<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.142-12
NORTHROP GRUMMAN CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NORTHROP GRUMMAN CORPORATION
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 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:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
NOTICE
Notice is hereby given that the Annual Meeting of Stockholders of Northrop
Grumman Corporation (the "Company") will be held on Wednesday, May 17, 1995, at
10:00 A.M. at the Museum of Flying, 2772 Donald Douglas Loop North, Santa
Monica, California 90405 for the following purposes:
(1) To elect five Class I directors to hold office for three years and until
their respective successors are elected and qualified.
(2) To consider and act upon a proposal to approve the Northrop Grumman
Corporation 1995 Stock Option Plan for Non-Employee Directors.
(3) To consider and act upon a proposal to approve amendments to the
Company's 1993 Long-Term Incentive Stock Plan to increase the number of
shares of Common Stock which the Company is authorized to issue under
the Plan and to establish individual limits on shares that can be
awarded pursuant to stock option grants during any three year period.
(4) To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as the Company's independent auditors.
(5) To consider and act upon such other business as may properly come before
the Annual Meeting or any adjournments thereof.
Stockholders of record at the close of business on March 21, 1995, are
entitled to receive notice of and to vote at the Annual Meeting.
By order of the Board of Directors,
[SIG]
SHEILA M. GIBBONS
CORPORATE VICE PRESIDENT AND SECRETARY
1840 Century Park East
Los Angeles, California 90067
March 31, 1995
IMPORTANT
TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE SIGN AND
MAIL PROMPTLY THE ENCLOSED PROXY FOR WHICH A RETURN ENVELOPE IS
PROVIDED. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement, which is part of the accompanying Notice of Annual
Meeting of Stockholders, is furnished in connection with the solicitation, by
the Board of Directors of Northrop Grumman Corporation (the "Company"), of
proxies to be used at the Company's 1995 Annual Meeting of Stockholders (the
"Annual Meeting") and at any and all adjournments of such Annual Meeting. If a
proxy in the accompanying form is duly executed and returned, the shares
represented by such proxy will be voted as indicated. Any person executing the
proxy may revoke it prior to its exercise. Unless otherwise directed in the
accompanying proxy, the persons named therein (or their substitutes) will vote
FOR the election of the five director nominees listed below under "Election of
Directors," FOR the proposal to approve the Northrop Grumman Corporation 1995
Stock Option Plan for Non-Employee Directors, FOR the proposal to amend the
Company's 1993 Long-Term Incentive Stock Plan to increase the number of shares
authorized to be issued under that plan and to establish a limit on the maximum
number of shares that can be awarded during any three year period to an employee
pursuant to stock option grants under the Plan and FOR the proposal to ratify
the appointment of Deloitte & Touche LLP as auditors of the Company for the year
ending December 31, 1995. As to any other business which may properly come
before the Annual Meeting, the named proxies will vote in accordance with their
best judgment. The Company does not presently know of any other such business.
At the close of business on February 13, 1995 there were 49,285,069 shares
of Common Stock of the Company, par value $1.00 per share (the "Common Stock"),
outstanding. Only holders of record of Common Stock at the close of business on
March 21, 1995 are entitled to notice of, and to vote at, the Annual Meeting or
any adjournment thereof. Each share of Common Stock is entitled to one vote.
Proxies for shares marked "abstain" on a matter will be considered to be
represented at the meeting, but not voted, for these purposes. Shares registered
in the names of brokers or other "street name" nominees for which proxies are
voted on some but not all matters will be considered to be represented at the
meeting, but will be considered to be voted only as to those matters actually
voted.
The principal office of the Company is located at 1840 Century Park East,
Los Angeles, California 90067. This Proxy Statement and the form of proxy will
be sent to stockholders commencing approximately March 31, 1995.
VOTING SECURITIES
The following table lists the beneficial ownership of each person or group
who, as of December 31, 1994, owned to the Company's knowledge more than five
percent of the Company's Common Stock then outstanding.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
----------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
Bankers Trust Company(a)......................................... 7,374,387 shares(b) 14.97%
300 So. Grand Avenue, Los Angeles, CA 90071
U.S. Trust Company of California, N.A.(c)........................ 5,985,060 shares(d) 12.15%
555 So. Flower St., Los Angeles, CA 90071-2429
Wellington Management Company.................................... 3,890,775 shares(e) 7.91%
75 State Street, Boston, MA 02109
Vanguard Wellington Fund, Inc.................................... 2,628,800 shares(f) 5.34%
P.O. Box 2600, Valley Forge, PA 19482
<FN>
------------------------
(a) Bankers Trust Company is Trustee (the "Trustee") under the Northrop
Corporation Employee Benefit Plans Master Trust (the "Trust").
(b) These shares are held under the Northrop Savings Plan, the relevant
portion of which is an Employee Stock Ownership Plan, and the Employee
Investment Plan of Grumman Corporation for the account of (but not
beneficially owned by) the Trustee. The Trustee votes these shares in
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
accordance with instructions received from the employee-participants in
such Plans to whose accounts the shares have been allocated. Undirected
shares are voted in the same proportion as shares for which instructions
are received.
(c) U.S. Trust Company is an Investment Manager (the "Investment Manager") for
the Northrop Grumman Retirement Plan and the pension plans for certain
divisions of the Company (the "Retirement Plans"); under the Trust, the
Investment Manager has responsibility for the management and control of
the Northrop Grumman shares held in the Trust as assets of the Retirement
Plans.
(d) These shares are held for the account of (but not beneficially owned by)
the Trustee. The Investment Manager has voting power over these shares,
except in the event of a contested election of directors or in connection
with a tender offer. In such cases the shares are voted in accordance with
instructions received from eligible participants in the Retirement Plans.
Undirected shares are voted in the same proportion as shares for which
instructions are received.
(e) This information was provided by Wellington Management Company ("WMC").
According to WMC, as of the date set forth above, WMC had shared
dispositive power over 3,890,775 shares but shared voting power over only
860,675 shares.
(f) This information was provided by Vanguard Wellington Fund, Inc. (the
"Fund"). According to the Fund, as of the date set forth above, the Fund
had sole voting power but shared dispositive power over the 2,628,800
shares.
</TABLE>
STOCK OWNERSHIP OF OFFICERS AND DIRECTORS
The following table sets forth the total number of shares of Common Stock
beneficially owned by directors, nominees and Named Executive Officers and all
directors and executive officers as a group at the close of business on February
13, 1995. Except as noted below, and subject to applicable community property
and similar laws, each stockholder has sole voting and investment power with
respect to the shares shown.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
---------------------------------------- -------------------- --------
<S> <C> <C>
Oliver C. Boileau, Jr................... 74,990(1) *
Jack R. Borsting........................ 1,848(2) *
Renso L. Caporali(3).................... 1,242 *
John T. Chain, Jr. ..................... 720 *
Jack Edwards............................ 320 *
Barbara C. Jordan....................... 2,569 *
Kent Kresa.............................. 733,860(4) 1.49
Richard R. Molleur...................... 16,571(5) *
Aulana L. Peters........................ 1,720 *
John E. Robson.......................... 1,230 *
Richard M. Rosenberg.................... 1,964 *
William F. Schmied...................... 2,720(6) *
Brent Scowcroft......................... 820 *
John Slaughter.......................... 220 *
Wallace C. Solberg...................... 73,723(7) *
Richard J. Stegemeier................... 1,867(8) *
Richard B. Waugh, Jr.................... 13,580(9) *
Total............................... 929,964 1.89
Directors and executive officers as a 1,028,795(10) 2.09
group...................................
<FN>
------------------------
* Denotes ownership of less than 1% of the outstanding shares
(1) Includes 53,200 shares of Common Stock which may be acquired by Mr.
Boileau within 60 days after February 13, 1995, pursuant to the exercise
of options and 21,790 shares held by the Boileau Family Trust of which Mr.
Boileau is trustee.
(2) Includes 1,500 shares held in the Borsting Family Trust of which Dr.
Borsting is trustee.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
(3) Dr. Renso L. Caporali resigned from the Corporation's Board of Directors
effective March 15, 1995.
(4) Includes 500,000 shares of Common Stock which may be acquired by Mr. Kresa
within 60 days after February 13, 1995, pursuant to the exercise of
options; 4,807 shares held as of December 31, 1994 in the Northrop Savings
Plan; and 173,545 shares held by the Kresa Family Trust of which Mr. Kresa
is trustee.
(5) Includes 14,000 shares of Common Stock which may be acquired by Mr.
Molleur within 60 days after February 13, 1995 pursuant to the exercise of
options.
(6) Includes 2,500 shares held by the William F. and C. Janet Schmied
Revocable Trust of which Mr. Schmied and his wife are trustees.
(7) Includes 22,200 shares of Common Stock which may be acquired by Mr.
Solberg within 60 days after February 13, 1995, pursuant to the exercise
of options and 10,023 held as of December 31, 1994 in the Northrop Savings
Plan.
(8) Includes 1,000 shares held in the Richard J. Stegemeier Family Trust of
which Mr. Stegemeier and his wife are trustees.
(9) Includes 7,520 shares of Common Stock which may be acquired by Mr. Waugh
within 60 days after February 13, 1995, pursuant to the exercise of
options; 2,873 shares held as of December 31, 1994 in the Northrop Savings
Plan; and 2,877 shares held by the Waugh Family Trust of which Mr. Waugh
and his wife are trustees.
(10) Includes 627,940 shares of Common Stock which may be acquired within 60
days after February 13, 1995 pursuant to the exercise of options; 38,014
shares held as of December 31, 1994 in the Northrop Savings Plan or the
Employee Investment Plan of Grumman Corporation for the benefit of
officers; 55,250 Restricted Award Shares, issued pursuant to the 1987 Long
Term Incentive Plan, which shares carry voting and dividend rights; and
1,717 shares deferred into the stock unit account pursuant to the 1993
Stock Plan for Non-Employee Directors.
</TABLE>
ELECTION OF DIRECTORS
Under the Company's Certificate of Incorporation, which provides for a
classified Board of Directors, five directors in Class I will be elected at the
1995 Annual Meeting to hold office for three years until the 1998 Annual Meeting
of Stockholders and until their successors have been duly elected and qualified.
Unless instructed otherwise, the persons named in the accompanying proxy (or
their substitutes) will vote the shares represented by such proxy for the
election of the five Class I Director Nominees listed in the table set forth
below. In case any of such nominees shall become unavailable for election to the
Board of Directors, an event which is not anticipated, the persons named as
proxies (or their substitutes) shall have full discretion and authority to vote
or refrain from voting for any other nominee in accordance with their judgment.
The following information, furnished with respect to each of the five
nominees for election as a Class I director, and each of the four Class II and
four Class III directors whose terms will continue after the Annual Meeting, is
obtained from the Company's records or from information furnished directly by
the individual to the Company. All the nominees are presently serving on the
Board of Directors. It is the Company's policy that members of the Board of
Directors are ineligible to stand for election to the Board of Directors if they
will have attained age 70 by the date of the Company's Annual Meeting of
Stockholders at which such election is held.
3
<PAGE>
NOMINEES FOR DIRECTOR -- CLASS I
JACK R. BORSTING, 66. E. MORGAN STANLEY PROFESSOR OF BUSINESS ADMINISTRATION,
UNIVERSITY OF SOUTHERN CALIFORNIA.
ELECTED 1991
CHAIRMAN OF THE NOMINATING COMMITTEE; MEMBER OF THE COMPENSATION AND MANAGEMENT
DEVELOPMENT AND THE FINANCE COMMITTEES.
Dr. Jack Borsting was at the Naval Postgraduate School in Monterey, California
from 1959 to 1980. During his tenure at Monterey, he was professor of Operations
Research, Chairman of the Department of Operations Research and Administration
Science, and Provost and Academic Dean. Dr. Borsting was Assistant Secretary of
Defense (Comptroller) from 1980 to 1983 and Dean of the School of Business at
the University of Miami from 1983 to 1988. From 1988 to 1994, he was the Robert
R. Dockson professor and Dean of the School of Business Administration at the
University of Southern California, Los Angeles. He is past president of both the
Operations Research Society of America and the Military Operations Research
Society. He is currently a trustee of the Orthopaedic Hospital Foundation of Los
Angeles and serves as a director of Whitman Medical and TROLearning.
AULANA L. PETERS, 53. PARTNER, GIBSON, DUNN & CRUTCHER.
ELECTED 1992
MEMBER OF THE EXECUTIVE AND PUBLIC POLICY AND THE AUDIT COMMITTEES.
Aulana L. Peters joined the law firm of Gibson, Dunn & Crutcher in 1973. In
1980, she was named a partner in the firm and continued in the practice of law
until 1984 when she accepted an appointment as Commissioner of the Securities
and Exchange Commission. In 1988, after serving four years as a Commissioner,
she returned to Gibson, Dunn & Crutcher. Ms. Peters is a director of 3M, the New
York Stock Exchange, Mobil Corporation and Merrill Lynch & Co.
RICHARD M. ROSENBERG, 64. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER,
BANKAMERICA CORPORATION AND BANK OF AMERICA NT &
SA.
ELECTED 1991
CHAIRMAN OF THE FINANCE COMMITTEE; MEMBER OF THE NOMINATING COMMITTEE.
Richard M. Rosenberg became Chairman and Chief Executive Officer of BankAmerica
Corporation (BAC) and Bank of America in May 1990 after having served as
President since February 1990 and as Vice Chairman of the Board and a director
of BAC and the Bank since 1987. Before joining BankAmerica Corporation, Mr.
Rosenberg served as President and Chief Operating Officer of Seafirst
Corporation and Seattle-First National Bank which he joined in 1986. Mr.
Rosenberg is a retired Commander in the U.S. Navy Reserve, a director of
Airborne Express, Pacific Telesis Corporation and Potlatch Corporation, a
trustee of the University of Southern California and the California Institute of
Technology.
WALLACE C. SOLBERG, 63. CORPORATE VICE PRESIDENT AND GENERAL MANAGER, MILITARY
AIRCRAFT DIVISION.
ELECTED 1992
MEMBER OF THE EXECUTIVE AND PUBLIC POLICY COMMITTEE.
Before joining Northrop Corporation, Wallace C. Solberg was a research engineer
at the Hotpoint Division of General Electric Company. In 1959 he joined
Hallicrafters Company which was acquired by Northrop in 1966 and renamed the
Defense Systems Division. While at Northrop he has held such positions as
Manager of Engineering, Program Management, Customer Requirements and Finance
before being named Vice President and General Manager of the Division in 1974.
In November 1990, when Northrop integrated its three electronics operations, Mr.
Solberg was named Vice President and
4
<PAGE>
General Manager of the new Electronics Systems Division. In 1991 he was named
Corporate Vice President and General Manager of the Aircraft Division and in
June 1994 he became Corporate Vice President and General Manager, Military
Aircraft Division.
RICHARD J. STEGEMEIER, 66. CHAIRMAN, UNOCAL CORPORATION, AN ENERGY RESOURCES
COMPANY.
ELECTED 1990
CHAIRMAN OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE; MEMBER OF THE
FINANCE COMMITTEE.
Richard J. Stegemeier joined Union Oil Company of California, principal
operating subsidiary of Unocal Corporation, in 1951. Mr. Stegemeier has been
Chairman of the Board for Unocal Corporation since April 1989. From July 1988 to
May 1994 he was Chief Executive Officer and from December 1985 to June 1992 he
was President of Unocal Corporation. Mr. Stegemeier is a member of the National
Academy of Engineering, the Secretary of Energy's Advisory Board, and the
California Council on Science and Technology. He is a director of First
Interstate Bancorp, Foundation Health Corporation, Halliburton Corporation and
Outboard Marine Corporation.
CONTINUING DIRECTORS -- CLASS II
BARBARA C. JORDAN, 59. PROFESSOR, LYNDON B. JOHNSON SCHOOL OF PUBLIC AFFAIRS,
UNIVERSITY OF TEXAS AT AUSTIN.
ELECTED IN 1993
MEMBER OF THE AUDIT, THE EXECUTIVE AND PUBLIC POLICY AND THE NOMINATING
COMMITTEES.
After graduating MAGNA CUM LAUDE from Texas Southern University, Ms. Jordan
received her LLB from Boston University in 1959. She was admitted to the Texas
and Massachusetts bars the same year and began her career as an Administrative
Assistant to a County Judge in Harris County, Texas. In 1966, Ms. Jordan was
elected to the Texas State Senate and in 1972 she became a member of the 93rd
Congress, representing the 18th District of Texas. As a Congressperson, Ms.
Jordan was a member on the Judiciary and Government Operations Committees.
During the 94th Congress, she was a member of the Steering and Policy Committee
of the House Democratic Caucus. After serving three terms in the House, Ms.
Jordan assumed her current association with the University of Texas. She is a
director of The Mead Corporation, Burlington Northern Railroad, Texas Commerce
Bankshares, Inc. and the Federal Home Loan Mortgage Corporation and the Center
on Addiction and Substance Abuse.
JOHN E. ROBSON, 64. SENIOR ADVISOR, ROBERTSON STEVENS & COMPANY, INVESTMENT
BANKERS.
ELECTED 1993
MEMBER OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT AND THE FINANCE
COMMITTEES.
From 1989 to 1993, Mr. Robson served as Deputy Secretary of the United States
Treasury. Prior to that, he was Dean and Professor of Management at the Emory
University School of Business Administration (1986-1989), President and Chief
Executive Officer and Executive Vice President and Chief Operating Officer of
G.D. Searle & Co., a pharmaceutical company (1977-1986). From 1975 to 1977, he
served as Chairman of the U.S. Civil Aeronautics Board, regulator of the airline
industry. Mr. Robson earned his B.A. from Yale University in 1952 and his J.D.,
with honors, from Harvard Law School in 1955. He was in the U.S. Army from 1955
to 1957 and returned to Illinois to become a partner in a major Chicago law
firm. Mr. Robson became General Counsel of the Department of Transportation in
1967. In 1968, he was appointed Under Secretary of the Department of
Transportation, leaving government service in 1969 to return to the private
practice of law as a partner of Sidley & Austin, into which his old law firm
merged. Mr. Robson is a director of Rand McNally Company, Ralin, Inc. and
Security Capital Industrial Trust, a Distinguished Visiting Fellow of the Hoover
Institution at Stanford University, a Visiting Fellow at the Heritage Foundation
and a Trustee of St. John's College.
5
<PAGE>
WILLIAM F. SCHMIED, 66. RETIRED CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE, THE
SINGER COMPANY, FORMERLY AN ELECTRONICS AND AEROSPACE
COMPANY.
ELECTED 1990
CHAIRMAN OF THE AUDIT COMMITTEE; MEMBER OF THE COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE.
William F. Schmied joined the Autonetics Division of North American Aviation
(Rockwell International) in 1953 as a research electronics engineer. In 1959 he
joined the newly formed Guidance and Control Systems Division of Litton
Industries and progressed through a number of technical and management
positions. He joined the Singer Company Kearfott Division in 1969 as Division
President and advanced through the Aerospace & Marine Systems Group and the
Products & Services for Government Group until he was named President and Chief
Operating Officer of Singer in 1980. In 1987 Mr. Schmied was named Chief
Executive and Chairman of the Board, the position from which he retired in 1988
following the acquisition of The Singer Company by an investment group. He has
been a director of Northeast Bancorp, Inc., Union Trust Company, Tiger
International, Flying Tiger Line, Inc., and trustee of the Link Foundation. Mr.
Schmied is a fellow of the American Institute of Aeronautics and Astronautics.
JOHN BROOKS SLAUGHTER, 60. PRESIDENT, OCCIDENTAL COLLEGE.
ELECTED 1993
MEMBER OF THE AUDIT AND THE NOMINATING COMMITTEES.
Dr. John Brooks Slaughter earned his B.S.E.E. from Kansas State University in
1956, and was an electronics engineer with General Dynamics Convair in San Diego
from 1956 to 1960. He earned his M.S. in Engineering from the University of
California at Los Angeles in 1961 and was with the Naval Electronics
Laboratories in San Diego from 1960 until 1975. In 1971, Dr. Slaughter was
awarded a Ph.D. in Engineering Sciences from the University of California at San
Diego. In 1975, he joined the University of Washington as a director of the
applied physics laboratory and became academic Vice President and, later,
Provost of Washington State University from 1979 to 1980. During this period,
Dr. Slaughter was also associated with the National Science Foundation, first as
Assistant Director and, later, as Director. From 1982 through 1988, he was
Chancellor of the University of Maryland and in 1988 he became President of
Occidental College. Dr. Slaughter, who is a member of the National Academy of
Engineering, fellow of the I.E.E.E. and the recipient of numerous honorary
doctoral degrees, serves on the Board of Directors of Monsanto, Atlantic
Richfield Company, Avery Dennison and IBM.
CONTINUING DIRECTORS -- CLASS III
JOHN T. CHAIN, JR., 60. EXECUTIVE VICE PRESIDENT, SAFETY AND CORPORATE
SUPPORT, BURLINGTON NORTHERN RAILROAD COMPANY.
ELECTED 1991
CHAIRMAN OF THE EXECUTIVE AND PUBLIC POLICY COMMITTEE; MEMBER OF THE AUDIT
COMMITTEE.
During his military career, John T. Chain, Jr. held a number of Air Force
commands. In 1978, he became military assistant to the Secretary of the Air
Force. In 1984, he became the Director of Politico-Military Affairs, Department
of State. General Chain has been Chief of Staff for Supreme Headquarters Allied
Powers Europe, and Commander in Chief, Strategic Air Command, the position from
which he retired in February 1991. In March 1991, he became Executive Vice
President of Operations for Burlington Northern Railroad, serving in that
capacity until March of 1992. General Chain is a member of the Council on
Foreign Relations and Chairman of the Wellness Council of America. He is a
director of Kemper Corporation, RJR Nabisco and Nabisco, Inc.
6
<PAGE>
JACK EDWARDS, 66. PARTNER, HAND, ARENDALL, BEDSOLE, GREAVES & JOHNSTON.
ELECTED 1991
MEMBER OF THE EXECUTIVE AND PUBLIC POLICY AND THE AUDIT COMMITTEES.
Jack Edwards was elected in 1964 to the House of Representatives and served in
the Congress for twenty years representing the First District of Alabama. During
his tenure in the House, Mr. Edwards served on the Appropriations Committee for
sixteen years, including ten years as Senior Republican on the Defense
Subcommittee, and sixteen years on the Transportation Subcommittee. He also
served on the Banking, Finance and Urban Affairs Committee. He retired from the
Congress in January 1985 and became a partner in his current law firm. He is a
director of Southern Company, Holnam Inc. and Dravo Corporation. Mr. Edwards is
also a member of the Board of Trustees of the University of Alabama System.
KENT KRESA, 57. CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER.
ELECTED 1987
Before joining Northrop Corporation, Kent Kresa was associated with the Lincoln
Laboratories of M.I.T. and the Defense Advanced Research Projects Agency. In
1975, he joined Northrop as Vice President and Manager of the Corporation's
Research and Technology Center. He became General Manager of the Ventura
Division in 1976, Group Vice President of the Aircraft Group in 1982 and Senior
Vice President for Technology and Development in 1986. Mr. Kresa was elected
President and Chief Operating Officer of Northrop in 1987. He was named Chief
Executive Officer in 1989 and Chairman of the Board in 1990. Mr. Kresa is a
member of the Massachusetts Institute of Technology Visiting Committee for the
Department of Aeronautics and Astronautics, a Fellow of the American Institute
of Aeronautics and Astronautics, serves on the Board of Governors of the
Aerospace Industries Association, the Board of Trustees of the California
Institute of Technology, the CEO Board of Advisors of the University of Southern
California's School of Business and on the Board of Directors of Chrysler
Corporation, Atlantic Richfield Company, the Los Angeles World Affairs Council
and the John Tracy Clinic.
BRENT SCOWCROFT, 70. LIEUTENANT GENERAL, USAF (RET.) AND FORMER ASSISTANT TO
THE PRESIDENT FOR NATIONAL SECURITY AFFAIRS.
ELECTED 1993
MEMBER OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT AND THE FINANCE
COMMITTEES.
General Scowcroft served as Assistant to the President for National Security
Affairs for Presidents Bush and Ford. A retired U.S. Air Force Lieutenant
General, General Scowcroft served in numerous national security posts in the
Pentagon and the White House prior to his appointments as Assistant to the
President for National Security Affairs. He also held a number of teaching
positions at West Point and the Air Force Academy, specializing in political
science. He received his B.S. degree from West Point, and M.A. and Ph.D. degrees
from Columbia University. General Scowcroft is also a director of Pennzoil,
Enron Global Power & Pipelines L.L.C. and QUALCOMM Inc.
MEETINGS OF THE BOARD OF DIRECTORS, COMMITTEES OF THE BOARD AND DIRECTORS' FEES
The Board of Directors schedules regular meetings throughout the year.
Normally, such meetings convene at the Company's principal office in Los
Angeles. Provision has been made in the Bylaws for special meetings of the
Board, should they be required, and for meetings of the various committees of
the Board at appropriate times. In 1994, twelve meetings of the Board of
Directors were held. During 1995, the Board has scheduled eight regular meetings
of the Board.
The Company has an Audit Committee, a Compensation and Management
Development Committee and a Nominating Committee, each of which is composed of
at least three members, all of whom must be "Independent Outside Directors" as
defined in the Company's Bylaws. The members of the Audit Committee are John T.
Chain, Jr., Jack Edwards, Barbara C. Jordan, Aulana L. Peters, William F.
7
<PAGE>
Schmied and John Brooks Slaughter. The members of the Compensation and
Management Development Committee are Jack R. Borsting, John E. Robson, William
F. Schmied, Brent Scowcroft and Richard J. Stegemeier. The members of the
Nominating Committee are Jack R. Borsting, Barbara C. Jordan, Richard M.
Rosenberg and John Brooks Slaughter. During 1994, the Audit Committee met five
times, the Compensation and Management Development Committee met seven times and
the Nominating Committee met five times.
The Audit Committee meets periodically with both the Company's independent
auditors and the Company's chief internal auditor to review audit results and
the adequacy of the Company's systems of internal controls. In addition, the
Audit Committee recommends to the Board of Directors the appointment or
discharge of the Company's independent auditors, and reviews each professional
service of a non-audit nature to be provided by the independent auditors to
evaluate the impact on the independence of the auditors of undertaking such
added services.
The Compensation and Management Development Committee recommends to the
Board of Directors the base salary and incentive compensation of all elected
officers, takes final action with respect to base salary and incentive
compensation for certain other officers and key employees, and reviews the
Company's compensation policies and management actions to assure the succession
of qualified officers. In addition, this Committee establishes the Company's
annual performance objectives under the Company's incentive compensation plans,
recommends to the Board of Directors the amounts to be appropriated for awards
under such plans, recommends to the Board of Directors awards under the
Company's 1973 Incentive Compensation Plan (the "1973 Plan"), grants awards
under and administers the Company's Long-Term Incentive Plans and recommends to
the Board of Directors all compensation plans in which Company officers are
eligible to participate.
The Nominating Committee reviews candidates to serve as directors and
recommends to the Board of Directors nominees for election as directors. The
activities and associations of each candidate are examined to ensure that there
is no legal impediment, conflict of interest, or other consideration that might
prevent service on the Board of Directors. In making its selection, the Board of
Directors bears in mind that the foremost responsibility of a Northrop Grumman
director is to represent the interests of the stockholders as a whole. The
Committee will consider nominees recommended by stockholders if such nominations
have been submitted in writing, accompanied both by a description of the
proposed nominee's qualifications and an indication of the consent of the
proposed nominee and relevant biographical information. The recommendation
should be addressed to the Committee in care of the Secretary of the Company. In
addition, the Nominating Committee makes recommendations to the Board of
Directors concerning the composition and size of the Board of Directors,
candidates to fill vacancies, the performance of incumbent directors, and the
remuneration of Non-Employee Directors.
In addition, the Company has an Executive and Public Policy Committee, a
Finance Committee and an Acquisition Committee which was formed in connection
with the acquisition of Grumman Corporation and is currently inactive.
During 1994, each of the directors attended at least 75% or more of all
meetings of the Board of Directors and the various committees on which they
serve, with the exception of Mr. Rosenberg. Mr. Rosenberg attended most regular
meetings of the Board of Directors and the Finance Committee except those
relating to the acquisition of Grumman Corporation which he did not attend due
to a conflict of interest in connection with his position as Chairman of the
Board and Chief Executive Officer of Bank of America.
Directors are compensated for their services according to a standard
arrangement authorized by resolution of the Board of Directors. An annual
retainer fee of $25,000, increased to $28,000 in September 1994, was paid to
each director and an additional fee of $1,000 was paid to each director for
every Board meeting attended during 1994. Committees of the Board usually meet
on the same day as the regular Board meeting. Members of each committee who
attended such meetings were compensated at the rate of $1,000 for each such
committee meeting. Committee chairmen were compensated an extra $200 for
attendance at committee meetings for which they were chairmen. Beginning with
the quarterly
8
<PAGE>
payment made on September 30, 1994, committee chairman are compensated $3,000
per year pursuant to a retainer fee arrangement in lieu of an additional fee per
meeting. If a director performed extraordinary services for the Board at the
request of the Chairman of the Board or the chairman of a committee, such
director was compensated at the rate of $1,000 per day. Directors are reimbursed
for all reasonable expenses incurred by them in attending meetings of the Board
of Directors or committee meetings and in performing compensable extraordinary
services. Board members who are employees of the Company do not receive
compensation under the above provisions.
The 1993 Stock Plan For Non-Employee Directors originally provided that 20%
of the retainer fee earned by each director would be paid in Northrop Grumman
Common Stock, issued as soon as practicable following the close of the fiscal
year, on December 31. In September 1994, the amount of retainer fee paid in
Northrop Grumman Common Stock was increased to 30%. In addition, directors may
defer payment of all or a portion of their remaining retainer fees and/or their
Board and Committee meeting fees. Deferred compensation may either be
distributed in Northrop Grumman Common Stock, issued as soon as practicable
after the close of the fiscal year, or such compensation may be placed in a
Stock Unit account until the conclusion of a director-specified deferral period,
a minimum of two years from the time the compensation is earned. All deferral
instructions must be received prior to the performance of the services for which
the director is compensated. Directors are credited with dividend equivalents in
connection with the Northrop Grumman Common Stock which is distributed early in
the year following the year earned or deferred into the Stock Unit account for
longer periods, pending distribution. In early 1995, the Board adopted a Company
stock ownership guideline for outside directors of three times the annual
retainer, to be achieved within five years of joining the Board (for existing
directors, five years from the date of adoption).
The Northrop Grumman Corporation Board of Directors Retirement Plan (the
"Directors Plan") provides that outside directors, as defined in the Bylaws of
the Company, are eligible to receive a retirement benefit pursuant to the
Directors Plan if they retire from the Board following completion of at least
five or more consecutive years of service as an outside Board member. Outside
directors are also eligible for benefits if they are ineligible to stand for
election to the Board of Directors by virtue of the fact that they will have
attained age 70 prior to the Annual Meeting of Stockholders and have not
completed at least five consecutive years of service as an outside director. The
annual benefit payable pursuant to the Directors Plan is equal to the annual
retainer fee then being paid to active directors or such lesser amount as is
provided for under the Directors Plan. Benefits are payable for ten years or
less (as set forth in the Directors Plan), from the retirement date of the
director. In the case of the death of a director while receiving benefits, the
benefits are payable to the director's surviving spouse, as defined in the
Directors Plan. On September 21, 1994 the Directors Plan was amended to provide
that, in the event of a change in control, all outside directors serving on the
Board at that time shall be immediately vested and entitled to an annual benefit
amount for each year of consecutive service. In addition, benefits payable under
the Directors Plan have been secured through the establishment of a rabbi trust.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock voting at
the Annual Meeting (with each share entitled to one vote), is required for the
election of directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FIVE
NOMINEES FOR DIRECTOR LISTED ABOVE.
COMPENSATION COMMITTEE
REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
The Compensation and Management Development Committee of the Board of
Directors (the "Committee") has furnished the following report on executive
compensation applicable to employees elected as officers of the Company. The
Committee is comprised exclusively of outside directors, all of whom are free of
interlocking relationships with the Company.
9
<PAGE>
COMPENSATION PHILOSOPHY
Under the direction of the Committee, the Corporation has developed and
implemented compensation policies and programs that promote the attainment of
the strategic business goals of the Company. As a vital element of the Company's
overall plan to accomplish its mission, its compensation philosophy is designed
to enable acquisition and retention of executives of exceptional ability, and to
concentrate their attention, energy and skill on achieving high current
performance on commitments to customers, financial results exceeding specific
acceptable thresholds, and long-term prosperous growth.
Northrop Grumman executive compensation programs comprise a set of linked
incentives that include base salary, annually determined variable compensation
referred to as incentive pay or bonus, and a long-term incentive plan based on
stock ownership, appreciation and total return to shareholders. Successful
accomplishment of goals tied to the business plan can produce significant
individual reward. Most components of this reward are at risk and vary directly
in their amount with each executive's impact on desired business results.
The Company's administration of executive total compensation is based on
both performance and competitive market considerations. Base salaries of
executives are targeted at a competitive market median on a job-by-job basis
with individual variations explained by differences in training, experience,
skills of special value to the Company and sustained performance. Incentive
compensation varies directly with Company and business element performance, and
also with individual job level, scope and performance. Normalized for
aforementioned individual variations, annual total cash compensation -- base
salary plus incentive pay -- will be lower than competitive market median in
years of below target performance, and above competitive market median in years
performance exceeds target. At the time of their initial grant, the size of
individual long-term incentive awards is targeted at competitive market median.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code (the "Code"), enacted in 1993,
generally disallows a tax deduction to public companies for compensation over $1
million paid to the corporation's chief executive officer and four other most
highly compensated executive officers. Qualifying performance-based compensation
is not subject to the deduction limit.
Prior to the enactment of Section 162(m), the Company's stockholders
approved the 1993 Long-Term Incentive Stock Plan ("Stock Plan"). Initial grants
of certain awards under that plan while performance-based, do not satisfy the
definition of performance-based compensation under Section 162(m) and,
therefore, tax deductions with respect to compensation related to those initial
grants may be lost.
Under a transitional rule contained in proposed Treasury regulations, the
Stock Plan is treated as meeting the requirement of stating the maximum number
of shares with respect to which a stock option may be granted to any employee
until the first shareholders' meeting at which directors are elected that occurs
after December 31, 1996. However, shareholder approval of the amendment to the
Stock Plan increasing the number of shares of Common Stock which the Company is
authorized to issue under the Stock Plan will cause the protection of the
transition rule to be lost. Accordingly, in order to preserve the Company's
Federal income tax deduction with respect to future grants of stock options
under the Stock Plan, the Board of Directors has approved, subject to
shareholder approval, an amendment to the Stock Plan establishing a limit on the
maximum number of shares that may be issued pursuant to stock option grants to
any employee, including a Named Executive Officer, of four hundred thousand
(400,000) shares over any three-year period.
The 1973 Incentive Compensation Plan ("1973 Plan") is also subject to
Section 162(m) of the Code. However, based upon the compensation to be paid to
the Named Executive Officers, it is likely that the Company would be denied a
tax deduction in 1994 only with respect to a portion of the Chief Executive
Officer's cash compensation. The increased tax liability that would result will
not be material.
10
<PAGE>
The Chief Executive Officer has elected to defer 1995 cash compensation to
the extent that compensation would cause the loss of a deduction under Section
162(m). Therefore, Section 162(m) is not expected to impact the Company for the
tax year 1995.
The Company will continue its efforts to preserve tax deductibility of
compensation where it is reasonable and practical to do so.
MEASUREMENT OF COMPANY PERFORMANCE
Consistent with the business plan, management in each organizational element
prepares and submits for assessment an Annual Operating Plan containing
strategic, financial and supplemental business goals together with defined
measures and weights. Strategic Goals focus on such factors as new product
development and new business initiatives, while Financial Goals focus on
operating earnings, cash flow and shareholder value metrics. Supplemental
Business Goals include targets in areas such as contract acquisition,
productivity and quality improvement, work place diversity, management
development and environmental management. These goals are communicated within
each organizational element resulting in formation of individual performance
goals specific to each salaried employee. Documented and approved in accordance
with the Company's Performance Management Process, accomplishments against
individual goals are evaluated on an interim basis at mid-year and, on a final
basis, at year-end.
For Named Executive Officers, three Performance Measurement Factors weighted
1/3 each are used to determine annual incentive awards: pre-tax return on 3-year
average shareholder equity; profitability as measured by return on assets and
return on equity -- weighted equally; and Supplemental Business Goals such as
are delineated above. Associated with each financial measure is a specific
numerical threshold approved by the Committee below which no value is earned.
Supplemental Business Goals have stated milestones, objectives and numerical
targets also approved by the Committee. In 1994, the category of Supplemental
Business Goals included 11 corporate goals and 43 divisional goals.
Annually, the Committee reviews, approves and -- at its discretion --
modifies the Chief Executive Officer's written proposal of goals and their
numerical values within each of the three Performance Measurement Factors stated
above. Performance highlights against 1994 goals can be found below in ANNUAL
INCENTIVE COMPENSATION and in CHIEF EXECUTIVE OFFICER COMPENSATION.
COMPANY PERFORMANCE AND THE ELEMENTS OF COMPENSATION
COMPETITIVE COMPENSATION INFORMATION
In determining base salaries and incentive compensation for the Named
Executive Officers, primary sources of competitive compensation information are
independent surveys of industry peer companies, specifically including those in
the Standard & Poors Aerospace and Defense Index cited in the SHAREOWNER RETURN
PERFORMANCE PRESENTATION following this Report, and selected other companies in
closely related industries. These primary sources include the Hewitt Associates
MCS Project 777 Survey (Aerospace Segment) and the Summit Survey of Aerospace
Companies. Secondary sources of competitive compensation information are the
Consolidated Industries Segment of Project 777, the Towers-Perrin Compensation
Data Bank and the Hewitt Associates Total Compensation DataBase-TM-.
Competitive award guidelines contained in the Company's Long-Term Incentive
Plan Guide to Administration have been determined by a reputable independent
consulting firm and adopted by the Committee.
BASE SALARY
At the beginning of each year, the Committee reviews, and accepts or
modifies as it deems appropriate, an annual salary plan submitted by the Chief
Executive Officer for the Company's senior executives (other than the Chief
Executive Officer). This salary plan is developed by the Corporation's human
resources staff under the ultimate direction of the Chief Executive Officer,
based on independent market surveys of compensation as well as judgments of
performance as to past and expected future contributions of the individual
executives.
11
<PAGE>
Separately, the Committee reviews the base salary of the Chief Executive
Officer considering competitive compensation data and the Committee's assessment
of his past performance and its expectation of his future contributions in
leading the corporation and its businesses. The Committee then presents to the
Board (absent all employee-directors) its recommendations concerning both the
annual salary plan for senior executives and the salary for the Chief Executive
Officer. The Board approves this submission, modified as it deems appropriate.
Measured by third-party compensation surveys of the aerospace and defense
industry which consider company revenues, the Chief Executive Officer is paid a
base salary at the competitive market median. From the Hewitt Total Compensation
Study, it can be concluded that the average base salary paid by the Corporation
to this executive group is at the competitive market median.
ANNUAL INCENTIVE COMPENSATION
Executives, including the Named Executive Officers, are eligible for
incentive pay annually under the Corporation's shareholder-approved Incentive
Compensation Plan. However, no awards may be earned or paid for years in which
the pre-tax return on 3-year average shareholder equity is not at least 10%, or
in which no dividend is declared on common and preferred stock. When awards are
payable, their total amount may not exceed 3% of the pre-tax adjusted gross
margin for that year.
In years in which incentive compensation awards are payable, the Committee
decides individual awards for the Named Executive Officers following its
consideration of the Chief Executive Officer's report of overall corporate
performance against the business measures delineated above in MEASUREMENT OF
COMPANY PERFORMANCE. The Committee determines the size of the annual incentive
awards for executive officers generally by calculating the product of individual
base salary, target bonus percent based on salary grade, Unit Performance Factor
and an individual performance score termed Individual Performance Factor. The
Unit Performance Factor represents the Chief Executive Officer's assessment of
overall Company performance as a single numerical value that the Committee
accepts or revises as it deems appropriate.
For 1994, performance targets for the Company's three Measurement Factors --
1) pre-tax return on 3-year average shareholder equity; 2) annual return on
assets and return on equity; and 3) Supplemental Business Goals--were exceeded.
Accompanying his performance report, the Chief Executive Officer submits
recommendations to the Committee for individual incentive awards for the Named
Executive Officers, except the Chief Executive Officer, which reflect their
contributions to the accomplishment of annual goals and the Company's long-term
business plan.
Separately, the Committee considers an incentive compensation award for the
Chief Executive Officer based on the Committee's assessment of his recent-year
performance. The Committee then presents to the Board, absent all
employee-directors, its recommendations concerning the incentive compensation
for the Named Executive Officers, including the Chief Executive Officer. The
Board considers the Committee's recommendations and approves this submission,
modified as it deems appropriate.
In evaluating overall performance and formulating recommendations for annual
incentive compensation for 1994 for the Named Executive Officers, including the
Chief Executive Officer, the Committee considered the Chief Executive Officer's
report on overall corporate performance. Originally presented to the Committee
on February 16, 1994, corporate performance targets were revised following the
Company's acquisition of Grumman Corporation and were submitted for review and
approval to the Committee on June 15, 1994. In its review of results against
1994 original and revised performance goals, the Committee noted the degree to
which the Company exceeded targets set for all three Performance Measurement
Factors. The Committee excluded the cost of the Company's 1994 early retirement
incentive program for purposes of evaluating 1994 financial elements of the
Performance Measurement Factors, a permissible action under the 1973 Incentive
Compensation Plan. The Committee also acknowledged the successful conclusion of
the Grumman and Vought acquisitions as major
12
<PAGE>
contributions to the future welfare of the Company. The Committee considered all
factors as a whole and took into account evaluations of Named Executive
Officers' performance to arrive at an appropriate annual incentive compensation
for each.
During 1994, the Committee also approved special cash awards for six
executives, two of whom are Named Executive Officers (not the Chief Executive
Officer), in recognition of their extraordinary contributions to the acquisition
of Grumman Corporation.
LONG-TERM INCENTIVE COMPENSATION
During each fiscal year, the Committee considers the desirability of
granting senior executives, including the Named Executive Officers, awards under
the current shareholder-approved Long-Term Incentive Stock Plan. The Committee
believes that its past grants of Long-Term incentives have successfully focused
the Corporation's senior management on building profitability and Shareowner
value.
The Long-Term Incentive Stock Plan provides the flexibility to grant awards
spanning a number of years in a variety of forms, including stock options and
restricted performance stock rights. The purpose of this form of compensation is
to establish a long-term performance horizon for Plan participants. By promoting
ownership of Northrop Grumman stock, the Plan creates shareholder-managers
interested in the long-term growth and prosperity of the Company.
In the Company's fiscal year ended December 31, 1994, the Committee granted
stock options to selected key managers and -- only to new participants in the
Plan -- restricted performance stock rights. The performance variable governing
the value of restricted performance stock rights is linked to Company total
shareholder return compared to that of companies in the Standard & Poors
Aerospace and Defense Index cited in the SHAREOWNER RETURN PERFORMANCE
PRESENTATION that follows this Report.
In fixing grants for individuals, including the Named Executive Officers
other than the Chief Executive Officer, the Committee reviewed the Chief
Executive Officer's recommendations for individual awards. The Committee
approved awards taking into account the scope of accountability, record of
achievement and contribution and anticipated future influence on company
performance of each recipient.
Awards under the Long-Term Incentive Stock Plan in 1994 were granted on
December 21, 1994. Applying competitive guidelines for the size of annual
long-term incentive awards for Named Executive Officers, actual grants of such
awards in 1994 were made -- overall -- under the competitive market median.
DETERMINING CHIEF EXECUTIVE OFFICER COMPENSATION
In evaluating 1994 performance of the Chief Executive Officer and setting
his annual incentive compensation, the Committee noted a number of significant
Company achievements. In making its final determination as to the Chief
Executive Officer's 1994 annual incentive compensation, these important business
results were considered by the Committee both separately and in the aggregate
without assigned specific relative values.
The Committee recognized that Mr. Kresa was the architect of the Grumman and
Vought acquisitions. He directed a complex organization transition while still
achieving an overall high level of financial performance. As stated earlier, the
Company exceeded established targets set for all three Performance Measurement
Factors that determine incentive compensation. Additionally, a number of
strategic, operational and business development highlights also marked Mr.
Kresa's leadership in 1994.
The Company met its commitment of delivering four B-2 aircraft to the Air
Combat Command at Whitman AFB. Excellent performance for military aircraft
programs was reflected in high customer acclaim for the F-18 E/F Critical Design
Review and acceptance of the Company as a major competitor for new opportunities
in the arena of Joint Advanced Strike Technology (JAST). Merging the products,
people and assets of three major companies in less than one year, Northrop
Grumman has uniquely positioned itself to compete effectively in the emerging
arena of surveillance, precision strike and battle
13
<PAGE>
management. In the highly competitive field of commercial aircraft, Northrop
Grumman was successful in meeting challenging unit cost reductions in an
environment of curtailed volume while also establishing itself as the premier
supplier of commercial aircraft subassemblies.
Based upon competitive market bonus practice derived from sources cited in
the Competitive Compensation Information section of this report and Mr. Kresa's
performance as outlined in this section, and taking into consideration Mr.
Kresa's base salary, the Committee granted Mr. Kresa an incentive compensation
award to recognize his 1994 performance. Following its review of the total value
of his incentive stock holdings (i.e., grants of stock and stock options under
present and previous Long-Term Incentive Plans) and considering competitive
market long-term incentive practices discussed in the Long-Term Incentive
Compensation section of this report, the Committee also granted Mr. Kresa a
long-term incentive award to both reward and motivate his continuing
contributions to the future prosperity of the Company. Considering his
performance and previously cited Competitive Compensation Information, the
committee adjusted Mr. Kresa's base salary effective March 1, 1994. The Summary
Compensation Table on page 16 contains information detailing these actions.
THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE:
RICHARD J. STEGEMEIER, CHAIRMAN
JACK R. BORSTING
JOHN E. ROBSON
WILLIAM F. SCHMIED
BRENT SCROWCROFT
FEBRUARY 28, 1995
14
<PAGE>
SHAREOWNER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareowner return on the Company's Common Stock against the
cumulative total return of the S&P Composite-500 Stock Index and the S&P
Aerospace and Defense Composite Index for the period of five fiscal years
commencing January 1, 1990 and ended December 31, 1994.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
NORTHROP GRUMMAN CORPORATION, S&P 500 INDEX & S&P AEROSPACE/DEFENSE INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NDC S&P 500 S&P A/D INDEX
<S> <C> <C> <C>
1989 100 100 100
1990 107 97 104
1991 169 126 125
1992 230 136 131
1993 264 150 171
1994 308 152 185
</TABLE>
ASSUMES $100 INVESTED ON DECEMBER 31, 1989 IN NORTHROP GRUMMAN COMMON STOCK,
S&P 500 INDEX AND S&P AEROSPACE/DEFENSE INDEX.
* TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS.
15
<PAGE>
EXECUTIVE COMPENSATION
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for the years ended
December 31, 1994, 1993 and 1992 of those persons who were at December 31, 1994
the chief executive officer and the other four most highly compensated officers
of the Company (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
AWARDS
----------------------------
SECURITIES
ANNUAL COMPENSATION OTHER RESTRICTED UNDERLYING
--------------------------- ANNUAL STOCK OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARD(S) ($)(1) SARS (#)
-------------------------------- ---- ---------- --------- ------------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
KENT KRESA (3) ................. 1994 700,833 850,000 56,344(4) 0 40,000
Chairman of the Board, 1993 675,000 450,000 0 34,400
President and Chief 1992 650,000 500,000 0 0
Executive Officer
OLIVER C. BOILEAU, JR. ......... 1994 474,597 500,000 0 15,000
Corporate Vice President, 1993 408,333 270,000 0 7,000
President and Chief 1992 395,833 300,000 0 28,000
Operating Officer, Grumman
Corporation
WALLACE C. SOLBERG ............. 1994 305,833 300,000 0 12,000
Corporate Vice President 1993 266,667 115,000 128,700 12,000
and General Manager, 1992 250,000 195,000 0 28,000
Military Aircraft Division
RICHARD R. MOLLEUR ............. 1994 275,000 345,000 0 10,000
Corporate Vice President 1993 248,000 150,000 107,250 10,000
and General Counsel 1992 235,833 160,000 0 15,000
RICHARD B. WAUGH, JR. .......... 1994 245,833 360,000 0 12,000
Corporate Vice President 1993 225,000 136,000 128,700 12,000
and Chief 1992 160,542 90,000 104,500 8,000
Financial Officer
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION ($)(2)
-------------------------------- -------------------
<S> <C>
KENT KRESA (3) ................. 6,000
Chairman of the Board, 9,434
President and Chief 9,154
Executive Officer
OLIVER C. BOILEAU, JR. ......... 36,586
Corporate Vice President, 9,434
President and Chief 9,154
Operating Officer, Grumman
Corporation
WALLACE C. SOLBERG ............. 6,000
Corporate Vice President 8,686
and General Manager, 8,407
Military Aircraft Division
RICHARD R. MOLLEUR ............. 4,350
Corporate Vice President 6,999
and General Counsel 6,365
RICHARD B. WAUGH, JR. .......... 5,997
Corporate Vice President 9,434
and Chief 9,154
Financial Officer
<FN>
------------------------
(1) Aggregated restricted shares or rights held by Named Executive Officers,
valued at December 31, 1994, were: K. Kresa 43,750 shares at $1,837,500,
W.C. Solberg 4,500 shares at $189,000, R.R. Molleur 2,000 shares at
$84,000, R.B. Waugh, Jr. 2,940 shares at $123,480.
Restricted Stock Rights ("RSRs") granted under the 1987 Long-Term
Incentive Plan (the "Plan") provide for the issuance of unrestricted
Common Stock in yearly increments equal to 20% of the total grant,
commencing within one year of the grant date. The entire RSR grant is
therefore issued within five (5) years from the date of grant. RSRs with
vesting dates of less than three (3) years were granted to W.C. Solberg on
November 20, 1991 for 7,500 shares, R.R. Molleur on February 20, 1991 for
5,000 shares, and R. B. Waugh, Jr. on July 18, 1990 for 2,700 shares and
on November 17, 1992 for 4,000 shares.
(2) "All Other Compensation" consists of Company contributions to Savings Plan
for the Named Executive Officers. For Mr. Boileau in 1994, it also
includes $30,500 in reimbursements for Mr. Boileau's expenses incurred in
connection with his move to Long Island, New York following his election
as President and Chief Operating Officer of Grumman Corporation.
(3) Annual Compensation in excess of $1,000,000 attributable to 1995 that
would be disallowed for tax deduction under Internal Revenue Code Section
162(m) will be deferred in accordance with the Company's Executive
Deferred Compensation Plan, which provides for interest on the deferred
amount and payment in installments or lump sum at the election of the
participant.
(4) Amount includes $22,810 for premium amounts paid on behalf of Mr. Kresa
for life, accidental death and dismemberment, medical, dental and
long-term disability insurance. Except as set forth in this column, none
of the Named Executive Officers received personal benefits in an amount
exceeding $50,000.
</TABLE>
16
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
There is shown below information concerning individual grants of stock
options made during the last completed fiscal year to each of the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM (1)
OPTIONS TO EMPLOYEES IN BASE EXPIRATION --------------------
NAME GRANTED(#) (2) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
------------------------------- --------------- ----------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
KENT KRESA..................... 40,000 5.34 $ 43.00 12/21/04 1,081,880 2,741,680
OLIVER C. BOILEAU, JR.......... 15,000 2.00 36.00 5/18/04 339,660 860,760
WALLACE C. SOLBERG............. 12,000 1.60 43.00 12/21/04 324,564 822,504
RICHARD R. MOLLEUR............. 10,000 1.34 43.00 12/21/04 270,470 685,420
RICHARD B. WAUGH, JR........... 12,000 1.60 43.00 12/21/04 324,564 822,504
<FN>
------------------------------
(1) The potential realizable value of each grant of options assuming that the
market price of Northrop Grumman Common Stock from the date of the grant
to the end of the option term (10 years) appreciates in value at an
annualized rate of 5% and 10%.
(2) The first installment of 25% of the total grant becomes exercisable 23
months after the date of the grant, with 25% vesting annually thereafter,
with the exception of Mr. Boileau's grant which vested in full coincident
with his retirement on January 31, 1995.
</TABLE>
OPTION EXERCISES AND VALUES
Shown below is aggregated information with respect to the exercise of stock
options during the year ending December 31, 1994 by the Chief Executive Officer
and the Named Executive Officers, and the value at December 31, 1994 of
unexercised options, without stock appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE (1)
------------------------------------------ ----------------- ------------ --------------- -------------------
<S> <C> <C> <C> <C>
KENT KRESA................................ 0 0 400,000/174,400 9,600,000/2,615,000
OLIVER C. BOILEAU, JR..................... 20,000 422,500 38,200/31,800 711,550/356,700
WALLACE C. SOLBERG........................ 0 0 22,200/40,800 452,800/341,700
RICHARD R. MOLLEUR........................ 0 0 14,000/37,000 231,250/341,375
RICHARD B. WAUGH, JR...................... 0 0 7,520/29,880 151,780/176,445
<FN>
------------------------------
(1) Based on the market value at December 31, 1994 of $42.00
</TABLE>
RETIREMENT PLANS
For purposes of illustration, the following table shows the amount of annual
retirement benefits that would be accrued at age 65 under the Northrop Grumman
Retirement Plan effective January 1, 1995 (the "Retirement Plan"), calculated on
a straight life annuity basis, at selected compensation levels and years of
service. The listed benefit amounts are not subject to any reduction for Social
Security benefits or other offset amounts.
Actual benefits payable under the Retirement Plan are limited to the
compensation limitation of Section 401(a)(17) of the Internal Revenue Code of
1986, as amended, (the "Code") and the limitations under Section 415 of the
Code. The benefits which exceed these limits are payable from any one or a
17
<PAGE>
combination of the Company's Supplemental Retirement Income Program for Senior
Executives (discussed below) or the Northrop Corporation ERISA Supplemental Plan
I ("ERISA 1") and the ERISA Supplemental Program 2 ("ERISA 2") (collectively,
the "Supplemental Retirement Plans").
YEARS OF BENEFIT SERVICE
<TABLE>
<CAPTION>
ANNUAL
AVERAGE
COMPENSATION
(HIGHEST ANNUAL BENEFITS FROM RETIREMENT PLAN AND ERISA 1 AND 2
3 YEARS OUT --------------------------------------------------------------------------------
OF LAST 10) 5 10 15 20 25 30 35
------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 8,300 $ 16,700 $ 25,000 $ 33,300 $ 41,700 $ 50,000 $ 50,000
150,000 12,500 25,000 37,500 50,000 62,500 75,000 75,000
200,000 16,700 33,300 50,000 66,700 83,300 100,000 100,000
250,000 20,800 41,700 62,500 83,300 104,200 125,000 125,000
300,000 25,000 50,000 75,000 100,000 125,000 150,000 150,000
400,000 33,300 66,700 100,000 133,300 166,700 200,000 200,000
500,000 41,700 83,300 125,000 166,700 208,300 250,000 250,000
600,000 50,000 100,000 150,000 200,000 250,000 300,000 300,000
1,000,000 83,300 166,700 250,000 333,300 416,700 500,000 500,000
1,400,000 116,700 233,300 350,000 466,700 583,300 700,000 700,000
1,800,000 150,000 300,000 450,000 600,000 750,000 900,000 900,000
Compensation covered by the plans is defined as annual base rate of pay (including shift
differentials and automatic rate progression) plus bonus, overtime and extended workweek. Benefit
Service earned after January 1, 1995 in excess of 30 years will not be taken into account for
accrual of retirement benefits. Benefits payable under the Supplemental Retirement Plans have
been secured through the establishment of two rabbi trusts. The credited years of service under
the Retirement Plan and Supplemental Retirement Plans of the five individuals named in the
Summary Compensation Table are as follows: Mr. Kresa, 20 years; Mr. Boileau, 5 years; Mr.
Solberg, 11 years; Mr. Molleur, 4 years; and Mr. Waugh, 16 years. In addition, Mr. Solberg will
receive an annual retirement benefit of $32,059 under a separate retirement plan of a Company
division.
<FN>
------------------------
(1) The Supplemental Retirement Income Program for Senior Executives ("SRI"),
under which certain employees are designated by the Board of Directors,
provides a benefit in lieu of that otherwise payable under ERISA 1 and 2.
The amount of the supplemental benefit under the SRI is equal to the
greater of 1) the participant's benefit under the Retirement Plan
calculated without regard to the limits imposed under Sections 415 and
401(a)(17) of the Code, or 2) a fixed percentage of the participant's
final average salary (highest 3 years out of last 5) equal to 30% at age
55, increasing 4% for each year up to and including age 60, and increasing
2% for each year beyond age 60 to 65, in each case less the benefit
allowable under the Retirement Plan.
Mr. Kresa, who is eligible to receive an annual benefit (estimated to be
$712,629 payable at age 65, assuming continued employment and based upon
current final average salary) under the SRI, is the only Named Executive
Officer currently participating in that plan.
SRI eligibility, in addition to designation by the Board of Directors,
requires the attainment of age 55 and 10 years of vesting service. The
vesting service requirement may be waived by the Chief Executive Officer.
</TABLE>
CHANGE OF CONTROL AGREEMENT
In 1993 the Company adopted a plan which permits it to enter into special
severance agreements ("Agreements") with key employees, such employees being
designated from time to time by the Compensation and Management Development
Committee (the "Committee") of the Board of Directors. The Committee has
designated seven key employees, including Messrs. Kresa, Solberg, Molleur and
Waugh. The purpose of the Agreements is to encourage the key employees to
continue to carry out their duties in the event of the possibility of a change
in control of the Company. Payments under the special
18
<PAGE>
severance agreements would be made only if there is a Change in Control of the
Company at a time when the key employee is in the employ of the Company, and the
key employee's employment is thereafter terminated other than for narrowly
defined causes.
Generally, a "Change in Control" shall be deemed to have occurred if (i)
there is a consolidation or merger of the Company and the Company is not the
surviving corporation, (ii) there is a sale, lease or transfer of substantially
all of the assets of the Company, (iii) the shareholders approve a plan or
proposal for the liquidation or dissolution of the Company, (iv) any person
(other than a trust established pursuant to an employee benefit plan of the
Company) becomes the beneficial owner of 15% or more of the Company's
outstanding stock, or (v) during any two-year period the majority of the
Company's directors shall cease to be "Continuing Directors." "Continuing
Director" shall mean a director who was a director of the Company at the
beginning of any two year period, as well as any person whose election or
nomination as a director was approved by two-thirds of the then Continuing
Directors.
The key employee shall be entitled to certain benefits upon a termination of
employment within the thirty-month period following a Change in Control except a
termination of employment resulting from the key employee's death, a termination
by the Company for "cause" or "disability", or a termination by the key employee
other than for "good reason."
In the event of a termination which requires the Company to make payments
under an Agreement, the key employee shall be entitled, subject to certain
exceptions, to: (i) full base salary through the date of termination, (ii)
severance pay equal to 2.99 X the key employee's full Base Amount (as defined in
Section 280G of the Code), (iii) medical, dental and life insurance benefits
substantially similar to those which the key employee was receiving immediately
prior to the Change in Control for a period of 36 months, and (iv) all deferred
and accrued bonus and vacation pay pursuant to policies in effect as of
designated alternative dates.
The key employee's severance payments under the Agreement are subject to
reduction to the extent that any other benefits or payments received would
constitute "excess parachute payments," pursuant to Section 280G of the Code.
Such reduction shall be made in the order and manner determined by the key
employee as soon as administratively practicable following the Change In
Control.
MANAGEMENT CONTRACTS
Coincident with the election of Mr. Oliver C. Boileau, Jr. as Corporate Vice
President and as President and General Manager, B-2 Division in December, 1989,
the Company entered into a five-year employment agreement with him. Upon Mr.
Boileau's election as President and Chief Operating Officer of Grumman
Corporation, this employment agreement was amended. Under the amended agreement,
for the period of April 19, 1994 through January 31, 1995, Mr. Boileau was
entitled to an annual base salary of $500,000 per year. He also received a grant
of options to purchase 15,000 shares of Northrop Grumman Common Stock, with all
the options vesting on January 31, 1995. The amended agreement also provides
that the Company will purchase Mr. Boileau's California residence, provide
housing in Long Island, New York in connection with his tenure as President and
Chief Operating Officer of Grumman Corporation, and reimburse Mr. Boileau for
expenses incurred in transporting his household goods and automobiles to St.
Louis, Missouri and Wyoming at the end of the assignment. The Company will also
pay the differential between state and local income taxes paid by Mr. Boileau
for the tax year 1994 as a result of his assignment and those which would have
been paid by him had he remained in California.
As a result of Mr. Boileau's retirement on January 31, 1995, the Company
will provide a straight life retirement benefit of $100,000 per year for life,
reduced by the accrued benefit payable under the Northrop Retirement Plan.
CERTAIN TRANSACTIONS
Mr. Rosenberg is the Chairman of the Board and Chief Executive Officer of
BankAmerica Corporation. Bank of America is participating as Co-Agent in the
Company's 1994 Credit Agreement among the Company, Bank of America and certain
other banks. During 1994, Bank of America was one of a group
19
<PAGE>
of banks participating in the Company's credit facilities (the "Credit
Agreement") among the Company, Bank of America and certain other banks. Bank of
America was prepared to extend up to $120 Million on a committed basis to the
Company under the Credit Agreement. In 1994, Bank of America received $2,767,110
in fees and interest under the terms of the Credit Agreement and approximately
$27,500 in compensation for various ancillary services such as cash management
and letters of credit.
Management believes the terms of the foregoing transactions were competitive
or were as favorable to the Company as could have been obtained from other
entities having no affiliation with the Company.
Mr. Edwards is a senior partner at the law firm of Hand, Arendall, Bedsole,
Greaves & Johnston. Hand Arendall has been a consultant for Northrop Corporation
during the past year and continues this status until March 31, 1995 on which
date the agreement is scheduled to end. Pursuant to this Consulting Agreement,
Hand Arendall provides analyses and advice with respect to pending and proposed
legislation.
Ms. Peters is a senior partner at the law firm of Gibson, Dunn & Crutcher.
In 1994, a partner of Gibson, Dunn & Crutcher became a consultant for Northrop
Corporation providing analysis and advice with respect to pending and proposed
legislation, and the firm provided legal counsel in connection with the
acquisition of Grumman Corporation and the remaining 51 percent of the
outstanding shares of VAC Acquisition Company.
During the period following the Corporation's acquisition of Grumman
Corporation in May 1994, Renso Caporali, a former member of the Corporation's
Board of Directors and formerly Chairman and Chief Executive Officer of Grumman,
was paid, in his capacity as an officer of Grumman, in addition to his base
salary and insurance benefits, $449,531 in termination pay pursuant to Grumman's
termination pay policy and $8,520,729 in stock-based and other incentive
compensation under Grumman's employee benefit plans, pursuant to the terms of
such plans. Dr. Caporali did not, however, receive any severance pay under
Grumman's Special Severance Pay Plan due to the operation of the Plan provisions
limiting payments to those which would not, in the aggregate, constitute a
nondeductible "excess parachute payment" under Section 280G of the Code. The
Company entered into a consulting agreement with Dr. Caporali pursuant to which
he provided technical advice and services to the Company. Dr. Caporali was paid
$66,666 in consulting fees under the agreement which expired on December 31,
1994.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors, and persons who own more than ten percent
of a registered class of the Corporation's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (SEC) and the New York Stock Exchange. Officers, directors
and greater than ten percent shareowners are required by SEC regulation to
furnish the Corporation with copies of all Forms 3, 4 and 5 they file.
Based solely on the Corporation's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for specified fiscal years, the Corporation
believes that all its officers, directors, and greater than ten percent
beneficial owners complied with all filing requirements applicable to them with
respect to transactions during fiscal 1994, except Nelson F. Gibbs, Jr., who
reported on December 7, 1994 the sale of 236 shares on August 1, 1994.
PROPOSAL TO APPROVE THE NORTHROP GRUMMAN CORPORATION
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Northrop Grumman Corporation 1995 Stock Option Plan for Non-Employee
Directors, (the "Option Plan") was adopted by the Board of Directors on February
15, 1995, subject to stockholder approval. The Board of Directors recommends
that the Option Plan be approved by the stockholders.
20
<PAGE>
The purpose of the Option Plan is to assist the Company in attracting and
retaining, as members of the Board of Directors, highly qualified persons who
are not employees of the Company or its subsidiaries, while at the same time
securing for stockholders the inherent benefit of increased stock ownership by
all non-employee directors. The following general description of the Option Plan
is qualified in its entirety by reference to Exhibit A, annexed hereto, which
consists of a copy of the Option Plan.
OPTION PLAN DESCRIPTION
PLAN OPERATION. The Option Plan is intended to meet the requirements of
Rule 16b-3(c)(2)(ii) adopted under the Securities Exchange Act of 1934 and,
accordingly, is intended to be self-governing. To this end, except as specified
therein, the Option Plan is intended to require no discretionary action by any
administrative body with regard to any transaction under the Option Plan.
COMMON STOCK AVAILABLE FOR STOCK OPTIONS. A maximum of 300,000 shares of
Common Stock may be issued upon the exercise of stock options under the Option
Plan. Shares underlying stock options which expire unexercised or which are
cancelled will remain available for issuance under the Option Plan.
GRANT OF OPTIONS. The Directors of the Company eligible to participate in
the Option Plan are those who are not an employee of the Company or any
subsidiary or Affiliate of the Company on the applicable grant date (currently
twelve). The Option Plan provides that participating Directors will be granted
an option to purchase 500 shares of Common Stock on the third business day
following each Annual Meeting of Stockholders. In the event that a participating
Director ceases to be a member of the Board for whatever reason, each
exercisable stock option shall continue to be exercisable for the lesser of five
years or until the end of the original term. Stock options held by a
participating Director who is terminated for cause shall cease to be exercisable
on the date of termination. The closing price of Common Stock on March 1, 1995,
as reported on the New York Stock Exchange, was $45.75 per share.
TERM AND EXERCISABILITY OF OPTIONS. The term of each stock option will be
ten years. Shares subject to a stock option are immediately exercisable on the
grant date.
NON-ASSIGNABILITY. So long as restrictions on transferability of stock
options are required by Rule 16b-3 adopted under the Securities Exchange Act of
1934 ("Rule 16b-3"), or any successor rule, a stock option granted under the
Option Plan cannot be transferred other than as permitted under such Rule. Rule
16b-3 currently permits transfers only by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined
under the Code or Title I of the Employee Retirement Security Income Act or the
Rules thereunder.
ADJUSTMENTS. The Board may make adjustments to the number of shares
available under the Option Plan and to the number of shares and pricing of any
outstanding options provided such adjustments are consistent with the effect on
other shareholders arising from any corporate restructuring or similar action.
Such actions may include, but are not limited to, any stock dividend, stock
split, combination or exchange of shares, merger, consolidation,
recapitalization, spin-off or other distribution (other than normal cash
dividends) of Company assets to shareholders.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The stock options granted under the Option Plan will be non-statutory
options not intended to qualify under Section 422 of the Code. The grant of
options will not result in taxable income to the director or a tax deduction for
the Company. The exercise of an option will result in taxable ordinary income to
the director and a corresponding deduction to the Company, in each case equal to
the difference between the fair market value of the shares on the date the
option was granted and their fair market value on the date the option was
exercised.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock voting at
the Annual Meeting (with each share entitled to one vote), is required for
approval of this proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS
PROPOSAL.
21
<PAGE>
PROPOSAL TO APPROVE AMENDMENTS TO THE NORTHROP GRUMMAN
1993 LONG-TERM INCENTIVE STOCK PLAN
On February 17, 1993, the Board of Directors adopted the Northrop Grumman
1993 Long-Term Incentive Stock Plan (the "1993 Plan"), which was subsequently
approved by the stockholders on May 19, 1993. As of March 1, 1995, 1,072,366
shares of Common Stock remained available for grants of incentive awards under
the 1993 Plan.
The Board of Directors has amended the 1993 Plan, subject to stockholder
approval, (1) to increase the number of shares authorized for issuance
thereunder, and (2) to impose a limit on the number of shares which maybe
awarded during any three year period to any employee pursuant to stock option
grants. The Board believes that the proposed amendments to the 1993 Plan are
necessary to enable the Company to continue to provide significant long-term
incentives for key employees. On this basis, the Board of Directors recommends
that the amendments to the 1993 Plan be approved by stockholders.
The full text of the 1993 Plan, with the proposed amendments, is attached to
this Proxy Statement as Exhibit B. Principal features are described below, but
such description is qualified in its entirety by reference to the text. Except
as otherwise described herein, all other provisions of the 1993 Plan are not
materially changed.
INCREASE IN SHARES
The Board has amended the 1993 Plan to increase the number of shares of
Common Stock authorized for issuance thereunder by 1,800,000 shares, an increase
of 3.65% of the total outstanding shares on January 31, 1995. The need for an
increased number of shares in the 1993 Plan results in part from the recent
acquisitions of Grumman Corporation and Vought Aircraft Company and the
corresponding increase in the number of employees of the Company. The Board
believes that this amendment will allow the Company to continue to provide
meaningful equity incentives to attract, motivate and retain key employees.
ESTABLISHMENT OF AN INDIVIDUAL GRANT LIMIT
To comply with proposed regulations under Section 162(m) of the Code, the
Board has amended the 1993 Plan to establish a limit of 400,000 on the number of
shares of Common Stock which may be awarded pursuant to stock option grants
during any three year period under the 1993 Plan to an eligible employee.
Section 162(m) of the Code and the regulations proposed thereunder generally
would disallow the Company a Federal income tax deduction for compensation paid
to the chief executive officer and the four other most highly compensated
executive officers to the extent such compensation exceeds $1,000,000 in any
year excluding certain performance-based compensation. Compensation expense
attributable to the exercise of stock options granted under the 1993 Plan would
be excludable as performance-based compensation only if the 1993 Plan includes
the proposed limit on the number of shares with respect to which awards may be
made to any one employee in a specified period. The compensation expense
deduction of a non-qualified stock option award under the 1993 Plan generally
would be in an amount equal to the fair market value of the stock at the time of
exercise less the option exercise price. Pursuant to the 1993 Plan, certain
other stock awards may also be granted which will not comply with the
regulations proposed under Section 162(m), in which case the compensation paid
thereto would not constitute excludable performance-based compensation for
purposes of Section 162(m).
1993 PLAN DESCRIPTION
The primary objectives of the 1993 Plan are to: (1) link significant
ownership-creating opportunities for key employees to successful execution of
strategic business goals and growth in stockholder value; (2) create the energy,
enthusiasm and incentive to position the Corporation for sustained growth; (3)
retain outstanding performers and those with critical skills; and (4) support a
philosophy of fairness, reasonableness and pay for results.
22
<PAGE>
The 1993 Plan is administered by the Company's Compensation and Management
Development Committee (the "Committee") consisting of at least three
non-employee members of the Board of Directors who qualify as disinterested
directors under Rule 16b-3. The Committee, in addition to selecting
participants, is empowered, within certain limitations set forth in the 1993
Plan, to determine the number of shares to be covered by awards and the terms
(including form of settlement) of all awards. The Committee also interprets,
makes rules, regulations and determinations, and otherwise administers the 1993
Plan to carry out its intent. No amendment to the 1993 Plan, which would
increase the number of shares available for issuance thereunder (other than for
changes in the corporate structure explained below)or would otherwise cause the
1993 Plan not to comply with Rule 16b-3 may be effected without the approval of
stockholders.
Any employee of the Company (or of any subsidiary or other entity which the
Committee determines meets the 1993 Plan eligibility requirement) is eligible to
receive awards. However, the Committee has thus far limited awards to key
employees. While the concept of a "key employee" is necessarily and
intentionally flexible, approximately 330 employees are considered eligible at
this time. With respect to the proposed increase in shares available under the
1993 Plan, no determination has yet been made regarding the number of employees
to whom stock options will be granted or the number of shares to be covered by
these options. Options received under the 1993 Plan by the Named Executive
Officers in 1994 and 1993 are disclosed in the Summary Compensation Table. Under
the 1993 Plan, all executive officers as a group have received options to
purchase 306,200 shares and all employees (including current officers who are
not executive officers) as a group have received options to purchase 1,263,700
shares.
The 1993 Plan terminates as of the fifth anniversary of stockholder
approval, unless terminated by the Board of Directors at an earlier date or
extended to a later date by stockholder vote. Subject to appropriate adjustment
in the event of certain changes in the Company's corporate structure, including
stock dividends, recapitalizations, mergers or similar transactions or events,
as determined by the Committee, the number of shares of Common Stock of the
Company available for issuance under the 1993 Plan will be 4,100,000, plus any
shares which are available but not issued under the Prior Plans (as defined in
the 1993 Plan), plus any shares which are forfeited back to the Company or used
by a participant as payment, whether full or partial, in connection with the
exercise of a stock option or other award. Where an award is settled in cash or
a form other than shares, the shares that would have been issued had there been
no cash or other settlement shall be charged against the maximum number of
shares that may be issued. The closing price of Common Stock on March 1, 1995,
as reported on the New York Stock Exchange, was $45.75 per share.
The 1993 Plan provides for three general types of stock incentive awards, as
follows:
STOCK OPTIONS: The Committee may award non-qualified stock options or
incentive stock options ("ISOs") which qualify for specified tax status under
Section 422 of the Code. A stock option entitles the recipient to purchase a
specified number of shares of Common Stock at a fixed price subject to terms and
conditions set by the Committee. The purchase price of shares covered by a stock
option may not be less than 100% of fair market value on the date the option is
awarded, except that in situations where a non-qualified option is awarded
retroactively in tandem with or as substitution for another award, the purchase
price may be the same as the purchase or designated price of the other award.
There are statutory limits on the number of shares for which ISOs may be awarded
to any participant. Currently, the aggregate fair market value of such ISO
shares (determined at the time the option is awarded) may not exceed $100,000
for all shares covered by options awarded to a participant which become
exercisable for the first time in any calendar year.
STOCK APPRECIATION RIGHTS: A stock appreciation right ("SAR") permits its
recipient, subject to such terms and conditions as the Committee may set for
each award, to receive in shares, cash or a combination of both, an amount up to
the positive aggregate difference, if any, between the value of the covered
shares, based on the closing price as of the exercise date, and the designated
price of a specified number of shares. The designated price of the SARs may be
not less than the closing price of
23
<PAGE>
the Common Stock on the date of award, except that if a SAR is awarded
retroactively in tandem with or in substitution for another award, the
designated price may be the same as the purchase or designated price of the
other award.
STOCK AWARDS: The Committee may award to selected participants shares of
Common Stock or share equivalents under such terms and conditions as it may
determine. These awards may require that the recipients remain in the Company's
employ for specified future periods of time for the shares or share equivalents
to vest. Additionally, the Committee may require that the awards vest only if
certain levels of shareholder returns or other measurable financial performance,
determined in advance, are achieved. Stock awards also may be used by the
Committee as a form of payment to key employees for salary or for incentive
compensation awarded under other Company plans (e.g., annual incentives).
Any awards under the 1993 Plan may carry dividend or dividend equivalent
rights as determined by the Committee. Further, the Committee is empowered to
permit participants to defer award payments and settlements under such terms as
it may unilaterally establish.
Generally, all awards under the 1993 Plan are non-transferable except by
will or in accordance with the laws of descent and distribution or pursuant to a
qualified domestic relations order. During the life of a participant, awards may
be exercised only by such participant, and the Committee may permit a
participant to designate a beneficiary to exercise or receive any rights that
may exist upon the participant's death.
Awards granted thus far under the 1993 Plan include (1) non-qualified stock
options and (2) restricted performance stock rights consisting of Common Stock
awarded outright with no investment required by the participant but subject to
earnout based on the Company's long-term shareholder return compared to industry
averages or appropriate long-term financial measures and the participant's
continued employment with the Company over the performance cycle.
Under present Federal income tax law, the Company believes that the award of
a stock option or SAR generally creates no Federal tax consequences for the
recipient or the Company. In general, the optionee has no Federal taxable income
upon exercising an ISO (except that the alternative minimum tax may apply), and
the Company receives no deduction when an ISO is exercised. Upon exercising a
non-qualified stock option, the recipient must recognize ordinary income equal
to the difference between the exercise price and the fair market value of the
stock on the date of exercise, and the Company generally will be entitled to a
deduction for the same amount. The tax consequences to a recipient on a
disposition of shares acquired through the exercise of an option depends on how
long the shares have been held and on whether such shares were acquired by
exercising an ISO or by exercising a non-qualified stock option. Generally,
there are no Federal income tax consequences to the Company in connection with a
disposition of shares acquired under an option except that the Company may be
entitled to a deduction in the case of a disposition of shares acquired under an
ISO before the applicable ISO holding periods have been satisfied.
With respect to other awards made under the 1993 Plan that are settled in
cash, stock or other property that is either transferable or not subject to
substantial risk of forfeiture, the participant must recognize ordinary income
equal to the cash or the fair market value of the shares or other property
received at that time, and the Company generally will be entitled to a deduction
for the same amount. With respect to awards that are settled in stock or other
property that is restricted as to transferability and subject to substantial
risk of forfeiture, unless a special election to be taxed is made, the
participant must recognize ordinary income equal to the fair market value of the
shares or other property received at the time the shares or other property
become transferable or not subject to substantial risk of forfeiture, whichever
occurs earlier, over the amount (if any) paid by the participant, and the
Company will be entitled to a deduction for the same amount at that time.
Different Federal income tax rules may apply with respect to participants who
are subject to Section 16 of the Securities Exchange Act of 1934.
24
<PAGE>
The preceding discussion is only a general summary of certain Federal income
tax consequences arising from participation in the 1993 Plan and should not be
used for a determination of an individual's unique tax situation. It is
suggested that the individual consult with a tax advisor regarding the
application of Federal, state and local tax laws to his/her particular
situation.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock voting at
the Annual Meeting (with each share entitled to one vote) is required for
approval of this proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS
PROPOSAL.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that the stockholders ratify the Board's
appointment of Deloitte & Touche LLP as the independent auditors of the Company
for 1995. Deloitte & Touche LLP served the Company as its independent auditors
for 1994. Should the stockholders fail to ratify the appointment of Deloitte &
Touche LLP, the Board of Directors will consider this an indication to select
other auditors for the following year.
A representative of Deloitte & Touche LLP will be present at the Annual
Meeting of Stockholders and will be offered an opportunity to make a statement
if he so desires. He will also be available to answer appropriate questions from
stockholders.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock voting at
the Annual Meeting (with each share entitled to one vote), is required for
approval of this proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS
PROPOSAL.
MISCELLANEOUS
VOTING ON OTHER MATTERS
At the time of filing this Proxy Statement with the Securities and Exchange
Commission, management was not aware of any matters not referred to herein that
will be presented for action at the Annual Meeting. If any other matters
properly come before the Annual Meeting, it is intended that the shares
represented by proxies will be voted with respect thereto in accordance with the
judgment of the persons authorized to vote them.
PROPOSAL OF SECURITY HOLDERS
Copies of proposals which security holders of the Company wish to be
included in the Company's proxy statement relating to its Annual Meeting to be
held in 1996 must be received by the Company no later than December 19, 1995.
Copies of such proposals of security holders should be sent to the Corporate
Secretary, Northrop Grumman Corporation, 1840 Century Park East, Los Angeles,
California 90067.
COST OF SOLICITING PROXIES
The cost of soliciting proxies in the accompanying form has been or will be
paid by the Company. In addition to solicitation by mail, arrangements will,
where appropriate, be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxy materials to beneficial owners, and the Company
will, upon request, reimburse them for their reasonable expenses in so doing.
The Company has retained Georgeson & Company Inc. of New York to aid in the
solicitation of proxies at an estimated fee of $10,000 plus reasonable
disbursements. Officers, directors and regular employees of the Company may
request the return of proxies personally, by means of materials prepared for
stockholders and employee-stockholders or by telephone or telegram to the extent
deemed appropriate by the Board of
25
<PAGE>
Directors. No additional compensation will be paid to such individuals for this
activity. The extent to which this solicitation will be necessary will depend
upon how promptly proxies are received; therefore, stockholders are urged to
return their proxies without delay.
Sheila M. Gibbons
CORPORATE VICE PRESIDENT AND SECRETARY
March 31, 1995
NOTICE: THE COMPANY FILED AN ANNUAL REPORT ON FORM 10-K ON MARCH 21, 1995.
SHAREHOLDERS OF RECORD ON MARCH 21, 1995, MAY OBTAIN A COPY OF THIS REPORT
WITHOUT CHARGE BY DIRECTING A REQUEST TO THE CORPORATE SECRETARY, NORTHROP
GRUMMAN CORPORATION, 1840 CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067.
26
<PAGE>
EXHIBIT A
NORTHROP GRUMMAN CORPORATION
1995 STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
SECTION 1: PURPOSE
The Northrop Grumman Corporation 1995 Stock Option Plan for Non-Employee
Directors (the "Plan") has been adopted to promote the longer-term growth and
financial success of the Company by (1) enhancing its ability to attract and
retain nonaffiliated individuals of outstanding ability as members of the Board
and (2) promoting a greater identity of interest between non-employee members of
the Board and shareholders.
SECTION 2: DEFINITIONS
As used in the Plan, the following terms have these respective meanings:
(a) "Board" means the Company's Board of Directors.
(b) "Common Stock" means the Company's Common Stock, par value $1.00 per
share, or any successor stock issued by the Company in replacement or
conversion thereof.
(c) "Company" means Northrop Grumman Corporation, a corporation established
under the laws of the State of Delaware.
(d) "Fair Market Value" means for any given day the closing sales price on
such date of a share of Common Stock as reported on the principal
securities exchange on which such shares of Common Stock are then listed
or admitted to trading or as reported on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") National Market System,
if not so listed or admitted. If no sales of Common Stock were made on
such exchange or reported on the NASDAQ system on that date, the closing
price of a share of Common Stock for the preceding day of such exchange
or as reported by NASDAQ shall be substituted.
(e) "Grant Date" means the third business day following the Company's Annual
Meeting of Shareholders.
(f) "Participant" means for each Grant Date any director of the Company who
is not an employee of the Company or any subsidiary or affiliate of the
Company on the applicable Grant Date.
(g) "Plan" means the Northrop Grumman Corporation 1995 Stock Option Plan for
Non-Employee Directors.
(h) "Stock Option" means a right to purchase shares of Common Stock at the
applicable Fair Market Value.
(i) "1934 Act" means the Securities Exchange Act of 1934.
SECTION 3: EFFECTIVE DATE
The Plan shall be effective beginning on the date it is approved by the
Company's shareholders and shall remain in effect for each applicable Grant Date
until terminated by the Board. If the Plan is terminated, the terms of the Plan
shall continue to apply to all outstanding Stock Options granted prior to such
termination.
SECTION 4: PLAN OPERATION
The Plan is intended to meet the requirements of Rule 16b-3(c)(2)(ii)
adopted under the 1934 Act and accordingly is intended to be self-governing. To
this end, the Plan is intended to require no discretionary action by any
administrative body with regard to any transaction under the Plan except as
specified in Section 5(b) of the Plan.
A-1
<PAGE>
SECTION 5: COMMON STOCK AVAILABLE FOR STOCK OPTIONS
(a) NUMBER OF SHARES. A maximum of 300,000 shares of Common Stock may be issued
upon the exercise of Stock Options granted under the Plan. Shares of Common
Stock shall not be deemed issued until the applicable Stock Option has been
exercised and, accordingly, any shares of Common Stock represented by Stock
Options which expire unexercised or which are cancelled shall remain
available for issuance under the Plan.
(b) ADJUSTMENTS. The Board, as it deems appropriate to meet the intent of the
Plan, may make such adjustments to the number of shares available under the
Plan and to any outstanding Stock Options, provided such adjustments are
consistent with the effect on other shareholders arising from any corporate
restructuring or similar action. Such actions may include, but are not
limited to, any stock dividend, stock split, combination or exchange of
shares, merger, consolidation, recapitalization, spin-off or other
distribution (other than normal cash dividends) of Company assets to
shareholders, or any other change affecting the Common Stock. The Board may
also, when similarly appropriate, make such adjustment in the exercise price
of outstanding Stock Options as it deems necessary to preserve the rights of
Participants under the Plan.
SECTION 6: STOCK OPTION TERMS
(a) GRANTING OF STOCK OPTIONS. Each Participant shall be granted a Stock Option
to purchase 500 shares on each Grant Date that the Plan is in effect.
(b) DURATION AND EXERCISABILITY. Each Stock Option shall have a term of ten
years and shall become immediately exercisable on the Grant Date.
(c) TERMINATION OF DIRECTORSHIP. When a Participant ceases to be a member of
the Board, each Stock Option or portions thereof, held by such Participant
shall continue to be exercisable for the lesser of five years or until the
end of the original term. Notwithstanding the foregoing, if a Participant is
terminated as a member of the Board for cause, any exercisable Stock Option
shall cease to be exercisable on the date of termination.
(d) EXERCISE OF STOCK OPTIONS. Stock Options may be exercised by giving written
notice to the Secretary of the Company stating the number of shares of
Common Stock with respect to which the Stock Option is being exercised and
tendering payment therefor. Payment for shares of Common Stock shall be made
in full at the time that a Stock Option, or any part thereof, is exercised.
Payment may be made (i) in cash, or (ii) by delivery of shares of Common
Stock of the Company held by the Participant, which shares shall be valued,
for purposes of payment, at their Fair Market Value on the date of payment,
or (iii) by a combination of (i) and (ii) above, or (iv) by ensuring receipt
by the Company of an executed exercise notice coupled with an irrevocable
instruction to a broker to execute a "same day" sale and deliver the sale
exercise price to the Company, or (v) by directing the Company to withhold
from the shares that would otherwise be issued upon exercise of the Stock
Option that number of whole shares having a fair market value equal to the
aggregate option price for the optioned shares issuable on exercise of the
Stock Option. Shares of the Company's Common Stock so withheld shall be
valued at their Fair Market Value at the close of the last business day
immediately preceding the date of exercise of the Stock Option. The
Participant agrees that, in the event the exercise of any Stock Options
granted in this Plan or the disposition of shares following exercise of such
options results in the Participant's realization of income which for
federal, state or local income tax purposes is, in the opinion of counsel
for the Company, subject to withholding of tax at source by the Company, the
Participant will pay to the Company an amount equal to such withholding tax
(i) in cash or (ii) by delivery of Common Stock already owned by the
Participant prior to delivery to the Participant of certificates
representing the shares purchased or transferred or (iii) upon issuance of
any stock under this Plan, allow the Company to withhold such shares
otherwise issuable by the amount necessary to satisfy the Participant's
federal, state and local tax withholding requirements.
A-2
<PAGE>
SECTION 7: GENERAL PROVISIONS
(a) NON-TRANSFERABILITY OF STOCK OPTIONS. So long as restrictions on
transferability of Stock Options are required by Rule 16b-3 or any successor
rule adopted pursuant to the 1934 Act, a Stock Option granted under the Plan
may not be transferred otherwise than as permitted by Rule 16b-3 or any
successor rule. Rule 16b-3 currently permits transfers only by will or the
laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986, as amended,
or Title I of the Employee Retirement Income Security Act, or the rules
thereunder.
(b) DOCUMENTATION OF GRANTS. Stock Options shall be evidenced by written
agreements.
(c) PLAN AMENDMENT. The Board may amend or terminate the Plan provided that (i)
stockholder approval shall be required for any amendment whenever such
approval is necessary to allow this Plan to meet the conditions of Rule
16b-3 (or any successor rule) under the 1934 Act, and (ii) no amendment may
impair any Participant's rights with respect to an outstanding Stock Option
without the consent of the Participant. The Plan may not be amended more
than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act or the
rules thereunder.
(d) FUTURE RIGHTS. Neither the Plan nor the granting of Stock Options nor any
such action taken pursuant to the Plan, shall constitute or be evidence of
any agreement or understanding, express or implied, that the Company shall
retain a Participant for any period of time, or at any particular rate of
compensation as a member of the Board. Nothing in this Plan shall in any way
limit or effect the right of the Board or the shareholders of the Company to
remove any Participant from the Board or otherwise terminate his or her
service as a member of the Board.
(e) GOVERNING LAW. The validity, construction and effect of the Plan and any
such actions taken under or relating to the Plan shall be determined in
accordance with the laws of the State of California and applicable Federal
law.
A-3
<PAGE>
EXHIBIT B
NORTHROP GRUMMAN 1993 LONG-TERM INCENTIVE STOCK PLAN
1. PURPOSE
The purpose of the Northrop Grumman 1993 Long-Term Incentive Stock Plan (the
"Plan") is to promote the long-term success of Northrop Grumman Corporation (the
"Company") and to increase shareholder value by providing its officers and
selected employees with incentives to create excellent performance and to
continue service with the Company, its subsidiaries and affiliates. Both by
encouraging such officers and employees to become owners of the common stock of
the Company and by providing actual ownership through Plan awards, it is
intended that Plan participants will view the Company from an ownership
perspective. Additionally, the Company believes the Plan will assist in
attracting and retaining in its employ outstanding people of training,
experience and ability.
2. TERM
The Plan shall become effective upon the approval by the stockholders of the
Company. Unless previously terminated by the Company's Board of Directors (the
"Board"), the Plan shall terminate at the close of business on the fifth
anniversary of such stockholder approval. After termination of the Plan, no
future awards may be granted but previously granted awards shall remain
outstanding in accordance with their applicable terms and conditions and the
terms and conditions of the Plan.
3. PLAN ADMINISTRATION
A Committee (the "Committee") appointed by the Board shall be responsible
for administering the Plan. The Committee shall be comprised of three or more
non-employee members of the Board who qualify to administer the Plan as
contemplated by Rule 16b-3 under the Securities and Exchange Act of 1934 (the
"1934 Act") or any successor rule. The Committee shall have full and exclusive
power to interpret the Plan and to adopt such rules, regulations and guidelines
for carrying out the Plan as it may deem necessary or proper, all of which power
shall be executed in the best interests of the Company and in keeping with the
objectives of the Plan. This power includes, but is not limited to, selecting
award recipients, establishing all award terms and conditions and adopting
modifications, amendments and procedures, including subplans and the like as may
be necessary to comply with provisions of the laws and applicable regulatory
rulings of countries in which the Company operates in order to assure the
viability of awards granted under the Plan and to enable participants employed
in such countries to receive advantages and benefits under the Plan and such
laws and rulings. In no event, however, shall the Committee or its designee have
the right to cancel outstanding stock options for the purpose of replacing or
regranting such options with a purchase price that is less than the purchase
price of the original option.
4. ELIGIBILITY
Any employee of the Company shall be eligible to receive one or more awards
under the Plan. "Employee" shall also include any former employee of the Company
eligible to receive an assumed or replacement award as contemplated in Sections
5 and 8, and "Company" includes any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN AND GRANT LIMITS
(a) Subject to Section 6 of the Plan, the aggregate number of additional
shares of common stock of the Company ("Common Stock") which may be issued or
transferred pursuant to awards under the Plan, or reserved for such issuance or
transfer, shall not exceed 4,100,000 shares. In addition, (i) any shares of
Common Stock which as of the effective date of the Plan are reserved for
issuance under the Company's 1981 and 1987 Long-Term Incentive Plans (the "Prior
Plans") and which are not thereafter issued; (ii) any shares of Common Stock
which are forfeited back to the Company under the Plan or the Prior Plans; and
(iii) any shares which have been exchanged by a participant as full or partial
payment to the Company in connection with any award under the Plan or the Prior
Plans, shall be available for issuance under the Plan.
B-1
<PAGE>
(b) In no event, however, except as subject to adjustment as provided in
Section 6 shall more than 1,800,000 shares of Common Stock be cumulatively
available for issuance pursuant to stock awards granted under Section 8(c) of
the Plan.
(c) In instances where a stock appreciation right ("SAR") or other award is
settled in cash or a form other than shares, the shares that would have been
issued had there been no cash or other settlement shall nevertheless be deemed
issued and shall no longer be available for issuance under the Plan. However,
the payment of cash dividends and dividend equivalents in conjunction with
outstanding awards shall not be counted against the shares available for
issuance. Any shares that are issued by the Company, and any awards that are
granted by, or become obligations of, the Company, through the assumption by the
Company or an affiliate of, or in substitution for, outstanding awards
previously granted by an acquired company shall not, except in the case of
awards granted to employees who are subject to Section 16 of the 1934 Act, be
counted against the shares available for issuance under the Plan.
(d) Any shares issued under the Plan may consist in whole or in part of
authorized and unissued shares or of treasury shares, and no fractional shares
shall be issued under the Plan. Cash may be paid in lieu of any fractional
shares in settlements of awards under the Plan.
(e) In no event shall the total number of shares of Common Stock that may be
awarded to any eligible participant during any three year period pursuant to
stock option grants hereunder exceed 400,000 shares ("Grant Limit").
6. ADJUSTMENTS AND REORGANIZATIONS
In the event of any stock dividend, stock split, combination or exchange of
shares, merger, consolidation, spin-off, recapitalization or other distribution
(other than normal cash dividends) of Company assets to stockholders, or any
other change affecting shares or share price, such proportionate adjustments, if
any, as the Committee in its discretion may deem appropriate to reflect such
change shall be made with respect to (a) the aggregate number of shares that may
be issued under the Plan; (b) the Grant Limit established under the Plan; (c)
each outstanding award made under the Plan; and (d) the exercise price per share
for any outstanding stock options, SARs or similar awards under the Plan.
In the event that the Company undergoes a change in control (as defined by
the Committee); or is not the surviving company in a merger or consolidation
with another company or in the event of a liquidation or reorganization of the
Company, and in the absence of the surviving company's assumption of outstanding
awards made under the Plan, the Committee may provide for appropriate
adjustments and settlements of such awards either at the time of award or at a
subsequent date.
7. FAIR MARKET VALUE
Fair Market Value for all purposes under the Plan shall mean the closing
price of a share of Common Stock as reported on the composite tape for
securities listed on the New York Stock Exchange (the "Exchange") for the date
in question. If no sales of Common Stock were made on the Exchange on that date,
the closing price of a share of Common Stock as reported on said composite tape
for the preceding day on which sales of Common Stock were made on the Exchange
shall be substituted.
8. AWARDS
The Committee shall determine the type or types of award(s) to be made to
each participant. Awards may be granted singly, in combination or in tandem.
Awards also may be made in combination or in tandem with, in replacement of, as
alternatives to, or as the payment form for grants or rights under any other
employee or compensation plan of the Company, including the plan of any acquired
entity. The types of awards that may be granted under the Plan are:
(a) Stock Options -- A grant of a right to purchase a specified number
of shares of Common Stock during a specified period as determined by the
Committee. The purchase price per share for each option shall be not less
than 100% of Fair Market Value on the date of grant, except that, in the
case of a stock option granted retroactively in tandem with or as a
substitution for another award, the exercise or designated price may be no
lower than the Fair Market Value of a share on the date such other award was
granted. A stock option may be in the form of an incentive stock option
B-2
<PAGE>
("ISO") which, in addition to being subject to applicable terms, conditions
and limitations established by the Committee, complies with Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). If an ISO is
granted, the aggregate Fair Market Value (determined on the date the option
is granted) of Common Stock subject to an ISO granted to a participant by
the Committee which first becomes exercisable in any calendar year shall not
exceed $100,000.00. The price at which shares of Common Stock may be
purchased under a stock option shall be paid in full at the time of the
exercise in cash or such other method permitted by the Committee, including
(i) tendering (either actually or by attestation) Common Stock; (ii)
surrendering a stock award valued at Fair Market Value on the date of
surrender; (iii) authorizing a third party to sell the shares (or a
sufficient portion thereof) acquired upon exercise of a stock option and
assigning the delivery to the Company of a sufficient amount of the sale
proceeds to pay for all the shares acquired through such exercise; or (iv)
any combination of the above. The Committee may grant stock options that
provide for the award of a new option when the exercise price has been paid
for by tendering shares of Common Stock to the Company. This new option
grant would cover the number of shares tendered with the option purchase
price set at the then current Fair Market Value and would never extend
beyond the remaining term of the originally exercised option.
(b) SARs -- A right to receive a payment, in cash and/or Common Stock,
equal to the excess of the Fair Market Value of a specified number of shares
of Common Stock on the date the SAR is exercised over the Fair Market Value
on the date the SAR was granted as set forth in the applicable award
agreement, except that, in the case of a SAR granted retroactively in tandem
with or as a substitution for another award, the exercise or designated
price may be no lower than the Fair Market Value of a share on the date such
other award was granted.
(c) Stock Awards -- An award made or denominated in stock or units of
stock. All or part of any stock award may be subject to conditions and
restrictions established by the Committee, and set forth in the award
agreement, which may include, but are not limited to, continuous service
with the Company, achievement of specific business objectives, and other
measurements of individual, business unit or Company performance.
9. DIVIDENDS AND DIVIDEND EQUIVALENTS
The Committee may provide that any awards under the Plan earn dividends or
dividend equivalents. Such dividends or dividend equivalents may be paid
currently or may be credited to a participant's account. Any crediting of
dividends or dividend equivalents may be subject to such restrictions and
conditions as the Committee may establish, including reinvestment in additional
shares or share equivalents.
10. DEFERRALS AND SETTLEMENTS
Payment of awards may be in the form of cash, stock, other awards or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose. The Committee may also require or permit
participants to elect to defer the issuance of shares or the settlement of
awards in cash under such rules and procedures as it may establish under the
Plan. It may also provide that deferred settlements include the payment or
crediting of interest on the deferral amounts, or the payment or crediting of
dividend equivalents where the deferral amounts are denominated in shares.
11. TRANSFERABILITY AND EXERCISABILITY
All awards under the Plan shall be nontransferable and shall not be
assignable, alienable, saleable or otherwise transferable by the participant
other than by will or the laws of descent and distribution, pursuant to a
qualified domestic relations order (as defined by the Code) or unless otherwise
determined by the Committee. However, in the event that a participant terminates
employment with the Company to assume a position with a governmental,
charitable, educational or similar non-profit institution, the Committee may
subsequently authorize a third party, including but not limited to a "blind"
trust, to act on behalf of and for the benefit of the respective participant
regarding any outstanding awards held by the participant subsequent to such
termination of employment. If so permitted by the Committee, a participant may
designate a beneficiary or beneficiaries to exercise the rights of the
participant and receive any distributions under the Plan upon the death of the
participant.
B-3
<PAGE>
12. AWARD AGREEMENTS
Awards under the Plan shall be evidenced by agreements that set forth the
terms, conditions and limitations for each award which may include the term of
an award (except that in no event shall the term of any ISO exceed a period of
ten years from the date of its grant), the provisions applicable in the event
the participant's employment terminates, and the Company's authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind any award;
provided, however, that such authority shall not extend to the reduction of the
exercise price of a previously granted option, except as provided in Section 6
hereof. The Committee need not require the execution of any such agreement, in
which case acceptance of the award by the respective participant shall
constitute agreement to the terms of the award.
13. PLAN AMENDMENT
The plan may only be amended by a disinterested majority of the Board of
Directors as it deems necessary or appropriate to better achieve the purpose of
the Plan, except that no such amendment shall be made without the approval of
the Company's stockholders which would increase the number of shares available
for issuance in accordance with Sections 5 and 6 of the Plan or otherwise cause
the Plan not to comply with Rule 16b-3, or any successor rule, under the 1934
Act.
14. TAX WITHHOLDING
The Company shall have the right to deduct from any settlement of an award
made under the Plan, including the delivery or vesting of shares, a sufficient
amount to cover withholding of any Federal, state or local taxes required by law
or to take such other action as may be necessary to satisfy any such withholding
obligations. The Committee may permit shares to be used to satisfy required tax
withholding and such shares shall be valued at the Fair Market Value as of the
settlement date of the applicable award.
15. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS
Unless otherwise specifically determined by the Committee, settlements of
awards received by participants under the Plan shall not be deemed a part of a
participant's regular, recurring compensation for purposes of calculating
payments or benefits from any Company benefit plan, severance program or
severance pay law of any country. Further, the Company may adopt other
compensation programs, plans or arrangements as it deems appropriate or
necessary.
16. UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be unfunded and
shall not create (or be construed to create) a trust or a separate fund or
funds. The Plan shall not establish any fiduciary relationship between the
Company and any participant or other person. To the extent any person holds any
rights by virtue of a grant awarded under the Plan, such rights (unless
otherwise determined by the Committee) shall be no greater than the rights of an
unsecured general creditor of the Company.
17. FUTURE RIGHTS
No person shall have any claim or rights to be granted an award under the
Plan, and no participant shall have any rights under the Plan to be retained in
the employ of the Company.
18. GOVERNING LAW
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
State of California and applicable Federal law.
19. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a participant,
including, without limitation, the estate of such participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the participant's creditors.
20. RIGHTS AS A SHAREHOLDER
Except as otherwise provided in the award agreement, a participant shall
have no rights as a shareholder until he or she becomes the holder of record of
shares of Common Stock.
B-4
<PAGE>
[Graphic of map displaying directions to Annual Meeting location]
<TABLE>
<S> <C>
Traveling WEST on the Santa Monica Fwy. (10): Exit Traveling EAST on the Santa Monica Fwy. (10): exit
at Bundy Dr. South. Take Bundy South to Ocean Park at Centinela. Turn right onto Pico Blvd. Continue
Blvd. Turn right on Ocean Park and continue to 28th to 28th Street. Turn left onto 28th Street.
Street. Turn left on 28th.
</TABLE>
<PAGE>
PROXY NORTHROP GRUMMAN
ANNUAL MEETING OF STOCKHOLDERS MAY 17, 1995
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints R.R. MOLLEUR and S.M. GIBBONS, and each of
them, proxies of the undersigned, with full power of substitution in each of
them, to vote all shares of Common Stock of Northrop Grumman Corporation which
the undersigned may be entitled to vote at the Annual Meeting of Stockholders
to be held at the Museum of Flying 2772 Donald Douglas Loop North Santa Monica,
California on May 17, 1995 at 10:00 A.M., and at any adjournments thereof, with
all the powers the undersigned would possess if personally present and voting,
as specified below, and in their discretion on any other matters that may
properly come before the Meeting.
Election of Directors: Nominees J. Borsting, A. Peters, R. Rosenberg,
W. Solberg, R. Stegemeier.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY, EVEN IF YOU
PLAN TO ATTEND THE MEETING.
(Continued and to be Signed on the other side)
-------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED IF NOT OTHERWISE DIRECTED, WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND 4.
/X/ Please mark
your choices
like this
The Board of Directors Recommends a Vote FOR Items 1, 2, 3 and 4.
WITHHELD
FOR FOR ALL
Item 1-Election of five Class 1 directors to hold / / / /
office for three years and until their respective
successors are elected and qualified.
WITHHELD for the following nominee(s) only, write
name(s) below:
-------------------------------------------------
FOR AGAINST ABSTAIN
Item 2-Approve the 1995 Stock Option Plan for / / / / / /
Non-Employee Directors
FOR AGAINST ABSTAIN
Item 3-Approve amendments to the 1993 Long Term / / / / / /
Incentive Stock Plan to increase the number of
shares authorized for issue and to establish
individual limits.
FOR AGAINST ABSTAIN
Item 4-Ratification of the appointment of / / / / / /
Deloitte & Touche LLP as the Company's
independant auditors.
WILL ATTEND
MEETING
/ /
Signature(s) Date
----------------------------------------------- ---------------
Note: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
-------------------------------------------------------------------------------
FOLD AND DETACH HERE
_______________________________________________________________________________
PROXY NORTHROP GRUMMAN
_______________________________________________________________________________
ANNUAL MEETING OF STOCKHOLDERS MAY 17, 1995
_______________________________________________________________________________
JUST A REMINDER, THE ANNUAL MEETING WILL BE HELD:
DATE: MAY 17, 1995
TIME: 10:00 A.M.
LOCATION: MUSEUM OF FLYING
2772 DONALD DOUGLAS LOOP NORTH
SANTA MONICA, CALIFORNIA
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
NORTHROP GRUMMAN
ANNUAL MEETING OF STOCKHOLDERS MAY 17, 1995
CONFIDENTIAL INSTRUCTIONS TO BANKERS TRUST COMPANY.
TRUSTEE FOR THE NORTHROP SAVINGS PLAN
Receipt of proxy material for the above Meeting is acknowledged. I instruct
you to vote (in person or by proxy) all shares of Common Stock of Northrop
Grumman Corporation held by you for my account under the Plan at the Annual
Meeting of Stockholders of Northrop Grumman Corporation to be held May 17,
1995 at 10:00 A.M., and at all adjournments therof, on the following matters as
indicated on the reverse side and in your discretion on any other matters that
may come before the Meeting. If this card is signed and returned, but no choice
is specified, I instruct you to vote this proxy in accordance with the Board of
Directors' recommendations, "FOR all Nominees" in Proposal 1, "FOR" Proposals 2,
3 and 4.
Election of Directors: Nominees J. Borsting, A. Peters, R. Rosenberg,
W. Solberg, R. Stegemeier.
(Continued and to be Signed on the other side)
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
THIS INSTRUCTION CARD WILL BE VOTED AS DIRECTED IF NOT OTHERWISE DIRECTED,
WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
/X/ PLEASE MARK
YOUR CHOICES
LIKE THIS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
WITHHELD
FOR FOR ALL
Item 1-Election of five Class 1 directors to hold / / / /
office for three years and until their respective
successors are elected and qualified.
WITHHELD for the following nominee(s) only, write
name(s) below:
-------------------------------------------------
FOR AGAINST ABSTAIN
Item 2-Approval of the 1995 Stock Option Plan for / / / / / /
Non-Employee Directors
FOR AGAINST ABSTAIN
Item 3-Approval of amendments to the 1993 Long / / / / / /
Term Incentive Stock Plan to increase the number
of shares authorized for issue and to establish
individual limits.
FOR AGAINST ABSTAIN
Item 4-Ratification of the appointment of / / / / / /
Deloitte & Touche LLP as the Company's
independant auditors.
WILL ATTEND
MEETING
/ /
Signature(s) Date
----------------------------------------------- ---------------
Note: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
--------------------------------------------------------------------------------
INSTRUCTION CARD NORTHROP GRUMMAN
--------------------------------------------------------------------------------
Dear Fellow Employee:
Just a reminder, your vote and your investment in Northrop Grumman is very
important. Please complete and return your Confidential Instruction Card to the
Trustee for tabulation as soon as possible.
Kent Kresa
Chairman, President and
Chief Executive Officer
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
NORTHROP GRUMMAN
ANNUAL MEETING OF STOCKHOLDERS MAY 17, 1995
CONFIDENTIAL VOTING INSTRUCTIONS TO BANKERS TRUST COMPANY
AS AGENT FOR THE TRUSTEE UNDER THE GRUMMAN
EMPLOYEE INVESTMENT PLAN
The undersigned hereby appoints R.R. Molleur and S.M. Gibbons, and each of
them, each with full power to designate another person to act in his stead and
to revoke such designation, proxies to represent the undersigned at the Annual
Meeting of Stockholders of Northrop Grumman Corporation scheduled to be held on
May 17, 1995 at 10:00 A.M. and at any adjournment of such meeting, and more
particularly to vote all shares of Common Stock of said Corporation which the
undersigned is entitled to vote.
PLEASE DATE AND SIGN EXACTLY AS YOUR NAME APPEARS ABOVE, AND RETURN THIS
FORM IN THE ENCLOSED ENVELOPE. The Trustees shall vote all shares of common
stock for which voting instructions have not been received in the same
proportion as those shares for which it has received instructions except for
shares held in the PAYSOP Fund which cannot be voted unless voting instructions
have been received as agent of the Trustees, Bankers Trust Company shall provide
the Trustees with a summary of the voting results and no individual's voting
instructions will be revealed to any Trustee.
YOUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" ALL NOMINEES in
Proposal 1, "FOR" Proposals 2, 3 and 4.
Election of Directors: Nominees J. Borsting, A. Peters, R. Rosenberg,
W. Solberg, R. Stegemeier.
(Continued and to be Signed on the other side)
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
THIS INSTRUCTION CARD WILL BE VOTED AS DIRECTED, BUT IF NOT OTHERWISE DIRECTED,
WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
/X/ PLEASE MARK
YOUR CHOICES
LIKE THIS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
WITHHELD
FOR FOR ALL
Item 1-Election of five Class 1 directors to hold / / / /
office for three years and until their respective
successors are elected and qualified.
WITHHELD for the following nominee(s) only, write
name(s) below:
-------------------------------------------------
FOR AGAINST ABSTAIN
Item 2-Approval of the 1995 Stock Option Plan / / / / / /
for Non-Employee Directors
FOR AGAINST ABSTAIN
Item 3-Approval of amendments to the 1993 / / / / / /
Long Term Incentive Stock Plan to increase
the number of shares authorized for issue
and to establish individual limits.
FOR AGAINST ABSTAIN
Item 4-Ratification of the appointment of / / / / / /
Deloitte & Touche LLP as the Company's
independant auditors.
WILL ATTEND
MEETING
/ /
Signature(s) Date
----------------------------------------------- ---------------
Note: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
--------------------------------------------------------------------------------
FOLD AND DETACH HERE
--------------------------------------------------------------------------------
INSTRUCTION CARD NORTHROP GRUMMAN
--------------------------------------------------------------------------------
Dear Fellow Employee:
Just a reminder, your vote and your investment in Northrop Grumman is very
important. Please complete and return your Confidential Instruction Card to the
Trustee for tabulation as soon as possible.
Kent Kresa
Chairman, President and
Chief Executive Officer
PLEASE RETURN YOUR PROXY PROMPTLY.
