<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
------
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or 14a-12
GRUMMAN CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
GRUMMAN CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[_] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] 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 transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: /1/
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
[_] 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:
- -------------------------------------------------------------------------------
- ------------
/1/ Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
GRUMMAN CORPORATION
1111 STEWART AVENUE
BETHPAGE, NEW YORK 11714-3580
(516) 575-0574
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of Grumman
Corporation (the "Company") will be held at the offices of Gibson, Dunn &
Crutcher, 200 Park Avenue, New York, New York 10166, at 10:00 A.M. on
Wednesday, May 18, 1994 for the following purposes:
1. To consider and act upon a proposal to approve the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of April 3, 1994, among the
Company, Northrop Corporation ("Northrop") and Northrop Acquisition, Inc.
("Northrop Acquisition"), a wholly-owned subsidiary of Northrop, which
Merger Agreement provides, among other things, for the merger (the
"Merger") of Northrop Acquisition with and into the Company, with the
Company being the surviving corporation. Pursuant to the Merger Agreement,
each outstanding share of Common Stock, par value $1.00 per share, of the
Company (other than those shares held by the Company's treasury or by any
of the Company's subsidiaries, shares owned by Northrop or any of its
subsidiaries and those shares owned by shareholders who properly exercised
their dissenters' rights under New York law) will be converted into the
right to receive $62 in cash, without interest.
2. To transact such other business related to the proposed Merger as may
properly come before the Special Meeting or any adjournment thereof.
A copy of the Merger Agreement is attached as Exhibit A to the Proxy
Statement that accompanies this Notice of Special Meeting.
BY UNANIMOUS VOTE, THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT
THE ACQUISITION OF THE COMPANY BY NORTHROP PURSUANT TO THE MERGER AGREEMENT IS
FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS. THE
COMPANY'S BOARD HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
The Board of Directors has fixed the close of business on April 25, 1994 as
the record date for the determination of shareholders entitled to notice of,
and to vote at, the Special Meeting and any adjournment thereof. As of that
date, Northrop Acquisition owned approximately 93% of the outstanding shares of
the Common Stock of the Company. Under the terms of the Merger Agreement,
Northrop is obligated, and intends, to cause Northrop Acquisition to vote such
shares in favor of the approval of the Merger Agreement, thereby assuring
approval of the Merger Agreement by the Shareholders of the Company whether or
not any shares which are not owned by Northrop or its subsidiaries are voted in
favor of the approval of the Merger Agreement. If the Merger is consummated,
holders of Shares who do not vote in favor of approval of the Merger Agreement
and who otherwise comply with the requirements of Section 623 of the New York
Business Corporation Law will be entitled to statutory appraisal rights.
By order of the Board of Directors
Sheila M. Gibbons
Corporate Secretary
Bethpage, New York
May 3, 1994
<PAGE>
GRUMMAN CORPORATION
1111 STEWART AVENUE
BETHPAGE, NEW YORK 11714-3580
(516) 575-0574
----------------
PROXY STATEMENT
----------------
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of Grumman
Corporation, a New York corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board")
for use at the Special Meeting of Shareholders of the Company to be held on
Wednesday, May 18, 1994 and at any adjournment thereof (the "Special Meeting")
which is being held for the purpose of voting upon the approval of the
Agreement and Plan of Merger, dated as of April 3, 1994 (the "Merger
Agreement"), among the Company, Northrop Corporation, a Delaware corporation
("Northrop") and Northrop Acquisition, Inc. ("Northrop Acquisition"), a
Delaware corporation and a wholly-owned subsidiary of Northrop. A copy of the
Merger Agreement is attached to this Proxy Statement as Exhibit A. The Merger
Agreement provides for the merger of Northrop Acquisition, a wholly-owned
subsidiary of Northrop, with and into the Company (the "Merger"), as a result
of which the Company will become a wholly-owned subsidiary of Northrop. At the
effective time of the Merger (the "Effective Time"), each outstanding share of
Common Stock, par value $1.00 per share, of the Company (the "Shares"), other
than Shares held by the Company's treasury or by any of the Company's
subsidiaries, Shares owned by Northrop or any of its subsidiaries and those
Shares owned by shareholders who properly exercised their dissenters' rights
under New York law, will be converted into the right to receive $62 in cash,
without interest. See "General Information" and "The Merger."
Northrop Acquisition owns 32,766,109 Shares (approximately 93% of the
currently outstanding Shares), which it acquired in a cash tender offer for all
Shares at $62 per Share (the "Offer") which expired on April 15, 1994 as a
first step in Northrop's acquisition of the Company. Under the terms of the
Merger Agreement, Northrop is obligated, and intends, to cause Northrop
Acquisition to vote its Shares in favor of approval of the Merger Agreement,
thereby assuring approval of the Merger Agreement by the shareholders of the
Company. See "General Information--Vote Required and Ownership."
BY UNANIMOUS VOTE, THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT
THE ACQUISITION OF THE COMPANY BY NORTHROP PURSUANT TO THE MERGER AGREEMENT
(THE "ACQUISITION") IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS. THE COMPANY'S BOARD HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF YOU
ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO BY
REVOKING YOUR PROXY AT ANY TIME PRIOR TO THE VOTING THEREOF.
----------------
The date of this Proxy Statement is May 3, 1994. This Proxy Statement will be
mailed to the shareholders on or about May 3, 1994.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.............................................................. 1
Summary................................................................... 3
General Information....................................................... 6
Purpose of the Special Meeting........................................... 6
Vote Required and Ownership.............................................. 6
Proxies.................................................................. 6
Northrop Information..................................................... 6
Background of the Merger.................................................. 7
The Merger................................................................ 8
Reasons for the Acquisition.............................................. 8
Opinion of Investment Banker............................................. 9
Provisions of the Merger Agreement....................................... 12
Conversion of Shares.................................................... 13
Surrender of Share Certificates......................................... 14
Representations and Warranties.......................................... 14
Covenants............................................................... 15
Other Potential Bidders................................................. 15
Conditions.............................................................. 15
Termination............................................................. 15
Fees and Expenses....................................................... 16
Indemnification; Insurance.............................................. 18
Redemption of Rights.................................................... 18
Amendment............................................................... 18
Extension; Waiver....................................................... 18
Shareholders Dissenters' Rights.......................................... 19
Source and Amount of Funds............................................... 19
Certain Tax Consequences................................................. 20
Deregistration and Delisting of Shares................................... 21
Market Prices of the Company Shares and Dividends......................... 21
Selected Financial Data of the Company.................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business and Properties of the Company.................................... 28
Certain Information Concerning Northrop and Northrop Acquisition.......... 37
Beneficial Ownership of Shares............................................ 38
Independent Accountants................................................... 38
Experts................................................................... 38
Proxy Solicitation........................................................ 38
Other Business............................................................ 39
Index to Financial Statements............................................. F-1
EXHIBIT A--Merger Agreement............................................... A-1
EXHIBIT B--Opinion of Goldman, Sachs & Co................................. B-1
EXHIBIT C--Section 623 of the New York Business Corporation Law (Dissent-
ers' Rights)............................................................. C-1
</TABLE>
2
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary is necessarily incomplete and is
qualified in its entirety by reference to the full text of this Proxy
Statement, the exhibits hereto, and the documents referred to herein and
therein. Capitalized terms used and not defined in the following summary have
the meanings set forth under "Introduction" above.
GENERAL INFORMATION
<TABLE>
<C> <S>
Date, Time and Place
of Special Meeting.. Wednesday, May 18, 1994 at 10:00 A.M. at the Offices of
Gibson, Dunn & Crutcher, 200 Park Avenue, New York, New
York 10166
Purpose............. To consider and act upon a proposal to approve the Merger
Agreement. See "General Information--Purpose of the
Special Meeting."
Record Date......... Close of business on April 25, 1994.
Vote Required....... The Affirmative vote of 66 2/3% of the outstanding Shares
will be required to approve the Merger Agreement. See
"General Information--Vote Required and Ownership."
Ownership........... Northrop Acquisition currently owns 32,766,109 Shares
(approximately 93% of the Shares outstanding) which it
purchased for $62 per Share pursuant to the Offer.
Northrop is obligated, and intends, to cause Northrop
Acquisition to vote its Shares in favor of approval of
the Merger Agreement. As a result, shareholder approval
of the Merger Agreement will be assured by Northrop's
vote.
Recommendation...... BY UNANIMOUS VOTE, THE BOARD OF DIRECTORS OF THE COMPANY
HAS DETERMINED THAT THE ACQUISITION IS FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS. THE
COMPANY'S BOARD HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
MERGER AGREEMENT.
THE MERGER
Reasons for the
Merger.............. The purpose of the Merger is to complete the Acquisition
in accordance with the Merger Agreement (the Offer having
been the first step). See "The Merger--Reasons for the
Acquisition."
Conditions to the
Merger.............. Consummation of the Merger is subject to certain
conditions, including the approval of the Merger
Agreement by the shareholders of the Company (which
approval is assured by Northrop's vote) and there being
no statute, rule, regulation, executive order, decree,
ruling or injunction prohibiting, restraining, enjoining
or restricting the consummation of the Merger. See "The
Merger--Provisions of the Merger Agreement--Conditions."
Conversion of
Shares.............. Each Share outstanding at the Effective Time (other than
those Shares held by the Company's treasury or by any of
the Company's subsidiaries, Shares owned by Northrop or
any of its subsidiaries and those Shares owned by
shareholders who properly exercised their dissenters'
rights under New York law) will be converted into the
right to receive $62 in cash, without interest. See "The
Merger--Provisions of the Merger Agreement--Conversion of
Shares."
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
Effective Time of
the Merger........ Subject to the terms and conditions of the Merger
Agreement, the Merger is currently expected to become
effective on or shortly after the date of the Special
Meeting.
Surrender of Share
Certificates...... Promptly after the Effective Time, a Letter of Transmittal
with instructions will be mailed to all holders of record
of Shares at the close of business on the effective date of
the Merger for use in surrendering their certificates
representing Shares. See "The Merger--Provisions of the
Merger Agreement--Surrender of Share Certificates."
CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL AND SUCH INSTRUCTIONS ARE RECEIVED AND SHOULD
THEN ONLY BE SURRENDERED IN ACCORDANCE WITH SUCH
INSTRUCTIONS.
Employee Stock
Options........... Each stock option outstanding at the Effective Time under
the Company's stock plans will be exercisable for a short-
term debt instrument of the Company in a face amount (and
with an interest rate and other terms designed to provide a
fair value) equal to the amount determined by multiplying
$62 by the number of Shares covered by the option. See "The
Merger--Provisions of the Merger Agreement."
Tax Consequences
to Shareholders... The receipt of cash by a Company shareholder pursuant to
the Merger will be a taxable transaction for federal income
tax purposes and may also be taxable under applicable
state, local and foreign tax laws. See "The Merger--Certain
Tax Consequences." ALL SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS.
Termination of the
Merger............ The Merger Agreement may be terminated by the mutual
written consent of Northrop, Northrop Acquisition and the
Company or in other specific circumstances. See "The
Merger--Provisions of the Merger Agreement--Termination."
Dissenter's
Rights............ If the Merger is consummated, holders of Shares who do not
vote in favor of approval of the Merger Agreement and who
otherwise comply with the requirements of Section 623 of
the New York Business Corporation Law will be entitled to
statutory appraisal rights. See "Shareholders Dissenters'
Rights."
</TABLE>
4
<PAGE>
GRUMMAN CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following summarizes consolidated financial information of the Company
and is qualified in its entirety by the more detailed information contained in
this Proxy Statement including the financial statements and notes thereto. All
amounts are in thousands except per share data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Summary of Statement of
Income:
Revenue............... $3,249,124 $3,503,950 $3,973,851 $4,003,866 $3,523,894
Net income (loss)..... 58,807 (123,174) 99,337 85,572 67,264
Net income (loss) per
share................ 1.71 (3.73) 2.88 2.48 1.91
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Summary of Balance Sheet
Data:
Total assets.......... $2,024,449 $2,089,016 $2,242,416 $2,334,222 $2,506,512
Long-term debt and
redeemable preferred
stock................ 243,106 355,244 743,904 784,393 883,902
Shareholders' equity
per common share..... 24.55 23.66 28.61 26.45 24.80
</TABLE>
5
<PAGE>
GENERAL INFORMATION
PURPOSE OF THE SPECIAL MEETING
The Special Meeting is being held on Wednesday, May 18, 1994 at 10:00 A.M. at
the offices of Gibson, Dunn & Crutcher, 200 Park Avenue, New York, New York
10166, to consider and act upon a proposal to approve the Merger Agreement
pursuant to which Northrop Acquisition will be merged with and into the
Company, with the Company as the surviving corporation (the "Surviving
Corporation"), and the Company will become a wholly-owned subsidiary of
Northrop.
BY UNANIMOUS VOTE, THE BOARD OF DIRECTORS OF THE COMPANY HAS DETERMINED THAT
THE ACQUISITION IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS. THE COMPANY'S BOARD HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Each Share outstanding at the Effective Time (other than those Shares held by
the Company's treasury or by any of the Company's subsidiaries, Shares owned by
Northrop or any of its subsidiaries and those Shares owned by shareholders who
properly exercised their dissenters' rights under New York law) will be
converted into the right to receive $62 in cash, without interest. See "The
Merger--Provisions of the Merger Agreement--Conversion of Shares." As a result
of the Offer contemplated by the Merger Agreement, Northrop Acquisition
purchased an aggregate of 32,766,109 Shares (approximately 93% of the
outstanding Shares) at $62 per Share.
VOTE REQUIRED AND OWNERSHIP
Only shareholders of record at the close of business on April 25, 1994 (the
"Record Date"), are entitled to notice of and to vote at the Special Meeting
and any adjournment thereof. The affirmative vote, in person or by proxy, of a
least 66 2/3% of the Shares outstanding on the Record Date, or 23,378,120
Shares, is required for the approval of the Merger Agreement. On the Record
Date, there were 35,293,885 outstanding Shares, held of record by approximately
7,000 shareholders. Each Share outstanding on such date is entitled to one vote
at the Special Meeting. On the Record Date, Northrop Acquisition owned
32,766,109 Shares (approximately 93% of the Shares outstanding). Under the
Merger Agreement, Northrop is obligated, and intends, to cause Northrop
Acquisition to vote its Shares in favor of the approval of the Merger
Agreement, thereby assuring approval of the Merger Agreement by the
shareholders of the Company whether or not any Shares which are not owned by
Northrop Acquisition are voted in favor of its approval. It is the Company's
policy that all proxies, ballots and voting tabulations that identify how
shareholders voted be kept confidential, except when disclosure is expressly
requested by a shareholder or during a contested election for the Board of
Directors, or is otherwise mandated by applicable law, regulation or court
order. The tabulators and the inspectors of election are independent
professionals, and not employees of the Company. Abstentions and broker
nonvotes on returned proxies and ballots shall be counted as neither For nor
Against a matter, but the shares represented by such abstention or broker
nonvote shall be considered present at the Special Meeting for quorum purposes.
PROXIES
The enclosed proxy is being solicited by the Board of Directors of the
Company for use in connection with the Special Meeting and any adjournment
thereof. Shares represented by each proxy received by the Company in the form
solicited by the Board of Directors will be voted as specified by the
shareholder on the proxy, and will be voted FOR approval of the Merger
Agreement if no specification is made. Any proxy may be revoked at any time
prior to the voting thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. IF YOU
ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO BY
REVOKING YOUR PROXY AT ANY TIME PRIOR TO THE VOTING THEREOF.
NORTHROP INFORMATION
All information contained in this Proxy Statement with respect to Northrop
and its subsidiaries has been supplied by Northrop for inclusion herein and has
not been independently verified by the Company.
6
<PAGE>
BACKGROUND OF THE MERGER
In light of past and anticipated decreases in military spending and
consolidations in the defense/aerospace industries over the last several years
and other market factors, the Board has from time to time reviewed the
Company's strategic planning, including the possibility of making acquisitions
or entering into a business combination with a company engaged in similar or
related businesses. In late 1992, members of management of the Company had
conversations with members of management of Northrop and others regarding the
possibility of engaging in discussions related to a possible business
combination, which discussions were brought to the attention of members of the
Board. These conversations did not result in further discussions at that time.
In early 1993, members of management of the Company and Northrop discussed
again the possibility of a business combination between the companies. On
January 21, 1993, the companies entered into a confidentiality agreement
pursuant to which the companies exchanged certain confidential nonfinancial
information, but did not engage in extensive discussions.
In late December 1993, the Company retained Goldman, Sachs & Co. ("Goldman")
as its financial advisor in connection with the Company's review of its
strategic and financial alternatives.
On January 20, 1994, a regular meeting of the Board was held to discuss,
among other things, the Company's strategic objectives. At the meeting,
representatives of Goldman discussed with the Board various strategic
alternatives, including growth of the Company through acquisitions as well as
potential business combinations. Members of management discussed the status of
contacts between the Company and Northrop. Representatives of Goldman then
discussed with the Board potential acquisitions, noting that it might be
difficult for the Company to execute an acquisition strategy to achieve the
critical mass necessary to compete effectively in its businesses while still
achieving its financial objectives, and also analyzed and discussed a number of
potential merger candidates. Representatives of Goldman also presented a review
of a possible business combination between the Company and Northrop, including
summary business and financial information and historical stock trading
information about Northrop and an analysis of the relative contribution of each
company based on sales, operating profit and free cash flow. At the conclusion
of such meeting, the Board determined that it would be consistent with the
Company's stated strategic objectives and the interests of the shareholders of
the Company to continue to investigate possible acquisition opportunities as
well as discuss other possible strategic alternatives for the Company.
In late January 1994, at the request of the Board, representatives of Goldman
initiated contact with Martin Marietta Corporation ("Martin Marietta") to
determine if Martin Marietta had any interest in exploring a possible business
combination with the Company.
Between February 8 and February 15, 1994, representatives of the Company and
representatives of Martin Marietta met and held discussions in connection with
Martin Marietta's due diligence investigation of the Company. In the course of
such investigation, the Company provided Martin Marietta with certain non-
public information regarding the Company pursuant to a confidentiality
agreement. During this period, Martin Marietta informed the Company that if
there were to be a business combination between the companies, Martin Marietta
would be able to provide maximum value to the shareholders of the Company in a
cash transaction.
On February 10, 1994, Northrop's financial advisors presented representatives
of Goldman with the outline of a possible stock-for-stock transaction which
involved a cash election merger in which shareholders of each of the Company
and Northrop would have the option to convert up to 34% of the shares of each
company at an approximately 20% premium to market trading value and to exchange
the remaining shares for shares of a new holding company on the basis of
current market trading values.
On February 17, 1994, the Board held its regular meeting, at which management
reviewed discussions with Martin Marietta and Northrop. Representatives of
management discussed with the Board the respective
7
<PAGE>
capabilities of Martin Marietta and the Company as well as the potential
benefits of a combination of the Company with Martin Marietta, the effects
thereof on the constituencies of the Company and other matters related thereto.
Representatives of Goldman then presented to and discussed with the Board the
latest proposal communicated by representatives of Northrop. Representatives of
Goldman also discussed with the Board certain summary business and financial
information and historical stock trading information about Martin Marietta and
an analysis of the fit between the businesses of Martin Marietta and the
Company, a comparison of the Company with other publicly-traded
aerospace/defense companies, a review of analysts' estimates and an analysis of
a share repurchase program by the Company. Based upon, among other things, the
presentations of representatives of management and Goldman, the Board then
determined that it was not interested in pursuing a transaction with Northrop
under the terms outlined in its proposal, and representatives of Goldman were
asked to communicate that determination to Northrop.
On February 21, 1994, Martin Marietta sent the Company a letter stating that
on the basis of the information provided to date, a projection of potential
synergies and, subject to the conditions outlined therein, Martin Marietta
would be prepared to place a cash value on Shares of the Company of $55.00
each. Between February 23 and March 6, 1994, further negotiations and
discussions were held between representatives of the Company and
representatives of Martin Marietta, and as a result, the Company and Martin
Marietta entered into an Agreement and Plan of Merger on March 6, 1994 (the
"Martin Marietta Merger Agreement") which provided for the acquisition by
Martin Marietta of all of the outstanding Shares of the Company for $55.00 cash
per Share. As contemplated by the Martin Marietta Merger Agreement, on March 8,
1994, Martin Marietta commenced a $55.00 per Share tender offer for all of the
Company's outstanding Shares.
On March 9, 1994, Northrop sent a letter to the Company expressing a
continued interest in acquiring the Company and stating that the Board of
Directors of Northrop had authorized the acquisition of the Company at $60.00
per Share. On March 14, 1994, Northrop commenced the offer for all of the
Company's outstanding Shares at $60.00 per Share.
On March 28, 1994, the Company sent a letter to Northrop and Martin Marietta
setting forth rules and procedures for submitting proposals to acquire the
Company, which provided, among other things, that any proposal should be the
bidder's "best and highest offer" and should be delivered by 5:00 P.M. on March
31, 1994. Each of Northrop and Martin Marietta submitted letters to the Company
by the deadline, with Martin Marietta indicating that it had no interest in
increasing its $55.00 per Share offer and Northrop indicating that it was
prepared to increase its $60.00 per Share offer to as high as $66.00 depending
upon whether, and by what amount, Martin Marietta increased its offer.
On April 2 and 3, 1994, representatives of Northrop and the Company met to
discuss and negotiate the terms of the Merger Agreement, which thereafter was
entered into on April 3. On April 4, Northrop announced that it had increased
the price it was offering and amended its Offer to $62.00 per Share in
accordance with the terms of the Merger Agreement.
Northrop's Offer expired at 12:00 midnight on April 15, 1994 and as a result
Northrop purchased all Shares tendered pursuant thereto (32,766,109 Shares or
approximately 93.4% of the outstanding Shares).
THE MERGER
REASONS FOR THE ACQUISITION
The Merger Agreement provided for the making of the Offer and further
provides that, as soon as practicable following the expiration of the Offer and
the approval of the Merger Agreement by the Company's shareholders, a wholly-
owned subsidiary of Northrop will be merged into the Company, with the effect
that the Company will be the Surviving Corporation and will become a wholly-
owned subsidiary of Northrop. The purpose of the Merger is to complete the
acquisition in accordance with the Merger Agreement. At a
8
<PAGE>
meeting which will be held on May 18, 1994 Northrop will seek approval from its
stockholders to amend its certificate of incorporation in order to change its
name to Northrop Grumman Corporation.
On April 3, 1994, the Company's Board held a Special Meeting. At such
meeting, the Board reviewed with its senior management, legal counsel and
financial advisors the discussions and negotiations between the Company and
Northrop since the last meeting of the Board. The Board also heard
presentations by its legal counsel on the terms and conditions contained in the
Merger Agreement and by Goldman of its analysis of the proposed transaction,
including reference to previous analyses discussed with the Board.
Representatives of Goldman then delivered the oral opinion of Goldman to the
Board (subsequently confirmed by written opinion) that, as of such date, the
$62.00 in cash to be received by the holders of Shares in the Offer and the
Merger is fair to such holders. Following further discussion, the Board
unanimously adopted resolutions that the Board has, in light of and subject to
the terms and conditions set forth in the Merger Agreement, determined that the
Offer and Merger are fair to, and in the best interest of, the shareholders of
the Company and that the Offer and the Merger represent the best value
available under the circumstances to the Company's shareholders; authorizing
the execution and delivery of the Merger Agreement substantially in the form
presented to it; recommending that the shareholders of the Company accept the
Offer and tender their shares to Northrop and approve and adopt the Merger
Agreement; authorizing the termination of the Martin Marietta Merger Agreement,
including authorization of payment of the fee required thereby; and affirming
that, in view of the March 31, 1994 letters from Martin Marietta and Northrop
and the Merger Agreement and in light of all the relevant circumstances, the
Board recommended that shareholders reject the Martin Marietta tender offer.
In determining to approve the Merger Agreement and to recommend acceptance of
the Offer, the Board considered a number of factors, including, without
limitation, the following:
(i) The Board's understanding of the strategic options available to the
Company in light of past and anticipated decreases in military spending and
consolidations in the defense/aerospace industries;
(ii) The Board's review of presentations from, and discussion of the
terms and conditions of the Offer and the Merger with, senior executive
officers of the Company, representatives of its legal counsel and
representatives of Goldman;
(iii) The Board's consideration of, among other things, information with
respect to the financial condition, results of operations and business of
the Company, on both an historical and a prospective basis, and current
industry, economic and market conditions, as well as other constituencies
of the Company;
(iv) The Board's review of the historical market prices of the Shares
compared to the price of $62.00 per Share (including such price being a
premium of approximately 46% to the all time high price for the Shares
prior to the announcement of the Martin Marietta tender offer and the
Offer);
(v) The letters of Martin Marietta and Northrop dated March 31, 1994 and
the positions taken and/or statements made by each of them; and
(vi) The Board's receipt of the oral opinion of Goldman (subsequently
confirmed by a written opinion) that, as of April 3, 1994, the $62.00 per
Share in cash to be received by the holders of Shares in the Offer and the
Merger is fair to such holders.
The Board did not assign relative weights to the factors discussed above.
OPINION OF INVESTMENT BANKER
Goldman acted as the Company's financial advisor in connection with the Offer
and the Merger. Pursuant to an engagement letter dated December 23, 1993, the
Company retained Goldman for a twelve-month period to assist the Company in its
review of strategic and financial alternatives and paid Goldman a fee of
$250,000. On February 17, 1994, the Company entered into a second engagement
letter to retain
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Goldman to provide financial advice in connection with a possible strategic
combination, including assisting in negotiating the financial aspects of such
transaction. Under the terms of such engagement letter, the Company paid
Goldman an estimated transaction fee subject to final adjustment (against which
the prior $250,000 payment was credited) in the amount of $10,778,129. The
Company also agreed to reimburse Goldman for its reasonable out-of-pocket
expenses, including the fees and disbursements of its counsel, plus any sales,
use or similar taxes arising in connection with its engagement, and to
indemnify Goldman against certain liabilities relating to or arising out of its
engagement, including liability under the federal securities laws.
In arriving at its opinion, Goldman reviewed, among other things: the Merger
Agreement; the Tender Offer Statement on Schedule 14D-1, dated March 14, 1994
of Northrop Acquisition, including the Offer to Purchase; the
Solicitation/Recommendation Statement on Schedule 14D-9, dated April 4, 1994 of
the Company; Annual Reports to Shareholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1993; certain interim reports
to Shareholders and Quarterly Reports on Form 10-Q; certain other
communications from the Company to its Shareholders; and certain internal
financial analyses and forecasts for the Company prepared by its management.
Goldman also held discussions with members of the senior management of the
Company regarding the Company's past and current business operations, financial
condition and future prospects. In addition, Goldman reviewed the reported
price and trading activity for the stock, compared certain financial and stock
market information for the Company with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the aerospace and defense
industry specifically and in other industries generally and performed such
other studies and analyses as Goldman considered appropriate.
In arriving at its opinion, Goldman relied upon and assumed the accuracy and
completeness of the financial and other information reviewed by it and did not
independently verify such information. In addition, Goldman did not perform an
independent evaluation or appraisal of the assets and liabilities of the
Company or any of its subsidiaries and was not furnished with any such
evaluation or appraisal.
In connection with the review by the Company's Board of the Martin Marietta
Merger Agreement, Goldman performed a variety of financial and comparative
analyses for the purposes of its opinion given in connection therewith. The
summary set forth below does not purport to be a complete description of
Goldman's written analyses or its presentations to the Board in connection with
the Martin Marietta Merger Agreement.
Valuation Summary of Selected Publicly-Traded Companies. Goldman reviewed
certain financial, operating and stock market information of the Company and
selected publicly-traded companies engaged in the aerospace and defense
industry and of the S&P 400 Industrials Index. Although such other companies
were comparable to the Company based on certain characteristics of their
businesses, none of these companies possessed characteristics identical to
those of the Company.
Goldman examined and compared various valuation methods and calculated
various financial multiples and ratios based on certain publicly available
information. The multiples for the Company were calculated using a price of
$39.875 per share, which was the closing price on the New York Stock Exchange
(the "NYSE") on March 4, 1994, the last trading day before the Board meeting on
March 6, 1994 at which the $55.00 per Share Martin Marietta tender offer was
approved by the Board. The multiples and ratios for the latest 12 months
("LTM") for the Company and Martin Marietta were based on information provided
by them and the multiples for each of the other companies were based on
publicly available information as of September 30, 1993. The multiples were as
follows: (i) 1994 estimates for the price to earnings ratio (which ratio was
based on analysts' estimates) -- 10.9x for the Company, which compared to a
high of 22.2x (which ratio representatives of Goldman explained to the Board
was not meaningful because it was based on the applicable company's cyclically
depressed earnings) and a low of 9.1x for the other companies; (ii) LTM sales--
.38x for the Company, which compared to a high of 1.12x and a low of .43x for
the other companies; and
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(iii) stated book value -- 1.6x for the Company, which compared to a high of
2.5x and a low of 1.3x for the other companies. The ratios were: (i) LTM
earnings before interest and taxes ("EBIT") margin -- 5.9% for the Company,
which compared to a high of 14.0% and a low of 6.0% for the other companies;
and (ii) LTM return on equity -- 14.4% for the Company, which compared to a
high of 17.6% and a low of 4.0% for the other companies. Goldman also presented
a comparison of ratios of total indebtedness less cash and marketable
securities ("net debt") to capital for the Company, Martin Marietta and other
selected publicly traded companies engaged in the aerospace and defense
industry based on information provided by the Company and Martin Marietta, as
to themselves, and based on publicly available information for the other
companies as of September 30, 1993, as adjusted for one company to reflect the
pro forma effect of the financing of an announced major acquisition. The net
debt to capital percentage for the Company was -15.9%, which compared to a high
of 58.1% and a low of -6.9% for the other companies.
Comparable Transaction Analyses. Goldman reviewed and compared the prices
paid in selected merger and acquisition transactions in the aerospace and
defense industries and the price proposed to be paid pursuant to the Martin
Marietta Merger Agreement. Goldman calculated the aggregate consideration and
various financial multiples from available actual and estimated information for
each transaction. The aggregate consideration for the selected transactions
ranged from $3,050 million to $450 million. The financial multiples, in each
case (other than the book value multiple) based on the sum of the consideration
paid for the equity of the acquired company plus the amount of net debt assumed
in the transaction, were as follows, assuming for these purposes that the
Martin Marietta Merger Agreement had been announced in 1993: (i) sales for the
calendar year the transaction was announced -- .56x for the Company, which
compared to a high of .69x to a low of .26x for the acquired companies in the
other transactions; (ii) EBIT for the calendar year the transaction was
announced -- 9.6x for the Company, which compared to a high of 9.5x to a low of
2.9x for the acquired companies in the other transactions; (iii) sales for the
calendar year after the transaction was announced -- .58x for the Company,
which compared to a high of .69x to a low of .26x for the acquired companies in
the other transactions; (iv) EBIT for the calendar year after the transaction
was announced -- 8.7x for the Company, which compared to a high of 8.5x to a
low of 4.0x for the acquired companies in the other transactions; and (v) book
value at the time the transaction was announced -- 2.2x for the Company, which
compared to a high of 3.0x to a low of 0.8x for the acquired companies in the
other transactions.
Discounted Cash Flow Analysis. Goldman performed a discounted cash flow
analysis using the Company's management projections. Using a discounted cash
flow analysis, Goldman estimated the present value of the future cash flows set
forth in the Company's management projections.
Goldman calculated a net present value of free cash flows for the years 1994
through 1998 using discount rates ranging from 9% to 12%. Goldman calculated
the Company's terminal values in the year 1998 based on multiples ranging from
5x operating income to 7x operating income and also based on capitalizing the
Company's projected 1998 cash flow (consisting of earnings before interest,
taxes, depreciation and amortization, less taxes (assuming the Company had no
interest income or expense), capital expenditures and changes in working
capital) at the rates then used to discount such terminal values to present
value. These terminal values were then discounted to present value using
discount rates ranging from 9% to 12%. Various ranges of discount rates and
terminal value multiples were chosen to reflect theoretical analyses of costs
of capital. The Company's net debt and the costs of exercise of all outstanding
stock options were also factored into implied per share values.
Using the discounted cash flow methodology described above and management's
projections of future cash flows, the implied per share values ranged from
$43.86 to $57.81.
Share Repurchase Analyses. Goldman presented an analysis of the financial
impact of three hypothetical share repurchase programs by the Company, which
differed solely in the total amount of consideration paid by the Company for
the shares. The analysis was based on certain assumptions, including (i) a 4%
opportunity cost of cash and an interest rate on borrowings of 7.5% per annum,
(ii) the Company's stock trading at the same price to earnings ratio before and
after the repurchase and (iii) a purchase price of $47.85
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per share, representing a 20% repurchase premium above $39.875, the closing
price per share on the New York Stock Exchange on March 4, 1994. For each share
repurchase, Goldman assumed that all shareholders participated in the
repurchase and presented the estimated per share value to shareholders as a
combination of cash consideration from the repurchase and continuing stock
ownership in the Company, in each case as though the repurchase had been
effected on March 4, 1994. Goldman also presented the post-repurchase net debt
to capitalization ratio of the Company, assuming that the pre-repurchase net
debt to capitalization ratio of the Company was 15.9%. The analysis indicated
that at a repurchase amount of $364 million, 22.2% of the Company's outstanding
stock would have been repurchased, and the total per share value to
shareholders would have been $47.54 and the resulting net debt to
capitalization ratio would have been 34.6%. At a repurchase amount of $535
million, 32.7% of the Company's outstanding stock would have been repurchased,
and the total per share value to shareholders would have been $49.92 and the
resulting net debt to capitalization ratio would have been 58.3%. At a
repurchase amount of $750 million, 45.8% of the Company's outstanding stock
would have been repurchased, and the total per share value to shareholders
would have been $52.90 and the resulting net debt to capitalization ratio would
have been 88.1%.
At the special meeting of the Company's Board on April 3, 1994, Goldman
referred to its previous analyses made in connection with the Martin Marietta
Merger Agreement. In addition, Goldman considered various financial multiples
based upon the cash consideration of $62.00 per Share, or approximately $2.17
billion in the aggregate under the proposed acquisition of the Company by
Northrop. The multiples for 1993 and 1994, respectively, were based on
information provided by the Company. The multiples were as follows, in each
case for 1993 and 1994, respectively: (i) sales--.66x and .68x; (ii) earnings
before interest, taxes and depreciation--8.1x and 7.5x; (iii) EBIT--11.2x and
10.1x; and (iv) EPS--17.7x and 17.2x. In addition, the $62.00 per Share price
represented a 56% premium to the Company's $39.875 per share closing price on
March 4, 1994, a 46% premium to the Company's all time high closing price per
share on January 18, 1994 (prior to the announcement of the Martin Marietta and
Northrop offers) and a 99% premium to the Company's preceding 52 week low
closing price per share on March 4, 1993. The $62.00 per Share purchase price
was 2.5x the Company's book value per share at December 31, 1993.
At the April 3, 1994 meeting, Goldman rendered its oral opinion (confirmed by
its written opinion dated April 4, 1994) to the Board that, as of such date,
the price of $62.00 in cash per Share to be received by the holders of the
Shares in the Offer and the Merger is fair to such holders.
The preparation of fairness opinions is a complex process and is not
susceptible to partial analysis or summary description. Any estimates contained
in its analyses are not necessarily indicative of actual past or future results
or values, which may be significantly more or less favorable than such
estimates.
Goldman is an internationally recognized investment banking firm engaged in
the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated primary and secondary underwritings, private
placements and valuations for corporate and other purposes. The Company
selected Goldman as its financial advisor based upon Goldman's familiarity with
the Company and the industry in which the Company operates and its experience,
ability and reputation with respect to mergers and acquisitions.
A copy of the written opinion of Goldman dated April 4, 1994, confirming its
oral opinion as of April 3, 1994 and describing the assumptions made, matters
considered and the scope of the review undertaken and procedures followed by
Goldman, is filed as Exhibit B hereto and is incorporated herein by reference.
SHAREHOLDERS ARE ENCOURAGED TO READ SUCH OPINION IN ITS ENTIRETY.
PROVISIONS OF THE MERGER AGREEMENT
On April 3, 1994, the Company, Northrop and Northrop Acquisition entered into
the Merger Agreement relating to the purchase of all outstanding Shares at a
price of $62.00 per Share net to the seller in cash. Upon the terms and subject
to the conditions of the Merger Agreement, Northrop Acquisition will
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be merged with and into the Company. Following the merger, the Company, as the
Surviving Corporation, will thereby become a wholly-owned subsidiary of
Northrop.
The Merger Agreement provides that Northrop Acquisition will accept for
payment, purchase and pay for Shares tendered pursuant to the Offer, subject to
the terms and conditions set forth in the Offer. The Merger Agreement further
provides that Northrop Acquisition, upon purchase of Shares pursuant to the
Offer, shall be entitled to designate up to such number of directors, rounded
up to the next whole number, on the Board of Directors as will give Northrop
Acquisition representation on the Board equal to the product of the number of
directors on the Board (giving effect to any increase in the number of
directors pursuant to the Merger Agreement as set forth below) and the
percentage that the number of Shares purchased by Northrop Acquisition bears to
the total number of outstanding shares of Common Stock of the Company on a
fully diluted basis, and that the Company will use its best efforts, upon
request by Northrop Acquisition, promptly, at the Company's election either to
increase the size of the Board (subject to the provisions of Article EIGHTH of
the Company's certificate of incorporation) or secure the resignation of such
number of directors as is necessary to enable Northrop Acquisition's designees
to be elected to the Board. On April 19, 1994, Northrop Acquisition designated
and elected a new slate of directors to the Board. The names of these directors
appear under "Beneficial Ownership of Shares" in this Proxy Statement. The
Merger Agreement further provides that, at such times, and subject to the
agreement set forth in the next sentence, the Company will use its best efforts
to cause persons designated by Northrop Acquisition to constitute the same
percentage as is on the Board of (i) each committee of the Board (other than
any committee of the Board established to take action under the Merger
Agreement), (ii) each board of directors of each subsidiary of the Company and
(iii) each committee of each such board. The Merger Agreement further provides
that, notwithstanding the foregoing, the Company shall use its best efforts to
insure that three members of the Board as of the date of the Merger Agreement
shall remain members of the Board until the Effective Time. The Merger
Agreement further provides that the Merger shall occur as soon as practicable
after May 18, 1994 and the satisfaction or waiver of the conditions in the
Merger Agreement and that, upon such Merger, the directors of Northrop
Acquisition shall become the directors of the Surviving Corporation and that
the officers of the Company shall become the officers of the Surviving
Corporation.
With respect to outstanding stock options pursuant to the Company's 1981
Stock Option Plan, 1990 Stock Option Plan and 1992 Long-Term Incentive Plan
(collectively, the "Stock Plans"), the Merger Agreement provides that the
Company shall use all reasonable efforts to cause all holders of the options
("Options") granted under the Stock Plans which are outstanding immediately
prior to the Effective Time to exercise such Options prior to the Effective
Time. In addition, the Company has agreed in the Merger Agreement to take such
action as is necessary under the Stock Plans to cause any Options that remain
outstanding after the Merger to thereafter be exercisable for a short-term debt
instrument of Surviving Corporation in a face amount (and with an interest rate
and other terms designed to provide a fair value) equal to the amount
determined by multiplying $62 by the number of Shares for which each such
Option was theretofore exercisable. The Merger Agreement further provides that,
prior to the Effective Time, the Company shall use all reasonable efforts to
(i) obtain any consents from individuals who are entitled to awards under the
Company's Management Incentive Plan ("MIP") and (ii) make any amendments to the
terms of such Plan that are necessary to provide for future distributions
thereunder to be paid in the form of cash (and not in the form of shares of
Common Stock).
The Merger Agreement provides that Northrop, upon notice to the Company, may
modify the structure of the Merger if Northrop determines it advisable to do so
because of tax or other considerations, but no such modification may reduce the
consideration payable upon consummation of the Merger.
Conversion of Shares. At the Effective Time, each then outstanding Share,
other than Shares held in the Company's treasury or by any of the Company's
subsidiaries, Shares owned by Northrop or any of its subsidiaries or Shares
held by dissenting shareholders, will be converted into the right to receive
$62 in cash, without interest. Each Share owned by Northrop Acquisition
immediately prior to the Effective Time will be
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cancelled without payment. Each share of Common Stock of Northrop Acquisition
outstanding prior to the Effective Time will be converted into one new share of
the Company's Common Stock, par value $1.00 per Share, and the Company will
become a wholly-owned subsidiary of Northrop.
Surrender of Share Certificates. Each holder of record at the close of
business on the effective date of the Merger (other than Northrop and its
subsidiaries or any dissenting shareholder) of a certificate or certificates
which prior to the Merger represented Shares will be entitled to receive $62
per Share in cash, upon surrender to Chemical Bank (the "Depositary" or
"Chemical") of such certificates, together with a properly completed and duly
executed Letter of Transmittal and any other required documents. If payment is
to be made to a person other than the person in whose name a surrendered
certificate is registered, the certificate so surrendered must be endorsed or
otherwise in proper form for transfer and the person requesting such payment
shall pay any transfer and other taxes required by reason of such payment in a
name other than that of the registered holder or must establish to the
satisfaction of Northrop or the Depositary that such tax either has been paid
or is not payable. The Depositary will pay the cash attributable to any
certificate which has been lost or destroyed, upon receipt of satisfactory
evidence of ownership of the Shares represented thereby and after appropriate
indemnification.
The Depositary will not accept unsurrendered certificates formerly
representing Shares more than six months after the Effective Time. Following
such period Northrop, upon proper surrender to it of any unsurrendered
certificates and other required documents, will pay to the record holder
thereof $62 per Share in cash, without interest.
No interest will accrue or be paid on the cash payable upon the surrender of
such certificates. Except for dividends, the record date for which is prior to
the Effective Time, no dividends will be paid to, or accrued for the benefit
of, former holders of Shares after the Effective Time. The Company does not
intend to pay dividends on the Shares, between the date of this Proxy Statement
and the Effective Time. From and after the Effective Time, the holders of
certificates evidencing ownership of Shares shall cease to have any rights with
respect to such Shares except the right to receive $62 in cash and rights
provided by law. See "Shareholders Dissenters' Rights."
As soon as practicable after the Effective Time, there will be mailed to all
holders of record of Shares at the close of business on the effective date of
the Merger a Letter of Transmittal to be used by such holders in surrendering
to the Depositary certificates which, prior to the Merger, represented Shares.
The Letter of Transmittal will contain instructions concerning the surrender of
certificates. To prevent backup federal income tax withholding on payments made
to certain shareholders with respect to Shares in the Merger, each such
shareholder must provide the Depositary with his, her or its correct taxpayer
identification number in accordance with the instructions included in the
Letter of Transmittal. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER
OF TRANSMITTAL AND THE ACCOMPANYING INSTRUCTIONS ARE RECEIVED AND SHOULD THEN
ONLY BE SURRENDERED IN ACCORDANCE WITH SUCH INSTRUCTIONS.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties by the Company concerning: the organization and
qualification of the Company and its subsidiaries; the capitalization of the
Company and its subsidiaries; the Company's authority relative to the execution
and delivery of, and performance of its obligations under, the Merger
Agreement, and Board approval of the Merger Agreement and certain related
transactions; the accuracy of forms, reports and documents filed by the Company
with the Securities and Exchange Commission since January 1, 1990 and certain
financial statements of the Company; the accuracy of information supplied by
the Company for inclusion in the Offer and the Proxy Statement relating to the
Merger; the absence of undisclosed liabilities or changes; obtaining necessary
approvals to consummate the transactions contemplated by the Merger Agreement
and the absence of any conflict with, or violations of, the corporate documents
and binding instruments of the Company or of its subsidiaries or any conflict
with or violations of any law, rule or regulation of the consummation of the
transactions contemplated by the Merger Agreement; there not being
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any current defaults under the corporate documents and binding instruments of
the Company and of its subsidiaries or under any law, rule or regulation; the
absence of material litigation involving the Company or any of its
subsidiaries; the Company and its subsidiaries having necessary permits and
licenses and the compliance therewith, and compliance with all applicable laws;
the legal compliance of employee benefit plans of the Company and its
subsidiaries; the Company and its subsidiaries complying with environmental
laws and regulations; and the amendment of the Rights Agreement, dated as of
February 18, 1988, as amended, between the Company and The Bank of New York, as
Rights Agent (the "Rights Agreement"). In addition, the Company represents that
it has terminated the merger agreement with Martin Marietta pursuant to Section
8.1(d)(ii) thereof. The Merger Agreement also contains customary
representations and warranties of Northrop Acquisition and Northrop.
Covenants. The Merger Agreement obligates the Company, until the designees of
Northrop Acquisition constitute a majority of the Board, to conduct its
business in the ordinary course consistent with past practice including
specific covenants as to permissible activities. Northrop has agreed to
guarantee the performance by Northrop Acquisition of its obligations under the
Merger Agreement.
Other Potential Bidders. The Merger Agreement provides that the Company, its
affiliates and their respective officers, directors, employees, representatives
and agents shall immediately cease any existing discussions or negotiations
with any parties conducted prior to the Merger Agreement 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 the Company's subsidiaries or any business
combination with the Company or any of its subsidiaries, other than as
described in the letter (the "Letter") from the Company to Northrop dated the
date of the Merger Agreement. The Merger Agreement permits the Company to,
directly or indirectly, furnish information and access, in each case only in
response to unsolicited requests therefor, to another person pursuant to
confidentiality agreements and to participate in discussions and negotiations
with such person with respect to any merger, sale of assets, sale of shares of
capital stock or similar transaction involving the Company or any subsidiary or
division of the Company if such person has submitted a written proposal to the
Board relating to any such transaction and the Board by a majority vote
determines in its good faith judgment, based as to legal matters on the written
opinion of legal counsel, that failing to take such action would constitute a
breach of the Board's fiduciary duty. The Merger Agreement provides that the
Board shall provide a copy of any such written proposal to Northrop or Northrop
Acquisition immediately after receipt thereof and thereafter keep Northrop and
Northrop Acquisition promptly advised of any development with respect thereto.
Otherwise, the Merger Agreement prohibits the Company from directly or
indirectly encouraging, soliciting, participating in or initiating negotiations
or discussions with, or providing any information to, any person concerning any
merger, sale of assets, sale of shares of capital stock or similar transactions
involving the Company or any subsidiary or any division of the Company;
provided, however, that nothing in the Merger Agreement shall prevent the Board
from taking, and disclosing to the Company's shareholders, a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), with regard to any tender offer,
and provided, further, that the Board shall not recommend that the shareholders
of the Company tender their shares in connection with any such tender offer
unless the Board by majority vote determines in its good faith judgment, based
as to legal matters on the written opinion of legal counsel, that failing to
take such action would constitute a breach of the Board's fiduciary duty.
Conditions. Each party's obligations to effect the Merger are subject to: the
requisite approval of shareholders of the Company; there being no statute,
rule, regulation, executive order, decree, ruling or injunction prohibiting,
restraining, enjoining or restricting the consummation of the Merger; the
expiration of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act; and the purchase of Shares pursuant to the Offer.
Termination. The Merger Agreement provides that it may be terminated and the
Offer and the Merger may be abandoned at any time, but prior to the Effective
Time only in the following circumstances: (i) by the
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mutual written consent of Northrop, Northrop Acquisition and the Company; (ii)
by Northrop and Northrop Acquisition or the Company if any court of competent
jurisdiction in the United States or other United States governmental body
shall have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become nonappealable;
(iii) by Northrop and Northrop Acquisition if, due to an occurrence or
circumstance which would result in a failure to satisfy any of the conditions
set forth in the Offer, Northrop Acquisition shall have (1) failed to commence
the Offer within five days following the date of the initial public
announcement of the Offer, (2) terminated the Offer or (3) failed to pay for
Shares pursuant to the Offer within 60 days following commencement of the
Offer; (iv) by the Company if (1) there shall not have been a material breach
of any representation, warranty or covenant or agreement on the part of the
Company, and Northrop Acquisition shall have (A) failed to commence the offer
within five days following the date of the initial public announcement of the
Offer, (B) terminated the Offer or (C) failed to pay for Shares pursuant to the
Offer within 60 days following the commencement of the Offer or (2) prior to
the purchase of Shares pursuant to the Offer, a person shall have made a bona
fide offer that the Board by a majority vote determines in its good faith
judgment and in the exercise of its fiduciary duties, based as to legal matters
on the written opinion of legal counsel, is more favorable to the Company's
shareholders than the Offer and the Merger (any such termination effected
pursuant to clause (iv)(2) being referred to as an "Other Offer Event"),
provided that in the case of this clause (2) the Company shall have paid the
Termination Fee (as defined below); (v) by Northrop and Northrop Acquisition
prior to the purchase of Shares pursuant to the Offer, if (1) there shall have
been a breach of any representation or warranty on the part of the Company
having a Material Adverse Effect on the Company (as defined below) or
materially adversely affecting (or materially delaying) the consummation of the
Offer, (2) there shall have been a breach of any covenant or agreement on the
part of the Company resulting in a Material Adverse Effect on the Company or
materially adversely affecting (or materially delaying) the consummation of the
Offer, which shall not have been cured prior to the earlier of (A) ten days
following notice of such breach and (B) two business days prior to the date on
which the Offer expires (any such termination effected pursuant to clause
(v)(1) or (v)(2) being referred to as a "Company Breach Event"), (3) the
Company shall engage in negotiations with any entity or group (other than
Northrop or Northrop Acquisition) that has proposed a Third Party Acquisition
(as defined below), (4) the Board shall have withdrawn or modified (including
by amendment to the Company's Solicitation/Recommendation Statement filed on
Schedule 14D-9 with respect to the Offer) in a manner adverse to Northrop
Acquisition its approval or recommendation of the Offer, the Merger Agreement
or the Merger or shall have recommended another offer or shall have adopted any
resolution to effect any of the foregoing, or (5) a number of shares
representing not less than two-thirds of the Shares then outstanding on a
fully-diluted basis shall not have been validly tendered or tendered and
withdrawn prior to the expiration date of the Offer and on or prior to such
date an entity or group (other than Northrop or Northrop Acquisition) shall
have made and not withdrawn a proposal with respect to a Third Party
Acquisition; or (vi) by the Company if (1) there shall have been a material
breach of any representation or warranty on the part of Northrop or Northrop
Acquisition which materially adversely affects (or materially delays) the
consummation of the Offer or (2) there shall have been a material breach of any
covenant or agreement on the part of Northrop or Northrop Acquisition and which
materially adversely affects (or materially delays) the consummation of the
Offer which shall not have been cured prior to the earlier of (A) ten days
following notice of such breach and (B) two business days prior to the date on
which the Offer expires.
"Material Adverse Effect," when used in connection with the Company or any of
its subsidiaries, is defined in the Merger Agreement as any change or effect
(other than changes or effects disclosed in the Letter) that is or is
reasonably likely to be materially adverse to the business, results of
operations or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole, other than any change or effect arising out of
general economic conditions unrelated to any businesses in which the Company is
engaged.
Fees and Expenses. The Merger Agreement provides that in the event Northrop
and Northrop Acquisition terminate the Merger Agreement pursuant to a Company
Breach Event, Northrop and Northrop Acquisition would suffer direct and
substantial damages, which damages cannot be determined with
16
<PAGE>
reasonable certainty. To compensate Northrop and Northrop Acquisition for such
damages, the Company has agreed under the Merger Agreement to pay to Northrop
the amount of $20 million as liquidated damages immediately upon such
termination.
The Merger Agreement also provides that if (i) Northrop and Northrop
Acquisition terminate the Merger Agreement pursuant to clause (v)(2), (3), (4)
or (5) of the first paragraph under "Termination" above and, within 12 months
thereafter, the Company enters into an agreement with respect to a Third Party
Acquisition, or a Third Party Acquisition occurs involving any party (or any
affiliate thereof) (x) with whom the Company (or its agents) had negotiations
with a view to a Third Party Acquisition, (y) to whom the Company (or its
agents) furnished information with a view to a Third Party Acquisition or (z)
who had submitted a proposal or expressed an interest in a Third Party
Acquisition, in the case of each of clauses (x), (y) and (z) after the date of
the Merger Agreement and prior to such termination, (ii) Northrop and Northrop
Acquisition terminate the Merger Agreement pursuant to clause (v)(3), (4) or
(5) of the first paragraph of Termination above, and within 12 months
thereafter a Third Party Acquisition shall occur involving a consideration for
Shares (including the value of any stub equity) in excess of the amount per
Share paid pursuant to the Offer, or (iii) the Company terminates the Merger
Agreement pursuant to an Other Offer Event, the Company shall pay to Northrop
and Northrop Acquisition, within one business day following the execution and
delivery of such agreement or such occurrence, as the case may be, or
simultaneously with such termination by the Company, a fee, in cash, of
$50,000,000 (the "Termination Fee"), provided, however, that the Company in no
event shall be obligated to pay more than one such $50,000,000 fee with respect
to all such agreements and occurrences and such termination. In case liquidated
damages shall have been paid pursuant to the first paragraph of this section,
in connection with such a termination, the amount so paid, minus an amount
equal to the fees and expenses that would have been collectible by Northrop and
Northrop Acquisition pursuant to the second next succeeding paragraph but for
the operation of clause (ii) of the parenthetical of the first sentence thereof
shall be credited against the amount pursuant to this paragraph.
"Third Party Acquisition" is defined in the Merger Agreement as the
occurrence of any of the following events: (i) the acquisition of the Company
by merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) or entity other than Northrop,
Northrop Acquisition or any affiliate thereof (a "Third Party"); (ii) the
acquisition by a Third Party of more than 30% of the total assets of the
Company and its subsidiaries, taken as a whole; (iii) the acquisition by a
Third Party of 30% or more of the outstanding shares of Common Stock; (iv) the
adoption by the Company of a plan of liquidation or the declaration or payment
of an extraordinary dividend; or (v) the repurchase by the Company or any of
its subsidiaries of more than 20% of the outstanding shares of Common Stock,
other than a repurchase which was not approved by the Company or publicly
announced prior to the termination of the Merger Agreement and which is not
part of a series of transactions resulting in a change of control.
The Merger Agreement provides that upon the termination of the Merger
Agreement for any reason prior to the purchase of Shares by Northrop
Acquisition pursuant to the Offer (other than (i) termination by the Company
due to a breach of a representation, warranty, covenant or agreement on the
part of Northrop or Northrop Acquisition and (ii) termination in circumstances
requiring the Company to pay liquidated damages pursuant to a Company Breach
Event), the Company shall reimburse Northrop, Northrop Acquisition and their
affiliates (not later than one business day after submission of statements
therefor) for all actual, documented out-of-pocket fees and expenses, not to
exceed $8,800,000, actually and reasonably incurred by any of them or on their
behalf in connection with the Offer and the Merger and the consummation of all
transactions contemplated by the Merger Agreement (including, without
limitation, fees payable to financing sources, investment bankers, counsel to
any of the foregoing, and accountants). Northrop and Northrop Acquisition have
provided the Company with an estimate of the amount of such fees and expenses
and, if Northrop or Northrop Acquisition shall have submitted a request for
reimbursement under the Merger Agreement, will provide the Company in due
course with invoices or other reasonable evidence of such expenses upon
request. The Company shall in any event pay the amount requested (not to exceed
$8,800,000) within one business day of such request, subject to the Company's
right to demand a return of any portion as to which invoices are not received
in due course.
17
<PAGE>
Indemnification; Insurance. Under the Merger Agreement, Northrop and Northrop
Acquisition have agreed that all rights to indemnification or exculpation
existing in favor of the directors, officers, employees and agents of the
Company and its subsidiaries as provided in their respective charters or by-
laws or otherwise in effect as of the date of the Merger Agreement with respect
to matters occurring prior to the Effective Time shall survive the Merger and
continue in full force and effect. The Merger Agreement also provides that to
the maximum extent permitted by the New York Business Corporation Law (the
"NYBCL") such indemnification shall be mandatory rather than permissive and
Surviving Corporation shall advance expenses in connection with such
indemnification. The Merger Agreement further provides that Northrop guarantees
the indemnification obligations of Surviving Corporation.
Pursuant the Merger Agreement, Northrop has agreed to cause the Surviving
Corporation to maintain in effect for not less than three years from the
Effective Time the policies of the directors' and officers' liability and
fiduciary insurance most recently maintained by the Company (provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage containing terms and conditions which are not less advantageous to the
beneficiaries thereof so long as such substitution does not result in gaps or
lapses in coverage) with respect to matters occurring prior to the Effective
Time to the extent available, provided that in no event shall the Surviving
Corporation be required to expend more than an amount per year equal to 200% of
the current annual premiums paid by the Company (the "Premium Amount") to
maintain or procure insurance coverage pursuant hereto and further provided
that if the Surviving Corporation is unable to obtain the insurance called for
by this provision, the Surviving Corporation will obtain as much comparable
insurance as is available for the Premium Amount per year.
Redemption of Rights. The Merger Agreement provides that, at Northrop's
request, the Company will take such action as Northrop may request to
effectuate the redemption, at any time after the purchase of Shares pursuant to
the Offer of at least a majority of the outstanding Shares, of the preferred
stock purchase rights that are associated with the Shares (the "Rights").
Amendment. The Merger Agreement provides that, subject to the next paragraph,
the Merger Agreement may be amended by action taken by the Company, Northrop
and Northrop Acquisition at any time before or after approval of the Merger by
the shareholders of the Company (if required by applicable law) but, after any
such approval, no amendment shall be made which requires the approval of such
shareholders under applicable law without such approval. The Merger Agreement
further provides that the Merger Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
The Merger Agreement further provides that, following the election or
appointment of Northrop Acquisition's designees to the Company's Board of
Directors pursuant to the Merger Agreement and prior to the Effective Time, if
there shall be any directors of the Company who were directors as of the date
of the Merger Agreement, any amendment of the Merger Agreement, any termination
of the Merger Agreement by the Company, any extension by the Company of the
time for the performance of any of the obligations or other acts of Northrop
Acquisition or Northrop or waiver of any of the Company's rights under the
Merger Agreement will require the concurrence of a majority of such directors.
Extension; Waiver. The Merger Agreement provides that, subject to the second
paragraph under Amendment above, at any time prior to the Effective Time, each
party to the Merger Agreement may (i) extend the time for the performance of
any of the obligations or other acts of the other party, (ii) waive any
inaccuracies in the representations and warranties of the other party contained
in the Merger Agreement or in any document, certificate or writing delivered
pursuant to the Merger Agreement or (iii) waive compliance by the other party
with any of the agreements or conditions contained in the Merger Agreement. Any
agreement on the part of either party thereto to any such extensions or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party. The failure of either party thereto to assert any of its rights
thereunder shall not constitute a waiver of such rights.
18
<PAGE>
SHAREHOLDERS DISSENTERS' RIGHTS
Shareholders of the Company who do not vote in favor of the Merger may have
the right to seek to obtain payment in cash of the fair value of their Shares
by complying with the requirements of Section 623 of the NYBCL ("Section 623").
The dissenting shareholder must file with the Company before the taking of the
vote on the Merger a written objection including a statement of intention to
demand payment for Shares. To effectively exercise appraisal rights, such
shareholder may not vote any of his, her or its shares in favor of the Merger.
Within 10 days after the vote of shareholders authorizing the Merger, the
Company must give written notice of such authorization to each such dissenting
shareholder. Within 20 days after the giving of such notice, any shareholder
who elects to dissent from the Merger must file with the Company a written
notice of such election, stating such shareholders' name and residence address,
the number of Shares of stock as to which dissent is made and a demand for
payment of the fair value of the Shares. Such shareholder may not dissent as to
less than all Shares owned. At the time of filing the notice of election to
dissent or within one month thereafter, the shareholder must submit
certificates representing Shares to the Company or its transfer agent for
notation thereon of the election to dissent, after which such certificates will
be returned to the shareholder. Failure to submit the certificates may result
in the loss of dissenter's rights. Within 15 days after the expiration of the
period within which shareholders may file their notices of election to dissent,
or within 15 days after consummation of the Merger, whichever is later (but not
later than 90 days after the shareholders' vote authorizing the Merger), the
Company must make a written offer (which, if the Merger has not been
consummated, may be conditioned upon such consummation) to each such
shareholder who has filed such notice of election to pay for the Shares at a
specified price which the Company considers to be their fair value. If the
Company and the dissenting shareholder are unable to agree as to such value,
Section 623 provides for judicial determination of value. A negative vote on
the Merger does not constitute a written objection required to be filed by an
objecting shareholder. Failure by a shareholder to vote against the Merger,
however, will not constitute a waiver of rights under Section 623 provided that
a written objection has been properly filed and such shareholder has not voted
any of his, her or its shares in favor of the Merger.
The foregoing does not purport to be a complete statement of the provisions
of Section 623 and is qualified in its entirety by reference to such section,
which is reproduced in full as Exhibit C to this Proxy Statement.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds that will be required to pay shareholders in the
Acquisition is approximately $2.17 billion. The total amount of funds required
by Northrop Acquisition to purchase all of the outstanding Shares and to pay
related fees and expenses in the Offer and the Merger will be approximately
$2.3 billion. Northrop obtained the funds from available cash and bank loans
provided by a syndicate of financial institutions (the "Banks") for which Chase
Manhattan Bank, N.A. ("Chase") and Chemical are co-agents (the "Co-Agents") and
Chase is administrative agent (the "Administrative Agent"). The $2.8 billion
bank credit facilities provided by the Banks (collectively, the "Credit
Facilities") were, and will be, used to finance the Offer and the Merger, to
pay related fees and expenses, to refinance existing bank debt of Northrop and,
following the Merger, the Company, and to provide working capital for Northrop
and the Company.
Northrop has agreed to pay a commitment fee of 0.25% of each Bank's unfunded
term loan commitment, and a revolving credit facility fee to each Bank based on
the total amount of its commitment to make revolving loans, based on a grid
tied to Northrop's ratio of consolidated total debt to the sum of consolidated
stockholders' equity plus total debt (the "Leverage Ratio"). Assuming that,
after consummation of the Offer and the Merger, Northrop's Leverage Ratio is
greater than 65%, the initial facility fee would be 0.25% per annum. Northrop
also has agreed to pay syndication fees to the Co-Agents and certain of the
expenses of the Banks and the Administrative Agent incurred in connection with
the Credit Facilities.
Set forth below is a summary description of the Credit Facilities. The
summary description does not purport to be complete.
19
<PAGE>
The Credit Facilities consist of two facilities, a five-year $600 million
revolving credit facility and a five-year term loan up to $2.2 billion. The
term loan will amortize prior to maturity in equal quarterly installments of
$110 million, with a final payment of $220 million on the maturity date.
Prepayments are available and may be required in some circumstances. There will
be no scheduled prepayments or reductions of availability of revolving loans
prior to maturity.
The Credit Facilities are guaranteed by Northrop Acquisition and secured by a
pledge by Northrop of the capital stock of Northrop Acquisition.
Loans under the Credit Facilities bear interest, at the option of Northrop,
at either (i) a base rate equal to the higher of the rate announced from time
to time by Chase as its prime commercial lending rate or the daily federal
funds rate plus 0.50% or (ii) the London interbank offered rate ("LIBOR") (as
adjusted for certain reserve requirements) for one-, two-, three-, six- and
(subject to the lenders' consent) twelve-month periods plus an interest margin
based on Northrop's Leverage Ratio. Assuming that, after the Offer and the
Merger, Northrop's Leverage Ratio is greater than 65%, the initial margin for
LIBOR term loans will be 0.75% per annum and the initial margin for LIBOR
revolving credit loans will be 0.50% per annum. In addition, Northrop may
request competitive bids from the Banks for short-term borrowings under the
revolving facility.
The documentation governing the Credit Facilities includes conditions
precedent to the Banks' funding obligations, representations and warranties,
funding and yield protection provisions, covenants, events of default and other
provisions customary in financing transactions of this type. The covenants,
among other things, limit Northrop's and its subsidiaries' ability to encumber
or dispose of its assets or incur debt and contingent obligations or engage in
further mergers and acquisitions, and impose a maximum Leverage Ratio, a
minimum interest coverage ratio and a minimum stockholders' equity requirement.
The covenants also include a limitation on the ability of Northrop to pay
dividends on its capital stock or redeem or retire its stock.
The Bank's unfunded term loan commitments will terminate 120 days after
Northrop's purchase of shares in the Offer if the Merger is not consummated on
or before that date.
CERTAIN TAX CONSEQUENCES
The receipt of cash for Shares pursuant to the Merger will be a taxable
transaction for federal income tax purposes (and may also be a taxable
transaction under applicable state, local, foreign and other tax laws).
Accordingly, a holder will recognize gain or loss for federal income tax
purposes equal to the difference between the amount of cash received and such
holder's tax basis for the Shares. Such gain or loss will be capital gain or
loss if the Shares were held as a capital asset.
New York State imposes a 10% tax upon gains realized by a transferor upon the
transfer of an interest in real property (including leases) located within New
York State, including certain transfers of stock in corporations that own
appreciated interests in such real property (the "Gains Tax"), and an
additional tax on the gross value of such real property or the portion of the
value of the stock in such corporations attributable to such real property
equal to approximately 0.4% (the "State Transfer Tax"). The acquisition by
Northrop Acquisition of the Shares pursuant to the Merger will constitute a
taxable transfer of an interest in any real property owned or leased by the
Company and located in New York State and may result in a Gains Tax, State
Transfer Tax, or any combination of the foregoing being imposed upon the
selling shareholders. Northrop will file all necessary returns on behalf of the
Company's shareholders in connection with such Gains Tax and/or State Transfer
Tax and will pay any taxes due thereon. The amount of such taxes paid by
Northrop may result in the deemed receipt of additional consideration by each
shareholder in proportion to the number of Shares sold by such shareholder.
However, Northrop believes that in such a case, under Section 164(a) of the
Internal Revenue Code of 1986, as amended, a shareholder would reduce the
amount realized on the sale by the amount of the tax treated as additional
consideration to such shareholder.
20
<PAGE>
DEREGISTRATION AND DELISTING OF SHARES
Following consummation of the Offer on April 15, 1994, trading in the Shares
was suspended by the New York Stock Exchange. Following the Merger, the Shares
will cease to be registered under the Exchange Act.
MARKET PRICES OF THE COMPANY'S SHARES AND DIVIDENDS
The Shares are traded on the New York Stock Exchange. The following table
sets forth, for the periods indicated, the high and low sales prices of the
Shares and the cash dividends declared or paid per Share with respect to the
years ended December 31, 1992 and 1993, and the first quarter ended March 31,
1994.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
------- ------- --------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992:
First Quarter........................................ $20 1/4 $17 3/8 $.25
Second Quarter....................................... $22 7/8 $17 3/8 $.25
Third Quarter........................................ $23 3/8 $20 3/4 $.25
Fourth Quarter....................................... $25 $19 5/8 $.25
YEAR ENDED DECEMBER 31, 1993:
First Quarter........................................ $35 7/8 $24 1/8 $.25
Second Quarter....................................... $41 3/4 $34 $.30
Third Quarter........................................ $41 7/8 $33 $.30
Fourth Quarter....................................... $41 3/8 $34 1/2 $.30
YEAR ENDED DECEMBER 31, 1994:
First Quarter........................................ $66 3/8 $36 $.30
</TABLE>
On March 4, 1994, the last full trading day prior to the announcement of the
execution of the Martin Marietta Merger Agreement, the last sales price of the
Shares on the NYSE Composite Tape was $39 7/8 per Share. On March 9, 1994, the
last full trading day prior to the date of the announcement of Northrop
Acquisition's intention to commence the Offer, the last sales price of the
Shares on the NYSE Composite Tape was $55.00 per Share. On March 11, 1994, the
last full trading day prior to the commencement of the Offer, such last sales
price was $64 3/4 per Share. On March 31, 1994, the last full trading day prior
to the announcement of the execution of the Merger Agreement, the last sales
price of the Shares on the NYSE Composite Tape was $64 5/8 per Share. The last
sales price of the Shares on the NYSE Composite Tape on April 15, 1994 was $62
per Share.
21
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
The following summarizes financial information of the Company and is derived
from the Company's historical financial statements. This information should be
read in conjunction with the financial statements of the Company and the
related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
($ IN THOUSANDS EXCEPT PER SHARE DATA, NUMBER OF EMPLOYEES
AND COMMON SHARES OUTSTANDING)
<S> <C> <C> <C> <C> <C>
Operations:
Sales.................. $ 3,249,124 $ 3,503,950 $ 3,973,851 $ 4,003,866 $ 3,523,894
Costs and expenses:
Cost of sales......... 2,929,987 3,189,035 3,667,395(2) 3,672,859 3,212,368
Restructuring charge.. 85,000 -- -- -- --
Selling,
administrative and
other................ 115,928 113,289 124,049 111,424 115,297
Interest.............. 31,702 55,065 85,236 98,791 105,327
Provision for federal
income taxes.......... 21,000 26,700(3) 2,000(3) 40,000 27,000
Income from continuing
operations............ 65,507 119,861 95,171 80,792 63,902
Net income (loss)...... 58,807 (123,174) 99,337 85,572 67,264
Primary earnings per
share:
Continuing operations. $1.90(1) $3.49 $2.75 $2.34 $1.81
Net income (loss)..... 1.71(1) (3.73) 2.88 2.48 1.91
Fully diluted earnings
per share:
Continuing operations. 1.86 3.42 2.72 2.32 1.81
Net income (loss)..... 1.67 (3.49) 2.84 2.46 1.91
Cash dividends per
common share.......... 1.15 1.00 1.00 1.00 1.00
Financial position at
December 31:
Working capital........ $ 904,936 $ 876,007 $ 1,171,601 $ 1,110,568 $ 1,038,141
Total assets........... 2,024,449 2,089,016 2,242,416 2,334,222 2,506,512
Net property, plant and
equipment............. 372,723 399,421 433,877 478,144 539,207
Long-term debt and
redeemable preferred
stock................. 243,106 355,244 743,904 784,393 883,902
Shareholders' equity
per common share...... 24.55 23.66 28.61 26.45 24.80
Other data:
Number of employees.... 17,900 21,200 23,600 26,100 28,900
Common shares
outstanding........... 34,049,475 33,518,907 33,265,391 32,797,776 32,966,991
</TABLE>
- --------
(1) After a restructuring charge of $55 million or $1.60 per share, net of
federal income tax.
(2) Includes a charge of $46.5 million arising from the settlement of claims
against Tracor Aviation Inc.
(3) Tax reserves of $23.5 and $30.7 million no longer required were released
and included in net income in 1992 and 1991, respectively.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion supplements the detailed information presented in the
consolidated financial statements and notes to consolidated financial
statements which begin on Page F-1.
FINANCIAL CONDITION
The Company's financial condition continued to improve significantly. In 1993
total debt was reduced 43 percent from $439 million to $250 million. In
February 1993, the Company fully redeemed its $75 million of outstanding 9 1/2
percent notes which were due in February 1996, and, in April, the Company
called its $50 million issue of convertible subordinated debentures, which
increased the Company's shareholders' equity by $48.4 million. The Company also
called in April $55.6 million of 10 1/2 percent sinking fund debentures which
were due in February 2011. These repayments and conversions are in addition to
the repayment of $283.4 million of debt in 1992 and net repayments of $60
million in 1991.
During 1993, the Company initiated a common stock repurchase program to buy
back a total of $100 million of the Company's stock. Through December 31, 1993,
the Company repurchased 1,360,500 shares at a cost of $49.9 million. Dividends
paid to shareholders were increased in the second quarter of 1993 from 25 cents
per share to 30 cents per share, resulting in total dividend payments of $38.7
million in 1993 as compared with $33.5 million in 1992 and $33.2 million in
1991. Exercises of stock options by employees and other common stock
transactions in 1993 provided the Company with an additional $20.8 million of
cash.
At December 31, 1993, the ratio of debt to capital (debt plus shareholders'
equity) was 23 percent as compared with 36 percent at December 31, 1992. The
Company also renegotiated the terms of its bank credit agreements on a more
flexible basis and reduced the amount available from $402 million to $300
million. These new agreements provide for lower variable interest rates should
the Company find it necessary to borrow funds and also lowered the cost of
maintaining the facilities. The Company has not had to use these facilities
since May 1992 and there are no plans to borrow against them in the near
future.
During 1993, capital expenditures totalled $44.6 million. This compares with
$39 million in 1992 and $54.8 million in 1991. The Company expects that 1994
capital expenditures will approximate these historical levels with increases
expected in 1995 as the Company is intending to expand and upgrade selected
facilities in connection with the restructuring program discussed further in
the operations report. In 1993, the Company also used approximately $25 million
of cash to invest in a partnership that invests in marketable securities.
Cash flows provided by operating activities were $322.3 million in 1993 as
compared with $514.8 million in 1992 and $280.3 million in 1991. In each of
these years, cash flow benefited from aggressive management of inventories and
higher progress payment rates and advances from customers. The decline in
scheduled aircraft deliveries resulted in a lower investment in inventories.
During 1993 and particularly in 1992, cash flow from operating activities
improved from the substantial reductions in receivables that occurred as a
result of the decline in the level of the Company's sales and management taking
aggressive steps to improve cash flow. Primarily as a result of the way taxes
are paid on profits earned on contracts, the Company had substantially higher
tax payments in 1993 than in 1992. Cash flow from operating activities during
1993 was also affected by the Company having invested in current marketable
securities which at December 31, 1993, were $18 million as compared to none at
December 31, 1992, when all excess funds were invested in cash equivalents.
As a result of the above operating, investing and financing transactions,
cash and cash equivalents together with investments in current marketable
securities increased $65 million or 22 percent to $364 million at December 31,
1993.
23
<PAGE>
FUTURE OPERATIONS
As reported previously, the fiscal year 1992 defense budget did not contain
funds for new or remanufactured F-14s. The last new F-14 was delivered in mid-
1992 while the last remanufactured F-14 was delivered in 1993. F-14 program
sales were about 7 percent and 20 percent of the Company's total sales in 1993
and 1992, respectively. Total program backlog at year-end was $360 million,
including the recently awarded $57 million F-14 upgrade program.
The fiscal year 1994 budget contained long-lead funding for production E-2
aircraft. Taiwan will accept delivery of four E-2s in 1994 under a $542 million
contract signed in 1993. Japan, Egypt, Singapore and Israel currently have E-2s
in their fleets and there are several other potential foreign customers.
The Joint STARS program continues to receive substantial funding. In May
1993, full authorization for two production aircraft was received. Interest in
this airborne long range ground surveillance and battle management system
remains high domestically as well as overseas. The Company has put in place the
necessary facilities to deliver anticipated production aircraft on a timely and
cost effective basis.
It is our belief that as military budgets continue to shrink, substantial
refurbishment of weapon systems already in inventory will be required. The
Company is capable of performing this work. Although it is possible this may
occur, and the Company would be an effective contractor, we have no assurance
that the Department of Defense will follow this course of action, and if it
does, whether it will choose the Company to perform this type of service.
The Company was teamed with Boeing and Lockheed in competing for the A-X
aircraft program, which was to be the Navy's replacement for the Company's A-6
Intruder. The Company, as prime, had been awarded one of five $30 million
concept exploration contracts. The Navy cancelled the A-X program during 1993
and the Company subsequently announced that it could no longer support and
maintain its high performance airframe design capability to the extent it has
in the past.
The Company is teamed with the aerospace company Agusta of Milan, Italy, in
competition to build the new Joint Primary Aircraft Trainer System (JPATS).
This contract may be awarded in early 1995 and could total several billion
dollars in sales for more than 700 aircraft, ground-based training systems and
support. The competition for this program is very intense, and it is impossible
to predict the ultimate winner of these contracts.
In September 1991, the Company and TRW Inc. teamed to compete for the U.S.
Air Force's Follow-on Early Warning System (FEWS) with the Company to be the
principal subcontractor. Due to lack of funding, the Air Force issued a stop
work order on the program in November 1993 during the demonstration and
validation phase. It is possible the Air Force will reopen this or a related
program at some point but no decision has yet been made.
The effects of inflation on selected financial data have been excluded from
this report. Most of the Company's products and services are acquired under
binding long-term contracts with its customers, principally the U.S.
government. These contracts are priced on the basis of estimated costs to
complete the contract that include projected inflation factors. Additionally,
some of these contracts include cost escalation clauses that reduce the risk of
inflation inherent in the performance of these tasks over prolonged periods of
time. For these reasons, the impact of inflation on the Company is minimized to
a large extent.
RESULTS OF OPERATIONS
1993 Compared with 1992
Net income from continuing operations in 1993, before a restructuring charge,
totalled $120.5 million or $3.50 per share. A restructuring charge of $55.0
million, net of federal income tax, or $1.60 per share,
24
<PAGE>
reduced 1993 net income from continuing operations to $65.5 million or $1.90
per share. A loss from discontinued operations of $6.7 million or $.19 per
share resulting from the settlement of litigation in the first quarter of 1993
involving Sunstream solar panels, a business that was discontinued in 1985,
brought net income for 1993 to $58.8 million or $1.71 per share.
Consolidated sales in 1993 totalled $3.249 billion, down $255 million or 7
percent from the 1992 total. The principle reason for the sales decline was
lower sales on the F-14 program which was approximately $500 million lower
than in 1992.
Income from continuing operations in 1992 totalled $119.9 million or $3.49
per share which after recording a loss from discontinued operations of $45
million and the cumulative cost effect of adopting Financial Accounting
Standard 106 covering postretirement health benefits of $198 million resulted
in a net loss for 1992 of $123.2 million or $3.73 per share.
In light of the current diminishing defense business environment and the
almost certain continued decline in future defense program outlays, the
Company has completed studies reviewing the actions required to ensure that it
will remain a viable and vigorous competitor in this business. These studies
included a review of underutilized facilities and laboratories, staffing of
specialized technical disciplines, and all associated costs identified with
those which are excess to foreseeable needs. As a result, a restructuring
charge of $85 million was recorded in the fourth quarter of 1993.
In November 1993, the Company reached a settlement with the United States
Attorney relating to the government's investigation of activities involving
the Company and entities affiliated with one James Kane. After fully
cooperating with the government through this lengthy investigation, the
Company paid $17 million as restitution for certain claims related to
contracts entered into with Kane entities and $3 million to cover legal costs
incurred by the government. Since the Company had previously established
financial reserves for this settlement payment to the government, 1993
earnings were not adversely affected.
Interest expense in 1993 was $23.4 million lower than in 1992 as a result of
the previously discussed debt reductions. Total debt was down $189 million to
a level of $250 million at year end. Cash and cash equivalents were $47
million higher at December 31, 1993, than in 1992.
The Company's effective tax rate on income from continuing operations
increased from 18.2 percent in 1992 when tax reserves of $23.5 million were
released to 24.3 percent in 1993 which reflects a $9.4 million decrease in the
valuation allowance for deferred tax assets. More detailed information
regarding the Company's tax liability and expense is included in Note 6 of the
Notes to Financial Statements.
Other pertinent comments by the Company's principal business segments
follow:
Aerospace segment sales in 1993 decreased $375 million or 16 percent to
$1,965 billion. Operating income, exclusive of a restructuring charge of $73
million, decreased $5.9 million or 4.4 percent. The sales and operating income
declines were attributable primarily to the F-14 program where the last ten
production aircraft were delivered in 1992 and none in 1993. The F-14 program
declines were partially offset by higher sales and income on the E-2C programs
where ten aircraft were delivered in 1993 vs. eight in 1992. The profits of
the segment were adversely affected by charges of $4.5 million and $8.5
million in 1993 and 1992, respectively, attributable to the problems with wing
control surfaces on the Air Force/McDonnell Douglas C-17 aircraft program.
25
<PAGE>
Aircraft deliveries for the past three years were:
<TABLE>
<CAPTION>
AIRCRAFT PROGRAM 1993 1992 1991
<S> <C> <C> <C>
F-14D -- 10 14
F-14D/R
(Remanufactured) 5 6 2
E-2C 10 8 6
EA-6B -- -- 6
A-6E -- 1 9
</TABLE>
In 1994 the following deliveries are scheduled: ten F-14 remanufacture
upgrade kits, two E-2C's and four E-2T's.
Electronics systems sales in 1993 increased $25 million or 4 percent to $636
million while operating income exclusive of a restructuring charge of $9
million decreased $2.1 million to $11.7 million. The sales increase was due to
higher revenues from the U.S. Air Force/Army Joint STARS radar aircraft program
and simulation/trainer systems programs. Operating income was adversely
affected by a $5.7 million adjustment required to bring the Joint STARS program
cost of sales in line with current estimates of completion.
Sales in the information and other services segment increased $64 million or
11 percent to $657 million, and operating profits exclusive of a restructuring
charge of $3 million increased $2.9 million or 10 percent to $31 million. The
sales increase is due to higher sales in the engineering services unit while
the income change over 1992 was due to the increased sales and better profit
margins on data systems sales.
In the special purposes vehicles segment, 1993 sales increased $24 million or
7 percent, while operating income decreased $1.3 million or 5 percent to $26.4
million. The sales change was attributable to increased deliveries of aluminum
trucks. The decrease in operating income was due to increased research and
development costs and startup costs associated with the Pallet Reefer program.
Although the performance on the U. S. Postal Service delivery van (LLV) program
remains strong, the Postal Service notified the Company in September 1993 that
it would not exercise contract options that could have extended production into
1996. As a result, the last of the 142,655 LLV units will be delivered in
December 1994. LLVprogram sales accounted for approximately 8 percent of the
Company's total revenues in 1993.
The Company's total backlog at December 31, 1993, was $6.0 billion, a
decrease of $1.5 billion from the year-end 1992 total.
1992 Compared with 1991
Consolidated sales in 1992 totalled $3.504 billion, down $470 million or 12
percent from the 1991 total. However, income from continuing operations
amounted to $119.9 million or $3.49 per share in 1992, an increase of $24.7
million or $.74 per share over the 1991 figures.
The Company's reinsurance subsidiary experienced a pretax loss of $54.0
million in 1992, attributable primarily to Hurricane Andrew, which had the
effect of reducing net income by $1.34 per share. The Company decided not to
continue in this business and, accordingly, the reinsurance business results
have been reported as a discontinued operation in the accompanying financial
statements.
The Company chose to adopt Financial Accounting Standard 106 (FAS 106)-
Accounting For Postretirement Health Benefits-in 1992 rather than wait until it
was mandatory in 1993. Consistent with other major defense contractors, the
Company expensed the transition obligation of $300 million or $198 million
26
<PAGE>
after tax amounting to $5.88 per share in 1992. This one-time charge, which
represents the actuarially computed liability at January 1, 1992, is classified
separately in the income statement as a cumulative effect of a change in
accounting principle. See Note 11 of the Notes to Financial Statements for
additional details.
In 1992, the Company provided additional reserves totalling $14 million to be
available for the settlement of claims relating to the government's
investigation of activities involving the Company and entities affiliated with
one James Kane.
In the fourth quarter of 1992 the Internal Revenue Service concluded its
review of the Company's 1986-87 tax returns. As a result, the Company was able
to release tax reserves in 1992 that had the effect of reducing its effective
tax rate on continuing operations from the statutory rate of 34 percent to 18
percent.
Interest expense in 1992 was $30.2 million lower than in 1991 because of
substantially lower borrowings. Total debt was reduced $283 million to a level
of $439 million at year end. Cash and cash equivalents were $127 million higher
at December 31, 1992, than in 1991.
Other pertinent comments by the Company's principal business segments follow:
Aerospace segment sales in 1992 decreased $556 million or 19 percent to $2.34
billion. Operating income increased $14.7 million or 12 percent. The 1991
results included a charge of $46.5 million for the settlement of claims against
Tracor Aviation, Inc. The sales decline was attributable to four fewer new F-
14D deliveries and lower sales on the S-2 Taiwan and A-6 programs. The last new
F-14D aircraft was delivered in the second quarter. The profits of the segment
were adversely affected by charges of $8.5 million attributable to problems
with wing control surfaces on the Air Force/McDonnell Douglas C-17 aircraft
program.
Electronics systems sales in 1992 increased $106 million or 21 percent to
$611 million while operating income of $14 million was the same as in 1991. The
sales increase was due to higher revenues from the U. S. Air Force/Army Joint
STARS radar aircraft program.
Sales in the information and other services segment decreased $29 million or
5 percent to $593 million, and operating profits decreased $3 million or 11
percent to $28 million. Both the sales and operating income decreases were
predominantly due to reduced custom systems revenues in the Data Systems
division.
In the special purpose vehicles segment, 1992 sales decreased $23 million or
6 percent, while operating income increased $6 million or 31 percent. These
changes were the direct result of the Company's decision to withdraw from the
emergency vehicles business. The performance of the U. S. Postal Service
delivery van (LLV) program remained strong. In October 1992, the Company
delivered the 100,000th LLV.
The Company's total backlog at December 31, 1992, was $7.6 billion, an
increase of $400 million over the year-end 1991 total.
27
<PAGE>
BUSINESS AND PROPERTIES OF THE COMPANY
BUSINESS
Grumman Corporation is a New York corporation which was organized in 1929
under the name Grumman Aircraft Engineering Corporation. The activities of the
Company and its subsidiaries are described in the following four industry
segments:
"Aerospace"--Includes the design and production of military aircraft, space
systems and commercial aircraft components and subassemblies, as well as the
modernization or conversion of previously completed aircraft.
"Electronics Systems"--Includes the design, manufacture and integration of
sophisticated electronics for aircraft, computerized test equipment and other
defense related products, such as airborne surveillance systems.
"Information and Other Services"--Includes electronic data processing
services for affiliates and other customers as well as real estate and leasing
services. It also includes technical services that help ready the space shuttle
for flight, provide space station program support, service and maintain flight
simulators and trainers and support Grumman aircraft.
"Special Purpose Vehicles"--Includes fabrication of Long Life Vehicles for
the U.S. Postal Service and aluminum truck bodies.
The sales and operating income (loss) and the identifiable assets
attributable to each industry segment for the three years ended December 31,
1993 are set forth in Note 13 of the Notes to Consolidated Financial Statements
appearing elsewhere in this Proxy Statement.
AEROSPACE
Production contracts with the U.S. Government have included the F-14 "Tomcat"
fighter, the A-6 "Intruder" attack aircraft, the EA-6B "Prowler" tactical
jamming system, the E-2C "Hawkeye" early warning aircraft, and the C-2A
"Greyhound" carrier on-board delivery system, of which, only the E-2C is
currently in production. These aircraft systems incorporate advanced electronic
detection, attack and countermeasures equipment, all-weather capability, short
take-off and landing characteristics and, in the case of the F-14 fighter, a
variable-sweep wing configuration. Upgraded radar packages and new power plants
were incorporated into the F-14. The Company also furnishes spare parts,
specialized support equipment, technical manuals and data and advisory services
for its past and present aircraft and space systems, and engages in
modernization and conversion programs of previously completed aircraft.
Through 1992, the Company's most important military aircraft program was the
F-14D Super "Tomcat" fighter which is capable of carrying Phoenix missiles,
which are long range, self-guiding, high speed missiles manufactured by Hughes
Aircraft. The highly maneuverable supersonic Tomcat, with advanced radar, can
track twenty-four targets simultaneously, including the low-flying cruise
missile, at distances of over 100 miles, and launch its complement of six
Phoenix missiles to provide air superiority. (The F-14 is the principal air
superiority fighter plane presently in use by the U.S. Navy.) Sales on the F-14
program during the last three years amounted to 7% for 1993, 20% for 1992 and
23% for 1991. During 1992 and 1991 the Company delivered 10 and 14 F-14's,
respectively, to the U.S. Navy. The Company began deliveries of the upgraded F-
14 (F-14D) in 1990. The upgrade from the F-14A to the F-14D version was
accomplished in two steps. Deliveries of the interim aircraft, the F-14A+,
began in 1987 and ended in 1990. This configuration of the Tomcat had the new
engines, but none of the radar or avionics upgrades. The Company delivered 37
F-14Ds between 1990 and 1992. The Company produced 712 F-14's from 1973 to
1992.
28
<PAGE>
In November 1991, the House and Senate Authorization Committee on the Fiscal
Year 1992 Defense Budget announced that its recommendation would not include
funding to continue the F-14D(R) remanufacturing program. The last new F-14 was
delivered in mid-1992 while the last remanufactured F-14 was delivered in 1993.
In 1994 the Company will deliver ten F-14 remanufacture upgrade kits.
In September 1993, the Company received a contract worth $95 million to
produce 15 modification kits for an F-14A to F-14B conversion. In December
1993, the U. S. Navy awarded the Company a $57 million contract for the
installation of those 15 kits on F-14As that have relatively low flight hours.
The modification entails the installation of more powerful engines, structural
enhancements to extend the service life of the airframe, and the installation
of an updated radar warning receiver system to alert pilots when potentially
hostile radar is tracking their aircraft. The 1995 budget request contains
$171.7 million to give the F-14 Tomcat advanced strike attack capability.
The Company was teamed with Boeing and Lockheed in competing for the A-X
aircraft program, which was to be the Navy's replacement for Grumman's A-6
Intruder. Grumman, as prime, had been awarded a $30 million concept exploration
contract. The Navy cancelled the A-X program during 1993 and the Company
subsequently announced that it could no longer support and maintain its high
performance airframe design capability to the extent it has in the past.
Sales of the A-6 "Intruder," EA-6B "Prowler" and E-2C "Hawkeye" as a
percentage of the Company's consolidated sales amounted to 24% for 1993, 20%
for 1992 and 21% for 1991. Each of these programs has been in production for
more than twenty years. The last production A-6 Intruder was delivered in
January 1992. In September 1993, the U. S. Navy ordered the Company to stop
work immediately on all its A-6 re-wing and related programs. This cancellation
followed the Pentagon's bottom-up review of the nation's defense needs.
In 1993, six E-2C aircraft were delivered to the Navy. Two more aircraft will
be delivered in 1994. The Company is currently building the last E-2C at
Calverton under the current Navy contract. However, in 1993 the Navy conducted
a study to determine the cost effectiveness of restarting the production line
in 1995 instead of updating older E-2Cs. The 1995 defense budget request
includes $398 million for four new E-2s. The work would be performed in St.
Augustine, Florida.
In 1993, four E-2C aircraft were delivered to foreign countries--three to
Japan and one to Egypt. In 1994, the Company will deliver four E-2s to the
Republic of China under a $542 million contract awarded in 1993. E-2C aircraft
are now in service with four foreign countries; in addition, France, Korea,
Turkey, Bahrain and Thailand have expressed interest.
Under a U. S. Navy contract, the Company has been developing the fifth
generation of the EA-6B aircraft--the advanced capability (ADVCAP) Prowler. The
1995 defense budget request does not include the EA-6B ADVCAP remanufacture
program due to budget constraints. The U.S. Navy issued a cancellation notice
in February 1994 for the ADVCAP upgrade development program. ADVCAP is a three-
part effort: the AP-1 Advanced Capability program; the Vehicle Enhancement
Program (VEP), which is an improvement to the aerodynamic characteristics of
the EA-6B aircraft and has been partially terminated; and the Avionics
Improvement Program which has been terminated completely. The Company will
continue to perform some remaining work on the EA-6B ADVCAP program and will
maintain the modification line to update older EA-6Bs at St. Augustine,
Florida.
The Company is teamed with Gruppo Agusta of Italy to compete for a program to
replace the U.S. Air Force/U.S. Navy primary training aircraft called JPATS--
the Joint Primary Aircraft Training System. Seven teams are competing for the
work, with the Grumman Agusta team offering the S211A--a nimble, easy-to-fly
jet. The request for proposal should be released early in 1994; a winner is to
be selected in 1995.
The Company is under contract to provide aircraft components and major
subassemblies to other manufacturers. These contracts include the center wing
section for the Boeing 767 jetliner, nacelles and thrust
29
<PAGE>
reversers for the Gulfstream IV and Fokker aircraft, transcowls for General
Electric CF6-80C2 engines, C-17 control surfaces, and composite spoilers and
inboard flaps for the new Boeing 777 airliner.
ELECTRONICS SYSTEMS
In 1985, the U.S. Air Force awarded Grumman a $657 million contract for
development of the Joint Surveillance Target Attack Radar System, known as
"Joint STARS." This developmental phase, worth approximately $1 billion,
concluded in November 1993 with the delivery of the first two Joint STARS
prototype E-8A aircraft to the Air Force. The Air Force will use the two E-
8A's for test purposes. In November 1990, the Company received a $523 million
follow-on contract for further full-scale development; this included the
acquisition of a third Joint STARS aircraft, product improvement and logistics
support. This follow-on contract, currently worth $684 million, is scheduled
for completion in 1995. After a favorable review by the Defense Acquisition
Board in May 1993 that approved five low rate initial production aircraft, the
Air Force authorized full funding of $415 million for the initial two
aircraft. The E-8C is the production configuration of Joint STARS and
incorporates additional work stations and other system improvements. Joint
STARS has strong potential for overseas sales, and the Company is pursuing
opportunities with NATO. According to present plans, a total of 19 production
E-8C aircraft will be delivered to the Air Force beginning in 1995.
Flight tests of the Joint STARS aircraft began April 1, 1988 and continued
through 1990. Early in January 1991, the two Joint STARS aircraft were pulled
out of development six years early and deployed to the Persian Gulf to support
the combined forces in Desert Shield/Storm. Over the course of 49 consecutive
all night missions, the Joint STARS successfully pinpointed enemy convoys,
trucks, tanks, and Scud launchers and relayed that information to allied air
and ground forces.
In September 1991, the Company and TRW Inc. teamed to compete for the U.S.
Air Force's Follow-on Early Warning System (FEWS)--a space-based system that
would provide tactical warning and assessment of missile launches. The
Company, which was to be the principal subcontractor to TRW, established a new
subsidiary, Grumman Sensor Systems, Inc. for FEWS and other sensor
applications. TRW has made significant investments in capital and equipment
and holds a minority equity position in Grumman Sensor Systems, Inc. In July
1992, the TRW/Grumman team was awarded a $240 million demonstration/validation
contract from the U.S. Air Force Space and Missile Systems Center for FEWS. In
November 1993, the FEWS program received formal notification from the Air
Force of a stop work order on the demonstration/validation contract. Following
the cancellation of the FEWS program, the Air Force is moving forward to
initiate a competitive Defense Support Program Follow-On program and cancel
two or more DSP systems currently under contract. The program will be renamed
ALARM (Alert, Locate and Report Missiles) with more than $1 billion in the
Pentagon's 1995 through 1999 budget.
The Company designs and produces test equipment to support its own aircraft
programs, non-Company programs, and government-furnished equipment systems.
A significant program in this segment is the Integrated Family of Test
Equipment, or IFTE, the Army's next generation of automatic test equipment.
IFTE is used to diagnose the electronics problems of equipment in the field,
depot repair centers and in the factories of weapons systems manufacturers.
IFTE is adaptable to the U.S. Army's wide range of systems, eliminating the
need for a separate tester for each one. Currently there are 30 different Army
systems dedicated to the use of IFTE. The total Army Requirement for IFTE Base
Shop Test Facilities (BSTF) is over 200. The Army continues to endorse IFTE
for foreign applications on proven Army systems. In 1993, there were seven
system fieldings in South Korea and stateside Army bases. IFTE deliveries
continued on or ahead of schedule in 1993. Major hardware deliveries included
four Commercial Equivalent Equipments (CEEs), nine base station test
facilities and eight portable intelligent maintained aid units.
30
<PAGE>
Under a $20 million contract, the Company is upgrading eight U.S. Army
Firefinder radar systems which locate hostile artillery units and direct
counterfire against them. Upgrading Firefinder with digital electronics will
increase the system's mobility, effective range and threat response. The
production phase is anticipated to begin in 1996 and there are major
opportunities for foreign sales.
The Company is manufacturing intercom systems for combat vehicles under the
Vehicular Intercommunication System (VIS) contract awarded in 1992 by the U.S.
Army Communications and Electronics Command. VIS will provide the Army's combat
vehicles with a highly reliable, digital-voice intercom capable of handling six
radios and 10 crew stations. VIS replaces a system that has been used on U.S.
Army tanks and infantry fighting vehicles for almost 40 years. The basic
contract is a 20-month program slated for completion in October 1994. Under
this phase, 110 VIS sets will be delivered. The Army recently exercised its
option and ordered another 800 VIS units. Another 1,117 units will be installed
on vehicles purchased by the Saudi Arabian National Guard. Production of this
order runs through 1998.
The Company won a $118 million contract in October 1993 from the U.S. Air
Force to produce an automated test system for the F-15 aircraft. The Company
will manufacture the testers and develop the system's software along with IBM,
the principal subcontractor. The mobile, downsized system will test the F-15
avionics including armament, communications, displays, flight controls,
navigation and radar. It replaces five different testers.
INFORMATION AND OTHER SERVICES
The Company's data systems business designs, develops, operates and supports
computer systems for scientific and management information. Its services
include systems integration, systems service, technical and professional
services, information conversion services and training; its customers and
potential customers include agencies of federal, state and local governments
including among others: the U.S. Navy and Marine Corps, the U.S. Air Force,
NASA, the Defense Logistics Agency and the Internal Revenue Service.
Approximately 58% of the data systems revenue in 1993 was derived from work
performed for other Grumman units.
In February 1993, the Company's Data Systems Division was awarded the Service
Center Recognition Image Processing System (SCRIPS) contract by the Internal
Revenue Service. The Company is developing an image-based, forms processing,
character recognition system. In January 1994, two SCRIPS systems were
installed at an IRS center in Cincinnati where they are currently undergoing
testing. The current contract value is approximately $27 million including
engineering change proposals. If the IRS exercises the options for 10 more
SCRIPS systems, the total effort could amount to over $88 million.
NASA named the Company the winner of the Space Station Program Support
contract in July 1987; in March 1992 a major modification to the contract was
executed restructuring the contract consistent with the restructured Space
Station Freedom. However, in September 1993 NASA ordered the Company to cut its
work force on the space station engineering and integration contract to 60
people by December 1993 due to work authorization and funding limitations on
the program. NASA has scaled back and downsized the program significantly, and
awarded the management job to Boeing.
The Company is a subcontractor, under Lockheed's Shuttle Processing Contract
with NASA for management and support to the Space Shuttle launch processing
operation, in such areas as instrumentation, measurement and calibration. The
current contract, which began in October 1983, was extended to September 1995.
There is one remaining three-year option period which ends in September 1998.
The Company is a prime contractor on the Information Systems Contract which was
awarded in October 1992. This is a five- year contract which extends through
December 1997 and which is valued at approximately $340 million. This contract
requires contractor support for all institutional computing capability at
Johnson Space Center, Houston, Texas.
31
<PAGE>
SPECIAL PURPOSE VEHICLES
In 1986, the Company was awarded a $1.1 billion contract to build 99,150 Long
Life Vehicles (LLV) for the U.S. Postal Service over a six year period;
deliveries commenced in April 1987 and totalled 7,581 units for 1987, 18,844 in
1988, 18,950 in 1989, 19,100 in 1990, 19,608 in 1991 and 15,067 in 1992. In
September 1991, the Company negotiated an agreement for a follow-on contract
with the U.S. Postal Service worth over $586 million to produce an additional
43,505 Long Life Vehicles of which 4,723 and 19,881 were delivered in 1992 and
1993, respectively. The combination of the original contract and the follow-on
contract will result in unit deliveries to the U. S. Postal Service totalling
142,655 at the conclusion of the program.
The Postal Service notified the Company in September 1993 that it would not
exercise contract options which could have extended production into 1996. As a
result, the last 18,901 units of the 142,655 LLV units will be delivered by the
end of 1994.
The Company also manufactures aluminum truck bodies which are mounted on
purchased chassis and sold as delivery vans.
COMPANY RESTRUCTURE
In January 1994, the Company announced a plan to compete more effectively in
the changing defense market by consolidating its facilities and restructuring
its operations. Five major Long Island, New York, facilities will be closed
over the next two years, and the current 15 million square feet of nationwide
manufacturing, office and warehouse space will be reduced by 4.5 million square
feet. Overall, the Company expects to reduce operating costs by nearly $600
million over the next three years. As a result, the Company took a one-time
charge of $85 million ($55 million after federal income taxes or $1.60 a share)
in the fourth quarter of 1993. The restructuring charge provides for equipment
and inventory write-offs of approximately $60 million and plant closing costs
of approximately $25 million.
COMPETITION AND CUSTOMERS
The aerospace industry is dominated by large companies, and sizable contracts
are awarded by winning new design competitions against formidable opposition.
Many of the Company's competitors are considerably larger in terms of sales,
number of employees and financial resources. Since most defense products are
tailored to specific military use, the U.S. Department of Defense, as the sole
customer, occupies the superior bargaining position, and there is not the usual
give and take of a commercial negotiation.
Initial procurements of military programs are the result of open competition,
with the award of the prime contract made to the prospective contractor
offering the best overall proposal on the basis of price and other factors.
Follow-on buys of military programs in the past were usually made from the
current prime contractor, but as of late the customer has increasingly resorted
to competitive bids.
The Company's new strategic direction will emphasize expanding in electronic
systems and surveillance integration capabilities in lieu of our traditional
role as a prime airframe producer. Along with this, is our continued commitment
to supporting the Company's existing aircraft and winning the new JPATS
training program. The principal competition in these areas comes from both
traditional aircraft producers such as Northrop Corporation, Lockheed Aircraft
Corporation and McDonnell Douglas Corporation and some new competitors in E-
Systems, Martin Marietta Corporation and G. M. Hughes Electronics Corporation.
Total sales to the U.S. government and its agencies (including sales to
foreign governments through foreign military sales contracts with U.S.
government agencies) for the years ended December 31, 1993, 1992 and 1991
amounted to $2.8 billion, $3.2 billion and $3.6 billion, respectively. As a
consequence of its concentration upon the U.S. government's defense programs,
the Company's sales and income may be materially affected by any change in
emphasis on such programs, or in any substantial change in government spending
thereon.
32
<PAGE>
All U.S. government contracts provide that they may be terminated in whole
or in part for the convenience of the government. Upon any such termination,
the Company would be entitled to reimbursement in accordance with the formula
set forth in the applicable government procurement regulations. Where the
government has exercised this extraordinary right, which has occurred
infrequently, the Company has in the past recovered its costs together with an
appropriate share of the profit or fee on the work done. For a summary of
policies used by the Company in accounting for inventories and sales under
U.S. government contracts, see Note 1 of the Notes to Consolidated Financial
Statements appearing elsewhere in this Proxy Statement.
BACKLOG
The backlog of potential sales under U.S. government and commercial
contracts includes those contracts that have been negotiated, whether funded
or unfunded. No material portion of the Company's backlog is considered to be
seasonal. Fluctuations in the backlog may occur from quarter to quarter
depending upon contract execution and funding dates. Approximately $3.4
billion of the backlog at December 31, 1993 represents deliveries to be made
after 1994.
<TABLE>
<CAPTION>
BACKLOG AS OF
DECEMBER 31,
------------- ---
1993 1992
------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Aerospace..................................................... $3,674 $4,585
Electronics Systems........................................... 1,320 886
Information & Other Services.................................. 764 1,575
Special Purpose Vehicles...................................... 278 515
------ ------
Total Backlog............................................. $6,036 $7,561
</TABLE>
The backlog at December 31, 1993 includes $2.8 billion of authorized but
unfunded amounts as well as negotiated and priced options which have not yet
been exercised.
RAW MATERIALS AND SUPPLIERS
All raw materials and many items of equipment and components used in the
production of the Company's products are purchased from outside sources. From
the standpoint of aggregate cost, the most important manufactured items
purchased from outside sources are electronic components and subsystems for
airborne applications. While the Company does not usually produce these
electronic items in its capacity as systems-manager, it manages their design,
testing and evaluation, and integrates these elements into a working system.
The Company's business is dependent upon the ability of its subcontractors to
meet performance specifications, quality standards and delivery schedules.
Their failure in any of these areas could have an adverse effect upon the
Company's business.
Although certain priorities under U.S. government contracts are available,
it has become necessary to enter early orders for materials with long lead
time requirements. The Company cannot predict what the impact of any further
extension of lead time requirements or of shortages or delays in delivery by
suppliers may be on its business or financial requirements.
ENVIRONMENTAL MATTERS
Compliance with current provisions of federal, state and local authorities
regulating the discharge of materials into the environment is not expected to
have a material effect on the Company's capital expenditures, earnings and
competitive position.
COMMITMENTS FOR CAPITAL EXPENDITURES
Outstanding commitments for capital expenditures at December 31, 1993 were
$23.4 million. Funds are generally committed to acquire equipment to support
and develop advanced technologies and to improve
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<PAGE>
manufacturing and computing capabilities. Capital expenditures are expected to
be financed from internally generated funds in the foreseeable future.
EMPLOYEES
As of December 31, 1993, approximately 17,900 persons were employed by the
Company. The Company is predominantly non-union, although approximately 300
employees in a second-tier subsidiary are covered by union contracts with
expiration dates in 1995 and 1997. The Company believes its employee relations
are satisfactory.
PATENTS
While the Company owns a number of patents and has licenses under patents
owned by others, it does not believe that its business would be materially
affected by the expiration of any patent or termination of any patent license
agreement.
The Company holds no material franchises or concessions.
RESEARCH AND DEVELOPMENT
Research and development costs associated with government programs up to a
negotiated ceiling are charged to inventory and are recorded in cost of sales
when products are delivered or services performed. Costs in excess of ceiling
and expenditures for commercial projects are charged against income in the year
incurred. Total expenditures for research and development, bid and proposal
efforts were $122.5, $132.8 and $127.5 million in 1993, 1992 and 1991,
respectively.
EXPORT SALES
Export sales by geographic area for the three years ended December 31, 1993
are set forth in Note 13 (Segment Information) of the Notes to Consolidated
Financial Statements appearing elsewhere in this Proxy Statement.
In 1993 export sales generated $36.1 million of operating income and had
identifiable assets, primarily including inventories and receivables, of $52.4
million at December 31, 1993.
PROPERTIES
The Company's principal properties are located at Bethpage and Calverton,
Long Island, New York. These properties include operating facilities and
airfields. The Company's executive offices are located in Bethpage. The Company
also owns and leases facilities at a number of other locations.
34
<PAGE>
The following table sets forth information by business segment, as to the
Company's principal operating properties as of December 31, 1993, with an
indication of the areas involved and the character of the Company's interest
therein:
<TABLE>
<CAPTION>
LEASED
COMPANY OWNED (1) FROM OTHERS GOVERNMENT OWNED
-------------------------- -------------------------- --------------------------
LAND LAND LAND
FLOOR AREA(2) AREA (ACRES) FLOOR AREA(2) AREA (ACRES) FLOOR AREA(2) AREA (ACRES)
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
AEROSPACE
Long Island area--N.Y... 4,208 517 469 2,678 3,053
Georgia................. 507 162 60
Florida................. 474 57 857 742
Maryland................ 384 79 6
Various other states.... 277 35 452 26 34
ELECTRONICS SYSTEMS
Long Island area--N.Y. . 356 86 124
Florida................. 565 49
Louisiana............... 1,234 167
Various other states.... 107 18 149
INFORMATION AND OTHER
SERVICES
Long Island area--N.Y. . 840 234 232 4
Florida................. 183 33 2
Virginia................ 364
Texas................... 218 15
Various other states.... 62 37 332 98
SPECIAL PURPOSE VEHICLES
Long Island area--N.Y. . 13
Pennsylvania............ 286 45 57 3
Michigan................ 340 119
Various other states.... 400 110 2
</TABLE>
- --------
(1) Including buildings constructed by the Company upon land held under long-
term leases
(2) Square feet rounded to nearest thousand.
The government-owned property at Calverton, Long Island, New York which
includes a plant, airfield and hangars, is leased under a rental agreement with
the United States Government. The aggregate rental paid by the Company for
calendar year 1993 was $4,608,000.
The government-owned plants at Bethpage and a substantial amount of
government-owned machinery and equipment, located principally at Bethpage and
Calverton, are furnished rent-free under a Facilities Management Contract for
use in the performance of government contracts. These facilities may also be
used in the performance of nongovernment work subject to government approval
and the payment of rent. The Facilities Management Contract is subject to
termination at the government's convenience.
The Company's facilities are well maintained, in good operating condition and
suitable for the purposes for which they are utilized. In general, due to the
current economic environment in the defense industry resulting from reduced
budgets, the company has excess production and administrative facilities. The
Company is aggressively taking appropriate action to eliminate this condition
by reducing leased facilities and marketing and/or developing its excess owned
land and buildings.
In connection with the consolidation of its facilities, the Company
anticipates reducing its total floor space approximately 30 percent by 1997.
35
<PAGE>
LEGAL PROCEEDINGS
There are pending litigations related to matters which are in the ordinary
course of the Company's business activities. See Note 12 (Commitments and
Contingencies) of the Notes to Consolidated Financial Statements appearing
elsewhere in this Proxy Statement.
Currently, there are five waste disposal sites where the Company has been
named either as a potentially responsible party or an owner/operator of the
site by a cognizant governmental agency for the cleanup of hazardous materials
previously placed there either directly or through an agent and where the cost
of remediation or settlement could reasonably exceed $100,000 in amount. In
addition, the Company on its own initiative undertook an investigation and
potential remediation of a second-tier subsidiary's facility; the Company has
voluntarily submitted this remediation plan to the cognizant state agency for
its review and approval. Environmental costs incurred are generally allowable
under terms of existing U.S. Government procurement regulations and are
reflected in the prices of the Company's products and services. However, it is
unknown at this time what the ultimate financial impact of these environmental
matters on the Company will be but it is not expected to have a material
adverse effect on the Company's financial position.
In another matter, the Company's second-tier subsidiary, Grumman St.
Augustine Corporation, was the named defendant in a civil action filed in the
Federal District Court for the Middle District of Florida in 1991 by the United
States of America, at the request of the U.S. Environmental Protection Agency,
and subsequently entered into a Consent Decree which resulted in final
dismissal of the suit on May 15, 1993. The Consent Decree was subsequently
declared final on July 20, 1993.
As a Government contractor, the Company is, from time to time, subject to
U.S. government investigations of business practices and cost classifications
from which legal and/or administrative proceedings could result. Under current
government procurement regulations, a contractor can be fined as well as be
suspended or debarred from eligibility to receive further government contracts
based upon the results of such investigations.
However, the Company is not aware of any government investigation, the
outcome of which would have a material adverse effect on the Company's
financial position.
Four putative class actions, Croyden Associates, et al. v. Grumman Corp., et
al., Allen M. Olender, et al. v. Grumman Corp., et al., Paul Gardner v. Grumman
Corp., et al., and John Mezzasalma v. Grumman Corp., et al., respectively, have
been filed in the Supreme Court of the State of New York, County of Nassau, on
behalf of the Company's shareholders, alleging causes of action arising out of
a prior proposed acquisition of the Company by Martin Marietta and, in certain
of the actions, the proposed acquisition of the Company by Northrop. The
defendants in each such action are the Company, its directors as of the date
such action was filed, and Martin Marietta. In one of the actions, Goldman,
Sachs & Co., the Company's financial advisor, is also named as a defendant. The
four actions allege substantially similar causes of action or breaches of
fiduciary duty against the Company and its directors, and allege that Martin
Marietta aided and abetted those breaches of duty. The actions seek, inter
alia, to enjoin a prior proposed acquisition of the Company by Martin Marietta
on the grounds that the consideration to be paid is inadequate and unfair and
that the Board has failed to maximize shareholder value. The four actions are
described in the Company's Solicitation/Recommendation Statement on Schedule
14D-9 with respect to the Offer, dated March 24, 1994, as amended, and
incorporated herein by reference (the "Company 14D-9").
A fifth putative class action, Dennis Fecci, et al. v. Grumman Corporation,
et al., was filed in the United States District Court for the Southern District
of New York, on behalf of the Company's shareholders, alleging claims arising
out of a prior proposed acquisition of the Company by Martin Marietta and the
proposed acquisition of the Company by Northrop. The defendants in this action
are the Company, its directors at the time such action was filed, and Martin
Marietta. This action alleges violations of Sections 10(b), 14(e) and 20(a) of
the Exchange Act and alleges that the Company's March 8, 1994 Schedule 14D-9,
36
<PAGE>
filed in response to a tender offer by Martin Marietta is materially false and
misleading and that the individual defendants breached their fiduciary duties.
The action seeks a declaration of class action status, monetary damages, and
preliminary and permanent injunctive relief relating to shareholder
communications, the proposed acquisition of the Company by Martin Marietta and
any related transactions. This action is also described in the Company 14D-9.
A sixth putative class action, Ronald Goldstein v. Grumman Corp. and Renso L.
Caporali, was filed in the United States District Court for the Eastern
District of Pennsylvania, on behalf of those persons who sold Common Stock of
the Company between the announcement on March 7, 1994 of an agreement between
the Company and Martin Marietta with respect to the proposed acquisition of the
Company by Martin Marietta, and the March 9, 1994 announcement that Northrop
had expressed a serious interest in acquiring the Common Stock of the Company.
The action asserts violations of Sections 10(b) and 20 of the Exchange Act and
seeks the declaration of class action status and monetary damages in an
unstated amount.
Outside counsel to the Company has advised the Company that it is aware of
three additional complaints, all captioned in the Supreme Court of the State of
New York, County of Nassau, which are similar to the Croyden Associates,
Olender, Gardner and Mezzasalma actions noted above. The defendants named in
each such complaint are the Company and its directors. As of April 29, 1994,
outside counsel has advised that it is their understanding that service of the
summons and complaint in these actions had not been effected on the Company or
any of its directors, and that one of the actions had not been filed.
CERTAIN INFORMATION CONCERNING NORTHROP AND NORTHROP ACQUISITION
Northrop's and Northrop Acquisition's principal executive offices are located
at 1840 Century Park East, Los Angeles, California 90067 and the telephone
number for both companies is (310) 553-6262. Northrop Acquisition is a newly
formed corporation and a wholly owned subsidiary of Northrop. Northrop
Acquisition has not conducted any business other than in connection with the
Offer and the Merger. Northrop and Northrop Acquisition are Delaware
corporations.
Northrop is an advanced technology company operating in the aerospace
industry. Northrop designs, develops and manufactures aircraft, aircraft
subassemblies and electronic systems for military and commercial use.
Northrop is subject to the informational filing requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Commission relating to its business, financial condition and other matters.
Information, as of particular dates, concerning Northrop's directors and
officers, their remuneration, options granted to them, the principal holders of
Northrop's securities and any material interest of such persons in transactions
with Northrop is required to be disclosed in proxy statements distributed to
Northrop stockholders and filed with the Commission. Such reports, proxy
statements and other information are available for inspection at the public
reference facilities of the Commission located in Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and are also available for inspection and
copying at the regional offices of the Commission located in the Everett
McKinley Dirksen Building, 219 South Dearborn Street, Chicago, Illinois 60604,
and the Jacob K. Javits Federal Building, 26 Federal Plaza, New York, New York
10278. Copies of this material may also be obtained by mail, upon payment of
the Commission's customary fees, from the Commission's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, this material is also
available for inspection at the library of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
37
<PAGE>
BENEFICIAL OWNERSHIP OF SHARES
DIRECTORS AND OFFICERS
The following table sets forth certain information as of April 22, 1994, with
respect to the beneficial ownership of Common Stock of the Company by (i) each
director of the Company and (ii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS(2)
------------------------ ----------------------- ----------
<S> <C> <C>
Kent Kresa................................ -0-
Oliver C. Boileau, Jr. ................... -0-
Renso L. Caporali......................... 45,993
Marvin Elkin.............................. -0-
Richard R. Molleur........................ -0-
James G. Roche............................ -0-
Wallace C. Solberg........................ -0-
Richard B. Waugh, Jr. .................... -0-
Max T. Weiss.............................. -0-
All directors and officers as a group..... 232,945
</TABLE>
- --------
(1) Subject to applicable community property and similar statutes, the persons
listed as beneficial owners of the shares have sole voting and investment
power with respect to such shares.
(2) Percentage information is omitted as the beneficially owned shares
represent less than 1% of the outstanding shares of the Company's Common
Stock.
OTHER SECURITY HOLDERS
The Company does not know of any persons (other than Northrop and Northrop
Acquisition) who have or share voting and/or investment power with respect to
more than 5 percent of the Shares. See "General Information--Vote Required and
Ownership" for information concerning Northrop's and Northrop Acquisition's
beneficial ownership of Shares.
INDEPENDENT ACCOUNTANTS
Arthur Andersen & Co., certified public accountants, has served as
independent accountants of the Company and its subsidiaries since the Company's
fiscal year ending December 31, 1980. Representatives of Arthur Andersen & Co.
are expected to be present at the Special Meeting where they will have an
opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions.
EXPERTS
The audited consolidated financial statements of the Company and its
subsidiaries at December 31, 1993 and 1992 and for each of the three years in
the period ended December 31, 1993, included in this Proxy Statement have been
audited by Arthur Andersen & Co., independent public accountants, as indicated
in their report with respect thereto which appears elsewhere in this Proxy
Statement, and are included herein in reliance upon the authority of that firm
as experts in giving said report. Reference is made to said report, which
includes an explanatory paragraph with respect to the change in the method of
accounting for income taxes and for postretirement benefits other than
pensions.
PROXY SOLICITATION
The cost of solicitation of proxies is to be borne by the Company. In
addition to solicitation by mail, directors, officers and regular employees of
the Company may solicit proxies from shareholders by telephone, telegram,
personal interview or other means of communication. Such individuals may be
reimbursed for reasonable out-of-pocket expenses incurred in connection with
such solicitation. Arrangements will be made by the Company with brokers and
other custodians, nominees and fiduciaries to forward solicitation material to
the beneficial owners of the Shares held of record, and the Company will
reimburse these persons for reasonable out-of-pocket expenses incurred.
38
<PAGE>
OTHER BUSINESS
As far as is known or has been determined, no business other than the matter
referred to herein will come before the Special Meeting or any adjournment
thereof. However, it is intended that the proxy solicited herein will be voted
on any other matters that may properly come before the Special Meeting or any
adjournment thereof in the discretion of the person or persons voting such
proxy.
By order of the Board of Directors
Sheila M. Gibbons
Corporate Secretary
Bethpage, New York
May 3, 1994
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF GRUMMAN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets at December 31, 1993 and 1992................. F-3
Consolidated Statements of Income for the three years ended December 31,
1993, 1992 and 1991...................................................... F-4
Consolidated Statements of Common Shareholders' Equity at December 31,
1993, 1992 and 1991...................................................... F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 1993, 1992 and 1991.................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
Quarterly Financial Data.................................................. F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Grumman Corporation:
We have audited the accompanying consolidated balance sheet of Grumman
Corporation (a New York corporation) and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income, common
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Grumman Corporation and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 11 to the consolidated financial statements,
effective January 1, 1992, the company changed its method of accounting for
income taxes and for postretirement benefits other than pensions.
ARTHUR ANDERSEN & CO.
New York, New York
January 20, 1994
F-2
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 346,090 $ 299,077
Marketable securities (at cost, approximating market).. 18,034 --
Accounts receivable.................................... 518,731 534,260
Inventories, less progress payments.................... 499,436 612,424
Prepaid expenses....................................... 40,992 41,280
---------- ----------
Total current assets................................. 1,423,283 1,487,041
---------- ----------
Property, plant and equipment, less accumulated deprecia-
tion.................................................... 372,723 399,421
---------- ----------
Non-current assets:
Deferred income taxes.................................. 120,028 94,856
Long-term receivables.................................. 6,009 9,079
Investments............................................ 52,505 28,678
Other.................................................. 49,901 69,941
---------- ----------
228,443 202,554
---------- ----------
Total................................................ $2,024,449 $2,089,016
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................ $ 6,571 $ 83,399
Accounts payable....................................... 147,576 128,610
Wages and benefits payable............................. 90,229 95,519
Income taxes........................................... 88,932 145,353
Advances and deposits.................................. 95,340 30,251
Other current liabilities.............................. 89,699 127,902
---------- ----------
Total current liabilities............................ 518,347 611,034
---------- ----------
Long-term debt........................................... 243,106 355,244
---------- ----------
Accrued retirement benefits.............................. 304,752 306,500
---------- ----------
Restructuring reserve.................................... 85,000 --
---------- ----------
Other liabilities........................................ 37,191 23,348
---------- ----------
Common stock--$1.00 par value, authorized 80,000 shares;
outstanding 34,049 and 33,519 shares (net of treasury
stock).................................................. 344,589 321,038
Retained earnings........................................ 491,464 471,852
---------- ----------
Total................................................ $2,024,449 $2,089,016
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
($ IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenues:
Sales...................................... $3,224,535 $3,492,075 $3,963,492
Other income............................... 24,589 11,875 10,359
---------- ---------- ----------
Total sales and other income............ 3,249,124 3,503,950 3,973,851
---------- ---------- ----------
Costs and expenses:
Cost of sales.............................. 2,929,987 3,189,035 3,620,895
Restructuring charge....................... 85,000 -- --
Loss on Tracor Aviation Inc. settlement.... -- -- 46,500
Selling, administrative and other.......... 115,928 113,289 124,049
Interest................................... 31,702 55,065 85,236
---------- ---------- ----------
Total costs and expenses................ 3,162,617 3,357,389 3,876,680
---------- ---------- ----------
Income before income taxes.................. 86,507 146,561 97,171
Provision for federal income taxes.......... 21,000 26,700 2,000
---------- ---------- ----------
Income from continuing operations....... 65,507 119,861 95,171
Income (loss) from discontinued operations.. (6,700) (45,035) 4,166
Cumulative effect of change to accrual
method of accounting for postretirement
benefits................................... -- (198,000) --
---------- ---------- ----------
Net income (loss)....................... $ 58,807 $ (123,174) $ 99,337
========== ========== ==========
Primary earnings per common share:
Income from continuing operations.......... $ 1.90 $ 3.49 $ 2.75
Income (loss) from discontinued operations. (.19) (1.34) .13
Cumulative effect of accounting change..... -- (5.88) --
---------- ---------- ----------
Net income (loss)....................... $ 1.71 $ (3.73) $ 2.88
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR 1993 YEAR 1992 YEAR 1991
---------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Common stock:
Balance beginning of
year.................. 33,790 $337,896 33,512 $337,737 33,019 $313,916
Conversion of
convertible
subordinated
debentures............ 1,392 48,352 -- -- -- --
Conversion of preferred
stock................. -- -- 6 36 1 6
Exercise of stock
options and awards--
net of (forfeitures).. 605 22,935 272 4,014 492 7,149
Majority interest in
capital contributed to
joint venture......... -- -- -- (3,891) -- 16,666
------ -------- ------ -------- ------ --------
Balance end of year.... 35,787 409,183 33,790 337,896 33,512 337,737
------ -------- ------ -------- ------ --------
Less:
Treasury stock
Balance beginning of
year.................. 271 4,415 247 3,998 221 3,529
Common stock repurchase
program............... 1,361 49,931 -- -- -- --
Reinstated (issued)
under various plans--
net................... 106 2,848 24 417 26 469
------ -------- ------ -------- ------ --------
Balance end of year.... 1,738 57,194 271 4,415 247 3,998
------ -------- ------ -------- ------ --------
Restricted stock:
Balance beginning of
year.................. 1,613 12,443 1,651 15,025 1,360 13,377
Awards (forfeitures)-
net................... (85) (566) 131 1,490 444 6,462
Amortization and
vesting............... (234) (4,477) (169) (4,072) (153) (4,814)
------ -------- ------ -------- ------ --------
Balance end of year.... 1,294* 7,400 1,613* 12,443 1,651* 15,025
------ -------- ------ -------- ------ --------
Common stock
outstanding........... 34,049 $344,589 33,519 $321,038 33,265 $318,714
====== ======== ====== ======== ====== ========
Retained earnings:
Balance beginning of
year.................. $471,852 $632,998 $570,504
Net income (loss)...... 58,807 (123,174) 99,337
Cash dividends:
Common (per share:
1993, $1.15; 1992
and 1991, $1.00)...... (38,690) (33,496) (33,220)
Preferred............ -- (2,515) (3,623)
Redemption costs..... (505) (1,961) --
-------- -------- --------
Balance end of year.... $491,464 $471,852 $632,998
======== ======== ========
</TABLE>
- --------
* Shares are shown for information only and are included in common stock.
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 58,807 $(123,174) $ 99,337
Items affecting cash from operations:
Depreciation and amortization............... 73,835 82,127 94,274
Cumulative effect of change in accounting
for postretirement benefits................ -- 198,000 --
Restructuring charge........................ 85,000 -- --
Loss on Tracor Aviation Inc. settlement..... -- -- 46,500
Release of tax reserves..................... -- (23,500) (30,700)
Changes in assets and liabilities:
Decrease/(increase) in:
Accounts receivable and marketable
securities................................ (2,505) 79,391 13,126
Inventories................................ 112,988 147,817 142,811
Prepaid expenses........................... 288 38,660 (9,930)
Increase/(decrease) in:
Accounts payable, wages and benefits....... 13,676 (68,585) (52,399)
Income taxes payable....................... (49,231) 65,947 (11,409)
Deferred income taxes...................... (32,362) (6,351) (4,500)
Other current liabilities.................. 26,886 56,155 (10,902)
Other...................................... 34,869 68,317 4,126
--------- --------- ---------
Net cash provided by operating activities... 322,251 514,804 280,334
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures........................ (44,585) (39,054) (54,847)
Proceeds from sale of capital assets........ 3,882 2,361 6,385
Decrease (increase) in investments.......... (25,562) 4,237 (1,486)
--------- --------- ---------
Net cash used in investing activities....... (66,265) (32,456) (49,948)
--------- --------- ---------
Cash flows from financing activities:
Decrease in short-term debt................. -- -- (17,000)
Proceeds from long-term debt................ -- -- 75,000
Repayment of long-term debt................. (141,119) (283,372) (118,023)
Redemption of preferred stock............... -- (34,321) (5)
Dividends paid.............................. (38,690) (36,011) (36,843)
Repurchase of common stock.................. (49,931) -- --
Exercise of stock options................... 20,767 (1,591) (3,015)
Capital received on formation of joint
venture.................................... -- -- 20,000
--------- --------- ---------
Net cash required by financing activities... (208,973) (355,295) (79,886)
--------- --------- ---------
Net increase in cash and cash equivalents for
the period................................... 47,013 127,053 150,500
Cash and cash equivalents-January 1,.......... 299,077 172,024 21,524
--------- --------- ---------
Cash and cash equivalents-December 31,........ $ 346,090 $ 299,077 $ 172,024
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS IN TABULAR PRESENTATIONS EXCEPT PER SHARE DATA)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements include the accounts of the company and
all subsidiaries. All intercompany balances and transactions have been
eliminated.
Inventories
Inventoried costs relating to both long-term government and commercial
contracts and programs are stated at the actual production cost. General and
administrative expenses allocable to aerospace fixed-price type contracts are
included in inventory, whereas such expenses for non-aerospace activities are
expensed as incurred. The costs attributed to units delivered under both long-
term government and commercial contracts and programs are based on the
estimated average costs of all units expected to be produced in a lot or
contract. In accordance with industry practice, inventories include amounts
relating to contracts and programs having long production cycles, portions of
which are not expected to be realized within one year.
Inventories of raw materials, purchased parts and supplies are carried at the
lower of cost or realizable values. Inventories are based on average cost
and/or first-in, first-out methods.
Revenue recognition
Sales under fixed-price production contracts are recorded at the time of
delivery. Sales, including fees earned, under cost-reimbursement and research,
development, test and evaluation contracts are recorded as costs are incurred.
Certain contracts contain cost and/or performance incentives. Such incentives
are included in sales at the time actual performance can be related to the
target and the earned amount can be reasonably determined. Accordingly,
earnings recorded in one period may include adjustments related to sales
recorded in a prior period. Losses on contracts are recorded when they become
known.
Depreciation and amortization
The company uses a declining-balance method of depreciation for substantially
all of its plant and equipment. Leasehold improvements are amortized over the
terms of the leases or their estimated useful lives, whichever is shorter.
Upon sale or retirement of plant and equipment, the related cost and
accumulated depreciation are removed from the accounts, and any gain or loss is
reflected currently. Maintenance and repair costs are expensed as incurred.
Intangibles
The excess of cost over the net assets of acquired companies at December 31,
1993 and 1992, was $3.6 and $3.7 million, respectively. These amounts are
included in Non-Current Assets--Other, and are being amortized over 40 years.
Cash equivalents
It is the company's policy to treat securities which are readily convertible
to known amounts of cash with original maturities of three months or less as
cash equivalents. The carrying value of such items, which is at cost,
approximates fair value because of the short maturity of those instruments.
Cash flow supplemental information
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest (net of amount capitalized)........... $39,058 $57,543 $87,884
Federal income taxes........................... 97,800 37,000 40,000
</TABLE>
F-7
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial instruments
During 1993, the company initiated a Common Stock Repurchase Program to
purchase up to $100 million of the company's outstanding common stock. As a
hedge of the company's cost, the company entered
into a series of equity put warrants whereby the company may be obligated to
repurchase 750,000 shares, if put to the company, at expiration date. These
equity put warrants will expire during the period August through October 1994.
Also during 1993, the company invested approximately $25 million in a
limited partnership which invests in repurchase and reverse repurchase
agreements backed by highly rated securities. At December 31, 1993, the value
of the partnership's underlying net assets approximated the company's
investment which is being accounted for using the equity method.
Research and development
Research and development costs associated with government programs up to a
negotiated ceiling are charged to inventory and are recorded in cost of sales
when products are delivered or services performed. Costs in excess of ceiling
and expenditures for commercial projects are charged against income in the
year incurred. Total expenditures for research and development, bid and
proposal efforts were, in millions, $122.5 in 1993, $132.8 in 1992 and $127.5
in 1991.
Earnings per common share
Primary earnings per share are determined after deducting preferred stock
dividends and are based on the weighted average number of outstanding common
shares and common stock equivalents.
Reclassification
Certain prior-year amounts have been reclassified to conform to 1993
classifications.
NOTE 2--RESTRUCTURING AND DISCONTINUED OPERATIONS:
In order to become more competitive in the changing defense market, the
company recorded in the fourth quarter of 1993 an $85 million restructuring
provision. In connection with the consolidation of its facilities, the company
anticipates reducing its total floor space approximately 30 percent by 1997.
The restructuring charge provides for equipment and inventory write-offs of
approximately $60 million and plant closing costs of approximately $25
million.
During 1993, the company settled a lawsuit relating to its previously
discontinued solar panel business and recorded a loss of $9.9 million before
an income tax benefit of $3.2 million.
Operating results for Paumanock Insurance Company Ltd. for the years ended
December 31, 1992 and 1991, were reported in the income statement under the
caption "Income (loss) from discontinued operations" and are summarized as
follows:
<TABLE>
<CAPTION>
1992 1991
-------- -------
<S> <C> <C>
Sales.................................................. $113,944 $64,055
Income (loss) before income taxes...................... (54,035) 6,266
Income taxes........................................... (9,000) 2,100
Net income (loss)...................................... (45,035) 4,166
</TABLE>
At December 31, 1992, the net book value of the insurance company's assets
and liabilities was $11.1 million and is included in other non-current assets.
This business was sold in the first quarter of 1993 at an amount that
approximated the company's carrying value.
F-8
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--ACCOUNTS RECEIVABLE:
Receivables at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Billed:
U.S. government...................................... $121,394 $110,873
Commercial........................................... 59,027 46,017
-------- --------
180,421 156,890
-------- --------
Unbilled costs and accrued profits:
U.S. government...................................... 320,370 337,306
Commercial........................................... 17,940 40,064
-------- --------
338,310 377,370
-------- --------
$518,731 $534,260
======== ========
</TABLE>
Unbilled costs and accrued profits represent revenue earned but not billed to
the customer at year-end. At December 31, 1993, approximately $166.7 million of
claims and accruals, a portion of which is subject to negotiation, is not
expected to be realized before December 31, 1994.
In June of 1991, the company submitted a request to the U. S. Air Force for
an equitable adjustment of the price of a contract involving the F-111A/E & EF-
111A Avionics Modernization Program, based on late and inadequate government-
furnished software and other property and other failures to comply with
contract requirements by the government. The request, as amended in May of
1993, was in the amount of $62.5 million. On August 26, 1993, the Contracting
Officer issued what purports to be a decision under the Contract Disputes Act
denying the preponderance of the price increase requested and concluding that
the Air Force is entitled to recover a net amount of $5.5 million on the basis
of alleged company failures to comply with the terms of the contract. The
company believes there is little or no support for the Contracting Officer's
decision and that the amounts of revenue recognized pursuant to this contract
are appropriate as of December 31, 1993.
NOTE 4--INVENTORIES:
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1993 1992
--------- ----------
<S> <C> <C>
Work in process--long-term contracts:
Production costs.................................. $ 951,837 $1,140,212
General and administrative expenses............... 120,491 110,316
Work in process--other.............................. 9,595 13,664
Raw materials, purchased parts and supplies......... 82,158 134,261
--------- ----------
1,164,081 1,398,453
Less related progress payments...................... 664,645 786,029
--------- ----------
$ 499,436 $ 612,424
========= ==========
</TABLE>
Under the contractual arrangements by which progress payments are received,
the government has a security interest in the inventories identified with
related contracts.
The aggregate amounts of selling, general and administrative expenses
incurred during 1993, 1992 and 1991 were, in millions, $375.0, $350.1 and
$349.3 respectively.
F-9
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31 (at cost) consist of:
<TABLE>
<CAPTION>
1993 1992
---------- ---------
<S> <C> <C>
Land................................................. $ 11,954 $ 11,474
Buildings............................................ 316,029 310,747
Machinery and equipment.............................. 967,773 963,395
Leasehold improvements............................... 51,437 51,829
Construction in progress............................. 12,897 8,782
---------- ---------
1,360,090 1,346,227
Less accumulated depreciation and amortization....... 987,367 946,806
---------- ---------
$ 372,723 $ 399,421
========== =========
</TABLE>
For the years 1993, 1992 and 1991, interest costs of $.9, $.5 and $1.8
million were capitalized, respectively, relating to construction in progress.
NOTE 6--INCOME TAXES:
The provision for federal income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Current.................................... $101,400 $ 27,600 $ 8,600
Deferred................................... (83,900) (9,900) (4,500)
-------- -------- --------
$ 17,500 $ 17,700* $ 4,100
======== ======== ========
- --------
* Excludes a tax benefit of $102 million relating to the cumulative effect of
the change to the accrual method of accounting for postretirement health
benefits.
A reconciliation between the provision for federal income taxes (substantially
all domestic) and the amount computed at the statutory federal income tax rate
is as follows:
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Provision computed at the statutory rate of
(1993--35%; 1992 and 1991--34%)........... $ 26,710 $ 31,459 $ 35,169
Research and other tax credits realized.... -- (23,500) (30,799)
Valuation allowance........................ (9,372) 9,372 --
FAS 109 adjustment and other............... 162 369 (270)
-------- -------- --------
$ 17,500 $ 17,700 $ 4,100
======== ======== ========
The provision for deferred federal income taxes consisted of the following:
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Contract tax accounting methods............ $(40,013) $ 16,208 $ (4,692)
Accelerated depreciation................... (294) (1,716) (3,502)
Capitalized costs.......................... (2,463) (669) (6,285)
Gain from investment....................... (17,150) -- --
Restructuring charge....................... (30,000) -- --
Employee benefits and all other--net....... (2,980) (14,723) 9,979
Discontinued operations.................... 9,000 (9,000) --
-------- -------- --------
$(83,900) $ (9,900) $ (4,500)
======== ======== ========
</TABLE>
F-10
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The current liability for income taxes shown in the accompanying financial
statements includes current deferred income taxes of $42.7 and $62.4 million as
of December 31, 1993 and 1992, respectively.
Deferred tax liabilities (assets) consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
<S> <C> <C>
Contract tax accounting............................ $ 86,910 $ 96,159
Excess tax over book depreciation.................. 30,337 31,856
--------- ---------
Gross deferred tax liabilities................... 117,247 128,015
--------- ---------
Restructuring charge............................... (30,000) --
Retiree benefit plans.............................. (106,673) (104,203)
Capitalized costs.................................. (17,307) (14,886)
Employee benefits and other........................ (23,411) (32,398)
Gain from investment............................... (17,150) --
Discontinued operations............................ -- (18,372)
--------- ---------
Gross deferred tax assets........................ (194,541) (169,859)
--------- ---------
Valuation allowance................................ -- 9,372
Net deferred tax asset........................... $ (77,294) $ (32,472)
========= =========
</TABLE>
The net change in the valuation allowance for deferred tax assets was a
decrease of $9.4 million as a result of the utilization of the loss incurred on
the sale of the reinsurance business.
Effective January 1, 1992, the company began using the liability method as
prescribed in Financial Accounting Standard No. 109 which was issued in
February 1992. Under FAS 109, deferred tax assets and liabilities are measured
at the tax rate that, under existing law, will be in effect when temporary
differences between financial and tax reporting turn around.
State taxes on income are included in general and administrative expenses,
and amounted to, in millions, $29.6 in 1993, $16.7 in 1992 and $11.3 in 1991.
NOTE 7--STOCK OPTIONS AND INCENTIVE PLANS:
The 1981 Stock Option Plan provided for the granting, at any time before
April 30, 1991, of options to purchase not more than 2,500,000 shares of the
company's stock. The 1990 Stock Option Plan provides for the granting, at any
time before April 30, 2000, of options to purchase not more than 1,500,000
shares of the company's stock. The 1992 Long Term Incentive Plan provides for
grants of awards not to exceed 1,750,000 shares. The stock option purchase
prices in these three plans are not less than the fair market value at dates of
grant.
The plans include an option surrender provision which allows the holders to
surrender some or all of their options and receive the value of the
appreciation of the shares in common stock.
F-11
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OPTIONS
<TABLE>
<CAPTION>
AVAILABLE FOR
OUTSTANDING FUTURE GRANT
DECEMBER 31 GRANTED EXERCISED SURRENDERED FORFEITED DECEMBER 31
------------ ------------ ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF SHARES
1993.................... 1,584,667 547,700 137,758 1,618,641 54,609 1,374,784
1992.................... 2,847,975 535,000 11,150 493,200 131,200 1,457,472
OPTION PRICE PER SHARE
1993.................... $14.19-39.13 $29.19-39.13 $14.94-32.13
1992.................... $14.19-32.13 $18.69-21.06 $14.25-21.56
</TABLE>
In exchange for the options surrendered in 1993 and 1992, 514,358 and 103,040
shares were issued, having an aggregate market value of $17.6 and $2.3 million,
respectively.
Restricted Stock Award Plans provide for granting to employees, at any time
before January 1, 1998, not more than 3,750,000 shares of common stock. At
December 31, 1993, 1,063,130 shares were still available for future awards. The
cost of shares awarded under these plans is being amortized over 10 years for
awards made prior to April 1989 and seven years thereafter, the periods after
which all restrictions will have lapsed. In 1993, 1992 and 1991, $3.2, $4.1 and
$4.8 million, respectively, have been charged against income for these awards.
The 1992 Long Term Incentive Plan provides for granting up to 1,750,000
shares in the form of stock options, performance shares and restricted stock.
To date three awards have been made totalling 428,650 performance shares, which
are earned over a three-year period; and, $4.4 million and $1.4 million of
compensation expense has been recorded for 1993 and 1992, respectively. Options
for 495,500 shares have been granted under this plan. Both the performance
shares and the options granted under this plan are included in the above table.
In addition, officers and key employees of the company and its subsidiaries
have received awards under a Management Incentive Plan totalling, in millions,
$7.0 in 1993, $6.8 in 1992 and $5.8 in 1991.
NOTE 8--LONG-TERM DEBT:
Long-term debt, net of current maturities, at December 31 is as follows:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Notes due 1999, 10 3/8%................................ $200,000 $200,000
Convertible subordinated debentures due 2009, 9 1/4%... -- 50,000
Sinking fund debentures due 2011, 10 1/2%.............. -- 55,605
Notes and mortgages at rates from 5 3/4% to 12 7/8%
with maturities through 2001.......................... 43,106 49,639
-------- --------
$243,106 $355,244
======== ========
</TABLE>
The fair value of the company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the corporation for debt of the same remaining maturities. Long-term
debt at December 31, 1993, in the opinion of management has a fair value of
$262.3 million.
F-12
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt maturing in each of the next five years is as follows, in
millions: 1994, $6.6; 1995, $7.3; 1996, $8.1; 1997, $8.3; 1998, $9.5.
The company is party to a Restated Credit Agreement with various banks under
which it may borrow up to $200 million. Additionally, the banks have provided a
short-term credit facility which provides an additional $100 million through
March 31, 1994. On February 25, 1996, the Restated Credit Agreement will
terminate and any outstanding advances must be repaid to the banks. Any
outstanding advances under the short-term credit facility must be repaid at
termination. Interest on borrowings under this agreement will be based on a
three level scale related to the company's current credit rating ranging from
either Citibank's Base Rate up to .25 percent over that rate or .50 to 1.25
percent over the applicable Eurodollar Rate. There is a commitment fee
associated with both agreements that is also based on the company's credit
rating ranging from .25 to .50 percent on the Restated Credit Agreement and
from .20 to .50 percent on the short term agreement.
Repayment of borrowings under all of the loan agreements is guaranteed by the
company's major subsidiaries. The agreements contain, among other things,
provisions regarding maintenance of working capital, net worth and the payment
of cash dividends on common stock. The company's working capital and net worth
are substantially in excess of the minimum requirements, and the amount
available for the payment of cash dividends at December 31, 1993, was $36
million.
The $75 million 9.50 percent notes which were due February 15, 1996, were
included in short-term debt at December 31, 1992, and were redeemed on February
17, 1993, at 100 percent of face value, together with accrued interest.
The 9.25 percent convertible subordinated debentures due August 15, 2009,
were convertible at any time prior to maturity into common stock at $34.75 per
share. This issue of debentures was called by the company July 7, 1993, at a
price of 101.85 percent of face value plus accrued interest. The 10.50 percent
sinking fund debentures due February 15, 2011, were called by the company on
April 20, 1993, at a price of 107 percent of face value plus accrued interest.
The 10.375 percent notes due January 1, 1999, will be redeemable at any time
on or after January 1, 1996, after written notice, as a whole or in part at 100
percent of principal amount thereof, together with accrued interest. Upon the
occurrence of a designated event (primarily a change in equity ownership, a
merger with another company or a two- thirds turnover of the board of
directors), the holders of the notes may require the company to repurchase
their notes at 100 percent of the principal amount.
NOTE 9--PREFERRED STOCK:
The company is authorized to issue 10 million shares of $1.00 par value
preferred stock, none of which is issued and outstanding at December 31, 1993.
In July 1992, the remaining outstanding 1,192,249 shares of $2.80 cumulative
preferred stock were redeemed at $25.867 per share.
Each share of the $.80 convertible preferred stock was convertible into 2.2
shares of the company's common stock. In November 1992 the company exercised
its right to call this issue of stock. Those holders who did not convert their
holdings to common stock by November 25, 1992, received a cash payment of
$14.43 per share plus accrued dividends to that date. Preferred stock converted
into common stock during 1992 and 1991 were 2,888 shares and 454 shares,
respectively.
F-13
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--RETIREMENT PLANS:
Grumman has noncontributory defined benefit plans covering approximately 85
percent of its employees and some defined contribution plans covering others.
Benefits under the defined benefit plans are based on employees' years of
service and career average compensation.
Statement of Financial Accounting Standard (FAS) No. 87, Employers'
Accounting for Pensions, effective for fiscal years beginning after December
15, 1986, established a methodology for calculating periodic pension costs for
defined benefit pension plans based on the projected unit credit actuarial
method.
The following tables set forth the status of the company's pension plans:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1992
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested............................................... $2,619,958 $2,140,407
Nonvested............................................ 233,482 199,334
---------- ----------
Accumulated benefit obligation....................... 2,853,440 2,339,741
Effect of projected future salary increases.......... 138,778 156,833
---------- ----------
Projected benefit obligation for services rendered to
date................................................ 2,992,218 2,496,574
Plan assets at fair value.............................. 2,871,620 2,771,642
---------- ----------
Projected benefit obligations (in excess of)/less than
plan assets........................................... (120,598) 275,068
Items not yet recognized in earnings:
Unamortized net (asset).............................. (187,182) (207,112)
Deferred net loss/(gain)............................. 326,734 (93,339)
---------- ----------
Accrued pension (liability)/prepaid expense............ $ 18,954 $ (25,383)
========== ==========
</TABLE>
Periodic pension cost for 1993, 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Defined benefit plans:
Service cost-benefits earned during period.. $ 54,993 $ 61,918 $ 61,135
Interest cost on projected benefit obliga-
tion....................................... 209,062 198,841 186,767
Actual return on assets..................... (186,573) (149,733) (486,778)
Net amortization and deferral............... (49,992) (67,693) 284,757
--------- --------- ---------
27,490 43,333 45,881
Defined contribution plans, etc............... 11,737 10,740 9,260
--------- --------- ---------
Total pension expense*........................ $ 39,227 $ 54,073 $ 55,141
========= ========= =========
Contributions to pension plans................ $ 77,892 $ 92,227 $ 88,507
========= ========= =========
</TABLE>
- --------
*Since government procurement regulations permit the recovery of pension
expense only to the extent contributions are made to the pension plans and the
company's business is predominantly with the government, the difference between
plan contributions and the calculated amount per FAS No. 87 is recorded in a
deferred asset account, as this difference will be expensed in the future as
costs are funded. The company's consolidated statement of income therefore
includes the total FAS No. 87 pension cost and a comparable amount of revenue.
Costs and liabilities associated with the pension enhancement program where
1,900 employees accepted enhanced pensions as an incentive to retire during the
period April 2 through October 31, 1990, are included above and are being
funded over a ten-year period which began in 1991.
F-14
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Assumptions used in determining the actuarial present value of benefit
obligations as of December 31 were:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Discount rate................................................. 7.50% 8.50%
Rate of increase in compensation levels....................... 3.50% 5.00%
Expected long-term rate of return on assets................... 8.50% 8.75%
</TABLE>
The discount rate was reduced from 8.50 percent to 7.50 percent and the
expected rate of return from 8.75 percent to 8.50 percent in recognition of
declining interest rates. These are the primary reasons that plan assets
shifted from being greater than the projected benefit obligations at December
31, 1992 to being $120.6 million less than the projected benefit obligation at
December 31, 1993.
For the years 1992 and 1991, the assumptions used in determining the net
periodic pension expense and the actuarial present value of benefit obligations
were a discount rate of 8.75 percent, a compensation increase rate of 6.00
percent, and an expected long-term rate of return on assets of 8.75 percent.
Approximately 37 percent of the retirement plans' assets are invested in
diversified corporate stock, 32 percent in U.S. government securities, 10
percent in corporate fixed income securities, 4 percent in real estate
investments and 17 percent in short-term investments. In the event the company
terminates its major plan, the U.S. government may claim a share of the
remaining excess assets after the accumulated benefits have been satisfied. The
company's objectives are to make contributions to the plan that satisfy the
ERISA funding requirements and to utilize realistic actuarial assumptions based
on long-term trends.
NOTE 11--POSTRETIREMENT HEALTH AND POSTEMPLOYMENT BENEFITS:
Approximately 75 percent of the company's employees employed at year-end may
become eligible for certain retiree health care benefits. The length of time
the benefit is available is directly related to years of service. Retiree
contributions depend on length of service and Medicare status.
Financial Accounting Standard (FAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," requires accrual accounting for
retiree medical benefits. The company adopted FAS No. 106 effective January 1,
1992, and elected to immediately expense the $300 million transition obligation
upon adoption. To date the company has not prefunded this liability but has
taken steps to establish an acceptable funding vehicle with funding to commence
in 1994.
The 1993 and 1992 net periodic postretirement benefit cost by component is as
follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Service cost............................................ $ 2,591 $ 3,350
Interest cost........................................... 20,310 25,150
Amortization of net gain................................ (1,904) --
------- -------
$20,997 $28,500
======= =======
</TABLE>
F-15
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status and breakdown of the postretirement benefits are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1992
-------- --------
<S> <C> <C>
Accumulated benefit obligation:
Active employees..................................... $ 96,681 $136,700
Retirees............................................. 155,325 169,800
-------- --------
Accumulated benefit obligation..................... 252,006 306,500
Unrecognized gain.................................... 52,746 --
-------- --------
Accrued postretirement benefit cost.................... $304,752 $306,500
======== ========
</TABLE>
The health care trend rates used by the company as of December 31, 1993,
were: 1993, 14 percent; 1994 and 1995, 12.50 percent; 1996-1998, inclusive,
9.50 percent; as of December 31, 1992, they were: 1992, 12 percent; 1993-1995,
inclusive, 14 percent; 1996-1998, inclusive, 12 percent. The trend thereafter
is zero due to the company's announcement that these costs will be capped at
1998 levels and all increases thereafter will be borne by the retirees.
The combination of fewer employees, lower health care claim cost experience,
and changes in actuarial assumptions has had the effect of reducing the
accumulated benefit obligation by approximately $54.7 million.
The 1993 valuation used a 7.50 percent discount rate. The effect of a one
percentage point increase in the assumed health care cost trend rates on the
accumulated benefit obligation would be an increase of $6.7 million at December
31, 1993. The net periodic postretirement cost for 1993 would increase by $1.3
million.
Prior to adoption of this standard, postretirement medical benefits were
accounted for on a pay-as-you-go basis. The cost of providing these benefits
net of retiree contributions amounted to $21.3 million in 1991.
In 1994, FAS No. 112, "Employers' Accounting for Postemployment Benefits,"
becomes mandatory. It requires postemployment benefits to be accounted for on
an accrual basis. The company's present accounting policies provide for the
accrual of the major components of these costs and adoption of this standard
will not have a material impact on the company's financial statements.
NOTE 12--COMMITMENTS AND CONTINGENCIES:
Rental expense for all operating leases amounted to, in millions, $67.1,
$72.8 and $75.8 for 1993, 1992 and 1991, respectively. Minimum rental
commitments under long-term noncancellable operating leases total $234.2
million which is payable as follows: 1994, $39.9; 1995, $34.6; 1996, $28.6;
1997, $23.8; 1998, $21.4; and $85.9 million in later years.
On January 28, 1993, a jury sitting in the United States District Court for
the District of Massachusetts returned a verdict against Grumman Systems
Support Corporation (GSSC), a subsidiary of Grumman Data Systems Corporation
(GDSC), which in turn is a wholly-owned subsidiary of the company, in an action
brought against GSSC by Data General Corporation (DG) for copyright
infringement and misappropriation of trade secrets. Judgment against GSSC was
entered in the United States District Court for the District of Massachusetts
in the amount of $52.4 million. Immediately after the entry of judgment DG
brought a post-trial motion seeking to join GDSC as a party defendant on a
theory of vicarious liability. The motion was denied and DG then commenced a
separate action in the Federal District Court for the District of
Massachusetts, Wooster Div. to enforce the judgment obtained against GDSC,
which action is still pending. GSSC has filed an appeal with the Federal Court
of Appeals for the First Circuit which was heard on
F-16
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 8, 1993. While GSSC's ultimate liability in the disposition of this
matter continues to be difficult to estimate, it is management's belief that
the outcome is not likely to have a material adverse effect on the company's
financial position.
Three shareholder derivative actions, which are described as brought on
behalf of the company, have been filed in the New York State Supreme Court for
New York County. The actions name certain of the company's current and former
directors as defendants, and name the company as "nominal defendant." The
actions ask that damages and other unspecified relief be awarded to the company
for the individual defendants' alleged breach of their fiduciary obligations
primarily in relation to the subject matter of a long-running federal
investigation known as "Operation Upwind." The matters referred to in these
actions have been and continue to be acted upon by the company's Board as part
of its own ongoing investigation. Motions for summary judgment which seek to
dismiss the complaints have been filed on behalf of the defendant directors and
the company in two of the three actions. No response to the complaint in the
third action has been filed.
Currently, there are five waste disposal sites where the company has been
named either as a potentially responsible party or an owner/operator of the
site by a cognizant governmental agency for the cleanup of hazardous materials
previously placed there either directly or through an agent and where the cost
of remediation or settlement could reasonably exceed $100 thousand in amount.
It is unknown at this time what the company's share of these remediation
efforts may be but it is not expected to have a material adverse effect on the
company's financial position.
Other pending litigation relating to matters that are in the ordinary course
of the company's business activities, including environmental matters, is not
expected to have a material adverse effect on the company's financial position.
NOTE 13--SEGMENT INFORMATION:
The company's operations are classified into four business segments as
follows:
"Aerospace"--Includes the design and production of military aircraft, space
systems and commercial aircraft components and subassemblies, as well as the
modernization or conversion of previously completed aircraft.
"Electronics systems"--Includes the design, manufacture and integration of
sophisticated electronics for aircraft, computerized test equipment and other
defense related products, such as airborne surveillance systems.
"Information and other services"--Includes electronic data processing
services for affiliates and other customers as well as real estate and leasing
services. It also includes technical services that help ready the space shuttle
for flight, provide space station program support, service and maintain flight
simulators and trainers and support Grumman aircraft.
"Special purpose vehicles"--Includes fabrication of long life vehicles for
the U.S. Postal Service, and aluminum truck bodies. Sales to the U.S.
government and its agencies (including sales to foreign governments through
foreign military sales contracts with U.S. government agencies) for the years
1993, 1992, and 1991 amounted to $2.8, $3.2 and $3.6 billion, respectively.
F-17
<PAGE>
GRUMMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of export sales by geographic areas follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Far East.......................................... $205,843 $141,782 $240,106
Middle East....................................... 87,899 21,248 23,130
Europe............................................ 74,990 70,806 60,862
Western Hemisphere................................ 5,720 4,478 9,949
-------- -------- --------
$374,452 $238,314 $334,047
======== ======== ========
</TABLE>
Information about the company's operations in its different industry segments
for the past three years is as follows:
<TABLE>
<CAPTION>
DEPRECIATION
OPERATING IDENTIFIABLE AND CAPITAL
1993 SALES INCOME (LOSS) ASSETS AMORTIZATION EXPENDITURES
- ---- ---------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Aerospace............... $1,965,066 $ 55,533* $1,150,003 $48,881 $29,337
Electronics systems..... 635,684 2,659* 298,680 10,309 8,768
Information and other
services............... 657,396 28,070* 294,224 9,391 4,850
Special purpose vehi-
cles................... 367,405 26,367 93,121 3,870 1,386
Corporate items and
eliminations........... (376,427) 5,580 188,421 1,384 244
---------- -------- ---------- ------- -------
Consolidated............ $3,249,124 118,209* $2,024,449 $73,835 $44,585
========== ========== ======= =======
Interest expense........ 31,702
--------
Income from continuing
operations before fed-
eral income taxes...... $ 86,507
========
- --------
* Includes an $85 million restructuring charge as follows, in millions:
Aerospace, $73; Electronics systems, $9 and Information and other services,
$3.
<CAPTION>
1992
- ----
<S> <C> <C> <C> <C> <C>
Aerospace............... $2,339,799 $134,476 $1,151,506 $54,855 $22,819
Electronics systems..... 610,850 13,715 317,111 11,245 9,705
Information and other
services............... 593,152 28,189 290,826 10,236 5,058
Special purpose vehi-
cles................... 343,350 27,646 74,334 4,026 1,251
Corporate items and
eliminations........... (383,201) (2,400) 255,239 1,765 221
---------- -------- ---------- ------- -------
Consolidated............ $3,503,950 201,626 $2,089,016 $82,127 $39,054
========== ========== ======= =======
Interest expense........ 55,065
--------
Income from continuing
operations before
federal income taxes... $146,561
========
<CAPTION>
1991
- ----
<S> <C> <C> <C> <C> <C>
Aerospace............... $2,895,794 $119,753** $1,323,650 $64,308 $30,932
Electronics systems..... 505,395 13,855 325,546 11,121 12,705
Information and other
services............... 622,314 31,555 352,001 13,022 8,544
Special purpose vehi-
cles................... 366,072 21,165 99,053 4,185 2,396
Corporate items and
eliminations........... (415,724) (3,921) 142,166 1,638 270
---------- -------- ---------- ------- -------
Consolidated............ $3,973,851 182,407 $2,242,416 $94,274 $54,847
========== ========== ======= =======
Interest expense........ 85,236
--------
Income from continuing
operations before
federal income taxes... $ 97,171
========
</TABLE>
- --------
** Includes a $46.5 million charge arising from the settlement of claims
against Tracor Aviation Inc.
F-18
<PAGE>
QUARTERLY FINANCIAL DATA
(UNAUDITED)
The following summarizes quarterly financial data for 1993 and 1992:
<TABLE>
<CAPTION>
1993
------------------------------------
QUARTER ENDED
------------------------------------
SEPTEMBER DECEMBER
MARCH 31 JUNE 30 30 31
-------- -------- --------- --------
($ IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Sales................................. $871,771 $746,190 $791,417 $839,746
Gross profit.......................... 90,243 81,243 72,417 75,234
Income (loss) from continuing
operations........................... 34,220 26,832 29,941 (25,486)(1)
Net income (loss)..................... 27,520 26,832 29,941 (25,486)(1)
Primary earnings per share:
Income (loss) from continuing
operations......................... $1.00 $.79 $.85 $(.74)(1)
Net income (loss)................... .81 .79 .85 (.74)(1)
</TABLE>
- --------
(1) After a restructuring charge of $55 million or $1.60 per share, net of
federal income tax.
<TABLE>
<CAPTION>
1992
-----------------------------------------
QUARTER ENDED
-----------------------------------------
SEPTEMBER DECEMBER
MARCH 31 JUNE 30 30 31
--------- -------- --------- --------
($ IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Sales............................ $ 950,467 $853,845 $768,873 $930,765
Gross profit..................... 88,014 77,073 65,077 84,751
Income from continuing
operations...................... 29,233 23,795 23,442 43,391
Net income (loss)................ (167,518)(2) 26,937 20,351 (2,944)(3)
Primary earnings per share:
Income from continuing
operations.................... $.85 $.68 $.67 $1.29
Net income (loss).............. (4.99)(2) .77 .58 (.09)(3)
</TABLE>
- --------
(2) Reflects the adoption of Financial Accounting Standard 106, regarding
accounting for postretirement health benefits as of January 1, 1992 which
resulted in a net charge of $198 million or $5.88 per share.
(3) Includes a charge of $46.3 million or $1.38 per share reflecting the
discontinuance of the company's reinsurance business.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Backlog*..................................... $6,036 $7,561 $7,212 $8,451 $8,800
</TABLE>
- --------
* Includes authorized but unfunded amounts.
DIVIDEND AND STOCK PRICE DATA
Cash dividends of $1.15 per share totalling $38.7 million and $1.00 per share
totalling $33.5 million were paid on common stock in 1993 and 1992,
respectively. Dividends on common stock have been paid annually since 1930. For
restrictions on cash dividends imposed under the company's borrowing
agreements, see Note 8 of the Notes to Financial Statements.
F-19
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 3, 1994
AMONG
NORTHROP CORPORATION,
NORTHROP ACQUISITION, INC.
AND
GRUMMAN CORPORATION
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 THE OFFER....................................................... 1
SECTION 1.1 The Offer................................................. 1
SECTION 1.2 Company Action............................................ 2
SECTION 1.3 Boards of Directors and Committees; Section 14(f)......... 3
ARTICLE 2 THE MERGER...................................................... 4
SECTION 2.1 The Merger................................................ 4
SECTION 2.2 Effective Time............................................ 4
SECTION 2.3 Effects of the Merger..................................... 4
SECTION 2.4 Certificate of Incorporation and By-Laws.................. 4
SECTION 2.5 Directors................................................. 4
SECTION 2.6 Officers.................................................. 4
SECTION 2.7 Conversion of Shares...................................... 5
SECTION 2.8 Stock Option Plans; MIP................................... 5
SECTION 2.9 Shareholders' Meeting..................................... 5
ARTICLE 3 DISSENTING SHARES; EXCHANGE OF SHARES........................... 6
SECTION 3.1 Dissenting Shares......................................... 6
SECTION 3.2 Payment for Shares........................................ 6
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 7
SECTION 4.1 Organization and Qualification; Subsidiaries.............. 7
SECTION 4.2 Capitalization of the Company and Its Subsidiaries........ 7
SECTION 4.3 Authority Relative to This Agreement; Consents and Approv-
als.................................................................. 8
SECTION 4.4 SEC Reports; Financial Statements......................... 9
SECTION 4.5 Proxy Statement; Offer Documents.......................... 9
SECTION 4.6 Consents and Approvals; No Violations..................... 9
SECTION 4.7 No Default................................................ 10
SECTION 4.8 No Undisclosed Liabilities; Absence of Changes............ 10
SECTION 4.9 Litigation................................................ 10
SECTION 4.10 Compliance with Applicable Law........................... 10
SECTION 4.11 Employee Plans........................................... 11
SECTION 4.12 Environmental Laws and Regulations....................... 11
SECTION 4.13 Rights Agreement......................................... 11
SECTION 4.14 Brokers.................................................. 11
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION........ 11
SECTION 5.1 Organization.............................................. 11
SECTION 5.2 Authority Relative to This Agreement...................... 12
SECTION 5.3 Consents and Approvals; No Violations..................... 12
SECTION 5.4 Proxy Statement; Schedule 14D-9........................... 12
SECTION 5.5 Financing................................................. 12
SECTION 5.6 No Prior Activities....................................... 12
SECTION 5.7 Brokers................................................... 13
ARTICLE 6 COVENANTS....................................................... 13
SECTION 6.1 Conduct of Business of the Company........................ 13
SECTION 6.2 Other Potential Bidders................................... 14
SECTION 6.3 Access to Information..................................... 15
SECTION 6.4 Additional Agreements; Reasonable Efforts................. 16
SECTION 6.5 Consents.................................................. 16
SECTION 6.6 Public Announcements...................................... 16
SECTION 6.7 Indemnification........................................... 16
SECTION 6.8 Notification of Certain Matters........................... 16
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C>
SECTION 6.9 Guarantee of Performance................................... 17
SECTION 6.10 Redemption of Rights...................................... 17
ARTICLE 7 CONDITIONS TO CONSUMMATION OF THE MERGER......................... 17
SECTION 7.1 Conditions to Each Party's Obligations to Effect the Merg-
er.................................................................... 17
ARTICLE 8 TERMINATION; AMENDMENT; WAIVER................................... 17
SECTION 8.1 Termination................................................ 17
SECTION 8.2 Effect of Termination...................................... 18
SECTION 8.3 Fees and Expenses.......................................... 18
SECTION 8.4 Amendment.................................................. 19
SECTION 8.5 Extension; Waiver.......................................... 20
ARTICLE 9 MISCELLANEOUS.................................................... 20
SECTION 9.1 Nonsurvival of Representations and Warranties.............. 20
SECTION 9.2 Entire Agreement; Assignment............................... 20
SECTION 9.3 Validity................................................... 20
SECTION 9.4 Notices.................................................... 20
SECTION 9.5 Governing Law.............................................. 20
SECTION 9.6 Descriptive Headings....................................... 20
SECTION 9.7 Parties in Interest........................................ 21
SECTION 9.8 Counterparts............................................... 21
</TABLE>
A-ii
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE IN
TERM AGREEMENT
- ---- ----------------------
<S> <C>
Acquisition.............................................. Preamble
Balance Sheet............................................ Section 4.4(a)
Board.................................................... Recitals
Certificates............................................. Section 3.2(b)
Code..................................................... Section 4.11
Common Stock............................................. Section 4.2(a)
Company.................................................. Preamble
Company Permits.......................................... Section 4.10
Company Securities....................................... Section 4.2a
DGCL..................................................... Section 2.1
Dissenting Shares........................................ Section 3.1
Effective Time........................................... Section 2.2
Environmental Claim...................................... Section 4.12
Environmental Laws....................................... Section 4.12
ERISA.................................................... Section 4.11
Exchange Act............................................. Section 1.3(b)
Exchange Agent........................................... Section 3.2(a)
Exchange Fund............................................ Section 3.2(a)
Financial Advisor........................................ Section 1.2(a)
Governmental Entity...................................... Section 4.6
HSR Act.................................................. Section 4.6
Lien..................................................... Section 4.2(b)
Material Adverse Effect.................................. Section 4.1(a) and 5.1
Merger................................................... Section 2.1
Merger Consideration..................................... Section 2.7(a)
Minimum Condition........................................ Section 1.1(a)
NYBCL.................................................... Section 1.2 (a)
Offer.................................................... Recitals
Offer Documents.......................................... Section 1.1(b)
Option................................................... Section 2.8(a)
Parent................................................... Preamble
Per Share Amount......................................... Recitals
Premium Amount........................................... Section 6.7(b)
Proxy Statement.......................................... Section 4.5
Rights................................................... Section 4.2(a)
Rights Agreement......................................... Section 4.2(a)
Schedule 14D-9........................................... Section 1.2(b)
Securities Act........................................... Section 4.4
SEC...................................................... Section 1.1(b)
SEC Reports.............................................. Section 4.4(a)
Shares................................................... Recitals
Shareholders' Meeting.................................... Section 2.9(a)
Stock Plans.............................................. Section 2.8(a)
Subsidiary............................................... Section 4.1(a)
Surviving Corporation.................................... Section 2.1
Third Party.............................................. Section 8.3(a)
Third Party Acquisition.................................. Section 8.3(a)
1993 Financial Statements................................ Section 4.4
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 3, 1994, is among
NORTHROP CORPORATION, a Delaware corporation ("Parent"), NORTHROP ACQUISITION,
INC., a Delaware corporation and a wholly owned subsidiary of Parent
("Acquisition"), and GRUMMAN CORPORATION, a New York corporation (the
"Company").
WHEREAS, the Board of Directors of the Company (the "Board") has, in light of
and subject to the terms and conditions set forth herein, (i) determined that
each of the Offer and the Merger (each as defined below) is fair to the
shareholders of the Company and in the best interests of such shareholders and
(ii) approved and adopted this Agreement and the transactions contemplated
hereby and resolved to recommend acceptance of the Offer and approval and
adoption by the shareholders of the Company of this Agreement; and
WHEREAS, in furtherance thereof, it is proposed that Acquisition shall amend
its outstanding tender offer (the "Offer") to acquire all of the outstanding
shares of common stock, par value $1.00 per share, of the Company (the
"Shares") together with the associated Rights (as hereinafter defined) at a
price of $62.00 per Share (such amount, or any greater amount per share paid
pursuant to the Offer, being hereinafter referred to as the "Per Share
Amount"), net to the seller in cash, in accordance with the terms and subject
to the conditions provided herein.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, Parent, Acquisition and the Company hereby agree as
follows:
ARTICLE 1
THE OFFER
SECTION 1.1. The Offer. (a) Provided that this Agreement shall not have been
terminated in accordance with Section 8.1 and none of the events or conditions
set forth in Annex A shall have occurred and be existing, Acquisition shall use
all reasonable efforts to consummate the Offer. Acquisition shall accept for
payment Shares which have been validly tendered and not withdrawn pursuant to
the Offer at the earliest time following expiration of the Offer that all
conditions to the Offer shall have been satisfied or waived by Acquisition. The
obligation of Acquisition to accept for payment, purchase and pay for Shares
tendered pursuant to the Offer shall be subject only to the conditions set
forth in Annex A hereto and to the further condition that a number of Shares
representing not less than two-thirds of the Shares then outstanding on a fully
diluted basis shall have been validly tendered and not withdrawn prior to the
expiration date of the Offer (the "Minimum Condition"). Acquisition expressly
reserves the right to increase the price per Share payable in the Offer or to
make any other changes in the terms and conditions of the Offer (provided that,
unless previously approved by the Company in writing, no change may be made
which decreases the price per Share payable in the Offer, which changes the
form of consideration to be paid in the Offer, which reduces the maximum number
of Shares to be purchased in the Offer, which imposes conditions to the Offer
in addition to those set forth in Annex A hereto or which broadens the scope of
such conditions). It is agreed that the conditions set forth in Annex A are for
the sole benefit of Acquisition and may be asserted by Acquisition regardless
of the circumstances giving rise to any such condition (including any action or
inaction by Acquisition) or may be waived by Acquisition, in whole or in part
at any time and from time to time, in its sole discretion. The failure by
Acquisition at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time. Any
determination (which shall be made in good faith) by Acquisition with respect
to any of the foregoing conditions (including, without limitation, the
satisfaction of such conditions) shall be final and binding on the parties. The
Per Share Amount shall be paid net to the
A-1
<PAGE>
seller in cash, less any required withholding of taxes, upon the terms and
subject to such conditions of the Offer. The Company agrees that no Shares held
by the Company or any of its subsidiaries will be tendered in the Offer.
(b) As soon as practicable after the date hereof, Acquisition shall file with
the Securities and Exchange Commission (the "SEC") an amendment to its Tender
Offer Statement on Schedule 14D-1 dated March 14, 1994 with respect to the
Offer which will reflect the existence of this Agreement, amend the conditions
to the Offer in accordance herewith and contain a supplement to Acquisition's
Offer to Purchase dated March 14, 1994 and related letter of transmittal
(together with any supplements or amendments thereto, collectively the "Offer
Documents"). The Offer Documents will comply in all material respects with the
provisions of applicable federal securities laws and the securities laws of the
State of New York. The information provided and to be provided by the Company,
Parent and Acquisition for use in the Offer Documents shall not, on the date
filed with the SEC and on the date first published or sent or given to the
Company's shareholders, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Parent, Acquisition
and the Company each agrees promptly to correct any information provided by it
for use in the Offer Documents if and to the extent that it shall have become
false or misleading in any material respect and Acquisition further agrees to
take all steps necessary to cause the Offer Documents as so corrected to be
filed with the SEC and to be disseminated to holders of Shares, in each case as
and to the extent required by applicable federal securities laws and the
securities laws of the State of New York.
SECTION 1.2. Company Action. (a) The Company hereby approves of and consents
to the Offer and represents and warrants that the Board, at a meeting duly
called and held, has, subject to the terms and conditions set forth herein, (i)
determined that this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, are fair to, and in the best interests of,
the shareholders of the Company, (ii) approved this Agreement and the
transactions contemplated hereby, including the Offer and the Merger, in all
respects and that such approval constitutes approval of the Offer, this
Agreement and the Merger for purposes of (A) Sections 902 and 912 of the New
York Business Corporation Law (the "NYBCL") and similar provisions of any other
similar state statutes that might be deemed applicable to the transactions
contemplated hereby, (B) paragraph 1(a) of Article SEVENTH of the Company's
certificate of incorporation and (C) Section 11(a)(ii)(B) of the Rights
Agreement, and (iii) resolved to recommend that the shareholders of the Company
accept the Offer, tender their Shares thereunder to Acquisition and approve and
adopt this Agreement and the Merger; provided, however, that such
recommendation may be withdrawn, modified or amended to the extent that the
Board by a majority vote determines in its good faith judgment, based as to
legal matters on the written opinion of legal counsel, that the Board is
required to do so in the exercise of its fiduciary duties. The Company consents
to the inclusion of such recommendation and approval in the Offer Documents.
The Company further represents that Goldman, Sachs & Co. (the "Financial
Adviser") has delivered to the Board its written opinion that the cash
consideration to be received by the shareholders of the Company pursuant to the
Offer and the Merger is fair to such shareholders. The Company has been
authorized by the Financial Adviser to permit, subject to prior review and
consent by the Financial Adviser (such consent not to be unreasonably
withheld), the inclusion of the fairness opinion (or a reference thereto) in
the Offer Documents, the Schedule 14D-9 and the Proxy Statement. The Company
hereby represents that it has terminated the Agreement and Plan of Merger dated
as of March 6, 1994 among Martin Marietta Corporation, MMC Acquisition Corp.
and the Company pursuant to Section 8.1(d)(ii) thereof.
(b) The Company hereby agrees to file with the SEC as soon as practicable
after the date hereof an amendment to its Solicitation/Recommendation Statement
on Schedule 14D-9 pertaining to the Offer (together with any amendments or
supplements thereto, the "Schedule 14D-9") containing the recommendation
described in Section 1.2(a) and to promptly mail the Schedule 14D-9 to the
shareholders of the Company. The Schedule 14D-9 will comply in all material
respects with the provisions of applicable federal securities laws and, on the
date filed with the SEC and on the date first published, sent or given to the
A-2
<PAGE>
Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by
Parent or Acquisition in writing for inclusion in the Schedule 14D-9. The
Company, Parent and Acquisition each agrees promptly to correct any information
provided by it for use in the Schedule 14D-9 if and to the extent that it shall
have become false or misleading in any material respect and the Company further
agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected
to be filed with the SEC and disseminated to the holders of Shares, in each
case as and to the extent required by applicable federal securities laws.
Notwithstanding anything to the contrary in this Agreement, if the Board by
majority vote determines in its good faith judgment, based as to legal matters
on the written opinion of legal counsel, that the Board is required in the
exercise of its fiduciary duties to withdraw, modify or amend the
recommendation of the Board, such withdrawal, modification or amendment shall
not constitute a breach of this Agreement.
(c) In connection with the Offer, the Company will promptly furnish Parent
and Acquisition with mailing labels, security position listings and any
available listing or computer files containing the names and addresses of the
record holders of the Shares as of a recent date and shall furnish Acquisition
with such additional information and assistance (including, without limitation,
updated lists of shareholders, mailing labels and lists of securities
positions) as Acquisition or its agents may reasonably request in communicating
the Offer to the record and beneficial holders of Shares. Subject to the
requirements of applicable law, and except for such steps as are necessary to
disseminate the Offer Documents and any other documents necessary to consummate
the Merger, Parent, Acquisition and their affiliates, associates, agents and
advisors shall use the information contained in any such labels, listings and
files only in connection with the Offer and the Merger, and, if this Agreement
shall be terminated, will deliver to the Company all copies of such information
then in their possession.
SECTION 1.3. Boards of Directors and Committees; Section 14(f). (a) Promptly
upon the purchase by Acquisition of Shares pursuant to the Offer and from time
to time thereafter, and subject to the last sentence of this Section 1.3(a),
Acquisition shall be entitled to designate up to such number of directors,
rounded up to the next whole number, on the Board as will give Acquisition
representation on the Board equal to the product of the number of directors on
the Board (giving effect to any increase in the number of directors pursuant to
this Section 1.3) and the percentage that such number of Shares so purchased
bears to the total number of outstanding Shares on a fully-diluted basis, and
the Company shall use its best efforts to, upon request by Acquisition,
promptly, at the Company's election, either increase the size of the Board
(subject to the provisions of Article EIGHTH of the Company's certificate of
incorporation) or secure the resignation of such number of directors as is
necessary to enable Acquisition's designees to be elected to the Board and to
cause Acquisition's designees to be so elected. At such times, and subject to
the last sentence of this Section 1.3(a), the Company will use its best efforts
to cause persons designated by Acquisition to constitute the same percentage as
is on the Board of (i) each committee of the Board (other than any committee of
the Board established to take action under this Agreement), (ii) each board of
directors of each subsidiary of the Company and (iii) each committee of each
such board. Notwithstanding the foregoing, the Company shall use its best
efforts to ensure that three of the members of the Board as of the date hereof
shall remain members of the Board until the Effective Time (as defined in
Section 2.2 hereof).
(b) The Company's obligation to appoint designees to the Board shall be
subject to Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14f-1 promulgated thereunder. The Company shall
promptly take all action required pursuant to such Section and Rule in order to
fulfill its obligations under this Section 1.3 and shall include in the
Schedule 14D-9 such information with respect to the Company and its officers
and directors as is required under such Section and Rule in order to fulfill
its obligations under this Section 1.3. Acquisition will supply to the Company
in writing and be solely responsible for any information with respect to itself
and its nominees, officers, directors and affiliates required by such Section
and Rule.
A-3
<PAGE>
(c) Following the election or appointment of Acquisition's designees pursuant
to this Section 1.3 and prior to the Effective Time, if there shall be any
directors of the Company who were directors as of the date hereof, any
amendment of this Agreement, any termination of this Agreement by the Company,
any extension by the Company of the time for the performance of any of the
obligations or other acts of Acquisition or Parent or waiver of any of the
Company's rights hereunder, will require the concurrence of a majority of such
directors.
ARTICLE 2
THE MERGER
SECTION 2.1. The Merger. At the Effective Time and upon the terms and subject
to the conditions of this Agreement and in accordance with the NYBCL and the
Delaware General Corporation Law (the "DGCL"), Acquisition shall be merged with
and into the Company (the "Merger"). Following the Merger, the Company shall
continue as the surviving corporation (the "Surviving Corporation") and the
separate corporate existence of Acquisition shall cease. Parent may, upon
notice to the Company, modify the structure of the Merger if Parent determines
it advisable to do so because of tax or other considerations, and the Company
shall promptly enter into any amendment to this Agreement necessary or
desirable to accomplish such structure modification, provided that no such
amendment shall reduce the Merger Consideration.
SECTION 2.2. Effective Time. As soon as practicable after the satisfaction or
waiver of the conditions set forth in Article 7, the parties hereto will
deliver a certificate of merger to the Department of State of the State of New
York and to the Secretary of State of the State of Delaware for filing and make
all other filings or recordings required by the NYBCL and the DGCL in
connection with the Merger. Prior to the filing referred to in this Section
2.2, a closing will be held at the offices of Gibson, Dunn & Crutcher, 200 Park
Avenue, New York, New York 10166 (or such other place as the parties may agree)
for the purpose of confirming all of the foregoing. The Merger shall become
effective at such time as such certificate of merger is duly filed by the
Department of State of the State of New York, or at such later time as is
specified in such certificate of merger (the time the Merger becomes effective
being referred to herein as the "Effective Time").
SECTION 2.3. Effects of the Merger. The Merger shall have the effects set
forth in the NYBCL (including, without limitation, Section 906 thereof) and the
DGCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the properties, rights, privileges, powers and
franchises of the Company and Acquisition shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and
Acquisition shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 2.4. Certificate of Incorporation and By-Laws. (a) The certificate of
incorporation of the Company in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law.
(b) The by-laws of the Company in effect at the Effective Time shall be the
by-laws of the Surviving Corporation until amended in accordance with
applicable law.
SECTION 2.5. Directors. The directors of Acquisition at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and By-Laws of the
Surviving Corporation until such director's successor is duly elected or
appointed and qualified.
SECTION 2.6. Officers. The officers of the Company at the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and By-Laws of the
Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
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SECTION 2.7. Conversion of Shares. (a) Each Share issued and outstanding
immediately prior to the Effective Time (other than (i) Shares held in the
Company's treasury or by any of the Company's subsidiaries, (ii) Shares held by
Parent, Acquisition or any other subsidiary of Parent and (iii) Dissenting
Shares (as defined in Section 3.1 hereof)), together with the associated
Rights, shall, by virtue of the Merger and without any action on the part of
Acquisition, the Company or the holder thereof, be cancelled and extinguished
and be converted into the right to receive, pursuant to Section 3.2, the Per
Share Amount in cash (the "Merger Consideration"), payable to the holder
thereof, without interest thereon, upon the surrender of the certificate
formerly representing such Share, less any required withholding of taxes.
Parent and Acquisition shall take such action as may be necessary to cause
Acquisition to have outstanding, immediately prior to the Effective Time, the
same number of shares of common stock as the number of Shares then outstanding.
At the Effective Time, each outstanding share of the common stock, par value
$.01 per share, of Acquisition shall be converted into one share of common
stock, par value $1.00 per share, of the Surviving Corporation.
(b) Each Share held in the treasury of the Company and each Share held by
Parent, Acquisition or any subsidiary of Parent, Acquisition or the Company
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of Acquisition, the Company or the holder
thereof, be cancelled, retired and cease to exist and no payment shall be made
with respect thereto.
SECTION 2.8. Stock Option Plans; MIP. (a) The Company shall use all
reasonable efforts to cause all holders of options ("Options") to purchase
Shares granted under the 1981 Stock Option Plan of the Company, the 1990 Stock
Option Plan of the Company, the 1992 Long Term Incentive Plan of the Company or
any predecessor stock option or stock plan of the Company (collectively, the
"Stock Plans") which are outstanding immediately prior to the Effective Time to
exercise such Options prior to the Effective Time. The Company shall take such
action as is necessary under the Stock Plans to cause any Options that remain
outstanding after the Merger to thereafter be exercisable for a short-term debt
instrument of the Surviving Corporation in a face amount (and with an interest
rate and other terms designed to provide a fair value) equal to an amount
determined by multiplying the Merger Consideration by the number of Shares for
which such Option was theretofore exercisable.
(b) Prior to the Effective Time, the Company shall use all reasonable efforts
to (i) obtain any consents from individuals who are entitled to awards under
the Company's Management Incentive Plan ("MIP") and (ii) make any amendments to
the terms of such plan that are necessary to provide for future distributions
thereunder to be paid in the form of cash (and not in the form of Shares).
SECTION 2.9. Shareholders' Meeting. The Company, acting through the Board,
shall in accordance with applicable law:
(i) duly call, give notice of, convene and hold an annual or special
meeting of its shareholders (the "Shareholders' Meeting"), to be held as
soon as practicable after May 18, 1994 (provided that Acquisition shall
have purchased Shares pursuant to the Offer) for the purpose of considering
and taking action upon this Agreement;
(ii) subject to its fiduciary duties as determined in good faith by a
majority of the Board, based as to legal matters on the written opinion of
legal counsel, include in the Proxy Statement the recommendation of the
Board that shareholders of the Company vote in favor of the approval and
adoption of this Agreement and the written opinion of the Financial Advisor
that the cash consideration to be received by the shareholders of the
Company pursuant to the Merger is fair to such shareholders; and
(iii) use all reasonable efforts (A) to obtain and furnish the
information required to be included by it in the Proxy Statement and, after
consultation with Parent and Acquisition, respond promptly to any comments
made by the SEC with respect to the Proxy Statement and any preliminary
version thereof and cause the Proxy Statement to be mailed to its
shareholders at the earliest practicable time following the expiration or
termination of the Offer and (B) subject to its fiduciary duties as
determined in good faith by a majority of the Board, based as to legal
matters on the written opinion of legal counsel, to
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obtain the necessary approvals by its shareholders of this Agreement and
the transactions contemplated hereby. At such meeting, Parent, Acquisition
and their affiliates will vote all Shares owned by them in favor of
approval and adoption of this Agreement and the transactions contemplated
hereby.
ARTICLE 3
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 3.1. Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Shares outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such Shares in accordance with
Section 623 of the NYBCL ("Dissenting Shares") shall not be converted into a
right to receive the Merger Consideration, unless such holder fails to perfect
or withdraws or otherwise loses his right to appraisal. If, after the Effective
Time, such holder fails to perfect or withdraws or loses his right to
appraisal, such Shares shall be treated as if they had been converted as of the
Effective Time into a right to receive the Merger Consideration, without
interest thereon. The Company shall give Parent and Acquisition prompt notice
of any demands received by the Company for appraisal of Shares, and, prior to
the Effective Time, Parent and Acquisition shall have the right to direct all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not, except with the prior written consent of
Parent or Acquisition, make any payment with respect to, or settle or offer to
settle, any such demands.
SECTION 3.2. Payment for Shares. (a) Prior to the Effective Time, Parent and
Acquisition shall designate a bank or trust company reasonably acceptable to
the Company to act as Exchange Agent in connection with the Merger (the
"Exchange Agent") pursuant to an exchange agency agreement providing for the
matters set forth in this Section 3.2 and otherwise reasonably satisfactory to
the Company. At or prior to the Effective Time, Parent or Acquisition will
provide the Exchange Agent with the funds necessary to make the payments
contemplated by Section 2.7(a) hereof (the "Exchange Fund").
(b) Promptly after the Effective Time, the Exchange Agent shall mail to each
record holder, as of the Effective Time, of an outstanding certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "Certificates") a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
for payment therefor. Upon surrender to the Exchange Agent of a Certificate,
together with a duly executed letter of transmittal and any other required
documents, the holder of such Certificate shall receive in exchange therefor
(as promptly as practicable) the consideration set forth in Section 2.7(a)
hereof, without any interest thereon, less any required withholding of taxes,
and such Certificate shall forthwith be cancelled. If payment is to be made to
a person other than the person in whose name a Certificate so surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for
transfer, that the signatures on the Certificate or any related stock power
shall be properly guaranteed and that the person requesting such payment shall
either pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of the Certificate so surrendered or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 3.2(b), each Certificate (other than Certificates
representing Shares held in the Company's treasury or by Acquisition, or by any
subsidiary of the Company or Acquisition, and other than Certificates
representing Dissenting Shares) shall represent for all purposes only the right
to receive for each Share represented thereby the consideration provided for
under this Agreement.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the Shares 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 the consideration provided for, and in accordance
with the procedures set forth, in this Article 3.
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(d) From and after the Effective Time, the holders of Certificates evidencing
ownership of Shares outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such Shares except as otherwise
provided herein or by applicable law. Such holders shall have no rights, after
the Effective Time, with respect to such Shares except to surrender such
Certificates in exchange for cash pursuant to this Agreement or to perfect any
rights of appraisal as a holder of Dissenting Shares that such holders may have
pursuant to Section 623 of the NYBCL.
(e) Any portion of the Exchange Fund (including the proceeds of any
investment thereof) that remains unclaimed by the shareholders of the Company
for six months after the Effective Time shall be repaid to the Surviving
Corporation. Any shareholders of the Company who have not theretofore complied
with this Article 3 shall thereafter look only to the Surviving Corporation for
payment of their claims for the consideration set forth in Section 2.7(a)
hereof for each Share such shareholder holds, without any interest thereon.
(f) Notwithstanding anything to the contrary in this Section 3.2, none of the
Exchange Agent, Parent or the Surviving Corporation shall be liable to a holder
of a Certificate formerly representing Shares for any amount properly delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. If Certificates are not surrendered prior to two years after the
Effective Time, unclaimed funds payable with respect to such Certificates
shall, to the extent permitted by applicable law, become the property of the
Surviving Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and Acquisition
that, except as disclosed in the letter, dated the date hereof, from the
Company to Parent (the "Letter"):
SECTION 4.1. Organization and Qualification; Subsidiaries. (a) Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its businesses as now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power and authority would not, individually or in the aggregate, have a
Material Adverse Effect (as defined below) on the Company. The Company has
heretofore delivered to Acquisition or Parent accurate and complete copies of
the certificate of incorporation and by-laws, as currently in effect, of the
Company and promptly will deliver to Acquisition and Parent accurate and
complete copies of the certificate or articles of incorporation and by-laws, as
currently in effect, of each of its significant subsidiaries (as that term is
defined in Regulation S-X of the General Rules and Regulations under the
Securities Act of 1933, as amended). When used in connection with the Company
or any of its subsidiaries, the term "Material Adverse Effect" means any change
or effect (other than changes or effects described in the Letter) that is or is
reasonably likely to be materially adverse to the business, results of
operations or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole, other than any change or effect arising out of
general economic conditions unrelated to any businesses in which the Company is
engaged.
SECTION 4.2. Capitalization of the Company and its Subsidiaries. (a) The
authorized capital stock of the Company consists of: 80,000,000 shares of
common stock, par value $1.00 per share (the "Common Stock"), of which, as of
February 28, 1994, 33,935,448 Shares were issued and outstanding, and
10,000,000 shares of preferred stock, par value $1.00 per share, no shares of
which are outstanding. All of the Shares have been validly issued, and are
fully paid, nonassessable and free of preemptive rights. As of February 28,
1994, approximately 1,129,226 shares of Common Stock were reserved for issuance
and issuable upon or otherwise deliverable in connection with the exercise of
outstanding Options. As of February 28, 1994,
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performance share awards were outstanding with respect to a maximum of 428,650
shares of Common Stock under the Company's Long-Term Incentive Plan with no
more than an additional 30,000 shares of Common Stock payable as dividend
equivalents with respect to such share awards, and the number of all such
shares (including shares under the performance share awards and the dividend
equivalent shares thereon) will be doubled under such plan as a result of any
change of control as defined therein. As of February 28, 1994, 107,975,451
shares of Common Stock were deliverable in settlement of deferred compensation
under the MIP. Since February 28, 1994, no shares of the Company's capital
stock have been issued other than pursuant to stock options already in
existence on such date, and since February 28, 1994, no stock options have been
granted. Except as set forth above, and except for the rights (the "Rights")
to, among other things, purchase Series A Junior Participating Preferred Stock
issued pursuant to the Rights Agreement, dated as of February 18, 1988 (the
"Rights Agreement"), between the Company and The Bank of New York, as Rights
Agent, there are outstanding (i) no shares of capital stock or other voting
securities of the Company, (ii) no securities of the Company or any of its
subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (iii) no options or other rights to acquire
from the Company or any of its subsidiaries, and no obligations of the Company
or any of its subsidiaries to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company, and (iv) no equity equivalents, interests in the
ownership or earnings of the Company or any of its subsidiaries or other
similar rights (collectively, "Company Securities"). There are no outstanding
obligations of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities.
(b) Except for directors' qualifying shares, if any, all of the outstanding
capital stock of, or other ownership interests in, each subsidiary of the
Company is owned by the Company, directly or indirectly, free and clear of any
Lien (as hereinafter defined) or any other limitation or restriction (including
any restriction on the right to vote or sell the same, except as may be
provided as a matter of law). There are no securities of the Company or any of
its subsidiaries convertible into or exchangeable for, no options or other
rights to acquire from the Company or any of its subsidiaries, and no other
contract, understanding, arrangement or obligation (whether or not contingent)
providing for the issuance or sale, directly or indirectly, of any capital
stock or other ownership interests in, or any other securities of, any
subsidiary of the Company. There are no outstanding contractual obligations of
the Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any outstanding shares of capital stock or other ownership interests in
any subsidiary of the Company. For purposes of this Agreement, "Lien" means,
with respect to any asset (including, without limitation, any security) any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset.
(c) The Shares and the Rights constitute the only class of equity securities
of the Company or any of its subsidiaries registered or required to be
registered under the Exchange Act.
SECTION 4.3. Authority Relative to this Agreement; Consents and Approvals.
(a) The Company has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby (other than, with respect to the Merger, the approval and
adoption of this Agreement by the holders, including Acquisition, of two-thirds
of the then outstanding Shares). This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
(b) The Board has duly and validly approved, and taken all corporate actions
required to be taken by the Board for the consummation of, the transactions,
including the Offer and the acquisition of the Shares pursuant thereto and the
Merger, contemplated hereby, including, but not limited to, all actions
required to render the provisions of Section 912 of the NYBCL restricting
business combinations with "interested shareholders" inapplicable to such
transactions.
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SECTION 4.4. SEC Reports; Financial Statements. (a) The Company has filed all
required forms, reports and documents with the SEC since January 1, 1990
(collectively, the "SEC Reports"), each of which has complied in all material
respects with all applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act each as in effect on the
dates so filed. The Company has heretofore delivered or promptly will deliver
to Acquisition or Parent, in the form filed with the SEC (including any
amendments thereto), (i) its Annual Reports on Form 10-K for each of the three
fiscal years ended December 31, 1991, 1992 and 1993, (ii) all definitive proxy
statements relating to the Company's meetings of shareholders (whether annual
or special) held since January 1, 1990 and (iii) all other reports (other than
Quarterly Reports on Form 10-Q) or registration statements filed by the Company
with the SEC since January 1, 1990. None of such forms, reports or documents,
including, without limitation, any financial statements or schedules included
or incorporated by reference therein, contained, when filed, any untrue
statement of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company has also delivered to Parent or Acquisition a true
and complete copy of the audited consolidated financial statements of the
Company, including the notes thereto, for the fiscal year ended December 31,
1993 (the "1993 Financial Statements"). The 1993 Financial Statements and the
audited consolidated financial statements of the Company included in its Annual
Reports on Form 10-K referred to in the first sentence of this Section 4.4(a)
fairly present, in conformity with generally accepted accounting principles
applied on a consistent basis (except as may be indicated in the Notes
thereto), the consolidated financial position of the Company and its
consolidated subsidiaries as of the date thereof and their consolidated results
of operations and changes in financial position for the periods then ended.
(b) The Company has heretofore made available or promptly will make available
to Acquisition or Parent a complete and correct copy of any amendments or
modifications, which have not yet been filed with the SEC, to agreements,
documents or other instruments which previously had been filed by the Company
with the SEC pursuant to the Exchange Act.
SECTION 4.5. Proxy Statement; Offer Documents. Any proxy or similar materials
distributed to the Company's shareholders in connection with the Merger,
including any amendments or supplements thereto (the "Proxy Statement"), will
comply in all material respects with applicable federal securities laws, except
that no representation is made by the Company with respect to information
supplied by Acquisition or Parent for inclusion in the Proxy Statement. None of
the information supplied by the Company in writing for inclusion in the Offer
Documents or provided by the Company in the Schedule 14D-9 will, at the
respective times that the Offer Documents and the Schedule 14D-9 or any
amendments or supplements thereto are filed with the SEC and are first
published or sent or given to holders of Shares, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4.6. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and the filing and recordation of a
certificate of merger as required by the NYBCL and the DGCL, no filing with or
notice to, and no permit, authorization, consent or approval of, any court or
tribunal or administrative, governmental or regulatory body, agency or
authority (a "Governmental Entity") is necessary for the execution and delivery
by the Company of this Agreement or the consummation by the Company of the
transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice would not have a Material Adverse Effect on the Company. Neither
the execution, delivery and performance of this Agreement by the Company nor
the consummation by the Company of the transactions contemplated hereby will
(i) conflict with or result in any breach of any provision of the respective
certificate of incorporation or bylaws (or similar governing documents) of the
Company or of any of its subsidiaries, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or
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provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, other than breaches or defaults under loan
agreements resulting from the existence of indebtedness on the part of
Acquisition, or (iii) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to the Company or any of its
subsidiaries or any of their respective properties or assets, except in the
case of (ii) or (iii) for violations, breaches or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
SECTION 4.7. No Default. None of the Company or any of its subsidiaries is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term, condition
or provision of (i) its certificate of incorporation or by-laws (or similar
governing documents), (ii) any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company or
any of its subsidiaries is now a party or by which any of them or any of their
respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to the Company,
any of its subsidiaries or any of their respective properties or assets, except
in the case of (ii) or (iii) for violations, breaches or defaults that would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company.
SECTION 4.8. No Undisclosed Liabilities; Absence of Changes. Except as and to
the extent publicly disclosed by the Company, as of December 31, 1993, neither
the Company nor any of its subsidiaries had any liabilities or obligations of
any nature, whether or not accrued, contingent or otherwise, that would be
required by generally accepted accounting principles to be reflected on a
consolidated balance sheet of the Company and its subsidiaries (including the
notes thereto) or which would have, individually or in the aggregate, a
Material Adverse Effect on the Company. Except as publicly disclosed by the
Company, since December 31, 1993, neither the Company nor any of its
subsidiaries has incurred any liabilities of any nature, whether or not
accrued, contingent or otherwise, which would have, and there have been no
events, changes or effects with respect to the Company and its subsidiaries
having, individually or in the aggregate, a Material Adverse Effect on the
Company.
SECTION 4.9. Litigation. Except as publicly disclosed by the Company, there
is no suit, claim, action, proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries or any of their respective properties or assets before any
Governmental Entity which, individually or in the aggregate, would have a
Material Adverse Effect on the Company or would prevent or delay the
consummation of the transactions contemplated by this Agreement. Except as
publicly disclosed by the Company, neither the Company nor any of its
subsidiaries is subject to any outstanding order, writ, injunction or decree
which, insofar as can be reasonably foreseen individually or in the aggregate,
in the future would have a Material Adverse Effect on the Company or would
prevent or delay the consummation of the transactions contemplated hereby.
SECTION 4.10. Compliance with Applicable Law. Except as publicly disclosed by
the Company, the Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities
necessary for the lawful conduct of their respective businesses (the "Company
Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. Except as publicly
disclosed by the Company, the Company and its subsidiaries are in compliance
with the terms of the Company Permits, except where the failure so to comply
would not have a Material Adverse Effect on the Company. Except as publicly
disclosed by the Company, the businesses of the Company and its subsidiaries
are not being conducted in violation of any law, ordinance or regulation of any
Governmental Entity except that no representation or warranty is made in this
Section 4.10 with respect to Environmental Laws (as defined in Section 4.12
below) and except for violations or possible violations which individually or
in the aggregate do not, and, insofar as reasonably can be foreseen, in the
future will not, have a Material Adverse Effect on the Company. Except as
publicly disclosed by the Company, no investigation or review by any
Governmental Entity with respect to the Company or any of its subsidiaries is
pending or, to the best
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knowledge of the Company, threatened, nor, to the best knowledge of the
Company, has any Governmental Entity indicated an intention to conduct the
same, other than, in each case, those which the Company reasonably believes
will not have a Material Adverse Effect on the Company.
SECTION 4.11. Employee Plans. All "employee benefit plans" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended("ERISA"), maintained or contributed to by the Company and its
subsidiaries are in compliance with the applicable provisions of ERISA and the
Internal Revenue Code of 1986, as amended (the "Code"), except for instances of
non-compliance that individually or in the aggregate would not have a Material
Adverse Effect on the Company.
SECTION 4.12. Environmental Laws and Regulations. (a) Except as publicly
disclosed by the Company, (i) the Company and each of its subsidiaries is 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 non-compliance that individually or in the aggregate would not have
a Material Adverse Effect on the Company, which 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; (ii)
neither the Company nor any of its subsidiaries has received written notice of,
or, to the best knowledge of the Company, is the subject of, any action, cause
of action, claim, investigation, demand or notice by any person or entity
alleging liability under or non-compliance with any Environmental Law (an
"Environmental Claim") that individually or in the aggregate would have a
Material Adverse Effect on the Company; and (iii) to the best knowledge of the
Company, there are no circumstances that are reasonably likely to prevent or
interfere with such material compliance in the future.
(b) Except as publicly disclosed by the Company, there are no Environmental
Claims which individually or in the aggregate would have a Material Adverse
Effect on the Company that are pending or, to the best knowledge of the
Company, threatened against the Company or any of its subsidiaries or, to the
best knowledge of the Company, against any person or entity whose liability for
any Environmental Claim the Company or any of its subsidiaries has or may have
retained or assumed either contractually or by operation of law.
SECTION 4.13. Rights Agreement. The Company has taken all necessary action so
that none of the execution of this Agreement, the making of the Offer, the
acquisition of Shares pursuant to the Offer or the consummation of the Merger
will (i) cause the Rights issued pursuant to the Rights Agreement to become
exercisable, (ii) cause any person to become an Acquiring Person (as such term
is defined in the Rights Agreement) or (iii) give rise to a Distribution Date
or a Triggering Event (as each such term is defined in the Rights Agreement).
SECTION 4.14. Brokers. No broker, finder or investment banker (other than the
Financial Adviser, a true and correct copy of whose engagement agreement has
been provided to Acquisition or Parent) is entitled to any brokerage, finder's
or other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by and on behalf of the Company.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
SECTION 5.1. Organization. Each of Parent and Acquisition is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted,
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except where the failure to be so organized, existing and in good standing or
to have such power and authority would not in the aggregate have a Material
Adverse Effect (as defined below) on Parent or Acquisition. When used in
connection with Parent or Acquisition, the term "Material Adverse Effect" means
any change or effect that is materially adverse to the business, results of
operations or condition (financial or otherwise) of Parent and its
subsidiaries, taken as a whole, other than any change or effect arising out of
general economic conditions unrelated to any businesses in which Parent and its
subsidiaries are engaged.
SECTION 5.2. Authority Relative to this Agreement. Each of Parent and
Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
boards of directors of Parent and Acquisition and by Parent as the sole
shareholder of Acquisition, and no other corporate proceedings on the part of
Parent or Acquisition are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each of Parent and Acquisition and
constitutes a valid, legal and binding agreement of each of Parent and
Acquisition, enforceable against each of Parent and Acquisition in accordance
with its terms.
SECTION 5.3. Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, and the filing and recordation of a
certificate of merger as required by the NYBCL and the DGCL, no filing with or
notice to, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the execution and delivery by Parent or
Acquisition of this Agreement or the consummation by Parent or Acquisition of
the transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice would not have a Material Adverse Effect on the ability of Parent
or Acquisition to consummate the Offer or the Merger. Neither the execution,
delivery and performance of this Agreement by Parent or Acquisition nor the
consummation by Parent or Acquisition of the transactions contemplated hereby
will (i) conflict with or result in any breach of any provision of the
respective certificate of incorporation or by-laws (or similar governing
documents) of Parent or Acquisition or any of Parent's subsidiaries, (ii)
result in a violation or breach of, or constitute (with or without due notice
or lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Parent or Acquisition or
any of Parent's subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound or (iii) violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to Parent or
Acquisition or any of Parent's subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults which would not, individually or in the aggregate, have a
Material Adverse Effect on the ability of Parent or Acquisition to consummate
the Offer or the Merger.
SECTION 5.4. Proxy Statement; Schedule 14D-9. None of the information
supplied by Parent or Acquisition in writing for inclusion in the Proxy
Statement or the Schedule 14D-9 will, at the respective times that the Proxy
Statement and the Schedule 14D-9 or any amendments or supplements thereto are
filed with the SEC and are first published or sent or given to holders of
Shares, and in the case of the Proxy Statement, at the time that it or any
amendment or supplement thereto is mailed to the Company's shareholders, at the
time of the Shareholders' Meeting or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
SECTION 5.5. Financing. Either Parent or Acquisition has or will have
sufficient funds available to purchase all of the Shares outstanding on a fully
diluted basis and to pay all related fees and expenses.
SECTION 5.6. No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization, the making of the Offer or
the negotiation and consummation of this Agreement and the
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transactions contemplated hereby, Acquisition has neither incurred any
obligation or liability nor engaged in any business or activity of any type or
kind whatsoever or entered into any agreement or arrangement with any person or
entity.
SECTION 5.7. Brokers. Except for Salomon Brothers Inc (a true and correct
copy of whose engagement agreement has been provided to the Company), no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by and on behalf of Parent or
Acquisition.
ARTICLE 6
COVENANTS
SECTION 6.1. Conduct of Business of the Company. Except as contemplated by
this Agreement, during the period from the date hereof to the time persons
designated or elected by Acquisition or any of its affiliates shall constitute
a majority of the Board, the Board will not permit the Company or any of its
subsidiaries to conduct its operations otherwise than in the ordinary course of
business consistent with past practice. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, prior
to the time persons designated or elected by Acquisition or any of its
affiliates shall constitute a majority of the Board, the Board will not,
without the prior written consent of Parent or Acquisition, permit the Company
or any of its subsidiaries to:
(a) amend or propose to amend its certificate or articles of
incorporation or by-laws;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities or equity
equivalents (including, without limitation, any stock options or stock
appreciation rights), except as required by agreements with the Company's
employees under the Stock Plans as in effect as of the date hereof or
pursuant to the Rights Agreement, and except deliveries of certificates for
Shares issued prior to the date hereof pursuant to the Company's Restricted
Stock Award Plan, or amend any of the terms of any such securities or
agreements outstanding as of the date hereof, except as specifically
contemplated by this Agreement;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, or redeem or otherwise acquire any of its securities or any
securities of its subsidiaries;
(d) (i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business and in amounts not material to the Company and
its subsidiaries taken as a whole; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except in the ordinary
course of business consistent with past practice and in amounts not
material to the Company and its subsidiaries, taken as a whole, and except
for obligations of wholly owned subsidiaries of the Company; (iii) make any
loans, advances or capital contributions to, or investments in, any other
person (other than to wholly owned subsidiaries of the Company or customary
loans or advances to employees in the ordinary course of business
consistent with past practice and in amounts not material to the maker of
such loan or advance); (iv) pledge or otherwise encumber shares of capital
stock of the Company or any of its subsidiaries; or (v) mortgage or pledge
any of its material assets, tangible or intangible, or create or suffer to
exist any material Lien thereupon, except as disclosed in the Letter;
(e) except as may be required by law or as contemplated by this
Agreement, enter into, adopt or amend or terminate any bonus, profit
sharing, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock equivalent,
stock purchase agreement,
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pension, retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any director, officer or employee in any manner, or
(except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do not result in a material
increase in benefits or compensation expense to the Company, and as
required under existing agreements or in the ordinary course of business
generally consistent with past practice) increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any plan and arrangement as in effect as of the
date hereof (including, without limitation, the granting of stock
appreciation rights or performance units);
(f) except as disclosed in the Letter, acquire, sell, lease or dispose of
any assets outside the ordinary course of business or any assets which in
the aggregate are material to the Company and its subsidiaries taken as a
whole, or enter into any commitment or transaction outside the ordinary
course of business consistent with past practice which would be material to
the Company and its subsidiaries taken as a whole;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(h) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or
accounts receivable other than in the ordinary course of business;
(i) acquire (by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership or other business organization or division
thereof or any equity interest therein; (ii) enter into any contract or
agreement other than in the ordinary course of business consistent with
past practice which would be material to the Company and its subsidiaries
taken as a whole; (iii) authorize any new capital expenditure or
expenditures which, individually, is in excess of $2,500,000 or, in the
aggregate, are in excess of $25,000,000; provided, that none of the
foregoing shall limit any capital expenditure already included in the
Company's 1994 capital expenditure budget previously provided to Parent or
Acquisition; or (iv) enter into or amend any contract, agreement,
commitment or arrangement providing for the taking of any action that would
be prohibited hereunder;
(j) make any tax election or settle or compromise any income tax
liability material to the Company and its subsidiaries taken as a whole;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in, or contemplated
by, the consolidated financial statements (or the notes thereto) of the
Company and its subsidiaries or incurred in the ordinary course of business
consistent with past practice;
(l) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby; or
(m) take, or agree in writing or otherwise to take, any of the actions
described in Sections 6.1(a) through 6.1(l) or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect as of the date when made or would result in
any of the conditions set forth in Annex A not being satisfied.
SECTION 6.2. Other Potential Bidders. 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 subsidiaries or any business combination with the Company or any of
its subsidiaries, other than as described in the Letter. The
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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 assets, sale of shares of capital stock
or similar transaction involving the Company or any subsidiary or division of
the Company, if such entity or group has submitted a written proposal to the
Board relating to any such transaction and the Board by a majority vote
determines in its good faith judgment, based as to legal matters on the written
opinion 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 Acquisition immediately after receipt
thereof and thereafter keep Parent and Acquisition promptly advised of any
development with respect thereto. 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 Acquisition, any affiliate or
associate of Parent and Acquisition or any designees of Parent and Acquisition)
concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction involving the Company or any subsidiary or division of the
Company; provided, however, that nothing herein shall prevent the Board from
taking, and disclosing to the Company's shareholders, a position contemplated
by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any
tender offer; provided, further, that the Board shall not recommend that the
shareholders 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 written opinion of legal counsel,
that failing to take such action would constitute a breach of the Board's
fiduciary duty.
SECTION 6.3. Access to Information. (a) Between the date hereof and the
Effective Time, the Company will give Parent and Acquisition and their
authorized representatives reasonable access to all employees, plants, offices,
warehouses and other facilities and to all books and records of the Company and
its subsidiaries, will permit Parent and Acquisition to make such inspections
as Parent and Acquisition may reasonably require and will cause the Company's
officers and those of its subsidiaries to furnish Parent and Acquisition with
such financial and operating data and other information with respect to the
business and properties of the Company and any of its subsidiaries as Parent or
Acquisition may from time to time reasonably request.
(b) Each of Parent and Acquisition will hold and will cause its consultants
and advisors to hold in confidence, unless compelled to disclose by judicial or
administrative process or, in the written opinion of its legal counsel, by
other requirements of law, all documents and information concerning the Company
and its subsidiaries furnished to Parent or Acquisition in connection with the
transactions contemplated by this Agreement (except to the extent that such
information can be shown to have been (i) previously known by Parent or
Acquisition from sources other than the Company, or its directors, officers,
representatives or affiliates, (ii) in the public domain through no fault of
Parent or Acquisition or (iii) later lawfully acquired by Parent or Acquisition
on a non-confidential basis from other sources who are not known by Parent or
Acquisition to be bound by a confidentiality agreement or otherwise prohibited
from transmitting the information to Parent or Acquisition by a contractual,
legal or fiduciary obligation) and will not release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors and other consultants and advisors in connection with this Agreement
who need to know such information. If the transactions contemplated by this
Agreement are not consummated, such confidence shall be maintained and, if
requested by or on behalf of the Company, Parent and Acquisition will, and will
use all reasonable efforts to cause their auditors, attorneys, financial
advisors and other consultants, agents and representatives to, return to the
Company or destroy all copies of written information furnished by the Company
to Parent and Acquisition or their agents, representatives or advisors. It is
understood that Parent and Acquisition shall be deemed to have satisfied their
obligation to hold such information confidential if they exercise the same care
as they take to preserve confidentiality for their own similar information.
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SECTION 6.4. Additional Agreements; Reasonable Efforts. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, (i)
cooperation in the preparation and filing of the Offer Documents, the Schedule
14D-9, the Proxy Statement, any filings that may be required under the HSR Act,
and any amendments to any thereof; (ii) the taking of all action reasonably
necessary, proper or advisable to secure any necessary consents under existing
debt obligations of the Company and its subsidiaries or amend the notes,
indentures or agreements relating thereto to the extent required by such notes,
indentures or agreements or redeem or repurchase such debt obligations; (iii)
contesting any pending legal proceeding relating to the Offer or the Merger;
and (iv) the execution of any additional instruments necessary to consummate
the transactions contemplated hereby. Subject to the terms and conditions of
this Agreement, Parent and Acquisition agree to use all reasonable efforts to
cause the Effective Time to occur as soon as practicable after the shareholder
vote with respect to the Merger. In case at any time after the Effective Time
any further action is necessary to carry out the purposes of this Agreement,
the proper officers and directors of each party hereto shall take all such
necessary action.
SECTION 6.5. Consents. Parent, Acquisition and the Company each will use all
reasonable efforts to obtain consents of all third parties and governmental
authorities necessary, proper or advisable for the consummation of the
transactions contemplated by this Agreement.
SECTION 6.6. Public Announcements. Parent, Acquisition and the Company, as
the case may be, will consult with one another before issuing any press release
or otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including, without limitation, the Offer and
the Merger, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law or by obligations pursuant to any listing agreement with any national
securities exchange or the Nasdaq Stock Market, as determined by Parent,
Acquisition or the Company, as the case may be.
SECTION 6.7. Indemnification; Directors' and Officers' Insurance. (a) Parent
and Acquisition agree that all rights to indemnification or exculpation now
existing in favor of the directors, officers, employees and agents of the
Company and its subsidiaries as provided in their respective charters or by-
laws or otherwise in effect as of the date hereof with respect to matters
occurring prior to the Effective Time shall survive the Merger and shall
continue in full force and effect. To the maximum extent permitted by the
NYBCL, such indemnification shall be mandatory rather than permissive and the
Surviving Corporation shall advance expenses in connection with such
indemnification.
(b) Parent shall cause the Surviving Corporation to maintain in effect for
not less than three years from the Effective Time the policies of the
directors' and officers' liability and fiduciary insurance most recently
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are no less advantageous to the beneficiaries thereof so long
as such substitution does not result in gaps or lapses in coverage) with
respect to matters occurring prior to the Effective Time to the extent
available; provided that in no event shall the Surviving Corporation be
required to expend more than an amount per year equal to 200% of the current
annual premiums paid by the Company (the "Premium Amount") to maintain or
procure insurance coverage pursuant hereto; and further provided that if the
Surviving Corporation is unable to obtain the insurance called for by this
Section 6.7(b), the Surviving Corporation will obtain as much comparable
insurance as is available for the Premium Amount per year.
SECTION 6.8. Notification of Certain Matters. The Company shall give prompt
notice to Parent and Acquisition, and Parent and Acquisition shall give prompt
notice to the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at
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or prior to the Effective Time and (ii) any material failure of the Company,
Parent or Acquisition, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.8 shall not cure such breach or non-compliance or limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Notwithstanding anything to the contrary herein, no provision of this Agreement
shall limit or restrict the right of the Board to amend, rescind or take or
omit to take any action pursuant to or under any provision of the Rights
Agreement; provided, however, that no such amendment, action or omission will
cause the acquisition of Shares pursuant to the Offer or the consummation of
the Merger to give rise to a Triggering Event.
SECTION 6.9. Guarantee of Performance. Parent hereby guarantees the
performance by Acquisition of its obligations under this Agreement and the
indemnification obligations of the Surviving Corporation pursuant to Section
6.7(a) hereof.
SECTION 6.10. Redemption of Rights. At Parent's request, the Company will
take such action as Parent may request to effectuate the redemption, at any
time after the purchase by Acquisition pursuant to the Offer of at least a
majority of the outstanding Shares, of the Rights.
ARTICLE 7
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1. Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party hereto to effect the Merger is subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) this Agreement shall have been adopted by the affirmative vote of the
shareholders of the Company by the requisite vote;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
U.S. court or U.S. governmental authority which prohibits, restrains,
enjoins or restricts the consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired; and
(d) Acquisition shall have purchased Shares pursuant to the Offer.
ARTICLE 8
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1. Termination. This Agreement may be terminated and the Offer and
the Merger may be abandoned at any time, but prior to the Effective Time:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if any court of competent
jurisdiction in the United States or other United States governmental body
shall have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become
nonappealable;
(c) by Parent and Acquisition if due to an occurrence or circumstance
which would result in a failure to satisfy any of the conditions set forth
in Annex A hereto, Acquisition shall have (A) terminated the Offer or (B)
failed to pay for Shares pursuant to the Offer within 60 days following the
date hereof;
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(d) by the Company if (i) there shall not have been a material breach of
any representation, warranty, covenant or agreement on the part of the
Company and Acquisition shall have (A) terminated the Offer or (B) failed
to pay for Shares pursuant to the Offer within 60 days following the date
hereof or (ii) prior to the purchase of Shares pursuant to the Offer, a
corporation, partnership, person or other entity or group shall have made a
bona fide offer that the Board by a majority vote determines in its good
faith judgment and in the exercise of its fiduciary duties, based as to
legal matters on the written opinion of legal counsel, is more favorable to
the Company's shareholders than the Offer and the Merger, provided that
such termination under this clause (ii) shall not be effective until
payment of the fee required by Section 8.3(b) hereof;
(e) by Parent and Acquisition prior to the purchase of Shares pursuant to
the Offer, if (i) there shall have been a breach of any representation or
warranty on the part of the Company having a Material Adverse Effect on the
Company or materially adversely affecting (or materially delaying) the
consummation of the Offer, (ii) there shall have been a breach of any
covenant or agreement on the part of the Company resulting in a Material
Adverse Effect on the Company or materially adversely affecting (or
materially delaying) the consummation of the Offer, which shall not have
been cured prior to the earlier of (A) 10 days following notice of such
breach and (B) two business days prior to the date in which the Offer
expires, (iii) the Company shall engage in negotiations with any entity or
group (other than Parent or Acquisition) that has proposed a Third Party
Acquisition (as defined below), (iv) the Board shall have withdrawn or
modified (including by amendment of the Schedule 14D-9) in a manner adverse
to Acquisition its approval or recommendation of the Offer, this Agreement
or the Merger or shall have recommended another offer, or shall have
adopted any resolution to effect any of the foregoing or (v) the Minimum
Condition shall not have been satisfied by the expiration date of the Offer
and on or prior to such date an entity or group (other than Parent or
Acquisition) shall have made and not withdrawn a proposal with respect to a
Third Party Acquisition; or
(f) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Acquisition which
materially adversely affects (or materially delays) the consummation of the
Offer or (ii) there shall have been a material breach of any covenant or
agreement on the part of Parent or Acquisition and which materially
adversely affects (or materially delays) the consummation of the Offer
which shall not have been cured prior to the earliest of (A) 10 days
following notice of such breach and (B) two business days prior to the date
on which the Offer expires.
SECTION 8.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or shareholders, other
than the provisions of this Section 8.2 and Sections 6.3(b) and 8.3 hereof.
Nothing contained in this Section 8.2 shall relieve any party from liability
for any breach of this Agreement.
SECTION 8.3. Fees and Expenses. (a) In the event Parent and Acquisition
terminate this Agreement pursuant to Section 8.1(e)(i) or 8.1(e)(ii) hereof,
Parent and Acquisition would suffer direct and substantial damages, which
damages cannot be determined with reasonable certainty. To compensate Parent
and Acquisition for such damages, the Company shall pay to Parent the amount of
$20 million as liquidated damages immediately upon such a termination. It is
specifically agreed that the amount to be paid pursuant to this Section 8.3(a)
represents liquidated damages and not a penalty.
(b) If
(i) Parent and Acquisition terminate this Agreement pursuant to Section
8.1(e)(ii), (iii), (iv) or (v) hereof and, within 12 months thereafter
the Company enters into an agreement with respect to a Third Party
Acquisition, or a Third Party Acquisition occurs, involving any party
(or any affiliate thereof) (x) with whom the Company (or its agents)
had negotiations with a view to a Third Party Acquisition, (y) to whom
the Company (or its agents) furnished information with a view to a
Third Party Acquisition or (z) who had submitted a proposal or
expressed an interest in a Third Party
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Acquisition, in the case of each of clauses (x), (y) and (z) after the
date hereof and prior to such termination; or
(ii) Parent and Acquisition terminate this Agreement pursuant to Section
8.1(e)(iii), (iv) or (v), and within 12 months thereafter a Third
Party Acquisition shall occur involving a consideration for Shares
(including the value of any stub equity) in excess of the Per Share
Amount; or
(iii) the Company terminates this Agreement pursuant to 8.1(d)(ii) hereof,
the Company shall pay to Parent and Acquisition, within one business day
following the execution and delivery of such agreement or such occurrence, as
the case may be, or simultaneously with such termination pursuant to Section
8.1(d)(ii), a fee, in cash, of $50,000,000, provided however that the Company
in no event shall be obligated to pay more than one such $50,000,000 fee with
respect to all such agreements and occurrences and such termination. In case
liquidated damages shall have been paid pursuant to Section 8.3(a) in
connection with such a termination, the amount so paid, minus an amount equal
to the fees and expenses that would have been collectible by Parent and
Acquisition pursuant to Section 8.3(c) but for the operation of clause (ii) of
the parenthetical of the first sentence thereof, shall be credited against the
amount payable pursuant to this Section 8.3(b).
"Third Party Acquisition" means the occurrence of any of the following events
(i) the acquisition of the Company by merger or otherwise by any person (which
includes a "person" as such term is defined in Section 13(d)(3) of the Exchange
Act) or entity other than Parent, Acquisition or any affiliate thereof (a
"Third Party"); (ii) the acquisition by a Third Party of more than 30% of the
total assets of the Company and its subsidiaries, taken as a whole; (iii) the
acquisition by a Third Party of 30% or more of the outstanding Shares; (iv) the
adoption by the Company of a plan of liquidation or the declaration or payment
of an extraordinary dividend; or (v) the repurchase by the Company or any of
its subsidiaries of more than 20% of the outstanding Shares, other than a
repurchase which was not approved by the Company or publicly announced prior to
the termination of this Agreement and which is not part of a series of
transactions resulting in a change of control.
(c) Upon the termination of this Agreement for any reason prior to the
purchase of Shares by Acquisition pursuant to the Offer (other than (i)
termination by the Company pursuant to Section 8.1(f) hereof and (ii)
termination in circumstances requiring the Company to pay liquidated damages as
contemplated by Section 8.3(a) hereof) the Company shall reimburse Parent,
Acquisition and their affiliates (not later than one business day after
submission of statements therefor) for all actual documented out-of-pocket fees
and expenses, not to exceed $8,800,000, actually and reasonably incurred by any
of them or on their behalf in connection with the Offer and the Merger and the
consummation of all transactions contemplated by this Agreement (including,
without limitation, fees payable to financing sources, investment bankers,
counsel to any of the foregoing, and accountants). Parent and Acquisition have
provided the Company with an estimate of the amount of such fees and expenses
and, if Parent or Acquisition shall have submitted a request for reimbursement
hereunder, will provide the Company in due course with invoices or other
reasonable evidence of such expenses upon request. The Company shall in any
event pay the amount requested (not to exceed $8,800,000) within one business
day of such request, subject to the Company's right to demand a return of any
portion as to which invoices are not received in due course.
(d) Except as specifically provided in this Section 8.3 each party shall bear
its own expenses in connection with this Agreement and the transactions
contemplated hereby.
SECTION 8.4. Amendment. Subject to Section 1.3(c), this Agreement may be
amended by action taken by the Company, Parent and Acquisition at any time
before or after approval of the Merger by the shareholders of the Company (if
required by applicable law) but, after any such approval, no amendment shall be
made which requires the approval of such shareholders under applicable law
without such approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
A-19
<PAGE>
SECTION 8.5. Extension; Waiver. Subject to Section 1.3(c), at any time prior
to the Effective Time, each party hereto may (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document, certificate or writing delivered pursuant
hereto or (iii) waive compliance by the other party with any of the agreements
or conditions contained herein. Any agreement on the part of either 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. The failure of either
party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement.
SECTION 9.2. Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (b) shall not be assigned by operation of law or otherwise; provided,
however, that Acquisition may assign any or all of its rights and obligations
under this Agreement to any subsidiary of Parent, but no such assignment shall
relieve Acquisition of its obligations hereunder if such assignee does not
perform such obligations.
SECTION 9.3. Validity. If any provision of this Agreement, or the application
thereof to any person or circumstance, is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
persons or circumstances, shall not be affected thereby, and to such end, the
provisions of this Agreement are agreed to be severable.
SECTION 9.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram, facsimile or telex, or by registered or certified mail (postage
prepaid, return receipt requested), to the other party as follows:
<TABLE>
<S> <C>
if to Parent or Acquisition to: Northrop Corporation
1840 Century Park East
Los Angeles, California 90067
Attention: General Counsel
Facsimile No.
if to the Company to: Grumman Corporation
1111 Stewart Avenue
Bethpage, New York 11714-3580
Attention: General Counsel
Facsimile No. (516) 575-2921
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 9.5. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
principles of conflicts of law thereof.
SECTION 9.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
A-20
<PAGE>
SECTION 9.7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 6.7 and 9.2, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 9.8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
NORTHROP CORPORATION
By: /s/ Kent Kresa
Name: Kent Kresa
Title: Chairman of the Board,
President and Chief Executive
Officer
NORTHROP ACQUISITION, INC.
By: /s/ Richard R. Molleur
Name: Richard R. Molleur
Title: Vice President
GRUMMAN CORPORATION
By: /s/ Renso L. Caporali
Name: Renso L. Caporali
Title: Chairman of the Board and
Chief Executive Officer
A-21
<PAGE>
ANNEX A
THE CAPITALIZED TERMS USED HEREIN HAVE THE MEANINGS SET FORTH IN THE
AGREEMENT AND PLAN OF MERGER TO WHICH THIS ANNEX A IS ATTACHED.
Notwithstanding any other provisions of the Offer, Acquisition shall not be
required to accept for payment or pay for, and may delay the acceptance for
payment of, or the payment for, any Shares, and may terminate the Offer and
not accept for payment or pay for any Shares, if (i) immediately prior to the
expiration of the Offer (as it may be extended in accordance with the Offer),
the Minimum Condition shall not have been satisfied, (ii) any applicable
waiting period under the HSR Act shall not have expired or been terminated
prior to the expiration of the Offer or (iii) at any time on or after April 3,
1994 and prior to the acceptance for payment of Shares, Acquisition makes a
determination (which shall be made in good faith) that any of the following
conditions exist:
(a) there shall have been any action taken, or any statute, rule,
regulation, judgment, order or injunction proposed, sought, promulgated,
enacted, entered, enforced or deemed applicable to the Offer, or any other
action shall have been taken, proposed or threatened, by any state or federal
government or governmental authority or by any U.S. court, other than the
routine application to the Offer, the Merger or other subsequent business
combination of waiting periods under the HSR Act, that presents a substantial
likelihood of (1) making the acceptance for payment of, or the payment for,
some or all of the Shares illegal or otherwise prohibiting, restricting or
significantly delaying consummation of the Offer, (2) imposing material
limitations on the ability of Acquisition to acquire or hold or to exercise
effectively all rights of ownership of the Shares, including, without
limitation, the right to vote any Shares purchased by Acquisition on all
matters properly presented to the shareholders of the Company, or effectively
to control in any material respect the business, assets or operations of the
Company, its subsidiaries, Acquisition or any of their respective affiliates,
or (3) otherwise having a Material Adverse Effect on the Company, Parent or
Acquisition; or
(b) any material adverse change shall have occurred or be threatened, or
Parent or Acquisition shall have become aware of any fact or circumstance,
that has had or is reasonably likely to have a Material Adverse Effect on the
Company; or
(c) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange, (ii) the
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States (whether or not mandatory), (iii) the
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States and having a
Material Adverse Effect on the Company or materially adversely affecting (or
materially delaying) the consummation of the Offer, (iv) any limitation
(whether or not mandatory), by any U.S. governmental authority or agency on,
or any other event that, in the judgment of Acquisition, is reasonably likely
to materially adversely affect, the extension of credit by banks or other
financial institutions, (v) from the date of the Merger Agreement through the
date of termination or expiration of the Offer, a decline of at least 25% in
the Standard & Poor's 500 Index or (vi) in the case of any of the situations
described in clauses (i) through (v) inclusive, existing at the date of the
commencement of the Offer, a material acceleration or worsening thereof; or
(d) any person (which includes a "person" as such term is defined in Section
13(d)(3) of the Exchange Act) other than Acquisition, any of its affiliates,
or any group of which any of them is a member shall have acquired beneficial
ownership of more than 30% of the outstanding Shares or shall have entered
into a definitive agreement or an agreement in principle with the Company with
respect to a tender offer or exchange offer for any Shares or a merger,
consolidation or other business combination with or involving the Company or
any of its subsidiaries; or
(e) the Merger Agreement shall have been terminated in accordance with its
terms; or
(f) prior to the purchase of Shares pursuant to the Offer, the Board shall
have withdrawn or modified (including by amendment of the Schedule 14D-9) in a
manner adverse to Acquisition its approval or recommendation of the Offer,
this Agreement or the Merger or shall have recommended another offer, or shall
have adopted any resolution to effect any of the foregoing which, in the sole
judgment of Acquisition in any such case, and regardless of the circumstances
(including any action or omission by Acquisition) giving rise to any such
condition, makes it inadvisable to proceed with such acceptance for payment.
A-22
<PAGE>
EXHIBIT B
April 4, 1994
Board of Directors
Grumman Corporation
1111 Stewart Avenue
Bethpage, NY 11714
Gentlemen and Madame:
You have requested that we confirm our oral opinion as to the fairness to
the holders of the outstanding shares of Common Stock, par value $1.00 per
share (the "Shares"), of Grumman Corporation (the "Company") of the $62.00 per
Share in cash to be received by such holders in the Offer and the Merger (each
as defined below) pursuant to the Agreement and Plan of Merger dated as of
April 3, 1994 among Northrop Corporation ("Northrop"), Northrop Acquisition,
Inc. ("Northrop Acquisition") a wholly owned subsidiary of Northrop, and the
Company (the "Northrop Merger Agreement").
The Northrop Merger Agreement provides for a tender offer for all of the
Shares (the "Northrop Offer") pursuant to which Northrop Acquisition will pay
$62.00 per Share in cash for each Share accepted. The Northrop Merger
Agreement further provides that following completion of the Northrop Offer,
Northrop Acquisition will be merged with and into the Company (the "Northrop
Merger") and each outstanding Share (other than Shares already owned by
Northrop or Northrop Acquisition) will be converted into the right to receive
$62.00 in cash.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We are familiar with the Company having acted as its financial
advisor in connection with, and having participated in certain of the
negotiations leading to, the Northrop Merger Agreement.
In connection with this opinion, we have reviewed, among other things, the
Northrop Merger Agreement; the Tender Offer Statement on Schedule 14D-1, dated
March 14, 1994, of Northrop Acquisition, including the Offer to Purchase; the
Solicitation/Recommendation Statement on Schedule 14D-9 dated April 4, 1994 of
the Company; Annual Reports to Shareholders and Annual Reports on Form 10-K of
the Company for the five years ended December 31, 1993; certain interim
reports to Shareholders and Quarterly Reports on Form 10-Q; certain other
communications from the Company to its Shareholders and certain internal
financial analyses and forecasts for the Company prepared by its management.
We also have held discussions with members of the senior management of the
Company regarding its past and current business operations, financial
condition and future prospects. In addition, we have reviewed the reported
price and trading activity for the Shares, compared certain financial and
stock market information for the Company with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the aerospace and
defense industries specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and we have not been furnished with any such evaluation or
appraisal.
Based upon and subject to the foregoing and based upon such other matters as
we considered relevant, we confirm our oral opinion that, as of April 3, 1994,
the $62.00 per Share in cash to be received by the holders of Shares in the
Northrop Offer and the Northrop Merger is fair to such holders.
Very truly yours,
GOLDMAN, SACHS & CO.
<PAGE>
EXHIBIT C
EXCERPT FROM NEW YORK BUSINESS CORPORATION LAW
(S) 62PROCEDURE3TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR SHARES
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the
meeting of shareholders at which the action is submitted to a vote, or at such
meeting but before the vote, written objection to the action. The objection
shall include a notice of his election to dissent, his name and residence
address, the number and classes of shares as to which he dissents and a demand
for payment of the fair value of his shares if the action is taken. Such
objection is not required from any shareholder to whom the corporation did not
give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders' authorization date, which term as
used in this section means the date on which the shareholders' vote authorizing
such action was taken, or the date on which such consent without a meeting was
obtained from the requisite shareholders, the corporation shall give written
notice of such authorization or consent by registered mail to each shareholder
who filed written objection or from whom written objection was not required,
excepting any shareholder who voted for or consented in writing to the proposed
action and who thereby is deemed to have elected not to enforce his right to
receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election
to dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease to
have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of election shall
require the written consent of the corporation. In order to be effective,
withdrawal of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as provided in
paragraph (g). If a notice of election is withdrawn, or the corporate action is
rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenter's rights, he shall not have the right to receive payment for his
shares and he shall be reinstated to all his rights as a shareholder as of the
consummation of the corporate action, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed,
<PAGE>
in lieu thereof, at the election of the corporation, the fair value thereof in
cash as determined by the board as of the time of such expiration or
completion, but without prejudice otherwise to any corporate proceedings that
may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate
bearing such notation, each new certificate issued therefor shall bear a
similar notation together with the name of the original dissenting holder of
the shares and a transferee shall acquire no rights in the corporation except
those which the original dissenting shareholder had at the time of the
transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later
(but in no case later than ninety days from the shareholders' authorization
date), the corporation or, in the case of a merger or consolidation, the
surviving or new corporation, shall make a written offer by registered mail to
each shareholder who has filed such notice of election to pay for his shares at
a specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (l) advance payment
to each such shareholder who has submitted the certificates representing his
shares to the corporation, as provided in paragraph (f), of an amount equal to
eighty percent of the amount of such offer, or (2) as to each shareholder who
has not yet submitted his certificates a statement that advance payment to him
of an amount equal to eighty percent of the amount of such offer will be made
by the corporation promptly upon submission of his certificates. If the
corporate action has not been consummated at the time of the making of the
offer, such advance payment or statement as to advance payment shall be sent to
each shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does
not constitute a waiver of any dissenters' rights. If the corporate action has
not been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than
a twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such balance
sheet or profit and loss statement or statements were previously furnished, nor
if in connection with obtaining the shareholders' authorization for or consent
to the proposed corporate action the shareholders were furnished with a proxy
or information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be
paid for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
C-2
<PAGE>
(h) The following procedure shall apply if the corporation fails to make such
offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign corporation without an office in this state, such proceeding shall
be brought in the county where the office of the domestic corporation,
whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in such proceeding upon each
dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons, and upon each nonresident
dissenting shareholder either by registered mail and publication, or in
such other manner as is permitted by law. The jurisdiction of the court
shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as
of the close of business on the day prior to the shareholders'
authorization date. In fixing the fair value of the shares, the court shall
consider the nature of the transaction giving rise to the shareholder's
right to receive payment for shares and its effects on the corporation and
its shareholders, the concepts and methods then customary in the relevant
securities and financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the
fair value of the shares without a jury and without referral to an
appraiser or referee. Upon application by the corporation or by any
shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law
and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including the rate of
interest which the corporation would have had to pay to borrow money during
the pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by the
C-3
<PAGE>
corporation against any or all of the dissenting shareholders who are
parties to the proceeding, including any who have withdrawn their notices
of election as provided in paragraph (e), if the court finds that their
refusal to accept the corporate offer was arbitrary, vexatious or otherwise
not in good faith. The court may, in its discretion, apportion and assess
all or any part of the costs, expenses and fees incurred by any or all of
the dissenting shareholders who are parties to the proceeding against the
corporation if the court finds any of the following: (A) that the fair
value of the shares as determined materially exceeds the amount which the
corporation offered to pay; (B) that no offer or required advance payment
was made by the corporation; (C) that the corporation failed to institute
the special proceeding within the period specified therefor; or (D) that
the action of the corporation in complying with its obligations as provided
in this section was arbitrary, vexatious or otherwise not in good faith. In
making any determination as provided in clause (A), the court may consider
the dollar amount or the percentage, or both, by which the fair value of
the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificate for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section
515 (Reacquired shares), except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it is
liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is
not liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given
to him within twenty days after the expiration of such period of thirty
days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except that
this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations). (Last amended by Ch. 117, L. '86, eff. 9-1-86.)
C-4
<PAGE>
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REVOCABLE PROXY
GRUMMAN CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GRUMMAN.
The undersigned hereby appoints Kent Kresa, Richard R. Molleur and Sheila M.
Gibbons, or any of them, each with full power of substitution, as the lawful
proxies of the undersigned and hereby authorizes such persons to represent and
to vote as designated below all shares of the common stock of Grumman
Corporation ("Grumman") which the undersigned would be entitled to vote if
personally present at the Special Meeting of Shareholders of Grumman to be held
on May 18, 1994 and at any adjournments or postponements thereof (the "Special
Meeting").
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ITEM 1.
IMPORTANT--PLEASE SIGN AND DATE ON OTHER SIDE AND RETURN PROMPTLY.
(Continued on other side)
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PLEASE MARK BOXES [||] OR [X] IN BLUE OR BLACK INK.
1. Approval of Agreement and Plan of Merger, dated as of April 3, 1994, among
Grumman, Northrop Corporation and Northrop Acquisition, Inc., a wholly owned
subsidiary of Northrop Corporation, which provides, among other things for
the merger of Northrop Acquisition, Inc. into Grumman.
FOR AGAINST ABSTAIN
[_] [_] [_]
2.To transact such other business as may properly come before the Special
Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR ITEM 1.
The undersigned acknowledges receipt of the Notice of Special Meeting and
Proxy Statement for the Special Meeting.
When signed as an attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Whether or not you plan to attend the Special Meeting, you are urged to
execute, date and return this proxy, which may be revoked at any time prior to
its use.
Dated: ___________________, 1994
________________________________
________________________________
(Signature of Shareholder)
________________________________
(Signature of Additional
Shareholder(s))
Please sign your name exactly
as it appears hereon, date and
return this proxy in the reply
envelope provided. If you
receive more than one proxy
card, please sign, date and
return all cards received.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
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