAIN / /
Signature(s) Date
------------------------------------------- ---------------
Note: Please sign as name appears herein. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
PROXY NORTHROP GRUMMAN
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS MAY 15, 1996
- --------------------------------------------------------------------------------
Just a reminder, the annual meeting will be held:
DATE: May 15, 1996
TIME: 10:00 A.M.
LOCATION: Museum of Flying
2772 Donald Douglas Loop North
Santa Monica, California
PLEASE RETURN YOUR PROXY PROMPTLY.
NORTHROP GRUMMAN
ANNUAL MEETING OF STOCKHOLDERS MAY 21, 1997
CONFIDENTIAL INSTRUCTIONS TO BANKERS TRUST COMPANY,
TRUSTEE FOR THE VOUGHT AIRCRAFT SALARIED SAVINGS AND INVESTMENT PLAN
Receipt of proxy material for the above Meeting is acknowledged. I instruct
you to vote (in person or by proxy) all shares of Common Stock of Northrop
Grumman Corporation held by you for my account under the Plan at the Annual
Meeting of Stockholders of Northrop Grumman Corporation to be held May 21, 1997
at 10:00 A.M., and at all adjournments thereof, on the following matters as
indicated on the reverse side and in your discretion on any other matters that
may come before the Meeting and as to which discretionary authority is permitted
by applicable law. If this card is signed and returned, but no choice is
specified, I instruct you to vote this proxy in accordance with the Board of
Directors' recommendations, "FOR all Nominees" in Proposal 1, "FOR" Proposals 2
and 3 and "AGAINST" Proposal 4.
Election of Directors: Nominees J. Chain, Jr., J. Edwards, K. Kresa.
(Continued and to be Signed on the other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
/x/ PLEASE MARK
YOUR VOTES AS
INDICATED IN
THIS EXAMPLE
THIS PROXY WILL BE VOTED AS DIRECTED. IF NOT OTHERWISE DIRECTED,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND AGAINST
PROPOSAL 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
Proposal 1 - Election of Class III directors to hold office for three years and
until their respective successors are elected and qualified.
FOR / / AGAINST / /
WITHHELD for the following nominee(s) only, write name(s) below:
________________________________________________________________
Proposal 2 - Proposal to amend the 1993 Long Term Incentive Stock Plan.
FOR / / AGAINST / / ABSTAIN / /
Proposal 3 - Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors.
FOR / / AGAINST / / ABSTAIN / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 4.
Proposal 4 - Stockholder proposal regarding foreign military sales.
FOR / / AGAINST / / ABSTAIN / /
Signature(s) Dated 1997
--------------------------------------- -------------
Note: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
INSTRUCTION CARD NORTHROP GRUMMAN
- --------------------------------------------------------------------------------
Dear Fellow Employee:
Just a reminder, your vote and your investment in Northrop Grumman is very
important. Please complete and return your Confidential Instruction Card to the
Trustee for tabulation as soon as possible.
Kent Kresa
Chairman, President and
Chief Executive Officer
PLEASE RETURN YOUR PROXY PROMPTLY.
NORTHROP GRUMMAN
ANNUAL MEETING OF STOCKHOLDERS MAY 21, 1997
CONFIDENTIAL INSTRUCTIONS TO BANKERS TRUST COMPANY,
TRUSTEE FOR THE NORTHROP GRUMMAN SAVINGS AND INVESTMENT PLAN
Receipt of proxy material for the above Meeting is acknowledged. I
instruct you to vote (in person or by proxy) all shares of Common Stock of
Northrop Grumman Corporation held by you for my account under the Plan at the
Annual Meeting of Stockholders of Northrop Grumman Corporation to be held May
21, 1997 at 10:00 A.M., and at all adjournments thereof, on the following
matters as indicated on the reverse side and in your discretion on any other
matters that may come before the Meeting and as to which discretionary
authority is permitted by applicable law. If this card is signed and returned,
but no choice is specified, I instruct you to vote this proxy in accordance
with the Board of Directors' recommendations, "FOR all Nominees" in Proposal 1,
"FOR" Proposals 2 and 3 and "AGAINST" Proposal 4.
Election of Directors: Nominees J. Chain, Jr., J. Edwards, K. Kresa.
(Continued and to be Signed on the other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
/x/ PLEASE MARK
YOUR CHOICES
LIKE THIS
THIS PROXY WILL BE VOTED AS DIRECTED. IF NOT OTHERWISE DIRECTED,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND AGAINST
PROPOSAL 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
Proposal 1 - Election of Class III directors to hold office for three years and
until their respective successors are elected and qualified.
FOR / / AGAINST / /
WITHHELD for the following nominee(s) only, write name(s) below:
________________________________________________________________
Proposal 2 - Proposal to amend the 1993 Long Term Incentive Stock Plan.
FOR / / AGAINST / / ABSTAIN / /
Proposal 3 - Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors.
FOR / / AGAINST / / ABSTAIN / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 4.
Proposal 4 - Stockholder proposal regarding foreign military sales.
FOR / / AGAINST / / ABSTAIN / /
Signature(s) Date
-------------------------------------------- -----------1997
Note: Please sign as name appears herein. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
INSTRUCTION CARD NORTHROP GRUMMAN
- --------------------------------------------------------------------------------
Dear Fellow Employee:
Just a reminder, your vote and your investment in Northrop Grumman is very
important. Please complete and return your Confidential Instruction Card to the
Trustee for tabulation as soon as possible.
Kent Kresa
Chairman, President and
Chief Executive Officer
PLEASE RETURN YOUR PROXY PROMPTLY.
NORTHROP GRUMMAN
ANNUAL MEETING OF STOCKHOLDERS MAY 21, 1997
CONFIDENTIAL INSTRUCTIONS TO BANKERS TRUST COMPANY,
TRUSTEE FOR THE NORTHROP GRUMMAN ELECTRONIC SENSORS &
SYSTEMS DIVISION SAVINGS PROGRAM
Receipt of proxy material for the above Meeting is acknowledged. I
instruct you to vote (in person or by proxy) all shares of Common Stock of
Northrop Grumman Corporation held by you for my account under the Plan at the
Annual Meeting of Stockholders of Northrop Grumman Corporation to be held May
21, 1997 at 10:00 A.M., and at all adjournments thereof, on the following
matters as indicated on the reverse side and in your discretion on any other
matters that may come before the Meeting and as to which discretionary
authority is permitted by applicable law. If this card is signed and returned,
but no choice is specified, I instruct you to vote this proxy in accordance
with the Board of Directors' recommendations, "FOR all Nominees" in Proposal 1,
"FOR" Proposals 2 and 3 and "AGAINST" Proposal 4.
Election of Directors: Nominees J. Chain, Jr., J. Edwards, K. Kresa
(Continued and to be Signed on the other side)
FOLD AND DETACH HERE
Please mark your votes as indicated in this example
This proxy will be voted as directed. If not otherwise directed, this proxy will
be voted for proposals 1,2 and 3 and against proposal 4.
The Board of Directors Recommends a Vote FOR Proposals 1, 2 and 3.
The Board of Directors Recommends a Vote AGAINST Proposal 4.
Proposal 1 - Election of Class III directors to hold office for three years
and until their respective successors are elected and qualified.
/ / FOR / / AGAINST
Withheld for the following nominee(s) only, write name(s) below:
__________________________________________________________________
Proposal 2 - Proposal to amend the 1993 Long Term Incentive Stock Plan.
/ / FOR / / AGAINST / / ABSTAIN
Proposal 3 - Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors.
/ / FOR / / AGAINST / / ABSTAIN
Proposal 4 - Stockholder proposal regarding foreign military sales.
/ / FOR / / AGAINST / / ABSTAIN
Signature(s) ______________________________________ Dated _______________, 1997
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
FOLD AND DETACH HERE
INSTRUCTION CARD NORTHROP GRUMMAN
Dear Fellow Employee:
Just a reminder, your vote and your investment in Northrop Grumman is very
important. Please complete and return your Confidential Instruction Card to the
Trustee for tabulation as soon as possible.
Kent Kresa
Chairman, President and
Chief Executive Officer
PLEASE RETURN YOUR PROXY PROMPTLY.
