<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)
- --------------------------------------------------------------------------------
(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:
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<PAGE>
[NORTHROP GRUMMAN 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 15, 1996, 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 three Class II 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 amend the Company's 1993
Long-Term Incentive Stock Plan;
(3) To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as the Company's independent auditors;
(4) To consider and act upon a stockholder proposal regarding foreign
military sales; and
(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 19, 1996, are
entitled to receive notice of and to vote at the Annual Meeting.
By order of the Board of Directors,
[SIG]
JAMES C. JOHNSON
CORPORATE VICE PRESIDENT AND SECRETARY
1840 Century Park East
Los Angeles, California 90067
April 1, 1996
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 1996 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 three director nominees listed below under "Election of
Directors," FOR the proposal to amend the Company's 1993 Long-Term Incentive
Stock Plan, FOR the proposal to ratify the appointment of Deloitte & Touche LLP
as auditors of the Company for the year ending December 31, 1996 and AGAINST the
stockholder proposal regarding foreign military sales. 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, 1996 there were 49,506,909 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 19, 1996 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 April 1, 1996.
VOTING SECURITIES
The following table lists the beneficial ownership of each person or group
who, as of December 31, 1995, 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)......................................... 6,014,741 shares(b) 12.17%
300 So. Grand Avenue, Los Angeles, CA 90071
U.S. Trust Company of California, N.A.(c)........................ 5,974,826 shares(d) 12.09%
555 So. Flower St., Los Angeles, CA 90071-2429
Wellington Management Company.................................... 4,575,655 shares(e) 9.26%
75 State Street, Boston, MA 02109
FMR Corp......................................................... 3,039,396 shares(f) 6.15%
82 Devonshire Street, Boston, MA 02109
Vanguard Wellington Fund, Inc.................................... 2,636,800 shares(g) 5.34%
P.O. Box 2600, Valley Forge, PA 19482
</TABLE>
- ------------------------
(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 Grumman Savings and Investment
Plan, the relevant portion of which is an Employee Stock Ownership Plan, for
the account of (but not beneficially
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owned by) the Trustee. The Trustee votes these shares in accordance with
instructions received from the employee-participants in such Plan 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 Pension Plan and the pension plans for certain
divisions of the Company (the "Pension Plans"); under the Trust, the
Investment Manager has responsibility for the management and control of the
Northrop Grumman shares held in the Trust as assets of the Pension Plans.
(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 Pension 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 4,575,655 shares but shared voting power over only 1,090,450
shares.
(f) This information was provided by FMR Corp. ("FMR"). According to FMR, as of
the date set forth above, FMR had sole dispositive power over the 3,039,396
shares but sole voting power over only 162,327 shares.
(g) 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 2,636,800 shares.
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, 1996. 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>
Jack R. Borsting........................ 2,519(1)(2) *
John T. Chain, Jr. ..................... 1,894(1) *
Jack Edwards............................ 1,107(1)(3) *
Phillip Frost........................... 0 *
Kent Kresa.............................. 722,107(4) 1.46
Richard R. Molleur...................... 29,071(5) *
Aulana L. Peters........................ 3,111(1)(6) *
John E. Robson.......................... 2,647(1)(7) *
Richard M. Rosenberg.................... 2,625(1) *
Brent Scowcroft......................... 1,394(1) *
John Slaughter.......................... 894(1) *
Wallace C. Solberg...................... 68,944(8) *
Richard J. Stegemeier................... 3,038(1)(9) *
Richard B. Waugh, Jr.................... 19,909(10) *
Gordon L. Williams...................... 1,000 *
Total............................... 860,260 1.74
Directors and executive officers as a 945,167(11) 1.91
group...................................
</TABLE>
- ------------------------
* Denotes ownership of less than 1% of the outstanding shares
(1) Includes 500 shares of Common Stock which may be acquired within 60 days
after February 13, 1996, pursuant to the exercise of options.
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<PAGE>
(2) Includes 1,500 shares held in the Borsting Family Trust of which Dr.
Borsting is trustee.
(3) Includes 113 shares Mr. Edwards has deferred into a stock unit account
pursuant to the 1993 Stock Plan for Non-Employee Directors.
(4) Includes 508,600 shares of Common Stock which may be acquired by Mr. Kresa
within 60 days after February 13, 1996, pursuant to the exercise of options;
22,500 Restricted Award Shares issued pursuant to the 1987 Long Term
Incentive Plan, which shares carry voting and dividend rights; 4,940
equivalent shares held as of November 30, 1995 in the Northrop Grumman
Savings and Investment Plan; and 186,067 shares held by the Kresa Family
Trust of which Mr. Kresa is trustee.
(5) Includes 25,500 shares which may be acquired by Mr. Molleur within 60 days
after February 13, 1996, pursuant to the exercise of options; 2,750
Restricted Award Shares issued pursuant to the 1987 Long Term Incentive
Plan, which shares carry voting and dividend rights.
(6) Includes 1,800 shares Ms. Peters has deferred into a stock unit account
pursuant to the 1993 Stock Plan for Non-Employee Directors.
(7) Includes 716 shares Mr. Robson has deferred into a stock unit account
pursuant to the 1993 Stock Plan for Non-Employee Directors.
(8) Includes 19,800 shares of Common Stock which may be acquired by Mr. Solberg
within 60 days after February 13, 1996, pursuant to the exercise of options
and 10,144 equivalent shares held as of November 30, 1995 in the Northrop
Grumman Savings and Investment Plan.
(9) Includes 1,000 shares held in the Richard J. Stegemeier Family Trust of
which Mr. Stegemeier and his wife are trustees; and 1,144 shares Mr.
Stegemeier has deferred into a stock unit account pursuant to the 1993 Stock
Plan for Non-Employee Directors.
(10) Includes 13,200 shares of Common Stock which may be acquired by Mr. Waugh
within 60 days after February 13, 1996, pursuant to the exercise of options;
3,005 equivalent shares held as of November 30, 1995 in the Northrop Grumman
Savings and Investment Plan; and 2,877 shares held by the Waugh Family Trust
of which Mr. Waugh and his wife are trustees.
(11) Includes 619,095 shares of Common Stock which may be acquired within 60
days after February 13, 1996 pursuant to the exercise of options; 34,389
equivalent shares held as of November 30, 1995 in the Northrop Grumman
Savings and Investment Plan for the benefit of officers; 27,500 Restricted
Award Shares, issued pursuant to the 1987 Long Term Incentive Plan, which
shares carry voting and dividend rights; and 3,773 shares deferred into a
stock unit account pursuant to the 1993 Stock Plan for Non-Employee
Directors.
ELECTION OF DIRECTORS
Under the Company's Certificate of Incorporation, which provides for a
classified Board of Directors, three directors in Class II will be elected at
the 1996 Annual Meeting to hold office for three years until the 1999 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 three Class II 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.
Under the Company's Bylaws, a stockholder may nominate a person for election
as a director at a meeting only if the stockholder has given written notice to
the Corporate Secretary no later than the tenth day following the date of
mailing of this Proxy Statement. The notice must include information with
respect to the stockholder and the nominee required by the Bylaws including the
name and address of the stockholder as they appear on the books of the Company,
all information relating to the nominee required to be disclosed in the
solicitation of proxies pursuant to Regulation 14A of the Securities Exchange
Act of 1934 and the consent of the nominee to serve.
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The following information, furnished with respect to each of the three
nominees for election as a Class II director, and each of the five Class I 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, including Dr. Frost who was
appointed to the Board in March 1996 to fill the vacancy created by the untimely
death of Ms. Barbara Jordan, 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.
NOMINEES FOR DIRECTOR -- CLASS II
PHILLIP FROST, 59. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, IVAX
CORPORATION, A PHARMACEUTICAL COMPANY
Dr. Phillip Frost has served as Chairman of the Board of Directors and Chief
Executive Officer of IVAX Corporation since 1987. He served as its President
from July 1991 until January 1995. He was the Chairman of the Department of
Dermatology at Mt. Sinai Medical Center of Greater Miami, Miami Beach, Florida
from 1972 to 1990. Dr. Frost was Chairman of the Board of Directors of Key
Pharmaceuticals, Inc. from 1972 to 1986. He is Vice Chairman of the Board of
Directors of North American Vaccine, Inc., and a director of American
Exploration Company, NaPro BioTherapeutics, Inc. and Whitman Medical Corp. He is
a trustee of the University of Miami and a member of the Board of Governors of
the American Stock Exchange.
JOHN E. ROBSON, 65. SENIOR ADVISOR, ROBERTSON, STEPHENS & COMPANY, INVESTMENT
BANKERS.
ELECTED 1993
MEMBER OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT AND THE FINANCE
COMMITTEES.
From 1989 to 1993, Mr. John E. 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 from 1986 to 1989 and
President and Chief Executive Officer and Executive Vice President and Chief
Operating Officer of G.D. Searle & Co., a pharmaceutical company from 1977 to
1986. 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 then 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.
JOHN BROOKS SLAUGHTER, 61. 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, an M.S. in Engineering from the University of California at Los Angeles in
1961 and a Ph.D. in Engineering Sciences from the University of California at
San Diego in 1971. He began his career as an electronics engineer with General
Dynamics Convair in San Diego in 1956. He joined the U.S. Navy Electronics
Laboratory in San Diego in 1960. In 1975, he became Director of the Applied
Physics Laboratory of the University of Washington. In 1977, he was appointed
Assistant Director for Astronomics, Atmospherics, Earth and Ocean Sciences at
the National Science Foundation. From 1979 to 1980 he served as Academic Vice
President and Provost of Washington State University. In 1980, he returned to
the National Science Foundation as its Director and served in that capacity
until November 1982 when he became Chancellor
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of the University of Maryland, College Park. In August 1988, Dr. Slaughter
became President of Occidental College in Los Angeles. He is a member of the
National Academy of Engineering, a fellow of the American Academy of Arts and
Sciences and serves on the Board of Directors of Atlantic Richfield, Avery
Dennison, Monsanto and IBM.
CONTINUING DIRECTORS -- CLASS I
JACK R. BORSTING, 67. E. MORGAN STANLEY PROFESSOR OF BUSINESS ADMINISTRATION
AND DIRECTOR OF THE CENTER FOR TELECOMMUNICATIONS
MANAGEMENT, UNIVERSITY OF SOUTHERN CALIFORNIA.
ELECTED 1991
CHAIRMAN OF THE NOMINATING COMMITTEE; MEMBER OF THE COMPENSATION AND MANAGEMENT
DEVELOPMENT AND THE AUDIT COMMITTEES.
Dr. Jack R. Borsting was at the Naval Postgraduate School in Monterey,
California from 1959 to 1980. During his tenure at Monterey, he was professor of
Operations Research, Chairman of the Department of Operations Research and
Administration Science, and Provost and Academic Dean. Dr. Borsting was
Assistant Secretary of Defense (Comptroller) from 1980 to 1983 and Dean of the
School of Business at the University of Miami from 1983 to 1988. From 1988 to
1994, he was the Robert R. Dockson professor and Dean of the School of Business
Administration at the University of Southern California, Los Angeles. He is past
president of both the Operations Research Society of America and the Military
Operations Research Society. He is currently a trustee of the Orthopaedic
Hospital Foundation of Los Angeles and serves as a director of Whitman Medical
and TROLearning.
AULANA L. PETERS, 54. PARTNER, GIBSON, DUNN & CRUTCHER.
ELECTED 1992
CHAIRMAN OF THE EXECUTIVE AND PUBLIC POLICY COMMITTEE; MEMBER OF THE AUDIT
COMMITTEE.
Aulana L. Peters joined the law firm of Gibson, Dunn & Crutcher in 1973. In
1980, she was named a partner in the firm and continued in the practice of law
until 1984 when she accepted an appointment as Commissioner of the Securities
and Exchange Commission. In 1988, after serving four years as a Commissioner,
she returned to Gibson, Dunn & Crutcher. Ms. Peters is a director of 3M, Mobil
Corporation and Merrill Lynch & Co.
RICHARD M. ROSENBERG, 65. CHAIRMAN OF THE BOARD, BANKAMERICA CORPORATION AND
BANK OF AMERICA NT & SA.
ELECTED 1991
CHAIRMAN OF THE FINANCE COMMITTEE; MEMBER OF THE NOMINATING COMMITTEE.
Richard M. Rosenberg has been Chairman of the Board of BankAmerica Corporation
(BAC) and Bank of America since January 1996. From May 1990 to December 1995 he
was Chairman and Chief Executive Officer 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 Corporation, Pacific
Telesis Group, Potlatch Corporation and Pacific Mutual Life Insurance
Corporation and a trustee of the University of Southern California and the
California Institute of Technology.
5
<PAGE>
WALLACE C. SOLBERG, 64. CORPORATE VICE PRESIDENT AND GENERAL MANAGER, MILITARY
AIRCRAFT SYSTEMS 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 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. In January 1996, when
the Military Aircraft and B-2 Divisions were combined, Mr. Solberg was named
Corporate Vice President and General Manager of the new Military Aircraft
Systems Division.
RICHARD J. STEGEMEIER, 67. CHAIRMAN EMERITUS OF THE BOARD OF DIRECTORS, UNOCAL
CORPORATION, AN INTEGRATED PETROLEUM COMPANY.
ELECTED 1990
CHAIRMAN OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE; MEMBER OF THE
EXECUTIVE AND PUBLIC POLICY AND THE AUDIT COMMITTEES.
Richard J. Stegemeier joined Union Oil Company of California, principal
operating subsidiary of Unocal Corporation, in 1951. Mr. Stegemeier was Chairman
of the Board for Unocal Corporation from April 1989 to May 1995 and was Chief
Executive Officer from 1988 to 1994. From December 1985 to June 1992 he was
President and from December 1985 to July 1988 he was Chief Operating Officer.
Mr. Stegemeier is a member of the National Academy of Engineering and a director
of First Interstate Bancorp, Foundation Health Corporation, Halliburton Company
and Outboard Marine Corporation.
CONTINUING DIRECTORS -- CLASS III
JOHN T. CHAIN, JR., 61. FORMER EXECUTIVE VICE PRESIDENT, BURLINGTON NORTHERN
SANTA FE RAILROAD COMPANY.
ELECTED 1991
MEMBER OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT, FINANCE AND NOMINATING
COMMITTEES.
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 for Burlington Northern Railroad, serving in that capacity until
October 1995. General Chain is a member of the Council on Foreign Relations. He
is a director of Kemper National Corporation, RJR Nabisco, Thomas Group and
Nabisco, Inc.
JACK EDWARDS, 67. MEMBER, HAND ARENDALL, L.L.C.
ELECTED 1991
CHAIRMAN OF THE AUDIT COMMITTEE; MEMBER OF THE COMPENSATION AND MANAGEMENT
DEVELOPMENT AND THE FINANCE COMMITTEES.
Jack Edwards was elected in 1964 to the U.S. House of Representatives and served
in the Congress for twenty years representing the First District of Alabama.
During his tenure in the House, Mr. Edwards
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served on the Appropriations Committee for sixteen years, including ten years as
Senior Republican on the Defense Subcommittee, and sixteen years on the
Transportation Subcommittee. He also served on the Banking, Finance and Urban
Affairs Committee. He retired from the Congress in January 1985 and became a
member of his current law firm. He is a director of Southern Company and Holnam
Inc. Mr. Edwards is also a member of the Board of Trustees of the University of
Alabama System.
KENT KRESA, 58. 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, 71. 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 1995, ten meetings of the Board of Directors
were held. During 1996, 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 Jack R.
Borsting, Jack Edwards, Aulana L. Peters, John Brooks Slaughter and Richard J.
Stegemeier. The members of the Compensation and Management Development Committee
are Jack R. Borsting, John T. Chain, Jr., Jack Edwards, John E. Robson, Brent
Scowcroft and Richard J. Stegemeier. The members of the Nominating Committee are
Jack R. Borsting, John T. Chain, Jr., Richard M. Rosenberg and John Brooks
Slaughter. During 1995, the Audit Committee met four times, the Compensation and
Management Development Committee met nine times and the Nominating Committee met
once.
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
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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 and a
Finance Committee.
During 1995, 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 Dr. Slaughter.
Directors are compensated for their services according to a standard
arrangement authorized by resolution of the Board of Directors. An annual
retainer fee of $28,000 was paid to each director and an additional fee of
$1,000 was paid to each director for each Board meeting attended during 1995.
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 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 provides that 30% of the
retainer fee earned by each director is paid in Northrop Grumman Common Stock,
issued as soon as practicable following the close of the fiscal year. In
addition, directors may defer payment of all or a portion of their remaining
retainer fees, Committee Chairman retainer fees and/or 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
8
<PAGE>
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 1995 Stock Option Plan for Non-Employee Directors provides for the
annual grant of an option to each non-employee director to purchase 500 shares
of Common Stock with an exercise price equal to the fair market value of the
Common Stock on the grant date. The option has a term of ten years. If the
director ceases to serve as a director, the option continues to be exercisable
for the lesser of five years or the expiration of the original term of the
option unless such termination is for cause in which case the option terminates
when the director ceases to serve.
The Northrop Grumman Corporation Board of Directors Retirement Plan (the
"Directors Plan") provides that outside directors, as defined in the 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. 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 grantor trust.
VOTE REQUIRED
The vote of a plurality of the shares of Common Stock voting at the Annual
Meeting (with each share entitled to one vote), is required for the election of
directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE THREE NOMINEES FOR
DIRECTOR LISTED ABOVE.
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.
COMPENSATION PHILOSOPHY
Under the direction of the Committee, the Corporation has developed and
implemented compensation policies and programs intended to 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 approach
is designed to enable recruitment and retention of executives of exceptional
ability, and to concentrate their attention, energy and skill on achieving
superior current performance, financial results exceeding specific thresholds,
and long-term prosperous growth.
The Northrop Grumman executive compensation program comprises a set of
linked elements that include base salary, annually determined variable
compensation referred to as incentive compensation or bonus, and long-term
incentive 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.
9
<PAGE>
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 compensation -- will be lower than competitive market
median in years of below target performance, and above competitive market median
in years performance exceeds target performance. At the time of their initial
grant under the 1993 Long-Term Incentive Stock Plan, the size of individual
long-term incentive awards was targeted at competitive market median.
Finally, the Committee may, from time-to-time, approve other specially
targeted incentive programs and awards where it believes they will serve
shareholder interests. A compensation program in this category, the Transition
Project Incentive Plan was approved by the Committee in 1994.
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 ("Named Executive Officers"). Qualifying
performance-based compensation is not subject to the deduction limit.
At the 1995 Annual Meeting, shareholders approved an amendment to the 1993
Long-Term Incentive Stock Plan ("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. This action preserves the
Company's Federal income tax deduction with respect to future grants of stock
options under the 1993 Plan.
Payments from initial grants of Restricted Performance Stock Rights
("RPSRs") under the Stock Plan, while performance determined, may not satisfy
the definition of performance-based compensation under Section 162(m) and,
therefore, tax deductions with respect to some compensation related to those
initial grants may be lost. Accordingly, in order to preserve the Company's
Federal income tax deduction with respect to future grants of RPSRs under the
Stock Plan, the Board of Directors has adopted, subject to shareholder approval,
an amendment to the Stock Plan establishing a limit on the maximum number of
RPSRs that may be granted to any employee, including Named Executive Officers,
of 133,000 over a three-year period. Depending on Company Performance, the
maximum number of shares issuable pursuant to such limit is 199,500, plus shares
representing dividend equivalents.
The 1973 Incentive Compensation Plan ("1973 Plan") is also subject to
Section 162(m) of the Code. Based upon the amount of incentive compensation to
be paid to each of the Named Executive Officers, and the fact that the Chief
Executive Officer has elected to defer 1995 and 1996 cash compensation to the
extent that it would cause the loss of a deduction under Section 162(m), the
Company does not expect to be denied a tax deduction under Section 162(m) in
1995 or 1996.
MEASUREMENT OF COMPANY PERFORMANCE
Consistent with the business plan, management in each organizational element
prepares and submits for assessment an Annual Operating Plan containing
Financial and Supplemental business goals together with defined measures and
weights. Financial Goals focus on operating earnings, cash flow and shareholder
value metrics. Supplemental business goals focus on such factors as new product
development and new business initiatives, and also include targets in areas such
as contract acquisition, productivity and quality improvement, workplace
diversity, management development and environmental management. These goals are
communicated within each organizational element resulting in the formation of
individual performance goals specific to each salaried employee. Documented and
approved in accordance with the Company's Performance Management Process,
accomplishments against individual goals are evaluated on an interim basis at
mid-year and, on a final basis, at year-end.
For Named Executive Officers, three weighted Performance Measurement Factors
are used to determine annual incentive awards: pre-tax return on 3-year average
shareholder equity -- weighted
10
<PAGE>
40%; business value creation as measured by a shareholder value metric --
weighted 40%; and Supplemental business goals such as delineated above --
weighted 20%. Associated with each financial measure is a specific numerical
threshold approved by the Committee below which no credit is earned.
Supplemental business goals have stated milestones, objectives and, sometimes,
numerical targets also approved by the Committee. In 1995, the category of
Supplemental business goals included 7 corporate goals and 24 divisional goals.
Annually, the Committee reviews, approves and -- at its discretion --
modifies the Chief Executive Officer's written proposal of goals and numerical
values for the following year within each of the three Performance Measurement
Factors stated above. Performance highlights against 1995 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 & Poor's Aerospace and Defense Index cited in the SHAREOWNER RETURN
PERFORMANCE PRESENTATION following this Report and selected other companies in
related industries. These primary sources include the Hewitt Associates MCS
Project 777 Survey (Aerospace Segment) and the Summit Survey of Aerospace
Companies.
Competitive award guidelines contained in the Company's Long-Term Incentive
Plan Guide to Administration have been determined by an 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 and evaluation of past
performance and expected future contributions of the individual executives.
Separately, the Committee reviews the base salary of the Chief Executive
Officer considering competitive compensation data and the Committee's assessment
of past performance and its expectation of future contributions in leading the
corporation. 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 or modifies this submission.
The Chief Executive Officer is paid a base salary at approximately the
competitive market median, measured by third-party compensation surveys of the
aerospace and defense industry. Also from sources of competitive compensation
information, it can be concluded that the average base salary paid by the
Corporation to this executive group is within the competitive market median.
ANNUAL INCENTIVE COMPENSATION
Executives, including the Named Executive Officers, are eligible for
incentive compensation 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. The
aggregate amount of awards payable may not exceed 3% of the pre-tax adjusted
gross margin for that year.
In years in which incentive compensation awards are payable, the Committee
decides individual awards for the 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
11
<PAGE>
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.
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.
For 1995, performance targets for the Company's three Measurement Factors --
1) pre-tax return on 3 year average shareholder equity; 2) business value
creation; and 3) supplemental business goals -- were exceeded.
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 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 long-term performance horizons 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, 1995, 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 & Poor's
Aerospace and Defense Index cited in the SHAREOWNER RETURN PERFORMANCE
PRESENTATION that follows this Report.
In establishing 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 1995 were granted on
November 15, 1995. Applying established guidelines for the size of annual
long-term incentive awards for Named Executive Officers, actual grants of such
awards in 1995 were -- overall -- below the competitive market median.
SPECIAL RECOGNITION AWARDS
In 1994, to strengthen Company performance in reducing operating costs
over-and-above the amount committed by management in conjunction with the
acquisition of Grumman Corporation (and later, Vought Aircraft Company), the
Committee approved the Transition Project Incentive Plan. Effective only from
July 1, 1994 through December 31, 1995, the Plan has a threshold of savings
below which no compensation is earned, as well as a "cap," a savings amount
above which no extra compensation is earned. All Named Executive Officers
received awards in March, 1996 associated with this Plan. The amounts are
reflected in the Summary Compensation Table following this Report.
DETERMINING CHIEF EXECUTIVE OFFICER COMPENSATION
In evaluating 1995 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
12
<PAGE>
determination as to the Chief Executive Officer's 1995 annual incentive
compensation, these important business results were considered by the Committee
both separately and in the aggregate without assigned specific values.
The Committee recognized that under Mr. Kresa's direction the Company
rapidly and effectively integrated the assets and operations of Northrop,
Grumman, and Vought into the organization. Operating efficiencies were attained
that exceeded original high expectations while both customer relations and
prospects for new business were strengthened. The Company's financial
performance exceeded planned numerical targets and shareholders total return
outstripped projections for the year.
The Company met its commitment of delivering four B-2 aircraft to the Air
Combat Command. Moreover, the Company was successful in supporting Congressional
efforts on behalf of the B-2. Excellent performance on other military aircraft
programs was highlighted by continued customer acclaim for the Company's
performance on the F/A-18 E/F program. Northrop Grumman performance in the
production of major structures for the C-17 aircraft resulted in the receipt of
the McDonnell Douglas Silver Preferred Supplier Award and contributed to the
Government's decision to extend production beyond the original forty units.
Marking the culmination of a record of high performance in the design and
fabrication of commercial aircraft structures, the Company earned continuing
customer confidence with the receipt of the Boeing President's Award as Supplier
of the Year and new long-term agreements for production of major sections of
Boeing's 747, 757, and 767 airliners.
Further strengthening the strategic position of the Company and its outlook
for success and high performance for customers and shareholders, Mr. Kresa, with
the approval of the Board, directed plans and actions that resulted, on January
3, 1996, in the Company's agreement with Westinghouse Electric Corporation for
the acquisition of the Electronics Systems Group of that company. This will
contribute significantly to the long-term growth of the Company, its competitive
position, and the financial strength of Northrop Grumman.
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 1995 performance. Following its review of the total value
of 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 of stock options in November 1995 to both reward and
motivate his continuing contributions to the future prosperity of the Company.
Finally, considering his performance, the Company's expanded size and revenues,
and previously cited Competitive Compensation Information, the Committee
adjusted Mr. Kresa's base salary effective March 1, 1995. The Summary
Compensation Table following this Report contains information detailing these
actions.
THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE:
RICHARD J. STEGEMEIER, CHAIRMAN
JACK R. BORSTING
JOHN T. CHAIN, JR.
JACK EDWARDS
JOHN E. ROBSON
BRENT SCOWCROFT
MARCH 20, 1996
13
<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 five year period ended December
31, 1995.
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>
NORTHROP GRUMMAN S&P 500 INDEX S&P AEROSPACE/DEFENSE INDEX
<S> <C> <C> <C>
1990 100 100 100
1991 159 130 120
1992 216 140 126
1993 247 154 163
1994 289 156 177
1995 453 215 291
</TABLE>
ASSUMES $100 INVESTED AT THE BEGINNING OF THE PERIOD IN NORTHROP GRUMMAN COMMON
STOCK, S&P 500 INDEX AND S&P AEROSPACE/DEFENSE INDEX.
* TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS.
14
<PAGE>
EXECUTIVE COMPENSATION
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for the years ended
December 31, 1995, 1994 and 1993 of those persons who were at December 31, 1995
the chief executive officer and the other four most highly compensated officers
of the Company (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION OTHER
--------------------------------- ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)
- --------------------------------------------- ---- -------------- ---------- -----------
<S> <C> <C> <C> <C>
KENT KRESA(4)................................ 1995 730,000 1,000,000
Chairman of the Board, 1994 700,000 850,000 56,344
President and Chief Executive Officer 1993 675,000 450,000
GORDON L. WILLIAMS........................... 1995 238,688(5) 428,000 481,742(7)
Corporate Vice President and 1994 120,344(6) 126,000
General Manager, Commercial
Aircraft Division
WALLACE C. SOLBERG........................... 1995 336,667 320,000
Corporate Vice President and 1994 305,833 300,000
General Manager, Military Aircraft 1993 266,667 115,000
Systems Division
RICHARD B. WAUGH, JR......................... 1995 275,000 350,000
Corporate Vice President and 1994 245,833 360,000
Chief Financial Officer 1993 225,000 136,000
RICHARD R. MOLLEUR........................... 1995 288,333(8) 330,000
Corporate Vice President and 1994 275,000 345,000
and General Counsel 1993 248,000 150,000
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------------
AWARDS PAYOUTS
---------------------------- --------------
SECURITIES
RESTRICTED UNDERLYING
STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION AWARD(S) ($)(1) SARS (#) PAYOUTS ($)(2) COMPENSATION ($)(3)
- --------------------------------------------- --------------- ---------- -------------- ------------------
<S> <C> <C> <C> <C>
KENT KRESA(4)................................ 0 42,000 480,000 5,625
Chairman of the Board, 0 40,000 6,000
President and Chief Executive Officer 0 34,400 9,434
GORDON L. WILLIAMS........................... 485,000 10,000 267,120
Corporate Vice President and 0 12,000
General Manager, Commercial
Aircraft Division
WALLACE C. SOLBERG........................... 0 10,000 180,200 6,000
Corporate Vice President and 0 12,000 6,000
General Manager, Military Aircraft 128,700 12,000 8,686
Systems Division
RICHARD B. WAUGH, JR......................... 0 10,000 148,400 6,000
Corporate Vice President and 0 12,000 5,997
Chief Financial Officer 128,700 12,000 9,434
RICHARD R. MOLLEUR........................... 0 10,000 153,700 6,000
Corporate Vice President and 0 10,000 4,350
and General Counsel 107,250 10,000 6,999
</TABLE>
- ------------------------------
(1) 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. Restricted stock granted under the 1993
Long-Term Incentive Plan with vesting dates of less than three (3) years
were granted to G.L. Williams on August 25, 1995 for 8,000 shares.
Aggregated restricted shares or rights held by Named Executive Officers,
valued at December 31, 1995, were: K. Kresa 26,250 shares at $1,680,000,
G.L. Williams 8,000 shares at $512,000, W.C. Solberg 2,750 shares at
$176,000, R.B. Waugh, Jr., 1,600 shares at $102,400, R.R. Molleur 1,000
shares at $64,000.
(2) Awards granted pursuant to the Transition Project Incentive Plan whose
performance period ended December 31, 1995.
(3) "All Other Compensation" consists of Company contributions to the Northrop
Grumman Savings and Investment Plan for the Named Executive Officers.
(4) Annual Compensation in excess of $1,000,000 attributable to 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.
(5) In 1995, Mr. Williams received $196,439 pursuant to the Vought Aircraft
Supplemental Executive Retirement Plan, adopted by Vought in 1992 (the
"Vought Supplemental Plan") which, pursuant to his employment contract,
reduced his salary in 1995 by an equal amount.
(6) Mr. Williams was elected Corporate Vice President and General Manager,
Commercial Aircraft Division in September 1994. The compensation reported
for 1994 reflects salary paid following the Corporation's acquisition of
Vought Aircraft Company in September 1994. Mr. Williams received $21,909
pursuant to the Vought Supplemental Plan which, pursuant to his employment
contract, reduced his salary in 1994 by an equal amount.
(7) Amount includes $424,018 reimbursement for payment of taxes primarily
related to required reimbursement for funding of the Vought Supplemental
Plan.
(8) Amount does not include $22,697 paid for vacation hours accrued but not
used.
15
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
There is shown below information concerning individual grants of stock
options made during the last completed fiscal year to each of the Named
Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
- ----------------------------------------------------------------------------------------------- --------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE EXPIRATION
NAME GRANTED(#) (2) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
- ------------------------------- --------------- ----------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
KENT KRESA..................... 42,000 5.81 $ 57.00 11/15/05 1,505,826 3,816,036
GORDON L. WILLIAMS............. 10,000 1.38 57.00 11/15/05 358,530 908,580
WALLACE C. SOLBERG............. 10,000 1.38 57.00 11/15/05 358,530 908,580
RICHARD B. WAUGH, JR........... 10,000 1.38 57.00 11/15/05 358,530 908,580
RICHARD R. MOLLEUR............. 10,000 1.38 57.00 11/15/05 358,530 908,580
</TABLE>
- ------------------------------
(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 two
years after the date of the grant, with 25% vesting annually thereafter.
OPTION EXERCISES AND VALUES
Shown below is aggregated information with respect to the exercise of stock
options during the year ending December 31, 1995 by each of the Named Executive
Officers, and the value at December 31, 1995 of unexercised options, without
stock appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE (1)
- ---------------------------------------- ----------------- ------------- --------------- --------------------
<S> <C> <C> <C> <C>
KENT KRESA.............................. 0 0 508,600/107,800 23,242,950/1,862,850
GORDON L. WILLIAMS...................... 0 0 0/22,000 0/322,000
WALLACE C. SOLBERG...................... 11,000 363,000 19,800/42,200 721,050/1,000,450
RICHARD B. WAUGH, JR.................... 0 0 13,200/34,200 511,575/697,450
RICHARD R. MOLLEUR...................... 2,000 64,750 21,500/37,500 801,500/875,125
</TABLE>
- ------------------------------
(1) Based on the market value at December 31, 1995 of $64.00
16
<PAGE>
PENSION PLANS
For purposes of illustration, the following table shows the amount of annual
retirement benefits that would be accrued at age 65 under the Northrop Grumman
Pension Plan (the "Pension Plan"), as supplemented by the Northrop Corporation
ERISA Supplemental Plan I ("ERISA 1") and the ERISA Supplemental Program 2
("ERISA 2") (collectively, the "Supplemental Retirement Plans").
<TABLE>
<CAPTION>
ANNUAL
AVERAGE
COMPENSATION
(HIGHEST YEARS OF BENEFIT SERVICE
3 YEARS OUT --------------------------------------------------------------------------------
OF LAST 10) 5 10 15 20 25 30 35
- ------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 8,300 $ 16,700 $ 25,000 $ 33,300 $ 41,700 $ 50,000 $ 50,000
150,000 12,500 25,000 37,500 50,000 62,500 75,000 75,000
200,000 16,700 33,300 50,000 66,700 83,300 100,000 100,000
250,000 20,800 41,700 62,500 83,300 104,200 125,000 125,000
300,000 25,000 50,000 75,000 100,000 125,000 150,000 150,000
400,000 33,300 66,700 100,000 133,300 166,700 200,000 200,000
500,000 41,700 83,300 125,000 166,700 208,300 250,000 250,000
600,000 50,000 100,000 150,000 200,000 250,000 300,000 300,000
1,000,000 83,300 166,700 250,000 333,300 416,700 500,000 500,000
1,400,000 116,700 233,300 350,000 466,700 583,300 700,000 700,000
1,800,000 150,000 300,000 450,000 600,000 750,000 900,000 900,000
</TABLE>
Compensation covered by the plans for executive officers is substantially
equivalent to salary and bonuses as reflected in the Summary Compensation Table.
Benefit Service earned after January 1, 1995 in excess of 30 years will not be
taken into account for accrual of retirement benefits. Benefits payable under
the Supplemental Retirement Plans have been secured through the establishment of
two grantor trusts. The credited years of service under the Pension Plan and
Supplemental Retirement Plans of four of the five individuals named in the
Summary Compensation Table are as follows: Mr. Kresa, 21 years; Mr. Solberg, 12
years; Mr. Waugh, 17 years and Mr. Molleur, 5 years. In addition, Mr. Solberg
will receive an annual retirement benefit of $32,059 under a separate retirement
plan of a Company division. Benefits are calculated on a straight life annuity
basis, at selected compensation levels and years of service reflected in the
table above. The listed benefit amounts are not subject to any reduction for
Social Security benefits or other offset amounts.
- ------------------------
(1) The Company maintains a Supplemental Retirement Income Program for Senior
Executives ("SRI"), under which certain employees are designated by the
Board of Directors, to receive benefits in lieu of benefits otherwise
payable under the Pension Plan and the Supplemental Retirement Plans. The
amount of the supplemental benefit under the SRI is equal to the greater of
1) the participant's benefit under the Pension Plan calculated without
regard to the limits imposed under Sections 415 and 401(a)(17) of the Code,
or 2) a fixed percentage of the participant's final average salary (which
term includes bonus and is based on the highest 3 years out of last 5) equal
to 30% at age 55, increasing 4% for each year up to and including age 60,
and increasing 2% for each year beyond age 60 to 65, in each case less the
benefit allowable under the Pension Plan. Mr. Kresa, who is eligible to
receive an annual benefit (estimated to be $957,511 payable at age 65,
assuming continued employment and based upon estimated levels of final
average salary) under SRI, is the only Named Executive Officer currently
participating in SRI. SRI eligibility, in addition to designation by the
Board of Directors, requires the attainment of age 55 and 10 years of
vesting service. The vesting service requirement may be waived by the Chief
Executive Officer.
(2) Benefits paid to Mr. Williams pursuant to the Vought Supplemental Plan are
determined on an actuarial basis based on 50% of the participant's average
monthly compensation (based on highest total compensation over a three year
period) subject to offsets for amounts paid or payable under defined benefit
retirement plans. Mr. Williams commenced receiving benefits pursuant to the
Vought Supplemental Plan in 1994, and he is currently eligible to receive an
annual benefit (estimated to be
17
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not less than $400,000) under this plan for life with a 50% spousal survivor
benefit thereafter. Mr. Williams is the only Named Executive Officer
currently participating in the Vought Supplemental Plan.
CHANGE IN CONTROL AGREEMENT
The Company has approved new special severance agreements ("Agreements")
with its executive officers, including Messrs. Kresa, Solberg, Waugh and
Molleur. The purpose of the Agreements is to encourage these key executives to
continue to carry out their duties in the event of the possibility of a change
in control of the Company. Payments under the Agreements would be made only if
there is a Change in Control of the Company and the executive's employment is
thereafter terminated, within a period of 24 months other than for narrowly
defined causes.
Generally, a "Change in Control" shall be deemed to have occurred if (i)
there is a consolidation or merger of the Company and the Company is not the
surviving corporation or the Company's shareholders do not own more than 75% of
the voting stock of the surviving corporation, (ii) there is a sale, lease or
transfer of substantially all of the assets of the Company, (iii) the
shareholders approve a plan or proposal for the liquidation or dissolution of
the Company, (iv) any person (other than a trust established pursuant to an
employee benefit plan of the Company) becomes the beneficial owner of 15% or
more of the Company's outstanding stock, or (v) during any two-year period
individuals who at the beginning of such period (including new directors whose
election was approved by at least two-thirds (2/3) of the directors then in
office or whose election was so approved) cease for any reason to be a majority
of the board of directors.
The executive shall be entitled to certain benefits upon a termination of
employment within the twenty-four month period following a Change in Control
except a termination of employment resulting from the executive's death, a
termination by the Company for "cause" or "disability", or a termination by the
executive other than for "good reason."
In the event of a termination which requires the Company to make payments
under an Agreement, the executive shall be entitled, subject to certain
exceptions, to: (i) full base salary through the date of termination and any
other sums owed the executive, (ii) severance pay equal to 3.0 X the executive's
highest annual base salary in effect at any time through the date of
termination, (iii) 3.0 X the higher of the executive's average bonus over a
three year period or the target bonus for the year in which the termination
occurs; (iv) medical, dental and life insurance benefits substantially similar
to those which the executive was receiving as of the Change in Control for a
period of 36 months, (v) all deferred and accrued bonus and vacation pay
pursuant to policies in effect as of designated alternative dates, and (vi) a
cash payment representing the present value of benefits accrued under the
Company's supplemental and excess benefit plans (calculated as though the
executive's employment had continued for three years). The Company will make a
payment to the executive to ensure that the amounts received attributable to a
Change in Control are not subject to net reductions due to imposition of excise
taxes under Section 4999 of the Code.
MANAGEMENT CONTRACTS
In August, 1995, the Company entered into an employment agreement with Mr.
Gordon L. Williams, Corporate Vice President and General Manager, Commercial
Aircraft Division. Under the Agreement, which expires August 1, 1997, Mr.
Williams is entitled to an annual base salary, commencing in 1996, of $420,000
which is not offset by amounts payable under the Vought Supplemental Plan, and
is eligible to participate in the Company's Incentive Compensation Plan.
Pursuant to the contract, Mr. Williams received a grant of 8,000 shares of
restricted stock under the Company's 1993 Plan of which 3,000 shares vested on
February 16, 1996 with the remaining shares vesting on August 1, 1997.
CERTAIN TRANSACTIONS
Mr. Edwards is a member of the law firm of Hand Arendall, LLC. This firm
served as a consultant for Northrop Grumman Corporation through March 31, 1995.
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Ms. Peters is a partner of the law firm of Gibson, Dunn & Crutcher. A
partner of Gibson, Dunn & Crutcher is a consultant for Northrop Grumman
Corporation providing analysis and advice with respect to pending and proposed
legislation, and the firm provided legal counsel in connection with the
acquisition of the Electronic Systems Group of Westinghouse Electric
Corporation.
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 1995, except John E. Robson, who reported
on August 15, 1995 the purchase of 27 shares on July 26, 1995.
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<PAGE>
PROPOSAL TO APPROVE AMENDMENTS TO THE NORTHROP GRUMMAN
1993 LONG-TERM INCENTIVE STOCK PLAN TO ESTABLISH
GRANT LIMITS ON SHARES AWARDED PURSUANT TO
RESTRICTED PERFORMANCE STOCK RIGHTS
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. In May 1995, the stockholders
approved amendments to the Plan to increase the number of shares available under
the Plan by 1,800,000 and to place individual grant limits on stock options. As
of March 1, 1996, 2,308,315 shares of Common Stock remained available for grants
of incentive awards under the 1993 Plan.
The Board of Directors has further amended the 1993 Plan, subject to
stockholder approval of the amendment, to provide for the granting of stock
awards in the form of Restricted Performance Stock Rights ("RPSRs") and to
impose a limit on the number of RPSRs which may be granted to a participant
during any three consecutive years and to limit eligibility for any award under
the 1993 Plan to key employees.
The full text of the 1993 Plan, with the proposed amendments, is attached to
this Proxy Statement as Exhibit A. Principal features are described below, but
such description is qualified in its entirety by reference to the text. Except
as otherwise described herein, all other provisions of the 1993 Plan are not
materially changed.
ESTABLISHMENT OF AN INDIVIDUAL GRANT LIMIT
To comply with final regulations under Section 162(m) of the Code, the Board
has amended the 1993 Plan to establish a limit of 133,000 on the number of RPSRs
which may be awarded during any three consecutive years under the 1993 Plan to
an eligible employee. Pursuant to this limitation, the maximum amount of shares
an eligible employee could receive pursuant to such awards is 150% of such limit
(199,500 shares) plus the number of shares distributable as dividend equivalents
on earned RPSRs for the period of time the RPSRs were outstanding.
Section 162(m) of the Code and the regulations adopted 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 RPSRs 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 RPSRs with respect to which awards may be made to any one
employee in a specified period and the material terms of the performance goal is
disclosed to and subsequently approved by the shareholders. 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.
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
20
<PAGE>
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 key 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. While the concept of a "key employee" is necessarily
and intentionally flexible, approximately 300 employees are considered eligible
at this time. Awards received under the 1993 Plan by the Named Executive
Officers in 1995, 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 430,900 shares and all employees (including current officers who are
not executive officers) as a group have received options to purchase 2,627,600
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 is 4,100,000, plus any shares
which are available but not issued under the Prior Plans (as defined in the 1993
Plan), plus any shares which are forfeited back to the Company or used by a
participant as payment, whether full or partial, in connection with the exercise
of a stock option or other award. 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, 1996, as reported
on the New York Stock Exchange, was $62 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 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
21
<PAGE>
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. In the event of a change in control of
the Company, all outstanding stock options and restricted stock awards vest
immediately; RPSRs vest on a pro-rata basis (with an earnout based on actual
performance).
Awards granted under the 1993 Plan include (1) non-qualified stock options,
(2) stock awards and (3) RPSRs.
An RPSR is a right to receive a share of Company stock on a specified future
date conditioned upon continued employment and the change in the Company's Total
Shareholder Return ("TSR") compared to that of Peer Companies as a group. RPSRs
can be earned over the five-year Performance Period. The number earned versus
the number granted will be determined by measurement at the end of the
Performance Period of changes in the Company TSR compared to that of Peer
Companies as a group. This will occur by taking the value of a theoretical $100
investment in the Company and a $100 investment in Peer Companies (as a
portfolio) at the start of the Performance Period at the Base Period Price and
comparing it to the value of those investments at the end of the Performance
Period. TSR equals the value at the end of the Performance Period of $100
invested in a company's stock at the company Base Period Price at the beginning
of the Performance Period, with dividends reinvested and converted into
additional shares of stock. The Performance Period for earning RPSRs is the five
full calendar years following the initial Date of Grant. The Base Period is the
immediate three calendar years preceding a Performance Period. The Base Period
Price for the Company and each Peer Company is the average of the year-end
closing stock prices for the three-year period preceding the Performance Period.
Peer Companies are those that comprise the Standard & Poor's (S&P)
Aerospace/Defense Group.
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. Under present Federal income tax law, the Company believes
that the recipient of RPSRs granted under the 1993 Plan must recognize ordinary
income equal to the fair market value of the shares received on
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<PAGE>
the payment date of such shares. Dividend equivalents earned on RPSRs also
constitute ordinary income when such dividends are paid at the end of the
five-year performance period. The Company generally will be entitled to a
deduction equal to the ordinary income recognized by the recipient. With respect
to awards that are settled in stock or other property that is restricted as to
transferability and subject to substantial risk of forfeiture, unless a special
election to be taxed is made, the participant must recognize ordinary income
equal to the fair market value of the shares or other property received at the
time the shares or other property become transferable or not subject to
substantial risk of forfeiture, whichever occurs earlier, over the amount (if
any) paid by the participant, and the Company will be entitled to a deduction
for the same amount at that time. Different Federal income tax rules may apply
with respect to participants who are subject to Section 16 of the Securities
Exchange Act of 1934.
The preceding discussion is only a general summary of certain Federal income
tax consequences arising from participation in the 1993 Plan and should not be
used for a determination of an individual's unique tax situation. It is
suggested that the individual consult with a tax advisor regarding the
application of Federal, state and local tax laws to his/her particular
situation.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock voting at
the Annual Meeting (with each share entitled to one vote) is required for
approval of this proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS
PROPOSAL.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that the stockholders ratify the Board's
appointment of Deloitte & Touche LLP as the independent auditors of the Company
for 1996. Deloitte & Touche LLP served the Company as its independent auditors
for 1995. 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.
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STOCKHOLDER PROPOSAL
The proponent of a stockholder proposal has stated that the proponent
intends to present a proposal at the Annual Meeting. The name, address and
number of shares held by the proponent will be furnished by Northrop Grumman,
orally or in writing as requested, promptly upon receipt of any oral or written
request therefor, directed to the Corporate Secretary. The proposal and
supporting statement, for which the Board of Directors accepts no
responsibility, is set forth below. The Board of Directors opposes the proposal
for the reasons stated after the proposal.
PROPOSAL
WHEREAS in fiscal year 1994, the United States controlled 65-70% of the
world's arms market, delivering $12 billion in weapons. Since the fall
of the Berlin Wall, the U.S. delivered over $62 billion in
weapons--almost half of total worldwide exports. ("Arms Trade News,"
7/95)
WHEREAS the last three times the U.S. sent troops into combat in significant
numbers, in Panama, Iraq and Somalia, they faced adversaries that
received U.S. weapons or military technology in the period leading to
the conflict. U.S. weapons supplied to anti-Communist rebels in Angola
and Afghanistan under the Reagan Doctrine have been used for
devastating civil wars; in the Afghan case, U.S.-supplied Stinger
missiles turned up on the International black market as prized items
sought by all manner of rebel groups and terrorist organizations.
("Sale of the Century," COMMONWEAL, William D. Hartung, 6/20/94)
"U.S. Weapons at War: United States Arms Deliveries to Regions of
Conflict, (World Policy Institute, 1995) shows the U.S. was a major
arms supplier in one-third of the 50 ethnic and territorial conflicts
currently raging. The study says some 45 parties involved in the
conflicts purchased over $42 billion in U.S. arms in the last ten
years.
WHEREAS our company ranked 3 among Department of Defense leading 100
corporations and has been a leading contractor for foreign military
sales.
RESOLVED the shareholders request the Board of Directors to provide a
comprehensive report on Northrop Grumman's foreign military sales. The
report, prepared at reasonable cost, should be available to all
shareholders by December, 1996, and may omit classified and
proprietary information.
STOCKHOLDER SUPPORTING STATEMENT
Global security is security of people. The cold-war notion of using arms
sales to maintain balances of power or support allies has been discredited by
1990s experience, when alliances, governments and boundaries in large parts of
the world are in flux.
We are disturbed at industry's claims and lobbying efforts asserting the
only way to keep jobs is to promote foreign military sales. We believe such
statements are inconsistent with co-production agreements and transfer of
technology to foreign companies. Offset arrangements on major sales often give
business to overseas suppliers. Contracts with foreign companies/governments
have harsh repercussions on U.S. workers during times of accelerated down-sizing
of our workforce.
Therefore, it is reasonable for shareholders to ask:
1. Criteria used to promote foreign military sales.
2. Procedures used to negotiate sales directly with foreign governments or
through the U.S. government. For example, what determines which weapons
are direct commercial arms sales and what must be negotiated through the
Pentagon? What percentage is commercial arms sales and what is foreign
military sales?
3. Categories of military equipment exported for the past three years, with
as much statistical information as permissible; contracts for
servicing/maintaining equipment; offset agreements; and licensing and/or
co-production with foreign governments.
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<PAGE>
4. Analysis of legislation establishing a code for U.S. arms transfers,
e.g. no sales to governments that violate human rights of their own
citizens, engage in aggression against neighbors, come to power through
undemocratic means or ignore international arms-control arrangements.
MANAGEMENT'S POSITION
Northrop Grumman sells military equipment and services only in compliance
with stringent United States regulations that control where products can be sold
overseas and what products may be exported. Further, a report on procedures used
to negotiate sales would be disadvantageous to the Company through the
revelation of business information, the disclosure of which may not be in the
best interest of the Company and its shareholders. The Company believes that the
comprehensive report requested would only be of interest and use to a small
number of shareholders.
THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
MISCELLANEOUS
VOTING ON OTHER MATTERS
Management is not aware of any matters not referred to herein that will be
presented for action at the Annual Meeting. Assuming a stockholder complies with
the Bylaw requirement to notify the Company no later than the tenth day
following the date of mailing this Proxy Statement of the intent to present any
matter for action and that the matter is a proper item of business for
shareholder action, the matter would be entitled to be voted upon at the
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 STOCKHOLDERS
Copies of proposals which stockholders of the Company wish to be included in
the Company's proxy statement relating to its Annual Meeting to be held in 1997
must be received by the Company no later than December 1, 1996.
Copies of such proposals of stockholders 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 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.
James C. Johnson
CORPORATE VICE PRESIDENT AND SECRETARY
April 1, 1996
NOTICE: THE COMPANY FILED AN ANNUAL REPORT ON FORM 10-K ON FEBRUARY 22,
1996. SHAREHOLDERS OF RECORD ON MARCH 19, 1996, 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.
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EXHIBIT A
NORTHROP GRUMMAN 1993 LONG-TERM INCENTIVE STOCK PLAN
1. PURPOSE
The purpose of the Northrop Grumman 1993 Long-Term Incentive Stock Plan (the
"Plan") is to promote the long-term success of Northrop Grumman Corporation (the
"Company") and to increase shareholder value by providing its officers and
selected employees with incentives to create excellent performance and to
continue service with the Company, its subsidiaries and affiliates. Both by
encouraging such officers and employees to become owners of the common stock of
the Company and by providing actual ownership through Plan awards, it is
intended that Plan participants will view the Company from an ownership
perspective. Additionally, the Company believes the Plan will assist in
attracting and retaining in its employ outstanding people of training,
experience and ability.
2. TERM
The Plan shall become effective upon the approval by the stockholders of the
Company. Unless previously terminated by the Company's Board of Directors (the
"Board"), the Plan shall terminate at the close of business on the fifth
anniversary of such stockholder approval. 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 key employee of the Company shall be eligible to receive one or more
awards under the Plan. "Key Employee" shall also include any former key employee
of the Company eligible to receive an assumed or replacement award as
contemplated in Sections 5 and 8, and "Company" includes any entity that is
directly or indirectly controlled by the Company or any entity in which the
Company has a significant equity interest, as determined by the Committee.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN AND GRANT LIMITS
(a) Subject to Section 6 of the Plan, the aggregate number of additional
shares of common stock of the Company ("Common Stock") which may be issued or
transferred pursuant to awards under the Plan, or reserved for such issuance or
transfer, shall not exceed 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
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<PAGE>
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) 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 and in no event shall the
total number of Restricted Performance Stock Rights ("RPSRs") which may be
granted to any eligible participant during any three consecutive years exceed
133,000 (maximum 199,500 shares of common stock) plus the number of shares
distributable as dividend equivalents on earned RPSRs for the period of time the
RPSRs were outstanding.
6. ADJUSTMENTS AND REORGANIZATIONS
Other than in a change of control, in the event of any stock dividend, stock
split, combination or exchange of shares, merger, consolidation, spin-off,
recapitalization or other distribution (other than normal cash dividends) of
Company assets to stockholders, or any other change affecting shares or share
price, such proportionate adjustments, if any, as the Committee in its
discretion may deem appropriate to reflect such change shall be made with
respect to (a) the aggregate number of shares that may be issued under the Plan;
(b) the Grant Limits established under the Plan; (c) each outstanding award made
under the Plan; and (d) the exercise price per share for any outstanding stock
options, SARs or similar awards under the Plan.
If the Company undergoes a Change in Control, as defined herein, (i) all
outstanding grants and awards under the Stock Option provisions of this Plan
shall vest fully and completely, any and all restrictions on exercisability or
otherwise shall lapse, and such options shall be fully exercisable upon such
Change in Control; (ii) all outstanding grants and awards of SARs under this
Plan shall vest fully and completely, any and all restrictions on such SARs
shall lapse, and such SARs shall be converted completely into cash at a price
per share-unit equal to the higher of (x) the highest price paid for a share of
the Company's common stock, as reported in the New York Stock Exchange Composite
Transactions, during the 120 days prior to and including the date of the Change
in Control, and (y) the highest price paid (on a national stock exchange or as
quoted in the NASDAQ National Market Issues) for a share of stock of the
corporation or other entity with which or into which the Company is merged, or
if such corporation or other entity is not publicly traded, then the highest
price paid on an exchange or as quoted in the NASDAQ National Market Issues for
a share of stock of a publicly traded corporation or other entity that owns 50%
or more (directly or indirectly) of such corporation or other entity on the date
of the Change in Control; and (iii) all outstanding grants and awards under the
Stock Awards provision of this Plan, other than RPSRs, shall immediately vest
fully and completely, and all restrictions shall lapse and (iv) with respect to
RPSRs, all outstanding awards shall vest and the number of shares to be issued,
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<PAGE>
as of the date of the Change in Control, to each holder of a restricted
performance stock right shall be computed by multiplying (x) the number of RPSRs
received by that individual by (y) the actual percentage of performance
conditions established for such grant or award that has been achieved to the
date of the Change in Control.
For purposes of this Section 6, "Change in Control" of the Company shall be
deemed to have occurred as of the first day that any one or more of the
following conditions shall have been satisified:
(i) Any Person (other than those Persons in control of the Company as
of November 15, 1995, or other than a trustee or fiduciary holding
securities under an employee benefit plan of the Company), becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
representing fifteen percent (15%) or more of the combined voting power of
the Company's then outstanding securities and for purposes of this section,
"Person" shall have the meaning ascribed to such term in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended, and as used in Section
13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) and
for purposes of this subsection (i) "person" or "group" shall not include
underwriters acquiring newly-issued voting shares (or securities convertible
into voting shares) directly from the Company with a view to distribution;
or
(ii) During any period of two (2) consecutive years (not including any
period prior to November 15, 1995), individuals who at the beginning of such
period constitute the Board (and any new Director, whose election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3)
of the Directors then still in office who either were Directors at the
beginning of the period or whose election or nomination for election was so
approved), cease for any reason to constitute a majority thereof; or
(iii) The stockholders of the Company approve: (a) a plan of complete
liquidation of the Company; or (b) an agreement for the sale or disposition
of all or substantially all of the Company's assets in one or a series of
related transactions; or (c) a merger, consolidation, or reorganization of
the Company with or involving any other corporation, other than a merger,
consolidation, or reorganization that would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than seventy-five percent (75%) of
the combined voting power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger, consolidation,
or reorganization.
7. FAIR MARKET VALUE
Fair Market Value for all purposes under the Plan shall mean the closing
price of a share of Common Stock as reported on the composite tape for
securities listed on the New York Stock Exchange (the "Exchange") for the date
in question. If no sales of Common Stock were made on the Exchange on that date,
the closing price of a share of Common Stock as reported on said composite tape
for the preceding day on which sales of Common Stock were made on the Exchange
shall be substituted.
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
A-3
<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. Stock
Awards may include RPSRs. An RPSR is a right to receive a share of Company
stock on a specified future date conditioned upon continued employment and
the change in the Company's Total Shareholder Return ("TSR") compared to
that of Peer Companies as a group. RPSRs can be earned over the five-year
Performance Period. The number earned versus the number granted will be
determined by measurement at the end of the Performance Period of changes in
Northrop Grumman TSR compared to that of Peer Companies as a group. This
will occur by taking the value of a theoretical $100 investment in Northrop
Grumman and a $100 investment in Peer Companies (as a portfolio) at the
start of the Performance Period at the Base Period Price and comparing it to
the value of those investments at the end of the Performance Period. TSR
equals the value at the end of the Performance Period of $100 invested in a
company's stock at the company Base Period Price at the beginning of the
Performance Period, with dividends reinvested and converted into additional
shares of stock. The Performance Period for earning RPSRs is the five full
calendar years following the initial Date of Grant. The Base Period is the
immediate three calendar years preceding a Performance Period. The Base
Period Price for the Company and each Peer Company is the average of the
year-end closing stock prices for the three-year period preceding the
Performance Period. Peer Companies are those that comprise the Standard &
Poor's (S&P) Aerospace/Defense Group.
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.
A-4
<PAGE>
10. DEFERRALS AND SETTLEMENTS
Payment of awards may be in the form of cash, stock, other awards or
combinations thereof as the Committee shall determine, and with such
restrictions as it may impose. The Committee may also require or permit
participants to elect to defer the issuance of shares or the settlement of
awards in cash under such rules and procedures as it may establish under the
Plan. It may also provide that deferred settlements include the payment or
crediting of interest on the deferral amounts, or the payment or crediting of
dividend equivalents where the deferral amounts are denominated in shares.
11. TRANSFERABILITY AND EXERCISABILITY
All awards under the Plan shall be nontransferable and shall not be
assignable, alienable, saleable or otherwise transferable by the participant
other than by will or the laws of descent and distribution, pursuant to a
qualified domestic relations order (as defined by the Code) or unless otherwise
determined by the Committee. However, in the event that a participant terminates
employment with the Company to assume a position with a governmental,
charitable, educational or similar non-profit institution, the Committee may
subsequently authorize a third party, including but not limited to a "blind"
trust, to act on behalf of and for the benefit of the respective participant
regarding any outstanding awards held by the participant subsequent to such
termination of employment. If so permitted by the Committee, a participant may
designate a beneficiary or beneficiaries to exercise the rights of the
participant and receive any distributions under the Plan upon the death of the
participant.
12. AWARD AGREEMENTS
Awards under the Plan shall be evidenced by agreements that set forth the
terms, conditions and limitations for each award which may include the term of
an award (except that in no event shall the term of any ISO exceed a period of
ten years from the date of its grant), the provisions applicable in the event
the participant's employment terminates, and the Company's authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind any award;
provided, however, that such authority shall not extend to the reduction of the
exercise price of a previously granted option, except as provided in Section 6
hereof. The Committee need not require the execution of any such agreement, in
which case acceptance of the award by the respective participant shall
constitute agreement to the terms of the award.
13. PLAN AMENDMENT
The plan may only be amended by a disinterested majority of the Board of
Directors as it deems necessary or appropriate to better achieve the purpose of
the Plan, except that no such amendment shall be made without the approval of
the Company's stockholders which would increase the number of shares available
for issuance in accordance with Sections 5 and 6 of the Plan or otherwise cause
the Plan not to comply with Rule 16b-3, or any successor rule, under the 1934
Act.
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.
A-5
<PAGE>
16. UNFUNDED PLAN
Unless otherwise determined by the Committee, the Plan shall be unfunded and
shall not create (or be construed to create) a trust or a separate fund or
funds. The Plan shall not establish any fiduciary relationship between the
Company and any participant or other person. To the extent any person holds any
rights by virtue of a grant awarded under the Plan, such rights (unless
otherwise determined by the Committee) shall be no greater than the rights of an
unsecured general creditor of the Company.
17. FUTURE RIGHTS
No person shall have any claim or rights to be granted an award under the
Plan, and no participant shall have any rights under the Plan to be retained in
the employ of the Company.
18. GOVERNING LAW
The validity, construction and effect of the Plan and any actions taken or
relating to the Plan shall be determined in accordance with the laws of the
State of California and applicable Federal law.
19. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of a participant,
including, without limitation, the estate of such participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the participant's creditors.
20. RIGHTS AS A SHAREHOLDER
Except as otherwise provided in the award agreement, a participant shall
have no rights as a shareholder until he or she becomes the holder of record of
shares of Common Stock.
A-6
<PAGE>
[Graphic of map displaying directions to Annual Meeting location]
<TABLE>
<S> <C>
Traveling WEST on the Santa Monica Traveling EAST on the Santa Monica
Fwy. (10): Exit at Bundy Dr. South. Fwy. (10): exit at Centinela. Turn
Take Bundy South to Ocean Park Blvd. right onto Pico Blvd. Continue to 28th
Turn right on Ocean Park and continue Street. Turn left onto 28th Street.
to 28th Street. Turn left on 28th.
</TABLE>
<PAGE>
PROXY NORTHROP GRUMMAN
ANNUAL MEETING OF STOCKHOLDERS MAY 15, 1996
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints R. R. Molleur and J. C. Johnson, and each
of them, proxies of the undersigned, with full power of substitution in each of
them, to vote all shares of Common Stock of Northrop Grumman Corporation which
the undersigned may be entitled to vote at the Annual Meeting of Stockholders to
be held at the Museum of Flying, 2772 Donald Douglas Loop North, Santa Monica,
California, on May 15, 1996 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 P. Frost, J. Robson, J. Slaughter.
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>
/x/ PLEASE MARK
YOUR CHOICES
LIKE THIS
THIS PROXY WILL BE VOTED AS DIRECTED. IF NOT OTHERWISE DIRECTED,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND AGAINST
PROPOSAL 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
Proposal 1 - Election of Class II directors to hold office for three years and
until their respective successors are elected and qualified.
FOR / / WITHHELD / /
WITHHELD for the following nominee(s) only, write name(s) below:
________________________________________________________________
Proposal 2 - Proposal to amend the 1993 Long Term Incentive Stock Plan.
FOR / / AGAINST / / ABSTAIN / /
Proposal 3 - Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors.
FOR / / AGAINST / / ABSTAIN / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 4.
Proposal 4 - Stockholder Stock regarding foreign military sales.
FOR / / AGAINST / / ABSTAIN / /
Signature(s) Date
------------------------------------------- ---------------
Note: Please sign as name appears herein. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
PROXY NORTHROP GRUMMAN
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS MAY 15, 1996
- --------------------------------------------------------------------------------
Just a reminder, the annual meeting will be held:
DATE: May 15, 1996
TIME: 10:00 A.M.
LOCATION: Museum of Flying
2772 Donald Douglas Loop North
Santa Monica, California
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
NORTHROP GRUMMAN
ANNUAL MEETING OF STOCKHOLDERS MAY 15, 1996
CONFIDENTIAL INSTRUCTIONS TO BANKERS TRUST COMPANY,
TRUSTEE FOR THE NORTHROP GRUMMAN SAVINGS AND INVESTMENT PLAN
Receipt of proxy material for the above Meeting is acknowledged. I instruct
you to vote (in person or by proxy) all shares of Common Stock of Northrop
Grumman Corporation held by you for my account under the Plan at the Annual
Meeting of Stockholders of Northrop Grumman Corporation to be held May 15, 1996
at 10:00 A.M., and at all adjournments thereof, on the following matters as
indicated on the reverse side and in your discretion on any other matters that
may come before the Meeting. If this card is signed and returned, but no choice
is specified, I instruct you to vote this proxy in accordance with the Board of
Directors' recommendations, "FOR all Nominees" in Proposal 1, "FOR" Proposals 2
and 3 and "AGAINST" Proposal 4.
Election of Directors: Nominees P. Frost, J. Robson, J. Slaughter.
(Continued and to be Signed on the other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
/x/ PLEASE MARK
YOUR CHOICES
LIKE THIS
THIS PROXY WILL BE VOTED AS DIRECTED. IF NOT OTHERWISE DIRECTED,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND AGAINST
PROPOSAL 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
Proposal 1 - Election of Class II directors to hold office for three years and
until their respective successors are elected and qualified.
FOR / / WITHHELD / /
WITHHELD for the following nominee(s) only, write name(s) below:
________________________________________________________________
Proposal 2 - Proposal to amend the 1993 Long Term Incentive Stock Plan.
FOR / / AGAINST / / ABSTAIN / /
Proposal 3 - Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors.
FOR / / AGAINST / / ABSTAIN / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 4.
Proposal 4 - Stockholder proposal regarding foreign military sales.
FOR / / AGAINST / / ABSTAIN / /
Signature(s) Date
-------------------------------------------- ---------------
Note: Please sign as name appears herein. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
INSTRUCTION CARD NORTHROP GRUMMAN
- --------------------------------------------------------------------------------
Dear Fellow Employee:
Just a reminder, your vote and your investment in Northrop Grumman is very
important. Please complete and return your Confidential Instruction Card to the
Trustee for tabulation as soon as possible.
Kent Kresa
Chairman, President and
Chief Executive Officer
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
NORTHROP GRUMMAN
ANNUAL MEETING OF STOCKHOLDERS MAY 15, 1996
CONFIDENTIAL INSTRUCTIONS TO BANKERS TRUST COMPANY,
TRUSTEE FOR THE VOUGHT AIRCRAFT SALARIED SAVINGS AND INVESTMENT PLAN
Receipt of proxy material for the above Meeting is acknowledged. I instruct
you to vote (in person or by proxy) all shares of Common Stock of Northrop
Grumman Corporation held by you for my account under the Plan at the Annual
Meeting of Stockholders of Northrop Grumman Corporation to be held May 15, 1996
at 10:00 A.M., and at all adjournments thereof, on the following matters as
indicated on the reverse side and in your discretion on any other matters that
may come before the Meeting. If this card is signed and returned, but no choice
is specified, I instruct you to vote this proxy in accordance with the Board of
Directors' recommendations, "FOR all Nominees" in Proposal 1, "FOR" Proposals 2
and 3 and "AGAINST" Proposal 4.
Election of Directors: Nominees P. Frost, J. Robson, J. Slaughter.
(Continued and to be Signed on the other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
/x/ PLEASE MARK
YOUR CHOICES
LIKE THIS
THIS PROXY WILL BE VOTED AS DIRECTED. IF NOT OTHERWISE DIRECTED,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND AGAINST PROPOSAL 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
Proposal 1 - Election of Class II directors to hold office for three years and
until their respective successors are elected and qualified.
FOR / / AGAINST / /
WITHHELD for the following nominee(s) only, write name(s) below:
________________________________________________________________
Proposal 2 - Proposal to amend the 1993 Long Term Incentive Stock Plan.
FOR / / AGAINST / / ABSTAIN / /
Proposal 3 - Ratification of the appointment of Deloitte & Touche LLP as the
Company's independent auditors.
FOR / / AGAINST / / ABSTAIN / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 4.
Proposal 4 - Stockholder proposal regarding foreign military sales.
FOR / / AGAINST / / ABSTAIN / /
Signature(s) Date
-------------------------------------------- ---------------
Note: Please sign as name appears herein. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
INSTRUCTION CARD NORTHROP GRUMMAN
- --------------------------------------------------------------------------------
Dear Fellow Employee:
Just a reminder, your vote and your investment in Northrop Grumman is very
important. Please complete and return your Confidential Instruction Card to the
Trustee for tabulation as soon as possible.
Kent Kresa
Chairman, President and
Chief Executive Officer
PLEASE RETURN YOUR PROXY PROMPTLY.
