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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 29549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to______________________
Commission File Number 1-3229
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE No. 95-1055798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 Century Park East, Los Angeles, California 90067
(address of principal executive offices)
(310) 553-6262
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock outstanding as of April 30, 1996 49,633,330 shares
Part I. Financial Information Northrop Grumman Corporation and Subsidiaries
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS
OF INCOME
Three months ended March 31
$ in millions, except per share 1996 1995
Net Sales $1,603 $1,617
Cost of sales
Operating costs 1,273 1,299
Administrative and general expenses 191 201
Operating margin 139 117
Other,net 9 5
Interest expense (46) (34)
Income before income taxes 102 88
Federal and foreign income taxes 41 34
Net income $ 61 $ 54
Weighted average shares outstanding, in millions 49.6 49.3
Earnings per share $ 1.23 $ 1.10
Dividends per share $ .40 $ .40
I-1
Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF FINANCIAL POSITION
March 31 December 31
$ in millions 1996 1995
Assets
Cash and cash equivalents $ 79 $ 18
Accounts receivable, net of progress payments
of $2,541 in 1996 and $2,426 in 1995 1,446 1,197
Inventoried costs, net of progress payments
of $774 in 1996 and $428 in 1995 996 771
Deferred income taxes 27 25
Prepaid expenses 76 61
Total current assets 2,624 2,072
Property, plant and equipment 3,422 2,900
Accumulated depreciation (1,744) (1,724)
1,678 1,176
Goodwill, net of amortization of $77
in 1996 and $63 in 1995 3,454 1,403
Other purchased intangibles, net of
amortization of $46 in 1996 and $36 in 1995 981 356
Prepaid pension cost, intangible
pension asset and benefit trust fund 97 99
Deferred income taxes 502 255
Investments in and advances to
affiliates and sundry assets 159 94
5,193 2,207
$9,495 $5,455
I-2
March 31 December 31
$ in millions 1996 1995
Liabilities and Shareholders' Equity
Notes payable to banks $ $ 65
Current portion of long-term debt 250 144
Trade accounts payable 449 360
Accrued employees' compensation 275 203
Advances on contracts 195 98
Income taxes payable, including deferred
income taxes of $438 in 1996 and $471 in 1995 547 528
Other current liabilities 569 317
Total current liabilities 2,285 1,715
Long-term debt 3,951 1,163
Accrued retiree benefits 1,649 1,048
Other long-term obligations 47 23
Deferred gain on sale/leaseback 15 16
Deferred income taxes 43 31
Paid-in capital
Preferred stock, 10,000,000 shares
authorized and none issued
Common stock, 200,000,000 shares
authorized; issued and outstanding:
1996 -- 49,632,060; 1995 -- 49,462,615 276 272
Retained earnings 1,241 1,199
Unfunded pension losses, net of taxes (12) (12)
1,505 1,459
$9,495 $5,455
I-3
Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS
Three months ended March 31
$ in millions 1996 1995
Operating Activities
Sources of Cash
Cash received from customers
Progress payments $ 455 $ 618
Other collections 1,215 1,100
Income tax refunds received 5 6
Other cash receipts 8
Cash provided by operating activities 1,675 1,732
Uses of Cash
Cash paid to suppliers and employees 1,419 1,505
Interest paid 19 23
Income taxes paid 7 11
Other cash payments 2
Cash used in operating activities 1,445 1,541
Net cash provided by operating activities 230 191
Investing Activities
Payment for purchase of Westinghouse ESG,
net of cash acquired (2,904)
Additions to property, plant and equipment (41) (45)
Proceeds from sale of property, plant and equipment 5 10
Proceeds from sale of affiliate 3
Other investing activities 14 (1)
Net cash used in investing activities (2,926) (33)
Financing Activities
Borrowings under lines of credit 1,973 94
Proceeds from issuance of long-term debt 1,000
Repayment of borrowings under lines of credit (171)
Principal payments of long-term debt (140) (70)
Proceeds from issuance of stock 4 1
Dividends paid (19) (19)
Other financing activities (61)
Net cash provided by(used in) financing activities 2,757 (165)
Increase(decrease) in cash and cash equivalents 61 (7)
Cash and cash equivalents balance at
beginning of period 18 17
Cash and cash equivalents balance at end of period $ 79 $ 10
I-4
Three months ended March 31
$ in millions 1996 1995
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income $ 61 $ 54
Adjustments to reconcile net income
to net cash provided
Depreciation 47 53
Amortization of intangible assets 24 14
Write-off of intangible asset 10
Gain on disposals of property, plant and equipment (2)
Noncash retiree benefit income (25) (29)
Amortization of deferred gain on sale/leaseback (1) (1)
Decrease(increase) in
Accounts receivable 137 260
Inventoried costs (75) 12
Prepaid expenses 6 11
Increase(decrease) in
Progress payments (87) (148)
Accounts payable and accruals 91 30
Provisions for contract losses (4) (96)
Income taxes 46 33
Net cash provided by operating activities $ 230 $ 191
Noncash Investing and Financing Activities
Purchase of Westinghouse ESG
Fair value of assets acquired $ 3,969
Cash paid (2,909)
Liabilities assumed $ 1,060
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Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31
$ in millions 1996 1995
Paid-in Capital
At beginning of year $ 272 $ 265
Employee stock awards and options exercised,
net of forfeitures 4 1
$ 276 $ 266
Retained Earnings
At beginning of year $1,199 $1,026
Net income 61 54
Cash dividends (19) (19)
$1,241 $1,061
Unvested Employee Restricted Award Shares $ $ (1)
Unfunded Pension Losses, Net of Taxes $ (12) $
I-6
Northrop Grumman Corporation and Subsidiaries
SELECTED INDUSTRY SEGMENT INFORMATION
$ in millions Three months ended March 31
1996 1995
Net Sales
Military and Commercial Aircraft $ 915 $ 1,027
Electronics and Systems Integration 453 458
Other 313 199
Intersegment sales (78) (67)
$ 1,603 $ 1,617
Operating Profit
Military and Commercial Aircraft $ 84 $ 90
Electronics and Systems Integration 45 28
Other 21 8
Total operating profit 150 126
Adjustments to reconcile
operating profit to operating margin:
Other income included above (4)
State and local income taxes (6) (7)
General corporate expenses (30) (27)
Retiree benefit cost included in contract costs 28 47
Retiree benefit cost (3) (18)
Operating margin $ 139 $ 117
Contract Acquisitions
Military and Commercial Aircraft $ 699 $ 99
Electronics and Systems Integration 555 953
Other 3,030 (63)
Intersegment acquisitions (85) (68)
$ 4,199 $ 921
Military and Commercial Aircraft $ 6,682 $ 8,261
Electronics and Systems Integration 2,865 2,930
Other 3,038 343
Intersegment backlog (42) (57)
$12,543 $11,477
I-7
Northrop Grumman Corporation and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have
been prepared by management in accordance with the instructions to Form 10-Q
of the Securities and Exchange Commission. They do not include all
information and notes necessary for a complete presentation of financial
position, results of operations, changes in shareholders' equity, and cash
flows in conformity with generally accepted accounting principles. They
do, however, in the opinion of management, include all adjustments (all of
which were normal recurring accruals) necessary for a fair statement of the
results for the periods presented. The financial statements should be read
in conjunction with the Notes and Independent Auditors' Report contained in
the company's 1995 Annual Report.
Acquisition
On March 1, 1996 the company purchased substantially all of the defense and
electronics systems business of Westinghouse Electric Corporation at a cost
of $2.9 billion and financed the transaction with new borrowings. The
purchase method of accounting was used to record the transaction with fair
values being assigned to the assets acquired and liabilities assumed. The
excess of the purchase price over the tangible net assets acquired was
assigned to identifiable intangible assets and the balance to goodwill with
amortization on a straight-line basis over weighted average periods of nine
years and 40 years, respectively.
The business acquired will be operated as a division of the company
and has been designated the Electronic Sensors and Systems Division (ESSD).
Financial data of ESSD have been consolidated with Northrop Grumman
effective March 1, 1996. The following unaudited pro forma financial
information combines Northrop Grumman's and ESSD's results of operations as
if the acquisition had taken place on January 1, 1995, and are not
necessarily indicative of future operating results for Northrop Grumman.
Three months ended March 31
$ in millions, except per share 1996 1995
Sales $1,850 $2,096
Net Income 41 23
Earnings per share .82 .47
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Inventories
The company's inventories consist primarily of work in process related to
long-term contracts with customers; therefore further breakdown is
considered inapplicable.
Long-Term Debt
During the first quarter of 1996 the company sold to institutional
investors $400 million of 7 percent notes due 2006, $300 million of 7 3/4
percent debentures due 2016 and $300 million of 7 7/8 percent debentures
due 2026. The proceeds from this issuance were used to finance a portion
of the purchase price of ESSD. The debt indenture contains restrictions
relating to limitations on liens, sale and leaseback arrangements and
funded debt of subsidiaries. Concurrent with this debt issuance the
company entered into a Registration Rights Agreement with the initial
purchasers of the debt instruments requiring the company to file a
registration statement with the Securities and Exchange Commission offering
to exchange the debt instruments for registered securities of like kind and
maturities. The registration statement must be filed and become effective
by June 30, 1996 or the interest rate for each issued security is increased
by 1/2 of one percent.
To finance the balance of the purchase price of ESSD the company
amended its Credit Agreement with a group of domestic and foreign banks to
provide for three credit facilities: $1.8 billion available on a revolving
credit basis through March 2002; a variable interest rate $500 million
two-year term loan due March 1, 1998; and a variable interest rate
$1.5 billion six-year term loan due in 24 quarterly installments of
$62.5 million plus interest beginning June 1996. At March 31, 1996,
$600 million was outstanding under the revolving credit facility along
with the $2 billion under the term loan facilities.
The company will pay, quarterly, a facility fee and, at least
quarterly, interest based on the company's outstanding debt and credit
rating or leverage ratio. In the event of a change in control as defined,
the banks are relieved of their commitments. Compensating balances are not
required.
The credit agreement contains restrictions relating to the payment of
dividends, acquisition of the company's stock, aggregate indebtedness for
borrowed money and interest coverage.
I-9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL
CONDITION AND THE RESULTS OF ITS OPERATIONS
On March 1, 1996, Northrop Grumman completed the acquisition of the defense
electronics and systems business of Westinghouse Electric Corporation. The
business acquired will be operated as a division of the company and has
been designated the Electronic Sensors and Systems Division (ESSD).
Northrop Grumman results for the first quarter include ESSD operations
from the date of the acquisition. Financial data for ESSD is included in
the "Other" industry segment along with the operating results for those
programs formerly reported in the missiles and unmanned vehicles segment
and the data systems and other services segment. The company is in the
process of evaluating segment reporting; reclassifications, as appropriate,
will be reflected in the second quarter. Comparative results for 1995 do
not include ESSD data.
Sales for the quarter ended March 31, 1996 were at the same level as
recorded in the first quarter of 1995. Without the ESSD acquisition, sales
would have declined 13 percent.
Military and commercial aircraft (MCA) segment sales decreased because
of lower overall revenues on the B-2 and F/A-18 programs and decreased
revenue on Boeing jetliners due to fewer deliveries.
Sales in the other segment increased due to $200 million of sales for
ESSD which more than offset lower revenues from the balance of programs in
this segment.
Sales by major program and units delivered in the first quarter were:
$ in millions 1996 1995
B-2 $ 432 $ 456
E-8 Joint STARS 136 146
Boeing Jetliners 103 140
E-2 121 60
F/A-18 C/D 96 62
F/A-18 E/F 55 119
ECM 78 75
C-17 71 67
BAT 26 19
All Other 485 473
$1,603 $1,617
Units
1996 1995
F/A-18 C/D 13 8
747 5 6
F/A-18 E/F 2
C-17 2 2
B-2 2 1
I-10
The amount and rate of operating margin earned on sales during the
first quarter of 1996 increased as compared with comparable figures for
1995. While ESSD contributed to the increased amount of margin, the
amortization of goodwill and other purchased intangibles related to this
acquisition limited the overall rate increase. Operating profit earned by
the MCA segment improved during the first quarter due to the benefit from
the delivery of two B-2's versus one in the first quarter of 1995, and
increased operating margin on the Boeing 747 jetliner and C-17 military
transport programs. These increases were more than offset by $7 million in
expenditures for ongoing company sponsored research and development on
commercial aerostructures versus none in the first quarter of 1995, and a
$25 million charge related to the nacelles work the company performed for
Fokker Aircraft N.V., which declared bankruptcy in March 1996. The charge
related to Fokker included $15 million for costs to terminate the program
and $10 million to write-off associated intangibles which were recorded in
connection with the acquisition of Grumman Corporation in 1994. The
results for the first quarter of 1995 included a $4 million charge as a
result of an arbitration ruling related to the F/A-18.
The TSSAM development contract on which the company had experienced
major losses was terminated for the convenience of the U.S. Government
in the first quarter of 1995. The company had recorded losses in
excess of $600 million over the preceding seven years. The company
is unable to predict whether it will realize some or all of its claims
pending with the U.S. Government related to the TSSAM contract, however,
as previously stated, it does not expect the termination of the program
to have a material adverse financial impact on the company.
The electronics and systems integration segment operating profit
increased primarily as a result of a higher rate of operating margin on
increased revenues on the E-2 Hawkeye program.
Other income for the first quarter of 1996 included a $4 million gain
from the early retirement of notes payable which were due in 1999.
Interest expense in this year's first quarter was $12 million higher
than the corresponding period of 1995 following the $1 billion increase in
average debt outstanding between the two years' first quarters. The
increase in debt resulted from the new borrowings used to finance the
acquisition of ESSD.
The company's effective tax rate was 40.2 percent for the first
quarter of 1996 versus 38.6 percent for the comparable period in 1995. The
change in the rate for 1996 was caused by an increase in the amount of
expenses not deductible for income taxes, which includes a portion of the
amortization of goodwill associated with the ESSD acquisition.
During the quarter, $230 million of cash was generated from
operations versus $191 million in last year's first quarter, and was more
than sufficient to finance capital expenditures and dividends. The
company's liquidity and financial flexibility will continue to be provided
by cash flow generated from operating activities, which is not expected to
continue for the balance of this year at the level achieved in the first
quarter, supplemented by the unused borrowing capacity available under the
company's credit agreement and other short term credit facilities.
I-11
Part II OTHER INFORMATION
Item 1. Legal Proceedings
False Claims Act Litigation
In the first quarter of 1996, a jury trial commenced with respect to
the remaining issues in the litigation described in the Company's Annual
Report on Form 10-K for 1995 entitled U.S. ex rel David Peterson and Jeff
Kroll v. Northrop Corporation. The government has asserted three separate
claims totalling approximately $13.5 million, including a claim for alleged
mischarging of approximately $12 million in violation of the False Claims
Act. Damages awarded under the False Claims Act are subject to doubling or
trebling and possible additional penalties including disallowance of
attorneys' fees. The Company denies the material allegations of the claims
and is vigorously defending the action.
U.S. Government Investigation
On March 19, 1996, the United States Attorney's office advised the
Company that it has declined criminal prosecution in connection with the
Grand Jury investigation of the F/A-18 and Targets Programs.
Item 2. Changes in Securities
The amended Credit Agreement restricts the payment of dividends (other
than dividends payable solely in stock of the Company), stock repurchases
and other distributions. Subject to certain adjustments with respect to
stock repurchases, the general effect of these restrictions is that
distributions subsequent to January 1, 1996 may not exceed the sum of $225
million plus 80% of net income (or minus 100% of consolidated net loss) for
the period subsequent to January 1, 1996, and may not be made if they would
cause the company to exceed specified leverage ratios (which decline from
76% through December 30, 1996 to 60% on December 31, 2000 and thereafter)
or if at the time of such distribution and immediately thereafter a default
has occurred as defined in the Credit Agreement
II-1
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10(a) Indemnification Agreement
Exhibit 11. Statement re Computation of Per Share Earnings
Exhibit 27. Financial Data Schedule
(b) A report on Form 8-K was filed with the Securities and
Exchange Commission on February 28, 1996 which provided a Form of
Subordinated Indenture as an Exhibit to its Registration
Statement on Form S-3 (No. 33-55143)
(c) A report on Form 8-K was filed with the Securities and
Exchange Commission on March 18, 1996 regarding the acquisition
from Westinghouse Electric Corporation of substantially all of
the assets of its Electronics Systems Group
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Northrop Grumman Corporation (Registrant)
Date: May 14, 1996 by/s/N. F. Gibbs
Nelson F. Gibbs
Vice President and Controller
Date: May 14, 1996 by/s/James C. Johnson
James C. Johnson
Vice President and Secretary
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Northrop Grumman Corporation and Subsidiaries
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share)
Three months ended March 31
Primary: 1996 1995
Average shares outstanding 49,573 49,268
Common stock equivalents 1,337 833
Totals 50,910 50,101
Net income $ 60,745 $ 54,122
Earnings per share(1) $ 1.19 $ 1.08
Fully diluted:
Average shares outstanding 49,573 49,268
Common stock equivalents 1,349 1,065
Totals 50,922 50,333
Net income $ 60,745 $ 54,122
Earnings per share(1) $ 1.19 $ 1.08
__________________
(1) This calculation was made in compliance with Item 601 of Regulation
S-K. Earnings per share presented elsewhere in this report exclude
from their calculation shares issuable under employee stock options,
since their dilutive effect is less than 3%.
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<PERIOD-END> MAR-31-1996
<CASH> 79
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<RECEIVABLES> 1,515
<ALLOWANCES> 69
<INVENTORY> 996
<CURRENT-ASSETS> 2,624
<PP&E> 3,422
<DEPRECIATION> 1,744
<TOTAL-ASSETS> 9,495
<CURRENT-LIABILITIES> 2,285
<BONDS> 3,951
0
0
<COMMON> 276
<OTHER-SE> 1,229
<TOTAL-LIABILITY-AND-EQUITY> 9,495
<SALES> 1,603
<TOTAL-REVENUES> 1,603
<CGS> 1,464
<TOTAL-COSTS> 1,464
<OTHER-EXPENSES> (9)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 102
<INCOME-TAX> 41
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> 1.23
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INDEMNIFICATION AGREEMENT
This Agreement, dated this _____ day of __________, 199__ between
Northrop Grumman Corporation, a Delaware corporation (the
"Corporation"), and ("Indemnitee").
WHEREAS, it has come to the attention of the Board of Directors
of the Corporation (the "Board") that in certain circumstances
highly competent persons have recently become more reluctant to
serve publicly-held corporations as directors, officers or in
other capacities unless they are provided with adequate
protection from the risk of liability due to claims and actions
against them arising out of their service to and activities on
behalf of such corporations; and
WHEREAS, it has also come to the attention of the Board that, in
this regard, the current difficulty of obtaining adequate
liability insurance and the uncertainties related to
indemnification for directors and officers have increased the
difficulty of attracting and retaining such highly competent
persons; and
WHEREAS, the Board has determined that the inability to attract
and retain such highly competent persons is detrimental to the
best interests of the Corporation and its stockholders and that
persons serving the Corporation should be assured they will have
adequate protection from certain liabilities; and
WHEREAS, it is reasonable, prudent and necessary for the
Corporation to obligate itself contractually to indemnify such
persons to the fullest extent permitted by applicable law, so
that such persons will serve or continue to serve the
Corporation, free from undue concern that they will not be
adequately indemnified; and
WHEREAS, the Corporation's stockholders have approved the form of
this Agreement and have authorized the Corporation to enter into
this Agreement with certain persons, including Indemnitee; and
WHEREAS, this Agreement is a supplement to and in furtherance of
any rights granted under the Certificate of Incorporation of the
Corporation, or Article V of the Bylaws of the Corporation, and
any resolutions adopted pursuant thereto, and shall not be deemed
to be a substitute therefor nor to diminish or abrogate any
rights of Indemnitee thereunder; and
WHEREAS, Indemnitee is willing to serve the Corporation in the
capacity or capacities in which he serves, continue so to serve
and, if appropriate, to take on additional service for or on
behalf of the Corporation on the condition that he be indemnified
according to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Corporation and Indemnitee do
hereby covenant and agree as follows:
Section 1. Definitions.
For purposes of this Agreement:
(a) "Change in Control" means a change in control of the
Corporation, occurring after the Effective Date, which would be
required to be reported in response to Item 6(e) of Schedule 14A
under Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities
Exchange Act of 1934, as amended (the"Act"), whether or not the
Corporation is then subject to such reporting
requirement. Without limiting the generality of the foregoing, a
Change in Control shall be deemed to have occurred if, after the
Effective Date: (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Corporation
representing 20% or more of the combined voting power of the
Corporation's then outstanding securities without the prior
approval of at least two-thirds of the members of the Board in
office immediately prior to such person attaining such percentage
interest; (ii) the Corporation is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office
immediately prior to such transaction or event constitute less
than a majority of the Board thereafter; or (iii) during any
period of two consecutive years, individuals who at the beginning
of such period constituted the Board (including for this purpose
any new director whose election or nomination for election by the
Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still office who were directors
at the beginning of such period) cease for any reason to
constitute at least a majority of the Board.
(b) "Corporate Status" means the status of a person who is
or was a director, officer, employee, agent or fiduciary of the
Corporation or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which
such person is or was serving at the request of the Corporation.
(c) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the Proceeding in
respect of which indemnification is sought by Indemnitee.
(d) "Effective Date" means _______________, 199__.
(e) "Expenses" means all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees,
and all other disbursements or expenses of the types customarily
incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a
witness in a Proceeding.
(f) "Independent Counsel" means an attorney, a law firm,
or a member of a law firm, who (or which) is experienced in
matters of corporation law and neither presently is, nor in the
past five years has been, retained to represent: (i) the
Corporation or Indemnitee in any other matter material to either
such party; or (ii) any other party to the Proceeding giving rise
to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any
person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in
representing either the Corporation or Indemnitee in an action to
determine Indemnitee's rights under this Agreement.
(g) "Proceeding" means any action, suit, arbitration,
alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding, whether civil,
criminal, administrative or investigative, except one initiated
by an Indemnitee pursuant to Section 11 of this Agreement to
enforce his rights under this Agreement.
Section 2. Services by Indemnitee.
Indemnitee agrees to serve as a
[director/officer/employee/agent/fiduciary] of the Corporation
and, at its request, as a director, officer, employee, agent or
fiduciary of certain other corporations and entities. Indemnitee
may at any time and for any reason resign from any such position
(subject to any other contractual obligation or any obligation
imposed by operation of law).
Section 3. Indemnification - General.
Subject to the provisions of Section 12(c), the Corporation shall
indemnify, and advance Expenses to, Indemnitee as provided in
this Agreement to the fullest extent permitted by applicable law
in effect on the date hereof and to such greater extent as
applicable law may thereafter from time to time permit, whether
the actions or omissions (or alleged actions or omissions) of
Indemnitee giving rise to such indemnification (including the
advancing of Expenses) occurs or occurred before or after the
Effective Date. The rights of Indemnitee provided under the
preceding sentence shall include, but shall not be limited to,
the rights set forth in the other Sections of this Agreement.
Section 4. Proceedings Other Than Proceedings by or in the
Right of the Corporation.
Indemnitee shall be entitled to the rights of indemnification
provided in this Section if, by reason of his Corporate Status,
he is, or is threatened to be made, a party to any threatened,
pending, or completed Proceeding, other than a Proceeding by or
in the right of the Corporation.
Pursuant to this Section, Indemnitee shall be indemnified against
Expenses, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him or on his
behalf in connection with any such Proceeding or any claim, issue
or matter therein, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal Proceeding,
had no reasonable cause to believe his conduct was unlawful.
Section 5. Proceedings by or in the Right of the Corporation.
Indemnitee shall be entitled to the rights of indemnification
provided in this Section if, by reason of his Corporate Status,
he is, or is threatened to be made, a party to any threatened,
pending or completed Proceeding brought by or in the right of the
Corporation to procure a judgment in its favor. Pursuant to this
Section, Indemnitee shall be indemnified against Expenses
actually and reasonably incurred by him or on his behalf in
connection with any such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation. Notwithstanding the
foregoing, no indemnification against such Expenses shall be made
in respect of any claim, issue or matter in any such Proceeding
as to which Indemnitee shall have been adjudged to be liable to
the Corporation if applicable law prohibits such indemnification;
provided, however, that if applicable law so permits,
indemnification against Expenses shall nevertheless be made by
the Corporation in such event if, and only to the extent that,
the Court of Chancery of the State of Delaware, or the court in
which such Proceeding shall have been brought or is pending,
shall so determine.
Section 6. Indemnification for Expenses of a Party Who is
Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement (other than
Section 12(c)), to the extent that Indemnitee is, by reason of
his Corporate Status, a party to and is successful, on the merits
or otherwise, in any Proceeding, he shall be indemnified against
all Expenses actually and reasonably incurred by him or on his
behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Corporation shall indemnify
Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully
resolved claim, issue or matter. For the purposes of this
Section and without limiting the foregoing, the termination of
any claim, issue or matter in any such Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 7. Indemnification for Expenses of a Witness.
Notwithstanding any other provision of this Agreement (other than
Section 12(c)), to the extent that Indemnitee is, by reason of
his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred
by him or on his behalf in connection therewith.
Section 8. Advancement of Expenses.
The Corporation shall advance all Expenses incurred by or on
behalf of Indemnitee in connection with any Proceeding within
twenty days after the receipt by the Corporation of a statement
or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of
such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by Indemnitee and shall include or
be preceded or accompanied by an undertaking by or on behalf of
Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified
against such Expenses.
Section 9. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement in
connection with any Proceeding, and for the duration thereof,
Indemnitee shall submit to the Corporation a written request,
including therein or therewith such documentation and information
as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Corporation
shall, promptly upon receipt of any such request for
indemnification, advise the Board in writing that Indemnitee has
requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to Section 9(a), a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto
shall be made in such case: (i) if a Change in Control shall have
occurred, by Independent Counsel (unless Indemnitee shall request
that such determination be made by the Board or the stockholders,
in which case in the manner provided for in clause (ii) or (iii)
of this Section 9(b) in a written opinion to the Board, a copy of
which shall be delivered to Indemnitee; (ii) if a Change of
Control shall not have occurred, (A) by the Board by a majority
vote of a quorum consisting of Disinterested Directors, or (B) if
a quorum of the Board consisting of Disinterested Directors is
not obtainable, or even if such quorum is obtainable, if such
quorum of Disinterested Directors so directs, either (x) by
Independent Counsel in a written opinion to the Board, a copy of
which shall be delivered to Indemnitee, or (y) by the
stockholders of the Corporation, as determined by such quorum of
Disinterested Directors, or a quorum of the Board, as the case
may be; or (iii) if necessary, as provided in Section 10(b). If
it is so determined that Indemnitee is entitled to
Indemnification, payment to Indemnitee shall be made within ten
days after such determination. Indemnitee shall cooperate with
the person, persons or entity making such determination with
respect to Indemnitee's entitlement to indemnification, including
without limitation providing to such person, persons or entity
upon reasonable advance request any documentation or information
which is not privileged or otherwise protected from disclosure
and which is reasonably available to Indemnitee and reasonably
necessary to such determination. Any costs or expenses
(including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity
making such determination shall be borne by the Corporation
(irrespective of the determination as to Indemnitee's entitlement
to indemnification) and the Corporation hereby indemnifies and
agrees to hold Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be selected as
follows: (i) if a Change of Control shall not have occurred,
Independent Counsel shall be selected by the Board, and the
Corporation shall give written notice to Indemnitee advising him
of the identity of Independent Counsel so selected; or (ii) if a
Change of Control shall have occurred, Independent Counsel shall
be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board, in which event (i) shall
apply), and Indemnitee shall give written notice to the
Corporation advising it of the identity of Independent Counsel so
selected. In either event, Indemnitee or the Corporation, as the
case may be, may, within seven days after such written notice of
selection shall have been given, deliver to the Corporation or to
Indemnitee, as the case may be, a written objection to such
selection. Such objection may be asserted only on the ground
that Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section 1,
and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made,
Independent Counsel so selected may not serve as Independent
Counsel unless and until a court has determined that such
objection is without merit. If, within twenty days after
submission by Indemnitee of a written request for indemnification
pursuant to Section 9(a), no Independent Counsel shall have been
selected and not objected to, either the Corporation or
Indemnitee may petition the Court of Chancery of the State of
Delaware, or any other court of competent jurisdiction, for
resolution of any objection which shall have been made by the
Corporation or Indemnitee to the other's selection of Independent
Counsel and/or for appointment as Independent Counsel of a person
selected by such court or by such other person as such court
shall designate, and the person with respect to whom an objection
is so resolved or the person so appointed shall act as
Independent Counsel under Section 9(b). The Corporation shall
pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with
its actions pursuant to this Agreement, and the Corporation shall
pay all reasonable fees and expenses incident to the procedures
of this Section 9(c), regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due
commencement date of any judicial proceeding pursuant to Section
11(a)(iii), Independent Counsel shall be discharged and relieved
of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
Section 10. Presumptions and Effects of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making
such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted
a request for indemnification in accordance with Section 9(a),
and the Corporation shall have the burden of proof to overcome
that presumption in connection with the making by any person,
persons or entity of any determination contrary to the
presumption.
(b) If the person, persons or entity empowered or selected
under Section 9 to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60
days after receipt by the Corporation of the request therefor,
the requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be
entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification,
or (ii) prohibition of such indemnification under applicable law;
provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the
person, persons or entity making the determination with respect
to entitlement to indemnification in good faith require(s) such
additional time for the obtaining or evaluating of documentation
and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 10(b) shall not apply
(i) if the determination of entitlement to indemnification is to
be made by the stockholders pursuant to Section 9(b) and if (A)
within fifteen days after receipt by the Corporation of the
request for such determination, the Board has resolved to submit
such determination to the stockholders for their consideration at
an Annual Meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called as provided in the
Corporation's Certificate of Incorporation and under applicable
law within 30 days after such receipt for the purpose of making
such determination (which 30-day period may be extended for
reasonable periods not to exceed an additional 30 days in order
to ensure compliance with all applicable laws), such meeting is
held for such purpose within 60 days after having been so called
and such determination is made thereat, it being understood that
provisions of this Agreement shall not obligate the Corporation
to call such a special meeting, or (ii) if the determination of
entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9(b).
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of
itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not
act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Corporation or,
with respect to any criminal Proceeding, that Indemnitee had
reasonable cause to believe that his conduct was unlawful.
Section 11. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 9 that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely
made pursuant to Section 8, (iii) the determination of
entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9(b) and such determination shall not
have been made and delivered in a written opinion within 90 days
after receipt by the Corporation of the request for
indemnification, (iv) payment of indemnification is not made
pursuant to Section 7 within ten days after receipt by the
Corporation of a written request therefor, or (v) payment of
indemnification is not made within ten days after a determination
has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to
Section 9 or 10, Indemnitee shall be entitled to an adjudication
in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. The Corporation
shall not oppose Indemnitee's right to seek any such
adjudication.
(b) In the event that a determination shall have been made
pursuant to Section 9 that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to
this Section shall be conducted in all respects as a de novo
trial on the merits and Indemnitee shall not be prejudiced by
reason of that adverse determination. In any judicial proceeding
commenced pursuant to this Section, the Corporation shall have
the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have
been made pursuant to Section 9 or 10 that Indemnitee is entitled
to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding commenced pursuant to
this Section, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii)
prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in any
judicial proceeding commenced pursuant to this Section that the
procedures and presumptions of this Agreement are not valid,
binding and enforceable and shall stipulate in any such court or
before any such arbitrator that the Corporation is bound by all
the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section,
seeks a judicial adjudication of his rights under, or to recover
damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any and all expenses (of
the kinds described in the definition of Expenses) actually and
reasonably incurred by him in such judicial adjudication, but
only if he prevails therein. If it shall be determined in such
judicial adjudication that Indemnitee is entitled to receive part
but not all of the indemnification or advancement of expenses
sought, the expenses incurred by Indemnitee in connection with
such judicial adjudication shall be appropriately prorated.
Section 12. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time
be entitled under applicable law, the Certificate of
Incorporation or Bylaws of the Corporation, any agreement, a vote
of stockholders or a resolution of directors, or otherwise. No
amendment, alteration or repeal of this Agreement or any
provision hereof shall be effective as to Indemnitee with respect
to any action taken or omitted by such Indemnitee in his
Corporate Status prior to such amendment, alteration or repeal.
(b) To the extent that the Corporation maintains an insurance
policy or policies providing liability insurance for directors,
officers, employees, agents or fiduciaries of the Corporation or
of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such person
serves at the request of the Corporation, Indemnitee shall be
covered by such policy or policies in accordance with its or
their terms to the maximum extent of the coverage available for
any such director, officer, employee or agent under such policy
or policies.
(c) If any policy referred to in Section 12(b) (or any other
policy which may provide coverage to Indemnitee) contains a
provision which eliminates coverage under such policy to the
extent of the Corporation's contractual obligations of
indemnification, the Corporation shall have no obligations
hereunder to the extent that Indemnitee shall have been afforded
coverage under such policy.
(d) In the event of any payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, who shall execute
all papers required and take all action necessary to secure such
rights, including execution of such documents as are necessary to
enable the Corporation to bring suit to enforce such rights.
(e) The Corporation shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received
such payment under any insurance policy, contract, agreement or
otherwise.
Section 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later
of: (a) ten years after the date that Indemnitee shall have
ceased to serve as a director, officer, employee, agent or
fiduciary of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise which Indemnitee served at the request of the
Corporation; or (b) the final termination of all pending
Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any
proceeding commenced by Indemnitee pursuant to Section 11. This
Agreement shall be binding upon the Corporation and its
successors and assigns and shall inure to the benefit of
Indemnitee and his heirs, executors and administrators.
Section 14. Severability.
If any provision or provisions of this Agreement shall be held to
be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation each
portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is
not itself held invalid, illegal or unenforceable) shall not in
any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including
without limitation each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held invalid, illegal or
unenforceable) shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or
unenforceable.
Section 15. Exception to Right of Indemnification or
Advancement of Expenses.
Except as provided in Section 11(e), Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim therein,
brought or made by him against the Corporation.
Section 16. Settlement.
The Corporation shall have no obligation to indemnify Indemnitee
hereunder for any amounts paid in settlement of any Proceeding
effected without the Corporation's prior written consent, which
shall not be unreasonably withheld.
Section 17. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each
of which shall for all purposes be deemed to be an original but
all of which together shall constitute one and the same
Agreement. Only one such counterpart, signed by the party
against whom enforceability is sought, may constitute evidence of
the existence of this Agreement.
Section 18. Headings.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 19. Modification and Waiver.
No supplement, modification or amendment of this Agreement shall
be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
Section 20. Notice by Indemnitee.
Indemnitee agrees to notify the Corporation promptly in writing
upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to
any Proceeding or matter which may be subject to indemnification
or advancement of Expenses covered hereunder.
Section 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given
if (i) delivered by hand and receipted for by the party to whom
such notice or other communication shall have been directed, or
(ii) mailed by certified or registered mail with postage prepaid,
on the third business day after the date on which it is so
mailed:
(a) If to Indemnitee, to:
(b) If to the Corporation, to:
Northrop Grumman Corporation
1840 Century Park East
Los Angeles, California 90067-2199
Attention: James C. Johnson
Corporate Vice President and Secretary
or to such other address as may have been furnished to Indemnitee
by the Corporation or to the Corporation by Indemnitee, as the
case may be.
Section 22. Governing Law.
This Agreement shall be governed by, and construed and enforced
in accordance with, the laws in effect in the State of Delaware.
Section 23. Miscellaneous.
Use of the masculine pronoun shall be deemed to include usage of
the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
NORTHROP GRUMMAN CORPORATION INDEMNITEE
_______________________ _________________________
Kent Kresa
Chairman, President and
Chief Executive Officer
