AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1998.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Revised Preliminary Proxy Statement
[_]Confidential, for Use of the Commission Only (as permitted by Rule 14A-
6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
LOCKHEED MARTIN CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NORTHROP GRUMMAN CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[_]No Fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11:
(1) Title of each class of securities to which transaction applies: ________
(2) Aggregate number of securities to which the transaction applies: _______
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): _____________
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: _______________________
(5) Total fee paid: ________________________________________________________
[X]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ________________________________________________
(2) Form, Schedule or Registration Statement No.: __________________________
(3) Filing Party: __________________________________________________________
(4) Date Filed: ____________________________________________________________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Lockheed Martin Corporation
6801 Rockledge Drive Bethesda, MD 20817
[LOGO OF LOCKHEED MARTIN APPEARS HERE]
NORMAN R. AUGUSTINE
Chairman of the Board
January 22, 1998
Dear Fellow Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Lockheed Martin Corporation on Thursday, February 26, 1998, at 1:00 p.m. at
The Peabody Orlando Hotel, 9801 International Drive, Orlando, Florida. At the
special meeting, you will be asked to approve the issuance of shares of Lock-
heed Martin common stock to the stockholders of Northrop Grumman Corporation
in connection with the merger of a subsidiary of Lockheed Martin and Northrop
Grumman.
In the merger:
. Northrop Grumman will become a wholly-owned subsidiary of Lockheed Martin
and its businesses will be integrated into Lockheed Martin's businesses;
. each outstanding share of Northrop Grumman common stock will be converted
into 1.1923 shares of Lockheed Martin common stock; and
. stockholders of Northrop Grumman will become stockholders of Lockheed
Martin and own approximately 29% of Lockheed Martin common stock immedi-
ately after the merger.
Based on the closing price on January 9, 1998, the market value of 1.1923
shares of Lockheed Martin common stock was $119.08.
At the special meeting you will also be asked to approve an amendment to
Lockheed Martin's charter to increase the number of authorized shares of Lock-
heed Martin common stock from 750 million to 1.5 billion.
The Board of Directors has concluded that the merger with Northrop Grumman
represents an important strategic opportunity for Lockheed Martin which will
further enhance Lockheed Martin's position as a leading global aerospace and
defense company. If the merger is completed, Lockheed Martin will be more com-
petitive in commercial, civil, defense and international markets.
The Board has reviewed the proposed issuance of shares and the proposed
charter amendment, and believes that they are fair to, and in the best inter-
ests of, the stockholders. We unanimously recommend that you vote for the pro-
posal to issue Lockheed Martin shares to Northrop Grumman stockholders in the
merger and the proposal to amend Lockheed Martin's charter.
Your vote is most important to assure your representation at the special
meeting. Please complete, sign and date the enclosed proxy card and return it
in the enclosed prepaid envelope. Alternatively, you may vote by telephone by
calling the toll-free number printed on your proxy card. If you plan to attend
the special meeting, please let us know by indicating your attendance on your
proxy card.
Sincerely yours,
/s/ Norman R. Augustine
Norman R. Augustine
Chairman of the Board
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the Lockheed Martin Common Stock to be issued in
connection with the merger, nor have they determined if this Joint Proxy
Statement/Prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
- --------------------------------------------------------------------------------
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED JANUARY 22, 1998 AND IS FIRST
BEING MAILED TO STOCKHOLDERS ON OR ABOUT JANUARY 27, 1998.
[LOGO OF LOCKHEED MARTIN APPEARS HERE]
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
----------------
JANUARY 22, 1998
Lockheed Martin will hold a special meeting of stockholders on Thursday,
February 26, 1998, at 1:00 p.m. at The Peabody Orlando Hotel, 9801 Interna-
tional Drive, Orlando, Florida. Stockholders of record on January 20, 1998 are
entitled to vote at the special meeting on the following proposals:
1. To approve the issuance of shares of Lockheed Martin common stock to
the stockholders of Northrop Grumman Corporation in connection with the ac-
quisition of Northrop Grumman as a subsidiary.
2. To approve an amendment to Lockheed Martin's charter to increase the
number of authorized shares of Lockheed Martin common stock from 750 mil-
lion to 1.5 billion.
3. To transact any other business that is properly brought before the
meeting.
The accompanying joint proxy statement and prospectus describes the planned
merger with Northrop Grumman in detail.
To assure your representation at the special meeting, please complete, date,
sign and return the enclosed proxy card in the prepaid return envelope, or
register your vote by calling the toll-free number on your proxy card.
By Order of the Board of Directors
/s/ Lillian M. Trippett
Lillian M. Trippett
Vice President, Corporate Secretary
and Associate General Counsel
[LOGO OF NORTHROP GRUMMAN APPEARS HERE]
January 22, 1998
Dear Fellow Stockholder:
You are cordially invited to attend a special meeting of the stockholders of
Northrop Grumman Corporation on Thursday, February 26, 1998, at 10:00 a.m. at
the Los Angeles Airport Marriott Hotel, 5855 West Century Boulevard, Los Ange-
les, California.
At this meeting you will be asked to approve a merger pursuant to which
Northrop Grumman will become a wholly-owned subsidiary of Lockheed Martin Cor-
poration. When the merger is completed, each outstanding share of Northrop
Grumman common stock will be converted into 1.1923 shares of Lockheed Martin
common stock. Based on the closing price on January 9, 1998, the market value
of 1.1923 shares of Lockheed Martin common stock was $119.08. The transaction
is subject to governmental review and approval.
Northrop Grumman's Board of Directors believes this strategic business com-
bination will create a leading aerospace and defense company. The combined
company will have the critical mass necessary to compete effectively in the
current environment of lower defense procurement spending and increased indus-
try consolidation. The combined company will benefit from increased economies
of scale, product and market diversification, and increased financial flexi-
bility and strength.
The Northrop Grumman Board has approved the merger agreement, believes that
the merger is fair to, and in the best interests of, Northrop Grumman and rec-
ommends that you vote for approval of the merger.
To assure your representation at the special meeting, please complete, sign,
date and return the enclosed proxy form promptly. This will allow your shares
to be voted whether or not you attend the meeting. If you plan to attend the
meeting, check the appropriate box on the proxy card. Please do not send in
your stock certificates with your proxy cards.
Sincerely yours,
/s/ Kent Kresa
Kent Kresa
Chairman of the Board, President and
Chief Executive Officer
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the merger, nor have they determined if this
Joint Proxy Statement/Prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED JANUARY 22, 1998 AND IS FIRST
BEING MAILED TO STOCKHOLDERS ON OR ABOUT JANUARY 27, 1998.
TABLE OF CONTENTS
PAGE
----
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 5
The Companies........................................................... 5
The Special Meetings.................................................... 5
Recommendations to Stockholders......................................... 6
The Merger.............................................................. 7
Lockheed Martin Summary Selected Historical Financial Information....... 10
Northrop Grumman Summary Selected Historical Financial Information...... 11
Summary Selected Unaudited Pro Forma Combined Condensed Financial
Information............................................................ 12
Comparative Per Share Information....................................... 13
RISK FACTORS.............................................................. 14
THE SPECIAL MEETINGS...................................................... 15
Times and Places; Purposes.............................................. 15
Voting Rights; Votes Required for Approval.............................. 15
Proxies................................................................. 17
THE MERGER................................................................ 19
Background of the Merger................................................ 19
Reasons for the Merger; Recommendations of the Boards of Directors...... 21
Opinions of Financial Advisors.......................................... 24
Interests of Certain Persons in the Merger.............................. 33
Accounting Treatment.................................................... 36
Certain Federal Income Tax Consequences................................. 36
Regulatory Approvals.................................................... 38
Resale Restrictions..................................................... 39
THE MERGER AGREEMENT...................................................... 40
The Merger.............................................................. 40
Exchange Procedures..................................................... 40
Representations and Warranties.......................................... 42
Conduct of Business Pending the Merger.................................. 42
No Solicitation of Transactions......................................... 43
Certain Covenants....................................................... 44
Employee Benefits....................................................... 45
Governance.............................................................. 46
Indemnification and Insurance........................................... 46
Conditions.............................................................. 46
Termination............................................................. 47
Termination Fees........................................................ 48
Expenses................................................................ 48
Amendment............................................................... 48
BUSINESS OF LOCKHEED MARTIN............................................... 49
Recent Developments..................................................... 50
BUSINESS OF NORTHROP GRUMMAN.............................................. 52
Recent Developments..................................................... 53
MARKET DATA............................................................... 54
LOCKHEED MARTIN SELECTED HISTORICAL FINANCIAL INFORMATION................. 55
i
PAGE
----
NORTHROP GRUMMAN SELECTED HISTORICAL FINANCIAL INFORMATION................ 56
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 57
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS...... 61
COMPARISON OF STOCKHOLDERS' RIGHTS........................................ 65
PROPOSAL TO AMEND LOCKHEED MARTIN'S CHARTER............................... 75
CERTAIN TRANSACTIONS...................................................... 75
LEGAL MATTERS............................................................. 76
EXPERTS................................................................... 76
AVAILABLE INFORMATION..................................................... 76
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 77
FORWARD LOOKING STATEMENTS--SAFE HARBOR PROVISIONS........................ 78
FUTURE STOCKHOLDER PROPOSALS.............................................. 79
Appendix I Agreement and Plan of Merger
Appendix II Opinion of Bear, Stearns & Co. Inc.
Appendix III Opinion of Salomon Brothers Inc
ii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: Lockheed Martin and Northrop Grumman are proposing to merge because they
believe the combined company will be a leading global aerospace and defense
company. In addition, Lockheed Martin and Northrop Grumman believe the
merger will allow the combined company to be more competitive in commercial,
civil, defense and international markets than either company on a stand-
alone basis.
Lockheed Martin and Northrop Grumman also believe that the merger will
accelerate long-term growth and create stockholder value in years to come.
Q: HOW WILL THE MERGER AFFECT ME?
A: When the merger is completed, Northrop Grumman stockholders will receive
1.1923 shares of Lockheed Martin common stock in exchange for each share of
Northrop Grumman common stock they own.
Lockheed Martin will not issue fractional shares. Instead, Northrop Grumman
stockholders will receive cash for any fractional share of Lockheed Martin
common stock owed to them based on the market value on a date close to the
date of the merger.
Following the merger, each Lockheed Martin share will remain outstanding.
Persons who are stockholders of Lockheed Martin immediately before the
merger will own approximately 71%, and former stockholders of Northrop
Grumman will own approximately 29%, of the common stock of Lockheed Martin
immediately after the merger.
After the merger, Northrop Grumman's businesses will be integrated into
Lockheed Martin's businesses.
Example:
. If you currently own 10,000 shares of Northrop Grumman common stock, then
after the merger you will receive 11,923 shares of Lockheed Martin common
stock.
. If you currently own 100 shares of Northrop Grumman common stock, then
after the merger you will receive 119 shares of Lockheed Martin common
stock and a check for the market value of the .23 fractional share.
. If you currently own 100 shares of Lockheed Martin common stock, you will
continue to own those 100 shares of Lockheed Martin common stock after
the merger.
Q: WHAT DO I NEED TO DO NOW?
A: Indicate on your proxy card how you want to vote, and sign and mail it in
the enclosed return envelope as soon as possible so that your shares may be
represented at your stockholders' meeting. If you sign and send in your
proxy and do not indicate how you want to vote, your proxy will be counted
as a vote in favor of the proposals described in these proxy materials. If
you fail to sign and send in your proxy or you sign and send in your proxy
but you abstain from voting, it will be equivalent to a vote against the
proposals described in these proxy materials. Approval of the proposal to
issue shares of Lockheed Martin common stock to Northrop Grumman
stockholders is independent from and not conditioned upon approval of the
proposal to amend Lockheed Martin's charter.
The Lockheed Martin stockholders' special meeting and the Northrop Grumman
stockholders' special meeting will each take place on February 26, 1998.
You may attend your stockholders' meeting and vote
1
your shares in person rather than voting by proxy. You may also use the
toll-free telephone number on your proxy card to vote your Lockheed Martin
shares. In addition, you may revoke your proxy up to and including the day
of your stockholders' meeting by following the directions on page 18 and
either change your vote or attend your stockholders' meeting and vote in
person.
THE BOARD OF DIRECTORS OF NORTHROP GRUMMAN RECOMMENDS VOTING IN FAVOR OF
THE PROPOSED MERGER.
THE BOARD OF DIRECTORS OF LOCKHEED MARTIN RECOMMENDS VOTING IN FAVOR OF THE
ISSUANCE OF LOCKHEED MARTIN SHARES IN CONNECTION WITH THE MERGER AND IN
FAVOR OF THE PROPOSED CHARTER AMENDMENT TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF LOCKHEED MARTIN COMMON STOCK.
Q: I AM A LOCKHEED MARTIN OR NORTHROP GRUMMAN EMPLOYEE AND I HOLD MY SHARES IN
AN EMPLOYEE BENEFIT PLAN. WILL I BE ABLE TO VOTE THOSE SHARES?
A: Certain benefit plans sponsored by Lockheed Martin and Northrop Grumman
permit each plan participant to direct the trustee how to vote shares
attributable to the participant's plan account. If you participate in one of
those plans, you will receive information from a plan fiduciary concerning
the procedures for submitting an instruction card with your voting
directions.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares if you provide instructions on how to
vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. If you are a Northrop Grumman
stockholder, your broker will not be able to vote your shares on the
proposed merger without instructions. If you are a Lockheed Martin
stockholder, your broker will not be able to vote your shares on the
proposed issuance of shares to Northrop Grumman stockholders without
instructions, but will be able to vote your shares on the proposed amendment
to Lockheed Martin's charter.
Q: I AM A NORTHROP GRUMMAN STOCKHOLDER. SHOULD I SEND IN MY STOCK CERTIFICATES
NOW?
A: No. After the merger is completed, Northrop Grumman stockholders will be
sent written instructions for exchanging their stock certificates. Lockheed
Martin stockholders will keep their existing certificates.
Q: WILL NORTHROP GRUMMAN STOCKHOLDERS HAVE APPRAISAL RIGHTS?
A: Under Delaware corporate law, Northrop Grumman stockholders do not have any
rights to an appraisal of the value of their shares in connection with the
merger.
Q: IS THE EXCHANGE RATIO FIXED?
A: The 1.1923 exchange ratio for common stock will not change even if the
market price for Lockheed Martin common stock decreases before the merger is
completed. Accordingly, the market value of Lockheed Martin common stock you
receive may be lower than its current market value. To review certain risks
associated with the merger, see page 14.
Q: HOW WILL THE MERGER BE TREATED FOR ACCOUNTING PURPOSES?
A: The merger will be accounted for as a purchase of Northrop Grumman by
Lockheed Martin, which means the purchase price, including costs directly
related to the merger, will be allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the time of
completion of the merger. To the extent the purchase price exceeds the fair
value of Northrop Grumman's identified net assets, the excess
2
will be recorded as cost in excess of net assets acquired and amortized to
expense over a period of 40 years. Results of operations of Northrop
Grumman will be included in Lockheed Martin's financial statements after
the closing of the merger.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: No changes are expected to Lockheed Martin or Northrop Grumman dividend
policies before the merger. Following the merger, Lockheed Martin expects
to continue to pay dividends on its common stock in the amount of $0.40 per
share per quarter, or $1.60 per share per year. This represents an
approximately 19% increase for current Northrop Grumman stockholders from
the $1.60 per share per year historic dividend rate paid to Northrop
Grumman stockholders because the number of shares held by Northrop Grumman
stockholders will be increased by the exchange ratio of 1.1923. Although
Lockheed Martin currently expects to pay the dividends described, Lockheed
Martin cannot assure those payments. Members of Lockheed Martin's Board of
Directors will use their discretion to decide whether to declare dividends
and the amount of any dividends. In making their decision, the Lockheed
Martin directors will consider various factors, including Lockheed Martin's
business condition, financial position, earnings and other factors.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The exchange of shares by Northrop Grumman stockholders will be tax-free to
Northrop Grumman stockholders for United States federal income tax
purposes. However, Northrop Grumman stockholders will recognize gain on
cash received in lieu of fractional shares of Lockheed Martin's common
stock. The merger will be tax-free to Lockheed Martin stockholders for
United States federal income tax purposes. To review the tax consequences
to Northrop Grumman stockholders and Lockheed Martin stockholders in
greater detail, see page 36.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Lockheed Martin and Northrop Grumman are working toward completing the
merger as quickly as possible. In addition to stockholder approvals,
regulatory approvals must also be obtained. Lockheed Martin and Northrop
Grumman anticipate completing the merger in the first quarter of 1998.
3
WHO CAN HELP ANSWER MY QUESTIONS?
If you have more questions about the merger you should contact:
LOCKHEED MARTIN STOCKHOLDERS:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attn: James R. Ryan
Vice President, Investor Relations
Phone Number: (301) 897-6584
NORTHROP GRUMMAN STOCKHOLDERS:
Northrop Grumman Corporation
1840 Century Park East
Los Angeles, California 90067
Attention: J. Gaston Kent
Director, Investor Relations
Phone Number: (310) 201-3423
If you would like additional copies of the Joint Proxy Statement/Prospectus, or
if you have questions about the merger, you should contact:
LOCKHEED MARTIN STOCKHOLDERS:
Morrow & Co., Inc.
909 Third Avenue
20th Floor
New York, New York 10022
Phone Number: (888) 882-8595
NORTHROP GRUMMAN STOCKHOLDERS:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Phone Number: (800) 223-2064
4
SUMMARY
This summary highlights certain information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents
referred to in the "Incorporation of Certain Documents by Reference" section at
the end of this document.
THE COMPANIES (page 49)
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
(301) 897-6000
Lockheed Martin is a highly diversified global enterprise principally engaged
in the conception, research, design, development, manufacture and integration
of advanced technology products and services. Lockheed Martin conducts its
principal business through five operating sectors: Space & Strategic Missiles;
Electronics; Information & Services; Aeronautics; and Energy & Environment.
Northrop Grumman Corporation
1840 Century Park East
Los Angeles, California 90067
(310) 553-6262
Northrop Grumman is an advanced technology company operating in the aircraft,
electronics and information technology industry segments of the aerospace in-
dustry. The aircraft segment includes the design, development and manufacturing
of aircraft and aircraft sections. The electronics segment includes the design,
development, manufacturing and integration of electronic systems for military
and commercial use and the operation and support of computer systems for scien-
tific and management information. The information technology segment includes
the design and development of military and commercial information systems and
services for defense, civil and industrial customers.
THE SPECIAL MEETINGS (page 15)
When and where the meetings will be held. The Lockheed Martin stockholders
meeting will be held at 1:00 p.m., local time, on February 26, 1998, at The
Peabody Orlando Hotel, 9801 International Drive, Orlando, Florida. The Northrop
Grumman stockholders meeting will be held at 10:00 a.m., local time, on Febru-
ary 26, 1998, at the Los Angeles Airport Marriott Hotel, 5855 West Century Bou-
levard, Los Angeles, California.
Purposes of the meetings. At the Lockheed Martin stockholders meeting, Lock-
heed Martin stockholders will be asked:
. to approve the issuance of shares of Lockheed Martin common stock to
Northrop Grumman stockholders upon completion of the merger, and
. to approve an amendment to Lockheed Martin's charter to increase the num-
ber of authorized shares of Lockheed Martin common stock from 750 million
to 1.5 billion.
At the Northrop Grumman stockholders Meeting, Northrop Grumman stockholders
will be asked to approve the merger agreement.
Record Date; Voting Power. Stockholders who owned shares as of the close of
business on January 20, 1998, the record date, are entitled to vote at their
respective stockholder meetings.
On the record date, there were 194,601,427 shares of Lockheed Martin common
stock allowed to vote at the Lockheed Martin stockholders meeting. At the Lock-
heed Martin stockholders meeting, Lockheed Martin stockholders will have one
vote for each share of Lockheed Martin common stock they owned on the record
date for each matter voted upon.
On the record date, there were 67,310,563 shares of Northrop Grumman common
stock allowed to vote at the Northrop Grumman stockholders meeting. At the
Northrop Grumman stockholders meeting, Northrop Grumman stockholders will have
one vote for each share of Northrop Grumman common stock they owned on the rec-
ord date for the matter voted upon.
Votes Required. The affirmative vote of a majority of the shares of Lockheed
Martin common stock outstanding on the record date is required to approve the
issuance of shares of Lockheed Martin common stock to Northrop Grumman stock-
holders upon completion of the merger and Lockheed Martin's charter amendment.
5
The affirmative vote of a majority of the shares of Northrop Grumman common
stock outstanding on the record date is required to approve the merger agree-
ment.
RECOMMENDATIONS TO STOCKHOLDERS (page 21)
Lockheed Martin. The Board of Directors of Lockheed Martin believes that the
proposed issuance of shares and the proposed charter amendment are fair to, and
in the best interests of, Lockheed Martin and Lockheed Martin stockholders, and
recommends that Lockheed Martin stockholders vote FOR the proposal to approve
the issuance of shares of Lockheed Martin common stock to Northrop Grumman
stockholders in connection with the merger and FOR the proposal to amend Lock-
heed Martin's charter to increase the number of authorized shares of Lockheed
Martin common stock.
Northrop Grumman. The Board of Directors of Northrop Grumman believes that
the merger is fair to, and in the best interests of, Northrop Grumman stock-
holders, and recommends that Northrop Grumman stockholders vote FOR the pro-
posal to approve the merger.
Other Interests of Officers and Directors in the Merger. (page 33) In consid-
ering the Boards' recommendations with regard to the merger, stockholders
should be aware that a number of Northrop Grumman officers and directors have
employment agreements, severance agreements or benefit plans that provide them
with interests in the merger that are different from, and in addition to, the
interests of Northrop Grumman stockholders generally.
Generally, the named executive officers (the five most highly compensated ex-
ecutive officers of Northrop Grumman) hold stock options, restricted perfor-
mance stock rights, restricted stock rights and restricted award shares having
the following approximate value, which will vest upon approval by the Northrop
Grumman stockholders of the merger:
Kent Kresa $16,085,296
Richard B. Waugh, Jr. $ 4,747,249
James B. Roche $ 4,859,759
John E. Harrison $ 4,126,294
Richard R. Molleur $ 4,067,448
The aggregate value of such benefits for all elected officers as a group is ap-
proximately $61,575,588. In addition, if employment of a named executive offi-
cer were to terminate following the merger in circumstances entitling such ex-
ecutive officer to benefits pursuant to a severance agreement to which he is a
party, the approximate total amount of salary, bonus and termination lump sum
cash payments for such named executive officer would be as follows:
Kent Kresa $7,808,299
Richard B. Waugh, Jr. $3,585,966
James B. Roche $3,067,877
John E. Harrison $4,015,061
Richard R. Molleur $2,725,687
The approximate amount of such payments for all elected officers as a group
would be $38,068,872. The approximate value of the stock units and retirement
payments which would be payable to the Northrop Grumman Board upon Northrop
Grumman stockholder approval would be $1,487,929.
The approximate value of the consulting and non-competition payments which
would be payable to the Northrop Grumman Board upon completion of the merger
and termination of the directors' services would be $720,000 to the extent all
eligible directors who will not be continuing directors of Lockheed Martin en-
ter into such agreements. Additionally, Lockheed Martin and Kent Kresa have
agreed in principle that Mr. Kresa will act as a consultant to Lockheed Martin
for a period of two years after the closing of the merger; it is expected that
Mr. Kresa's compensation in the first year will be $1,400,000 and in the second
year between $700,000 and $1,050,000 depending on the amount of time devoted to
the consulting activities.
Ownership of Lockheed Martin Following the Merger. Existing Lockheed Martin
stockholders will own approximately 71%, and former Northrop Grumman stockhold-
ers will own approximately 29%, of outstanding Lockheed Martin common stock im-
mediately following the merger. Based on a comparison of September 30, 1997
historical financial data, the following percentages of revenues, net earnings,
total assets and stockholders' equity of the two companies combined would have
been attributable to Lockheed Martin and Northrop Grumman, respectively:
LOCKHEED NORTHROP
MARTIN GRUMMAN
-------- --------
Revenues 75% 25%
Net earnings 76 24
Total assets 75 25
Stockholders' equity 75 25
6
Since the merger will be accounted for as a purchase of Northrop Grumman by
Lockheed Martin, to the extent the purchase price exceeds the fair value of
Northrop Grumman's identifiable net assets, the excess will be recorded as
cost in excess of net assets acquired. The percentages described above do not
take into account any such purchase accounting adjustments nor do they take
into account the effect of the GE Transaction which was consummated subsequent
to September 30, 1997.
THE MERGER (page 19)
The merger agreement is attached as Appendix I to this document. We
encourage you to read the merger agreement. It is the legal document governing
the merger.
What Northrop Grumman Stockholders Will Receive in the Merger. As a result
of the merger, Northrop Grumman stockholders will receive 1.1923 shares of
Lockheed Martin common stock in exchange for each share of Northrop Grumman
common stock. No fractional shares will be issued. Instead, Northrop Grumman
stockholders will receive a check in payment of any fractional share based on
the market value of Lockheed Martin common stock on a date close to when the
merger occurs. Based on the closing price on January 9, 1998, the market value
of 1.1923 shares of Lockheed Martin Common Stock was $119.08.
Lockheed Martin Board of Directors and Management Following the
Merger. Following the merger, it is expected that there will be a total of 21
directors of Lockheed Martin. The Lockheed Martin Board of Directors will con-
sist of the 18 current directors of Lockheed Martin, plus three directors from
the Northrop Grumman Board, Kent Kresa, John E. Robson and Robert A. Lutz.
Norman R. Augustine will remain Chairman of the Board of Lockheed Martin.
Vance D. Coffman will remain Chief Executive Officer and a Vice Chairman of
the Board of Lockheed Martin. Kent Kresa, who is currently Chairman of the
Board, Chief Executive Officer and President of Northrop Grumman, will become
a Vice Chairman of the Board of Lockheed Martin.
Lockheed Martin Dividend Policy Following the Merger. Following the merger,
Lockheed Martin expects to continue to pay dividends on its common stock in
the amount of $0.40 per share per quarter, or $1.60 per share per year. This
represents an approximately 19% increase for current Northrop Grumman stock-
holders from the $1.60 per share per year historic dividend rate paid to
Northrop Grumman stock holders because the number of shares held by Northrop
Grumman stockholders will be increased by the exchange ratio of 1.1923. Lock-
heed Martin's Board of Directors will decide whether to declare dividends and
the amount of any dividends. In making its decision the Board will consider
various factors, including Lockheed Martin's business condition, financial po-
sition, earnings and other factors.
Conditions to the Merger. The completion of the merger depends upon meeting
a number of conditions, including the following:
. the approval of the merger by the holders of a majority of outstanding
Northrop Grumman common stock;
. the approval of the issuance of Lockheed Martin common stock by a major-
ity of the votes cast at the Lockheed Martin stockholders meeting;
. no law shall be enacted or injunction entered which effectively prohibits
the merger or which causes a material adverse effect on either Lockheed
Martin or Northrop Grumman;
. no material adverse change shall occur to the businesses, results of op-
erations or financial condition of Lockheed Martin or Northrop Grumman,
other than changes resulting from general economic, financial or industry
conditions;
. the approval of governmental authorities without burdensome demands; and
. the receipt of opinions by each company from its tax counsel stating that
the merger will be tax free to that company's stockholders.
Certain of the conditions to the merger may be waived by the company enti-
tled to assert the condition. However, neither Lockheed Martin nor Northrop
Grumman currently intend to waive any conditions.
Approval of the proposed Lockheed Martin charter amendment is not a condi-
tion to the consummation of the merger.
Termination of the Merger Agreement. The companies can agree to terminate
the merger agreement without completing the merger, and either of
7
the companies can terminate the merger agreement without triggering payment of
the termination fee de-
scribed below if any of the following occurs:
. the merger is not completed by March 31, 1998;
. the required approvals of either Lockheed Martin stockholders or Northrop
Grumman stockholders are not received;
. a court or other governmental authority permanently prohibits the merger;
or
. the other company materially breaches any of its representations, warran-
ties, covenants or agreements under the merger agreement.
In addition, Lockheed Martin can terminate the merger agreement if the Board
of Directors of Northrop Grumman:
. withdraws or modifies in any materially adverse manner its approval or
recommendation in favor of the merger; or
. approves or recommends a business combination with a third party.
Northrop Grumman can terminate the merger agreement if it has received an
offer to enter into a business combination with a third party, and its Board
of Directors determines that its fiduciary obligations require it to terminate
the merger agreement.
Termination Fee. A termination fee of $200 million will be payable by North-
rop Grumman to Lockheed Martin if Northrop Grumman receives a proposal for an
alternative transaction under either of the following circumstances:
. the merger agreement is terminated because the Northrop Grumman Board de-
termines that its fiduciary obligations require such action, or because
the Northrop Grumman Board recommends the alternative transaction, then
the termination fee becomes immediately payable; or
. the merger agreement is terminated because the Northrop Grumman Board has
withdrawn its recommendation or because of failure to obtain Northrop
Grumman stockholders approval, and Northrop Grumman enters into an alter-
nate agreement or a third party acquires a majority of Northrop Grumman
common stock within six months of such termination, then the termination
fee is payable on the signing of such agreement or consummation of such
acquisition.
Regulatory Approvals. The Hart-Scott-Rodino Antitrust Improvements Act pro-
hibits the companies from completing the merger until after the companies have
furnished certain information and materials to the Antitrust Division of the
Department of Justice and the Federal Trade Commission, and a required waiting
period has ended. On August 28, 1997, the companies furnished the required in-
formation. On September 26, 1997, the Department of Justice requested that the
companies furnish additional information and materials. The companies are in
the process of complying with this request. The Department of Justice is cur-
rently reviewing the merger.
Accounting Treatment. The merger will be accounted for as a purchase of
Northrop Grumman by Lockheed Martin, which means the purchase price, including
costs directly related to the merger, will be allocated to the assets acquired
and liabilities assumed based on their estimated fair values at the time of
the completion of the merger. To the extent the purchase price exceeds the
fair value of Northrop Grumman's identified net assets, the excess (approxi-
mately $7.3 billion as of September 30, 1997, which includes Northrop
Grumman's historical balance of costs in excess of net assets acquired of $3.4
billion) will be recorded as cost in excess of net assets acquired and amor-
tized to expense over a period of 40 years resulting in annual amortization of
$183 million. Results of operations of Northrop Grumman will be included in
Lockheed Martin's financial statements after the closing of the merger.
Opinions of Financial Advisors. In deciding to approve the merger, the Board
of each company considered opinions from its respective financial advisors as
to the fairness of the exchange ratio from a financial point of view. Lockheed
Martin received an opinion from its financial advisor, Bear, Stearns & Co.
Inc., and Northrop Grumman received an opinion from its financial advisor,
Salomon Brothers Inc. These opinions are attached as Appendices II and III to
this Joint Proxy Statement/Prospectus. Stockholders are encouraged to read
these opinions. If the
8
merger is consummated, Bear Stearns will receive from Lockheed Martin a fee of
$29 million in connection with the merger, less $9.0 milion previously paid. If
the merger is consummated, Salomon will receive a fee from Northrop Grumman
equal to 0.25% of the aggregate consideration to be received by Northrop
Grumman stockholders in the merger, less $5.0 million previously paid. If
Salomon's fee were calculated based on the trading price of Lockheed Martin
common stock on January 20, 1998, the aggregate fee payable to Salomon, assum-
ing the merger were consummated, would be approximately $28 million.
In connection with delivering these opinions, the financial advisors per-
formed a variety of analyses. The analyses included comparing Lockheed Martin
and Northrop Grumman historical stock prices and financial multiples to each
other and to those of other selected publicly traded companies, comparing the
financial terms of the merger to those of other publicly announced transactions
and estimating the relative values and contributions of Lockheed Martin and
Northrop Grumman based on past and estimated future performance and anticipated
benefits of the merger.
Federal Income Tax Consequences. Except for tax payable by Northrop Grumman
stockholders because of cash received instead of fractional shares, no gain or
loss will be recognized by either Lockheed Martin, the Lockheed Martin stock-
holders, Northrop Grumman, or the Northrop Grumman stockholders as a result of
the merger. The merger is conditioned on receipt by each company of legal opin-
ions to this effect.
Tax matters are very complicated and the tax consequences of the merger to
each stockholder will depend on the facts of each individual stockholder's cir-
cumstances. Stockholders should consult their own tax advisors for a full un-
derstanding of the tax consequences of the merger.
No Appraisal Rights. Under Delaware law, Northrop Grumman stockholders have
no right to an appraisal of the value of their shares in connection with the
merger.
Comparative Per Share Market Price Information. Shares of Lockheed Martin
common stock are listed on the New York Stock Exchange and shares of Northrop
Grumman common stock are listed on the New York and Pacific Stock Exchanges. On
July 2, 1997, the last full trading day on the New York Stock Exchange prior to
the public announcement of the proposed merger, Northrop Grumman common stock
closed at $88 7/8 per share and Lockheed Martin common stock closed at $104 per
share. On January 9, 1998, Northrop Grumman common stock closed at $117 3/8 per
share and Lockheed Martin common stock closed at $99 7/8 per share. Stockhold-
ers are urged to obtain current market quotations for Lockheed Martin common
stock and Northrop Grumman common stock.
Listing of Lockheed Martin Common Stock. Lockheed Martin will list the shares
of Lockheed Martin common stock to be issued in connection with the merger on
the New York Stock Exchange.
Forward-Looking Statements May Prove Inaccurate. Each company has made for-
ward- looking statements in this document (and in documents that are incorpo-
rated by reference in this document) that are subject to risks and uncertain-
ties. Forward-looking statements include information concerning possible or as-
sumed future results of operations of Lockheed Martin, Northrop Grumman or the
combined company following the merger. Also, when words such as "believes,"
"expects," "anticipates" or similar expressions are used, they are intended to
identify forward-looking statements. Stockholders should note that many fac-
tors, some of which are discussed elsewhere in this document and in the docu-
ments which are incorporated by reference herein, could affect the future fi-
nancial results of Lockheed Martin, Northrop Grumman or the combined company
following the merger and could cause those results to differ materially from
those expressed in the forward-looking statements contained or incorporated by
reference in this document.
9
LOCKHEED MARTIN SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
Lockheed Martin is providing the following financial information to aid you
in your analysis of the financial aspects of the merger. This information was
derived from audited financial statements for 1992 through 1996, except for the
balance sheet data for 1992 which was derived from unaudited financial
information, and unaudited financial statements for the nine months ended
September 30, 1997 and 1996. The information is only a summary and you should
read it in conjunction with Lockheed Martin's historical financial statements
(and related notes) contained in its annual reports and other information that
have been filed with the Securities and Exchange Commission (the "Commission").
See "Incorporation of Certain Documents by Reference" on page 77.
AT OR FOR
NINE MONTHS
ENDED AT OR FOR
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1997 1996(1) 1996(1)(2) 1995(3) 1994(4) 1993(5) 1992(6)
------- ------- ---------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales............... $20,191 $19,213 $26,875 $22,853 $22,906 $22,397 $16,030
Earnings before
cumulative effect of
changes in accounting.. 929 882 1,347 682 1,055 829 649
Net earnings (loss)..... 929 882 1,347 682 1,018 829 (361)
Net earnings (loss) per
common share:
Assuming no dilution:
Before cumulative
effect of changes in
accounting........... 4.78 4.40 6.80 3.28 5.32 3.99 3.31
Net earnings (loss)... 4.78 4.40 6.80 3.28 5.12 3.99 (1.84)
Assuming full dilution:
Before cumulative
effect of changes in
accounting........... 4.25 3.93 6.04 3.05 4.83 3.75 3.31
Net earnings (loss)... 4.25 3.93 6.04 3.05 4.66 3.75 (1.84)
Cash dividends per
common share........... 1.20 1.20 1.60 1.34 1.14 1.09 1.04
BALANCE SHEET DATA:
Total assets............ 29,577 30,269 29,257 17,558 17,979 17,082 10,827
Short-term borrowings... 1,012 787 1,110 -- -- -- --
Long-term debt
(including current
maturities)............ 10,235 11,252 10,368 3,732 3,879 4,372 2,130
Stockholders' equity.... 7,654 7,189 6,856 6,433 6,086 5,201 3,482
- --------
(1) Amounts displayed for 1996 include the effects of the business combination
with Loral Corporation from April 1, 1996.
(2) Net earnings for 1996 included a nonrecurring gain from divestitures of
$351 million, or $1.58 per common share assuming full dilution, offset by
nonrecurring charges totaling $209 million, or $.94 per common share
assuming full dilution, related to Lockheed Martin's strategy for its
environmental remediation business and other corporate actions to improve
efficiency, increase competitiveness and focus on core businesses.
(3) Net earnings for 1995 included charges totaling $436 million, or $1.96 per
common share assuming full dilution, for merger related and consolidation
expenses related to the formation of Lockheed Martin.
(4) Amounts displayed for 1994 reflect the acquisition of the Space Systems
Division of General Dynamics Corporation ("GD") effective May 1, 1994. In
addition, net earnings for 1994 included nonrecurring gains of $100
million, or $.46 per common share assuming full dilution, related to an
initial public offering of a portion of the common stock of a subsidiary
and an acquisition termination fee, and also included a cumulative effect
adjustment related to Lockheed Martin's change in the method of accounting
for its Employee Stock Ownership Plan.
(5) Amounts displayed for 1993 reflect the acquisitions of the GD Fort Worth
Division effective February 28, 1993 and the aerospace businesses of
General Electric Company effective April 2, 1993.
(6) The net loss for 1992 included the cumulative effect of accounting changes
relative to the adoption of Statement of Financial Accounting Standards
("SFAS") No. 106, Employers' Accounting for Post-Retirement Benefits Other
than Pensions, and SFAS No. 112, Employers' Accounting for Post-Employment
Benefits.
10
NORTHROP GRUMMAN SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
Northrop Grumman is providing the following financial information to aid you
in your analysis of the financial aspects of the merger. The information for
1994 through 1996, except for the balance sheet data for 1994, was derived from
audited financial statements which were included in the Form 8-K that Northrop
Grumman filed regarding its merger with Logicon Inc. ("Logicon") on August 1,
1997. The information for the 1992 through 1993 periods, and for the 1994
balance sheet data, was derived by combining audited information from Northrop
Grumman's and Logicon's annual reports for those periods. The information for
the interim periods was derived from unaudited financial statements for the
nine months ended September 30, 1997 and 1996. The information is only a
summary and you should read it in conjunction with Northrop Grumman's recent
Form 8-K filed to reflect its merger with Logicon. See "Incorporation of
Certain Documents by Reference" on page 77.
AT OR FOR
NINE MONTHS
ENDED AT OR FOR
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------- ---------------------------------------
1997 1996(1) 1996(1)(2) 1995 1994(3) 1993 1992
------ ------- ---------- ------ ------- ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales............... $6,643 $6,194 $8,607 $7,272 $7,025 $5,385 $5,870
Net income.............. 290 240 264 277 53 116 136
Earnings per share...... 4.35 3.90 4.22 4.79 .92 2.04 2.42
Cash dividends per
common share........... 1.20 1.20 1.60 1.60 1.60 1.60 1.60
BALANCE SHEET DATA:
Total assets............ 9,778 9,709 9,645 5,642 6,192 3,063 3,275
Short-term debt......... 168 245 228 65 171 -- 100
Long-term debt
(including current
maturities)............ 3,020 3,289 3,150 1,307 1,763 160 410
Stockholders' equity.... 2,503 2,258 2,282 1,586 1,391 1,420 1,335
- --------
(1) Amounts displayed for 1996 reflect the acquisition of the defense and
electronics systems business of Westinghouse Electric Corporation effective
March 1, 1996.
(2) Net income for 1996 included a charge of $58 million, or $.93 per share,
related to the closure of four plants.
(3) Amounts displayed for 1994 reflect the acquisition of Grumman Corporation
effective April 1, 1994. Net income for 1994 included a charge of $183
million, or $3.18 per share, related to an early retirement incentive
program.
11
SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
Lockheed Martin and Northrop Grumman are providing the following unaudited
pro forma combined condensed financial information to give you a better picture
of what the results of operations and financial position of the combined
business of Lockheed Martin and Northrop Grumman might have been had the merger
and the GE Transaction (as hereinafter defined) occurred on an earlier date.
For a description of the GE Transaction, see "Business of Lockheed Martin--
Recent Developments" on page 50. The unaudited pro forma combined condensed
income statement data combines information from the historical consolidated
statements of earnings of Lockheed Martin and Northrop Grumman giving effect to
the merger and the GE Transaction as if they occurred at the beginning of the
earliest period presented. The unaudited pro forma combined condensed balance
sheet data combines information from the historical consolidated balance sheets
of Lockheed Martin and Northrop Grumman giving effect to the merger and the GE
Transaction as if they had been completed on September 30, 1997.
We are providing this information for illustrative purposes only. It does not
necessarily reflect what the results of operations or financial position of the
combined company would have been if the merger and the GE Transaction had
actually occurred on the dates noted above. This information also does not
necessarily indicate what the combined company's future consolidated results of
operations or financial position will be. This information does not reflect (a)
the effect of any potential changes in revenues or any operating synergies
which we may achieve by combining the resources of our companies, or (b) costs
associated with the combining of our companies, which we cannot presently
estimate.
The merger will be accounted for as a purchase of Northrop Grumman by
Lockheed Martin. In connection with the merger, the purchase price will be
allocated to the assets acquired and liabilities assumed based upon their
estimated fair values at the consummation of the merger, with any excess
allocated to goodwill. For a description of the purchase method of accounting
with respect to the merger, see "The Merger--Accounting Treatment" on page 36.
Refer to "Unaudited Pro Forma Combined Condensed Financial Statements" on
page 57 for more details related to the information displayed.
AT OR FOR FOR
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
---------------------- ----------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales............... $ 25,203 $ 33,675
Net earnings............ 1,002 1,373
Net earnings per common
share.................. 3.77 5.08
Cash dividends per
common share........... 1.20 1.60
BALANCE SHEET DATA:
Total assets............ 44,547 N/A
Short-term debt......... 1,180 N/A
Long-term debt
(including current
maturities)............ 14,994 N/A
Stockholders' equity.... 13,501 N/A
12
COMPARATIVE PER SHARE INFORMATION
The following table sets forth historical and pro forma Lockheed Martin and
historical and pro forma equivalent Northrop Grumman information on a per share
basis for earnings, dividends declared and book value.
Pro forma net earnings were derived from the pro forma information presented
under "Unaudited Pro Forma Combined Condensed Financial Statements" on page 57.
Pro forma cash dividends declared per share reflect Lockheed Martin's cash
dividends declared in the periods indicated. The information for "Per
equivalent Northrop Grumman share" was calculated by multiplying the related
information for "Per share of Lockheed Martin common stock" by 1.1923, which is
the Exchange Ratio of Lockheed Martin common stock for each share of Northrop
Grumman common stock. The historical book value per share information was based
upon outstanding shares of common stock for each respective company. The number
of outstanding shares of Lockheed Martin common stock have been adjusted, for
the pro forma data presented, to include the shares of Lockheed Martin common
stock estimated to be issued in the merger.
The information set forth below is only a summary and you should read it in
conjunction with the "Unaudited Pro Forma Combined Condensed Financial
Statements" on page 57, and the respective audited and unaudited consolidated
financial statements of Lockheed Martin and Northrop Grumman. The audited and
unaudited consolidated financial statements of Lockheed Martin and Northrop
Grumman are incorporated into this Joint Proxy Statement/Prospectus by
reference. See "Incorporation of Certain Documents by Reference" on page 77.
AT OR FOR AT OR FOR
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
HISTORICAL:
Per share of Lockheed Martin Common
Stock:
Book value assuming:
No dilution.......................... $35.75 $31.81
Full dilution........................ 34.89 31.55
Cash dividends......................... 1.20 1.60
Net earnings assuming:
No dilution.......................... 4.78 6.80
Full dilution........................ 4.25 6.04
Per share of Northrop Grumman Common
Stock:
Book value............................. 37.49 34.30
Cash dividends......................... 1.20 1.60
Net earnings........................... 4.35 4.22
UNAUDITED PRO FORMA:
Per share of Lockheed Martin Common
Stock:
Book value............................. $50.54 $48.33
Cash dividends......................... 1.20 1.60
Net earnings........................... 3.77 5.08
Per equivalent Northrop Grumman share:(1)
Book value............................. 60.26 $57.62
Cash dividends......................... 1.43 1.91
Net earnings........................... 4.49 6.06
- --------
(1) Per equivalent common share data is calculated by multiplying the pro forma
amounts per share of Lockheed Martin Common Stock by the exchange ratio to
be used in the merger of 1.1923 shares of Lockheed Martin Common Stock for
each share of Northrop Grumman Common Stock.
13
RISK FACTORS
In addition to general investment risks and those factors set forth
elsewhere in this document (including the risks that actual results may vary
materially from those anticipated in the forward-looking statements contained
in and incorporated by reference into this document as described under the
caption "Forward-Looking Statements--Safe Harbor Provisions" on page 78),
stockholders of Lockheed Martin Corporation ("Lockheed Martin") and Northrop
Grumman Corporation ("Northrop Grumman") should consider the following risks
in deciding whether to approve the proposals described herein.
RISKS ASSOCIATED WITH THE INTEGRATION OF THE TWO COMPANIES
The Merger involves the integration of two companies that have previously
operated independently. The consolidation of functions, the integration of
departments, systems and procedures, and relocation of staff present
significant management challenges. There can be no assurance that such actions
will be successfully accomplished as rapidly as currently expected. Moreover,
although the primary purpose of such actions will be to realize direct cost
savings and other operating efficiencies, there can be no assurance of the
extent to which such cost savings and efficiencies will be achieved.
RISKS ASSOCIATED WITH FIXED EXCHANGE RATIO
Upon completion of the Merger, each share of Northrop Grumman Common Stock
will be converted into the right to receive 1.1923 shares of Lockheed Martin
Common Stock. The Exchange Ratio is a fixed number and will not be adjusted in
the event of any increase or decrease in the price of either Lockheed Martin
Common Stock or Northrop Grumman Common Stock. As a result, the value of the
shares of Lockheed Martin Common Stock received by Northrop Grumman
stockholders in the Merger will vary depending on fluctuations in the value of
Lockheed Martin Common Stock. Such fluctuations may be the result of changes
in business, operations or prospects of Lockheed Martin, general market and
economic conditions and other factors. Accordingly, there can be no assurance
that the value of the merger consideration on the date of this Joint Proxy
Statement/Prospectus will be the same as on the date of the special meetings
of the stockholders of Lockheed Martin and Northrop Grumman or the effective
time of the Merger.
RISKS ASSOCIATED WITH GOVERNMENTAL APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits us from
completing the Merger until expiration or termination of a waiting period. It
is possible that governmental authorities may impose conditions for granting
approval. We may be required to divest one or more of either company's product
lines, or agree to various operating restrictions before or after receipt of
shareholder approval, in order to establish compliance with the antitrust
laws. We have agreed with each other in the merger agreement that in order to
gain such antitrust approval we would divest any assets such government
authorities require so long as such divestiture would not have a significant
adverse effect on the combined company. We do not plan to seek shareholder
approval after the Special Meetings if any divestitures or operational
restrictions are subsequently required to establish compliance with the
antitrust laws.
DILUTION
For the holders of Lockheed Martin Common Stock, on a pro forma basis, the
Merger would have a dilutive effect on earnings per share for the fiscal year
ended December 31, 1996 and the nine month period ended September 30, 1997. In
addition, based on Lockheed Martin management's projections, the Merger is
expected to result in dilution to Lockheed Martin's earnings per share in the
years 1998 and 1999.
The shares of Lockheed Martin Common Stock to be issued to Northrop Grumman
stockholders at the Effective Time are expected to represent approximately 29%
of the number of shares of Lockheed Martin Common Stock outstanding
immediately after the Effective Time. Accordingly, the Merger will have the
effect of reducing the percentage voting interest in Lockheed Martin
represented by a share of Lockheed Martin Common Stock immediately prior to
the Effective Time. However, as a result of the Merger, stockholders of
Lockheed Martin will own a voting interest in a significantly larger
enterprise.
14
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies (i) from the holders of common stock, par value $1.00
per share, of Lockheed Martin (the "Lockheed Martin Common Stock") by the
Lockheed Martin Board of Directors (the "Lockheed Martin Board") for use at a
special meeting of stockholders or any adjournment or postponement thereof
(the "Lockheed Martin Stockholders Meeting") and (ii) from the holders of
common stock, par value $1.00 per share, of Northrop Grumman (the "Northrop
Grumman Common Stock") by the Northrop Grumman Board of Directors (the
"Northrop Grumman Board") for use at a special meeting of stockholders or any
adjournment or postponement thereof (the "Northrop Grumman Stockholders
Meeting").
TIMES AND PLACES; PURPOSES
Lockheed Martin. The Lockheed Martin Stockholders Meeting will be held at
The Peabody Orlando Hotel, 9801 International Drive, Orlando, Florida, on
Thursday, February 26, 1998, starting at 1:00 p.m., local time. At the
Lockheed Martin Stockholders Meeting, the stockholders of Lockheed Martin (the
"Lockheed Martin Stockholders") will be asked to consider and vote upon a
proposal that Lockheed Martin issue shares of Lockheed Martin Common Stock to
Northrop Grumman Stockholders upon consummation of the merger (the "Merger")
contemplated by the Agreement and Plan of Merger, dated as of July 2, 1997, as
amended (the "Merger Agreement"), among Lockheed Martin, Hurricane Sub, Inc.,
a Delaware corporation and direct, wholly-owned subsidiary of Lockheed Martin
("Merger Sub") and Northrop Grumman (the "Share Issuance Proposal"). A copy of
the Merger Agreement is included as Appendix I to this Joint Proxy
Statement/Prospectus. At the Lockheed Martin Stockholders Meeting, the
stockholders of Lockheed Martin will also be asked to consider and vote upon a
proposal to amend Lockheed Martin's Charter to increase the number of
authorized shares of Lockheed Martin Common Stock from 750 million to 1.5
billion (the "Charter Amendment Proposal" and, together with the Share
Issuance Proposal, the "Lockheed Martin Proposals") and such other matters as
may properly come before the Lockheed Martin Stockholders Meeting. This
proposed increase in the number of authorized shares will provide the Lockheed
Martin Board with the flexibility to take advantage of potential future
opportunities as they arise. The Lockheed Martin Board believes the proposed
increase provides a sufficient number of authorized shares for possible
acquisitions, stock dividends and financings, as well as for the grant of
stock options for other employee and director plans. Approval of the Charter
Amendment Proposal, however, is not a condition to consummation of the Merger.
Northrop Grumman. The Northrop Grumman Stockholders Meeting will be held at
the Los Angeles Airport Marriott Hotel, 5855 West Century Boulevard, Los
Angeles, California, on Thursday, February 26, 1998, starting at 10:00 a.m.,
local time. At the Northrop Grumman Stockholders Meeting, the stockholders of
Northrop Grumman (the "Northrop Grumman Stockholders") will be asked to
consider and vote upon a proposal (the "Northrop Grumman Proposal") to approve
the Merger Agreement, pursuant to which Northrop Grumman will become a wholly-
owned subsidiary of Lockheed Martin. When the Merger is completed, each
outstanding share of Northrop Grumman Common Stock will be converted into the
right to receive 1.1923 shares of Lockheed Martin Common Stock (the "Exchange
Ratio").
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
Lockheed Martin. The Lockheed Martin Board has fixed the close of business
on January 20, 1998, as the Lockheed Martin Record Date. Only holders of
record of shares of Lockheed Martin Common Stock on the Lockheed Martin Record
Date are entitled to notice of and to vote at the Lockheed Martin Stockholders
Meeting and any adjournments or postponements thereof. As of the Lockheed
Martin Record Date, there were 194,601,427 shares of Lockheed Martin Common
Stock, held by approximately 41,071 stockholders of record, outstanding and
entitled to vote at the Lockheed Martin Stockholders Meeting.
Each holder of record, as of the Lockheed Martin Record Date, of Lockheed
Martin Common Stock is entitled to vote in accordance with the terms of
Lockheed Martin's Charter, as amended (the "Lockheed Martin Charter"), which
provides that holders of Lockheed Martin Common Stock will be entitled to one
vote per share of Lockheed Martin Common Stock held.
15
Participants in certain of Lockheed Martin's employee benefit plans are
entitled to direct a plan fiduciary as to the voting of each share held for
the participant's account under those plans. In the case of the Lockheed
Martin Corporation Salaried Savings Plan, participants who have ESOP match
shares allocated to their accounts in that plan may also direct the voting of
shares not allocated to anyone's account. Shares held in participant accounts
under the Lockheed Martin Dividend Reinvestment and Stock Purchase Plan (the
"Dividend Reinvestment Plan") are included in the proxy sent to the account
owner.
Under the Lockheed Martin Charter, Lockheed Martin Bylaws and the Maryland
General Corporation Law (the "Maryland Corporate Law"), the affirmative vote,
in person or by proxy, of the holders of a majority of the shares of Lockheed
Martin Common Stock outstanding on the Lockheed Martin Record Date and
entitled to vote on the Lockheed Martin Proposals is required to approve the
Lockheed Martin Proposals. Approval of the Share Issuance Proposal and the
consummation of the Merger are not conditioned upon approval of the Charter
Amendment Proposal.
As of January 1, 1998, directors and executive officers of Lockheed Martin
and their affiliates as a group beneficially owned 1,082,869 shares of
Lockheed Martin Common Stock, or approximately 0.9% of the outstanding shares
of Lockheed Martin Common Stock.
If fewer shares of Lockheed Martin Common Stock are voted in favor of the
Share Issuance Proposal than the number required for approval, it is expected
that the Lockheed Martin Stockholders Meeting will be postponed or adjourned
for the purpose of allowing additional time for soliciting and obtaining
additional proxies or votes and, at any subsequent reconvening of the Lockheed
Martin Stockholders Meeting, all proxies will be voted in the same manner as
such proxies would have been voted at the original convening of the Lockheed
Martin Stockholders Meeting, except for any proxies that have effectively been
revoked or withdrawn. Since the consummation of the Merger is not conditioned
on approval of the Charter Amendment Proposal, if fewer shares of Lockheed
Martin Common Stock are voted in favor of the Charter Amendment Proposal than
the number required for approval, it is expected that the Lockheed Martin
Stockholders Meeting will not be postponed or adjourned, unless the Share
Issuance Proposal also fails to obtain approval.
Northrop Grumman. The Northrop Grumman Board has fixed the close of business
on January 20, 1998, as the Northrop Grumman Record Date. Only holders of
record of shares of Northrop Grumman Common Stock on the Northrop Grumman
Record Date are entitled to notice of and to vote at the Northrop Grumman
Stockholders Meeting and any adjournments or postponements thereof. On the
Northrop Grumman Record Date, there were 67,310,563 shares of Northrop Grumman
Common Stock, held by approximately 10,804 stockholders of record, outstanding
and entitled to vote at the Northrop Grumman Stockholders Meeting.
Each holder of record of Northrop Grumman Common Stock on the Northrop
Grumman Record Date is entitled to one vote per share of Northrop Grumman
Common Stock held. The presence, in person or by proxy, of the holders of a
majority of the shares then issued and outstanding and entitled to vote at the
Northrop Grumman Stockholders Meeting is necessary to constitute a quorum at
the Northrop Grumman Stockholders Meeting.
Under the Northrop Grumman Certificate of Incorporation (the "Northrop
Grumman Certificate") and the Delaware General Corporation Law (the "Delaware
Corporate Law"), the affirmative vote, in person or by proxy, of the holders
of a majority of the shares of Northrop Grumman Common Stock outstanding on
the Northrop Grumman Record Date and entitled to vote on the Northrop Grumman
Proposal is required to approve the Northrop Grumman Proposal.
As of January 20, 1998, directors and executive officers of Northrop Grumman
and their affiliates as a group beneficially owned 1,186,027 shares of
Northrop Grumman Common Stock, or approximately 1.8% of the shares of the
outstanding Northrop Grumman Common Stock.
If fewer shares of Northrop Grumman Common stock are voted in favor of the
Northrop Grumman Proposal than the number required for approval, it is
expected that the Northrop Grumman Stockholders Meeting will be
16
postponed or adjourned for the purpose of allowing additional time for
soliciting and obtaining additional proxies or votes and, at any subsequent
reconvening of the Northrop Grumman Stockholders Meeting, all proxies will be
voted in the same manner as such proxies would have been voted at the original
convening of the Northrop Grumman Stockholders Meeting, except for any proxies
that have effectively been revoked or withdrawn.
PROXIES
Lockheed Martin. Stockholders of record of Lockheed Martin Common Stock may
vote by proxy using the toll-free number listed on their proxy card or they
may sign, date and mail their proxies in the postage paid envelope provided.
The telephone voting procedure is designed to authenticate votes cast by use
of a Personal Identification Number. The procedure allows Lockheed Martin
Stockholders to appoint a proxy to vote their shares and to confirm that their
instructions have been properly recorded. Specific instructions to be followed
by any stockholder of record interested in voting by telephone are set forth
on the enclosed proxy card.
All shares of Lockheed Martin Common Stock represented by properly executed
proxies (either signed and returned or by the toll-free telephone procedure
described above) received prior to or at the Lockheed Martin Stockholders
Meeting and not revoked, will be voted in accordance with the instructions
indicated in such proxies. If no instructions are indicated on a properly
executed and returned proxy, such proxy will be voted "FOR" the Lockheed
Martin Proposals. A properly executed proxy marked "ABSTAIN," although counted
for purposes of determining whether there is a quorum, will not be voted.
Because the affirmative vote of a majority of the shares of Lockheed Martin
Common Stock outstanding and entitled to vote on the Lockheed Martin Record
Date is required for approval of the Lockheed Martin Proposals, a proxy marked
"ABSTAIN" will have the effect of a vote against the Lockheed Martin
Proposals. Under New York Stock Exchange ("NYSE") rules, brokers and nominees
are precluded from exercising their voting discretion on the Share Issuance
Proposal and, for this reason, absent specific instructions from the
beneficial owner of shares, are not permitted to vote such shares on the Share
Issuance Proposal (a "broker non-vote"). However, under NYSE rules, brokers
and nominees are not precluded from exercising their discretion on the Charter
Amendment Proposal and therefore even without specific instructions from the
beneficial owner of shares may vote such shares. Because the affirmative vote
of the majority of the shares of Lockheed Martin Common Stock outstanding and
entitled to vote on the Share Issuance Proposal is required for approval of
the Share Issuance Proposal, a broker non-vote with respect to the Share
Issuance Proposal will have the effect of a vote against the Share Issuance
Proposal. Shares represented by broker non-votes will, however, be counted for
purposes of determining whether there is a quorum at the Lockheed Martin
Stockholders Meeting.
Each participant in certain Lockheed Martin savings and 401(k) plans will
receive an instruction card on which the participant may instruct a plan
fiduciary as to the voting of shares attributable to the participant's
account. Any allocated shares for which instructions are not received will be
voted by the applicable plan fiduciary in accordance with the terms of the
respective plan document. In addition, participants in the Lockheed Martin
Corporation Salaried Savings Plan may instruct a plan fiduciary as to the
voting of a portion of unallocated shares held by the plan's trust.
Unallocated shares for which no instructions are received are to be voted by a
plan fiduciary in the same proportion as unallocated shares for which
instructions are received. Participants in these plans will receive
information from a plan fiduciary concerning procedures for submitting
instructions to the applicable plan fiduciary.
Northrop Grumman. All shares of Northrop Grumman Common Stock represented by
properly executed proxies received prior to or at the Northrop Grumman
Stockholders Meeting and not revoked will be voted in accordance with the
instructions indicated on such proxies. If no instructions are indicated on a
properly executed and returned proxy, such proxy will be voted "FOR" the
Northrop Grumman Proposal. A properly executed proxy marked "ABSTAIN,"
although counted for purposes of determining whether there is a quorum, will
not be voted. Because the affirmative vote of a majority of the shares of
Northrop Grumman Common Stock outstanding on the Northrop Grumman Record Date
is required for approval of the Northrop Grumman Proposal,
17
a proxy marked "ABSTAIN" will have the effect of a vote against the Northrop
Grumman Proposal. Under NYSE rules, brokers and nominees are precluded from
exercising their voting discretion on the Northrop Grumman Proposal and, for
this reason, absent specific instructions from the beneficial owner of shares,
are not permitted to vote such shares on the Northrop Grumman Proposal.
Because the affirmative vote of a majority of the shares of Northrop Grumman
Common Stock outstanding on the Northrop Grumman Record Date is required for
approval of the Northrop Grumman Proposal, a broker non-vote with respect to
the Northrop Grumman Proposal will have the effect of a vote against the
Northrop Grumman Proposal. Shares represented by broker non-votes will,
however, be counted for purposes of determining whether there is a quorum at
the Northrop Grumman Stockholders Meeting.
General. It is not expected that any matter not referred to herein will be
presented for action at either of the Special Meetings. If any other matters
are properly brought before the Lockheed Martin Stockholders Meeting or the
Northrop Grumman Stockholders Meeting or any adjournments or postponements
thereof, the persons named in the proxies as proxy appointees will have
discretion to vote on such matters in accordance with their best judgment. The
grant of a proxy will also confer discretionary authority on the persons named
in the proxy as proxy appointees to vote in accordance with their best
judgment on matters incident to the conduct of the Special Meetings, including
(except as stated in the following sentence) postponement or adjournment for
the purpose of soliciting additional votes. However, shares represented by
proxies that have been voted "AGAINST" the Lockheed Martin Proposals or the
Northrop Grumman Proposal will not be used to vote "FOR" postponement or
adjournment of the Lockheed Martin Stockholders Meeting or the Northrop
Grumman Stockholders Meeting, for the purpose of allowing additional time for
soliciting additional votes "FOR" the Lockheed Martin Proposals or the
Northrop Grumman Proposal, as the case may be.
A Lockheed Martin Stockholder or Northrop Grumman Stockholder may revoke
that stockholder's proxy at any time prior to its use by delivering to the
Corporate Secretary of the appropriate corporation, as the case may be, a
signed notice of revocation, by a later dated vote by proxy (either signed and
returned or by the toll-fee telephone procedure described above), or by
attending the Lockheed Martin Stockholders Meeting or the Northrop Grumman
Stockholders Meeting, as the case may be, and voting in person. Attendance at
the Lockheed Martin Stockholders Meeting or the Northrop Grumman Stockholders
Meeting will not in itself constitute the revocation of a proxy.
Lockheed Martin and Northrop Grumman will each bear one-half of the cost of
printing and mailing this Joint Proxy Statement/Prospectus. The cost of
solicitation of proxies will be paid by Lockheed Martin for the Lockheed
Martin proxies and by Northrop Grumman for the Northrop Grumman proxies. In
addition to solicitation by mail, proxies may be solicited in person by
directors, officers and employees of Lockheed Martin or Northrop Grumman, as
the case may be, without additional compensation, and by telephone, telegram,
facsimile or similar method. Arrangements will be made with brokerage houses
and other custodians, nominees and fiduciaries to send proxy material to
beneficial owners; and Lockheed Martin and Northrop Grumman, as the case may
be, will, upon request, reimburse them for their reasonable expenses in so
doing. Lockheed Martin has retained Morrow & Co. to aid in the solicitation of
proxies at a fee of $30,000 plus expenses. Northrop Grumman has retained
Georgeson & Co. to aid in the solicitation of proxies at a fee of $12,000 plus
expenses. To the extent necessary in order to ensure sufficient representation
at the Lockheed Martin Stockholders Meeting and the Northrop Grumman
Stockholders Meeting, Lockheed Martin or Northrop Grumman, respectively, may
request by telephone or telegram the return of proxies. The extent to which
this will be necessary depends entirely upon how promptly proxies are
returned.
NORTHROP GRUMMAN STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
NORTHROP GRUMMAN COMMON STOCK WITH THE ENCLOSED PROXY CARD. A LETTER OF
TRANSMITTAL WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK CERTIFICATES FOR
NORTHROP GRUMMAN COMMON STOCK WILL BE MAILED TO NORTHROP GRUMMAN STOCKHOLDERS
AS SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
18
THE MERGER
BACKGROUND OF THE MERGER
Reductions in the Federal defense budget for research, development, test and
evaluation, and procurement over the last several years have caused continued
pressures on participants in the aerospace and defense industry to consolidate
in order to maintain critical mass and achieve production economies. Both
Lockheed Martin and Northrop Grumman have been active participants in the
consolidation of the industry. In light of the continuing consolidations in
the aerospace and defense industry, Lockheed Martin's management and the
Lockheed Martin Board periodically review Lockheed Martin's strategic plans,
which include the possibility of making acquisitions and entering into joint
ventures and business combinations with other aerospace companies.
On February 27, 1997, at a regularly scheduled meeting of the Lockheed
Martin Board, Mr. John E. Montague, Corporate Vice President, Financial
Strategies of Lockheed Martin, who regularly briefs the Board on developments
in the continuing consolidation of the industry and potential strategic
responses by Lockheed Martin to these developments, provided the Lockheed
Martin Board with a general overview of Northrop Grumman's business and
financial condition.
On March 26, 1997, Mr. Norman R. Augustine, the Chairman of the Board and
then Chief Executive Officer of Lockheed Martin met with Mr. Kent Kresa,
Chairman of the Board and Chief Executive Officer of Northrop Grumman. At this
meeting Mr. Augustine raised the possibility of a business combination between
Lockheed Martin and Northrop Grumman. The strategic benefits and potential
issues associated with such a transaction were discussed.
On April 9, 1997, Mr. Marcus C. Bennett, Executive Vice President and Chief
Financial Officer of Lockheed Martin, and Mr. Richard B. Waugh, Jr., Corporate
Vice President and Chief Financial Officer of Northrop Grumman, met to discuss
the overall strategic benefits of a business combination between Lockheed
Martin and Northrop Grumman and conducted a broad review of the financial
implications of such a transaction.
On April 10, 1997, Lockheed Martin and Northrop Grumman entered into a
confidentiality agreement relating to, among other things, the information to
be provided by each company to the other and limiting the ability of each
party for two years to acquire securities or assets of, or solicit proxies or
make a public announcement of a proposal for any extraordinary transaction
with respect to, the other party.
During April and May 1997, representatives of the two companies had several
meetings and telephone conversations reviewing various aspects of a possible
business combination.
On April 24, 1997, at a regularly scheduled meeting of the Lockheed Martin
Board, Mr. Montague updated the Lockheed Martin Board regarding the continued
consolidation in the industry and reviewed the proposed transaction with
Northrop Grumman and the benefits of such a transaction in light of such
consolidation. Mr. Augustine then discussed certain timing and other
considerations raised by the transaction, and the Lockheed Martin Board
instructed management to continue to pursue a transaction with Northrop
Grumman.
The Northrop Grumman Board held a special meeting in April 1997 at which it
was advised of the overture from Lockheed Martin regarding a potential
business combination. On May 21, 1997, at a regularly scheduled meeting of the
Northrop Grumman Board, Mr. Kresa updated the Northrop Grumman Board regarding
the status of discussions with Lockheed Martin.
On June 15, 1997, Mr. Augustine again met with Mr. Kresa. At this meeting,
Mr. Augustine made a proposal to Mr. Kresa with respect to a potential
transaction and presented the strategic and financial rationale for a
transaction.
During the second half of June, senior management of Lockheed Martin and
Northrop Grumman met with their respective financial advisors, Bear, Stearns &
Co. Inc. ("Bear Stearns") and Salomon Brothers Inc
19
("Salomon"), to discuss the June 15 Lockheed Martin proposal and the proposed
transaction structure and financial parameters.
On June 25, 1997, the Northrop Grumman Board held a special meeting to
consider the proposal from Lockheed Martin for a potential transaction.
Representatives of Northrop Grumman management made an extensive presentation
concerning strategic, operational and financial matters in relation to the
proposed transaction. The strategic review analyzed Northrop Grumman's
prospects on a stand-alone basis and concluded that, particularly taking into
account the uncertainties inherent in pursuing a course of independence, a
combination with Lockheed Martin at a per share consideration in the range of
the Exchange Ratio would produce a higher risk-adjusted return to Northrop
Grumman Stockholders. The strategic review also analyzed the likelihood and
quality of strategic fit of a Northrop Grumman combination with Boeing or
Raytheon, the other two most likely merger candidates, and concluded that a
combination with Lockheed Martin would produce a better strategic fit than
these alternatives. Lockheed Martin was viewed as the strongest strategic
partner and presented the greatest opportunity for cost savings because
Northrop Grumman believed that Lockheed Martin best complemented Northrop
Grumman in each of Northrop Grumman's business segments (i.e., military
aircraft, commercial aerostructures, military electronics, missiles and
weapons, systems integration and information systems). In contrast, Raytheon's
business (after consummation of its then pending acquisitions of the defense
businesses of each of Texas Instruments Incorporated and Hughes Electronics
Corporation) was concentrated in the military electronics and missiles and
weapons segments, including the airborne surveillance and air-to-air weapons
sectors, and would only modestly complement Northrop Grumman's other business
segments. Conversely, Boeing's business (after consummation of its then
pending acquisition of McDonnell Douglas Corporation) was focused on
commercial aerostructures and military aircraft and had only a modest
potential to complement in Northrop Grumman's other business segments. In
addition, Boeing and Raytheon were fully engaged in consummating other large
strategic mergers and there was no assurance whether or when either company
might be in a position to contemplate a combination with Northrop Grumman or
wish to do so. Salomon also reviewed financial information concerning Northrop
Grumman, Lockheed Martin, and the proposed combined entity, and various issues
associated with the proposed transaction. At the conclusion of the meeting,
the Northrop Grumman Board directed management to continue its discussions of
a possible transaction with Lockheed Martin.
On June 27, 1997, the Lockheed Martin Board met and discussed the potential
strategic benefits of a transaction with Northrop Grumman and the associated
valuation parameters. At that meeting, the Lockheed Martin Board instructed
management to continue discussions with Northrop Grumman.
Between June 28 and July 2, 1997, each company conducted a detailed due
diligence review of the other, and representatives of the two companies
negotiated the terms of the Merger Agreement.
During the course of the negotiations related to the Merger, at various
times the parties' discussions revolved around proposed exchange ratios
ranging from those that would produce a modest premium over then-current
trading levels for Northrop Grumman Common Stock to those that would produce
substantial premiums. In addition to varying as a result of negotiations, the
ratios considered varied as a result of changes in the transaction structure
and form of consideration under discussion. The two companies' financial
advisers provided input during the course of these discussions as to the
appropriateness of the exchange ratios under discussion. The 1.1923 Exchange
Ratio to which the two companies ultimately agreed was the result of arm's-
length negotiations.
A special meeting of the Lockheed Martin Board was held commencing on the
evening of July 2 and continuing into the morning of July 3, 1997 to consider
the proposed transaction. Mr. Augustine reviewed for the Lockheed Martin Board
the background of the proposed transaction, including his overview of and
outlook for the aerospace and defense industry generally and for Lockheed
Martin in particular. Senior management then reported the results of Lockheed
Martin's due diligence review of Northrop Grumman's organization, business,
management, financial condition and other matters. Dewey Ballantine LLP,
Lockheed Martin's outside legal counsel with respect to the transaction,
reviewed with the Lockheed Martin Board the duties of directors in considering
such a transaction. Mr. Frank H. Menaker, Jr., Senior Vice President and
General Counsel of Lockheed Martin, reviewed various legal issues relating to
Northrop Grumman and the potential transaction as
20
well as the provisions of the proposed Merger Agreement. Bear Stearns reviewed
the financial analysis and valuation it conducted with respect to the proposed
transaction and delivered to the Lockheed Martin Board its written opinion to
the effect that the Merger was fair, from a financial point of view, to
Lockheed Martin Stockholders. After receiving such advice and after reviewing
additional information relating to the transaction, the Lockheed Martin Board
unanimously approved the Merger and the Merger Agreement.
A special meeting of the Northrop Grumman Board was held on the evening of
July 2, and continued into the morning of July 3, 1997 to consider the
proposed transaction. Members of management reviewed material aspects of the
proposed transaction and reported on the due diligence review of Lockheed
Martin's business and financial condition and related issues. Fried, Frank,
Harris, Shriver & Jacobson, Northrop Grumman's outside legal counsel with
respect to the transaction, reviewed various provisions of the proposed Merger
Agreement and the fiduciary duties of the Northrop Grumman Board. Salomon
reviewed and updated the financial analysis of the transaction it had
presented to the Board on June 25, 1997 and advised that the Exchange Ratio
was fair to Northrop Grumman Stockholders from a financial point of view.
After receiving such reports and advice and reviewing additional information
relating to the transaction, the Northrop Grumman Board unanimously approved
the Merger and the Merger Agreement (with two outside directors absent, each
of whom has indicated that he would have voted in favor of the Merger).
Following the meetings of their respective Boards of Directors, Lockheed
Martin and Northrop Grumman executed the Merger Agreement and publicly
announced the Merger prior to the opening of trading on July 3, 1997.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Lockheed Martin.
THE LOCKHEED MARTIN BOARD, BY UNANIMOUS VOTE, HAS DETERMINED THAT THE MERGER
IS FAIR TO, AND IN THE BEST INTERESTS OF, LOCKHEED MARTIN AND ITS
STOCKHOLDERS. THE LOCKHEED MARTIN BOARD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE SHARE ISSUANCE PROPOSAL.
The Lockheed Martin Board believes that the Merger represents an excellent
strategic alternative for Lockheed Martin and that it will enhance Lockheed
Martin's position as a leading global aerospace and defense company. The
Lockheed Martin Board also believes that the Merger will provide important
economies of scale for Lockheed Martin that will further solidify Lockheed
Martin's stable program base by enabling Lockheed Martin to make its products
and services more competitive across a wide range of commercial, civil,
defense and international businesses.
In reaching its determination to approve the Merger Agreement and recommend
approval of the Share Issuance Proposal, the Lockheed Martin Board considered
a number of factors, including without limitation, the following:
. the present and anticipated environment in the aerospace and defense
industry, the strategic options available to Lockheed Martin and the
effects on Lockheed Martin of potential further consolidation within the
industry;
. the judgment, advice and analysis of Lockheed Martin's management with
respect to the strategic, financial and operational benefits of the
Merger, based in part on the business, financial, accounting, and legal
due diligence investigations performed with respect to Northrop Grumman;
. the fact that the Merger would further reduce the dependence of Lockheed
Martin on any single project or program and the associated risk of
cessation of a project or program;
. the synergies, cost reductions and operating efficiencies that may be
realized by the combined company as a result of the Merger which, if
realized, should serve to make the combined company more competitive;
21
. the Lockheed Martin Board's belief that its systems integration
leadership would be enhanced by the Merger;
. information concerning the financial condition, results of operations,
businesses, prospects and stock price performance of Lockheed Martin and
Northrop Grumman;
. current industry, economic and market conditions;
. the terms and conditions of the Merger Agreement and the Exchange Ratio,
which were considered fair from the standpoint of Lockheed Martin in
light of the financial condition, results of operations, businesses,
prospects and stock price performance of Lockheed Martin and Northrop
Grumman; and
. the opinion of Bear Stearns that the terms of the Merger are fair, from a
financial point of view, to Lockheed Martin Stockholders. Bear Stearns'
opinion was expressed after review of the factors referred to therein and
was based on various assumptions and subject to various limitations which
were reviewed for the Lockheed Martin Board as part of the presentation
by Bear Stearns; see "Opinion of Financial Advisors--Lockheed Martin."
In addition, the Lockheed Martin Board considered certain factors which may
be characterized as countervailing considerations, including, without
limitation, the following:
. the fact that, based on the recent trading prices for Lockheed Martin
Common Stock and Northrop Grumman Common Stock immediately prior to the
announcement of the Merger, the Northrop Grumman Stockholders would
receive a substantial premium over the then current market price of
Northrop Grumman Common Stock;
. the risks inherent in attempting to successfully integrate the operations
of Northrop Grumman into Lockheed Martin and the difficulties that may be
encountered in achieving the anticipated synergies from the Merger;
. the possibility that the transaction would have to be accounted for using
the purchase method of accounting which would require the amortization
over a period of time of the excess of the purchase price over the fair
value of Northrop Grumman's identified net assets, and which would, using
management's projections, result in dilution to Lockheed Martin's
earnings per share; and
. the employment, severance and other arrangements between Northrop Grumman
and certain officers and directors as described below under the caption
"Interests of Certain Persons in the Merger."
The foregoing discussion of the information and factors considered and given
weight by the Lockheed Martin Board is not intended to be exhaustive but is
believed to include all material factors considered by the Lockheed Martin
Board. In addition, in reaching the determination to approve the Merger
Agreement and recommend approval of the Share Issuance Proposal, in view of
the wide variety of factors considered in connection with its evaluation
thereof, the Lockheed Martin Board did not assign any relative or specific
weights to the foregoing factors, and individual directors may have given
differing weights to the different factors. The Lockheed Martin Board did not
attempt to analyze the fairness of the Merger in isolation from the
considerations as to the businesses of Lockheed Martin and Northrop Grumman,
the strategic merits of the Merger or the other considerations referred to
above. The Lockheed Martin Board also did not distinguish between factors that
support a determination that the Merger is "fair" and factors that support a
determination that the Merger is in the "best interests" of Lockheed Martin's
stockholders.
Northrop Grumman.
THE NORTHROP GRUMMAN BOARD, BY UNANIMOUS VOTE OF THE DIRECTORS PRESENT AND
PARTICIPATING AT THE JULY 2, 1997 SPECIAL MEETING, HAS APPROVED THE MERGER
AGREEMENT, BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
NORTHROP GRUMMAN AND ITS STOCKHOLDERS, AND RECOMMENDS THAT NORTHROP GRUMMAN
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER.
22
The Northrop Grumman Board believes that the Merger will create a leading
aerospace and defense company which will have the critical mass necessary to
compete effectively in the current environment of lower defense procurement
spending and increased industry consolidation. The combined company would be
among the largest aerospace companies in the world, with strong capabilities
in commercial and military aircraft, defense and space systems, defense
electronics and data services. The Northrop Grumman Board believes that
Northrop Grumman Stockholders will benefit by participation in the economic
growth of a combined Northrop Grumman and Lockheed Martin, and from the
inherent increase in economies of scale, product and market diversification
and increased financial flexibility and strength of the combined company.
In reaching its determination to recommend approval of the Merger, the
Northrop Grumman Board considered the factors set forth below, certain of
which factors contained positive and negative elements:
. the present and anticipated environment in the aerospace and defense
industry, in particular the decline in the U.S. defense procurement
budget, and the rapid and continuing consolidation within the industry;
. management's evaluation of possible other strategic options available to
Northrop Grumman and their relative advantages and disadvantages;
. the belief that the Merger will allow the combined company to improve
operating efficiency, rationalize expenditures and reduce costs, thus
increasing competitiveness;
. the fact that the Merger will result in the combined company holding
competitive positions in key segments of the aerospace industry and will
strengthen its prospects in commercial, defense and international
businesses;
. presentations from and discussions with Northrop Grumman management
regarding the results of business and legal due diligence performed with
respect to Lockheed Martin;
. the presentation of Salomon to the Northrop Grumman Board as described
under "Opinion of Financial Advisors--Northrop Grumman" and the opinion
of Salomon to the effect that, as of July 2, 1997, the Exchange Ratio is
fair from a financial point of view to the Northrop Grumman Stockholders
(the "Salomon Opinion"). The Salomon Opinion was delivered after review
of the factors referred to therein and various financial criteria used in
assessing an offer, and was based on various assumptions and subject to
various limitations, which were reviewed for the Northrop Grumman Board
as part of the presentation by Salomon; see "Opinions of Financial
Advisors--Northrop Grumman";
. financial information indicating that the Exchange Ratio represented $124
in the form of Lockheed Martin Common Stock for each share of Northrop
Grumman Common Stock, based on the last reported sale price of Lockheed
Martin Common Stock as reported on the NYSE Composite Transactions Tape
on Wednesday, July 2, 1997, the last trading day prior to execution of
the Merger Agreement, which amount represented a premium of 39.5% over
the last reported sale price of Northrop Grumman Common Stock on such
date and a premium of 45% over the average trading price of Northrop
Grumman Common Stock for the 30 trading days ending on such date;
. the terms and conditions of the Merger Agreement, including the Exchange
Ratio and the fact that the Exchange Ratio is expressed in the Merger
Agreement as a fixed ratio;
. the complications involved in the successful integration of the
businesses and managements of two companies with distinct business
cultures, including the consolidation of functions, the integration of
departments, systems and procedures, and the relocation of staff;
. the risk of program cancellation and employee layoffs; and
. the fact that the Merger Agreement expressly permitted Lockheed Martin to
consummate a transaction with General Electric Company similar in nature
to the GE Transaction (the "Proposed GE Transaction"), provided that
Lockheed Martin received a fairness opinion from an independent banking
firm of a national reputation reasonably satisfactory to Northrop
Grumman, that in such event the Merger would be accounted for as a
purchase rather than a pooling-of-interests, and that Salomon had taken
these possible events into account in rendering the Salomon Opinion.
23
The foregoing discussion of the information and factors considered and given
weight by the Northrop Grumman Board is not intended to be exhaustive but is
believed to include all material factors considered by the Northrop Grumman
Board. In addition, in reaching the determination to approve and recommend
approval and adoption of the Merger Agreement, in view of the wide variety of
factors considered in connection with its evaluation thereof, the Northrop
Grumman Board did not assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to the
different factors. The Northrop Grumman Board did not attempt to analyze the
fairness of the Exchange Ratio in isolation from the considerations as to the
businesses of Lockheed Martin and Northrop Grumman, the strategic merits of
the Merger or the other considerations referred to above. The Northrop Grumman
Board also did not distinguish between factors that support a determination
that the Merger is "fair" and factors that support a determination that the
Merger is in the "best interests" of Northrop Grumman's stockholders.
The Board of Directors of Northrop Grumman reviewed the GE Transaction at a
regularly scheduled meeting on November 19, 1997. At that meeting, Northrop
Grumman's management and Salomon (having reviewed information regarding the GE
Transaction provided by Northrop Grumman and Lockheed Martin) made a
presentation to the Northrop Grumman Board with regard to the GE Transaction
and its pro forma financial impact on the combined entity, during which
Northrop Grumman management informed the Northrop Grumman Board that the
fairness opinion contemplated by the Merger Agreement had been obtained by
Lockheed Martin. The Northrop Grumman Board discussed the GE Transaction and
concluded that it was not materially different from the Proposed GE
Transaction, and Salomon informed the Northrop Grumman Board that, based on
the information reviewed, the GE Transaction as consummated did not require
Salomon to change the Salomon Opinion.
OPINIONS OF FINANCIAL ADVISORS
Lockheed Martin.
The Lockheed Martin Board selected Bear Stearns as its financial advisor in
connection with the Merger. The Lockheed Martin Board selected Bear Stearns to
act as its financial advisor and to render its opinion in connection with the
Merger based on Bear Stearns' qualifications, expertise and reputation in
providing advice to companies in the aerospace and defense electronics
industries as well as its prior investment banking relationship and
familiarity with Lockheed Martin.
Bear Stearns delivered its written opinion to the Lockheed Martin Board (the
"Bear Stearns Opinion") to the effect that, as of July 2, 1997 and as of
October 13, 1997, the Merger was fair, from a financial point of view, to the
stockholders of Lockheed Martin.
The full text of the Bear Stearns Opinion is attached as Appendix II to this
Joint Proxy Statement/ Prospectus. Bear Stearns has consented to the inclusion
of the Bear Stearns Opinion in this Joint Proxy Statement/Prospectus and
references thereto under this section. Lockheed Martin Stockholders are urged
to, and should, read this opinion carefully in its entirety in conjunction
with this Joint Proxy Statement/Prospectus for assumptions made, matters
considered and limits of the review by Bear Stearns. No limitations were
imposed by the Lockheed Martin Board upon Bear Stearns with respect to the
investigations made or procedures followed by Bear Stearns in rendering its
opinion, except that Bear Stearns was not provided with information regarding
government classified programs of Lockheed Martin or Northrop Grumman. Bear
Stearns was not requested to solicit and did not solicit indications of
interest from third parties with respect to a business combination with
Lockheed Martin. Bear Stearns' opinion addresses only the fairness of the
Merger from a financial point of view and does not constitute a recommendation
to any Lockheed Martin Stockholder as to how such stockholder should vote on
the Share Issuance Proposal. The summary of the opinion of Bear Stearns set
forth in this Joint Proxy Statement/Prospectus is qualified in its entirety by
reference to the full text of such opinion.
In rendering the Bear Stearns Opinion, Bear Stearns, among other things: (i)
reviewed the Merger Agreement in final form as provided to Bear Stearns, (ii)
reviewed Lockheed Martin's and Northrop Grumman's
24
respective Annual Reports to Stockholders and Annual Reports on Form 10-K for
the fiscal years ended December 31, 1996 and 1995, and Quarterly Reports on
Form 10-Q for the period ended March 31, 1997, (iii) reviewed certain
operating and financial information provided by the managements of Lockheed
Martin and Northrop Grumman relating to such businesses, including internal
projections of future financial results, (iv) had discussions with certain
members of the senior management of Lockheed Martin and Northrop Grumman
concerning their respective companies' operations, historical financial
statements and future prospects, and their views of the business, operational
and strategic benefits, potential synergies and tax and other implications of
the Merger, (v) reviewed the pro forma financial impact of the Merger on
Lockheed Martin, (vi) reviewed the historical stock prices and trading volumes
of the Lockheed Martin Common Stock and the Northrop Grumman Common Stock,
(vii) reviewed the publicly available financial information and stock market
performance data of other publicly held companies which Bear Stearns deemed
generally comparable to Lockheed Martin and Northrop Grumman, (viii) reviewed
the financial terms of certain other recent acquisitions of companies which
Bear Stearns deemed generally comparable to Lockheed Martin and Northrop
Grumman and (ix) conducted such other studies, analyses, inquiries and
investigations which Bear Stearns deemed appropriate.
Bear Stearns relied upon and assumed, without independent verification, the
accuracy and completeness of all of the financial and other information
provided to it for purposes of its opinion. In addition, Bear Stearns did not
make or seek to obtain appraisals of Lockheed Martin's or Northrop Grumman's
assets and liabilities in rendering its opinion. Bear Stearns further relied
upon the assurances of the managements of Lockheed Martin and Northrop Grumman
that the managements were not aware of any facts that would make the
information provided to Bear Stearns incomplete or misleading. Bear Stearns'
opinion is necessarily based upon the economic, market and other conditions as
in effect on, and the information made available to it as of, the date of its
opinion. Consummation of the GE Transaction precludes accounting for the
Merger using pooling of interests accounting. Prior to consummation of the GE
Transaction, Lockheed Martin reviewed the transaction in detail with Bear
Stearns and on October 13, 1997, Bear Stearns amended its opinion reaffirming
Bear Stearns' earlier opinion, this time upon the assumption that the Merger
would be accounted for using purchase accounting. The change to purchase
accounting had an effect on Bear Stearns' Pro Forma Merger Analysis but did
not impact Bear Stearns' overall valuation of the transaction.
The following is a brief summary of the material financial analyses used by
Bear Stearns in connection with providing its opinion to the Lockheed Martin
Board.
Discounted Cash Flow Valuation. Using a discounted cash flow ("DCF")
analysis, Bear Stearns calculated the implied present value per share of
Northrop Grumman Common Stock based on the estimated unlevered free cash flows
that Northrop Grumman could produce on a stand-alone basis over the five-year
period from fiscal year end 1998 through fiscal year end 2002 provided by
Northrop Grumman's management (after giving effect to operating synergies or
other efficiencies arising from the Merger estimated at $150 million in 1998,
$210 million in 1999, $240 million in 2000 and $250 million in 2001, there
being no assurance that such synergies or efficiencies will be realized) and
various terminal value multiple ranges based on private and public market
values. Bear Stearns derived the implied per share value reference range based
on (a) the sum of (i) the discounted value (using various discount rates,
representing the weighted average cost of capital ("WACC") for Northrop
Grumman ranging from 9.0% to 12.0%) of the five-year estimated unlevered free
cash flows of Northrop Grumman, plus (ii) the discounted value (using
identical WACCs) of the product of (A) projected earnings before interest,
taxes, depreciation and amortization ("EBITDA"), earnings before interest and
taxes ("EBIT") and Net Income for 2002 and (B) various multiple ranges, less
(b) total debt, net of cash at March 31, 1997. Using terminal value multiple
ranges of 14.0x to 15.0x net income, 9.0x to 10.0x EBIT, and 7.0x to 8.0x
EBITDA, Bear Stearns derived an implied equity value range of $113.01 to
$127.29 per share. That range was comparable to the implied value per share in
the Merger of $124.00 based on the Exchange Ratio and the closing price of
Lockheed Martin Common Stock on July 2, 1997 and supported Bear Stearn's
conclusion that the transaction was fair, from a financial point of view, to
the stockholders of Lockheed Martin.
Comparable Company Analysis. Bear Stearns reviewed and compared certain
actual and estimated financial, operating and market information of Northrop
Grumman with that of six selected publicly traded companies in the aerospace
and/or defense electronics business (Lockheed Martin, Boeing, General
Dynamics,
25
Litton Industries, Raytheon, and Tracor, together the "Comparable Companies")
that Bear Stearns believed to be comparable in certain relevant respects
(including, but not limited to, size, customer base, product portfolio and
industry niche) to Northrop Grumman. Bear Stearns calculated certain financial
multiples for each of the Comparable Companies, including stock price to
earnings per share ("P/E") multiples based on 1998 and 1999 earnings per share
("EPS") estimates (based on published research reports) and enterprise value
as a multiple of 1998 estimated revenues, operating cash flow and operating
income. This analysis resulted in (i) harmonic means for estimated P/E
multiples for 1998 and 1999 of 14.0x and 12.6x, respectively, for the
Comparable Companies compared to 12.6x for Northrop Grumman based on July 2,
1997 stock prices (the "Current Stock Price"), and (ii) harmonic mean
multiples of enterprise value to 1998 estimated revenues, 1998 estimated
operating cash flow and 1998 estimated operating income of 0.90x, 7.3x and
9.5x for the Comparable Companies compared with 1.01x, 6.7x, and 9.5x,
respectively, for Northrop Grumman based on the Current Stock Price. The
harmonic mean is calculated by using the reciprocal value of the multiples.
The harmonic mean measurement gives weight to equal dollar investments in the
securities whose ratios have been averaged. This analysis also resulted in a
range of (i) estimated P/E multiples for 1998 and 1999 of 12.6x to 15.6x and
11.6x to 13.9x, respectively, for the Comparable Companies and (ii) enterprise
value to 1998 estimated revenues, 1998 estimated operating cash flow, and 1998
estimated operating income of 0.66x to 1.20x, 5.9x to 8.3x, and 7.8x to 10.8x,
respectively, for the Comparable Companies. Bear Stearns observed that the
foregoing multiples for Northrop Grumman were within the corresponding range
of multiples for the Comparable Companies and, consequently, concluded that
Northrop Grumman's stock appeared to be fairly valued in the market.
Selected Acquisition Analysis. Bear Stearns also reviewed other transactions
involving the acquisition or proposed acquisition of all or part of certain
companies in the aerospace and/or defense electronics industries (the
"Selected Acquisitions"). The Selected Acquisitions were comprised of Northrop
Grumman/Logicon, Raytheon/Hughes Defense, Raytheon/TI Defense,
Boeing/McDonnell Douglas, Boeing/Rockwell, Raytheon/ Chrysler Technologies,
Litton/Sperry Marine, Lockheed Martin/Loral, Northrop Grumman/Westinghouse
ESG, Hughes Electronics/Magnavox, Raytheon/E-Systems, Loral/Unisys Defense
Systems, Northrop/Grumman, Loral/IBM Federal Systems, and Martin Marietta/GE
Aerospace. These were selected from a universe of over 35 acquisitions in the
aerospace and/or defense electronics industry. Bear Stearns believed the
Selected Acquisitions were the most comparable to the proposed transaction on
the basis of customer base, product portfolio and other market-related
considerations. The Selected Acquisitions dated from 1992 or later. Bear
Stearns calculated certain financial multiples for each of the Selected
Acquisitions, including equity value as a multiple of 1998 estimated net
income (17.7x for the Northrop Grumman transaction and 20.8x, 25.5x, 17.3x,
15.8x, 16.1x, 15.4x, 16.3x, 18.1x, 19.1x, 15.9x, 16.5x, 11.6x, 17.6x, 14.8x,
and 9.7x for all of the above listed Selected Acquisitions, respectively),
implied enterprise value as a multiple of 1998 estimated revenues (1.26x for
the Northrop Grumman transaction and 1.11x, 1.43x, 1.66x, 0.97x, 0.97x, 0.87x,
0.95x, 1.34x, 1.3x, 0.92x, 0.99x, 0.71x, 0.67x, 0.67x, 0.56x for all of the
above listed Selected Acquisitions, respectively), and 1998 estimated
operating cash flow (8.3x for the Northrop Grumman transaction and 10.2x,
10.8x, 9.5x, 7.7x, 8.8x, 6.8x, 8.7x, 8.6x, 7.1x, 8.3, 6.0x, 7.5x, 5.8x, and
5.9x for the Northrop Grumman/Logicon, Raytheon/Hughes Defense, Raytheon/TI
Defense, Boeing/McDonnell Douglas, Boeing/Rockwell, Raytheon/Chrysler
Technologies, Lockheed Martin/Loral, Northrop Grumman/Westinghouse ESG, Hughes
Electronics/Magnavox, Ratheon/E-Systems, Loral/Unisys Defense Systems,
Northrop/Grumman, Loral/IBM Federal Systems, and Martin Marietta/GE Aerospace,
respectively), and 1998 estimated operating income (11.8x for the Northrop
Grumman transaction and 11.7x, 14.2x, 12.3x, 9.0x, 12.9x, 9.3x, 7.4x, 11.9x,
10.7x, 9.5x, 10.4x, 7.4x, 10.2x, 9.7x, and 8.4x for all of the above listed
Selected Acquisitions, respectively) in each case, as of the time of the
announcement of the transaction, and compared the resulting multiples to the
implied multiples of the Northrop Grumman transaction. Bear Stearns observed
that the foregoing multiples for the proposed Northrop Grumman transaction
were within the range of multiples for the Selected Acquisitions, and,
consequently, concluded that the proposed transaction value for Northrop
Grumman and the implied equity value for Northrop Grumman based on the
proposed transaction appeared to be fairly valued.
Bear Stearns noted that no company used in the comparable company analysis
summarized above is identical to Northrop Grumman and no transaction utilized
in the above selected acquisition analysis summarized
26
above is identical to the Merger. Accordingly, any such analysis of their
fairness in the Merger involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Comparable Companies and the Selected Acquisitions and other factors that
could affect the public trading and acquisition values.
Relative Contribution Analysis. Bear Stearns analyzed the pro forma
contribution of each of Lockheed Martin and Northrop Grumman to the combined
entity, if the Merger were to be consummated, and reviewed certain historical
and estimated future operating and financial information including, among
other things, the revenue, operating cash flow, operating income and net
income of Lockheed Martin and Northrop Grumman, and the pro forma revenue,
operating cash flow, operating income and net income of the combined entity
resulting from the Merger, based on internal financial analyses and forecasts
for Lockheed Martin and Northrop Grumman prepared by their respective
managements. Such analyses did not take into account any potential synergies
or cost savings that might be realized after the Merger. Such analyses
indicated that, based on management forecasts, for 1998 Lockheed Martin would
contribute to pro forma (i) sales, (ii) operating cash flow, (iii) operating
income and (iv) net income of the combined entity resulting from the Merger
the respective amounts of (i) 76.6%, (ii) 75.7%, (iii) 76.1% and (iv) 75.8%,
with similar estimated respective amounts for 1999 being (i) 75.3%, (ii)
74.9%, (iii) 75.8% and (iv) 75.0%, and for 2000 being (i) 74.3%, (ii) 74.9%,
(iii) 75.3 and (iv) 74.6%. Bear Stearns observed that such amounts were
comparable to the approximately 73.5% of the pro forma fully diluted number of
shares for the combined entity to be owned by former Lockheed Martin common
stockholders after the Merger. Bear Stearns noted that the contribution
analysis did not consider the different valuation multiples, such as the
price-earnings multiples, that the market ascribed to Lockheed Martin and
Northrop Grumman both on a current basis and on a historical basis.
Historical Stock Trading Analysis. Bear Stearns reviewed the historical
public trading prices of Lockheed Martin Common Stock and of Northrop Grumman
Common Stock on a weekly basis from January 7, 1994 through and including June
27, 1997. Bear Stearns also reviewed both the historical ratio of the public
trading price per share of Lockheed Martin Common Stock to the public trading
price per share of Northrop Grumman Common Stock on a daily basis from July 2,
1996 through and including July 2, 1997, as well as the average public trading
prices of Northrop Grumman Common Stock and Lockheed Martin Common Stock over
periods ranging from the 5 to the 30 days immediately preceding July 2, 1997.
Such analysis indicated that the ratio of the average public trading price per
share of Lockheed Martin Common Stock to the average public trading price per
share of Northrop Grumman Common Stock ranged from 1.1324 for the 30 days
preceding July 2, 1997 to 1.1696 for the 5 days preceding July 2, 1997. From
the week ended January 7, 1994 to the week ended June 27, 1997, the ratio of
the closing price of Lockheed Martin Common Stock at the end of each week to
the closing price of Northrop Grumman Common Stock at the end of each week
ranged from 1.0870 to 1.1722. Over the 12-month period ended July 2, 1997, the
ratio of public trading prices of Lockheed Martin Common Stock to Northrop
Grumman Common Stock ranged from a high of 1.2779 to a low of 1.0355. Bear
Stearns observed that the Northrop Grumman Exchange Ratio of 1.1923 was within
the range of the ratios of the public trading prices of Lockheed Martin Common
Stock to Northrop Grumman Common Stock and supported the conclusion that the
Northrop Grumman Exchange Ratio was fair to the stockholders of Lockheed
Martin.
Pro Forma Merger Analysis. Bear Stearns analyzed earnings per share
estimates for 1998, 1999 and 2000 for both Lockheed Martin and, on a pro forma
basis, for the combined entity after the Merger. The analyses were based upon
projections provided by the managements of Lockheed Martin and Northrop
Grumman, and consensus research analysts' estimates. Such analyses took into
account the effect of pre-tax cost savings and other synergies of $150 million
in 1998, $210 million in 1999, $240 million in 2000 and $250 million in 2001
that might be realized after the Merger, there being no assurance that such
cost savings and synergies will be realized. Based on managements'
projections, such analyses showed dilution in the fully diluted earnings per
share resulting from the Merger of 6.4%, 2.9% and 1.5% for the years 1998,
1999 and 2000, respectively. Bear Stearns had also performed the same analysis
using pooling accounting, and such analysis had shown a non-dilutive effect on
earnings per share in 1998 with an increasingly accretive effect in 1999 and
2000. However, based upon the fact that the change from pooling to purchase
accounting had no effect on the other analyses
27
performed by Bear Stearns, Bear Stearns concluded that its opinion regarding
the fairness of the transaction, from a financial point of view, to the
stockholders of Lockheed Martin was not altered by the accounting change.
Imputed Equity Valuation Analysis. Bear Stearns derived a range of values
(i.e., a "reference range") to compare the equity value per fully diluted
share of Lockheed Martin Common Stock to the equity value per fully diluted
share of the combined entity after the Merger, in order to analyze the
fairness of the Merger to the stockholders of Lockheed Martin from a financial
point of view. The reference range of values was based on the range of results
of Bear Stearns' analyses including (i) a discounted cash flow analysis (see
"Discounted Cash Flow Valuation" above), (ii) an analysis of selected
comparable companies in the aerospace and defense electronics industries, and
(iii) an analysis of selected transactions in the aerospace and defense
industries (see "Selected Acquisition Analysis" above).
Based upon a reference range of values for Northrop Grumman determined by
Bear Stearns to be $11.5 billion to $12.0 billion, and after making certain
adjustments for cash, debt outstanding, and option proceeds, Bear Stearns
derived an imputed equity value per share for Northrop Grumman ranging from
$120.15 to $127.29, based upon the fully diluted number of shares. That range
was comparable to the implied value per share in the Merger of $124.00 based
on the Exchange Ratio and the closing price of Lockheed Martin Common Stock on
July 2, 1997 and supported Bear Stearns' conclusion that the transaction was
fair, from a financial point of view, to the Lockheed Martin Stockholders. As
part of the reference range of value, Bear Stearns considered, for analytical
purposes, the effect of pretax cost savings and other synergies of $150
million in 1998, $210 million in 1999, $240 million in 2000 and $250 million
in 2001 that might be realized after the Merger. The synergies and other
adjustments were based on amounts estimated by the management of Lockheed
Martin. Bear Stearns expressed no view on when or whether the aforementioned
cost savings or synergies could be obtained. No assurances can be given that
cost savings and synergies, if any, in the amount estimated will be realized
as a result of the Merger.
Other Analyses. Bear Stearns conducted such other analyses as it deemed
necessary, including reviews of selected investment research reports on, and
earnings estimates for, Lockheed Martin and Northrop Grumman, and analyses of
available information regarding the stock ownership of Lockheed Martin and
Northrop Grumman.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analysis as a whole, could create an incomplete view of the
processes underlying the Bear Stearns Opinion. In arriving at its opinion,
Bear Stearns considered the results of all such analyses. The analyses were
prepared solely for purposes of providing its opinion as to the fairness of
the Merger to Lockheed Martin and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. As described above, Bear Stearns'
opinion and presentation to the Lockheed Martin Board was one of many factors
taken into consideration by the Lockheed Martin Board in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Bear
Stearns.
In the ordinary course of its business, Bear Stearns may actively trade the
equity securities of Lockheed Martin and Northrop Grumman for its own account
and for the accounts of customers and, accordingly, may, at any time, hold a
long or short position in such securities.
Pursuant to a letter agreement, dated July 2, 1997, Lockheed Martin has paid
Bear Stearns a fee of $9.0 million for rendering its opinion in conjunction
with the Merger, and will pay an additional fee of $20.0 million only upon
completion of the Merger. Lockheed Martin has also agreed to reimburse Bear
Stearns for its reasonable out-of-pocket expenses, including the reasonable
fees and disbursements of counsel, and to indemnify Bear Stearns and certain
related persons against certain liabilities in connection with the engagement
of Bear Stearns, including certain liabilities under the federal securities
laws. In the opinion of the Commission, indemnification for liabilities
arising under the Securities Act is against public policy as expressed in the
28
Securities Act and is therefore, in its view, unenforceable. Bear Stearns,
from time to time, has also rendered investment banking and other financial
advisory services to Lockheed Martin, for which it received customary fees in
conjunction with these services.
Northrop Grumman
Salomon has acted as the financial advisor to Northrop Grumman in connection
with the Merger. Salomon delivered its oral opinion to the Northrop Grumman
Board on July 2, 1997 and confirmed such opinion in writing by delivery of the
Salomon Opinion.
As described above, the opinion and presentation of Salomon to the Northrop
Grumman Board, in connection with which Salomon was requested to evaluate,
among other things, the fairness of the consideration to be received by the
Northrop Grumman Stockholders, was only one of many factors taken into
consideration by the Northrop Grumman Board in making its determination to
approve the Merger Agreement. The terms of the Merger were determined through
negotiations between Northrop Grumman and Lockheed Martin, and were approved
by the Northrop Grumman Board. Although Salomon provided advice to Northrop
Grumman during the course of these negotiations, the decision to enter into
the Merger Agreement and to accept the Exchange Ratio contemplated in the
Merger Agreement was solely that of the Northrop Grumman Board.
The full text of the Salomon Opinion, which sets forth the assumptions made,
general procedures followed, matters considered and limitations on the review
undertaken by Salomon, is attached hereto as Appendix III. Salomon has
consented to the inclusion of the Salomon Opinion and to the inclusion of the
summary thereof herein. In giving such consent, Salomon does not concede that
it comes within the category of persons whose consent is required under
Section 7 of the Securities Act, or the rules and regulations of the
Commission thereunder, nor does it thereby concede that it is an expert with
respect to any part of the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part within the meaning of the term "experts" as
used in the Securities Act or the rules and regulations of the Commission
thereunder. The Salomon Opinion should be read carefully and in its entirety
by Northrop Grumman Stockholders. The Salomon Opinion is directed only to the
fairness, from a financial point of view, of the Exchange Ratio to Northrop
Grumman Stockholders and does not address Northrop Grumman's underlying
business decision to effect the Merger or constitute a recommendation to any
Northrop Grumman Stockholder as to how such holder should vote with respect to
the Merger. The Salomon Opinion also does not constitute an opinion or imply
any conclusion of Salomon as to the likely trading range of the Northrop
Grumman Common Stock or the Lockheed Martin Common Stock following the
announcement or consummation of the Merger, which may vary depending upon
various factors discussed in the Salomon Opinion. The summary of the Salomon
Opinion set forth in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of the Salomon Opinion.
In connection with rendering its opinion, Salomon, among other things: (i)
reviewed the July 2, 1997 draft of the Merger Agreement, including the
exhibits thereto and certain documents referred to therein, in the form
provided to Salomon, and assumed that the final form of such agreement would
not vary in any respect that is material to Salomon's analysis; (ii) reviewed
certain publicly available business and financial information concerning
Northrop Grumman; (iii) reviewed certain publicly available business and
financial information concerning Lockheed Martin; (iv) reviewed certain
publicly available information concerning the industry in which Northrop
Grumman and Lockheed Martin operate; (v) reviewed and analyzed certain
financial forecasts and other non-public financial and operating data
concerning the businesses and operations of Northrop Grumman and Lockheed
Martin that were provided to, or reviewed for, Salomon by the managements of
Northrop Grumman and Lockheed Martin, respectively; (vi) reviewed certain
publicly available business and financial information with respect to certain
other companies that Salomon believed to be comparable in certain respects to
Northrop Grumman and Lockheed Martin and the trading markets for such
companies' securities; (vii) reviewed and analyzed certain publicly available
and other information concerning the trading of, and the trading market for,
the Northrop Grumman Common Stock and the Lockheed Martin Common Stock; (viii)
reviewed the financial terms of certain business combinations and acquisition
transactions Salomon deemed reasonably comparable to the Merger and otherwise
relevant to its inquiry; (ix) analyzed certain information
29
concerning cost savings and combination benefits expected to result from the
Merger that was provided to or reviewed for Salomon by the managements of
Northrop Grumman and Lockheed Martin; and (x) considered such other
information, financial studies, analyses, investigations and financial,
economic, market and trading criteria as Salomon deemed relevant to its
inquiry. Salomon has also discussed with certain officers and employees of
Northrop Grumman and Lockheed Martin the foregoing, including the past and
current business operations, financial condition and prospects of Northrop
Grumman and Lockheed Martin, respectively, before and after giving effect to
the Merger, as well as other matters it believed to be relevant to its
inquiry. However, it should be noted that, within the context of Salomon's
engagement by Northrop Grumman in connection with the Merger, Salomon was not
authorized to and did not solicit alternative offers for Northrop Grumman or
its assets.
In its review and analysis and in arriving at its opinion, Salomon assumed
and relied upon, without assuming any responsibility for verification, the
accuracy and completeness of all of the financial and other information either
provided to, discussed with, or reviewed by or for Salomon or publicly
available. With respect to the financial projections for Northrop Grumman and
Lockheed Martin, as well as the information concerning cost savings and
combination benefits provided to or reviewed for Salomon by the managements of
Northrop Grumman and Lockheed Martin, Salomon assumed that they had been
reasonably prepared on bases reflecting the best currently available estimates
and judgments on the part of the management of Northrop Grumman and Lockheed
Martin, as the case may be, before and after giving effect to the Merger, as
to the future financial performance of Northrop Grumman or Lockheed Martin, as
the case may be, and as to the cost savings and combination benefits expected
to result from the Merger. Salomon expressed no view as to such projections or
information or the assumptions on which they are based. Salomon did not assume
any responsibility for making or obtaining any independent evaluations or
appraisals of any of the assets (including properties and facilities) or
liabilities of Northrop Grumman or Lockheed Martin. The Salomon Opinion was
necessarily based upon conditions as they existed and could be evaluated on,
and on the information made available to them as of, July 2, 1997, and Salomon
assumed no responsibility to update or revise their opinion based upon
circumstances or events occurring after July 2, 1997.
For purposes of rendering the Salomon Opinion, Salomon assumed, in all
respects material to its analysis, that the representations and warranties of
each party contained in the Merger Agreement were true and correct, that each
party would perform all of the covenants and agreements required to be
performed by it under the Merger Agreement, and that all conditions to the
consummation of the Merger would be satisfied without waiver thereof. Salomon
also assumed that all material governmental, regulatory or other consents and
approvals would be obtained and that in the course of obtaining any necessary
governmental, regulatory or other consents and approvals, or any amendments,
modifications or waivers to any documents to which either Lockheed Martin or
Northrop Grumman is a party, as contemplated by the Merger Agreement, no
restrictions would be imposed, or amendments, modifications or waivers made,
that would have any material adverse effect on the contemplated benefits of
the Merger. Salomon assumed the Merger would qualify as a tax-free
reorganization for U.S. federal income tax purposes, and except as
contemplated in the Merger Agreement (in the event of consummation of the
Proposed GE Transaction) would be accounted for as a pooling of interests in
accordance with generally accepted accounting principles as described in
Accounting Principles Board Opinion Number 16. In this regard, Salomon's
alternative assumption that the Merger would be accounted for as a purchase
was considered relevant primarily to its Accretion/Dilution Analysis discussed
below. As contemplated in the Merger Agreement, Lockheed Martin consummated
the GE Transaction subsequent to the delivery of the Salomon Opinion, as a
result of which pooling accounting would not be available and purchase
accounting would be used. As noted under the heading "The Merger--Reasons for
the Merger; Recommendations of the Boards of Directors" on page 21, the
Northrop Grumman Board discussed the GE Transaction and concluded that the GE
Transaction as announced was not materially different from the transaction
contemplated when it received the Salomon Opinion and Salomon, based on a
review of information provided to it by Northrop Grumman and Lockheed Martin
advised Northrop Grumman that the consummation of the GE Transaction did not
require Salomon to change the Salomon Opinion.
In connection with rendering the Salomon Opinion to the Northrop Grumman
Board, Salomon performed a variety of financial analyses, the material
portions of which are summarized below. The summary of such
30
analyses set forth below does not purport to be a complete description of the
analyses underlying the Salomon Opinion or of Salomon's presentation to the
Northrop Grumman Board. In addition, Salomon believes that its analyses must
be considered as a whole and that selecting portions of such analyses and the
factors considered therein, without considering all such analyses and factors,
could create an incomplete view of the analyses and the processes underlying
the Salomon Opinion. While the conclusions reached in connection with each
analysis were considered carefully by Salomon in arriving at its opinion,
Salomon made various subjective judgments in arriving at its opinion and did
not consider it practicable to, nor did it attempt to, assign relative weights
to the individual analyses and specific factors considered in reaching its
opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In
addition, the process of preparing a fairness opinion necessarily requires a
broad range of subjective judgments with respect to appropriate comparable
companies and transactions, appropriate multiples of various selected
financial data, appropriate discount rates and other financial and other
factors. Analyses and estimates of the values of companies do not purport to
be appraisals or necessarily reflect the prices at which companies or their
securities actually may be sold. No public company utilized as a comparison is
identical to Northrop Grumman or Lockheed Martin, and none of the other
business combinations utilized as a comparison is identical to the proposed
Merger. Accordingly, an analysis of publicly traded comparable companies or
comparable business combinations is not mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies involved and other factors that
could affect the public trading value of the companies or company to which
they are being compared. The range of valuation for any particular analysis
should not be taken to be the view of Salomon of the actual value of Northrop
Grumman or Lockheed Martin.
The projections furnished to Salomon and used in formulating the Salomon
Opinion were provided to Salomon, in connection with the review of the Merger,
by the management of each of Northrop Grumman and Lockheed Martin who do not
publicly disclose internal management projections of the type provided to
Salomon and, accordingly, such projections were not prepared with a view
toward public disclosure. The projections were based on numerous variables and
assumptions which are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such
projections.
Comparable Public Company Trading and Operating Performance. Using publicly
available information, Salomon compared each of Lockheed Martin and Northrop
Grumman to the following seven publicly traded aerospace and defense
companies: Alliant Techsystems, McDonnell Douglas, General Dynamics, Boeing,
Raytheon, Tracor and Litton Industries (the "Industry Peers") based on various
measures of financial performance. Salomon also compared the following common
stock trading characteristics of Lockheed Martin and Northrop Grumman with the
Industry Peers (except McDonnell Douglas, whose stock price was distorted by
its announced acquisition by Boeing): (i) stock price to latest twelve month
("LTM") EPS ratios; (ii) stock price to estimated 1997 EPS ratios; (iii) stock
price to estimated 1998 EPS ratios; (iv) stock price to 1997 estimated funds
flow (defined as net income plus depreciation and amortization) ratios; (v)
firm value (defined as equity value (which is defined as current market value
of shares outstanding plus estimated value of all in-the-money stock
equivalents) plus debt, minority interest, preferred stock, all out-of-money
convertible securities, less investments in unconsolidated affiliates, cash
and cash equivalents) to LTM revenue ratios; (vi) firm value to LTM EBITDA
ratios; and (vii) firm value to LTM EBIT ratios. Salomon observed that in most
of the foregoing categories, but particularly with respect to a forward
earning multiple basis, Lockheed Martin has historically traded at higher
multiples than Northrop Grumman and the median figures for the Industry Peers.
Comparison of Recent Aerospace Transactions. Salomon reviewed publicly
available information regarding (a) the Martin Marietta/Lockheed merger, (b)
the proposed Boeing/McDonnell merger, (c) the Raytheon/E-Systems acquisition,
(d) the Lockheed Martin/Loral acquisition, (e) the Raytheon/Hughes acquisition
and (f) the Raytheon/TI Defense acquisition, and compared the following
characteristics of each of those transactions with such figures for the
Merger: (i) firm value as a multiple of LTM revenue, (ii) firm value as a
multiple of LTM EBITDA, (iii) firm value as a multiple of LTM EBIT, (iv) firm
value as a multiple of LTM
31
EPS, (v) equity value as a multiple of estimated one-year forward net income,
and (vi) equity value as a multiple of estimated two-year forward net income.
Salomon derived the following implied value ranges per share of Northrop
Grumman Common Stock, using certain multiples from the analysis described
above: (i) $96 to $116 based on multiples from the Boeing/McDonnell Douglas
merger, (ii) $105 to $125 based on blended multiples from the Raytheon/Hughes
acquisition and the Boeing/McDonnell Douglas merger, (iii) $106 to $126 based
on multiples from the LMT/Loral acquisition and (iv) $126 to $147 based on
multiples from the Raytheon/Hughes acquisition. Solely for the purpose of
comparison, Salomon calculated an implied purchase price in the Merger of
Northrop Grumman Common Stock to be $124 using the Exchange Ratio and the $104
final closing price of Lockheed Martin Common Stock prior to the execution of
the Merger Agreement.
Salomon also calculated from such transactions the premiums over trading
prices one day (which ranged from 19.2% to 41.0%, compared to 39.5% for the
Merger), one week (which ranged from 22.0% to 44.2%, compared to 40.2% for the
Merger) and one month (which ranged from 20.5% to 45.7%, compared to 48.5% for
the Merger) prior to announcement of each deal. Salomon observed that the
premiums over trading prices described above with respect to the Merger were
at the high end or above the premium ranges calculated from such transactions.
Salomon also observed that using a premium range of 20% to 40% and the trading
price of $88.875 for Northrop Grumman Common Stock on the last trading day
prior to execution of the Merger Agreement, an implied value range per share
of Northrop Grumman Common Stock of $107 to $124 could be derived.
Discounted Cash Flow Valuation. Using a DCF analysis, Salomon calculated two
ranges of implied present values per share of Northrop Grumman Common Stock
based on the estimated unlevered free cash flows that Northrop Grumman could
produce on a stand alone basis (without giving effect to any operating or
other efficiencies arising from the Merger) over the five-year period from
fiscal year end 1997 through fiscal year end 2001 using two sets of
projections, differing in their sensitivity analysis assumptions, provided by
Northrop Grumman's management (inclusive of Northrop Grumman's management
estimates of a range of possible recoveries in a contract claim by Northrop
Grumman against the United States Department of Defense) and various multiple
ranges based on private and public markets. Salomon derived the implied share
value reference ranges based on (a) the sum of (i) the discounted value (using
various discount rates representing the WACC for Northrop Grumman ranging from
10.0% to 11.0%) of the five-year estimated unlevered free cash flows of
Northrop Grumman, plus (ii) the discounted value (using identical WACCs) of
the product of (A) projected EBITDA for 2001 and (B) various multiple ranges,
less (b) total debt, net of cash at June 30, 1997. Using a public market exit
multiple range of 7.5x to 8.5x, Salomon derived an implied equity value range
of $84.04 to $116.83 per share and using a private market exit multiple range
of 8.5x to 9.5x, Salomon derived an implied equity value range of $98.30 to
$132.39 per share.
Contribution Analysis. Using Northrop Grumman's management projections,
Salomon compared the Exchange Ratio of 1.1923 with implied exchange ratios of
Northrop Grumman Common Stock for Lockheed Martin Common Stock based on
Northrop Grumman's estimated contributions to the pro forma estimates of (i)
1997 revenues, which is 1.023; (ii) 1997 EBITDA, which is 0.845; (iii) 1997
EBIT, which is 0.741; (iv) 1997 net income available to common stock, which is
0.973; (v) 1997 free cash flow, which is 0.838; (vi) 1997 stockholders'
equity, which is 1.218; (vii) net income for each of the years from 1997 to
2001, which ranges from 0.973 to 1.224; and (viii) funds from operations for
each of the years from 1997 to 2001, which ranges from 0.992 to 1.284.
Comparative Stock Price and Exchange Ratio Analysis. Salomon also compared
the Exchange Ratio of 1.1923 to the historical exchange ratios of Lockheed
Martin Common Stock to Northrop Grumman Common Stock for various periods. Such
exchange ratios averaged 0.855, 0.880, 0.897, 0.907, 0.887, 0.875, 0.870 and
0.860 for the last trading day, 30 days, 60 days, 90 days, 6 months, 1 year, 2
years and 3 years prior to the execution of the Merger Agreement,
respectively. Salomon also observed that the Exchange Ratio represents
premiums of approximately 40%, 35%, 33%, 32%, 34%, 36%, 37%, and 39%,
respectively, over the exchange ratios of Lockheed Martin Common Stock to
Northrop Grumman Common Stock for the periods described above.
32
Accretion/Dilution Analysis.
Northrop Grumman. Based on Lockheed Martin's management projections and
Northrop Grumman's management projections, Salomon calculated that the pro
forma impact on Northrop Grumman earnings would be accretive for fiscal years
1997 through 2001.
Lockheed Martin. Using Lockheed Martin's management projections, Lockheed
Martin's synergy estimates and the higher end of Northrop Grumman's management
projections, Salomon calculated the implied impact of the Merger on Lockheed
Martin's pro forma EPS under a pooling accounting case and under a purchase
accounting case (assuming consummation of the Proposed GE Transaction) for
fiscal years 1997 through 2001. Using pooling accounting, while Salomon
calculated that the Merger would be dilutive to Lockheed Martin Common Stock
in 1997, Salomon calculated that it would be accretive to Lockheed Martin
Common Stock in 1998 through 2001, respectively. Using purchase accounting,
Salomon calculated that the combined Merger and the Proposed GE Transaction
would be dilutive to Lockheed Martin Common Stock in 1997 and 1998,
respectively, and would be accretive in 1999 through 2001, respectively.
Subsequent to the analysis performed by Salomon, Lockheed Martin consummated
the GE Transaction, as a result of which pooling accounting would not be
available and purchase accounting would be used.
Salomon is an internationally recognized investment banking firm that
regularly engages in the valuation of companies and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted securities,
and corporate, estate and other purposes. Northrop Grumman retained Salomon as
a financial advisor because of its reputation, expertise in the valuation of
companies and substantial experience in transactions such as the Merger.
In the past Salomon has rendered certain investment banking services to
Northrop Grumman for which it has been paid fees. Pursuant to a letter dated
June 27, 1997, Salomon and Northrop Grumman amended an engagement letter,
dated August 31, 1993 (as amended, the "Engagement Letter"), and Northrop
Grumman agreed to pay Salomon a fee of $5.0 million upon the execution of the
Merger Agreement plus an additional fee upon the closing of the Merger of
0.25% of the consideration, less the $5.0 million previously paid. Thus, if
Salomon's fee were calculated based on the trading price of Lockheed Martin on
January 20, 1998, the maximum aggregate fee payable to Salomon, assuming the
Merger were consummated, would be approximately $28 million. Pursuant to the
Engagement Letter, Northrop Grumman has agreed to reimburse Salomon for
certain out-of-pocket expenses incurred by Salomon in connection with the
Merger and to indemnify Salomon and certain related persons against certain
liabilities, including liabilities under the federal securities laws, relating
to or arising out of its engagement. In the opinion of the Commission,
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act and is therefore, in its
view, unenforceable. In the ordinary course of business, Salomon or its
affiliates may actively trade the securities of Northrop Grumman and Lockheed
Martin for its own account and for the accounts of its customers and,
accordingly, at any time may hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Special Agreements. The fifteen Northrop Grumman elected officers have
entered into special agreements (the "Special Agreements") with Northrop
Grumman which provide for benefits upon a change of control (such as the
Merger). These Special Agreements, which were originally approved on February
20, 1996 and which have been amended from time to time, provide, in general,
that in the event of (1) termination of the executive's employment by Northrop
Grumman for any reason other than "Cause" (as defined below) or by the
executive for "Good Reason" (as defined below), (2) the failure of a successor
company to assume the agreement, or (3) the breach of the agreement by
Northrop Grumman or a successor company, in any such case within the six
33
month period prior to or within two years after a "Change-in-Control" (as
defined in the Special Agreements, which definition includes Northrop Grumman
Stockholders' approval of the Merger), Northrop Grumman immediately will pay
the "Severance Benefits" (as defined below) to the executive. The Severance
Benefits consist of: (i) an amount equal to three times the executive's
highest annual base salary in effect at any time up to and including the
effective date of termination; (ii) an amount equal to three times the greater
of (a) the executive's average annual bonus for the three full fiscal years
prior to the effective date of termination, or (b) the executive's target
annual bonus established for the bonus plan year during which the executive's
termination occurs; (iii) an amount equal to the executive's unpaid base
salary and accrued vacation pay through the effective date of termination,
together with a pro rata portion of the executive's target bonus for the bonus
plan year during which termination occurs; (iv) continuation for thirty-six
months following the effective date of termination of all benefits pursuant to
all welfare benefit plans under which the executive or his family is eligible
to receive benefits as of the effective date of the "Change-in-Control," and
further continuation of medical benefits for the lives of the executive and
spouse; (v) a lump sum cash payment representing the present value of benefits
accrued under Northrop Grumman's qualified defined benefit pension plan and
supplemental retirement plans (calculated as though the executive's employment
had continued for three years) offset by the actuarial present value
equivalent of benefits payable to the executive from Northrop Grumman's
qualified defined benefit pension plan accrued through the effective date of
termination; and (vi) a lump sum cash payment equal to the entire balance of
the executive's deferred compensation, if any, together with any interest
thereon. The Special Agreements define "Good Reason" to include the assignment
of the executive to duties materially inconsistent with the executive's
authorities, duties, responsibilities and status (including titles and
reporting requirements) as an officer of Northrop Grumman; a reduction of the
executive's base salary as in effect on the date of the agreement; a
significant reduction of the executive's aggregate incentive opportunities
under the Northrop Grumman short and/or longterm incentive programs as such
opportunities exist on the date of the agreement or as increased thereafter;
the failure to maintain the executive's relative level of coverage and
accruals under the Northrop Grumman employee benefit and/or retirement plans,
policies, practices or arrangements in which the executive participates as of
the date of the agreement; the failure of Northrop Grumman to obtain a
satisfactory agreement from any successor to assume and agree to perform
Northrop Grumman obligations under the agreement; and any purported
termination of the executive's employment with Northrop Grumman that is not
effected pursuant to the procedures set forth in the agreement. "Cause" is
defined in the Special Agreements as (i) the executive's conviction for fraud,
embezzlement, theft or another felony, or (ii) the willful engaging by the
executive in gross misconduct materially and demonstrably injurious to
Northrop Grumman; provided that, no act or failure to act on the executive's
part can be considered willful unless done or omitted to be done by that
executive not in good faith and without reasonable belief that the act or
omission was in the best interest of Northrop Grumman.
If the employment of the following named executive officers were terminated
upon the Merger under circumstances entitling them to benefits under the
Special Agreements, the approximate total amount of the salary, bonus and
termination lump sum cash payments for such named executive officers would be
as follows: Kent Kresa ($7,715,340); Richard B. Waugh, Jr. ($3,556,171); James
G. Roche ($3,038,877); John E. Harrison ($3,986,061); and Richard R. Molleur
($2,698,674). In addition, the approximate aggregate total amount of the
salary, bonus and termination lump sum cash payments for the other ten
executive officers of Northrop Grumman who have Special Agreements under such
circumstances would be $16,697,326. The Special Agreements also provide that
if, following a "Change-in-Control," excise taxes under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") apply to payments made
under the Special Agreements or other plans or agreements, the executive will
be entitled to receive an additional payment (net of income, medicare and
excise taxes) to compensate the executive for any excise tax imposed. The
aggregate amount that will actually be paid under the Special Agreements may
be less than the aggregate indicated above because lump sum cash payments will
be made to only those executive officers of Northrop Grumman whose employment
is terminated under certain circumstances specified in the Special Agreements.
Non-Employee Directors Equity Participation Plan. For outside directors who
elect to participate in the Non-Employee Directors Equity Participation Plan
(the "Equity Participation Plan") in lieu of the Retirement Plan (as defined
below), Northrop Grumman maintains an Equity Participation Account (as defined
in the Equity Participation Plan) for each outside director to which an amount
equal to 50% of their annual retainer is credited
34
and converted into stock units based on the fair market value of Northrop
Grumman Common Stock. Directors also receive a special accrual equal to the
present value of the accrued benefits under the Retirement Plan (as defined
below). Each stock unit is credited with dividend equivalents, which are rein-
vested in additional stock units. Each outside director who terminates service
after three or more years of service is entitled to receive certain cash pay-
ments from the Equity Participation Account in a number of annual installments
equal to the number of years during which benefits have accrued (not to exceed
ten). Upon a "Change-of-Control" (as defined in the Equity Participation Plan,
which definition includes Northrop Grumman Stockholder approval of the Merg-
er), benefits under the Equity Participation Plan immediately vest. The ap-
proximate aggregate amount payable under such circumstances, based on the val-
uation of Northrop Grumman Common Stock on December 31, 1997, would be
$962,929.
Non-Employee Directors Retirement Plan. Under the Non-Employee Directors
Retirement Plan (the "Retirement Plan"), Northrop Grumman provides for payment
of an Annual Benefit Amount (as defined in the Retirement Plan) to non-
employee directors if they retire from the Northrop Grumman Board following
completion of at least five or more consecutive years of service as an outside
director. The Annual Benefit Amount payable is equal to the annual retainer
then being paid to active directors or such lesser amount as is provided for
under the Retirement Plan. Benefits are payable for ten years or less (as set
forth in the Retirement Plan), from the director's retirement date. In the
event of a "Change-In-Control" (as defined in the Retirement Plan, which
definition includes Northrop Grumman Stockholder approval of the Merger), all
Annual Benefit Amounts vest, and participants are entitled to such benefits
for each year of consecutive service. The approximate aggregate amount payable
under such circumstances would be $525,000.
Consulting and Non-Competition Agreements. The members of the Northrop
Grumman Board who will not be appointed to the Lockheed Martin Board following
the Merger have been offered Consulting and Non-Competition Agreements with
Northrop Grumman. Directors who enter into such Consulting and Non-Competition
Agreements will receive an aggregate fee of $90,000 over a two-year period
during which time they will generally be precluded from serving as directors
of, controlling, owning any interests in, becoming employed by or consulting
for, any major competitor of Northrop Grumman or, following the Merger,
Lockheed Martin. The directors will also hold themselves available to consult
with Lockheed Martin with respect to certain issues relating to the combined
entity. Additionally, Lockheed Martin and Kent Kresa have agreed in principle
that Mr. Kresa will act as a consultant to Lockheed Martin for a period of two
years after the closing of the Merger; it is expected that Mr. Kresa's
compensation in the first year will be $1,400,000 and in the second year
between $700,000 and $1,050,000 depending on the amount of time devoted to the
consulting activities. Lockheed Martin will also reimburse certain expenses
incurred by Mr. Kresa in connection with the performance of his services under
this Agreement, as well as certain expenses incurred in connection with Mr.
Kresa's relocation at his election to California upon the termination of this
Agreement.
Long-Term Incentive Stock Plans. The Northrop Grumman 1993 Long-Term
Incentive Stock Plan, as amended (the "1993 LTIP"), and the 1987 Long-Term
Incentive Plan, as amended (the "1987 LTIP," and, together with the 1993 LTIP,
collectively, the "LTIPs") permit grants to selected employees of Northrop
Grumman awards consisting of stock options ("Stock Options"), restricted
performance stock rights ("RPSRs"), restricted stock rights ("RSRs") and
restricted award shares ("RASs") (all of the foregoing, collectively, the
"Stock Awards"). A Stock Option granted under the LTIPs is a right to purchase
a number of shares of Northrop Grumman Common Stock for a specified period of
time at a price per share not less than the fair market value on the date of
grant. An RPSR is a right to receive a number of shares of Northrop Grumman
Common Stock on a specified future date conditioned upon continued employment
and Northrop Grumman's achievement of specified performance in relation to a
list of peer companies. RSRs are the right to receive a specified number of
shares of Northrop Grumman Common Stock. RASs are restricted shares of
Northrop Grumman Common Stock granted under the 1987 LTIP.
In the event of a "Change-in-Control" (as defined in the LTIPs, which
definition includes Northrop Grumman Stockholder approval of the Merger), (a)
all Stock Options under the LTIPs vest and become fully exercisable; (b) the
RPSRs under the LTIPs vest and become immediately payable in shares of
Northrop Grumman Common Stock, which payment is calculated based upon
attainment of certain stock price
35
performance targets (if the Northrop Grumman Stockholders approve the Merger
it is anticipated that the maximum targets will be achieved, resulting in the
maximum payments available for RPSRs); and (c) the other Stock Awards under
the LTIPs vest and will be distributed.
The following table summarizes the payments to be made under the foregoing
plans and agreements to the named executive officers, the elected officers as
a group, and the directors of Northrop Grumman:
ALL ELECTED
OFFICERS AND
KENT RICHARD B. JAMES G. JOHN E. RICHARD R. DIRECTORS
KRESA WAUGH, JR. ROCHE HARRISON MOLLEUR (25 PERSONS)
----------- ---------- ---------- ---------- ---------- ------------
Special Agreements...... $ 7,808,299 $3,585,966 $3,067,877 $4,015,061 $2,725,687 $ 38,068,872
Non-Employee Directors
Equity Participation
Plan................... 0 0 0 0 0 962,929
Non-Employee Directors
Retirement Plan........ 0 0 0 0 0 525,000
Consulting and
Non-Competition
Agreements............. 2,500,000** 0 0 0 0 3,220,000***
Shares Subject to
Options*............... 5,750,662 1,623,313 1,489,688 1,360,000 1,434,375 20,570,045
Restricted Performance
Stock Rights*.......... 10,334,634 3,123,936 2,900,571 2,766,294 2,633,073 39,972,643
Restricted Stock
Rights*................ 0 0 469,500 0 0 1,032,900
----------- ---------- ---------- ---------- ---------- ------------
TOTALS................ $26,393,595 $8,333,215 $7,927,636 $8,141,355 $6,793,135 $104,352,389
=========== ========== ========== ========== ========== ============
- --------
* The aggregate value is based on the closing price of Northrop Grumman
Common Stock on the NYSE Composite Transaction Tape on January 9, 1998.
The value of Stock Options included in the aggregate value is net of the
applicable exercise price of Stock Options.
** This number reflects the approximate maximum amount of cash compensation
payable to Mr. Kresa for his services under his consulting agreement.
*** This number includes $720,000 payable to all eligible directors who will
not be continuing directors assuming they all enter into consulting and
non-competition agreements.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting in
accordance with generally accepted accounting principles. Under this method of
accounting, the purchase price, including costs directly related to the
Merger, will be allocated to the assets acquired and liabilities assumed based
upon their estimated fair values as of the date of consummation, with any
excess purchase consideration allocated to cost in excess of net assets
acquired. The operating results of Northrop Grumman will be included with
those of Lockheed Martin from the date of consummation. See "Unaudited Pro
Forma Combined Condensed Financial Statements."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of the material United States federal
income tax consequences of the Merger to a Northrop Grumman Stockholder.
Because Lockheed Martin Stockholders immediately before the Merger will not be
required to exchange or otherwise dispose of their shares in Lockheed Martin
as a result of the Merger, the Merger will not cause any United States federal
income tax consequences to such stockholders by virtue of their ownership of
Lockheed Martin Common Stock.
The income tax discussion set forth in this section is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations thereunder, administrative rulings and judicial authority as of
the date hereof. All of the foregoing are subject to change, possibly
retroactively, and any such change
36
could affect the continuing validity of the discussion. The discussion does
not address all aspects of United States federal income taxation that may be
important to particular stockholders who are subject to special treatment
under United States federal income tax laws, such as dealers in securities,
banks, insurance companies, tax-exempt organizations, and stockholders who are
not citizens or residents of the United States or who acquired their Northrop
Grumman Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation or through a tax-qualified retirement plan. The
effects of any applicable foreign, state, local or other tax laws are not
addressed. In addition, this discussion assumes that Northrop Grumman
Stockholders hold their shares of Northrop Grumman Common Stock as capital
assets as defined in the Code. Northrop Grumman Stockholders should consult
their own tax advisors as to the particular tax consequences of the Merger to
them, including income tax return reporting requirements, the applicability
and effect of foreign, state, local and other tax laws, and the effect of any
proposed change in the tax law.
The Merger is conditioned on the receipt by Lockheed Martin of an opinion
from its tax counsel, King & Spalding, and on the receipt by Northrop Grumman
of an opinion from its tax counsel, Fried, Frank, Harris, Shriver & Jacobson,
each substantially to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code for United
States federal income tax purposes. It is the opinion of each of King &
Spalding and Fried, Frank, Harris, Shriver & Jacobson that, assuming the
Merger qualifies as a reorganization, the Merger will have the following
principal United States federal income tax consequences:
. no gain or loss will be recognized by Northrop Grumman Stockholders upon
their receipt in the Merger of Lockheed Martin Common Stock in exchange
for their Northrop Grumman Common Stock;
. the tax basis of new Lockheed Martin Common Stock received in the Merger
by a Northrop Grumman Stockholder will be the same as the basis to the
stockholder of the Northrop Grumman Common Stock exchanged therefor;
. the holding period for Lockheed Martin Common Stock received by a
Northrop Grumman Stockholder in the Merger will include the holding
period of such stockholder in the Northrop Grumman Common Stock exchanged
therefor, provided that the Northrop Grumman Common Stock is held as a
capital asset at the Closing; and
. if a stockholder of Northrop Grumman receives cash in lieu of the
issuance of a fractional share of Lockheed Martin Common Stock, such cash
amount will be treated as received in exchange for a fractional share of
Lockheed Martin Common Stock; gain or loss recognized as a result of that
exchange will be equal to the cash amount received for the fractional
share of Lockheed Martin Common Stock reduced by the portion of the
stockholder's tax basis in the shares of Northrop Grumman Common Stock
exchanged that is allocable to such fractional share of Lockheed Martin
Common Stock; and such gain or loss will be a capital gain or loss,
provided that the Northrop Grumman Common Stock is held by such
stockholder as a capital asset at the Closing.
The foregoing tax opinions will be based on certain factual assumptions and
on representations made by Lockheed Martin and Northrop Grumman. The tax
opinions cannot be relied upon if any of such factual assumptions is, or later
becomes, inaccurate. No ruling from the Internal Revenue Service concerning
the tax consequences of the Merger has been requested, and the tax opinions
will not be binding upon the Internal Revenue Service or the courts. If the
Merger is consummated, and it is later determined that the Merger did not
qualify as a tax-free reorganization, each Northrop Grumman Stockholder will
recognize taxable gain or loss in the Merger equal to the difference between
the fair market value of the Lockheed Martin Common Stock received at the time
of the Merger and such stockholder's basis in the Northrop Grumman Common
Stock exchanged therefor.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT
PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX EFFECTS OF THE MERGER.
NORTHROP GRUMMAN STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER.
37
Any cash payments to which a Northrop Grumman Stockholder or other payee is
entitled pursuant to the Merger will be subject to backup withholding at a
rate of 31% unless either (i) the stockholder or other payee provides its
taxpayer identification number (social security number or employer
identification number) and certifies that such number is correct or (ii) an
exemption from backup withholding applies under the applicable law and
regulations.
REGULATORY APPROVALS
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger cannot be consummated until
notifications have been given, certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "DOJ"), and
the applicable waiting period requirement has expired or been terminated.
Lockheed Martin and Northrop Grumman each filed notification and report forms
under the HSR Act with the FTC and the DOJ on August 28, 1997. On September
26, 1997, requests from the DOJ for additional information and documentary
material (the "Second Requests") were timely received by both Lockheed Martin
and Northrop Grumman. Lockheed Martin and Northrop Grumman are in the process
of complying with the Second Requests. Since the initial filing of the
notification and report forms, Lockheed Martin and Northrop Grumman have been
meeting with the DOJ to discuss the status of the DOJ's review and to make
presentations on areas of the companies' businesses of interest to the DOJ.
Lockheed Martin and Northrop Grumman expect these meetings to continue as the
companies and the DOJ seek to bring the review to closure and in connection
therewith may discuss with the DOJ the terms and conditions necessary to
resolve any regulatory objections to the Merger. As part of this process,
Lockheed Martin and Northrop Grumman may voluntarily extend the twenty-day
waiting period to allow the DOJ additional time to review the Merger. If no
agreement is reached prior to the expiration of the period (as extended, if
applicable) the DOJ will decide whether or not to challenge the Merger by
seeking a preliminary injunction to prevent its consummation. If the DOJ were
to challenge the Merger, Lockheed Martin and Northrop Grumman would then have
to decide whether or not to litigate the matter.
The parties have agreed that, if it is necessary in order to terminate the
waiting period under the HSR Act, Lockheed Martin will use all reasonable
efforts to divest any assets held as of July 2, 1997 by Lockheed Martin or
Northrop Grumman (or their subsidiaries), will use all reasonable efforts to
hold such assets separate pending such divestiture, or will enter into a
consent decree requiring it to use all reasonable efforts to divest such
assets, and will take such further action in connection therewith as may be
necessary to enable the Closing to take place on or prior to March 31, 1998;
provided that Lockheed Martin will not be required to take any such action if
the taking of such action would have a significant adverse effect on the
business, results of operations or financial condition of Lockheed Martin and
Northrop Grumman (and their subsidiaries), taken as a whole, following the
Effective Time (as hereinafter defined). There can be no assurance that the
consummation of the Merger will not be delayed by reason of the HSR Act.
At any time before or after consummation of the Merger, the Antitrust
Division or the FTC could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger or seeking divestiture of substantial
assets of Lockheed Martin or Northrop Grumman. At any time before or after the
Effective Time, and notwithstanding that the HSR Act waiting period has
expired, any state could take action under the antitrust laws as it deems
necessary or desirable. Such action could include seeking to enjoin the
consummation of the Merger, or seeking divestiture of Northrop Grumman or
businesses of Lockheed Martin or Northrop Grumman by Lockheed Martin. Private
parties may also seek to take legal action under the antitrust laws in certain
circumstances.
Energy. Northrop Grumman owns certain electric power distribution facilities
in Long Island, New York, including an electrical substation, and is
authorized to engage in the sale of electricity for resale at market-based
rates. Northrop Grumman also engages in the sale of electricity at retail to
certain customers as authorized by the New York Public Service Commission.
Approval of the transfer of control of jurisdictional facilities by the
Federal Energy Regulatory Commission and the New York Public Service
Commission is required.
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Foreign Approvals. The Merger may require certain antitrust and other
filings and approvals in foreign jurisdictions. No assurance can be given that
all required foreign approvals will be obtained in a timely manner. Approvals
have been obtained from Taiwan, Greece and Germany and neither Lockheed Martin
nor Northrop Grumman is aware of any additional antitrust approvals which are
required in foreign jurisdictions. No approval of the European Commission is
required. Lockheed Martin and Northrop Grumman do not expect to delay
consummation of the Merger to pursue obtaining any approvals that have not
been obtained by the time the parties are otherwise ready to consummate the
Merger. The absence of one or more such approvals would not be expected to
have a material adverse effect on Lockheed Martin on a consolidated basis
following the Merger.
RESALE RESTRICTIONS
All shares of Lockheed Martin Common Stock received by Northrop Grumman
Stockholders in the Merger will be freely transferable, except that shares of
Lockheed Martin Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act of 1933, as
amended (the "Securities Act")) of Northrop Grumman at the time of the
Northrop Grumman Meeting may be resold by them only in transactions permitted
by the resale provisions of Rule 145 promulgated under the Securities Act (or
Rule 144 in the case of such persons who become affiliates of Lockheed Martin)
or as otherwise permitted under the Securities Act. Persons who may be deemed
to be affiliates of Northrop Grumman or Lockheed Martin generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of
such party, as well as principal stockholders of such party. The Merger
Agreement requires Northrop Grumman to exercise its reasonable efforts to
cause each of its affiliates to execute a written agreement to the effect that
such person will not offer to sell, transfer or otherwise dispose of any of
the shares of Lockheed Martin Common Stock issued to such person in or
pursuant to the Merger unless (a) such sale, transfer or other disposition has
been registered under the Securities Act, (b) such sale, transfer or other
disposition is made in conformity with Rule 145 under the Securities Act or
(c) in the opinion of counsel or pursuant to a "no-action" letter obtained
from the Securities and Exchange Commission (the "Commission") by such person,
such sale, transfer or other disposition is exempt from registration under the
Securities Act. Northrop Grumman and Lockheed Martin have each agreed to use
all reasonable efforts to obtain agreements from their respective affiliates
not to engage in any such transactions. See "The Merger Agreement--Certain
Covenants."
39
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix I to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the full text of the Merger
Agreement.
THE MERGER
Pursuant to the Merger Agreement and, subject to the terms and conditions
thereof, at the Effective Time (as defined below), Merger Sub will be merged
with and into Northrop Grumman, and the separate corporate existence of Merger
Sub will thereupon cease. Northrop Grumman will be the surviving corporation
in the Merger and will be a wholly-owned subsidiary of Lockheed Martin.
Although Northrop Grumman will be a subsidiary of Lockheed Martin, its
businesses will be integrated into Lockheed Martin's existing businesses. The
Merger will have the effects specified in the Delaware Corporate Law.
After the satisfaction or waiver of all conditions to the Merger, and
provided that the Merger Agreement has not been terminated or abandoned,
Lockheed Martin and Northrop Grumman will cause a Certificate of Merger to be
executed, acknowledged and filed with the Secretary of State of the State of
Delaware as provided in Section 251 of the Delaware Corporate Law (the
"Certificate of Merger"). The time at which the Merger becomes effective is
referred to as the Effective Time.
As a result of the Merger, and without any action on the part of the holders
thereof, each share of Northrop Grumman Common Stock issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive 1.1923 shares of Lockheed Martin Common Stock, will cease to be
outstanding and will be cancelled and retired. Each holder of a Certificate
representing any such shares of Northrop Grumman Common Stock will thereafter
cease to have any rights with respect to such shares of Northrop Grumman
Common Stock, except the right to receive, without interest, shares of
Lockheed Martin Common Stock and cash for fractional interests of Lockheed
Martin Common Stock (as described in "--Exchange Procedures") upon the
surrender of such Certificate. Each share of Northrop Grumman Common Stock
held in Northrop Grumman's treasury at the Effective Time will cease to be
outstanding and will be cancelled and retired without payment of any
consideration therefor.
At the Effective Time, each option to purchase shares of Northrop Grumman
Common Stock outstanding at the Effective Time under any Northrop Grumman
stock option plan (a "Northrop Grumman Option") will, by virtue of the Merger,
and without any further action on the part of Northrop Grumman or the holder
of any such Northrop Grumman Option, be assumed by Lockheed Martin and will be
converted into an option to purchase Lockheed Martin Common Stock. Each
Northrop Grumman Option assumed by Lockheed Martin will be exercisable upon
the same terms and conditions as under the applicable Northrop Grumman stock
option plan and the applicable option agreement issued thereunder, except that
(i) each such Northrop Grumman Option will vest upon the vote taken by the
Northrop Grumman stockholders on the Merger, assuming the Merger is approved,
(ii) each such Northrop Grumman Option will be exercisable for that whole
number of shares of Lockheed Martin Common Stock (rounded to the nearest whole
share) into which the number of shares of Northrop Grumman Common Stock
subject to such Northrop Grumman Option immediately prior to the Effective
Time would be converted in the Merger, and (iii) the option price per share of
Lockheed Martin Common Stock will be an amount equal to the option price per
share of Northrop Grumman Common Stock subject to such Northrop Grumman Option
divided by the Exchange Ratio (the option price per share being rounded to the
nearest full cent). No payment will be made for fractional interests, rather,
the aggregate number of shares to be issued under any assumed Northrop Grumman
Option will be rounded to the nearest whole number.
EXCHANGE PROCEDURES
Promptly after the Effective Time, the Exchange Agent will mail to each
person who was, at the Effective Time, a holder of record of shares of
Northrop Grumman Common Stock, a letter of transmittal to be used by
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such holders in forwarding their certificates representing shares of Northrop
Grumman Common Stock ("Certificates"), and instructions for effecting the
surrender of the Certificates in exchange for certificates representing shares
of Lockheed Martin Common Stock. Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with such letter of transmittal, the
holder of such Certificate will be entitled to receive a certificate
representing that number of whole shares of Lockheed Martin Common Stock, cash
in lieu of any fractional shares (as described below) and unpaid dividends and
distributions, if any, which such holder has the right to receive in respect
of the Certificate surrendered, and the Certificate so surrendered will be
cancelled. NORTHROP GRUMMAN STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
No fractional shares of Lockheed Martin Common Stock will be issued, and any
holder of shares of Northrop Grumman Common Stock entitled under the Merger
Agreement to receive a fractional share will be entitled to receive only a
cash payment in lieu thereof, which payment will be in an amount equal to the
product of the Average Price of a share of the Lockheed Martin Common Stock
multiplied by the fractional percentage of a share of Lockheed Martin Common
Stock to which such holder would otherwise be entitled. The "Average Price" of
a share of Lockheed Martin Common Stock will be the average of the closing
sale prices thereof on the NYSE Composite Tape (as reported by The Wall Street
Journal or, if not reported thereby, another authoritative source) over the
ten business days immediately preceding the closing date of the Merger.
No dividends on shares of Lockheed Martin Common Stock will be paid with
respect to any shares of Northrop Grumman Common Stock or other securities
represented by a Certificate until such Certificate is surrendered for
exchange as provided in the Merger Agreement. Subject to the effect of
applicable laws, following surrender of any such Certificate, there will be
paid to the holder of certificates representing shares of Lockheed Martin
Common Stock issued in exchange therefor, (i) at the time of such surrender,
the amount of any dividends or other distributions with a record date after
the Effective Time theretofore payable with respect to such shares of Lockheed
Martin Common Stock and not paid, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender thereof and a payment date subsequent to
surrender thereof payable with respect to such whole shares of Lockheed Martin
Common Stock less the amount of any withholding taxes which may be required
thereon. No interest will be paid or accrued on cash in lieu of fractional
shares and unpaid dividends and distributions, if any, which will be paid upon
surrender of Certificates.
At or after the Effective Time, there will be no transfers on the transfer
books of Northrop Grumman of shares of Northrop Grumman Common Stock which
were outstanding immediately prior to the Effective Time.
Any portion of the monies from which cash payments in lieu of fractional
interests in shares of Lockheed Martin Common Stock will be made (including
the proceeds of any investments thereof) and any shares of Lockheed Martin
Common Stock that are unclaimed by the former stockholders of Northrop Grumman
one year after the Effective Time will be delivered to the surviving
corporation in the Merger (Northrop Grumman). Any former stockholders of
Northrop Grumman who have not theretofore complied with the exchange
procedures in the Merger Agreement may thereafter look to the surviving
corporation in the Merger (Northrop Grumman) for payment of their shares of
Lockheed Martin Common Stock, cash in lieu of fractional shares, and any
unpaid dividends and distributions on shares of Lockheed Martin Common Stock,
deliverable in respect of each share of Northrop Grumman Common Stock such
stockholder holds. Notwithstanding the foregoing, neither Northrop Grumman,
Lockheed Martin, the Exchange Agent nor any other person will be liable to any
former holder of shares of Northrop Grumman Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
In the event that any Certificate has been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the surviving
corporation in the Merger (Northrop Grumman) at Lockheed Martin's direction,
the posting by such person of a bond in such reasonable amount as Lockheed
Martin may direct as indemnity against any claim that may be made against
Northrop Grumman or Lockheed Martin with respect to such Certificate, the
Exchange Agent will
41
issue in exchange for such lost, stolen or destroyed Certificate the shares of
Lockheed Martin Common Stock, cash in lieu of fractional shares, and any
unpaid dividends and distributions on shares of Lockheed Martin Common Stock,
as described above.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Lockheed Martin and Northrop Grumman relating to, among other things: (a) the
due incorporation, valid existence and good standing of Northrop Grumman and
Lockheed Martin and similar corporate matters; (b) the authorization,
execution, delivery and enforceability of the Merger Agreement; (c) the
capital structure of Northrop Grumman and Lockheed Martin; (d) the absence of
conflicts under charters or bylaws and violations of any instruments,
contracts or agreements, and the obtaining of required consents or approvals;
(e) certain documents filed by each of Northrop Grumman and Lockheed Martin
with the Commission and the accuracy of information contained therein; (f)
investigations and litigation; (g) conduct of business in the ordinary course,
the declaration or payment of dividends (other than regular quarterly cash
dividends) and the absence of certain material changes or material adverse
changes; (h) taxes; (i) contracts; (j) retirement and other employee benefit
plans of Northrop Grumman and Lockheed Martin; (k) brokers' and finders' fees
with respect to the Merger; (l) receipt of fairness opinions; (m) ownership of
the capital stock of the other company; (n) qualification for "pooling of
interests" accounting treatment and as a reorganization under Section 368(a)
of the Code; and (o) environmental matters.
CONDUCT OF BUSINESS PENDING THE MERGER
Northrop Grumman has agreed (and has agreed to cause its subsidiaries),
among other things, prior to the consummation of the Merger, unless Lockheed
Martin agrees in writing or as otherwise required or permitted by the Merger
Agreement, or the Agreement and Plan of Merger dated May 4, 1997 between
Northrop Grumman, Logicon and NG Acquisition, Inc. (the "Logicon Merger
Agreement") (i) to conduct its operations according to its usual, regular and
ordinary course in substantially the same manner as theretofore conducted,
(ii) to use its reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees, and maintain satisfactory business relationships, (iii) promptly to
notify Lockheed Martin of any material change in the condition (financial or
otherwise), business, properties, assets, liabilities or the normal course of
its business or of its properties, any material litigation or material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the breach of any of its
representations or warranties in the Merger Agreement, and (iv) promptly to
deliver to Lockheed Martin true and correct copies of any report, statement or
schedule filed with the Commission subsequent to July 2, 1997. In addition,
Northrop Grumman has agreed that, among other things, prior to the
consummation of the Merger, unless Lockheed Martin agrees in writing or as
otherwise required or permitted by the Merger Agreement, it (and its
subsidiaries) will not: (i) amend its certificate of incorporation or bylaws
(other than amendments which are not material); (ii) except in the ordinary
course of business consistent with past practice, enter into or amend any
employment, severance or similar agreements or arrangements with any of their
respective directors or executive officers; (iii) authorize, propose or
announce an intention to authorize or propose, or enter into an agreement with
respect to, any merger, consolidation or business combination (other than the
Merger), any acquisition of assets or securities, any disposition of assets or
securities or any release or relinquishment of any contract rights in which,
in any such case, the aggregate consideration for such transaction is in
excess of $100 million or which would have an adverse impact on Northrop
Grumman's ability to consummate the Merger; (iv) issue any shares of capital
stock or securities, except upon exercise of options, and, pursuant to
restricted performance stock rights and restricted stock rights of Northrop
Grumman outstanding on July 2, 1997, under the Northrop Grumman 1981 Long-Term
Incentive Stock Plan, the 1987 LTIP, the 1993 LTIP, the Northrop Grumman 1993
Stock Plan for Non-Employee Directors and the 1995 Stock Option Plan for Non-
Employee Directors, or effect any stock split or otherwise change its
capitalization; (v) grant, confer or award any options, appreciation rights,
warrants, conversion rights, restricted stock, stock units, performance shares
or other rights, not existing on July 2, 1997, with respect to any shares of
its capital stock or other securities of Northrop Grumman or its subsidiaries;
(vi) take any actions which would, or would be reasonably likely to, prevent
the Merger from qualifying as a reorganization within the meaning of Section
368 of the Code;
42
(vii) amend in any material respect the terms of Northrop Grumman Benefit
Plans (as defined in the Merger Agreement), including, without limitation, any
employment, severance or similar agreements or arrangements in existence on
July 2, 1997, or adopt any new employee benefit plans, programs or
arrangements or any employment, severance or similar agreements or
arrangements; (viii) incur, create, assume or otherwise become liable for
borrowed money or assume, guarantee, endorse or otherwise become responsible
or liable for the obligations of any other individual, corporation or other
entity or make any loans or advances to any other person, except in each case
in the ordinary course of business; (ix) make any material tax election other
than in the ordinary course, or without the consent of Lockheed Martin, which
will not unreasonably be withheld, settle or compromise any material tax
liability; (x) declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital stock or
other ownership interest (other than regular quarterly cash dividends not to
exceed $0.40 per share of Northrop Grumman Common Stock, and dividends and
distributions from subsidiaries of Northrop Grumman to Northrop Grumman or
another of its subsidiaries) or directly or indirectly redeem, purchase or
otherwise acquire any shares of its capital stock or capital stock of any of
its subsidiaries, or make any commitment for any such action; or (xi) agree,
in writing or otherwise, to take any of the foregoing actions or take any
action which would make any of its representations or warranties untrue or
incorrect as of the Closing Date.
Lockheed Martin has agreed, among other things, prior to the consummation of
the Merger, unless Northrop Grumman agrees in writing or as otherwise required
or permitted by the Merger Agreement, to (i) promptly deliver to Northrop
Grumman true and correct copies of any report, statement or schedule filed
with the Commission subsequent to July 2, 1997 and (ii) promptly notify
Northrop Grumman of any material change in its condition (financial or
otherwise), business, properties, assets, liabilities or the normal course of
its business or of its properties, any material litigation or material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the breach of any of its
representations or warranties. In addition, Lockheed Martin has agreed that,
among other things, prior to the consummation of the Merger, unless Northrop
Grumman agrees in writing or as otherwise required or permitted by the Merger
Agreement, it (and its subsidiaries) will not: (i) amend its certificate of
incorporation or bylaws (other than amendments which are not material); (ii)
authorize, propose or announce an intention to authorize or propose, or enter
into an agreement with respect to, any merger, consolidation or business
combination (other than the Merger), any acquisition of assets or securities,
any disposition of assets or securities or any release or relinquishment of
any contract rights in which, in any such case, the aggregate consideration
for such transaction is in excess of $500 million or which would have an
adverse impact on Lockheed Martin's ability to consummate the Merger; (iii)
take any actions which would, or would be reasonably likely to, prevent the
Merger from qualifying as a reorganization within the meaning of Section 368
of the Code; (iv) declare, set aside or pay any dividend or make any other
distributions or payment with respect to its capital stock (except other than
regular quarterly cash dividends not to exceed $0.40 per share of Lockheed
Martin Common and regular dividends on Lockheed Martin Preferred Stock); or
(v) agree, in writing or otherwise, to take any of the foregoing actions or
take any action which would make any of its representations or warranties
untrue or incorrect as of the Closing Date.
NO SOLICITATION OF TRANSACTIONS
Northrop Grumman has agreed to immediately cease existing discussions or
negotiations, if any, with any parties conducted prior to the date of the
Merger Agreement with respect to any acquisition of all or any material
portion of the assets of, or any equity interest in, Northrop Grumman or any
of its Significant Subsidiaries (as defined in the Merger Agreement) or any
business combination with Northrop Grumman or any of its Significant
Subsidiaries. Northrop Grumman may, directly or indirectly, furnish
information and access, in each case only in response to unsolicited requests
therefor, to any corporation, partnership, person or other entity or group
pursuant to confidentiality agreements, and may participate in discussions and
negotiate with such entity or group concerning any merger, sale of material
assets, sale of shares of capital stock or similar transaction involving
Northrop Grumman or any Significant Subsidiary (a "Transaction"), if such
entity or group has submitted a written proposal to the Northrop Grumman Board
relating to any such transaction (an "Alternative Proposal")
43
and the Northrop Grumman Board by a majority vote determines in its good faith
judgment, based as to legal matters on the advice of legal counsel, that
failing to take such action would constitute a breach of the Northrop Grumman
Board's fiduciary duty. Northrop Grumman has agreed to provide a copy of any
such written proposal to Lockheed Martin or Merger Sub immediately after
receipt thereof. Except as set forth above, Northrop Grumman has agreed that
neither it nor any of its affiliates, nor any of its or their respective
officers, directors, employees, representatives or agents, will, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation,
partnership, person or other entity or group (other than Lockheed Martin and
Merger Sub, any affiliate or associate of Lockheed Martin and Merger Sub or
any designees of Lockheed Martin and Merger Sub) concerning any merger, sale
of material assets, sale of shares of capital stock or similar transaction
involving Northrop Grumman or any Significant Subsidiary; provided, however,
that nothing in the Merger Agreement will prevent the Northrop Grumman Board
from taking, and disclosing to Northrop Grumman Stockholders, a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act (as
hereinafter defined) with regard to any tender offers; provided, further, that
the Northrop Grumman Board will not recommend that Northrop Grumman
Stockholders tender their shares in connection with any such tender offer
unless the Northrop Grumman Board by a majority vote determines in its good
faith judgment, based as to legal matters on the advice of legal counsel, that
failing to take such action would constitute a breach of the Northrop Grumman
Board's fiduciary duty. Nothing in Section 5.1 of the Merger Agreement will
permit Northrop Grumman to terminate the Merger (except as specifically
provided in Article 7 of the Merger Agreement), or permit Northrop Grumman to
enter into any agreement with respect to a Transaction during the term of the
Merger Agreement (it being agreed that during the term of the Merger
Agreement, Northrop Grumman will not enter into any agreement with any person
that provides for, or in any way facilitates, a Transaction (other than a
confidentiality agreement in customary form)), or affect any other obligation
of Northrop Grumman under the Merger Agreement. Nothing in Section 5.1 of the
Merger Agreement will preclude Northrop Grumman from consummating the
transactions contemplated by the Logicon Merger Agreement.
CERTAIN COVENANTS
The parties have agreed to take all actions necessary or appropriate to
cause the prompt expiration or termination of any applicable waiting period
under the HSR Act in respect of the Merger, including, without limitation,
complying as promptly as practicable with requests for additional information.
Without limiting the generality of the foregoing, if it is necessary in order
to terminate the waiting period under the HSR Act or otherwise to permit the
Closing to take place, Lockheed Martin has agreed to use all reasonable
efforts to divest any assets held as of July 2, 1997 by Lockheed Martin or
Northrop Grumman (or their subsidiaries), to use all reasonable efforts to
hold such assets separate pending such divestiture, or to enter into a consent
decree requiring it to use all reasonable efforts to divest such assets, and
to take such further action in connection therewith as may be necessary to
enable the Closing to take place on or prior to March 31, 1998; provided that
Lockheed Martin will not be required to take any such action if the taking of
such action would have a significant adverse effect on the business, results
of operations or financial condition of Lockheed Martin and Northrop Grumman
(and their subsidiaries), taken as a whole, following the Effective Time.
Between July 2, 1997 and the Closing Date, Lockheed Martin and Northrop
Grumman have agreed not to enter into any agreement which such party knows or
has reason to know is reasonably likely to cause any major customer of
Lockheed Martin or Northrop Grumman (or their respective subsidiaries) to
terminate any material contracts, agreements or other obligations that exist
between that customer on the one hand, and Lockheed Martin, Northrop Grumman
(or Lockheed Martin and Northrop Grumman following the Merger) or any
subsidiary of either, on the other hand, and Lockheed Martin and Northrop
Grumman will take all reasonable action appropriate to an effort to avoid such
termination.
The Merger Agreement also contains certain other covenants, including
covenants relating to meetings of stockholders, filing a listing application
covering shares of Lockheed Martin Common Stock issuable in the Merger,
federal tax treatment, the Northrop Grumman shareholder rights plan, state
takeover statutes, public
44
announcements, access to personnel and data, cooperation regarding certain
filings with governmental and other agencies and organizations, and obtaining
affiliate agreements.
EMPLOYEE BENEFITS
For a period of two years following the Effective Time (or, in the case of
employees covered by collective bargaining agreements, for the period required
therein), Lockheed Martin has agreed to provide to persons who are employees
of Northrop Grumman or any of its subsidiaries at the Effective Time (the
"Northrop Grumman Personnel") employee benefit plans, programs and
arrangements which in the aggregate are substantially comparable to those
employee benefit plans, programs and arrangements generally provided to the
employees of Northrop Grumman or its subsidiaries immediately prior to the
Effective Time; provided, however, that subject to the foregoing, Lockheed
Martin will not be precluded from amending or terminating any particular plan,
program or arrangement.
Following the Effective Time, Lockheed Martin has agreed to cause the
Northrop Grumman Benefit Plans (as defined in the Merger Agreement) to
continue to recognize the service credit of the Northrop Grumman Personnel
accrued as of the Effective Time under the Northrop Grumman Benefit Plans for
purposes of participation, eligibility, vesting of benefits and benefit
accrual, subject to the terms of such Northrop Grumman Benefit Plans, and
(subject to collective bargaining negotiations for employees covered by
collective bargaining agreements) such service credit will also be recognized
for purposes of participation, eligibility and vesting under any successor
plans.
In the event of any change in coverage that applies generally to the
Northrop Grumman Personnel during the two-year period following the Effective
Time under any Northrop Grumman Benefit Plan that provides medical or health
benefits, Lockheed Martin has agreed to cause such plan to recognize credit
toward satisfying deductible expense requirements, out-of-pocket expense
limits and maximum lifetime benefit limits of such Northrop Grumman Personnel
or their eligible dependents, and to waive any pre-existing condition,
exclusion or limitation, as and to the extent any such matter would previously
have been recognized or waived (as the case may be) under the applicable
Northrop Grumman Benefit Plan.
Lockheed Martin has agreed to honor in accordance with their terms and to
perform the obligations of Northrop Grumman under certain severance and
retention agreements.
Following the Effective Time, Lockheed Martin has agreed to cause Northrop
Grumman Personnel who have previously been granted Northrop Grumman Stock
Options to be eligible to participate in the Lockheed Martin stock option
plan. At the first meeting of the Compensation Committee of the Lockheed
Martin Board of Directors following the Effective Time at which stock options
are granted to Lockheed Martin employees generally, Lockheed Martin will cause
a recommendation to be made to the Stock Option Subcommittee of the
Compensation Committee to grant options under the Lockheed Martin stock option
plan to such Northrop Grumman Personnel on a basis that takes into
consideration the Northrop Grumman Stock Options previously granted to such
Northrop Grumman Personnel. If the Effective Time occurs after the first such
meeting of the Compensation Committee, in 1998 or thereafter, Lockheed Martin
will present its recommendation for granting Lockheed Martin stock options in
accordance with the foregoing at the next regularly scheduled meeting of the
Compensation Committee or sooner if schedules and agendas permit.
Prior to the Effective Time, Northrop Grumman has agreed to cause to be
amended certain of the Northrop Grumman Benefit Plans (and/or related funding
arrangements) to eliminate all provisions of those plans that would become
effective upon a "Change in Control" of Northrop Grumman (or any similar
triggering event) in a transaction with Lockheed Martin, as and to the extent
such amendments are consistent with requirements of law.
Prior to the Effective Time, Northrop Grumman may (a) enter into retention
agreements with corporate headquarters key employees to be identified and
selected by Northrop Grumman after consultation with
45
Lockheed Martin, provided that the maximum amount payable under all such
retention agreements in the aggregate will not exceed $15 million; and (b)
adopt a general retention program for corporate headquarters employees;
provided that the maximum amount payable under such program in the aggregate
will not exceed $18 million; provided further, however, that if the employees
are covered by more than one Northrop Grumman retention or severance
agreement, plan or program, an offset will be applied to avoid any duplication
of benefits.
GOVERNANCE
Lockheed Martin has agreed to designate for appointment or election to
Lockheed Martin's Board of Directors following consummation of the Merger,
Kent Kresa, currently the Chairman of the Board, Chief Executive Officer and
President of Northrop Grumman, and John E. Robson and Robert A. Lutz, both
currently members of the Northrop Grumman Board. Lockheed Martin has also
agreed to take all necessary actions to cause Kent Kresa to be elected as a
Vice Chairman of Lockheed Martin's Board of Directors following the Merger.
INDEMNIFICATION AND INSURANCE
Lockheed Martin has agreed (i) that all rights to indemnification for acts
or omissions occurring prior to the Effective Time in favor of the current or
former directors or officers of Northrop Grumman as provided in the Northrop
Grumman Certificate or the Bylaws of Northrop Grumman (the "Northrop Grumman
Bylaws") will survive the Merger and will continue in full force and effect in
accordance with their terms from the Effective Time of the Merger until the
expiration of the applicable statute of limitations with respect to any claims
against the current of former directors or officers of Northrop Grumman
arising out of such acts or omissions and (ii) to cause Northrop Grumman to
indemnify such current and former directors and officers in accordance with
such rights of indemnification. For a period of six years after the Effective
Time, Lockheed Martin will cause Northrop Grumman to maintain officers' and
directors' liability insurance for all persons currently covered under
Northrop Grumman's officers' and directors' liability insurance policies, in
their capacities as officers and directors, on terms substantially no less
advantageous to the covered persons than such existing insurance; provided,
however, that Lockheed Martin will not be required in order to maintain or
procure such coverage to pay an annual premium in excess of 150% of the
current annual premium paid by Northrop Grumman for its existing coverage (the
"Cap"); and provided, further, that if equivalent coverage cannot be obtained,
or can be obtained only by paying an annual premium in excess of 150% of the
Cap, Lockheed Martin will only be required to obtain as much coverage as can
be obtained by paying an annual premium equal to the Cap.
CONDITIONS
The respective obligations of Northrop Grumman and Lockheed Martin to
consummate the Merger are subject to the fulfillment of each of the following
conditions, among others: (a) the Merger Agreement and the transactions
contemplated thereby will have been approved by the holders of the issued and
outstanding shares of capital stock of Northrop Grumman and the approval of
the issuance of Lockheed Martin Common Stock pursuant to the Merger Agreement
by the holders of a majority of the outstanding shares of Lockheed Martin
Common Stock will have been obtained; (b) the waiting period applicable to the
consummation of the Merger under the HSR Act will have expired or been
terminated, (c) none of the parties to the Merger Agreement will be subject to
any order or injunction which prohibits the consummation of the transactions
contemplated by the Merger Agreement; (d) the Registration Statement will have
become effective under the Securities Act and no stop order with respect
thereto will be in effect, and all material approvals under state securities
laws relating to the issuance or trading of the Lockheed Martin Common Stock
will have been received; (e) all consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental commission,
board or other regulatory body required in connection with the execution,
delivery and performance of the Merger Agreement will have been obtained or
made (except where the failure to obtain or make any such consent,
authorization, order, approval, filing or registration would not have a
material adverse effect on the business of Northrop Grumman and Lockheed
Martin (and their respective subsidiaries), taken as a whole, following the
Effective Time); and (f) the Lockheed Martin Common Stock to be issued to
Northrop Grumman Stockholders in connection with the Merger will have been
approved for listing on the NYSE, subject only to official notice of issuance.
46
The obligations of each of Northrop Grumman and Lockheed Martin to effect
the Merger are also subject to the satisfaction of the following conditions,
among others: (a) the other party will have performed all obligations required
to be performed by it under the Merger Agreement; the representations and
warranties of the other party set forth in the Merger Agreement will be true
in all material respects as of the Effective Time, except that those
representations and warranties which address matters only as of a particular
date will have been true and correct as of such date; and the other party will
provide a certificate of the President or a Vice President, dated the Closing
Date, certifying the above to such effect; (b) each party will have received
the opinion of its tax counsel that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a)
of the Code; (c) each party will have each received a letter from its
independent public accountants, dated the Effective Time, in form and
substance reasonably satisfactory to it, stating that such accountants concur
with management's conclusion that the Merger will qualify as a transaction to
be accounted for in accordance with the pooling of interests method of
accounting under the requirements of APB No. 16; provided, that if such
accountants are not able to deliver such letter due to a transaction of the
type currently being considered by Lockheed Martin, which has been described
to Northrop Grumman, such letter shall not be a condition to the other party's
obligations hereunder (because of the GE Transaction, such letters are no
longer a condition to the Merger, see "Business of Lockheed Martin--Recent
Developments"); and (d) from the date of the Merger Agreement through the
Effective Time, there will not have occurred a material adverse effect with
respect to the other party.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time: (a) before or after the approval by the
stockholders of Northrop Grumman and Lockheed Martin, respectively, by the
mutual consent of Northrop Grumman and Lockheed Martin; (b) by action of the
Board of Directors of either Northrop Grumman or Lockheed Martin if (i) the
Merger will not have been consummated by March 31, 1998, provided that the
terminating party will not have breached in any material respect its
obligations under the Merger Agreement in any manner that will have
proximately contributed to the failure to consummate the Merger by March 31,
1998; or (ii) the adoption of the Merger Agreement and the approval of the
transactions contemplated thereby by Northrop Grumman's Stockholders will not
have been obtained at a meeting duly convened therefor or at any adjournment
thereof; or (iii) the approval of the issuance of shares of Lockheed Martin
Common Stock pursuant to the Merger Agreement by Lockheed Martin's
Stockholders will not have been obtained at a meeting duly convened therefor
or at any adjournment thereof; or (iv) if a United States federal or state
court of competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or commission will have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
by the Merger Agreement and such order, decree, ruling or other action will
have become final and non-appealable, provided that the party seeking to
terminate the Merger Agreement pursuant to this clause (iv) will have used all
reasonable efforts to remove such injunction, order or decree; (c) by action
of the Board of Directors of Northrop Grumman, if (i) in the exercise of its
good faith judgment as to its fiduciary duties to its stockholders imposed by
law based on the written opinion of outside counsel, the Board of Directors of
Northrop Grumman determines that such termination is required by reason of an
Alternative Proposal being made for Northrop Grumman; or (ii) there has been a
breach by Lockheed Martin or Merger Sub of any representation or warranty
contained in the Merger Agreement which has had or will have a material
adverse effect on Lockheed Martin and its subsidiaries taken as a whole and is
not curable or, if curable, is not cured within thirty (30) days after written
notice of such breach; or (iii) there has been a material breach by Lockheed
Martin of any covenant or agreement contained in the Merger Agreement which is
not curable or, if curable, is not cured within thirty (30) days after written
notice of such breach; or (d) by action by the Board of Directors of Lockheed
Martin, if (i) the Board of Directors of Northrop Grumman shall have withdrawn
or modified in a manner materially adverse to Lockheed Martin its approval or
recommendation of the Merger Agreement or the Merger or recommended an
Alternative Proposal to Northrop Grumman stockholders; or (ii) there has been
a breach by Northrop Grumman of any representation or warranty contained in
the Merger Agreement which has had or will have a material adverse effect on
Northrop Grumman and its subsidiaries taken as a whole and is not curable or,
if curable, is not cured
47
within thirty (30) days after written notice of such breach; or (iii) there
has been a material breach by Northrop Grumman of any covenant or agreement
contained in the Merger Agreement which is not curable or, if curable, is not
cured within thirty (30) days after written notice of such breach. In the
event of the termination of the Merger Agreement by Northrop Grumman pursuant
to (b) or (c) above, Northrop Grumman's ability to terminate the Merger
Agreement is conditioned upon its prior payment of any termination fees
payable by it under the Merger Agreement. See "Termination Fees."
TERMINATION FEES
If the Merger Agreement is (a) terminated by (i) the Board of Directors of
either Northrop Grumman or Lockheed Martin as a result of the failure of
Northrop Grumman's Stockholders to approve the Merger Agreement and the
transactions contemplated thereby at a meeting duly convened therefor or at
any adjournment thereof or (ii) the Board of Directors of Lockheed Martin as a
result of the withdrawal or modification of Northrop Grumman's Board of
Directors' approval or recommendation of the Merger Agreement or the Merger in
a manner materially adverse to Lockheed Martin, and (b) prior to such
termination, (i) a proposal with respect to a Transaction was made and (ii)
within six (6) months after such termination, Northrop Grumman enters into any
agreement with respect to a Transaction, or any third party acquires
beneficial ownership of 50.1% or more of Northrop Grumman's outstanding shares
of voting stock, then within two business days after the execution of such an
agreement or the consummation of such acquisition (whichever first occurs),
Northrop Grumman will pay Lockheed Martin, by wire transfer of immediately
available funds, a fee (the "Termination Fee") of $200 million. If the Merger
Agreement is terminated (a) by Northrop Grumman as a result of its Board of
Directors determination, in the exercise of its good faith judgment as to
fiduciary duties to its stockholders imposed by law based on the written
opinion of outside counsel, that such termination is required by reason of an
Alternative Proposal, or (b) by Lockheed Martin as a result of Northrop
Grumman's Board of Directors' recommendation of an Alternative Proposal to
Northrop Grumman Stockholders, then Northrop Grumman will pay Lockheed Martin
the Termination Fee, which fee will be payable by wire transfer of same day
funds either at the time Northrop Grumman terminates the Merger Agreement or,
if Lockheed Martin terminates the Merger Agreement, within two business days
after such termination. Northrop Grumman has agreed that if it fails to
promptly pay the Termination Fees and, in order to obtain such payment,
Lockheed Martin or Merger Sub commences a suit which results in a judgment
against Northrop Grumman for the Termination Fee, Northrop Grumman will pay to
Lockheed Martin its costs and expenses (including attorneys' fees) in
connection with such suit, together with interest on the amount of the fee at
the rate of 12% per annum from the date such fee was required to be paid.
EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such expenses, except as otherwise
provided in the Merger Agreement. The Merger Agreement provides that the
following expenses will be shared equally by Lockheed Martin and Northrop
Grumman: (a) the filing fee in connection with filing the Form S-4 Joint Proxy
Statement/Prospectus with the Commission and (b) the expenses incurred in
connection with printing and mailing the Joint Proxy Statement/Prospectus.
AMENDMENT
The Merger Agreement may be amended by the parties hereto, by action taken
by their respective Boards of Directors, at any time before or after approval
of matters presented in connection with the Merger by the stockholders of
Northrop Grumman and Lockheed Martin; but after any such stockholder approval,
no amendment will be made which by law requires the further approval of
stockholders without obtaining such further approval. The Merger Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties to the Merger Agreement.
48
BUSINESS OF LOCKHEED MARTIN
Lockheed Martin is a highly diversified global enterprise principally
engaged in the conception, research, design, development, manufacture and
integration of advanced-technology products and services. Lockheed Martin
conducts its principal business through five operating sectors: Space &
Strategic Missiles; Electronics; Information & Services; Aeronautics; and
Energy & Environment.
The Space & Strategic Missiles Sector's activities include the design,
development, engineering and production of civil, commercial and military
space systems, including: spacecraft, space launch vehicles, manned space
systems and their supporting ground systems and services; telecommunications
systems and services; strategic fleet ballistic missiles; and defensive
missiles.
The Electronics Sector's activities primarily relate to the design,
development, engineering and production of high-performance electronic systems
for undersea, shipboard, land-based, airborne and space-based applications.
Major business elements include: Naval Systems; Missiles and Air Defense;
Aerospace Electronics; and Platform Integration. The Naval Systems element
serves the global market with major lines of business in surface ship and
submarine combat systems, missile launching, anti-submarine warfare,
navigation systems, surface ship integration, and displays and processors. The
Missiles and Air Defense element produces anti-armor missiles; indirect fire
support weapons systems; smart munitions; air defense systems and radar. The
Aerospace Electronics element includes electronic warfare; electro-optic and
night vision systems; fire control systems; avionics and computers; mission
planning systems; airborne reconnaissance systems; flight controls; engine
controls for military and commercial aircraft; and commercial satellite
electronics. The Platform Integration element encompasses system integration
capabilities for both fixed wing and rotary wing aircraft, with specific
emphasis in the areas of anti-submarine warfare, reconnaissance and
surveillance; special operations and training systems; mail handling
automation and recognition systems; and intelligent transportation systems.
The Information & Services Sector is involved in the development,
integration and operation of large, complex information systems; engineering,
technical and management services for federal customers; transaction
processing systems and services for state and local government agencies;
commercial information technology outsourcing; manufacture and distribution of
computer peripherals, graphics engines and intranet software; and the
provision of internal information technology support to Lockheed Martin.
The Aeronautics Sector is involved in the design, development, engineering
and production of fighter, bomber, special mission, airlift, antisubmarine
warfare, reconnaissance, surveillance and high performance aircraft; systems
for military operations; aircraft controls and subsystems; and aircraft
modification and maintenance and logistics support for military and civilian
customers.
The Energy & Environment Sector is responsible for Lockheed Martin's energy
and environmental remediation businesses, including the management of various
U.S. Department of Energy ("DOE") activities. Lockheed Martin is the largest
management and operations contractor within the DOE's system of laboratories
and other facilities and manages, among other facilities, the Sandia National
Laboratories, the Idaho National Engineering and Environmental Laboratory and
the Oak Ridge National Laboratory.
In addition to the above activities, Lockheed Martin operates real estate
subsidiaries in Florida and Maryland, runs research laboratories and performs
other miscellaneous activities.
Additional information concerning Lockheed Martin is included in the
Lockheed Martin Reports incorporated by reference in this Joint Proxy
Statement/Prospectus. See "Incorporation of Certain Documents by Reference"
and "Available Information."
In the event the Merger is not consummated, Lockheed Martin will continue
operating its businesses as in the past and will continue to seek strategic
alternatives that benefit and create stockholder value for Lockheed Martin.
Any existing or future joint projects with Northrop Grumman would be
unaffected by the fact that the Merger was not consummated.
49
RECENT DEVELOPMENTS
On November 17, 1997, (i) Lockheed Martin contributed to a newly formed
corporation, LMT Sub Inc. ("LMT Sub"), certain of its non-core businesses,
Lockheed Martin's equity investment in Globalstar Telecommunications, Ltd.
with a market value of approximately $240 million as of November 17, 1997, and
approximately $1.6 billion in cash (subject to adjustment) in exchange for
common and preferred stock of LMT Sub, and thereafter, (ii) Lockheed Martin
exchanged all of the capital stock of LMT Sub for the 20 million outstanding
shares of Lockheed Martin Series A Preferred Stock (the "Lockheed Martin
Preferred Stock") owned by General Electric Company ("GE") and certain
subsidiaries of GE (together, the "GE Transaction"). The businesses included
in the GE Transaction were Lockheed Martin's thrust reverser business and its
Access Graphics subsidiary, which is a leading technical distributor of Unix-
based client/server products. The businesses contributed approximately 6% and
5% of Lockheed Martin's net sales during the nine months ended September 30,
1997, and the year ended December 31, 1996, respectively. The cash included in
the exchange was initially financed through the issuance by Lockheed Martin of
commercial paper. On November 20, 1997, $1.4 billion was refinanced pursuant
to a note, due November 17, 2002 and bearing interest at 6.04%, from Lockheed
Martin to LMT Sub. The remainder is expected to be refinanced with a note from
Lockheed Martin to LMT Sub on substantially similar terms following the
determination of any adjustment in connection with the GE Transaction.
The shares of Lockheed Martin Preferred Stock, which were convertible into
approximately 29 million shares of Lockheed Martin Common Stock, are no longer
outstanding. The GE Transaction resulted in a reduction, on a pro forma basis,
in net earnings of approximately 9% from actual reported net earnings of
Lockheed Martin for the nine months ended September 30, 1997. The pro forma
financial information included in this Joint Proxy Statement/Prospectus has
been prepared to reflect the effect of the GE Transaction. See "Unaudited Pro
Forma Combined Condensed Financial Information."
On January 20, 1998, Lockheed Martin announced its results of operations for
the fourth quarter and year ended December 31, 1997, as summarized in the
following discussion and the table presented below.
Fourth-quarter 1997 net sales reached $7.88 billion, a 3% increase over 1996
fourth-quarter net sales of $7.66 billion. For 1997, net sales reached $28.07
billion, a 4% improvement over 1996 net sales of $26.87 billion. Sales
comparisons for the fourth quarter and 1997 reflect divestiture of non-core
businesses, and the 1997 results include twelve months of net sales from
Lockheed Martin's April 1996 combination with Loral, versus only nine months
in 1996. Lockheed Martin's backlog also reflects the impact of divestitures
and stood at $47.1 billion at year-end 1997, compared with $50.4 billion at
the end of 1996.
Net earnings for the fourth quarter of 1997, which include the effects of
certain nonrecurring and unusual items as described below, decreased 20% to
$371 million, compared with $465 million for the same 1996 period. Net
earnings for 1997 decreased 3% to $1.30 billion compared with $1.35 billion
for 1996.
The nonrecurring and unusual items included in net earnings for the fourth
quarter of 1997 were a tax-free gain of $311 million following the GE
Transaction, and after-tax charges of $303 million which were identified in
connection with Lockheed Martin's review of non-strategic lines of business,
and non-core investments and certain other assets.
Net earnings for the fourth quarter of 1996 included a net after-tax gain of
$351 million resulting principally from the exchange of shares of Martin
Marietta Materials common stock owned by Lockheed Martin for shares of
Lockheed Martin Common Stock, and after-tax charges of $209 million resulting
from the financial impacts of a conservative corporate strategy regarding
Lockheed Martin's environmental remediation business and other corporate
actions.
All earnings per share amounts have been computed in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." Prior year amounts computed under the new standard do not
50
differ significantly from amounts computed under previous guidance. For the
sole purpose of calculating 1997 earnings per share under the Commission's
guidelines, the excess fair value of assets transferred to GE over the
carrying value of the Lockheed Martin Preferred Stock--approximately $1.8
billion--is required to be deducted from net earnings to determine net
earnings available to common stockholders. As disclosed in the summary
financial data below, this deduction has a significant impact on the earnings
per share calculation, but does not impact reported 1997 earnings. As noted in
the table below, earnings (loss) per share, assuming no dilution, for the
fourth quarter of 1997 reflects a loss of $7.84 per share compared to earnings
of $2.41 per share for the same 1996 period. Comparable amounts for the entire
year reflect a loss of $3.12 per share for 1997 compared to earnings per share
of $6.80 for 1996. Comparable amounts assuming full dilution for the 1997
periods are not displayed as such amounts are antidilutive in comparison to
the amounts disclosed assuming no dilution.
Excluding the effects of the nonrecurring and unusual items noted above, net
earnings for the fourth quarter of 1997 would have increased 12% to $363
million, compared with $323 million for the same 1996 period. For the entire
year, excluding the effects of the nonrecurring and unusual items noted above,
net earnings for 1997 would have increased 7% to $1.29 billion compared with
$1.20 billion for 1996.
Excluding the effects of the nonrecurring and unusual items noted above,
earnings per share, assuming dilution, for the fourth quarter of 1997 would
have increased by 20% to $1.79, compared with $1.49 per share in the same 1996
period. For the entire year, excluding the effects of nonrecurring and unusual
items noted above, earnings per share, assuming dilution, would have increased
11% to $6.05 for 1997 as compared to $5.44 for 1996.
The following table summarizes Lockheed Martin's results of operations
including the effects of the nonrecurring and unusual items discussed above
(in millions, except for per share data):
QUARTER ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------- ----------------
1997 1996 1997 1996
------ ------ ------- -------
Net sales...................................... $7,878 $7,662 $28,069 $26,875
Net earnings................................... $ 371 $ 465 $ 1,300 $ 1,347
Earnings per share, assuming no dilution:
Earnings before redemption of preferred
stock......................................... $ 1.95 $ 2.41 $ 6.73 $ 6.80
Redemption of Series A preferred stock........ (9.79) -- (9.85) --
------ ------ ------- -------
Net (loss) earnings per common share.......... $(7.84) $ 2.41 $ (3.12) $ 6.80
====== ====== ======= =======
Earnings per share, assuming full dilution:
Earnings before redemption of preferred
stock......................................... $ 1.83 $ 2.14 $ 6.09 $ 6.09
Redemption of Series A preferred stock........ (8.99) -- (8.55) --
------ ------ ------- -------
Net (loss) earnings per common share.......... * $ 2.14 * $ 6.09
====== ====== ======= =======
- --------
* Antidilutive
51
BUSINESS OF NORTHROP GRUMMAN
Northrop Grumman operates principally in the electronics, aircraft and
information technology segments of the defense industry. Northrop Grumman is a
leading designer, systems integrator and manufacturer of military surveillance
and combat aircraft, defense electronics and systems, airspace management
systems, information systems, marine systems, precision weapons, space
systems, and commercial and military aerostructures.
Major electronics programs include the Joint Surveillance Target Attack
Radar System (Joint STARS), a powerful airborne surveillance and target
acquisition system for which Northrop Grumman is the prime contractor.
Northrop Grumman also is prime contractor for the U.S. Navy's E-2C Hawkeye, an
early warning and control aircraft, and the Navy's EA-6B Prowler, an
electronic warfare aircraft. Another major electronics area is airborne radar,
including fire-control radars for F-16 and F-22 fighters, B-1B bombers and AH-
64D Apache helicopters, and the surveillance radar for the Air Force's
Airborne Warning and Control System (AWACS). Other defense electronics
programs are BAT, an acoustically self-guided antiarmor submunition for the
Army; space-based sensor systems, and airborne electronic countermeasures,
which protect pilots and aircraft by disrupting enemy radar and hostile
weapons systems. Northrop Grumman is a leader in airspace management systems
and has produced more than 400 civilian air traffic control systems for
surveillance of airborne and airport surface traffic in 12 countries.
Northrop Grumman's principal aircraft programs include the Air Force's B-2
stealth bomber, a long-range, strategic bomber that can penetrate
sophisticated air defenses. Northrop Grumman is prime contractor for the B-2
program. Other aircraft programs are the Navy F/A-18 Hornet strike fighter and
the Joint Strike Fighter. For the F/A-18, Northrop Grumman produces the center
and aft fuselage, vertical tails and all associated subsystems as principal
subcontractor to Boeing. On the Joint Strike Fighter program, Northrop Grumman
is a member of the Lockheed Martin team working under one of two concept
demonstration contracts awarded in 1996. The winner of this phase of the
competition will proceed to engineering and manufacturing development
beginning in early 2001. Approximately 3,000 Joint Strike Fighters are planned
for the U.S. Air Force, Navy and Marine Corps, as well as the British Royal
Navy.
As a leading supplier of commercial aerostructures, Northrop Grumman
produces fuselage sections, tail sections, doors, control surfaces, nacelles
and thrust reversers for a variety of aircraft, including the Boeing 737, 747,
757, 767 and 777 airliners, and the Gulfstream IV and V business jets.
Northrop Grumman also produces aerostructure components and thrust reversers
for the Air Force's C-17 military transport as a major subcontractor to
Boeing. In connection with the GE Transaction, Lockheed Martin has granted GE
an option to acquire the Northrop Grumman thrust reverser business following
the Merger.
As described below, in August 1997, Northrop Grumman completed a merger with
Logicon, a leading defense information technology company. Logicon, which
operates as a Northrop Grumman subsidiary, provides military and commercial
information systems and services for defense, civil and industrial customers.
Its core markets include Command, Control, Communications and Intelligence
(C/3/I); information technology; training and simulation; battle management
and mission planning.
In addition, Northrop Grumman designs, develops, operates and supports
computer systems for scientific and management information. It provides
systems integration and related information services for Federal, state and
local government agencies and private industry. Northrop Grumman also provides
military base support functions and aircraft maintenance at a number of U.S.
Government facilities.
It is contemplated that in the event the Merger is not consummated, Northrop
Grumman will conduct its business consistent with its past practice as it had
prior to initiation of discussions with Lockheed Martin concerning the Merger.
Joint venture projects with Lockheed Martin would continue to operate
consistent with past practice.
Additional information concerning Northrop Grumman is included in the
Northrop Grumman Reports incorporated by reference in this Joint Proxy
Statement/Prospectus. See "Incorporation of Certain Documents by Reference"
and "Available Information."
52
RECENT DEVELOPMENTS
Logicon. On August 1, 1997, Northrop Grumman consummated the stock-for-stock
merger of Logicon with and into NG Acquisition, Inc., a wholly-owned
subsidiary of Northrop Grumman, pursuant to which Logicon became a wholly-
owned subsidiary of Northrop Grumman. Up to 8,991,800 shares of Northrop
Grumman Common Stock were issuable in connection with the consummation of the
merger or subsequent exercise of employee stock options. Logicon provides
advanced technology systems and services to support national security, civil
and industrial needs. Logicon recorded $563 million in revenues, $33 million
in net income and $2.29 in earnings per common share and paid $.23 in cash
dividends per common share for its fiscal year ended March 31, 1997. The
merger was accounted for using the pooling of interests method of accounting,
and was intended to qualify as a tax-free reorganization under the Code.
Subsequently, Northrop Grumman filed a Current Report on Form 8-K to restate
its combined financial statements.
Supplemental Executive Retirement Plan. On July 2, 1997, the Northrop
Grumman Board adopted the Northrop Grumman Supplemental Executive Retirement
Plan (the "SERP"), which had been under consideration since 1995. The SERP is
applicable to elected officers who report directly to the Chief Executive
Officer of Northrop Grumman (which group currently consists of ten of the
fifteen elected executive officers of Northrop Grumman). The SERP provides to
each participant a pension accrual of 1.667% of final average pay for each
year or portion thereof that the participant has served as an elected officer
reporting to the Chief Executive Officer. This provides a pension accrual to
the elected officer for the period that he has served as such, in addition to
the regular pension benefits payable from Northrop Grumman's tax qualified and
supplemental retirement plans on the basis of all creditable years of service.
Assuming that the current group of SERP participants were to retire from
Northrop Grumman as of January 1, 1998 (or in the case of Richard B. Waugh,
Jr., were to terminate employment as of January 1, 1998 and commence benefits
as of September 1, 1998 and in the case of John E. Harrison, to terminate
employment as of September 1, 1998 and commence benefits September 1, 2000,
the earliest date at which benefits could commence) and elected a fifty
percent joint and survivor retirement annuity, the amount of annual retirement
benefits for the named executive officers would consist of the following
approximate amounts: Richard B. Waugh, Jr. ($42,118, starting September 1,
1998); James G. Roche ($46,529); John E. Harrison ($32,753, starting September
1, 2000); and Richard R. Molleur ($68,524). In addition, if the other six
elected executive officers who participate in the SERP were to retire as of
January 1, 1998 or were to terminate employment January 1, 1998 and commence
benefits at their earliest retirement date, and elected a fifty percent joint
and survivor retirement annuity, the highest amount of annual retirement
benefits from the SERP for such other six elected executive officers, in the
aggregate, would be $144,401.
Operating Results. On January 21, 1998, Northrop Grumman announced its
results of operations for the fourth quarter and year ended December 31, 1997,
as summarized below:
QUARTER ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------- -------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net Sales............................... $2,510 $2,413 $9,153 $8,607
Net Income.............................. $ 117 $ 24 $ 407 $ 264
Earnings per share:
Basic................................. $ 1.75 $ 0.38 $ 6.10 $ 4.22
Diluted............................... $ 1.71 $ 0.38 $ 5.98 $ 4.15
53
MARKET DATA
Lockheed Martin Common Stock is listed on the NYSE (symbol "LMT"). Northrop
Grumman Common Stock is listed on the NYSE and the Pacific Stock Exchange
(symbol "NOC"). The table below sets forth, for the calendar quarters
indicated, the high and low sales prices per share reported on the NYSE
Composite Tape and the dividends declared on Lockheed Martin Common Stock and
on Northrop Grumman Common Stock.
LOCKHEED MARTIN NORTHROP GRUMMAN
COMMON STOCK COMMON STOCK
---------------------------- ------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
--------- -------- --------- --------- -------- ---------
1995:
First Quarter*........ $ 54 3/8 $50 1/4 $ -- $ 49 3/4 $ 39 3/4 $0.40
Second Quarter........ 64 7/8 50 0.35 54 47 0.40
Third Quarter......... 68 1/8 59 3/8 0.35 62 5/8 51 7/8 0.40
Fourth Quarter........ 79 1/2 63 0.35 64 1/4 56 0.40
1996:
First Quarter......... 80 7/8 73 1/8 0.40 67 3/8 58 3/8 0.40
Second Quarter........ 86 3/4 73 0.40 69 1/4 57 3/4 0.40
Third Quarter......... 91 3/4 76 1/4 0.40 80 1/4 63 3/4 0.40
Fourth Quarter........ 96 5/8 85 1/4 0.40 84 1/4 76 3/8 0.40
1997:
First Quarter......... 92 7/8 82 0.40 82 5/8 71 3/8 0.40
Second Quarter........ 105 1/4 78 1/4 0.40 89 3/4 71 7/8 0.40
Third Quarter......... 113 7/16 98 3/8 0.40 127 7/8 87 1/2 0.40
Fourth Quarter........ 108 7/16 88 1/8 0.40 123 3/16 100 7/8 0.40
1998:
First Quarter
(through January 9,
1998)................ 104 1/8 98 -- 122 1/2 114 15/16 --
- --------
* The combination of the businesses of Lockheed Corporation and Martin
Marietta Corporation was consummated on March 15, 1995 and trading of
Lockheed Martin Common Stock was commenced on March 16, 1995.
The last reported sales prices per share of Lockheed Martin Common Stock and
Northrop Grumman Common Stock on July 2, 1997, the last trading day preceding
public announcement of the Merger, were $104 and $88 7/8, respectively. Based
on such closing sale price of Lockheed Martin Common Stock, the market value
of 1.1923 shares of Lockheed Martin Common Stock was $124. On January 9, 1998,
the closing sale price per share of Lockheed Martin Common Stock was $99 7/8
and the closing sale price per share of Northrop Grumman Common Stock was $117
3/8. Based on such closing sale price of Lockheed Martin Common Stock, the
market value of 1.1923 shares of Lockheed Martin Common Stock was $119.08.
Because the Exchange Ratio is fixed and because the market price of Lockheed
Martin Common Stock is subject to fluctuation, the market value of the shares
of Lockheed Martin Common Stock that holders of Northrop Grumman Common Stock
will receive in the Merger may increase or decrease prior to and following the
Merger. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
LOCKHEED MARTIN COMMON STOCK AND NORTHROP GRUMMAN COMMON STOCK.
54
LOCKHEED MARTIN SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information of Lockheed Martin for the
years 1996, 1995 and 1994, presented below, with the exception of the balance
sheet data for 1994, has been derived from the audited consolidated financial
statements of Lockheed Martin incorporated by reference in this Joint Proxy
Statement/Prospectus. The historical balance sheet data for 1994 and the
selected financial information presented below for 1993 and 1992, with the
exception of the balance sheet data for 1992, has been derived from audited
consolidated financial statements previously filed with the Commission but not
incorporated by reference in this Joint Proxy Statement/Prospectus. The
historical balance sheet data for 1992 has been derived from unaudited
consolidated financial information previously filed with the Commission but
not incorporated by reference in this Joint Proxy Statement/Prospectus.
Selected historical financial data for the nine month periods ended September
30, 1997 and 1996 have been derived from unaudited consolidated financial
statements filed with the Commission and incorporated by reference in this
Joint Proxy Statement/Prospectus and, in the opinion of Lockheed Martin's
management, include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the results of operations and financial
position for each of the interim periods presented. Results for the nine
months ended September 30, 1997 are not necessarily indicative of results
which may be expected for any other interim period or for the year as a whole.
The information shown below should be read in conjunction with the historical
consolidated financial statements of Lockheed Martin, including the related
notes thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus. See "Incorporation of Certain Documents by Reference."
AT OR FOR
NINE MONTHS
ENDED
SEPTEMBER 30, AT OR FOR YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1997 1996(1) 1996(1)(2) 1995(3) 1994(4) 1993(5) 1992(6)
------- ------- ---------- ------- ------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales............... $20,191 $19,213 $26,875 $22,853 $22,906 $22,397 $16,030
Earnings before
cumulative effect of
changes in accounting.. 929 882 1,347 682 1,055 829 649
Net earnings (loss)..... 929 882 1,347 682 1,018 829 (361)
Net earnings (loss) per
common share:
Assuming no dilution:
Before cumulative
effect of changes in
accounting............ 4.78 4.40 6.80 3.28 5.32 3.99 3.31
Net earnings (loss).... 4.78 4.40 6.80 3.28 5.12 3.99 (1.84)
Assuming full dilution:
Before cumulative
effect of changes in
accounting............ 4.25 3.93 6.04 3.05 4.83 3.75 3.31
Net earnings (loss).... 4.25 3.93 6.04 3.05 4.66 3.75 (1.84)
Cash dividends per
common share........... 1.20 1.20 1.60 1.34 1.14 1.09 1.04
BALANCE SHEET DATA:
Total assets............ 29,577 30,269 29,257 17,558 17,979 17,082 10,827
Short-term borrowings... 1,012 787 1,110 -- -- -- --
Long-term debt
(including current
maturities)............ 10,235 11,252 10,368 3,732 3,879 4,372 2,130
Stockholders' equity.... 7,654 7,189 6,856 6,433 6,086 5,201 3,482
- -------
(1) Amounts displayed for 1996 include the effects of the business combination
with Loral Corporation from April 1, 1996.
(2) Net earnings for 1996 included a nonrecurring gain from divestitures of
$351 million, or $1.58 per common share assuming full dilution, offset by
nonrecurring charges totaling $209 million, or $.94 per common share
assuming full dilution, related to Lockheed Martin's strategy for its
environmental remediation business and other corporate actions to improve
efficiency, increase competitiveness and focus on core businesses.
(3) Net earnings for 1995 included charges totaling $436 million, or $1.96 per
common share assuming full dilution, for merger related and consolidation
expenses related to the formation of Lockheed Martin.
(4) Amounts displayed for 1994 reflect the acquisition of the Space Systems
Division of GD effective May 1, 1994. In addition, net earnings for 1994
included nonrecurring gains of $100 million, or $.46 per common share
assuming full dilution, related to an initial public offering of a portion
of the common stock of a subsidiary and an acquisition termination fee,
and also included a cumulative effect adjustment related to Lockheed
Martin's change in the method of accounting for its Employee Stock
Ownership Plan.
(5) Amounts displayed for 1993 reflect the acquisitions of the GD Fort Worth
Division effective February 28, 1993 and the aerospace businesses of
General Electric Company effective April 2, 1993.
(6) The net loss for 1992 included the cumulative effect of accounting changes
relative to the adoption of SFAS No. 106, Employers' Accounting for Post-
Retirement Benefits Other than Pensions, and SFAS No. 112, Employers'
Accounting for Post-Employment Benefits.
55
NORTHROP GRUMMAN SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information of Northrop Grumman for the
years 1996, 1995 and 1994, presented below, with the exception of the balance
sheet data for 1994, has been derived from the audited consolidated financial
statements of Northrop Grumman included in its Form 8-K pertaining to its
merger with Logicon effective August 1, 1997, previously filed with the
Commission and incorporated by reference in this Joint Proxy
Statement/Prospectus. The historical balance sheet data for 1994, and the
selected financial information presented below for 1993 and 1992, are
unaudited and have been derived by combining data extracted from the audited
consolidated financial statements of Northrop Grumman and Logicon, which were
previously filed separately with the Commission and which have not been
incorporated by reference into this Joint Proxy Statement/Prospectus. Northrop
Grumman's merger with Logicon was accounted for based on the pooling of
interests method of accounting. Selected historical financial information for
the nine month periods ended September 30, 1997 and 1996 have been derived
from unaudited consolidated financial statements filed with the Commission and
incorporated by reference in this Joint Proxy Statement/Prospectus and, in the
opinion of Northrop Grumman's management, include all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the results
of operations and financial position for each of the interim periods
presented. Results for the nine months ended September 30, 1997 are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole. The information shown below should be read
in conjunction with the historical consolidated financial statements of
Northrop Grumman, including the related notes thereto, which are incorporated
by reference in this Joint Proxy Statement/Prospectus. See "Incorporation of
Certain Documents by Reference."
AT OR FOR
NINE MONTHS
ENDED
SEPTEMBER 30, AT OR FOR YEAR ENDED DECEMBER 31,
-------------- ---------------------------------------
1997 1996(1) 1996(1)(2) 1995 1994(3) 1993 1992
------ ------- ---------- ------ ------- ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales............... $6,643 $6,194 $8,607 $7,272 $7,025 $5,385 $5,870
Net income.............. 290 240 264 277 53 116 136
Earnings per share...... 4.35 3.90 4.22 4.79 .92 2.04 2.42
Cash dividends per
common share........... 1.20 1.20 1.60 1.60 1.60 1.60 1.60
BALANCE SHEET DATA:
Total assets............ 9,778 9,709 9,645 5,642 6,192 3,063 3,275
Short-term debt......... 168 245 228 65 171 -- 100
Long-term debt
(including current
maturities)............ 3,020 3,289 3,150 1,307 1,763 160 410
Stockholders' equity.... 2,503 2,258 2,282 1,586 1,391 1,420 1,335
- --------
(1) Amounts displayed for 1996 reflect the acquisition of the defense and
electronics systems business of Westinghouse Electric Corporation
effective March 1, 1996.
(2) Net income for 1996 included a charge of $58 million, or $.93 per share,
related to the closure of four plants.
(3) Amounts displayed for 1994 reflect the acquisition of Grumman Corporation
effective April 1, 1994. Net income for 1994 included a charge of $183
million, or $3.18 per share, related to an early retirement incentive
program.
56
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
are based upon Lockheed Martin's and Northrop Grumman's historical
consolidated financial statements incorporated by reference in this Joint
Proxy Statement/Prospectus, and have been prepared to reflect the GE
Transaction, and the proposed Merger based on the purchase method of
accounting. For a description of the GE Transaction, see "Business of Lockheed
Martin--Recent Developments." For a description of purchase accounting with
respect to the proposed Merger, see "The Merger--Accounting Treatment." The
unaudited pro forma combined condensed statements of earnings, which have been
prepared for the nine month period ended September 30, 1997 and for the year
ended December 31, 1996, give effect to the GE Transaction and the Merger as
if they had occurred at the beginning of the earliest period presented. The
unaudited pro forma combined condensed balance sheet has been prepared as of
September 30, 1997, and gives effect to the GE Transaction and the Merger as
if they had occurred on that date. The unaudited pro forma adjustments
described in the accompanying notes are based upon preliminary estimates and
certain assumptions that management of Lockheed Martin and management of
Northrop Grumman believe are reasonable in such circumstances. Based on
information currently available, management believes that no material
adjustments will occur to the pro forma financial statements.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of actual or future financial position or results of
operations that would have occurred or will occur upon consummation of the GE
Transaction and the Merger. These statements do not include the effects of any
estimated transition or restructuring costs which may be incurred in
connection with integrating the operations of Northrop Grumman into Lockheed
Martin. It is not feasible at this time to estimate these costs. Additionally,
the unaudited pro forma combined condensed statements of earnings do not
reflect any net cost savings or economies of scale that management believes
would have occurred had the Merger been consummated at the beginning of the
respective periods.
The unaudited pro forma combined condensed financial statements are based
upon and should be read in conjunction with the historical consolidated
financial statements of Lockheed Martin and Northrop Grumman, including the
respective notes thereto, which are incorporated by reference in this Joint
Proxy Statement/Prospectus. See "Incorporation of Certain Documents by
Reference."
57
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS - PRO FORMA HISTORICAL ADJUSTMENTS -
LOCKHEED GE LOCKHEED NORTHROP MERGER PRO FORMA
MARTIN TRANSACTION MARTIN GRUMMAN TRANSACTION COMBINED
---------- ------------- --------- ---------- ------------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales............... $20,191 $(1,249)(aa) $18,942 $6,643 $(382)(a) $25,203
Cost of sales........... 18,221 (1,205)(aa) 17,016 6,009 (382)(a)
177 (b) 22,820
------- ------- ------- ------ ----- -------
Earnings from
operations............. 1,970 (44) 1,926 634 (177) 2,383
Other income and
expenses, net.......... 143 (10)(aa) 133 30 -- 163
------- ------- ------- ------ ----- -------
2,113 (54) 2,059 664 (177) 2,546
Interest expense........ 615 72 (bb) 687 197 (5)(c) 879
------- ------- ------- ------ ----- -------
Earnings before income
taxes.................. 1,498 (126) 1,372 467 (172) 1,667
Taxes on income......... 569 (44)(cc) 525 177 (37)(d) 665
------- ------- ------- ------ ----- -------
Net Earnings............ $ 929 $ (82) $ 847 $ 290 $(135) $ 1,002
======= ======= ======= ====== ===== =======
Earnings per common
share:
Assuming no dilution:
Weighted average
shares............... 184.9 265.9
Earnings per share.... $4.78 $3.77
Assuming full dilution:
Weighted average
shares............... 218.7 N/A
Earnings per share.... $4.25 N/A
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
58
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS - PRO FORMA HISTORICAL ADJUSTMENTS -
LOCKHEED GE LOCKHEED NORTHROP MERGER PRO FORMA
MARTIN TRANSACTION MARTIN GRUMMAN TRANSACTION COMBINED
---------- ------------- --------- ---------- ------------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales............... $26,875 $(1,228)(aa) $25,647 $8,607 $(579)(a) $33,675
Cost of sales........... 24,594 (1,188)(aa) 23,406 7,904 (579)(a)
177 (b) 30,908
------- ------- ------- ------ ----- -------
Earnings from
operations............. 2,281 (40) 2,241 703 (177) 2,767
Other income and
expenses, net.......... 452 (6)(aa) 446 (1) -- 445
------- ------- ------- ------ ----- -------
2,733 (46) 2,687 702 (177) 3,212
Interest expense........ 700 97 (bb) 797 270 (7)(c) 1,060
------- ------- ------- ------ ----- -------
Earnings before income
taxes.................. 2,033 (143) 1,890 432 (170) 2,152
Taxes on income......... 686 (50)(cc) 636 168 (25)(d) 779
------- ------- ------- ------ ----- -------
Net Earnings............ $ 1,347 $ (93) $ 1,254 $ 264 $(145) $ 1,373
======= ======= ======= ====== ===== =======
Earnings per common
share:
Assuming no dilution:
Weighted average
shares............... 189.1 270.1
Earnings per share.... $6.80 $5.08
Assuming full dilution:
Weighted average
shares............... 223.0 N/A
Earnings per share.... $6.04 N/A
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
59
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
------------------------------------------------------------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS - PRO FORMA HISTORICAL MERGER ADJUSTMENTS -
LOCKHEED GE LOCKHEED NORTHROP RELATED MERGER PRO FORMA
MARTIN TRANSACTION MARTIN GRUMMAN RECLASSIFICATIONS TRANSACTION COMBINED
---------- ------------- --------- ---------- ----------------- ------------- ---------
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash
equivalents........... $ 110 $ (22)(dd) $ 88 $ 48 $ -- $ -- $ 136
Receivables............ 5,119 (376)(dd) 4,743 1,574 -- -- 6,317
Inventories............ 4,104 (440)(dd) 3,664 1,315 -- -- 4,979
Other current assets... 1,467 (13)(dd) 1,454 156 (568) -- 1,042
------- ------- ------- ------ ------ ------ -------
Total current assets... 10,800 (851) 9,949 3,093 (568) -- 12,474
Property, plant and
equipment.............. 3,610 (34)(dd) 3,576 1,380 -- 50 (e) 5,006
Intangible assets
related to contracts
and programs acquired.. 1,598 -- 1,598 919 -- 1,185 (e) 3,702
Cost in excess of net
assets acquired........ 9,962 (12)(dd) 9,950 3,444 -- 3,869 (e) 17,263
Prepaid pension costs... -- -- -- 392 704 2,059 (e) 3,155
Other assets............ 3,607 (135)(dd) 3,472 550 (1,075) -- 2,947
------- ------- ------- ------ ------ ------ -------
$29,577 $(1,032) $28,545 $9,778 $ (939) $7,163 $44,547
======= ======= ======= ====== ====== ====== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Customer advances and
amounts in excess of
costs incurred........ $ 3,347 $ -- $ 3,347 $ 289 $ -- $ -- $ 3,636
Short-term borrowings.. 1,012 -- 1,012 168 -- -- 1,180
Current maturities of
long-term debt........ 847 -- 847 200 -- -- 1,047
Other current
liabilities........... 4,220 (194)(dd) 4,026 2,013 (568) 146 (f) 5,617
------- ------- ------- ------ ------ ------ -------
Total current
liabilities........... 9,426 (194) 9,232 2,670 (568) 146 11,480
Long-term debt.......... 9,388 1,600 (ee) 10,988 2,820 -- 139 (e) 13,947
Post-retirement benefit
liabilities............ 1,963 (10)(dd) 1,953 1,671 -- (189)(e) 3,435
Other liabilities....... 1,146 (6)(dd) 1,140 114 (371) 1,301 (e) 2,184
Stockholders' equity:
Series A preferred
stock................. 1,000 (1,000)(ff) -- -- -- -- --
Common stock........... 194 -- 194 789 -- (708)(g) 275
Additional paid-in
capital............... 202 (202)(ff) -- -- -- 8,188 (g) 8,188
Retained earnings...... 6,482 (1,220)(ff) 5,262 1,714 -- (1,714)(g) 5,262
Unearned ESOP shares... (224) -- (224) -- -- -- (224)
------- ------- ------- ------ ------ ------ -------
Total stockholders'
equity................ 7,654 (2,422) 5,232 2,503 -- 5,766 13,501
------- ------- ------- ------ ------ ------ -------
$29,577 $(1,032) $28,545 $9,778 $ (939) $7,163 $44,547
======= ======= ======= ====== ====== ====== =======
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
60
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma combined condensed financial statements are based
upon Lockheed Martin's and Northrop Grumman's historical consolidated
financial statements, and have been prepared to reflect the GE Transaction,
and the proposed Merger based on the purchase method of accounting. The
unaudited pro forma combined condensed statements of earnings, which have been
prepared for the nine-month period ended September 30, 1997, and for the year
ended December 31, 1996, give effect to the GE Transaction and the Merger as
if they had occurred at the beginning of the respective periods. The unaudited
pro forma combined condensed balance sheet has been prepared as of September
30, 1997, and gives effect to the GE Transaction and the Merger as if they had
occurred on that date. The unaudited pro forma adjustments are based upon
preliminary estimates and certain assumptions that management of Lockheed
Martin and management of Northrop Grumman believe are reasonable in such
circumstances. Based on information currently available, management believes
that no material adjustments will occur to the pro forma financial statements.
The unaudited pro forma combined condensed financial statements are not
necessarily indicative of actual or future financial position or results of
operations that would have occurred or will occur upon consummation of the GE
Transaction and the Merger. The unaudited pro forma combined condensed
financial statements are based upon and should be read in conjunction with the
historical consolidated financial statements of Lockheed Martin and Northrop
Grumman, and the respective notes thereto, which are incorporated by reference
in this Joint Proxy Statement/Prospectus.
2. THE GE TRANSACTION
A. Description of the GE Transaction
On November 3, 1997, Lockheed Martin announced a definitive agreement with
GE under which Lockheed Martin would exchange the stock of a newly formed
subsidiary, LMT Sub, for all of the Lockheed Martin Preferred Stock held by GE
and certain subsidiaries of GE. The Lockheed Martin Preferred Stock, which was
issued to GE in connection with the acquisition of GE's aerospace businesses
in 1993, was convertible into approximately 29 million shares of Lockheed
Martin Common Stock with a market value of approximately $2.8 billion at the
date of the announcement of the GE Transaction.
In accordance with the agreement, on November 17, 1997, Lockheed Martin
exchanged all of the outstanding capital stock of LMT Sub, which was composed
of two non-core commercial business units, Lockheed Martin's investment in a
telecommunications partnership, and approximately $1.6 billion in cash
(subject to adjustment), for all of the outstanding Lockheed Martin Preferred
Stock held by GE and certain subsidiaries of GE. The cash included in the
exchange was initially financed through the issuance of commercial paper. On
November 20, 1997, $1.4 billion was refinanced pursuant to a note, due
November 17, 2002 and bearing interest at 6.04%, from Lockheed Martin to LMT
Sub. The remainder is expected to be refinanced with a note from Lockheed
Martin to LMT Sub on substantially similar terms following the determination
of any adjustment in connection with the GE Transaction.
The transaction was accounted for at fair value, and resulted in recognition
of a tax-free gain in excess of $300 million. Due to the nonrecurring nature
of this gain, no effect has been provided related to the gain in the unaudited
pro forma combined condensed statements of earnings. Further, due to the
nonrecurring nature of the transaction, the excess of the fair value of the
consideration transferred to GE (approximately $2.8 billion) over the carrying
value of the Lockheed Martin Preferred Stock ($1.0 billion) has not been
deducted from the 1996 Pro Forma Lockheed Martin net earnings in determining
earnings per common share. The effect of such a deduction would be to decrease
1996 earnings per common share assuming no dilution by $9.52, and to decrease
earnings per common share assuming full dilution by $9.27.
61
B. Pro Forma Adjustments
The following adjustments are provided to reflect the GE Transaction on a
pro forma basis:
(aa) To remove the sales, cost of sales, and other income and expenses, net,
of the business units divested as part of the transaction.
(bb) To record interest expense, using an estimated interest rate of 6.04%,
resulting from the issuance of an estimated $1.6 billion in long-term
debt obligations, $1.4 billion of which has already been issued.
(cc) To record the federal income tax effect, using the 35% statutory rate,
related to the net pro forma adjustments.
(dd) To remove the assets and liabilities of the business units and Lockheed
Martin's investment in a telecommunications partnership divested as part
of the transaction.
(ee) To record the issuance of long-term debt obligations to finance a portion
of the transaction.
(ff) To record the retirement of the Lockheed Martin Preferred Stock at fair
value. Retained earnings has also been adjusted to reflect the estimated
tax-free gain of approximately $300 million related to the transaction.
After giving effect to the above adjustments, earnings per common share
related to the Pro Forma Lockheed Martin financial data have been calculated
at $4.58 assuming no dilution and $4.46 assuming full dilution for the nine
months ended September 30, 1997, and at $6.63 assuming no dilution and $6.46
assuming full dilution for the year ended December 31, 1996.
3. THE MERGER
A. Purchase Price
As described in the Merger Agreement, each outstanding share of Northrop
Grumman Common Stock will be converted into the right to receive 1.1923 shares
of Lockheed Martin Common Stock. This exchange ratio was used in the
computation of the purchase price as follows (in millions):
Exchange of common shares (67.9932 million shares of Northrop Grumman
Common Stock
at the conversion ratio of 1.1923 shares of Lockheed Martin Common
Stock
at an assumed fair value of $102 per share)......................... $8,269
Estimated tax liability related to Northrop Grumman restricted
shares.............................................................. 46
Estimated transaction costs.......................................... 100
------
Total purchase price................................................. $8,415
======
62
B. Pro Forma Adjustments
The following adjustments are provided to reflect the Merger on a pro forma
basis:
(a) To eliminate sales and cost of sales between Lockheed Martin and Northrop
Grumman. No adjustments have been made to eliminate the related
intercompany profit in ending inventories and the net intercompany
receivables and payables at September 30, 1997, as such amounts are not
considered material.
(b) To eliminate Northrop Grumman's historical depreciation and amortization
expense, and to record the depreciation and amortization expense resulting
from the purchase price allocation, the increase in pension expense
related to the fair value adjustment to prepaid pension costs, and the
effects of state income taxes related to the net pro forma adjustments, as
follows (in millions):
FOR THE NINE FOR THE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
Elimination of Northrop Grumman's
historical amounts:
Depreciation........................ $(164) $(210)
Amortization of intangible assets
related to contracts and programs
acquired........................... (69) (96)
Amortization of cost in excess of
net assets acquired................ (70) (83)
----- -----
(303) (389)
Record amounts resulting from purchase
price allocation:
Depreciation........................ 169 217
Amortization of intangible assets
related to contracts and programs
acquired........................... 113 150
Amortization of cost in excess of
net assets acquired................ 137 183
----- -----
419 550
Increase in pension expense........... 68 20
State income taxes.................... (7) (4)
----- -----
$ 177 $ 177
===== =====
(c) To record, as an offset to interest expense, the effect of the estimated
fair value adjustment related to long-term debt obligations (weighted
average remaining term of 19 years).
(d) To record the federal income tax effect, using the 35% statutory rate,
related to the net pro forma adjustments.
(e) To adjust the assets and liabilities of Northrop Grumman to their
estimated fair values (such estimated fair values are subject to possible
adjustment based on future valuation analyses) as follows (in millions):
Net assets of Northrop Grumman at September 30, 1997................ $ 2,503
Estimated fair value adjustments:
Intangible assets related to contracts and programs acquired...... 1,185
Prepaid pension costs............................................. 2,059
Post-retirement benefit liabilities............................... 189
Long-term debt.................................................... (139)
Property, plant and equipment..................................... 50
Deferred income tax liabilities................................... (1,301)
Cost in excess of net assets acquired............................. 3,869
-------
$ 8,415
=======
The fair value adjustments with respect to intangible assets related to
contracts and programs acquired were computed using estimated net cash flow
projections for each contract or program over its respective expected
remaining economic life, discounted using a present value factor
commensurate with the risk associated with each respective contract or
program.
63
(f) To record estimated costs of consummating the Merger.
(g) To eliminate Northrop Grumman's historical equity balances, and to record
the assumed issuance of 81 million shares of Lockheed Martin Common Stock,
at an assumed fair value of $102 per share, to consummate the Merger.
The accompanying unaudited pro forma combined condensed financial statements
do not include the effects of any estimated transition or restructuring costs
which may be incurred in connection with integrating the operations of
Northrop Grumman into Lockheed Martin. It is not feasible at this time to
estimate these costs. Additionally, the unaudited pro forma combined condensed
statements of earnings do not reflect any net cost savings or economies of
scale that management believes would have occurred had the Merger been
consummated at the beginning of the respective periods.
C. Merger Related Reclassifications
Certain reclassifications have been reflected in the unaudited pro forma
combined condensed balance sheet to conform the presentation of income tax
balances and prepaid pension costs for Lockheed Martin and Northrop Grumman.
4. COMPUTATION OF PRO FORMA EARNINGS PER COMMON SHARE
NINE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
ASSUMING NO DILUTION
Net earnings............ $1,002 $1,373
====== ======
Weighted average number
of common shares....... 265.9 270.1
====== ======
Net earnings per share.. $ 3.77 $ 5.08
====== ======
Historical earnings per common share data for Lockheed Martin included
computations assuming no dilution and assuming full dilution. Historical
earnings per share assuming full dilution were computed reflecting an increase
to the weighted average number of common shares primarily related to the
assumed conversion of the Lockheed Martin Preferred Stock into approximately
29 million common shares. The Unaudited Pro Forma Combined Condensed
Statements of Earnings for the nine months ended September 30, 1997, and for
the year ended December 31, 1996, do not include presentation of earnings per
share assuming full dilution, consistent with the pro forma assumption that
the Lockheed Martin Preferred Stock was retired at the beginning of 1996.
Lockheed Martin plans to adopt SFAS No. 128, "Earnings Per Share" for
purposes of reporting its results of operations in its 1997 Annual Report on
Form 10-K, at which time all prior period earnings per share data presented
will be restated to conform to the provisions of the new standard. SFAS No.
128 requires dual presentation of "basic" and "diluted" earnings per share,
each as defined therein, which replace primary and fully diluted earnings per
share, respectively, required under current guidance. SFAS No. 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997, and early adoption is not permitted. Management does
not currently anticipate that earnings per share computed under the new
standard will differ materially from earnings per share computed and disclosed
in Lockheed Martin's historical financial statements.
64
COMPARISON OF STOCKHOLDERS' RIGHTS
At the Effective Time, the Northrop Grumman Stockholders will become
Lockheed Martin Stockholders, and their rights will be governed by the
Maryland Corporate Law, the Lockheed Martin Charter and Lockheed Martin's
bylaws (the "Lockheed Martin Bylaws"). The following is a summary of the
material differences between the rights of Northrop Grumman Stockholders and
Lockheed Martin Stockholders, between the Lockheed Martin Charter and the
Lockheed Martin Bylaws and the Northrop Grumman Certificate and Northrop
Grumman's Bylaws and between certain provisions of the Maryland Corporate Law
and the Delaware Corporate Law affecting stockholders' rights.
The following summary is not intended to be complete and is qualified in its
entirety by reference to the Maryland Corporate Law, the Delaware Corporate
Law, the Lockheed Martin Charter, the Lockheed Martin Bylaws, the Northrop
Grumman Certificate and the Northrop Grumman Bylaws, as appropriate. Copies of
the Lockheed Martin Charter, the Lockheed Martin Bylaws, the Northrop Grumman
Certificate and the Northrop Grumman Bylaws are incorporated by reference
herein and will be sent to Northrop Grumman Stockholders and Lockheed Martin
Stockholders, upon request. See "Incorporation of Certain Documents by
Reference" and "Available Information."
Authorized Capital. The total number of authorized shares of capital stock
of Lockheed Martin is 820,000,000 shares, consisting of 750,000,000 shares of
Lockheed Martin Common Stock, 20,000,000 shares of Lockheed Martin Preferred
Stock and 50,000,000 shares of Series Preferred Stock, par value $1.00 per
share (the "Lockheed Martin Series Preferred Stock"). No class or series of
Lockheed Martin Preferred Stock is currently outstanding. If the Charter
Amendment Proposal is approved, the number of authorized shares of Lockheed
Martin Common Stock will increase from 750,000,000 to 1,500,000,000. The total
number of authorized shares of capital stock of Northrop Grumman is
210,000,000 shares, consisting of 200,000,000 shares of Northrop Grumman
Common Stock and 10,000,000 shares of Preferred Stock, par value $1.00 per
share (the "Northrop Grumman Preferred Stock"). No shares of Northrop Grumman
Preferred Stock are outstanding.
Directors. Pursuant to the Lockheed Martin Charter, Lockheed Martin
currently has 18 directors, which number may be increased or decreased by the
Lockheed Martin Board, but not to less than 12. See "The Merger Agreement--
Governance."
Pursuant to the Northrop Grumman Certificate and Northrop Grumman Bylaws,
Northrop Grumman has 14 directors, which number may be increased or decreased
by the Northrop Grumman Board, but not to less than 3.
The Maryland Corporate Law permits the charter or bylaws of a corporation to
provide that directors be divided into classes, provided that the term of
office of a director or class of directors may not be longer than five years
and the term of office of at least one class must expire each year. The
Lockheed Martin Board is not divided into separate classes. Each Lockheed
Martin director serves until the next annual meeting of stockholders after his
or her election and until his or her successor has been elected and qualified.
The Northrop Grumman Certificate establishes three classes of directors, as
nearly equal in number of directors as possible, with each director elected
for a term expiring at the third succeeding annual meeting of stockholders
after his or her election.
Under the Lockheed Martin Bylaws, the required quorum for any meeting of the
Lockheed Martin Board will generally be a majority of its members. The
Northrop Grumman Bylaws provide for a quorum of a majority of the Northrop
Grumman Board, except that when the Board consists of one director, then the
one director shall constitute a quorum.
Under the Northrop Grumman Bylaws, at least 60% of the members of the
Northrop Grumman Board shall at all times be "Independent Outside Directors."
An Independent Outside Director (as defined in the Northrop Grumman Bylaws) is
any director who (a) has not in the last 5 years been an officer or employee
of Northrop
65
Grumman or any of its subsidiaries or affiliates, (b) is not related to an
officer of Northrop Grumman, (c) is not, and has not within the last 2 years
been, an officer, director or employee of, and does not own, and has not
within the last 2 years owned, in excess of 1% of any business entity which
has made or will make payments for property or services in excess of 1% of the
gross revenues either of Northrop Grumman or the entity, but with certain
exclusions, (d) is not a director, partner, officer or employee of an
investment banking firm which has performed services for Northrop Grumman
within the last 2 years or which Northrop Grumman expects to have performed
services in the next year, excluding participation as an underwriter in a
syndicate, and (e) is not a control person of Northrop Grumman (other than as
a director) as defined by the regulations of the Commission.
The Lockheed Martin Charter and the Lockheed Martin Bylaws do not contain a
similar provision.
Removal of Directors. The Lockheed Martin Charter provides that directors
may be removed, at any time, only for cause, by the affirmative vote of at
least 80% of the votes that the holders of the outstanding shares of capital
stock are entitled to cast at the annual election of directors voting together
as a single class.
The Northrop Grumman Certificate provides that directors may be removed only
for cause and only by the affirmative vote of the holders of not less than 80%
of the voting power of all outstanding shares of capital stock of Northrop
Grumman having general voting power (the "Voting Stock") entitled to vote in
connection with the election of such director, regardless of class and voting
together as a single voting class; provided, however, that where such removal
is approved by a majority of Continuing Directors (as defined in the Northrop
Grumman Certificate), the affirmative vote of a majority of the voting power
of all outstanding shares of Voting Stock entitled to vote in connection with
the election of such director, regardless of class and voting together as a
single voting class, is required for approval of such removal.
Filling Vacancies on the Board of Directors. Under the Maryland Corporate
Law, stockholders may elect a successor to fill a vacancy on the board of
directors which results from the removal of a director. A director elected by
the stockholders to fill a vacancy which results from the removal of a
director serves for the balance of the term of the removed director. Under the
Maryland Corporate Law, as well as the Lockheed Martin Charter and the
Lockheed Martin Bylaws, a majority of the remaining directors may appoint a
director to fill a vacancy, unless there is an increase in the size of the
Lockheed Martin Board. Any vacancy resulting from an increase in the number of
directors shall be filled only by a majority vote of the entire Lockheed
Martin Board. If the vacancy is caused by removal of a director by the
stockholders, the successor director may be elected by the stockholders at the
same meeting at which such removal occurs. There is no provision in the
Maryland Corporate Law providing for the filling of vacancies on the board of
directors by the Maryland courts. A director elected by the board of directors
to fill a vacancy serves until the next annual meeting of stockholders and
until his successor is elected and qualified.
In accordance with the Delaware Corporate Law, under the Northrop Grumman
Certificate vacancies and newly created directorships may be filled by a
majority of the directors then in office or a sole remaining director (even
though less than a quorum) unless otherwise provided in the certificate of
incorporation or bylaws. However, the Delaware Corporate Law also provides
that if the directors then in office constitute less than a majority of the
corporation's board of directors, then, upon application by stockholders
representing at least 10% of outstanding shares entitled to vote for such
directors, the Court of Chancery may order a stockholder election of directors
to be held.
Amendment to Certificate of Incorporation or Charter. In accordance with the
Maryland Corporate Law, under the Lockheed Martin Charter, except as described
below or in connection with the rights of the holders of any class or series
of Lockheed Martin Preferred Stock (no class or series of Lockheed Martin
Preferred Stock is currently outstanding), the affirmative vote of a majority
of the outstanding shares entitled to vote is necessary to amend the Lockheed
Martin Charter, including to amend to increase or decrease the aggregate
number of shares of stock which it may issue, to increase or decrease the par
value of such stock or to change the preferences, conversion and other rights
of any stock. The affirmative vote of 80% of the votes that the holders of the
then outstanding shares of capital stock would be entitled to cast at an
annual election of directors is required to amend Sections 3 or 5 of Article V
of the Lockheed Martin Charter relating to removal of directors and the
general
66
powers of the board of directors. Any amendment to Article XIII of the
Lockheed Martin Charter regarding business combinations (as defined in the
Lockheed Martin Charter) with a Related Person (as defined in the Lockheed
Martin Charter) requires the affirmative vote of (a) 80% of the outstanding
shares of Voting Stock (as defined in the Lockheed Martin Charter) and (b) 67%
of the outstanding shares of Voting Stock excluding shares held by certain
beneficial owners of 10% or more of the outstanding shares of any class or
series of Voting Stock of a Related Person, unless such amendment shall have
been approved in advance by not less than two-thirds of the Lockheed Martin
Continuing Directors (as defined in the Lockheed Martin Charter). Any
amendment to Article XIV of the Lockheed Martin Charter regarding certain
prohibitions on greenmail and certain other transactions defined therein
requires the affirmative vote of 80% of the votes entitled to be cast by
holders of shares of Voting Stock.
Under the Delaware Corporate Law, the affirmative vote of a majority of the
outstanding shares entitled to vote is required to amend the Northrop Grumman
Certificate. In addition, amendments which make changes relating to the
capital stock by increasing or decreasing the par value or the aggregate
number of authorized shares of a class or otherwise adversely affecting the
rights of such class, must be approved by the majority vote of each class of
stock affected, unless, in the case of an increase in the number of shares,
the certificate of incorporation takes away such right, and provided that, if
the amendment affects some series, then only those series have such vote. The
Northrop Grumman Certificate provides that certain specified articles only may
be adopted, repealed, rescinded, altered or amended by the affirmative vote of
the holders of not less than 80% of the voting power of all outstanding shares
of Voting Stock, regardless of class and voting together as a single voting
class, and where such action is proposed by an Interested Shareholder (as
defined in the Northrop Grumman Certificate) or an Associate or Affiliate
(each as defined in the Northrop Grumman Certificate) of an Interested
Shareholder, by the majority of the voting power of all of the outstanding
shares of Voting Stock, voting together as a single class, other than shares
held by such interested person; provided, however, that where such action is
approved by a majority of the Continuing Directors, the affirmative vote of a
majority of the voting power of all outstanding shares of Voting Stock,
regardless of class and voting together as a single voting class shall be
required for approval of such action.
Amendment of Bylaws. Under the Maryland Corporate Law, the power to adopt,
amend or repeal a corporation's bylaws is vested in the corporation's
stockholders, except to the extent the corporation's charter or bylaws vest it
in the board of directors. The Lockheed Martin Bylaws grant the Lockheed
Martin Board exclusive power to adopt, amend, alter or repeal the Lockheed
Martin Bylaws.
Under the Northrop Grumman Certificate and the Northrop Grumman Bylaws, the
Northrop Grumman Bylaws may be adopted, repealed, rescinded, altered or
amended by the stockholders of Northrop Grumman, but only by the affirmative
vote of the holders of not less than 80% of the voting power of all
outstanding shares of Voting Stock, regardless of class and voting together as
a single voting class and, where such action is proposed by an Interested
Shareholder or by any Associate or Affiliate of an Interested Shareholder, by
a majority of the voting power of all outstanding shares of Voting Stock,
regardless of class and voting together as a single class, other than the
shares held by such Interested Shareholder; provided, however, that where such
action is approved by a majority of the Continuing Directors, the affirmative
vote of a majority of the voting power of all outstanding shares of Voting
Stock, regardless of class and voting together as a single voting class shall
be required for approval of such action.
Advance Notice of Director Nominations and New Business. The Lockheed Martin
Bylaws provide that (a) with respect to an annual meeting of stockholders,
nominations of persons for election to the Lockheed Martin Board and the
proposal of business to be considered by stockholders may be made only (i)
pursuant to Lockheed Martin's notice of the meeting, (ii) by or at the
direction of the Lockheed Martin Board or (iii) by a stockholder of record who
has complied with the advance notice procedures set forth in the Lockheed
Martin Bylaws and who is entitled to vote at the meeting and (b) with respect
to special meetings of stockholders, only the business specified in Lockheed
Martin's notice of meeting may be brought before the meeting and nominations
of persons for election to the Lockheed Martin Board may be made only pursuant
to Lockheed Martin's notice of the
67
meeting (i) by or at the direction of the Lockheed Martin Board or (ii) by a
stockholder of record who has complied with the advance notice procedures set
forth in the Lockheed Martin Bylaws and who is entitled to vote at the
meeting.
The Northrop Grumman Bylaws provide that with respect to any stockholder
meeting, nominations of persons for election to the Northrop Grumman Board and
the proposal of business to be considered by stockholders may be made only (a)
by or at the direction of the Northrop Grumman Board or (b) by a stockholder
of record who is entitled to vote and who has complied with the advance notice
procedures set forth in the Northrop Grumman Bylaws.
Stockholder Meetings and Provisions for Notices. Under the Delaware
Corporate Law and the Maryland Corporate Law, stockholder meetings may be held
at any place within or without the state, as provided in the bylaws, provided,
however, that under the Maryland Corporate Law, stockholder meetings must be
held in the United States.
Under the Lockheed Martin Bylaws, special stockholder meetings may be called
at any time between annual meetings by the Executive Committee of the Lockheed
Martin Board, a majority of the Lockheed Martin Board, the Chairman of the
Lockheed Martin Board or the President or by the Secretary of Lockheed Martin
at the written request of stockholders entitled to cast at least a majority of
the votes entitled to be cast at such meeting. Under the Maryland Corporate
Law, unless requested by the holders of a majority of shares entitled to vote
thereon, a special meeting of stockholders does not need to be called to
consider any matter that is substantially the same as a matter voted on at a
special meeting held within the preceding 12 months.
Under the Northrop Grumman Bylaws, special stockholder meetings may be
called at any time by a majority of the Northrop Grumman Board, the Chairman
of the Northrop Grumman Board or by the President and Chief Executive Officer
of Northrop Grumman.
Under both the Delaware and the Maryland Corporate Law, written notice of a
stockholders meeting must state the place, date and time of the meeting and,
if a special meeting, the purpose. Under the Lockheed Martin Bylaws, such
notice must be delivered personally or mailed not less than 30 nor more than
90 days prior to the meeting. The Northrop Grumman Bylaws provide that such
notice must be delivered personally or by mail to stockholders entitled to
vote at such meeting not less than 10 nor more than 60 days prior to the date
of the meeting.
The Maryland Corporate Law and the Lockheed Martin Bylaws provide that
proxies are valid for 11 months from their date, unless the proxy otherwise
provides. In accordance with the Delaware Corporate Law, the Northrop Grumman
Bylaws provide that stockholder proxies are valid for three years from their
date unless the proxy provides for a longer period.
Voting by Stockholders. Under the Lockheed Martin Charter, except with
respect to the amendment of certain provisions thereof (or as otherwise
provided by the Lockheed Martin Charter or by applicable law), action by
Lockheed Martin Stockholders generally is taken by the affirmative vote, at a
meeting at which a quorum is present, of stockholders representing a majority
of all votes entitled to be cast on the matter (including, without limitation,
certain extraordinary actions, such as mergers, consolidations and charter
amendments, that under the Maryland Corporate Law would, absent provision in
the Lockheed Martin Charter, require the affirmative vote of two-thirds of the
votes entitled to be cast thereon).
Under the Northrop Grumman Bylaws (except as otherwise provided by the
Northrop Grumman Certificate or by applicable law), action by Northrop Grumman
Stockholders generally is taken by the affirmative vote, at a meeting at which
a quorum is present, of a majority of the outstanding shares entitled to vote
thereon (including certain extraordinary actions, including mergers,
consolidations and amendments to the Northrop Grumman Certificate). However,
the Northrop Grumman Certificate requires the affirmative vote of not less
than 80% of outstanding shares of Voting Stock to approve an amendment of
certain articles in the Northrop Grumman
68
Certificate. The Northrop Grumman Certificate also requires a supermajority
(80%) shareholder vote to approve a Business Combination (as defined in the
Northrop Grumman Certificate) involving a Related Person.
Stockholder Action Without a Meeting. Under the Maryland Corporate Law, any
action required or permitted to be taken at a meeting of stockholders may be
taken without a meeting only if a unanimous written consent is signed by each
stockholder entitled to vote on the matter and a written waiver of any right
to dissent is signed by each stockholder who would have been entitled to
notice of, but could not vote at, such stockholder meeting.
Under the Northrop Grumman Certificate, any action required or permitted to
be taken by stockholders must be effected at a duly called Annual Meeting or
at a special meeting of stockholders, unless such action requiring or
permitting stockholder approval is approved by a majority of the Continuing
Directors, in which case such action may be authorized or taken by the written
consent of the holders of outstanding shares of Voting Stock having not less
than the minimum voting power that would be necessary to authorize or take
such action at a meeting of stockholders at which all shares entitled to vote
thereon were present and voted provided all other requirements of applicable
law and the Northrop Grumman Certificate have been satisfied.
Absence of Rights Plan. Lockheed Martin has not adopted a rights plan at
this time, but has reserved the right to do so in the future. Northrop Grumman
entered into the Rights Agreement, dated September 21, 1988, between Northrop
Corporation and Manufacturers Hanover Trust Company (the "Northrop Grumman
Rights Agreement"). Pursuant to resolutions adopted by the Northrop Grumman
Board, the Northrop Grumman Rights Agreement will not apply to the Merger.
Business Combinations. Under the Maryland Corporate Law, certain "business
combinations" (including a merger, consolidation, share exchange, or, in
certain circumstances, an asset transfer or issuance or reclassification of
equity securities) between a Maryland corporation and (i) any person who
beneficially owns 10% or more of the voting power of the corporation's shares,
(ii) an affiliate of such corporation who, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or more
of the voting power of the then-outstanding voting stock of the corporation
(in either case, an "Interested Stockholder") or (iii) any affiliate of an
Interested Stockholder, are prohibited for five years after the most recent
date on which the Interested Stockholder became an Interested Stockholder, and
thereafter must be recommended by the board of directors of the Maryland
corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by holders of its outstanding voting shares voting
together as a single voting group, and (b) two-thirds of the votes entitled to
be cast by holders of such outstanding voting shares, other than shares held
by the Interested Stockholder with whom the business combination is to be
effected; unless, among other things, the corporation's stockholders receive a
minimum price (as defined in the Maryland Corporate Law) for their shares and
the consideration is received in cash or in the same form as previously paid
by the Interested Stockholder for its shares. These provisions of the Maryland
Corporate Law do not apply to business combinations that are approved or
exempted by the board of directors of the corporation prior to the time that
the Interested Stockholder becomes an Interested Stockholder.
In addition to the Maryland Corporate Law requirements, the Lockheed Martin
Charter also contains a provision requiring that any business combination
between Lockheed Martin and a "Related Person" must be approved by 80% of the
outstanding shares of Voting Stock and by not less than 67% of the outstanding
shares of Voting Stock not owned by the Related Person. This provision does
not apply to a "business combination" approved by a two-thirds vote of the
directors in office prior to the time a "Related Person" becomes a "Related
Person" (and certain other directors designated from time to time as
"continuing directors") or if the consideration received by the stockholders
other than the "Related Person" is not less than the highest price per share
paid by the "Related Person" prior to the business combination and a proxy
statement complying with the regulations of the Exchange Act shall have been
sent to all stockholders. Under the Lockheed Martin Charter, this provision
may be amended only by the same two supermajority votes required for approval
of a business combination.
69
Under Section 203 of the Delaware Corporate Law ("Section 203"), certain
"business combinations" with "interested stockholders" (each as defined in
Section 203) of Delaware corporations are subject to a three-year moratorium
from the date the person became an "interested stockholder" unless specified
conditions are met. In addition to the Delaware Corporate Law requirements,
the Northrop Grumman Certificate provides that, subject to certain exceptions,
any "business combination" (as defined in the Northrop Grumman Certificate)
between Northrop Grumman or any subsidiary and an "interested stockholder" (as
defined in the Northrop Grumman Certificate) must be approved by 80% of the
voting power of all outstanding Voting Stock, regardless of class and voting
together as a single class and a majority of the voting power of all
outstanding shares of Voting Stock, other than shares held by any "interested
stockholder" which is a party to such "business combination" or by any
Affiliate or Associate of such "interested stockholder," regardless of class
and voting together as a single voting class.
Control Share Acquisitions. The Maryland Corporate Law provides that
"control shares" of a Maryland corporation acquired in a "control share
acquisition" have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast by stockholders, excluding shares
of stock as to which the acquiring person, officers of the corporation and
directors of the corporation who are employees of the corporation are entitled
to exercise or direct the exercise of the voting power of the shares in the
election of directors. "Control shares" are voting shares of stock which, if
aggregated with all other shares of stock previously acquired by such person,
would entitle the acquirer to exercise voting power in electing directors
within one of the following ranges of voting power: (i) one-fifth or more but
less than onethird, (ii) one-third or more but less than a majority or (iii) a
majority of all voting power. Control shares do not include shares which the
acquiring person is entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition,
directly or indirectly, of control shares, subject to certain exceptions.
A person who has made or proposes to make a "control share acquisition,"
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares.
If voting rights are not approved at the meeting or if the acquirer does not
deliver an acquiring person statement as required by the statute, then subject
to certain conditions and limitations, the corporation may redeem any or all
of the control shares, except those for which voting rights have previously
been approved, for fair value determined, without regard to voting rights, as
of the date of the last control share acquisition or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders'
meeting and the acquirer becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid in the control share
acquisition, and certain limitations and restrictions generally applicable to
the exercise of appraisal rights do not apply in the context of a control
share acquisition.
The "control share acquisition" statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction or to acquisitions approved or excepted by the charter or the
bylaws of the corporation.
The "business combination" statute and the "control share acquisition"
statute could have the effect of discouraging unsolicited offers to acquire
Lockheed Martin and of increasing the difficulty of consummating any such
offer.
The Delaware Corporate Law has no comparable control share acquisition
statute.
Indemnification and Limitation of Liability. Delaware and Maryland have
similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states also permit,
with certain exceptions, corporations to adopt a provision in their
certificate of incorporation or charter eliminating the liability of a
director to the corporation or its stockholders for monetary damages for
70
certain breaches of the director's fiduciary duty. There are nonetheless
certain differences between the laws of the two states respecting
indemnification and limitation of liability.
The Lockheed Martin Charter limits the monetary liability of both officers
and directors to the maximum extent permissible under the Maryland Corporate
Law. The exceptions to such a liability limitation in the charter of a
Maryland corporation generally are to the extent that (a) it is proved that
the person received an improper benefit or profit in money, property or
services, for the amount of benefit or profit so received, and (b) a judgment
or other final adjudication adverse to the person is entered in a proceeding
based on a finding that the person's action or failure to act was the result
of active and deliberate dishonesty and was material to the cause of action.
Under the Maryland Corporate Law, unless limited by the charter,
indemnification is mandatory if a director or an officer has been successful
on the merits or otherwise in the defense of any proceeding by reason of his
or her service as a director or officer unless such indemnification is not
otherwise permitted as described in the following sentence. Indemnification is
permissive unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding
and was committed in bad faith or was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of a criminal
proceeding, the director or officer had reasonable cause to believe his or her
act or omission was unlawful. In addition to the foregoing, a court of
appropriate jurisdiction may under certain circumstances order indemnification
if it determines that the director or officer is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not the director or officer has met the standards of conduct set forth in
the preceding sentence or has been adjudged liable on the basis that a
personal benefit was improperly received in a proceeding charging improper
personal benefit to the director or the officer. If the proceeding was an
action by or in the right of the corporation or involved a determination that
the director or officer received an improper personal benefit, however, no
indemnification may be made if the individual is adjudged liable to the
corporation, except to the extent of expenses approved by a court of
appropriate jurisdiction.
Under the Maryland Corporate Law, where indemnification is permissible, it
must be authorized (a) by a majority vote of a quorum consisting of directors
who are not parties to the proceeding (or if such a quorum cannot be obtained,
the determination may be made by a majority vote of a committee of the board
which consists solely of two or more directors who are not parties to the
proceeding and who were designated to act by a majority of the full board),
(b) by special legal counsel selected by the board of directors or by a
committee of the board (or if the requisite quorum of the board cannot be
obtained and the committee cannot be established, a majority of the full
board, including directors who are parties, may select the special counsel),
or (c) by a vote of the stockholders other than those stockholder-directors
who are party to the proceedings.
In Maryland, expenses may be advanced to a director, and to an officer,
employee or agent who is not a director to the same extent that they may be
advanced to a director unless limited by the charter. Advances to officers,
employees and agents may be generally authorized in the corporation's charter
or bylaws, by action of the board of directors or by contract. Delaware law
permits such general authorization of advances to directors and officers but
requires approval by the directors of advances to employees and agents of the
corporation.
The Northrop Grumman Certificate eliminates the liability of directors to
the fullest extent permissible under the Delaware Corporate Law, as such law
exists currently or as it may be amended in the future. Under the Northrop
Grumman Certificate, Northrop Grumman may not eliminate or limit director
monetary liability for (a) breaches of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law; (c) the payment
of unlawful dividends or unlawful stock repurchases or redemptions; or (d)
transactions in which the director received an improper personal benefit. The
Delaware Corporate Law provides that indemnification is mandatory where a
director, officer, employee or agent has been successful on the merits or
otherwise in the defense of any proceeding covered by the indemnification
statute.
The Delaware Corporate Law generally permits and the Northrop Grumman Bylaws
require indemnification for expenses incurred in the defense (even if not
successful) or the settlement of derivative or
71
third-party actions and for amounts paid in settlements, judgments or fines in
third-party actions, provided there is a determination by (i) a majority of
directors who were not parties to the action even though less than quorum,
(ii) by independent legal counsel in a written opinion (in the event a
majority of directors is unobtainable or if directed by a majority of
directors) or (iii) by the stockholders, that the person seeking
indemnification acted in good faith and in a manner reasonably believed to be
in, or not opposed to, the best interests of the corporation, or in a criminal
proceeding that the person had no reason to believe his or her conduct to be
unlawful. Without court approval, however, no indemnification may be made in
respect of any derivative action in which such person is adjudged liable. The
Delaware Corporate Law states that the indemnification provided by statute
shall not be deemed exclusive of any other rights under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
Dissenter's or Appraisal Rights. Under the Maryland Corporate Law,
stockholders have the right to demand and to receive payment of the fair value
of their stock in the event of (a) a merger or consolidation, (b) a share
exchange, (c) certain sales of all or substantially all of the assets, (d) a
charter amendment altering contract rights of outstanding stock, as expressly
set forth in the charter, and substantially adversely affecting the
stockholder's rights (unless, as is the case with the Lockheed Martin Charter,
the right to do so is reserved in the charter), or (e) certain business
combinations with interested stockholders which are subject to or exempted
from the Maryland Corporate Law's business combination statute and in
connection with the approval of voting rights of certain stockholders under
the Maryland Corporate Law's control share acquisition statute. Except with
respect to certain business combinations and in connection with appraisal and
dissenters rights existing as a result of the Maryland Corporate Law's control
share acquisition statute, the right to demand and receive payment of fair
value does not apply to (a) stock listed on a national securities exchange or
a national market system security designated on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD"), (b)
stock of the successor in a merger (unless the merger alters the contract
rights of the stock and the charter does not reserve the right to do so or
converts the stock in whole or in part into something other than stock, cash,
scrip or other interests) or (c) stock of an open-end investment company
registered with the Commission under the Investment Company Act of 1940, as
amended, and the stock is valued in the transaction at its net asset value.
Except in the case of appraisal and dissenter's rights existing as a result of
the Maryland Corporate Law's control share acquisition statutes, these rights
are available only when the stockholder (a) files with the corporation a
timely, written objection to the transaction and (b) does not vote in favor of
the transaction. In addition, the stockholder must make a demand on the
successor corporation for payment of the stock within 20 days of the
acceptance of articles by the State Department of Assessments and Taxation of
the State of Maryland.
Under Delaware Corporate Law, a stockholder of a corporation who does not
consent to a merger or consolidation may, under certain circumstances, be
entitled to appraisal rights pursuant to which such stockholder may receive
cash in the amount of the fair market value of his or her shares in lieu of
the consideration he or she would otherwise receive in the transaction. Unless
the corporation's certificate of incorporation provides otherwise, such
appraisal rights are not available in certain circumstances, including,
without limitation, (a) with respect to the sale, lease or exchange of all or
substantially all of the assets of a corporation, (b) with respect to a merger
or consolidation by a corporation the shares of which are either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the NASD or are held of record
by more than 2,000 holders if such stockholders receive only shares of the
surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the NASD or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares or
(c) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to
the merger is to be an identical outstanding or treasury share of the
surviving corporation after the merger, and the number of shares to be issued
in the merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger and if certain other conditions
are met. Under the Delaware Corporate Law, appraisal rights are not available
to Northrop Grumman stockholders in connection with the Merger.
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Prohibition on Payment of Greenmail. The Lockheed Martin Charter contains a
provision requiring approval by the affirmative vote of holders of a majority
of outstanding shares of Voting Stock not owned by the beneficial owner of 5%
or more of outstanding shares of Voting Stock of any purchase by Lockheed
Martin of shares of stock entitled to vote from such beneficial owner for less
than two years of 5% or more of outstanding shares of such stock at a price
per share in excess of the market price for the shares at such time or certain
other transactions with such stockholder, including, but not limited to, a
merger or consolidation, or the sale or transfer of more than $10 million of
assets or equity securities. Under the Lockheed Martin Charter, this provision
may be amended or repealed only by the affirmative vote of holders of at least
80% of the outstanding shares of such stock. The Lockheed Martin Charter
further provides that if any person (other than Lockheed Martin or certain of
its affiliates) beneficially owns Voting Stock representing 40% or more of the
votes entitled to be cast by all the holders of outstanding shares of Voting
Stock, (i) the directors of Lockheed Martin will be elected by cumulative
voting and (ii) one or more candidates may be nominated by certain
disinterested directors, or by any beneficial owner of Voting Stock having an
aggregate market price of $250,000 or more.
The Northrop Grumman Bylaws contain a provision requiring that any purchase
by Northrop Grumman or any subsidiary of shares of any class of equity
securities at a price which is in excess of the highest market price of such
security on the largest exchange on which such securities trade on the date
that the understanding to effect such transaction is entered into by Northrop
Grumman from any beneficial owner of 5% or more of Northrop Grumman's
outstanding capital stock entitled to vote in the election of directors, must
first be approved by the affirmative vote of holders of a majority of
outstanding shares of such stock not owned by such person. The provision is
not effective with respect to the purchase, acquisition, redemption or
exchange of such equity securities provided for under the Northrop Grumman
Certificate, made as a part of a tender offer or exchange offer by Northrop
Grumman to purchase all securities of the same class made on the same terms to
all holders, or pursuant to an open market purchase program which has been
approved by the Board.
Dissolution. The Maryland Corporate Law provides for the voluntary
dissolution of a corporation by a resolution adopted by a majority of the
corporation's board of directors. A vote of two-thirds of all votes entitled
to be cast on the matter generally is necessary to approve the dissolution,
but, in accordance with the Maryland Corporate Law, the Lockheed Martin
Charter reduces the stockholder vote required to approve a dissolution to a
majority of the votes entitled to be cast on the matter.
The Maryland Corporate Law also provides that stockholders entitled to cast
at least 25% of all the votes entitled to be cast in the election of directors
may petition a court of equity for an involuntary dissolution of the
corporation on the ground that (a) the directors are so divided respecting the
management of the corporation's affairs that the votes required for action by
the board cannot be obtained or (b) the stockholders are so divided that
directors cannot be elected. Any stockholder entitled to vote in the election
of directors of a Maryland corporation, however, may petition a court of
equity to dissolve the corporation on the ground that (a) the stockholders are
so divided that they have failed, for a period which includes at least two
consecutive annual meeting dates, to elect successors to directors whose terms
would have expired on the election and qualification of their successors or
(b) the acts of the directors or those in control of the corporation are
illegal, oppressive or fraudulent.
Under the Delaware Corporate Law, unless the board of directors approves the
proposal to dissolve, dissolution of the corporation must be approved by all
stockholders entitled to vote thereon. Only if the dissolution is initiated by
the board of directors may it be approved by a simple majority of the
corporation's stockholders.
Under the Delaware Corporate Law, the Court of Chancery, upon application by
any stockholder, may appoint a custodian or receiver in the case of insolvency
(a) if the stockholders are so divided that they have failed to elect
successors to directors whose terms have expired, (b) if the business of the
corporation is suffering or is threatened with irreparable injury because of a
deadlock of directors or (c) if the corporation has abandoned its business but
has not liquidated. In the event of clause (c) above, or, in either of the
other cases, upon the order of the Court of Chancery, the corporation may be
liquidated and its assets distributed.
73
Dividends. The Maryland Corporate Law permits a corporation to make a
distribution, including dividends, redemptions or stock repurchases, unless
prohibited by its charter or if following such distribution, the corporation
would not be able to pay its debts in the ordinary course as they become due
or the corporation's total assets would be less than the sum of its
liabilities and, unless the charter provides otherwise, senior liquidation
preferences. For purposes of determining whether a distribution is lawful, the
corporation's assets may be based upon fair value or any other method of
valuation that is reasonable under the circumstances.
The Delaware Corporate Law permits a corporation to declare and pay
dividends out of surplus or, if there is no surplus, out of net profits for
the fiscal year in which the dividend is declared and/or for the preceding
fiscal year as long as the amount of capital of the corporation. In addition,
the Delaware Corporate Law generally provides that a corporation may redeem or
repurchase its shares only if such redemption or repurchase would not impair
the capital of the corporation or if it repurchases shares having a preference
upon the distribution of any of its assets, or no shares having a preference
are outstanding, if it repurchases any of its shares, that it retires such
shares upon acquisition, and provided, that it reduces capital and that after
any reduction in capital, the corporation's remaining assets are sufficient to
pay any debts not otherwise provided for.
Right to Examine Stockholder List. Under the Maryland Corporate Law, any one
or more persons who for at least six months have been the record holders of at
least 5% of any class of stock are entitled to inspect and copy (among other
things) the corporation's stock ledger and if the corporation does not
maintain its stock ledger at its principal place of business, to request in
writing a stockholder list. Following such request, the corporation has 20
days to produce a stockholder list with names, addresses and number of shares
of each class owned. In addition, under the Lockheed Martin Bylaws, the
Secretary of the corporation must furnish a stockholder list at each meeting.
In compliance with the requirements of the Delaware Corporate Law, the
Northrop Grumman Bylaws provide that stockholders have a right for a period of
ten days prior to any stockholder meeting and during such meeting, to examine
a list of stockholders of Northrop Grumman, arranged in alphabetical order and
showing the address of and the number of shares held by such stockholder, for
any purpose germane to such meeting. Further, under the Delaware Corporate
Law, any stockholder, following a written request, has the right to inspect
the corporation's books and records, including the stockholder list, during
usual business hours for a proper purpose.
Interested Director Transactions. Under both the Delaware Corporate Law and
the Maryland Corporate Law, certain contracts or transactions in which one or
more of a corporation's directors has an interest are not void or voidable
solely (in the case of Delaware) because of such interest provided that
certain conditions are met. Under the Delaware Corporate Law and the Maryland
Corporate Law, any such contract shall not be voidable by virtue of such
interest if ratified by the stockholders (as set forth below) or by a majority
of disinterested members of the board of directors or a committee thereof if
(a) the material facts are disclosed or known thereto or (b) the contract or
transaction was fair (and under the Maryland Corporate Law, reasonable) to the
corporation at the time it was approved. Under the Delaware Corporate Law, any
ratification of such a contract or transaction by the stockholders must be
made by a majority of all stockholders in good faith after disclosure of all
relevant facts. Under the Maryland Corporate Law, such ratification must be
made by a majority of the disinterested stockholders.
Preemptive Rights. Under the Maryland Corporate Law as in effect at the time
Lockheed Martin was incorporated, subject to several statutory exceptions and
the power of the corporation to deny preemptive rights in its charter,
stockholders had preemptive rights. Although the Maryland Corporate Law was
amended to deny preemptive rights unless such rights are provided for in the
charter subsequent to Lockheed Martin's incorporation, Lockheed Martin remains
subject to the provisions of the Maryland Corporate Law in respect of
preemptive rights that existed at the time of its incorporation. The Lockheed
Martin Charter denies preemptive rights to holders of any class of stock.
Under the Delaware Corporate Law, stockholders have no preemptive rights
unless such rights are provided for in the certificate of incorporation. The
Northrop Grumman Certificate does not provide for preemptive rights.
74
PROPOSAL TO AMEND LOCKHEED MARTIN'S CHARTER
The Board of Directors of Lockheed Martin has recommended the adoption of an
amendment to the Lockheed Martin Charter that will increase the number of
authorized shares of Lockheed Martin Common Stock from 750 million to 1.5
billion. Of the 750 million shares of Lockheed Martin Common Stock currently
authorized, at the Record Date, 194,601,427 shares were outstanding, and
12,000,000 shares were reserved for issuance with respect to options or awards
that have been or may be granted under Lockheed Martin's stock option and
award plans or other employment related agreements. Grants of substitute and
replacement stock options in connection with recent acquisitions by Lockheed
Martin, including the acquisition of Loral Corporation in 1996, were not
contemplated at the time the Lockheed Martin Charter was adopted with only 750
million authorized shares of Lockheed Martin Common Stock. In addition, upon
consummation of the Merger, 80,254,384 shares of Lockheed Martin Common Stock
will be issued to former Northrop Grumman Stockholders and 5,756,491 shares
will be reserved for issuance in connection with Northrop Grumman Options and
Stock Awards assumed by Lockheed Martin, leaving only 457,387,698 shares of
Lockheed Martin Common Stock authorized, unissued and available for future
issuance if Lockheed Martin's Charter is not amended as proposed hereby.
Although Lockheed Martin has no present intention of issuing any of the
unissued and unreserved shares of Lockheed Martin Common Stock, the Lockheed
Martin Board recognizes the importance of having the flexibility to take
advantage of potential future opportunities as they arise. The Lockheed Martin
Board believes that the proposed increase in the number of authorized shares
would provide a sufficient number of authorized shares available for possible
acquisitions, stock dividends and financings, as well as for the grant of
stock options in connection with other employee or director based plans. Such
unissued and unreserved shares of Lockheed Martin Common Stock are available
for any proper corporate purpose as authorized from time to time by the
Lockheed Martin Board and will not require further approval by the
stockholders of Lockheed Martin, except in certain cases as required by law or
applicable stock exchange requirements. Stockholders of Lockheed Martin do not
have any preemptive rights to purchase additional shares of Lockheed Martin
Common Stock, whether now or hereafter authorized.
If the Charter Amendment Proposal is approved, the first paragraph of
Article VI of the Lockheed Martin Charter will read in its entirety as
follows:
"The total number of shares of stock of all classes which the
Corporation has authority to issue is 1,570,000,000 shares, divided
into 20,000,000 shares of Series A Preferred Stock, $1.00 par value per
share, 50,000,000 shares of Series Preferred Stock, $1.00 par value per
share, and 1,500,000,000 shares of Common Stock, $1.00 par value per
share. The aggregate par value of all shares of all classes is
$1,570,000,000.00.
Approval of the Share Issuance Proposal and the consummation of the Merger
are not conditioned upon approval of the Charter Amendment Proposal.
THE BOARD OF DIRECTORS OF LOCKHEED MARTIN RECOMMENDS THAT YOU VOTE FOR THE
APPROVAL OF THE CHARTER AMENDMENT PROPOSAL.
CERTAIN TRANSACTIONS
There are existing business relationships between Northrop Grumman and
Lockheed Martin. These relationships are the product of arm's-length
negotiations between the corporations. In connection with the preparation of
the unaudited pro forma combined condensed financial statements, adjustments
were made to eliminate sales and cost of sales between the corporations for
the periods presented. No adjustments were made to eliminate the related
intercompany profit in ending inventories and the net intercompany receivables
and payables as of and for the periods presented, as such amounts are not
considered material.
75
LEGAL MATTERS
The validity of the Lockheed Martin Common Stock to be issued in connection
with the Merger will be passed upon by Miles & Stockbridge P.C., Baltimore,
Maryland.
EXPERTS
The consolidated financial statements of Lockheed Martin at December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996, incorporated by reference in this Joint Proxy Statement/Prospectus,
which are referred to herein and made part of the Registration Statement of
which this Joint Proxy Statement/Prospectus is a part, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
also incorporated herein by reference. Such consolidated financial statements
of Lockheed Martin are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from Northrop Grumman's Current Report on
Form 8-K dated November 13, 1997, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is also incorporated
herein by reference, and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
It is expected that representatives of Ernst & Young LLP, and Deloitte &
Touche LLP, will be present at the Lockheed Martin Stockholders Meeting and
the Northrop Grumman Stockholders Meeting, respectively, to respond to
appropriate questions and to make a statement if they desire.
AVAILABLE INFORMATION
Lockheed Martin and Northrop Grumman are each subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
following Regional Offices of the Commission: Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material can be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission
also maintains a Website at http://www.sec.gov which contains reports, proxy
statements and other information regarding registrants (including Lockheed
Martin and Northrop Grumman) that file electronically with the Commission. In
addition, such reports, proxy statements and other information with respect to
Lockheed Martin and Northrop Grumman may be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
This Joint Proxy Statement/Prospectus does not include all of the
information set forth in the Registration Statement filed by Lockheed Martin
with the Commission under the Exchange Act, as permitted by the rules and
regulations of the Commission. The Registration Statement, including any
amendments, schedules and exhibits filed or incorporated by reference as a
part thereof, is available for inspection and copying as set forth above.
Statements contained in this Joint Proxy Statement/Prospectus or in any
document incorporated herein by reference as to the contents of any contract
or other document referred to herein or therein are not necessarily complete
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, and each statement shall be deemed qualified in its entirety by such
reference.
76
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES COVERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE,
OR TO OR FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF LOCKHEED MARTIN OR
NORTHROP GRUMMAN SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Lockheed Martin with the
Commission under the Exchange Act are incorporated herein by reference (File
No. 1-11437):
. Lockheed Martin's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Lockheed Martin Form 10-K");
. Lockheed Martin's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997 (the "Lockheed
Martin Form 10-Qs"); and
. Lockheed Martin's Current Reports on Form 8-K dated July 3, 1997,
November 5, 1997, November 21, 1997 and January 21, 1998 (collectively,
with the Lockheed Martin Form 10-K and the Lockheed Martin Form 10-Qs,
the "Lockheed Martin Reports").
The following documents previously filed by Northrop Grumman with the
Commission under the Exchange Act are incorporated herein by reference (File
No. 1-3229):
. Northrop Grumman's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "Northrop Grumman Form 10-K");
. Northrop Grumman's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997 (the "Northrop
Grumman Form 10-Qs"); and
. Northrop Grumman's Current Reports on Form 8-K dated July 9, 1997, August
15, 1997, November 13, 1997 and January 21, 1998 (the "Northrop Grumman
Form 8-Ks," and, collectively with the Northrop Grumman Form 10-K and the
Northrop Grumman Form 10-Qs, the "Northrop Grumman Reports").
All documents filed by Lockheed Martin or Northrop Grumman pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the Special Meetings shall be
deemed to be incorporated by reference into this Joint Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
All information contained or incorporated by reference in this Joint Proxy
Statement/Prospectus relating to Lockheed Martin has been supplied by Lockheed
Martin and all such information relating to Northrop Grumman has been supplied
by Northrop Grumman. Unless otherwise noted therein, any legal conclusion as
to the merits of a legal proceeding contained in the Lockheed Martin Form 10-K
reflects the opinion of Frank H. Menaker Jr., Esq., Senior Vice President and
General Counsel of Lockheed Martin. Unless otherwise noted therein, any legal
conclusion as to the merits of a legal proceeding contained in the Northrop
Grumman Current Report on Form 8-K dated November 13, 1997 reflects the
opinion of Richard Molleur, Esq., Corporate Vice President and General Counsel
of Northrop Grumman.
77
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN
OR ORAL REQUEST BY ANY PERSON TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS
HAS BEEN DELIVERED, IN THE CASE OF DOCUMENTS RELATING TO LOCKHEED MARTIN, FROM
JAMES R. RYAN, VICE PRESIDENT, INVESTOR RELATIONS, LOCKHEED MARTIN
CORPORATION, 6801 ROCKLEDGE DRIVE, BETHESDA, MARYLAND 20817 (TELEPHONE: 301-
897-6584) AND IN THE CASE OF DOCUMENTS RELATING TO NORTHROP GRUMMAN FROM J.
GASTON KENT, DIRECTOR, INVESTOR RELATIONS, NORTHROP GRUMMAN CORPORATION, 1840
CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067 (TELEPHONE: 310-201-3423). IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE
MADE BY FEBRUARY 19, 1998.
FORWARD LOOKING STATEMENTS--SAFE HARBOR PROVISIONS
This Joint Proxy Statement/Prospectus contains or incorporates by reference
statements which, to the extent that they are not recitations of historical
fact, constitute "forward looking statements" within the meaning of Section
27A of the Act and Section 21E of the Exchange Act. The words "estimate,"
"anticipate," "project," "intend," "expect," and similar expressions are
intended to identify forward looking statements. All forward looking
statements involve risks and uncertainties, including, without limitation,
statements and assumptions with respect to future revenues, program
performance and cash flows, the outcome of contingencies including litigation
and environmental remediation, and anticipated costs of capital investments
and planned dispositions. The forward looking statements contained in or
incorporated by reference into this document are intended to be subject to the
safe harbor protection provided by Section 27A of the Act and 21E of the
Exchange Act.
For a discussion identifying some important factors that could cause actual
results to vary materially from those anticipated in the forward looking
statements made by Lockheed Martin, see the Lockheed Martin Reports, including
but not limited to, the discussion of "Competition and Risk" and the
discussion of "Government Contracts and Regulations" on pages 11 through 14
and pages 14 through 15, respectively, of the Lockheed Martin Form 10K;
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 51 through 63 of Lockheed Martin's 1996 Annual Report to
Shareholders; "Note 1--Summary of Significant Accounting Policies", "Note 3--
Repositioning of Non-Core Businesses and New Organizational Structure" and
"Note 14--Commitments and Contingencies" of the Notes to Consolidated
Financial Statements on pages 70 through 71, pages 72 through 73 and pages 80
through 81, respectively, of the Audited Consolidated Financial Statements
included in Lockheed Martin's 1996 Annual Report to Shareholders and
incorporated by reference in the Lockheed Martin Form 10-K; and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 11 through 16 of Lockheed Martin's Third Quarter Form 10-Q for the
quarter ended September 30, 1997 (the "Lockheed Martin Third Quarter Form 10-
Q"), and "Note 2--Transaction Agreement with Northrop Grumman Corporation,"
"Note 3--Transaction with General Electric Company," "Note 6--Contingencies"
and "Note 7--Other" of the Notes to Unaudited Condensed Consolidated Financial
Statements on page 6, page 6, pages 7 through 8, and pages 9 through 10,
respectively, of the Unaudited Condensed Consolidated Financial Statements
included in the Lockheed Martin Third Quarter Form 10-Q.
Important factors that could cause actual results to vary materially from
those anticipated in the forward looking statements made by Northrop Grumman
are described in the Northrop Grumman Reports, including but not limited to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and certain Notes to Consolidated Financial Statements included in
the Northrop Grumman 10-K, the Northrop Grumman Form 10-Qs and the Northrop
Grumman Form 8-Ks, each incorporated by reference herein, and
78
include without limitation, Northrop Grumman's successful performance of
internal plans; government customers' budgetary restraints; customer changes
in short-range and long-range plans; domestic and international competition in
both the defense and commercial areas; product performance; continued
development and acceptance of new products; performance issues with key
suppliers and subcontractors, government import and export policies;
termination of government contracts; the outcome of political and legal
processes; legal, financial and governmental risks related to international
transactions and global needs for military and commercial aircraft and
electronic systems and support; as well as other economic, political and
technological risks and uncertainties.
FUTURE STOCKHOLDER PROPOSALS
Proposals by stockholders of Lockheed Martin intended to be presented at the
1998 annual meeting of Stockholders of Lockheed Martin must have been received
by the Corporate Secretary of Lockheed Martin by November 19, 1997 in order to
be included in the Proxy Statement and on the Proxy Card that will be
solicited by the Lockheed Martin Board of Directors in connection with that
meeting. The inclusion of any proposal will be subject to applicable rules of
the Commission. In addition, the Lockheed Martin Bylaws establish an advance
notice requirement for any proposal of business to be considered at an annual
meeting of stockholders. If the Merger is consummated prior to Lockheed
Martin's 1998 annual meeting of stockholders, stockholder proposals by
stockholders of Northrop Grumman submitted to Northrop Grumman for
consideration at Northrop Grumman's 1998 annual meeting of stockholders will
not be considered at Lockheed Martin's 1998 annual meeting of stockholders.
In the event the Merger is not consummated, the only stockholder proposals
eligible to the considered for inclusion in the proxy materials for the 1998
annual meeting of stockholders of Northrop Grumman will be those which were
duly submitted to the Secretary of Northrop Grumman by December 5, 1997, as
provided in the 1997 Annual Meeting Proxy Statement of Northrop Grumman. The
inclusion of any proposal will be subject to applicable rules of the
Commission. In addition, the Northrop Grumman Bylaws establish an advance
notice requirement for any proposal of business to be considered at an annual
meeting of stockholders.
79
APPENDIX I
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LOCKHEED MARTIN CORPORATION,
HURRICANE SUB, INC.
AND
NORTHROP GRUMMAN CORPORATION
DATED AS OF JULY 2, 1997
AS AMENDED AS OF SEPTEMBER 29, 1997
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TABLE OF CONTENTS
PAGE
----
ARTICLE 1 THE MERGER...................................................... 1
1.1.The Merger.......................................................... 1
1.2.The Closing......................................................... 1
1.3.Effective Time...................................................... 1
1.4.Certificate of Incorporation and By-Laws............................ 2
1.5.Directors of the Surviving Corporation.............................. 2
1.6.Officers of the Surviving Corporation............................... 2
ARTICLE 2 CONVERSION AND EXCHANGE OF SECURITIES........................... 2
2.1.Merger Sub Stock.................................................... 2
2.2.Company Stock....................................................... 2
2.3.Exchange of Certificates Representing Company Common Stock.......... 3
2.4.Adjustment of Exchange Ratio........................................ 4
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 4
3.1.Existence; Good Standing; Corporate Authority; Compliance With Law.. 4
3.2.Authorization, Validity and Effect of Agreements.................... 5
3.3.Capitalization...................................................... 5
3.4.[Reserved].......................................................... 6
3.5.No Violation........................................................ 6
3.6.SEC Documents....................................................... 6
3.7.Investigations; Litigation.......................................... 6
3.8.Absence of Certain Changes.......................................... 7
3.9.Taxes............................................................... 7
3.10.Contracts.......................................................... 7
3.11.Employee Benefit Plans............................................. 7
3.12.No Brokers......................................................... 8
3.13.Opinion of Financial Advisor....................................... 8
3.14.Parent Stock Ownership............................................. 8
3.15.Pooling of Interests; Tax Reorganization........................... 8
3.16.Environmental Matters.............................................. 9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB......... 9
4.1.Existence; Good Standing; Corporate Authority; Compliance With Law.. 9
4.2.Authorization, Validity and Effect of Agreements.................... 10
4.3.Capitalization...................................................... 10
4.4.Merger Sub.......................................................... 10
4.5.No Violation........................................................ 10
4.6.SEC Documents....................................................... 11
4.7.Investigations; Litigation.......................................... 11
4.8.Absence of Certain Changes.......................................... 11
4.9.Taxes............................................................... 11
4.10.Contracts.......................................................... 11
4.11.Employee Benefit Plans............................................. 12
4.12.No Brokers......................................................... 12
4.13.Opinion of Financial Advisor....................................... 12
4.14.Company Stock Ownership............................................ 12
4.15.Pooling of Interests; Tax Reorganization........................... 12
4.16.Environmental Matters.............................................. 13
PAGE
----
ARTICLE 5 COVENANTS....................................................... 13
5.1.Alternative Proposals............................................... 13
5.2.Interim Operations of the Company................................... 14
5.3.Interim Operations of Parent........................................ 15
5.4.Meetings of Stockholders............................................ 16
5.5.Filings; Other Actions.............................................. 16
5.6.HSR Act............................................................. 16
5.7.Inspection of Records............................................... 16
5.8.Publicity........................................................... 16
5.9.Registration Statement.............................................. 17
5.10.Listing Application................................................ 17
5.11.Affiliate Letters.................................................. 17
5.12.Expenses........................................................... 17
5.13.Indemnity; Insurance............................................... 18
5.14.Employee Benefits.................................................. 18
5.15.Reorganization..................................................... 19
5.16.Shareholder Rights Plan............................................ 19
5.17.[Reserved]......................................................... 19
5.18.Agreements......................................................... 19
5.19.Parent Board of Directors.......................................... 19
5.20.Takeover Statute................................................... 19
ARTICLE 6 CONDITIONS...................................................... 20
6.1.Conditions to Each Party's Obligation to Effect the Merger.......... 20
6.2.Conditions to Obligation of the Company to Effect the Merger........ 20
6.3.Conditions to Obligation of Parent and Merger Sub to Effect the
Merger................................................................. 21
ARTICLE 7 TERMINATION..................................................... 21
7.1.Termination by Mutual Consent....................................... 21
7.2.Termination by Either Parent or the Company......................... 21
7.3.Termination by the Company.......................................... 21
7.4.Termination by Parent............................................... 22
7.5.Effect of Termination and Abandonment............................... 22
7.6.Extension; Waiver................................................... 23
ARTICLE 8 GENERAL PROVISIONS.............................................. 23
8.1.Nonsurvival of Representations, Warranties and Agreements........... 23
8.2.Notices............................................................. 23
8.3.Assignment; Binding Effect.......................................... 24
8.4.Entire Agreement.................................................... 24
8.5.Amendment........................................................... 24
8.6.Governing Law....................................................... 24
8.7.Counterparts........................................................ 24
8.8.Headings............................................................ 24
8.9.Interpretation...................................................... 24
8.10.Waivers............................................................ 24
8.11.Incorporation of Exhibits.......................................... 24
8.12.Severability....................................................... 25
8.13.Enforcement of Agreement........................................... 25
8.14.Subsidiaries....................................................... 25
ii
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July 2, 1997,
between Lockheed Martin Corporation, a Maryland corporation ("Parent"),
Hurricane Sub, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), and Northrop Grumman Corporation, a Delaware
corporation (the "Company"), as amended as of September 29, 1997.
RECITALS
The Boards of Directors of Parent and the Company each have determined that
a business combination between Parent and the Company is in the best interests
of their respective companies and stockholders and presents an opportunity for
their respective companies to achieve long-term strategic and financial
benefits, and accordingly have agreed to effect the merger provided for herein
upon the terms and subject to the conditions set forth herein.
It is intended that for federal income tax purposes, the merger provided for
herein shall qualify as a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"), and that for
financial accounting purposes the Merger shall be accounted for as a pooling
of interests.
Merger Sub is a wholly owned subsidiary of Parent and has been formed solely
to facilitate the Merger (as defined herein) and will conduct no business or
activity other than in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.3), Merger Sub shall be merged
with and into the Company in accordance with this Agreement, and the separate
corporate existence of Merger Sub shall thereupon cease (the "Merger"). The
Company shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and will be a wholly
owned subsidiary of Parent. The Merger shall have the effects specified in the
Delaware General Corporation Law (the "DGCL").
1.2. The Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place (a) at the offices of
Dewey Ballantine, 1301 Avenue of the Americas, New York, New York 10019, at
10:00 a.m., local time, on the first business day immediately following the
day on which the last to be fulfilled or waived of the conditions set forth in
Article 6 shall be fulfilled or waived in accordance herewith or (b) at such
other time, date or place as Parent and the Company may agree. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date."
1.3. Effective Time. If all the conditions set forth in Article 6 shall have
been fulfilled or waived in accordance herewith and this Agreement shall not
have been terminated as provided in Article 7, the parties hereto shall cause
a Certificate of Merger meeting the requirements of Section 251 of the DGCL to
be properly executed and filed in accordance with such Section on the Closing
Date. The Merger shall become effective at the time of filing of the
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the DGCL or at such later time which the parties hereto shall
have agreed upon and designated in such filing as the effective time of the
Merger (the "Effective Time").
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1.4. Certificate of Incorporation and By-Laws. The Certificate of
Incorporation and By-Laws of Merger Sub in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation and By-Laws of the
Surviving Corporation, until duly amended in accordance with applicable law.
1.5. Directors of the Surviving Corporation. The directors of Merger Sub
immediately prior to the Effective Time shall be the directors of the
Surviving Corporation as of the Effective Time and until their successors are
duly appointed or elected in accordance with applicable law.
1.6. Officers of the Surviving Corporation. The officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation as of the Effective Time and until their successors are duly
appointed or elected in accordance with applicable law.
ARTICLE 2
CONVERSION AND EXCHANGE OF SECURITIES
2.1. Merger Sub Stock. At the Effective Time, each share of common stock,
par value $.01 per share, of Merger Sub outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of common stock, par value $1.00 per
share, of the Surviving Corporation.
2.2. Company Stock. (a) At the Effective Time, each share of common stock,
par value $1.00 per share (the "Company Common Stock"), of the Company issued
and outstanding immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive 1.1923 shares of common stock, par value
$1.00 per share (the "Parent Common Stock"), of Parent (the "Exchange Ratio").
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time all shares of Company Common Stock shall
cease to be outstanding and shall be cancelled and retired and shall cease to
exist, and each holder of shares of Company Common Stock shall thereafter
cease to have any rights with respect to such shares of Company Common Stock,
except the right to receive, without interest, the Exchange Ratio and cash for
fractional shares of Parent Common Stock in accordance with Sections 2.3(b)
and 2.3(e) upon the surrender of a certificate (a "Certificate") representing
such shares of Company Common Stock.
(c) Each share of Company Common Stock issued and held in the Company's
treasury at the Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be cancelled and retired without payment of any
consideration therefor.
(d) At the Effective Time, each option to purchase shares of Company Common
Stock outstanding at the Effective Time under any Company stock option plan (a
"Company Option") shall, by virtue of the Merger and without any further
action on the part of the Company or the holder of any such Company Option, be
assumed by Parent and shall be converted into an option to purchase Parent
Common Stock. Each Company Option assumed by Parent shall be exercisable upon
the same terms and conditions as under the applicable Company stock option
plan and the applicable option agreement issued thereunder, except that (i)
each such Company Option shall be exercisable for that whole number of shares
of Parent Common Stock (rounded to the nearest whole share) into which the
number of shares of Company Common Stock subject to such Company Option
immediately prior to the Effective Time would be converted under Section
2.2(a), and (ii) the option price per share of Parent Common Stock shall be an
amount equal to the option price per share of Company Common Stock subject to
such Company Option divided by the Exchange Ratio (the option price per share
being rounded to the nearest full cent). No payment shall be made for
fractional interests, rather, the aggregate number of shares to be issued
under any assumed Company Option shall be rounded to the nearest whole number.
At the Effective Time, each share of Company Common Stock subject to transfer
or vesting restrictions (the "Restricted Stock") shall upon conversion into
the Parent Common Stock under Section 2.2(a) be subject to the same terms and
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conditions, including transfer restrictions and vesting schedule, as the
Restricted Stock. The number of shares of Company Common Stock issued as of
the Effective Time for the restricted performance stock rights shall be
determined in accordance with the provisions of the Company's 1993 Long Term
Incentive Plan and shall be converted into Parent Common Stock under Section
2.2(a).
2.3. Exchange of Certificates Representing Company Common Stock.
(a) As of the Effective Time, Parent shall deposit, or shall cause to be
deposited, with an exchange agent selected by Parent (the "Exchange Agent"),
for the benefit of the holders of shares of Company Common Stock, for exchange
in accordance with this Article 2, certificates representing the shares of
Parent Common Stock to be issued in connection with the Merger and Parent's
good faith estimate of the cash in lieu of fractional shares expected to be
payable in connection with the Merger (such cash and certificates for shares
of Parent Common Stock, together with any dividends or distributions with
respect thereto (relating to record dates for such dividends or distributions
after the Effective Time), being hereinafter referred to as the "Exchange
Fund") to be issued pursuant to Section 2.2 and paid pursuant to this Section
2.3 in exchange for outstanding shares of Company Common Stock.
(b) Promptly after the Effective Time, Parent shall cause the Exchange Agent
to mail to each holder of record of shares of Company Common Stock (i) a
letter of transmittal which shall specify that delivery shall be effected, and
risk of loss and title to such shares of Company Common Stock shall pass, only
upon delivery of the Certificates representing such shares to the Exchange
Agent and which shall be in such form and have such other provisions as Parent
may reasonably specify and (ii) instructions for use in effecting the
surrender of such Certificates in exchange for the Exchange Ratio and cash in
lieu of fractional shares. Upon surrender of a Certificate for cancellation to
the Exchange Agent together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the holder of the
shares represented by such Certificate shall be entitled to receive in
exchange therefor (x) a certificate representing that number of whole shares
of Parent Common Stock and (y) a check representing the amount of cash in lieu
of fractional shares, if any, and unpaid dividends and distributions, if any
which such holder has the right to receive in respect of the Certificate
surrendered pursuant to the provisions of this Article 2, after giving effect
to any required withholding tax, and the shares represented by the Certificate
so surrendered shall forthwith be cancelled. No interest will be paid or
accrued on the cash payable to holders of shares of Company Common Stock. In
the event of a transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, a certificate representing
the proper number of shares of Parent Common Stock, together with a check for
the cash to be paid may be issued to such a transferee if the Certificate
representing such Company Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Parent Common Stock
shall be paid with respect to any shares of Company Common Stock represented
by a Certificate until such Certificate is surrendered for exchange as
provided herein. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends
or other distributions with a record date after the Effective Time theretofore
payable with respect to such whole shares of Parent Common Stock and not paid,
less the amount of any withholding taxes which may be required thereon, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Parent Common Stock, less the amount of any withholding
taxes which may be required thereon.
(d) At or after the Effective Time, there shall be no transfers on the stock
transfer books of the Company of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
cancelled and exchanged for certificates for shares of Parent Common Stock and
cash deliverable in respect thereof pursuant to
I-3
this Agreement in accordance with the procedures set forth in this Article 2.
Certificates surrendered for exchange by any person constituting an
"affiliate" of the Company for purposes of Rule 145(c) under the Securities
Act of 1933, as amended (the "Securities Act"), shall not be exchanged until
Parent has received a written agreement from such person as provided in
Section 5.11.
(e) No fractional shares of Parent Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Parent Common
Stock, cash adjustments will be paid to holders in respect of any fractional
share of Parent Common Stock that would otherwise be issuable, and the amount
of such cash adjustment shall be equal to such fractional proportion of the
"Average Price" of a share of Parent Common Stock. The "Average Price" of a
share of Parent Common Stock shall be the average of the closing sales prices
thereof as reported on The New York Stock Exchange (the "NYSE") Composite Tape
(as reported by The Wall Street Journal or, if not reported thereby, by
another authoritative source) over the ten (10) business days immediately
preceding the Closing Date.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Parent Common Stock) that remains
unclaimed by the former stockholders of the Company one year after the
Effective Time shall be delivered to the Surviving Corporation. Any former
stockholders of the Company who have not theretofore complied with this
Article 2 shall thereafter look only to the Surviving Corporation for payment
of their shares of Parent Common Stock, cash and unpaid dividends and
distributions on Parent Common Stock deliverable in respect of each share of
Company Common Stock such stockholder holds as determined pursuant to this
Agreement, in each case, without any interest thereon.
(g) None of Parent, the Company, the Surviving Corporation, the Exchange
Agent or any other person shall be liable to any former holder of shares of
Company Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(h) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Surviving
Corporation, the posting by such person of a bond in such reasonable amount as
the Surviving Corporation may direct as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the shares of
Parent Common Stock and cash deliverable in respect thereof pursuant to this
Agreement.
2.4. Adjustment of Exchange Ratio.
In the event that, subsequent to the date of this Agreement but prior to the
Effective Time, the outstanding shares of Parent Common Stock or Company
Common Stock, respectively, shall have been changed into a different number of
shares or a different class as a result of a stock split, reverse stock split,
stock dividend, subdivision, reclassification, combination, exchange,
recapitalization or other similar transaction, the Exchange Ratio shall be
appropriately adjusted.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered at or prior to the
execution hereof to Parent (the "Company Disclosure Schedule") or in the
Company Reports (as defined below), the Company represents and warrants to
Parent as of the date of this Agreement as follows:
3.1. Existence; Good Standing; Corporate Authority; Compliance With Law. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. The Company is
duly licensed or qualified to do business as a foreign corporation and is in
good standing under the laws of any other state of the United States in which
the character of the properties owned or
I-4
leased by it or in which the transaction of its business makes such
qualification necessary, except where the failure to be so qualified or to be
in good standing would not have a Company Material Adverse Effect. For the
purposes of this Agreement, "Company Material Adverse Effect" means a material
adverse effect on the business, results of operations or financial condition
of the Company and its Subsidiaries (as defined in Section 8.14) taken as a
whole, other than any effects or changes arising out of, resulting from or
relating to general economic, financial or industry conditions. The Company
has all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted. Each of the Company's
Significant Subsidiaries (as defined in Section 8.14 hereof) is a corporation
or partnership duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has the corporate
or partnership power and authority to own its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business
and is in good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing would not have a Company Material Adverse Effect. Neither the Company
nor any of its Subsidiaries is in violation of any order of any court,
governmental authority or arbitration board or tribunal, or any law,
ordinance, governmental rule or regulation to which the Company or any of its
Subsidiaries or any of their respective properties or assets is subject, other
than any violations which would not have a Company Material Adverse Effect.
The Company and its Subsidiaries have obtained all licenses, permits and other
authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their business as now conducted,
except where the failure to obtain any such item or to take any such action
would not have a Company Material Adverse Effect.
3.2. Authorization, Validity and Effect of Agreements. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby. Subject only to the
approval of this Agreement and the transactions contemplated hereby by the
holders of a majority of the outstanding shares of Company Common Stock, the
consummation by the Company of the transactions contemplated hereby has been
approved by the Board of Directors of the Company and duly authorized by all
requisite corporate action. This Agreement constitutes, and all agreements and
documents contemplated hereby (when executed and delivered pursuant hereto for
value received) will constitute, the valid and legally binding obligations of
the Company, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity.
3.3. Capitalization. The authorized capital stock of the Company consists of
200,000,000 shares of Company Common Stock and 10,000,000 shares of preferred
stock, par value $1.00 per share (the "Company Preferred Stock"). As of May
31, 1997, there were 58,059,010 shares of Company Common Stock, and no shares
of Company Preferred Stock, issued and outstanding. From such date to the date
of this Agreement, no additional shares of capital stock of the Company have
been issued, except pursuant to the exercise of options outstanding under
Company Stock Option Plans. As of May 31, 1997, options to acquire 3,505,996
shares of Company Common Stock were outstanding. From such date to the date of
this Agreement, no additional options have been granted. The Company has no
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on
any matter. All issued and outstanding shares of Company Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as described above, and except for 1,818,143 restricted
performance stock rights, 40,290 restricted stock rights, and 5,750 restricted
award shares of the Company outstanding as of the date hereof, there are not
at the date of this Agreement any existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments (other than the Agreement and Plan of Merger, dated May 4, 1997,
between the Company, Logicon, Inc. and NG Acquisition, Inc. (the "Logicon
Merger Agreement")) which obligate the Company or any of its Subsidiaries to
issue, transfer or sell any shares of capital stock of the Company or any of
its Subsidiaries. After the Effective Time, the Surviving Corporation will
have no obligation to issue, transfer or sell any shares of capital stock or
other securities of the Company or the Surviving Corporation pursuant to any
Company Benefit Plan (as defined in Section 3.11).
I-5
3.4. [Reserved].
3.5. No Violation. Except as set forth in Section 3.5 of the Company
Disclosure Schedule, neither the execution and delivery by the Company of this
Agreement nor the consummation by the Company of the transactions contemplated
hereby in accordance with the terms hereof, will: (i) conflict with or result
in a breach of any provisions of the Certificate of Incorporation or Bylaws of
the Company; (ii) result in a breach or violation of, a default under, or the
triggering of any payment or other material obligations pursuant to, or
accelerate vesting under, any existing Company Stock Option Plan, or any grant
or award made under any of the foregoing; (iii) violate, conflict with, result
in a breach of any provision of, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, result in
the termination or in a right of termination or cancellation of, accelerate
the performance required by, result in the triggering of any payment or other
material obligations pursuant to, result in the creation of any lien, security
interest, charge or encumbrance upon any of the material properties of the
Company or its Subsidiaries under, or result in being declared void, voidable,
or without further binding effect, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust or any material license,
franchise, permit, lease, contract, agreement or other instrument, commitment
or obligation to which the Company or any of its Subsidiaries is a party, or
by which the Company or any of its Subsidiaries or any of their respective
properties is bound or affected, except for any of the foregoing matters which
would not have a Company Material Adverse Effect; or (iv) other than the
filings provided for in Article 1, applicable federal, state and local
regulatory filings, filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Securities Act of 1933, as
amended (the "Securities Act"), or applicable state securities and "Blue Sky"
laws or filings in connection with the maintenance of qualification to do
business in other jurisdictions (collectively, the "Regulatory Filings"),
require any consent, approval or authorization of, or declaration, filing or
registration with, any domestic governmental or regulatory authority, other
than approvals or filings which, if not obtained or made would not have a
Company Material Adverse Effect.
3.6. SEC Documents. For the purposes of this Agreement, the "Company
Reports" means each registration statement, report, proxy statement or
information statement (as defined in Regulation 14C under the Exchange Act) of
the Company prepared by it since January 1, 1995, in the form (including
exhibits and any amendments thereto) filed with the Securities and Exchange
Commission (the "SEC"). As of their respective dates, the Company Reports (i)
complied as to form in all material respects with the applicable requirements
of the Securities Act, the Exchange Act, and the rules and regulations
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under
which they were made, not misleading. Each of the consolidated balance sheets
of the Company included in or incorporated by reference into the Company
Reports (including the related notes and schedules) fairly presents the
consolidated financial position of the Company and its Subsidiaries as of its
date, and each of the consolidated statements of income, retained earnings and
cash flows of the Company included in or incorporated by reference into the
Company Reports (including any related notes and schedules) fairly presents
the results of operations, retained earnings or cash flows, as the case may
be, of the Company and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein. Neither the
Company nor any of its Subsidiaries has any liabilities or obligations
required to be disclosed in a balance sheet or the notes thereto prepared in
accordance with generally accepted accounting principles consistently applied,
except (a) liabilities or obligations reflected on, or reserved against in, a
balance sheet of the Company or in the notes thereto, and included in the
Company Reports and (b) liabilities or obligations incurred since March 31,
1997 in the ordinary course of business.
3.7. Investigations; Litigation. Except as set forth in Section 3.7 or
Section 3.10 of the Company Disclosure Schedule, (a) to the knowledge of the
Company, no material investigation by any governmental entity with respect to
the Company or any of its Subsidiaries is pending or threatened nor has any
governmental entity
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indicated to the Company an intention to conduct the same except for any of
the foregoing which would not have a Company Material Adverse Effect; and (b)
there are no actions, suits or proceedings pending against the Company or its
Subsidiaries or, to the knowledge of the Company, threatened against the
Company or its Subsidiaries, at law or in equity, or before or by any federal
or state commission, board, bureau, agency or instrumentality, that are
reasonably likely to have a Company Material Adverse Effect.
3.8. Absence of Certain Changes. Since December 31, 1996, the Company has
conducted its business only in the ordinary course of such business, and there
has not been (i) any Company Material Adverse Effect or any event which is
reasonably likely to result in a Company Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution
with respect to its capital stock (other than the regular quarterly cash
dividends of $0.40 per share, payable on Company Common Stock); or (iii) any
material change in its accounting principles, practices or methods.
3.9. Taxes. The Company and each of its Subsidiaries (i) have timely filed
all material federal, state and foreign tax returns required to be filed by
any of them for tax years ended prior to the date of this Agreement or
requests for extensions have been timely filed and any such request shall have
been granted and not expired, and all such returns are complete in all
material respects, (ii) have paid or accrued all taxes shown to be due and
payable on such returns and (iii) have properly accrued all such taxes for
such periods subsequent to the periods covered by such returns.
3.10. Contracts. (a) Except as disclosed in Section 3.7 or Section 3.10 of
the Company Disclosure Schedule, to the knowledge of the Company, with respect
to Government Contracts, there is, as of the date hereof, no (i) civil fraud
or criminal investigation by any government investigative agency that is
reasonably likely to have a Company Material Adverse Effect, (ii) suspension
or debarment proceeding (or equivalent proceeding) against the Company or any
of its Subsidiaries that is reasonably likely to have a Company Material
Adverse Effect, (iii) request by the government for a contract price
adjustment based on a claimed disallowance by Defense Contract Audit Agency or
claim of defective pricing in excess of $40 million, (iv) dispute between the
Company or any of its Subsidiaries and the U.S. Government which, since June
30, 1996, has resulted in a government contracting officer's determination and
finding final decision where the amount in controversy exceeds or is expected
to exceed $40 million or (v) claim or equitable adjustment by the Company or
any of its Subsidiaries against the U.S. Government or any third party in
excess of $40 million.
(b) For the purposes of this Agreement, with respect to any party,
"Government Contract" means any prime contract, subcontract, teaming agreement
or arrangement, joint venture, basic ordering agreement, pricing agreement,
letter contract, purchase order, delivery order, change order, Bid or other
arrangement of any kind between such party or any of its Subsidiaries and (i)
the U.S. Government (acting on its own behalf or on behalf of another country
or international organization), (ii) any prime contractor of the U.S.
Government or (iii) any subcontractor with respect to any contract of a type
described in clauses (i) or (ii) above. For the purposes of this Agreement,
with respect to any party, "Bid" means any quotation, bid or proposal made by
such party or any of its Subsidiaries that if accepted or awarded would lead
to a Contract with the U.S. Government or any other person for the design,
manufacture and sale of products or the provision of services. For the
purposes of this Agreement, with respect to any party, "Contracts" means all
contracts, agreements, leases (including leases of real property), licenses,
commitments, sales and purchase orders, intercompany work transfer agreements)
with respect to work by or for another of such party's businesses) and other
instruments of any kind, whether written or oral.
3.11. Employee Benefit Plans.
For the purpose of this Agreement, "Company Benefit Plans" means all
employee benefit plans and other benefit arrangements covering employees or
former employees of the Company and its Subsidiaries and all employee
agreements providing compensation, severance or other benefits to any employee
or former employee of the Company or any of its Subsidiaries. With respect to
each Company Benefit Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Internal Revenue Code (the "Code"), either
the
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Internal Revenue Service (the "IRS") has issued a favorable determination
letter that has not been revoked, or an application for a favorable
determination letter was timely submitted to the IRS for which no final action
has been taken by the IRS. To the knowledge of the Company, there is no reason
that is not susceptible to cure why the qualified status under Section 401(a)
of the Code of any Company Benefit Plan would be denied or revoked, whether
retroactively or prospectively. Except as would not have a Company Material
Adverse Effect, no Company Benefit Plan, any fiduciary thereof, nor the
Company has incurred any liability or penalty under Section 4975 of the Code
or Section 502(i) of ERISA. Except as would not have a Company Material
Adverse Effect, each Company Benefit Plan has been maintained and administered
in all material respects in compliance with its terms and with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code to
the extent applicable thereto. Except as would not have a Company Material
Adverse Effect, neither the Company nor any ERISA Affiliate (during the period
of its affiliated status and prior thereto, to its knowledge) has any existing
liability currently due and payable that has not been satisfied in full under
Title IV of ERISA or Section 412 of the Code. To the knowledge of the Company,
there are no current plans to terminate, whether voluntarily or involuntarily
any materially underfunded pension plans of the Company or any ERISA Affiliate
that are subject to Title IV of ERISA. Except as would not have a Company
Material Adverse Effect, to the knowledge of the Company, there are no pending
or anticipated claims against or otherwise involving any of the Company
Benefit Plans and no suit, action or other litigation (excluding claims for
benefits incurred in the ordinary course of the Company Benefit Plan
activities) has been brought against or with respect to any such Company
Benefit Plan, except for any of the foregoing which would not have a Company
Material Adverse Effect. All material contributions required to be made as of
the date hereof to the Company Benefit Plans have been made or provided for.
Except as set forth in Section 3.11 of the Company Disclosure Schedule, the
execution of, and performance of the transactions contemplated in, this
Agreement will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any benefit plan, policy,
arrangement or agreement or any trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any employee. The only material severance
agreements or severance policies applicable to the Company or its Subsidiaries
are the agreements and policies specifically referred to in Section 3.11 of
the Company Disclosure Schedule.
For purposes of this Agreement "ERISA Affiliate" means any business or
entity which is a member of the same "controlled group of corporations," under
"common control" or an "affiliated service group" with an entity within the
meanings of Sections 414(b), (c) or (m) of the Code, or required to be
aggregated with the entity under Section 414(o) of the Code, or is under
"common control" with the entity, within the meaning of Section 4001(a)(14) of
ERISA, or any regulations promulgated or proposed under any of the foregoing
Sections.
3.12. No Brokers. The Company has not entered into any contract, arrangement
or understanding with any person or firm which may result in the obligation of
the Company or Parent to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
except that the Company has retained Salomon Brothers Inc as its financial
advisor, the arrangements with which have been disclosed in writing to Parent
prior to the date hereof. Other than the foregoing arrangements, the Company
is not aware of any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
3.13. Opinion of Financial Advisor. The Company has received the opinion of
Salomon Brothers Inc to the effect that, as of the date hereof, the Exchange
Ratio is fair to the holders of Company Common Stock from a financial point of
view.
3.14. Parent Stock Ownership. Neither the Company nor any of its
Subsidiaries owns any shares of Parent Common Stock or other securities
convertible into Parent Common Stock.
3.15. Pooling of Interests; Tax Reorganization. In the judgment of the
Company, the Company and its Subsidiaries have not taken (or as of the date
hereof failed to take) any action which would prevent the
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accounting for the Merger as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16 ("APB No. 16"), the interpretative
releases issued pursuant thereto, and the pronouncements of the SEC. To the
knowledge of the Company, the Company has not taken or failed to take any
action which would prevent the Merger from constituting a reorganization
within the meaning of section 368(a) of the Code.
3.16. Environmental Matters. Except as set forth in Section 3.16 of the
Company Disclosure Schedule or as described in the Company Reports, the
Company and each of its Subsidiaries are in material compliance with all
applicable federal, state and local laws and regulations relating to pollution
or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata) (collectively, "Environmental Laws"), except for instances
of noncompliance that individually or in the aggregate do not, and, insofar as
reasonably can be foreseen, in the future would not, have a Company Material
Adverse Effect. Such compliance includes, but is not limited to, the
possession by the Company and its Subsidiaries of all material permits and
other governmental authorizations required under applicable Environmental
Laws, and compliance with the terms and conditions thereof. Neither the
Company nor any of its Subsidiaries has received written notice of, or to the
knowledge of the Company, is the subject of, any actions, causes of action,
claims, investigations, demands or notices by any person or entity alleging
liability under or noncompliance with any Environmental Law ("Environmental
Claims") that individually or in the aggregate would have a Company Material
Adverse Effect. To the knowledge of the Company, there are no circumstances
that are reasonably likely to prevent or interfere with such material
compliance in the future.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule delivered at or prior to the
execution hereof to the Company (the "Parent Disclosure Schedule") or in the
Parent Reports (as defined below), Parent and Merger Sub represent and warrant
to the Company as of the date of this Agreement as follows:
4.1. Existence; Good Standing; Corporate Authority; Compliance With
Law. Each of Parent and Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Parent is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of any other state
of the United States in which the character of the properties owned or leased
by it or in which the transaction of its business makes such qualification
necessary, except where the failure to be so qualified or to be in good
standing would not have a Parent Material Adverse Effect. For the purposes of
this Agreement, "Parent Material Adverse Effect" means a material adverse
effect on the business, results of operations or financial condition of Parent
and its Subsidiaries taken as a whole, other than effects or changes arising
out of, resulting from or relating to general economic, financial or industry
conditions. Parent has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted.
Each of Parent's Significant Subsidiaries is a corporation or partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the corporate or
partnership power and authority to own its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business
and is in good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing would not have a Parent Material Adverse Effect. Neither Parent nor
any Parent Subsidiary is in violation of any order of any court, governmental
authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Parent or any of its Subsidiaries or
any of their respective properties or assets is subject, other than any
violations which would not have a Parent Material Adverse Effect. Parent and
its Subsidiaries have obtained all licenses, permits and other authorizations
and have taken all actions required by applicable law or governmental
regulations in connection with their business as now conducted, except where
the failure to obtain any such item or to take any such action would not have
a Parent Material Adverse Effect.
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4.2. Authorization, Validity and Effect of Agreements. Each of Parent and
Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby.
Subject only to the approval of the issuance of Parent Common Stock pursuant
to this Agreement by the holders of a majority of the outstanding shares of
Parent Common Stock (the "Parent Stockholder Approval"), the consummation by
Parent and Merger Sub of the transactions contemplated hereby has been
approved by the Board of Directors of Parent and duly authorized by all
requisite corporate action. This Agreement constitutes, and all agreements and
documents contemplated hereby (when executed and delivered pursuant hereto for
value received) will constitute, the valid and legally binding obligations of
Parent and Merger Sub, enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
4.3. Capitalization. The authorized capital stock of Parent consists of
750,000,000 shares of Parent Common Stock, 50,000,000 shares of Series
Preferred Stock, par value $1.00 per share (the "Parent Series Preferred
Stock") and 20,000,000 shares of Series A preferred stock, par value $1.00 per
share (the "Parent Preferred Stock"). As of April 30, 1997, there were
193,128,187 shares of Parent Common Stock and 20,000,000 shares of Parent
Preferred Stock issued and outstanding. From such date to the date of this
Agreement, no additional shares of capital stock of Parent have been issued,
except pursuant to the exercise of options outstanding under Parent's stock
option and employee stock purchase plans (the "Parent Stock Option Plans"). As
of May 30, 1997, options to acquire 11,833,826 shares of Parent Common Stock
were outstanding. From such date to the date of this Agreement, no additional
options have been granted. Parent has no outstanding bonds, debentures, notes
or other obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of Parent on any matter. All such issued and outstanding
shares of Parent Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except as contemplated by this
Agreement, there are not at the date of this Agreement any existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate Parent or any of its Subsidiaries to
issue, transfer or sell any shares of capital stock of Parent or any of its
Subsidiaries (other than under Parent Stock Option Plans).
4.4. Merger Sub. The authorized capital stock of Merger Sub consists of 100
shares of common stock, par value $.01 per share, all of which shares are
issued and outstanding and owned by Parent. Notwithstanding any provisions to
the contrary, Parent may, in its sole discretion, increase the number of
shares of authorized common stock of Merger Sub and the number of shares of
common stock of Merger Sub issued and outstanding owned by Parent. Merger Sub
has not engaged in any activities other than in connection with the
transactions contemplated by this Agreement.
4.5. No Violation. Neither the execution and delivery by Parent and Merger
Sub of this Agreement, nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof, will:
(i) conflict with or result in a breach of any provisions of the Certificate
of Incorporation or Bylaws of Parent or Merger Sub; (ii) result in a breach or
violation of, a default under, or the triggering of any payment or other
material obligations pursuant to, or accelerate vesting under, any of the
Parent Stock Option Plans, or any grant or award under any of the foregoing;
(iii) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, result in the termination or in a right of
termination or cancellation of, accelerate the performance required by, result
in the triggering of any payment or other material obligations pursuant to,
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of Parent or its Subsidiaries under, or
result in being declared void, voidable, or without further binding effect,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any material license, franchise, permit, lease,
contract, agreement or other instrument, commitment or obligation to which
Parent or any of its Subsidiaries is a party, or by which Parent or any of its
Subsidiaries or any of their respective properties is bound or affected,
except for any of the foregoing matters which would not have a Parent Material
Adverse Effect; or (iv) other than the Regulatory Filings, require any
consent, approval or authorization of, or declaration, filing or registration
with, any domestic governmental or regulatory authority, other than approvals
or filings which, if not obtained or made would not have a Parent Material
Adverse Effect.
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4.6. SEC Documents. For the purposes of this Agreement, the "Parent Reports"
means each registration statement, report, proxy statement or information
statement of Parent prepared by it since January 1, 1995, in the form
(including exhibits and any amendments thereto) filed with the SEC. As of the
respective dates, the Parent Reports (i) complied as to form in all material
respects with the applicable requirements of the Securities Act, the Exchange
Act, and the rules and regulations thereunder and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each of
the consolidated balance sheets included in or incorporated by reference into
the Parent Reports (including the related notes and schedules) fairly presents
the consolidated financial position of Parent and its Subsidiaries as of its
date, and each of the consolidated statements of income, retained earnings and
cash flows included in or incorporated by reference into the Parent Reports
(including any related notes and schedules) fairly presents the results of
operations, retained earnings or cash flows, as the case may be, of Parent and
its Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except as may be noted therein. Neither Parent nor any of its
Subsidiaries has any liabilities or obligations required to be disclosed in a
balance sheet of Parent or in the notes thereto prepared in accordance with
generally accepted accounting principles consistently applied except (a)
liabilities or obligations reflected on, or reserved against in, a balance
sheet of Parent or in the notes thereto, and included in the Parent Reports
and (b) liabilities or obligations incurred since March 31, 1997 in the
ordinary course of business.
4.7. Investigations; Litigation. Except as set forth in Section 4.7 of the
Parent Disclosure Schedule, (a) to the knowledge of Parent, no material
investigation by any governmental entity with respect to Parent or any of its
Subsidiaries is pending (or, to Parent's knowledge, threatened) nor has any
governmental entity indicated to Parent an intention to conduct the same; and
(b) there are no actions, suits or proceedings pending against Parent or its
Subsidiaries or, to the knowledge of Parent, threatened against Parent or its
Subsidiaries, at law or in equity, or before or by any federal or state
commission, board, bureau, agency or instrumentality, that are reasonably
likely to have a Parent Material Adverse Effect.
4.8. Absence of Certain Changes. Since December 31, 1996, Parent has
conducted its business only in the ordinary course of such business, and there
has not been (i) any Parent Material Adverse Effect or any event which is
reasonably likely to result in a Parent Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution
with respect to its capital stock (other than the regular quarterly cash
dividends of $0.40 per share, payable on Parent Common Stock); or (iii) any
material change in its accounting principles, practices or methods.
4.9. Taxes. Parent and each of its Subsidiaries (i) have timely filed all
material federal, state and foreign tax returns required to be filed by any of
them for tax years ended prior to the date of this Agreement or requests for
extensions have been timely filed and any such request shall have been granted
and not expired, and all such returns are complete in all material respects,
(ii) have paid or accrued all taxes shown to be due and payable on such
returns and (iii) have properly accrued all such taxes for such periods
subsequent to the periods covered by such returns.
4.10. Contracts. Except as disclosed in Section 4.10 of the Parent
Disclosure Schedule, to the knowledge of Parent, with respect to Government
Contracts, there is, as of the date hereof, no (i) civil fraud or criminal
investigation by any government investigative agency that is reasonably likely
to have a Parent Material Adverse Effect, (ii) suspension or debarment
proceeding (or equivalent proceeding) against Parent or any of its
Subsidiaries that is reasonably likely to have a Parent Material Adverse
Effect, (iii) request by the government for a contract price adjustment based
on a claimed disallowance by Defense Contract Audit Agency or claim of
defective pricing in excess of $120 million, (iv) dispute between Parent or
any of its Subsidiaries and the U.S. Government which, since June 30, 1996,
has resulted in a government contracting officer's determination and finding
final decision where the amount in controversy exceeds or is expected to
exceed $120 million or (v) claim
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or equitable adjustment by Parent or any of its Subsidiaries against the U.S.
Government or any third party in excess of $120 million.
4.11. Employee Benefit Plans.
For the purpose of this Agreement, "Parent Benefit Plans" means all employee
benefit plans and other benefit arrangements covering employees or former
employees of Parent and its Subsidiaries and all employee agreements providing
compensation, severance or other benefits to any employee or former employee
of Parent or any of its Subsidiaries. With respect to each Parent Benefit Plan
that is intended to be a "qualified plan" within the meaning of Section 401(a)
of the Code, either the IRS has issued a favorable determination letter that
has not been revoked, or an application for a favorable determination letter
was timely submitted to the IRS for which no final action has been taken by
the IRS. To the knowledge of Parent, there is no reason that is not
susceptible to cure why the qualified status under Section 401(a) of the Code
of any Parent Benefit Plan would be denied or revoked, whether retroactively
or prospectively. Except as would not have a Parent Material Adverse Effect,
no Parent Benefit Plan, any fiduciary thereof, nor Parent has incurred any
liability or penalty under Section 4975 of the Code or Section 502(i) of
ERISA. Except as would not have a Parent Material Adverse Effect, each Parent
Benefit Plan has been maintained and administered in all material respects in
compliance with its terms and with the ERISA, and the Code to the extent
applicable thereto. Except as would not have a Parent Material Adverse Effect,
neither Parent nor any ERISA Affiliate (during the period of its affiliated
status and prior thereto, to its knowledge) has any existing liability
currently due and payable that has not been satisfied in full under Title IV
of ERISA or Section 412 of the Code. To the knowledge of Parent, there are no
current plans to terminate, whether voluntarily or involuntarily, any
materially underfunded pension plans of Parent or any ERISA Affiliate that are
subject to Title IV of ERISA. Except as would not have a Parent Material
Adverse Effect, to the knowledge of Parent, there are no pending or
anticipated claims against or otherwise involving any of the Parent Benefit
Plans and no suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of the Parent Benefit Plan activities) has
been brought against or with respect to any such Parent Benefit Plan, except
for any of the foregoing which would not have a Parent Material Adverse
Effect. All material contributions required to be made as of the date hereof
to the Parent Benefit Plans have been made or provided for. Except as set
forth in Section 4.11 of the Parent Disclosure Schedule, the execution of, and
performance of the transactions contemplated in, this Agreement will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any benefit plan, policy, arrangement or agreement
or any trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits
with respect to any employee.
4.12. No Brokers. Parent has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of
the Company or Parent to pay any finder's fee, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby,
except that Parent has retained Bear, Stearns & Co. Inc. and Lehman Brothers
as its financial advisors. Other than the foregoing arrangements, the Company
is not aware of any claim for payment of any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
4.13. Opinion of Financial Advisor. Parent has received the opinion of Bear,
Stearns & Co. Inc. to the effect that as of the date hereof, the consideration
to be paid by Parent pursuant to the Merger is fair to Parent from a financial
point of view.
4.14. Company Stock Ownership. Neither Parent nor any of its Subsidiaries
owns any shares of Company Common Stock or other securities convertible into
shares of Company Common Stock.
4.15. Pooling of Interests; Tax Reorganization. In the judgment of Parent,
Parent and its Subsidiaries have not taken (or as of the date hereof failed to
take) any action which would prevent the accounting for the
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Merger as a pooling of interests in accordance with APB No. 16, the
interpretative releases issued pursuant thereto, and the pronouncements of the
SEC. To the knowledge of the Parent, Parent has not taken or failed to take
any action which would prevent the Merger from constituting a reorganization
within the meaning of section 368(a) of the Code.
4.16. Environmental Matters. Except as described in Parent Reports, Parent
and each of its Subsidiaries are in material compliance with all applicable
Environmental Laws, except for instances of noncompliance that individually or
in the aggregate do not, and, insofar as reasonably can be foreseen, in the
future would not, have a Parent Material Adverse Effect. Such compliance
includes, but is not limited to, the possession by Parent and its Subsidiaries
of all material permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof. Neither Parent nor any of its Subsidiaries has received written
notice of, or to the knowledge of Parent, is the subject of, any Environmental
Claims that individually or in the aggregate would have a Parent Material
Adverse Effect. To the knowledge of Parent, there are no circumstances that
are reasonably likely to prevent or interfere with such material compliance in
the future.
ARTICLE 5
COVENANTS
5.1. Alternative Proposals. The Company, its affiliates and their respective
officers, directors, employees, representatives and agents shall immediately
cease any existing discussions or negotiations, if any, with any parties
conducted heretofore with respect to any acquisition of all or any material
portion of the assets of, or any equity interest in, the Company or any of its
Significant Subsidiaries or any business combination with the Company or any
of its Significant Subsidiaries. The Company may, directly or indirectly,
furnish information and access, in each case only in response to unsolicited
requests therefor, to any corporation, partnership, person or other entity or
group pursuant to confidentiality agreements, and may participate in
discussions and negotiate with such entity or group concerning any merger,
sale of material assets, sale of shares of capital stock or similar
transaction involving the Company or any Significant Subsidiary (a
"Transaction"), if such entity or group has submitted a written proposal to
the Board relating to any such transaction (an "Alternative Proposal") and the
Board by a majority vote determines in its good faith judgment, based as to
legal matters on the advice of legal counsel, that failing to take such action
would constitute a breach of the Board's fiduciary duty. The Board shall
provide a copy of any such written proposal to Parent or Merger Sub
immediately after receipt thereof. Except as set forth above, neither the
Company or any of its affiliates, nor any of its or their respective officers,
directors, employees, representatives or agents, shall, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation,
partnership, person or other entity or group (other than Parent and Merger
Sub, any affiliate or associate of Parent and Merger Sub or any designees of
Parent and Merger Sub) concerning any merger, sale of material assets, sale of
shares of capital stock or similar transaction involving the Company or any
Significant Subsidiary; provided, however, that nothing herein shall prevent
the Board from taking, and disclosing to the Company's stockholders, a
position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange
Act with regard to any tender offers, provided, further, that the Board shall
not recommend that the stockholders of the Company tender their Shares in
connection with any such tender offer unless the Board by a majority vote
determines in its good faith judgment, based as to legal matters on the advice
of legal counsel, that failing to take such action would constitute a breach
of the Board's fiduciary duty. Nothing in this Section 5.1 shall (x) permit
the Company to terminate this Agreement (except as specifically provided in
Article 7 hereof), (y) permit the Company to enter into any agreement with
respect to a Transaction during the term of this Agreement (it being agreed
that during the term of this Agreement, the Company shall not enter into any
agreement with any person that provides for, or in any way facilitates, a
Transaction (other than a confidentiality agreement in customary form)), or
(z) affect any other obligation of the Company under this Agreement. Nothing
in this Section 5.1 shall preclude the Company from consummating the
transactions contemplated by the Logicon Merger Agreement.
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5.2. Interim Operations of the Company.
(a) Prior to the Effective Time, except as set forth in Section 5.2 of the
Company Disclosure Schedule or as contemplated by any other provision of this
Agreement and except as contemplated by the Logicon Merger Agreement, unless
Parent has consented in writing thereto, the Company:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(ii) shall use its reasonable efforts, and shall cause each of its
Subsidiaries to use its reasonable efforts, to preserve intact their
business organizations and goodwill, keep available the services of their
respective officers and employees and maintain satisfactory relationships
with those persons having business relationships with them;
(iii) shall not, and shall cause its Subsidiaries not to, amend their
respective Certificates of Incorporation or Bylaws or comparable governing
instruments (other than amendments which are not material to the Company or
to the consummation of the transactions contemplated by this Agreement);
(iv) shall promptly notify Parent of (x) any material change in its
condition (financial or otherwise), business, properties, assets,
liabilities or the normal course of its business or of its properties, (y)
any material litigation or material governmental complaints, investigations
or hearings (or communications indicating that the same may be
contemplated), or (z) the breach of any representation or warranty
contained herein;
(v) shall promptly deliver to Parent true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(vi) shall not, and shall not permit any of its Subsidiaries to, except
(x) in the ordinary course of business consistent with past practice, (y)
as otherwise provided in this Agreement, enter into or amend any
employment, severance or similar agreements or arrangements with any of
their respective directors or executive officers;
(vii) subject to the provisions of Section 5.1, shall not, and shall not
permit any of its Subsidiaries to, authorize, propose or announce an
intention to authorize or propose, or enter into an agreement with respect
to, any merger, consolidation or business combination (other than the
Merger), any acquisition of assets or securities, any disposition of assets
or securities or any release or relinquishment of any contract rights in
which, in any such case, the aggregate consideration for such transaction
is in excess of $100 million or which would have an adverse impact on the
Company's ability to consummate the Merger;
(viii) shall not, and shall not permit any of its Subsidiaries to, issue
any shares of their capital stock or securities, except upon exercise of
options outstanding as of the date hereof to purchase up to 914,000 shares
of Company Common Stock under Company Stock Option Plans, or effect any
stock split or otherwise change its capitalization;
(ix) shall not, and shall not permit any of its Subsidiaries to, grant,
confer or award any options, appreciation rights, warrants, conversion
rights, restricted stock, stock units, performance shares or other rights,
not existing on the date hereof, with respect to any shares of its capital
stock or other securities of the Company or its Subsidiaries;
(x) shall not, and shall not permit any of its Subsidiaries to, take any
actions which would, or would be reasonably likely to, prevent the Merger
from qualifying as a reorganization within the meaning of Section 368 of
the Code;
(xi) shall not, and shall not permit any of its Subsidiaries to, amend in
any material respect the terms of the Company Benefit Plans, including,
without limitation, any employment, severance or similar agreements or
arrangements in existence on the date hereof, or adopt any new employee
benefit plans, programs or arrangements or any employment, severance or
similar agreements or arrangements;
(xii) shall not, and shall not permit any of its Subsidiaries to, (x)
incur, create, assume or otherwise become liable for borrowed money or
assume, guarantee, endorse or otherwise become responsible or liable
I-14
for the obligations of any other individual, corporation or other entity or
(y) make any loans or advances to any other person, except in each case in
the ordinary course of business;
(xiii) shall not, and shall not permit any of its Subsidiaries to, make
any material tax election other than in the ordinary course, or without the
consent of Parent, which shall not unreasonably be withheld, settle or
compromise any material tax liability;
(xiv) shall not, and shall not permit any of its Subsidiaries to, (y)
declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock or other ownership
interests (other than regular quarterly cash dividends not to exceed $0.40
per share of Company Common Stock and dividends and distributions from
Subsidiaries of the Company to the Company or another of its Subsidiaries)
or (z) directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or capital stock of any of its Subsidiaries, or
make any commitment for any such action; and
(xv) shall not, and shall not permit any of its Subsidiaries to, agree,
in writing or otherwise, to take any of the foregoing actions or take any
action which would make any representation or warranty in Article 3 hereof
untrue or incorrect as of the Closing Date.
5.3. Interim Operations of Parent.
(a) Prior to the Effective Time, except for the transactions currently being
considered by Parent, which have been described to the Company (and which
Parent shall not consummate prior to the Effective Time unless and until it
shall have received a fairness opinion from an independent investment banking
firm of national reputation reasonably satisfactory to the Company), or as
contemplated by any other provision of this Agreement, unless the Company has
consented in writing thereto, Parent:
(i) shall not, and shall cause its Subsidiaries not to, amend their
respective Certificates of Incorporation or Bylaws or comparable governing
instruments (other than amendments which are not material to Parent or to
the consummation of the transactions contemplated by this Agreement);
(ii) shall promptly deliver to the Company true and correct copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(iii) shall not, and shall not permit any of its Subsidiaries to,
authorize, propose or announce an intention to authorize or propose, or
enter into an agreement with respect to, any merger, consolidation or
business combination (other than the Merger), any acquisition of assets or
securities, any disposition of assets or securities or any release or
relinquishment of any contract rights in which, in any such case, the
aggregate consideration for such transaction is in excess of $500 million
or which would have an adverse impact on Parent's ability to consummate the
Merger;
(iv) shall promptly notify the Company of (x) any material change in its
condition (financial or otherwise), business, properties, assets,
liabilities or the normal course of its business or of its properties, (y)
any material litigation or material governmental complaints, investigations
or hearings (or communications indicating that the same may be
contemplated), or (z) the breach of any representation or warranty
contained herein;
(v) shall not, and shall not permit any of its Subsidiaries to, take any
actions which would, or would be reasonably likely to, prevent the Merger
from qualifying as a reorganization within the meaning of Section 368 of
the Code;
(vi) shall not declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital stock
(other than regular quarterly cash dividends not to exceed $0.40 per share
of Parent Common Stock and regular dividends on Parent Preferred Stock);
and
(vii) shall not, and shall not permit any of its Subsidiaries to, agree,
in writing or otherwise, to take any of the foregoing actions or take any
action which would make any representation or warranty in Article 4 hereof
untrue or incorrect as of the Closing Date.
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5.4. Meetings of Stockholders. Each of Parent and the Company will take all
action necessary in accordance with applicable law and its Certificate of
Incorporation and Bylaws to convene a meeting of its stockholders as promptly
as practicable to consider and vote upon (i) in the case of Parent, the
approval of the issuance of the shares of Parent Common Stock pursuant to the
Merger contemplated hereby and (ii) in the case of the Company, the approval
of this Agreement and the transactions contemplated hereby. The Board of
Directors of each of Parent and the Company shall recommend such approval and
Parent and the Company shall each take all lawful action to solicit such
approval, including, without limitation, timely mailing the Proxy
Statement/Prospectus (as defined in Section 5.9); provided, however, that such
recommendation or solicitation shall not be required if and to the extent that
the Board of Directors of Parent or the Company, as the case may be,
determines, after the date hereof, and upon the advice of outside counsel,
that the making of such recommendation or solicitation would involve a breach
of its fiduciary duties to its stockholders imposed by law.
5.5. Filings; Other Actions. Subject to the terms and conditions herein
provided, the Company and Parent shall: (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act
with respect to the Merger; (b) use all reasonable efforts to cooperate with
one another in (i) determining which other filings are required to be made
prior to the Effective Time with, and which other consents, approvals, permits
or authorizations are required to be obtained prior to the Effective Time
from, governmental or regulatory authorities of the United States, the several
states and foreign jurisdictions in connection with the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
and (ii) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; and (c) use all reasonable efforts to
take, or cause to be taken, all other action and do, or cause to be done, all
other things necessary, proper or appropriate to consummate and make effective
the transactions contemplated by this Agreement.
5.6. HSR Act. Subject to the following sentence, the parties shall take all
actions necessary or appropriate to cause the prompt expiration or termination
of any applicable waiting period under the HSR Act in respect of the Merger,
including, without limitation, complying as promptly as practicable with any
requests for additional information. Without limiting the generality of the
foregoing, if it is necessary in order to terminate the waiting period under
the HSR Act or otherwise to permit the Closing to take place, Parent agrees to
use all reasonable efforts to divest any assets held as of the date of this
Agreement by Parent or the Company (or their Subsidiaries), to use all
reasonable efforts to hold such assets separate pending such divestiture, or
to enter into a consent decree requiring it to use all reasonable efforts to
divest such assets, and to take such further action in connection therewith as
may be necessary to enable the Closing to take place on or prior to March 31,
1998; provided that Parent shall not be required to take any action pursuant
to this Section 5.6 if the taking of such action would have a significant
adverse effect on the business, results of operations or financial condition
of Parent and the Company (and their Subsidiaries), taken as a whole following
the Effective Time.
5.7. Inspection of Records. From the date hereof to the Effective Time, each
of the Company and Parent shall, and shall cause its Subsidiaries to, (i)
allow all designated officers, attorneys, accountants and other
representatives of the other party reasonable access at all reasonable times
to its respective offices, records and files, correspondence, audits and
properties, as well as to all information relating to its respective
commitments, contracts, titles and financial position, or otherwise pertaining
to its respective business and affairs, (ii) furnish to the other party and
the other party's counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as
such persons may reasonably request and (iii) instruct its respective
employees, counsel and financial advisors to cooperate with the other party in
the other party's investigation of its respective business.
5.8. Publicity. The initial press release relating to this Agreement shall
be a joint press release and thereafter the Company and Parent shall, subject
to their respective legal obligations (including requirements of stock
exchanges and other similar regulatory bodies), consult with each other, and
use reasonable efforts to agree upon the text of any press release, before
issuing any such press release or otherwise making public statements with
respect to the transactions contemplated hereby and in making any filings with
any federal or state governmental or regulatory agency or with any national
securities exchange with respect thereto.
I-16
5.9. Registration Statement. Parent and the Company shall cooperate and
promptly prepare and Parent shall file with the SEC as soon as practicable a
Registration Statement on Form S-4 (the "Form S-4") under the Securities Act,
with respect to the Parent Common Stock issuable in the Merger, which
Registration Statement shall contain the joint proxy statement with respect to
the meetings of the stockholders of the Company and of Parent in connection
with the Merger (the "Proxy Statement/Prospectus"). The parties will cause the
Proxy Statement/Prospectus, and Parent will cause the Form S-4, to comply as
to form in all material respects with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations thereunder.
Parent shall use all reasonable efforts, and the Company will cooperate with
Parent, to have the Form S-4 declared effective by the SEC as promptly as
practicable. Parent shall use its best efforts to obtain, prior to the
effective date of the Form S-4, all necessary state securities law or "Blue
Sky" permits or approvals required to carry out the transactions contemplated
by this Agreement. The information supplied by the Company for inclusion or
incorporation by reference in the Proxy Statement/Prospectus and the Form S-4
shall not (i) at the time the Form S-4 is declared effective, (ii) at the time
the Proxy Statement/Prospectus (or any amendment thereof or supplement
thereto) is first mailed to holders of Company Common Stock or holders of
Parent Common Stock, (iii) at the time of the Company Stockholders' Meeting or
the Parent Stockholder's Meeting and (iv) at the Effective Time, contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they are made, not misleading. The
information supplied by Parent for inclusion or incorporation by reference in
the Proxy Statement/Prospectus and the Form S-4 shall not (i) at the time the
Form S-4 is declared effective, (ii) at the time the Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to holders of Company Common Stock or holders of Parent Common Stock,
(iii) at the time of the Company Stockholders' Meeting or the Parent
Stockholder's Meeting and (iv) at the Effective Time, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances under which they are made, not misleading. No amendment or
supplement to the Proxy Statement/Prospectus will be made by the Company
without the approval of Parent. Parent will advise the Company, promptly after
it receives notice thereof, of the time when the Form S-4 has become effective
or any supplement or amendment has been filed, the issuance of any stop order,
the suspension of the qualification of the Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement/Prospectus or the Form
S-4 or comments thereon and responses thereto or requests by the SEC for
additional information.
5.10. Listing Application. Parent shall promptly prepare and submit to the
NYSE a listing application covering the shares of Parent Common Stock issuable
in the Merger, and shall use its best efforts to obtain, prior to the
Effective Time, approval for the listing of such Parent Common Stock, subject
to official notice of issuance.
5.11. Affiliate Letters. At least 30 days prior to the Closing Date, the
Company shall deliver to Parent a list of names and addresses of those persons
who were, in the Company's reasonable judgment, at the record date for its
stockholders' meeting to approve the Merger, "affiliates" (each such person,
an "Affiliate") of the Company within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act. The Company shall provide
Parent such information and documents as Parent shall reasonably request for
purposes of reviewing such list. The Company shall use all reasonable efforts
to deliver or cause to be delivered to Parent, prior to the Closing Date, from
each of the Affiliates of the Company identified in the foregoing list, an
Affiliate Letter in the form attached hereto as Exhibit A. Parent shall be
entitled to place legends as specified in such Affiliate Letters on the
certificates evidencing any Parent Common Stock to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of such Affiliate Letters.
5.12. Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses except
as expressly provided herein and except that the filing fee in connection with
the filing of the Form S-4 or Proxy Statement/Prospectus with the SEC and the
expenses incurred in connection with printing
I-17
and mailing the Form S-4 and the Proxy Statement/Prospectus shall be shared
equally by the Company and Parent.
5.13. Indemnity; Insurance. Parent agrees (i) that all rights to
indemnification for acts or omissions occurring prior to the Effective Time in
favor of the current or former directors or officers of the Company as
provided in the Certificate of Incorporation or Bylaws of the Company shall
survive the Merger and shall continue in full force and effect in accordance
with their terms from the Effective Time of the Merger until the expiration of
the applicable statute of limitations with respect to any claims against the
current or former directors or officers of the Company arising out of such
acts or omissions and (ii) to cause the Surviving Corporation to indemnify
such current and former directors and officers in accordance with such rights
of indemnification. For a period of six years after the Effective Time, Parent
shall cause the Surviving Corporation to maintain officers' and directors'
liability insurance for all persons currently covered under the Company's
officers' and directors' liability insurance policies, in their capacities as
officers and directors, on terms substantially no less advantageous to the
covered persons than such existing insurance; provided, however, that Parent
shall not be required in order to maintain or procure such coverage to pay an
annual premium in excess of 150% of the current annual premium paid by the
Company for its existing coverage (the "Cap"); and provided, further, that if
equivalent coverage cannot be obtained, or can be obtained only by paying an
annual premium in excess of 150% of the Cap, Parent shall only be required to
obtain as much coverage as can be obtained by paying an annual premium equal
to the Cap.
5.14. Employee Benefits
(a) For a period of two years following the Effective Time, Parent shall
provide to persons who are employees of the Company or any of its Subsidiaries
at the Effective Time (the "Company Personnel") employee benefit plans,
programs and arrangements which in the aggregate are substantially comparable
to those employee benefit plans, programs and arrangements generally provided
to the employees of the Company or its Subsidiaries immediately prior to the
Effective Time; provided, however, that subject to the foregoing, Parent shall
not be precluded from amending or terminating any particular plan, program or
arrangement.
(b) Following the Effective Time, Parent shall cause the Company Benefit
Plans to continue to recognize the service credit of the Company Personnel
accrued as of the Effective Time under the Company Benefit Plans for purposes
of participation, eligibility, vesting of benefits and benefit accrual,
subject to the terms of such Company Benefit Plans, and such service credit
shall also be recognized for purposes of participation, eligibility and
vesting under any successor plans.
(c) In the event of any change in coverage that applies generally to the
Company Personnel during the two-year period following the Effective Time
under any Company Benefit Plan that provides medical or health benefits,
Parent shall cause such plan to recognize credit toward satisfying deductible
expense requirements, out-of-pocket expense limits and maximum lifetime
benefit limits of such Company Personnel or their eligible dependents, and to
waive any pre-existing condition, exclusion or limitation, as and to the
extent any such matter would previously have been recognized or waived (as the
case may be) under the applicable Company Benefit Plan.
(d) Parent shall cause the Surviving Corporation to honor in accordance with
their terms and to perform the obligations of the Company under the severance
and retention plans and agreements listed on Section 5.14 of the Company
Disclosure Schedule.
(e) Prior to the Effective Time, the Company may enter into retention
agreements with not more than 67 of its key employees to be identified and
selected by the Company after consultation with Parent. The Company hereby
represents and warrants that the maximum amount payable under all such
retention agreements in the aggregate shall not exceed $15 million.
(f) Prior to the Effective Time, the Company shall cause to be amended each
of the Company Benefit Plans (and/or related funding arrangements) listed on
Section 5.14 of the Company Disclosure Schedule to eliminate
I-18
all provisions that would become effective upon a "Change in Control" of the
Company (or any similar triggering event), as and to the extent such
amendments are consistent with requirements of law.
(g) Following the Effective Time, Parent shall cause Company Personnel who
have previously been granted Company stock options to be eligible to
participate in the Parent stock option plan. At the first meeting of the
Compensation Committee of the Parent Board of Directors following the
Effective Time at which stock options are granted to Parent employees
generally, Parent shall cause a recommendation to be made to the Compensation
Committee to grant options under the Parent stock option plan to such Company
Personnel on a basis that takes into consideration the Company stock options
previously granted to such Company Personnel. If the Effective Time occurs
after the first such meeting of the Compensation Committee, in 1998 or
thereafter, Parent shall present its recommendation for granting Parent stock
options in accordance with the foregoing at the next regularly scheduled
meeting of the Compensation Committee or sooner if schedules and agendas
permit.
5.15. Reorganization. From and after the date hereof and until the Effective
Time, neither Parent nor the Company nor any of their respective subsidiaries
or other affiliates shall (i) knowingly take any action, or knowingly fail to
take any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code; or (ii) enter
into any contract, agreement, commitment or arrangement with respect to the
foregoing.
5.16. Shareholder Rights Plan. The Company shall take all action necessary
to render the Rights Agreement, dated September 21, 1988 between Northrop
Corporation and Manufacturers Hanover Trust Company (the "Shareholder Rights
Plan") and the rights issued pursuant to the Shareholder Rights Plan
inapplicable to the transactions contemplated hereby.
5.17. [Reserved]
5.18. Agreements. Between the date hereof and the Closing Date, neither
Parent nor the Company shall enter into any agreement which Parent or the
Company, as the case may be, knows or has reason to know is reasonably likely
to cause any major customer of Parent or the Company (or their respective
subsidiaries) to terminate any material contracts, agreements or other
obligations that exist between that customer on the one hand, and Parent, the
Company (or Parent and the Company following the Merger) or any subsidiary of
either, on the other hand and Parent and the Company shall take all reasonable
action appropriate to an effort to avoid such termination.
5.19. Parent Board of Directors. The Company shall be entitled to designate
for appointment or election to Parent's Board of Directors following
consummation of the Merger, three persons to be mutually agreed upon by Parent
and the Company. Parent's Board of Directors shall take all necessary action
to cause Kent Kresa to be elected as Vice Chairman of Parent's Board of
Directors following the Merger.
5.20. Takeover Statute. If any "fair price," "moratorium," "control share
acquisition" or other form of antitakeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and the
members of the Board of Directors of the Company shall grant such approvals
and take such actions as are reasonably necessary so that the transactions
contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
such statute or regulation on the transactions contemplated hereby.
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ARTICLE 6
CONDITIONS
6.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved by the holders of the issued and outstanding shares of
capital stock of the Company and the Parent Stockholder Approval shall have
been obtained.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) Neither of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction in the United States which
prohibits the consummation of the transactions contemplated by this
Agreement. In the event any such order or injunction shall have been
issued, each party agrees to use its best efforts to have any such
injunction lifted.
(d) The Form S-4 shall have become effective and shall be effective at
the Effective Time, and no stop order suspending effectiveness of the Form
S-4 shall have been issued, no action, suit, proceeding or investigation by
the SEC to suspend the effectiveness thereof shall have been initiated and
be continuing, and all material approvals under state securities laws
relating to the issuance or trading of the Parent Common Stock to be issued
to the Company stockholders in connection with the Merger shall have been
received.
(e) The Parent Common Stock to be issued to the Company stockholders in
connection with the Merger shall have been approved for listing on the
NYSE, subject only to official notice of issuance.
(f) All consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory
body required in connection with the execution, delivery and performance of
this Agreement shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed
after the Effective Time and except where the failure to have obtained or
made any such consent, authorization, order, approval, filing or
registration would not have a material adverse effect on the business of
Parent and the Company (and their respective Subsidiaries), taken as a
whole, following the Effective Time.
6.2. Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) Parent shall have performed in all material respects its agreements
contained in this Agreement required to be performed on or prior to the
Closing Date, the representations and warranties of Parent and Merger Sub
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct in all material respects as of the
Closing Date, except that those representations and warranties which
address matters only as of a particular date shall have been true and
correct as of such date, and the Company shall have received a certificate
of the President or a Vice President of Parent, dated the Closing Date,
certifying to such effect.
(b) The Company shall have received the opinion of Fried, Frank, Harris,
Shriver & Jacobson, special counsel to the Company, to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code.
(c) The Company shall have received a letter of its independent public
accountants, dated the Effective Time, in form and substance reasonably
satisfactory to it, stating that such accountants concur with management's
conclusion that the Merger will qualify as a transaction to be accounted
for in accordance with the pooling of interests method of accounting under
the requirements of APB No. 16, provided that if such accountants are not
able to deliver such letter due to a transaction of the type currently
being considered by Parent, which has been described to the Company, such
letter shall not be a condition to the Company's obligations hereunder.
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(d) From the date of this Agreement through the Effective Time, there
shall not have occurred a Parent Material Adverse Effect.
6.3. Conditions to Obligation of Parent and Merger Sub to Effect the
Merger. The obligations of Parent and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date, the representations and warranties of the Company
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct in all material respects as of the
Closing Date, except that those representations and warranties which
address matters only as of a particular date shall have been true and
correct as of such date, and Parent shall have received a certificate of
the President or a Vice President of the Company, dated the Closing Date,
certifying to such effect.
(b) Parent shall have received the opinion of King & Spalding, special
counsel to Parent, dated the Closing Date, to the effect that the Merger
will be treated for Federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code, and that the Company and Parent
will each be a party to that reorganization within the meaning of Section
368(b) of the Code.
(c) Parent shall have received a letter of its independent public
accountants, dated the Effective Time, in form and substance reasonably
satisfactory to it, stating that such accountants concur with management's
conclusion that the Merger will qualify as a transaction to be accounted
for in accordance with the pooling of interests method of accounting under
the requirements of APB No. 16, provided that if such accountants are not
able to deliver such letter due to a transaction of the type currently
being considered by Parent which has been described to the Company, such
letter shall not be a condition to Parent's obligations hereunder.
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred a Company Material Adverse Effect.
ARTICLE 7
TERMINATION
7.1. Termination by Mutual Consent. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval of this Agreement by the stockholders of the Company, by
the mutual consent of Parent and the Company.
7.2. Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Parent or the Company if (a) the Merger shall not have been
consummated by March 31, 1998, or (b) the approval of the Company's
stockholders required by Section 6.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment thereof, or (c) the
approval of Parent's stockholders required by Section 6.1(a) shall not have
been obtained at a meeting duly convened therefor or at any adjournment
thereof, or (d) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
nonappealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause (d) shall have used all reasonable efforts to remove
such injunction, order or decree; and provided, in the case of a termination
pursuant to clause (a) above, that the terminating party shall not have
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the failure to consummate
the Merger by March 31, 1998.
7.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the adoption and approval by the stockholders
I-21
of the Company referred to in Section 6.1(a), by action of the Board of
Directors of the Company, if (a) in the exercise of its good faith judgment as
to fiduciary duties to its stockholders imposed by law based on the written
opinion of outside counsel, the Board of Directors of the Company determines
that such termination is required by reason of an Alternative Proposal being
made, or (b) there has been a breach by Parent or Merger Sub of any
representation or warranty contained in this Agreement that has had or will
have a Parent Material Adverse Effect, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Company to Parent, or (c) there has been a material breach of any
of the covenants or agreements set forth in this Agreement on the part of
Parent, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by the Company to Parent.
Notwithstanding the foregoing, the Company's ability to terminate this
Agreement pursuant to Section 7.2 or this Section 7.3 is conditioned upon the
prior payment by the Company of any amounts owed by it pursuant to Section
7.5(a).
7.4. Termination by Parent. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, before or after the
approval by the stockholders of Parent referred to in Section 6.1(a), by
action of the Board of Directors of Parent, if (a) the Board of Directors of
the Company shall have (i) withdrawn or modified in a manner materially
adverse to Parent its approval or recommendation of this Agreement or the
Merger or (ii) recommended an Alternative Proposal to the Company
stockholders, or (b) there has been a breach by the Company of any
representation or warranty contained in this Agreement that has had or will
have a Company Material Adverse Effect, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the Company to Parent, or (c) there has been a material breach of any
of the covenants or agreements set forth in this Agreement on the part of the
Company, which breach is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by Parent to the Company.
7.5. Effect of Termination and Abandonment.
(a) If this Agreement is terminated by the Company or Parent pursuant to
Section 7.2(b) or 7.4(a)(i), and, prior to such termination, (x) a proposal
with respect to a Transaction shall have been made, and (y) within six (6)
months after such termination, the Company enters into any agreement with
respect to a Transaction, or any third party shall acquire beneficial
ownership of 50.1% or more of the Company's outstanding shares of voting
stock, then within two business days after the execution of such an agreement
or the consummation of such acquisition (whichever shall first occur), the
Company shall pay Parent, by wire transfer of immediately available funds, a
fee (the "Termination Fee") of $200 million. If this Agreement is terminated
by the Company pursuant to clause (a) of Section 7.3 or by Parent pursuant to
clause (a)(ii) of Section 7.4, then the Company shall pay Parent the
Termination Fee, which fee shall be payable by wire transfer of same day funds
either at the time contemplated in the last sentence of Section 7.3 if
applicable or, otherwise, within two business days after such termination. The
Company acknowledges that the agreements contained in this Section 7.5(a) are
an integral part of the transactions contemplated in this Agreement, and that,
without these agreements, Parent and Merger Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the amount due
pursuant to this Section 7.5(a), and, in order to obtain such payment, Parent
or Merger Sub commences a suit which results in a judgment against the Company
for the fee set forth in this Section 7.5(a), the Company shall pay to Parent
its costs and expenses (including attorneys' fees) in connection with such
suit, together with interest on the amount of the fee at the rate of 12% per
annum from the date such fee was required to be paid.
(b) In the event of termination of this Agreement and the abandonment of the
Merger pursuant to this Article 7, all obligations of the parties hereto shall
terminate, except the obligations of the parties set forth in this Section 7.5
and Section 5.12 and except for the provisions of Sections 8.3, 8.4, 8.6, 8.8,
8.9, 8.12, 8.13 and 8.14 and except for the Confidentiality Agreement
previously executed between the Company and Parent (the "Confidentiality
Agreement"). Moreover, in the event of termination of this Agreement pursuant
to Section 7.2, 7.3 or 7.4, nothing herein shall prejudice the ability of the
nonbreaching party from seeking damages from any other party for any wilful
breach of this Agreement, including without limitation, attorneys' fees and
the right to pursue any remedy at law or in equity.
I-22
7.6. Extension; Waiver. At any time prior to the Effective Time, any party
hereto, by action taken by its Board of Directors, may, to the extent legally
allowed, (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE 8
GENERAL PROVISIONS
8.1. Nonsurvival of Representations, Warranties and Covenants. All
representations, warranties and covenants in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Merger,
provided, however, that the covenants contained in Article 2, the last
sentence of Section 5.11, Section 5.12, Section 5.13, Section 5.14, Section
5.19 and this Article 8 shall survive the Merger, but not beyond the extent,
if any, specified therein. Nothing in this Section 8.1 shall affect Section
7.5(b) of this Agreement.
8.2. Notices. Any notice required to be given hereunder shall be sufficient
if in writing, and sent by facsimile transmission and by courier service (with
proof of service), hand delivery or certified or registered mail (return
receipt requested and first-class postage prepaid), addressed as follows:
If to Parent or Merger Sub:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Frank H. Menaker, Jr., Esq.
Senior Vice President and General Counsel
with copies to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Attention: William J. Phillips, Esq.
If to the Company:
Northrop Grumman Corporation
1840 Century Park East
Los Angeles, California 90067
Attention: Richard R. Molleur, Esq.
Corporate Vice President and General Counsel
with copies to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Charles M. Nathan, Esq.
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date
so telecommunicated, personally delivered or mailed.
I-23
8.3. Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Section 5.13, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8.4. Entire Agreement. This Agreement, the Exhibits, the Company Disclosure
Schedule, the Parent Disclosure Schedule, the Confidentiality Agreement and
any documents delivered by the parties in connection herewith constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
8.5. Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of the Company and Parent, but after any such stockholder
approval, no amendment shall be made which by law requires the further
approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
8.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws. Each of the Company and Parent hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that
such litigation brought therein has been brought in an inconvenient forum.
8.7. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties
hereto.
8.8. Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
8.9. Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and
vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
8.10. Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation
by or on behalf of any party, shall be deemed to constitute a waiver by the
party taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
8.11. Incorporation of Exhibits. The Company Disclosure Schedule, the Parent
Disclosure Schedule and all Exhibits attached hereto and referred to herein
are hereby incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
I-24
8.12. Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
8.13. Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
was not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any Delaware Court, this being
in addition to any other remedy to which they are entitled at law or in
equity.
8.14. Subsidiaries. As used in this Agreement, the word "Subsidiary" when
used with respect to any party means any corporation or other organization,
whether incorporated or unincorporated, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such
party is a general partner. When a reference is made in this Agreement to
Significant Subsidiaries, the words "Significant Subsidiaries" shall refer to
Subsidiaries (as defined above) which constitute "significant subsidiaries"
under Rule 405 promulgated by the SEC under the Securities Act.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
LOCKHEED MARTIN CORPORATION
By: /s/ Marcus C. Bennett
---------------------------------
Marcus C. Bennett
Executive Vice President and Chief
Financial Officer
HURRICANE SUB, INC.
By: /s/ Marcus C. Bennett
---------------------------------
Marcus C. Bennett
President
NORTHROP GRUMMAN CORPORATION
By: /s/ Richard B. Waugh, Jr.
---------------------------------
Richard B. Waugh, Jr.
Corporate Vice President and Chief
Financial Officer
I-25
APPENDIX II
[LETTERHEAD OF BEAR STEARNS APPEARS HERE]
October 13, 1997
Board of Directors
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817
Dear Sirs and Madam:
We understand that pursuant to an Agreement and Plan of Merger dated as of
July 2, 1997 (the "Merger Agreement") among Lockheed Martin Corporation
("Lockheed Martin"), Merger Sub Corporation ("Sub"), a wholly owned subsidiary
of Lockheed Martin, and Northrop Grumman Corporation ("Northrop"), Lockheed
Martin and Northrop intend to consummate a transaction in which Sub will merge
with Northrop with each then outstanding share of common stock of Northrop
being converted to the right to receive 1.1923 shares of common stock of
Lockheed Martin (the "Merger").
You have asked us to render our opinion as to whether the Merger is fair,
from a financial point of view, to the stockholders of Lockheed Martin.
In the course of our analysis for rendering this opinion, we have:
1. reviewed the Merger Agreement in final form as provided to us:
2. reviewed Lockheed Martin's and Northrop's respective Annual Reports to
Shareholders and Annual Reports on Form 10-K for the fiscal years ended
December 31, 1996 and 1995, and their respective Quarterly Reports on Form
10-Q for the period ended March 31, 1997;
3. reviewed certain operating and financial information provided to us by
the managements of Lockheed Martin and Northrop relating to such
businesses, including internal projections of future financial results;
4. met with certain members of Lockheed Martin's and Northrop's senior
management to discuss their respective company's operations, historical
financial statements and future prospects, and their views of the business,
operational and strategic benefits, potential synergies and tax and other
implications of the Merger;
5. reviewed the pro forma financial impact of the Merger on Lockheed
Martin;
6. reviewed the historical stock prices and trading volumes of the common
stock of Lockheed Martin and of Northrop;
7. reviewed certain publicly available financial information and stock
market performance data of other publicly held companies which we deemed
generally comparable to Lockheed Martin and to Northrop;
8. reviewed the financial terms of certain other recent acquisitions of
companies which we deemed generally comparable to Lockheed Martin and to
Northrop; and
9. conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy
and completeness of the financial and other information provided to us or
reviewed for us by Lockheed Martin and Northrop and the reasonableness of the
assumptions made by the managements of Lockheed Martin and Northrop with
respect to the projected financial results of such businesses and the tax
consequences of and the potential synergies which could be incurred or
achieved upon consummation of the Merger. We have not assumed any
responsibility for
II-1
independent verification of such information and have relied upon the
assurances of the management of Lockheed Martin and the management of Northrop
that they are unaware of any facts that would make the information provided to
or reviewed by us incomplete or misleading. In arriving at our opinion, we
have not performed or obtained any independent appraisal of the assets of
Lockheed Martin or Northrop nor have we been furnished with any such
appraisals. Our opinion is necessarily based on the economic, market and other
conditions as in effect on and the information made available to us as of the
date hereof.
We have acted as financial advisor to Lockheed Martin in connection with the
Merger and will receive a fee for such advisory services, including the
rendering of this opinion, payment of a significant portion of which is
contingent upon the consummation of the Merger.
In the ordinary course of our business, we may actively trade the securities
of Lockheed Martin and Northrop for our own account and for the accounts of
customers and accordingly, may, at any time, hold a long or short position in
such securities.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of Lockheed Martin and is not to be reproduced,
disseminated, quoted or referred to at any time, in whole or in part, in any
manner for any purpose without our prior written consent, which shall not be
unreasonably withheld.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger is fair, from a financial point of view, to the
stockholders of Lockheed Martin.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Michael J. Urfier
----------------------------------
Senior Managing Director
II-2
APPENDIX III
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048 ------------------
Salomon Brothers
212-783-7000 ------------------
July 2, 1997
Board of Directors
Northrop Grumman Corporation
1840 Century Park East
Los Angeles, California 90067
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from
a financial point of view, to the holders of common stock, par value $1.00 per
share (the "Common Stock"), of Northrop Grumman Corporation (the "Company") of
the Exchange Ratio (as defined below) to be received by such holders pursuant
to the Agreement and plan of Merger by and among Lockheed Martin Corporation
("Lockheed Martin"), Hurricane Sub, Inc., a newly-formed wholly owned
subsidiary of Lockheed Martin ("Merger Sub"), and the Company (the "Merger
Agreement"). The Merger Agreement provides for, among other things, the merger
(the "Merger") of Merger Sub with and into the Company, pursuant to which each
share of Common Stock issued and outstanding immediately prior to the effective
time of the Merger will be converted into the right to receive 1.1923 shares
(the "Exchange Ratio") of common stock, par value $1.00 per share, of Lockheed
Martin (the "Lockheed Martin Common Stock").
We understand that the Merger is intended to qualify as a tax-free
reorganization for federal income tax purposes within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended, and, except as
contemplated by the Merger Agreement, to be accounted for as a pooling of
interests in accordance with generally accepted accounting principles as
described in Accounting Principles Board Opinion Number 16.
In connection with rendering our opinion, we have, among other things: (i)
reviewed the July 2, 1997 draft of the Merger Agreement, including the exhibits
thereto and certain documents referred to therein, in the form provided to us
and have assumed that the final form of such agreement will not vary in any
respect that is material to our analysis; (ii) reviewed certain publicly
available business and financial information concerning the Company; (ii)
reviewed certain publicly available business and financial information
concerning Lockheed Martin; (iv) reviewed certain publicly available
information concerning the industry in which the Company and Lockheed Martin
operate; (v) reviewed and analyzed certain financial forecasts and other non-
public financial and operating data concerning the businesses and operations of
the Company and Lockheed Martin that were provided to or reviewed for us by
management of the Company and Lockheed Martin, respectively; (vi) reviewed
certain publicly available business and financial information with respect to
certain other companies that we believe to be comparable in certain respects to
the Company and Lockheed Martin and the trading markets for such companies'
securities; (vii) reviewed and analyzed certain publicly available and other
information concerning the trading of, and the trading market for, the Common
Stock and the Lockheed Martin Common Stock; (viii) reviewed the financial terms
of certain business combinations and acquisition transactions we deem
reasonably comparable to the Merger and otherwise relevant to our inquiry; (ix)
analyzed certain information concerning cost savings and combination benefits
expected to result from the Merger that was provided to or reviewed for us by
the managements of the Company and Lockheed Martin; and (x) considered such
other information, financial studies, analyses, investigations and financial,
economic, market and trading criteria as we deemed relevant to our inquiry. We
have also discussed with certain officers and employees of the Company and
Lockheed Martin the foregoing, including the past and current business
operations, financial condition and prospects of the Company and Lockheed
Martin, respectively, before and after giving effect to the Merger, as
- --------------------------------------------------------------------------------
Salomon Brothers Inc & Worldwide Affiliates
- --------------------------------------------------------------------------------
Atlanta . Bangkok . Beijing . Boston . Buenos Aires . Chicago . Frankfurt .
Hong Kong . London . Los Angeles . Madrid . Melbourne . Mexico . Milan . Moscow
New Delhi . New York . Osaka . Paris . San Francisco . Seoul . Singapore .
Sydney . Taipei. Tel Aviv . Tokyo . Toronto . Zug . Zurich
III-1
-----------------
Salomon Brothers Inc Salomon Brothers
------------------
well as other matters we believe relevant to our inquiry. However, it should
be noted that, within the context of our current engagement by the Company, we
have not been authorized to and have not solicited alternative offers for the
Company or its assets.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon, without assuming any responsibility for verification, the
accuracy and completeness of all of the financial and other information
provided to, discussed with, or reviewed by or for us or publicly available.
With respect to the financial projections for the Company and for Lockheed
Martin, as well as the information concerning cost savings and combination
benefits provided to or reviewed for us by the managements of the Company and
Lockheed Martin, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments on the
part of the management of the Company or Lockheed Martin, as the case may be,
as to the future financial performance of the Company or Lockheed Martin, as
the case may be, and as to the cost savings and combination benefits expected
to result from the Merger. We express no view as to such projections or
information or the assumptions on which they are based. We have not assumed
any responsibility for making or obtaining any independent evaluations or
appraisals of any of the assets (including properties and facilities) or
liabilities of the Company or Lockheed Martin.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof, and we assume no responsibility to update or
revise our opinion based upon circumstances or events occurring after the date
hereof. Our opinion does not address the Company's underlying business
decision to effect the Merger or constitute a recommendation to any holder of
Common Stock as to how such holder should vote with respect to the Merger. Our
opinion as expressed below does not imply any conclusion as to the likely
trading range for the Common Stock or the Lockheed Martin Common Stock
following the announcement or consummation of the Merger, which may vary
depending upon, among other factors, changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities.
For purposes of rendering our opinion, we have assumed, in all respects
material to our analysis, that the representations and warranties of each
party contained in the Merger Agreement are true and correct, that each party
will perform all of the covenants and agreements required to be performed by
it under the Merger Agreement and that all conditions to the consummation of
the Merger will be satisfied without waiver thereof. We have also assumed that
all material governmental, regulatory or other consents and approvals will be
obtained and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications
or waivers to any documents to which either the Company or Lockheed Martin is
a party, as contemplated by the Merger Agreement, no restrictions will be
imposed or amendments, modifications or waivers made that would have any
material adverse effect on the contemplated benefits of the Merger.
As you are aware, we have acted as the financial advisor to the Company in
connection with the Merger and will receive fees from the Company for our
services, a portion of which is contingent upon consummation of the Merger.
The Company has also agreed to indemnify us for certain liabilities arising
out of our engagement. Additionally, we have rendered certain investment
banking and financial advisory services to the Company in the past for which
we have been paid fees. In addition, in the ordinary course of our business,
we or our affiliates may actively trade the securities of the Company and
Lockheed Martin for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view,
to the holders of the Common Stock.
Very truly yours,
Salomon Brothers Inc
III-2
LOCKHEED MARTIN CORPORATION
PROXY SOLICITATION /VOTING INSTRUCTION CARD FOR
SPECIAL MEETING OF STOCKHOLDERS
P R O X Y
The undersigned hereby appoints Gwendolyn S. King, Daniel M. Tellep and Carlisle
A. H. Trost, each of them proxies of the undersigned with respect to Common
Stock of the Corporation ("Stock") owned by the undersigned, with full power of
substitution, to vote and act for the undersigned at the Special Meeting of
Stockholders of the Corporation to be held at 1:00 p.m. on February 26, 1998, at
The Peabody Orlando Hotel, 9801 International Drive, Orlando, Florida, and at
any adjournment or postponement thereof. If the undersigned is a participant in
one or more of the Corporation's 401(k) or capital accumulation plans and has
Stock allocated to his or her account(s), the undersigned hereby instructs the
Trustee of the plan(s) to vote such shares of Stock in accordance with the
instructions on the reverse side of this card at the aforesaid Special Meeting
and any adjournment thereof, and in accordance with its discretion on such other
matters as may properly come before the meeting. A proportionate number of
shares of Stock not yet allocated to participants' accounts in the Lockheed
Martin Corporation Salaried Savings Plan will be voted in accordance with the
instructions of each participant in that plan who has ESOP match shares
allocated to his or her account, unless the participant elects not to provide
instructions with respect to such shares on the reverse side of this card.
Allocated Plan shares for which no card is returned will be voted by the
Trustee. Unallocated shares for which no card is received will be voted by the
Trustee in the same proportion as unallocated shares for which instructions are
received. Stockholders are requested to mark, date and sign this proxy on the
reverse side and to return it promptly in the enclosed envelope, or to vote this
proxy by telephone, dial [1-800-OK2-VOTE (1-800-652-8683)].
1. THE PROPOSAL TO APPROVE THE ISSUANCE OF SHARES OF LOCKHEED MARTIN COMMON
STOCK TO THE STOCKHOLDERS OF NORTHROP GRUMMAN CORPORATION IN CONNECTION
WITH THE MERGER OF A SUBSIDIARY OF LOCKHEED MARTIN, WITH AND INTO NORTHROP
GRUMMAN CORPORATION;
2. THE PROPOSAL TO AMEND LOCKHEED MARTIN'S CHARTER TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF LOCKHEED MARTIN COMMON STOCK FROM 750 MILLION TO 1.5
BILLION; AND
3. SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
Change of Address:
--------------------------
--------------------------
--------------------------
(If you have written in
the above space, please
mark the corresponding
box on the reverse side
of this card)
To vote in accordance with the Board of Directors' recommendations, please sign
and date the reverse side: no boxes need to be checked.
SEE REVERSE
SIDE
Please mark [X]
your votes
as in this example.
This proxy solicitation/voting instruction card when properly executed and
returned will be voted in the manner directed herein. If no direction is made,
this card will be voted FOR the Share Issuance Proposal and FOR the Charter
Amendment Proposal.
- --------------------------------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR ITEMS 1 AND 2.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
1. The Share Issuance Proposal [_] [_] [_]
2. The Charter Amendment Proposal [_] [_] [_]
The signer hereby revokes all previous proxies/voting instructions given by the
signer to vote at said meeting or any adjournment or postponements thereof.
Change of Address on
reverse side. [_]
I will attend the meeting [_]
[_] I elect not to direct the voting of unallocated shares in the Lockheed
Martin Corporation Salaried Savings Plan.
SIGNATURE(S): DATE:
----------------------------- -----------------------------
NOTE: Please date and sign exactly as your name appears above and return
this card in the enclosed envelope. Joint owners should each sign.
When signing as an attorney, executor, administrator, trustee or
guardian, please give full title as such.
You may vote by telephone (unless you are a participant in the Lockheed Martin
Salaried Savings Plan and elect not to direct the voting of unallocated shares
in that plan). Voting by telephone will eliminate the need to mail voted cards.
To vote by phone please follow the steps below:
1) HAVE THIS CARD AND YOUR SOCIAL SECURITY NUMBER AVAILABLE.
2) USING A TOUCH-TONE TELEPHONE, DIAL [1-800-OK2-VOTE (1-800-652-8683)]
The telephone voting system preserves the confidentiality of your vote and will
confirm your voting instructions with you during the call. You may also change
your selections on any or all of the proposals to be voted.
YOUR VOTE IS IMPORTANT TO US. THANK YOU FOR VOTING.
PROXY NORTHROP GRUMMAN
SPECIAL MEETING OF STOCKHOLDERS FEBRUARY 26, 1998
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard R. Molleur and James 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 Special
Meeting of Stockholders to be held at the Los Angeles Airport Marriott Hotel,
5855 West Century Boulevard in Los Angeles, California on February 26, 1998 at
10:00 a.m., and at any adjournments thereof, on the following matter as
indicated on the reverse side, 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 Special
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'
recommendation FOR the Merger Proposal (as defined below).
1. THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER DATED AS OF JULY
2, 1997, AS AMENDED, AMONG NORTHROP GRUMMAN CORPORATION, LOCKHEED MARTIN
CORPORATION AND HURRICANE SUB, INC. (THE "MERGER PROPOSAL"); AND
2. SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY, EVEN IF YOU
PLAN TO ATTEND THE SPECIAL MEETING.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
- -------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
- -------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED. Please mark
IF NOT OTHERWISE DIRECTED, THIS PROXY your vote as
WILL BE VOTED FOR PROPOSAL 1. indicated in [X]
this example
------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
------------------------------------------------------------
Proposal 1--The Merger Proposal FOR AGAINST
[ ] [ ]
------------------------------------------------------------
Signature(s) __________________________ Dated __________________________ , 1998
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 .
-------------------------------------
PROXY NORTHROP GRUMMAN
-------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 26, 1998
-------------------------------------
Just a reminder, the Special Meeting
will be held:
DATE: February 26, 1998
TIME: 10:00 a.m.
LOCATION: Los Angeles Airport
Marriott Hotel
Los Angeles, California
Please return your proxy promptly.
PROXY NORTHROP GRUMMAN
SPECIAL MEETING OF STOCKHOLDERS FEBRUARY 26, 1998
CONFIDENTIAL INSTRUCTIONS TO BANKERS TRUST COMPANY TRUSTEE FOR THE NORTHROP
GRUMMAN SAVINGS AND INVESTMENT PLAN
Receipt of proxy material for the above Special 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
Special Meeting of Stockholders of Northrop Grumman Corporation to be held at
the Los Angeles Airport Marriott Hotel, 5855 West Century Boulevard in Los
Angeles, California on February 26, 1998 at 10:00 a.m., and at all
adjournments thereof, on the following matter as indicated on the reverse side
and in your discretion on any other matters that may come before the Special
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'
recommendation FOR the Merger Proposal (as defined below).
1. THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER DATED AS OF JULY
2, 1997, AS AMENDED, AMONG NORTHROP GRUMMAN CORPORATION, LOCKHEED MARTIN
CORPORATION AND HURRICANE SUB, INC. (THE "MERGER PROPOSAL"); AND
2. SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY, EVEN IF YOU
PLAN TO ATTEND THE SPECIAL MEETING.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
- -------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
- -------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED. Please mark
IF NOT OTHERWISE DIRECTED, THIS PROXY your vote as
WILL BE VOTED FOR PROPOSAL 1. indicated in [X]
this example
------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
------------------------------------------------------------
FOR AGAINST
Proposal 1--The Merger Proposal [ ] [ ]
------------------------------------------------------------
Signature(s) __________________________ Dated __________________________ , 1998
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
-------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 26, 1998
-------------------------------------
Dear Fellow Employee:
Just a reminder, your vote and
your investment in Northrop Grumman
are 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.
PROXY NORTHROP GRUMMAN
SPECIAL MEETING OF STOCKHOLDERS FEBRUARY 26, 1998
CONFIDENTIAL INSTRUCTIONS TO BANKERS TRUST COMPANY TRUSTEE FOR THE NORTHROP
GRUMMAN ELECTRONIC SENSORS & SYSTEMS DIVISION SAVINGS PROGRAM
Receipt of proxy material for the above Special 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
Special Meeting of Stockholders of Northrop Grumman Corporation to be held at
the Los Angeles Airport Marriott Hotel, 5855 West Century Boulevard in Los
Angeles, California on February 26, 1998 at 10:00 a.m., and at all
adjournments thereof, on the following matter as indicated on the reverse side
and in your discretion on any other matters that may come before the Special
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'
recommendation FOR the Merger Proposal (as defined below).
1. THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER DATED AS OF JULY
2, 1997, AS AMENDED, AMONG NORTHROP GRUMMAN CORPORATION, LOCKHEED MARTIN
CORPORATION AND HURRICANE SUB, INC. (THE "MERGER PROPOSAL"); AND
2. SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY, EVEN IF YOU
PLAN TO ATTEND THE SPECIAL MEETING.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
- -------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
- -------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED. Please mark
IF NOT OTHERWISE DIRECTED, THIS PROXY your vote as
WILL BE VOTED FOR PROPOSAL 1. indicated in [X]
this example
--------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
--------------------------------------------------------------
FOR AGAINST
Proposal 1--The Merger Proposal [ ] [ ]
--------------------------------------------------------------
Signature(s) __________________________ Dated __________________________ , 1998
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
-------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 26, 1998
-------------------------------------
Dear Fellow Employee:
Just a reminder, your vote and
your investment in Northrop Grumman
are 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.
PROXY NORTHROP GRUMMAN
SPECIAL MEETING OF STOCKHOLDERS FEBRUARY 26, 1998
CONFIDENTIAL INSTRUCTIONS TO BANKERS TRUST COMPANY TRUSTEE FOR THE NORTHROP
GRUMMAN COMMERCIAL AIRCRAFT DIVISION SALARIED SAVINGS AND INVESTMENT PLAN
Receipt of proxy material for the above Special 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
Special Meeting of Stockholders of Northrop Grumman Corporation to be held at
the Los Angeles Airport Marriott Hotel, 5855 West Century Boulevard in Los
Angeles, California on February 26, 1998 at 10:00 a.m., and at all
adjournments thereof, on the following matter as indicated on the reverse side
and in your discretion on any other matters that may come before the Special
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'
recommendation FOR the Merger Proposal (as defined below).
1. THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER DATED AS OF JULY
2, 1997, AS AMENDED, AMONG NORTHROP GRUMMAN CORPORATION, LOCKHEED MARTIN
CORPORATION AND HURRICANE SUB, INC. (THE "MERGER PROPOSAL"); AND
2. SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY, EVEN IF YOU
PLAN TO ATTEND THE SPECIAL MEETING.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
- -------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
- -------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED. Please mark
IF NOT OTHERWISE DIRECTED, THIS PROXY your vote as
WILL BE VOTED FOR PROPOSAL 1. indicated in [X]
this example
-------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
-------------------------------------------------------------
FOR AGAINST
Proposal 1--The Merger Proposal [ ] [ ]
-------------------------------------------------------------
Signature(s) __________________________ Dated __________________________ , 1998
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
-------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 26, 1998
-------------------------------------
Dear Fellow Employee:
Just a reminder, your vote and
your investment in Northrop Grumman
are 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.
PROXY NORTHROP GRUMMAN
SPECIAL MEETING OF STOCKHOLDERS FEBRUARY 26, 1998
CONFIDENTIAL INSTRUCTIONS TO BANKERS TRUST COMPANY TRUSTEE FOR THE NORTHROP
GRUMMAN PEI RETIREMENT SAVINGS PLAN
Receipt of proxy material for the above Special 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
Special Meeting of Stockholders of Northrop Grumman Corporation to be held at
the Los Angeles Airport Marriott Hotel, 5855 West Century Boulevard in Los
Angeles, California on February 26, 1998 at 10:00 a.m., and at all
adjournments thereof, on the following matter as indicated on the reverse side
and in your discretion on any other matters that may come before the Special
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'
recommendation FOR the Merger Proposal (as defined below).
1. THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER DATED AS OF JULY
2, 1997, AS AMENDED, AMONG NORTHROP GRUMMAN CORPORATION, LOCKHEED MARTIN
CORPORATION AND HURRICANE SUB, INC. (THE "MERGER PROPOSAL"); AND
2. SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY, EVEN IF YOU
PLAN TO ATTEND THE SPECIAL MEETING.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
- -------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
- -------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED. Please mark your
IF NOT OTHERWISE DIRECTED, THIS PROXY vote as indicated [X]
WILL BE VOTED FOR PROPOSAL 1. in this example
-------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
-------------------------------------------------------------
FOR AGAINST
Proposal 1--The Merger Proposal [ ] [ ]
-------------------------------------------------------------
Signature(s) __________________________ Dated __________________________ , 1998
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
-------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 26, 1998
-------------------------------------
Dear Fellow Employee:
Just a reminder, your vote and
your investment in Northrop Grumman
are 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.
