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 September 30, 1999
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 October 29, 1999 69,488,534 shares
<PAGE>
Northrop Grumman Corporation and Subsidiaries
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS
OF FINANCIAL POSITION
September 30, December 31,
Dollars in millions 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 37 $ 44
Accounts receivable, net of progress payments of
$1,739 in 1999 and $1,388 in 1998 1,352 1,507
Inventoried costs, net of progress payments of
$544 in 1999 and $521 in 1998 1,424 1,373
Deferred income taxes 17 24
Prepaid expenses 46 85
- ---------------------------------------------------------------------------
Total current assets 2,876 3,033
- ---------------------------------------------------------------------------
Property, plant and equipment 2,972 3,058
Accumulated depreciation (1,737) (1,784)
- ---------------------------------------------------------------------------
1,235 1,274
- ---------------------------------------------------------------------------
Goodwill, net of accumulated amortization
of $414 in 1999 and $338 in 1998 3,534 3,381
Other purchased intangibles, net of accumulated
amortization of $363 in 1999 and $295 in 1998 778 795
Prepaid pension cost, intangible pension asset
and benefit trust fund 1,092 787
Deferred income taxes 34 166
Assets available for sale 26 37
Investments in and advances to affiliates
and sundry assets 55 63
- ---------------------------------------------------------------------------
5,519 5,229
- ---------------------------------------------------------------------------
$ 9,630 $ 9,536
===========================================================================
</TABLE>
I-1
<PAGE>
Northrop Grumman Corporation and Subsidiaries
<TABLE>
<CAPTION>
September 30, December 31,
Dollars in millions 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity:
Notes payable to banks $ 99 $ 69
Current portion of long-term debt 200 200
Trade accounts payable 427 416
Accrued employees' compensation 355 337
Advances on contracts 255 354
Income taxes payable including deferred income taxes
of $590 in 1999 and $527 in 1998 604 527
Other current liabilities 503 464
- ---------------------------------------------------------------------------
Total current liabilities 2,443 2,367
- ---------------------------------------------------------------------------
Long-term debt 2,300 2,562
Accrued retiree benefits 1,711 1,704
Other long-term liabilities 41 53
Paid-in capital
Preferred stock, 10,000,000 shares authorized; none issued
Common stock, 200,000,000 shares authorized;
issued and outstanding:
1999 - 69,483,426; 1998 - 68,836,810 1,028 989
Retained earnings 2,138 1,892
Accumulated other comprehensive loss (31) (31)
- ---------------------------------------------------------------------------
3,135 2,850
$ 9,630 $ 9,536
===========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
I-2
<PAGE>
Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
Dollars in millions, except per share 1999 1998 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $2,122 $2,213 $6,489 $6,366
Cost of sales
Operating costs 1,586 1,668 4,972 4,835
Administrative and general expenses 274 307 801 878
- ---------------------------------------------------------------------------
Operating margin 262 238 716 653
Merger costs (186)
Interest expense (64) (59) (173) (173)
Other, net 5 5 4 18
- ---------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting change 203 184 547 312
Federal and foreign income taxes 75 68 202 115
- ---------------------------------------------------------------------------
Income before cumulative effect of
accounting change 128 116 345 197
Cumulative effect of change in
accounting for start-up costs,
net of income tax benefit of $11 (16)
- ---------------------------------------------------------------------------
Net income $ 128 $ 116 $ 329 $ 197
===========================================================================
Weighted average shares outstanding,
in millions 69.4 68.9 69.1 68.4
===========================================================================
Basic earnings per share:
Before cumulative effect of
accounting change $ 1.84 $1.68 $5.00 $2.88
Accounting change (.24)
- ---------------------------------------------------------------------------
Basic earnings per share $ 1.84 $1.68 $4.76 $2.88
===========================================================================
Diluted earnings per share:
Before cumulative effect of
accounting change $ 1.83 $1.67 $4.97 $2.83
Accounting change (.24)
- ---------------------------------------------------------------------------
Diluted earnings per share $ 1.83 $1.67 $4.73 $2.83
===========================================================================
Dividends per share $ .40 $.40 $1.20 $1.20
===========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
I-3
<PAGE>
Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Nine months ended September 30,
Dollars in millions 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paid-in Capital
At beginning of year $ 989 $ 838
Stock issued for businesses purchased 30
Employee stock awards and options exercised 9 148
- ------------------------------------------------------------------------------------
1,028 986
- ------------------------------------------------------------------------------------
Retained Earnings
At beginning of year 1,892 1,807
Net income 329 197
Cash dividends (83) (82)
- ------------------------------------------------------------------------------------
2,138 1,922
- ------------------------------------------------------------------------------------
Accumulated Other Comprehensive Loss (31) (22)
- ------------------------------------------------------------------------------------
Total shareholders' equity $3,135 $2,886
====================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
I-4
<PAGE>
Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30,
Dollars in millions 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Sources of Cash
Cash received from customers
Progress payments $1,297 $1,419
Other collections 5,326 4,980
Income tax refunds received 69 23
Interest received 2 12
Other cash receipts 6 7
- ------------------------------------------------------------------------------------
Cash provided by operating activities 6,700 6,441
- ------------------------------------------------------------------------------------
Uses of Cash
Cash paid to suppliers and employees 5,812 6,156
Interest paid 166 144
Income taxes paid 80 38
Other cash disbursements 9 31
- ------------------------------------------------------------------------------------
Cash used in operating activities 6,067 6,369
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 633 72
- ------------------------------------------------------------------------------------
Investing Activities
Additions to property, plant and equipment (119) (145)
Payment for businesses purchased, net of cash acquired (241) (51)
Proceeds from sale of property, plant and equipment 28 50
Other investing activities (7)
- ------------------------------------------------------------------------------------
Net cash used in investing activities (332) (153)
- ------------------------------------------------------------------------------------
Financing Activities
Borrowings under lines of credit 23 295
Repayment of borrowings under lines of credit (105)
Principal payments of long-term debt (150) (150)
Proceeds from issuance of stock 7 35
Dividends paid (83) (82)
- ------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (308) 98
- ------------------------------------------------------------------------------------
Increase(decrease) in cash and cash equivalents (7) 17
Cash and cash equivalents balance at beginning of period 44 63
- ------------------------------------------------------------------------------------
Cash and cash equivalents balance at end of period $ 37 $ 80
====================================================================================
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
Northrop Grumman Corporation and Subsidiaries
Nine months ended September 30,
Dollars in millions 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income $ 329 $ 197
Adjustments to reconcile net income to net cash provided
Depreciation 144 150
Amortization of intangible assets 144 139
Common stock issued to employees 88
Loss on disposals of property, plant and equipment 9 5
Retiree benefits income (181) (146)
Decrease(increase) in
Accounts receivable 177 285
Inventoried costs (87) (354)
Prepaid expenses 41 2
Increase(decrease) in
Progress payments 70 (228)
Accounts payable and accruals (143) (116)
Provisions for contract losses 27 36
Deferred income taxes 184 96
Income taxes payable 14 14
Retiree benefits (107) (129)
Other transactions 12 33
- ------------------------------------------------------------------------------------
Net cash provided by operating activities $ 633 $ 72
====================================================================================
Noncash Investing Activities:
Purchase of businesses
Assets acquired $ 336 $ 67
Cash paid (241) (56)
Stock issued (30)
-----------------------------------------------------------------------------------
Liabilities assumed $ 65 $ 11
====================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
I-6
</TABLE>
<PAGE>
Northrop Grumman Corporation and Subsidiaries
SELECTED INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
Dollars in millions 1999 1998 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales
Integrated Systems & Aerostructures $1,161 $1,249 $3,627 $3,664
Electronic Sensors & Systems 626 752 1,900 2,066
Information Technology (Logicon) 376 258 1,094 781
Intersegment sales (41) (46) (132) (145)
- ------------------------------------------------------------------------------------
$2,122 $2,213 $6,489 $6,366
====================================================================================
Operating Margin
Integrated Systems & Aerostructures $ 121 $ 121 $ 294 $ 290
Electronic Sensors & Systems 39 68 138 182
Information Technology (Logicon) 23 13 63 48
- ------------------------------------------------------------------------------------
Total 183 202 495 520
Other items included in operating margin:
Corporate expenses (8) (24) (24) (46)
Deferred state tax provision (5) (7) (14) (21)
Pension income 92 67 259 200
- ------------------------------------------------------------------------------------
Operating margin $ 262 $ 238 $ 716 $ 653
====================================================================================
Contract Acquisitions
Integrated Systems & Aerostructures $ 786 $1,121 $2,997 $3,098
Electronic Sensors & Systems 478 687 2,007 1,626
Information Technology (Logicon) 277 197 1,003 707
Intersegment acquisitions (38) (25) (91) (106)
- ------------------------------------------------------------------------------------
$1,503 $1,980 $5,916 $5,325
Funded Order Backlog
Integrated Systems & Aerostructures $6,303 $7,563
Electronic Sensors & Systems 3,226 3,088
Information Technology (Logicon) 475 374
Intersegment backlog (128) (204)
- ------------------------------------------------------------------------------------
$9,876 $10,821
====================================================================================
I-7
</TABLE>
<PAGE>
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 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 1998 annual report on Form 10-K report.
New Accounting Standards
In January 1999, the company adopted Statement of Position (SOP) 98-5 -
Reporting on the Costs of Start-up Activities, which requires that
certain costs, that previously had been deferred, be expensed and
reported as a cumulative effect of a change in accounting principle, and
all such future costs be expensed as incurred.
In the first quarter of 1999, the company recorded a $16 million after-
tax charge, or $.24 per share, as the cumulative effect of a change in
accounting principle.
Earnings per Share
Basic earnings per share are calculated using the weighted average number
of shares of common stock outstanding during each period, after giving
recognition to stock splits and stock dividends. Diluted earnings per
share reflect the dilutive effect of stock options and other stock awards
granted to employees under stock-based compensation plans.
I-8
<PAGE>
Northrop Grumman Corporation and Subsidiaries
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
Earnings
Three months ended September 30, Net Income Shares per Share
----------- ------ ---------
<S> <C> <C> <C>
(millions) (millions)
1999
Basic EPS before accounting change $ 128 69.4 $ 1.84
===== ======
Dilutive effect of stock options and awards .6
-----
Diluted EPS before accounting change $ 128 70.0 $ 1.83
===== ===== ======
1998
Basic EPS before accounting change $ 116 68.9 $ 1.68
===== ======
Dilutive effect of stock options and awards .7
-----
Diluted EPS before accounting change $ 116 69.6 $ 1.67
===== ===== ======
Nine months ended September 30,
1999
Basic EPS before accounting change $ 345 69.1 $ 5.00
===== ======
Dilutive effect of stock options and awards .3
-----
Diluted EPS before accounting change $ 345 69.4 $ 4.97
===== ===== ======
1998
Basic EPS before accounting change $ 197 68.4 $ 2.88
===== ======
Dilutive effect of stock options and awards 1.1
-----
Diluted EPS before accounting change $ 197 69.5 $ 2.83
===== ===== ======
</TABLE>
I-9
<PAGE>
Northrop Grumman Corporation and Subsidiaries
Item 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF THE COMPANY'S FINANCIAL
CONDITION AND THE RESULTS OF ITS OPERATIONS
Sales were 4 percent lower for the third quarter and 2 percent higher for
the first nine months of 1999 versus the same periods of 1998. Both the
Integrated Systems and Aerostructures (ISA) and Electronic Sensors and
Systems (ESS) segments reflected lower sales for the third quarter and
first nine months of 1999 as compared to 1998, while the Information
Technology (Logicon) segment reported higher sales for both periods.
ISA sales were 7 percent lower for the third quarter and 1 percent
lower for the first nine months of 1999 as compared with the same periods
of 1998. For both the third quarter and nine-month periods, Air Combat
Systems business area sales reflect lower B-2 and F/A-18C/D sales and
increased F/A-18E/F sales, as this program transitions from development
to production. The Aerostructures sales decrease for the third quarter
and first nine months of 1999 over the same periods a year ago are
primarily due to lower commercial aerostructures sales. Sales on the
EA-6B program, which is reported in the Airborne Early Warning and
Electronics Warfare (AEW/EW) business area, increased in both the third
quarter and first nine months of 1999 versus comparable periods of 1998.
ESS sales for the third quarter and first nine months of 1999
declined by 17 percent and 8 percent, respectively, as compared to the
same periods last year. The Aerospace Electronic Systems business area
decreases are due to lower volume on combat electronic systems programs
and surveillance sensors programs. The Command, Control, Communications,
Intelligence and Naval Systems (C3I&N) business area decrease in the
third quarter of 1999 as compared to the third quarter of 1998 is
primarily attributable to lower air defense and air traffic control radar
systems sales for international customers.
Logicon sales were 46 percent higher in the third quarter and 40
percent higher in the first nine months of 1999 versus the same periods,
respectively, of 1998. The increases are a result of work on the Joint
Base Operations Support Contract (J-BOSC) for NASA and the U.S. Air
Force, which was won in the third quarter of 1998, as well as increased
volume in the Government Information Technology business area.
I-10
<PAGE>
<TABLE>
<CAPTION>
Northrop Grumman Corporation and Subsidiaries
Sales by business area and units delivered were:
Three months ended Nine months ended
September 30, September 30,
$ in millions 1999 1998 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Integrated Systems & Aerostructures
Air Combat Systems (ACS) $ 496 $ 507 $ 1,491 $ 1,556
Aerostructures 320 407 1,078 1,114
Airborne Early Warning and
Electronic Warfare (AEW/EW) 206 201 616 533
Airborne Ground Surveillance
and Battle Management (AGS/BM) 153 157 502 531
Intrasegment Eliminations (14) (23) (60) (70)
- ------------------------------------------------------------------------------------
1,161 1,249 3,627 3,664
- ------------------------------------------------------------------------------------
Electronic Sensors & Systems
Aerospace Electronic Systems 261 327 772 926
Command, Control, Communications,
Intelligence and Naval Systems (C3I&N) 180 257 612 636
Defensive Electronic Systems 119 133 354 383
Other 66 35 162 121
- ------------------------------------------------------------------------------------
626 752 1,900 2,066
- ------------------------------------------------------------------------------------
Information Technology (Logicon)
Government Information Technology 237 185 726 576
Technology Services 94 42 262 116
Commercial Information Technology 45 31 106 89
- ------------------------------------------------------------------------------------
376 258 1,094 781
- ------------------------------------------------------------------------------------
Intersegment eliminations (41) (46) (132) (145)
- ------------------------------------------------------------------------------------
Total sales $ 2,122 $ 2,213 $ 6,489 $ 6,366
====================================================================================
Units
- ------------------------------------------------------------------------------------
B-2 2 2 4 4
F/A-18 C/D 1 8 17 25
F/A-18 E/F 4 0 7 0
747 7 13 27 39
C-17 3 4 9 6
- ------------------------------------------------------------------------------------
I-11
</TABLE>
<PAGE>
Northrop Grumman Corporation and Subsidiaries
ISA segment operating margin in the third quarter of 1999 was $121
million, the same as reported in the third quarter of 1998. The 1999
third quarter results reflect an $11 million upward cumulative margin
rate adjustment on the B-2 program and downward cumulative margin rate
adjustments of $10 million on commercial aerostructures work. For the
first nine months of 1999, ISA segment operating margin was $294 million,
a $4 million increase over the amount reported for the first nine months
of 1998. This year's first nine month period includes upward cumulative
margin rate adjustments on the B-2 and F/A-18E/F programs of $47 million
and $11 million, respectively. These improvements were offset by
downward cumulative margin rate adjustments on several Boeing
aerostructures contracts totaling $50 million and lower overall margin
rates on Boeing aerostructures work. Last year's first nine months
results included downward cumulative margin rate adjustments totaling $25
million on the E-8 Joint Surveillance Target Attack Radar System (Joint
STARS) and E-2C programs.
Since the beginning of the Joint STARS program, the company (and
prior to 1994, the Grumman Corporation) has incurred over $100 million of
costs in excess of revenues in the performance of the development and
production phases of the program. In 1998, the company submitted Requests
for Equitable Adjustment (REAs) to the U. S. Air Force seeking adjustment
to production contracts for cost increases incurred during the
refurbishment and conversion of used Being 707 aircraft to Joint STARS
platforms. The company and the U. S. Air Force executed an Alternate
Dispute Resolution Agreement (ADR) to attempt to resolve these REAs and,
in April 1999, the company filed these REAs as certified claims. If the
ADR process is unsuccessful, the company will pursue its claims pursuant
to the Contracts Disputes Act. The company cannot predict the outcome of
this claim resolution process or the effect of the ultimate resolution on
the company's results of operations, financial position, and cash flows.
The amount and rate of operating margin earned on sales decreased in
the ESS segment in the third quarter and first nine months of 1999 as
compared with the same periods of 1998. The third quarter margin
decrease reflects the lower sales volume, as well as a reduction of
approximately $19 million resulting from the pension plan merger, which
is discussed below. The nine months decrease also reflects lower margins
in the Defensive Electronic Systems business area, due in part to
additional costs incurred in transitioning a development program to
production.
In July 1999, the company merged three of its pension plans into one
which resulted in a reduction to third quarter net income of
approximately $7 million, or $.10 per share. For the fourth quarter of
1999, net income is expected to be reduced by approximately $13 million,
or $.17 per share, as a result of the plan merger.
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<PAGE>
Northrop Grumman Corporation and Subsidiaries
Logicon operating margin was 77 percent higher in the third quarter
and 31 percent higher in the first nine months of 1999 versus the same
periods, respectively, of 1998. The increases are attributable to
increased sales volume and improved performance in both the Government
Information Technology and Technology Services business areas, and lower
administrative costs.
Last year's third quarter corporate expenses included pretax costs
of $14 million related to activities to realign operating units,
consolidate facilities and laboratories, and exit certain business areas.
Last year's first nine months results included a $186 million pretax
charge ($1.73 per share after tax) for costs associated with the
company's terminated merger with Lockheed Martin Corporation.
Interest expense was $64 million for the third quarter of 1999 and
$173 million for the first nine months of 1999, as compared to $59
million and $173 million, respectively, for the same periods last year.
The third quarter of 1999 includes $11 million of interest expense
related to settlements of various legal and tax issues. Interest on debt
was down $6 million for the third quarter and $11 million for the first
nine months as compared to the same periods for 1998, principally as a
result of a lower average level of borrowings in these periods.
The company's effective federal income tax rate was 37 percent for
the first nine months of 1999, unchanged from the same period in 1998.
Effective January 1, 1999, the company adopted the new accounting
standard, SOP 98-5 - Reporting on the Costs of Start-Up Activities, which
requires that certain costs that previously had been deferred be expensed
and reported as a cumulative effect of a change in accounting principle.
The company reported a $16 million after-tax charge, or $.24 per share,
to write off the previously deferred start-up costs. All such costs
incurred after January 1, 1999, are being expensed as incurred, and are
expected to be approximately $8 million, before tax, for all of 1999.
During the first nine months of 1999, $633 million of cash was generated
by operations versus the $72 million generated in the same period last
year. The 1999 increase reflects increased sales and improved cash
management of working capital, as well as lower pension plan
contributions as a result of the pension plan merger. Last year's lower
generation of cash from operations was driven by expenses related to the
terminated merger with Lockheed Martin Corporation, as well as an increase in
working capital for Boeing jetliners in support of increased production
levels. Cash generated from operating activities for the remainder of
1999 is expected to be more than sufficient to finance capital
expenditures and dividends and make required debt service payments.
The company's liquidity and financial flexibility will continue to be provided
by cash flow generated by operating activities, supplemented by the unused
borrowing capacity available under the company's credit agreement and other
short-term credit facilities.
With the completion of the B-2 EMD contract, federal and state income taxes
that have been deferred since the inception of the contract in 1981, will
become payable. The contract is now expected to be completed in 2002, at
which time federal and state income taxes totaling approximately $1
billion will become payable.
I-13
<PAGE>
Northrop Grumman Corporation and Subsidiaries
Year 2000 Issues
The company continues to implement its program to address the Year 2000
issue. The program, which began in 1996, consists of the following four
phases: assessing, planning, remediating, and testing-validating. The
project encompasses the entire company and all aspects of Year 2000
compliance including software applications, mainframe environment,
desktop equipment, networks, telecommunications, department supported
systems, facilities systems, and embedded systems in product
deliverables.
All four phases were substantially completed by the end of 1998.
The company has surveyed all major suppliers to determine their state of
readiness, reviewed major customers' Year 2000 status, reviewed contracts
for
any potential Year 2000 liabilities, and developed contingency plans and
year end support plans where appropriate. Activities scheduled to be
completed in the remainder of 1999 are largely comprised of low risk
equipment upgrades,
and various upgrades that suppliers have only recently made available.
Additional focus has been placed on contingency plans, year end plans,
and follow-up assessments for critical suppliers and major customers.
Contingency plans have been developed to address potential computer
failures that either 1) are of greatest risk for potential failure or 2)
might impact mission critical systems. Assessment of Year 2000 progress
is a critical input to the development of contingency plans. Follow-up
assessments are being conducted for all critical suppliers and major
customers. Year 2000 readiness letters were sent to all critical
suppliers during the second quarter of 1999. All critical suppliers will
be tracked until they are deemed Year 2000 ready or appropriate alternate
sourcing strategies are in place. Major customers are also being
reevaluated to assess their state of Year 2000 readiness. All business
areas have reviewed their critical processes and systems and have
completed Business Impact Assessments to identify potential risks,
mitigation strategies, and critical resources. These are reflected in
Year 2000 contingency plans that have been developed for each Northrop
Grumman sector. Year end support plans and site staffing requirements
have been developed and are being refined.
The company has a formal planning, measurement and reporting process
for the Year 2000 project. This process includes regular progress
briefings to senior management and to the audit committee of the Board of
Directors.
The company separately identifies the costs of Year 2000 remedial
efforts only for internal information services personnel, principally as
a planning and control tool. The total costs of these efforts incurred
during the years 1996 through 1999 are expected to be approximately $42
million, of which approximately $41 million was
I-14
<PAGE>
Northrop Grumman Corporation and Subsidiaries
expended through September 30, 1999. Year 2000 costs are allowable costs
under applicable government contracting regulations. Accordingly, the
portion of Year 2000 costs allocable to contracts is being so charged as
part of normal overhead pursuant to approved methods established for this
purpose. Based on information available to date, management does not
anticipate that future expenditures for required modifications and
conversions would have a material adverse effect on the company's
financial position, results of operations, or cash flows.
Northrop Grumman cannot predict the eventual outcome associated with
the innumerable possible situations that could result from whatever
computer failures might occur, internally or among its customers and
suppliers, and the impact that such failures might have on Northrop
Grumman's ability to perform its day to day operations. If required
modifications and conversions are not made as planned, serious adverse
impact to the operations of the company could result. In addition, Year
2000 problems could adversely affect the ability of customers and
critical suppliers to meet their contractual commitments to the company.
Some of these developments, should they occur, could have a material
adverse impact on the financial position, results of operations, or cash
flows of Northrop Grumman.
Forward-Looking Information
There are statements in this quarterly report on Form 10-Q, and, not by
way of limitation, in Management's Discussion and Analysis, that we
believe are "forward-looking" statements and information within the
meaning of Private Securities Litigation Reform Act of 1995 that involve
risk and uncertainties, including statements and assumptions that reflect
the company's views with respect to future revenues, program performance
and cash flows, the outcome of contingencies including litigation and
environmental remediation, and anticipated costs of capital investments
and planned dispositions. The company's operations are necessarily
subject to various risks and uncertainties; actual outcomes are dependent
upon many factors, including, without limitation, the company's
successful performance of internal plans; government customers' budgetary
restraints; customer changes in short-range and long-range plans;
domestic and international competition in both the defense and commercial
areas; product performance; the ability of the company, its customers and
suppliers to become Year 2000 compliant; continued development and
acceptance of new products; performance issues with key suppliers and
subcontractors; government import and export policies; termination of
government contracts; the outcome of political and legal processes;
legal, financial, and governmental risks related to international
transactions and global needs for military and commercial
I-15
<PAGE>
Northrop Grumman Corporation and Subsidiaries
aircraft and electronic systems and support as well as other economic,
political and technological risks and uncertainties, including risks
detailed in the company's filings with the Securities and Exchange
Commission, including, not by way of limitation, any Form 10-K, Form 10-Q
and any proxy statements, among others.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
The company has fixed-rate long-term debt obligations, most of which are
not callable until maturity. The company also has financial instruments
that are subject to interest rate risk, principally variable-rate short-
term debt outstanding under the Credit Agreement. The company may enter
into interest rate swap agreements to offset the variable-rate
characteristics of these loans. At September 30, 1999, no interest rate
swap agreements were in effect.
Only a small portion of the company's transactions are contracted in
foreign currencies. The company does not consider the market risk
exposure relating to foreign currency exchange to be material.
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Northrop Grumman Corporation and Subsidiaries
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
General
The company, as a government contractor, is from time to time subject to
U.S. Government investigations relating to its operations. Government
contractors that are found to have violated the False Claims Act, or are
indicted or convicted for violations of other Federal laws, or are
considered not to be responsible contractors may be suspended or debarred
from government contracting for some period of time. Such convictions
could also result in fines. Given the company's dependence on government
contracting, suspension or debarment could have a material adverse effect
on the company. The company is involved in certain other legal
proceedings arising in the ordinary course of business, none of which the
company's management believes will have a material adverse effect on the
company's financial condition.
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Northrop Grumman Corporation and Subsidiaries
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Northrop Grumman Corporation March 2000 Special Agreement as
approved on
August 18, 1999 for elected officers
10(b) Northrop Grumman Corporation March 2000 Change-In-Control
Severance Plan
as approved on August 18, 1999 for vice presidents
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended September 30, 1999.
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: November 3, 1999 by/s/ R. B. Waugh, Jr.
R. B. Waugh, Jr.
Corporate Vice President and Chief
Financial Officer
Date: November 3, 1999 by/s/J. H. Mullan
John H. Mullan
Corporate Vice President and
Secretary
II-2
NORTHROP GRUMMAN CORPORATION
MARCH 2000 SPECIAL AGREEMENT
THIS AGREEMENT is made and entered into by and between
Northrop Grumman Corporation, a Delaware corporation
(hereinafter referred to as the "Company") and
________________________________ (hereinafter referred to as
the "Executive").
RECITALS
The Board of Directors of the Company has approved the
Company entering into a severance agreement with the
Executive.
The Executive is a key executive of the Company.
Should the possibility of a Change in Control of the
Company arise, the Board believes it imperative that the
Company and the Board should be able to rely upon the
Executive to continue in his position, and that the Company
should be able to receive and rely upon the Executive's
advice, if requested, as to the best interests of the
Company and its stockholders without concern that the
Executive might be distracted by the personal uncertainties
and risks created by the possibility of a Change in Control.
Should the possibility of a Change in Control arise, in
addition to his regular duties, the Executive may be called
upon to assist in the assessment of such possible Change in
Control, advise management and the Board as to whether such
Change in Control would be in the best interests of the
Company and its stockholders, and to take such other actions
as the Board might determine to be appropriate.
NOW THEREFORE, to assure the Company that it will have
the continued dedication of the Executive and the
availability of his advice and counsel notwithstanding the
possibility, threat, or occurrence of a Change in Control of
the Company, and to induce the Executive to remain in the
employ of the Company in the face of these circumstances and
for other good and valuable consideration, the Company and
the Executive agree as follows:
Article 1. Certain Definitions
Whenever used in this Agreement, the following terms
shall have the meanings set forth below and, when the
meaning is intended, the initial letter of the word is
capitalized:
(a) "Agreement" means this March 2000 Special Agreement.
(b) "Base Salary" means the salary of record paid to the
Executive by the Company as annual salary (whether or not
deferred), but excludes amounts received under incentive or
other bonus plans.
1
(c) "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act.
(d) "Beneficiary" means the persons or entities designated
or deemed designated by the Executive pursuant to Section
9.2 herein.
(e) "Board" means the Board of Directors of the Company.
(f) "Cause" shall mean the occurrence of either or both of
the following:
(i) The Executive's conviction for committing an act of
fraud, embezzlement, theft, or other act constituting a
felony; or
(ii) The willful engaging by the Executive in misconduct
which would have resulted in his termination by the Company
under its policies and practices applicable to the Executive
on September 1, 1999. However, no act or failure to act, on
the Executive's part shall be considered "willful" unless
done, or omitted to be done, by the Executive not in good
faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(g) "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 satisfied:
(i) Any Person (other than those Persons in control of the
Company as of the Effective Date, or other than a trustee or
other fiduciary holding securities under an employee benefit
plan of the Company) becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing
thirty three and one-third percent (33-1/3%) or more of the
combined voting power of the Company's then outstanding
securities, and for purposes of this subsection (i) "Person"
or "group" shall not include underwriters acquiring newly-
issued voting securities (or securities convertible into
voting securities) directly from the Company with a view
towards distribution.
(ii) On any day after the Effective Date (the "Measurement
Date") Continuing Directors cease for any reason to
constitute a majority of the Board. A director is a
"Continuing Director" if he or she either:
(1) was a member of the Board on the
applicable Initial Date (an "Initial
Director"); or
2
(2) was elected to the Board, or was
nominated for election by the Company's
stockholders, by a vote of at least two-
thirds (2/3) of the Initial Directors
then in office.
A member of the Board who was not a director
on the applicable Initial Date shall be
deemed to be an Initial Director for purposes
of clause (2) above if his or her election,
or nomination for election by the Company's
stockholders, was approved by a vote of at
least two-thirds (2/3) of the Initial
Directors (including directors elected after
the applicable Initial Date who are deemed to
be Initial Directors by application of this
provision) then in office.
"Initial Date" means the later of (1) the
Effective Date or (2) the date that is two
(2) years before the Measurement Date.
(iii) The Company is liquidated; all or substantially
all of the Company's assets are sold in one or a series of
related transactions; or the Company is merged,
consolidated, or reorganized with or involving any other
corporation, other than a merger, consolidation, or
reorganization that results 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 fifty percent (50%) of the combined voting power
of the voting securities of the Company (or such surviving
entity) outstanding immediately after such merger,
consolidation, or reorganization. Notwithstanding the
foregoing, an event described in this clause (iii) that
occurred prior to the Effective Date shall not constitute a
Change in Control.
(h) "Code" means the United States Internal Revenue Code of
1986, as amended.
(i) "Committee" means the Compensation and Management
Development Committee of the Board, or any other committee
appointed by the Board to perform the functions of the
Compensation and Management Development Committee.
(j) "Company" means Northrop Grumman Corporation, a
Delaware corporation (including, for purposes of determining
whether the Executive is employed by the Company, any and
all subsidiaries specified by the Committee), or any
successor thereto as provided in Article 8 herein.
(k) "Disability" means permanent and total disability,
within the meaning of Code Section 22(e)(3), as determined
by the Committee in the exercise of good faith and
reasonable judgment, upon receipt of and in reliance on
competent medical advice from one or more individuals
licensed and qualified to give professional medical advice.
3
(l) "Effective Date" means March 1, 2000.
(m) "Effective Date of Termination" means the date on which
a Qualifying Termination occurs.
(n) "Exchange Act" means the United States Securities
Exchange Act of 1934, as amended.
(o) "Executive" means the individual identified in the
first sentence and on the signature page of this Agreement.
(p) "Good Reason" means, without the Executive's express
written consent, the occurrence of any one or more of the
following:
(i) A material reduction in the nature or status of the
Executive's authorities, duties, and/or responsibilities,
(when such authorities, duties, and/or responsibilities are
viewed in the aggregate) from their level in effect on the
day immediately prior to the start of the Protected Period,
other than an insubstantial and inadvertent act that is
remedied by the Company promptly after receipt of notice
thereof given by the Executive; provided that if the
Executive is a vice president, for purposes of the preceding
phrase the Executive's loss of vice president status (other
than a promotion to a higher level officer) will constitute
Good Reason. In addition, if the Executive reports directly
to the Company's Chief Executive Officer immediately prior
to the start of the Protected Period, Good Reason will be
deemed to exist if the Executive's reporting relationship is
changed such that the Executive does not report to one of
the following: the Chair of the Board, or the Company's
Chief Executive Officer, President, or Chief Operating
Officer.
(ii) A reduction by the Company of the Executive's Base
Salary as in effect on the Effective Date, or as the same
shall be increased from time to time.
(iii) A significant reduction by the Company of the
Executive's aggregate incentive opportunities under the
Company's short and/or long-term incentive programs, as such
opportunities exist on the Effective Date, or as such
opportunities may be increased after the Effective Date.
For this purpose, a significant reduction in the Executive's
incentive opportunities shall be deemed to have occurred in
the event his targeted annualized award opportunities and/or
the degree of probability of attainment of such annualized
award opportunities are diminished by the Company from the
levels and probability of attainment that existed as of the
Effective Date.
4
(iv) The failure of the Company to maintain (x) the
Executive's relative level of coverage and accruals under
the Company's employee benefit and/or retirement plans,
policies, practices, or arrangements in which the Executive
participates as of the Effective Date, both in terms of the
amount of benefits provided, and amounts accrued and (y) the
relative level of the Executive's participation in such
plans, policies, practices, or arrangements on a basis at
least as beneficial as, or substantially equivalent to, that
on which the Executive participated in such plans
immediately prior to the Effective Date. For this purpose,
the Company may eliminate and/or modify existing programs
and coverage levels; provided, however, that the Executive's
level of coverage under all such programs must be at least
as great as is provided to executives who have the same or
lesser levels of reporting responsibilities within the
Company's organization.
(v) The failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and
agree to perform the Company's obligations under this
Agreement, as contemplated in Article 8 herein.
(vi) Any purported termination by the Company of the
Executive's employment that is not effected pursuant to a
Notice of Termination satisfying the requirements of Section
2.8 herein and for purposes of this Agreement, no such
purported termination shall be effective.
The Executive's right to terminate employment for
Good Reason shall not be affected by the
Executive's incapacity due to physical or mental
illness. The Executive's continued employment
shall not constitute a consent to, or a waiver of
rights with respect to, any circumstance
constituting Good Reason herein.
(q) "Person" shall have the meaning ascribed to such term
in Section 3(a)(9) of the Exchange Act and used in Sections
13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) thereof.
(r) "Qualifying Termination" means any of the events
described in Section 2.3(a) herein.
(s) "Severance Benefits" means the payments and/or benefits
provided in Section 2.4 herein.
5
Article 2. Severance Benefits
.1 Right to Severance Benefits. The Executive shall be
entitled to receive the Severance Benefits described in
Section 2.4 herein if the Executive has incurred a
Qualifying Termination as described in Section 2.3.
The Executive shall not be entitled to receive
Severance Benefits if he is terminated for Cause, or if his
employment with the Company ends due to death or Disability,
or due to a voluntary termination of employment by the
Executive without Good Reason.
.2 Services During Certain Events. In the event a Person
begins a tender or exchange offer, circulates a proxy to
stockholders of the Company, or takes other steps seeking to
effect a Change in Control, the Executive agrees that he
will not voluntarily leave the employ of the Company and
will render services until such Person has abandoned or
terminated his or its efforts to effect a Change in Control,
or until six (6) months after a Change in Control has
occurred; provided, however, that the Company may terminate
the Executive's employment for Cause at any time, and the
Executive may terminate his employment at any time after the
Change in Control for Good Reason.
.3 Qualifying Termination.
(a) The occurrence of any one or more of the following
events within the Protected Period (as such term
is defined in Section 2.3(b)) corresponding to a
Change in Control of the Company, or within twenty-
four (24) calendar months following the date of a
Change in Control of the Company shall constitute
a Qualifying Termination and trigger the payment
of Severance Benefits to the Executive under this
Agreement:
(i) An involuntary termination of the Executive's
employment by the Company for reasons other
than Cause;
(ii) A voluntary termination of employment by the
Executive for Good Reason;
(iii)A successor company fails or refuses to
assume by written instrument the Company's
obligations under this Agreement, as required
by Article 8 herein; or
(iv) The Company or any successor company
repudiates or breaches any of the provisions
of this Agreement.
If more than one of the events set forth in this
subsection occurs, such events shall constitute
but a single Qualifying Termination and the
Executive shall be entitled to but a single
payment of the Severance Benefits.
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(b) The "Protected Period" corresponding to a Change
in Control of the Company shall be a period of
time determined in accordance with the following:
(i) If the Change in Control is triggered by a
tender offer for shares of the Company's
stock or by the offeror's acquisition of
shares pursuant to such a tender offer, the
Protected Period shall commence on the date
of the initial tender offer and shall
continue through and including the date of
the Change in Control; provided that in no
case will the Protected Period commence
earlier than the date that is six (6) months
prior to the Change in Control.
(ii) If the Change in Control is triggered by a
merger, consolidation, or reorganization of
the Company with or involving any other
corporation, the Protected Period shall
commence on the date that serious and
substantial discussions first take place to
effect the merger, consolidation, or
reorganization and shall continue through and
including the date of the Change in Control;
provided that in no case will the Protected
Period commence earlier than the date that is
six (6) months prior to the Change in
Control.
(iii) In the case of any Change in Control not
described in clause (i) or (ii) above, the
Protected Period shall commence on the date
that is six (6) months prior to the Change in
Control and shall continue through and
including the date of the Change in Control.
(c) Notwithstanding anything else contained herein to
the contrary, the Executive's termination of
employment on account of reaching mandatory
retirement age, as such age may be defined from
time to time in policies adopted by the Company
prior to the commencement of the Protected Period,
and consistent with applicable law, shall not be a
Qualifying Termination.
(d) Notwithstanding anything else contained herein to
the contrary, the termination of the Executive's
employment shall not constitute a Qualifying
Termination if the termination (or events giving
rise to Good Reason) would have otherwise occurred
as part of the predictable consequences of a
corporate restructuring or downsizing program that
commenced prior to the Protected Period.
(e) Notwithstanding anything else contained herein to
the contrary, the Executive shall not be entitled
to Severance Benefits under this Agreement if he
receives or is entitled to receive severance
benefits under a prior Northrop Grumman
Corporation Special Agreement or under the
Northrop Grumman Corporation Change-In-Control
Severance Plan. If the Executive is otherwise
entitled to receive Severance Benefits under this
Agreement and severance benefits under the
Northrop Grumman Corporation March 2000 Change-In-
Control Severance Plan, benefits shall be paid
under this Agreement rather than under such plan.
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.4 Description of Severance Benefits. In the event that
the Executive becomes entitled to receive Severance
Benefits, as provided in Sections 2.1 and 2.3 herein, the
Company shall pay to the Executive and provide him with the
following:
(a) An amount equal to three (3) times the highest
rate of the Executive's annualized Base Salary in effect at
any time up to and including the Effective Date of
Termination.
(b) An amount equal to three (3) times the greater of:
(i) the average of the Executive's bonus earned with respect
to the three (3) full fiscal years prior to the Effective
Date of Termination; or (ii) the Executive's target annual
bonus established for the bonus plan year in which the
Executive's Effective Date of Termination occurs.
(c) An amount equal to the Executive's unpaid Base
Salary and accrued vacation pay through the Effective Date
of Termination, together with a portion of the Executive's
target bonus under the bonus plan in which he participates
for that year, calculated by multiplying the target bonus by
a fraction the numerator of which is the number of days from
January 1 through the Effective Date of Termination and the
denominator of which is three hundred sixty-five (365).
(d) A continuation of all benefits pursuant to any and
all welfare benefit plans under which the Executive and/or
the Executive's family is eligible to receive benefits
and/or coverage as of the effective date of the Change in
Control, including, but not limited to, group life
insurance, hospitalization, disability, medical, and dental
plans. Except as provided in the next sentence, such
benefits shall be provided to the Executive at the same
premium cost, and at the same coverage level, as in effect
as of the Executive's Effective Date of Termination. If the
Executive is entitled to benefits under the Company's
Special Officer Retiree Medical Plan as of or immediately
following the Effective Date of Termination, the medical
benefits referred to in the first sentence of this paragraph
shall be provided under and in accordance with the terms of
such plan and the Executive and/or the Executive's family
shall not be eligible for continued medical coverage under
any other Company plan or arrangement.
The welfare benefits described in this Subsection
2.4(d) shall continue for three years following
the Effective Date of Termination for the
Executive and his spouse; provided, however, that:
(i) such welfare benefits that are medical
benefits provided under the Company's Special
Officer Retiree Medical Plan shall continue and be
coordinated with other medical coverage in
accordance with the terms of such plan; (ii) if
the Executive is not entitled to benefits under
the Company's Special Officer Retiree Medical Plan
as of or immediately following the Effective Date
of Termination, the medical benefits referred to
in the first sentence of the preceding paragraph
shall continue for the life of the Executive and
the life of his spouse; and (iii) such welfare
benefits that are medical benefits provided under
any plan or arrangement other than the Special
Officer Retiree Medical Plan may be coordinated
with and paid secondary to any benefits that the
Executive or his family member receives from
another employer or from Medicare (following the
Executive and/or his family member's entitlement
to Medicare benefits).
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(e) Except as provided in Section 2.9, a lump-sum cash
payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the
Effective Date of Termination under the qualified defined
benefit pension plan or plans in which the Executive
participates (the "qualified plan"), and under any and all
supplemental retirement plans in which the Executive
participates. For this purpose, such benefits shall be
calculated as if the Executive's employment continued for
three full years following the Effective Date of Termination
(i.e., the Executive receives three additional years of
vesting and benefit accruals, and his age is also increased
three years from his age as of the Effective Date of
Termination for all purposes under such plans, including any
and all early retirement subsidies); provided, however, that
for purposes of determining "Final Average Pay" under such
plans, the Executive's actual pay history as of the
Effective Date of Termination shall be used, except that
there shall be substituted for each of the actual annual
incentive plan bonuses otherwise included in such pay the
higher of (x) the average of the last three annual incentive
plan bonuses received by the Executive, or (y) the
Executive's target annual incentive plan bonus for the year
in which the Effective Date of Termination occurs. In
addition, for this purpose there shall be offset from the
lump sum payment the actuarial present value equivalent of
benefits payable (calculated assuming that the Executive
retired and went into pay status under the terms of the
qualified plan in which he participates on or as soon as
possible after his Effective Date of Termination) to the
Executive from the qualified plan as actually accrued by the
Executive through the Effective Date of Termination under
the qualified plan (or such other date as determined under
the terms of the qualified plan); the intent of this
provision being that the qualified plan benefits will be
paid in the normal course under the terms of the qualified
plan, with additional benefits payable as a result of the
imputation of age and service under this provision being
paid under this Agreement.
(f) A lump-sum cash payment of the entire balance of
the Executive's compensation which has been deferred under
the Company's nonqualified deferred compensation plan(s)
together with all interest that has been credited with
respect to such deferred compensation balance.
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(g) For purposes of this Agreement, any acceleration
of vesting, lapse of restrictions and/or payout occasioned
by the Change in Control pursuant to the provisions of long-
term incentive plans and/or individual award agreements
under such long-term incentive plans shall be deemed a
benefit within the meaning of this Section 2.4. Any amounts
paid either directly to, or for the benefit of the Executive
pursuant to Article 7 of this Agreement shall also be deemed
a benefit within the meaning of this Section 2.4.
.5 Termination for Total and Permanent Disability.
Following a Change in Control of the Company, if the
Executive's employment is terminated due to Disability, the
Company shall pay the Executive his full Base Salary and
accrued vacation through the effective date of the
Executive's termination, at the rate then in effect, plus
all other amounts to which the Executive is entitled under
any compensation plans of the Company, at the time such
payments are due, and, following the effective date of the
Executive's termination, the Executive's benefits shall be
determined in accordance with the Company's disability,
retirement, insurance, and other applicable plans and
programs then in effect and the Company shall have no
further obligations to the Executive under this Agreement;
provided, however, that if immediately prior to the
condition or event leading to, or the commencement of, the
Disability of the Executive, the Executive would have been
entitled to invoke any of the clauses of Section 2.3(a) of
this Agreement if he had terminated at that time, then upon
termination of his employment for Disability he shall be
entitled to collect immediately his full Severance Benefits
hereunder.
.6 Termination for Retirement or Death. Following a
Change in Control of the Company, if the Executive's
employment is terminated by reason of his retirement or
death, the Company shall pay the Executive his full Base
Salary and accrued vacation through the date of the
Executive's death or retirement, as applicable, at the rate
then in effect, plus all other amounts to which the
Executive is entitled under any compensation plans of the
Company, at the time such payments are due, and, following
the date of the Executive's death or retirement, as
applicable, the Executive's benefits shall be determined in
accordance with the Company's retirement, survivor's
benefits, insurance, and other applicable plans and programs
then in effect and the Company shall have no further
obligations to the Executive under this Agreement; provided,
however, that if immediately prior to the Executive's
retirement (but not death), the Executive would have been
entitled to invoke any of the clauses of Section 2.3(a) of
this Agreement if he had terminated at that time, then upon
his retirement he shall (subject to Section 2.3(c)) be
entitled to collect immediately his full Severance Benefits
hereunder.
.7 Termination for Cause or by the Executive Other Than
for Good Reason or Retirement. Following a Change in
Control of the Company, if the Executive's employment is
terminated either: (i) by the Company for Cause; or (ii) by
the Executive other than for retirement and other than for
Good Reason, the Company shall pay the Executive his full
Base Salary and accrued vacation through the effective date
of the Executive's termination, at the rate then in effect,
plus all other amounts to which the Executive is entitled
under any compensation plans of the Company, at the time
such payments are due, and the Company shall have no further
obligations to the Executive under this Agreement.
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.8 Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be
communicated by Notice of Termination to the other party.
For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied
upon, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated.
If the Executive is terminating for Good Reason hereunder,
the Notice of Termination shall be effective on the date
specified in Section 9.7 of this Agreement.
.9 Alternative Form of Payment Election.
(a) Section 2.4(e) contains a provision for a lump sum
cash payout of the actuarial present value
equivalent of the aggregate benefits accrued by
the Executive under supplemental nonqualified
plans. If the Executive timely elects an
alternative form of payment in accordance with
Section 2.9(d), that lump sum override of the form
of payment provisions of other plans is rescinded.
Accordingly, the form of payment of benefits under
those plans will be determined in accordance with
the provisions of those plans.
(b) The rescission of the lump sum override in
accordance with Section 2.9(a) is not meant to
have any effect on the lump sum payout provision
in Section 2.4(e) with respect to the 3+3 benefits
(i.e., the imputed three additional years of
vesting and benefit accruals and three years of
age). Accordingly, the Executive's 3+3 benefits
shall be paid in a lump sum in accordance with
Section 2.4(e) notwithstanding the Executive's
alternative form of payment election (if any).
(c) If the payout provisions in other supplemental
nonqualified retirement plans made operative by
the rescission of the lump sum override in
accordance with Section 2.9 (a) contain reduction
in benefit provisions (such as forfeitures or
penalties attached to a lump sum election), the
reduced amounts will not be restored by this
Agreement.
(d) The Executive may elect the alternative form of
payment described in Section 2.9(a) on a form and
in the manner prescribed by the Committee;
provided that (i) in order to be effective, such
election must be received by the Committee before
the close of business on March 1, 2000, and (ii)
such election will not apply to any Severance
Benefits that relate to a Change in Control that
occurs on or before June 1, 2000.
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Article 3. Form and Timing of Severance Benefits
.1 Form and Timing of Severance Benefits. The Severance
Benefits described in Sections 2.4(a), 2.4(b), 2.4(c),
2.4(e) (except as provided in Section 2.9), and 2.4(f)
herein shall be paid in cash to the Executive in a single
lump sum as soon as practicable following the Effective Date
of Termination, but in no event beyond thirty (30) days from
such date.
.2 Withholding of Taxes. The Company shall be entitled to
withhold from any amounts payable under or pursuant to this
Agreement all taxes as legally shall be required (including,
without limitation, any United States Federal taxes, and any
other state, city, or local taxes).
Article 4. Excise Tax Gross-Up
.1 Equalization Payment. If upon or following a Change in
Control, the tax imposed by Section 4999 of the Code or any
similar or successor tax (the "Excise Tax") applies, solely
because of the Change in Control, to any payments, benefits
and/or amounts received by the Executive as Severance
Benefits or otherwise, including, without limitation, any
fees, costs and expenses paid under Article 7 of this
Agreement and/or any amounts received or deemed received,
within the meaning of any provision of the Code, by the
Executive as a result of (and not by way of limitation) any
automatic vesting, lapse of restrictions and/or accelerated
target or performance achievement provisions, or otherwise,
applicable to outstanding grants or awards to the Executive
under any of the Company's incentive plans, including
without limitation, the 1993 Long Term Incentive Stock Plan,
the 1987 Long Term Incentive Plan and the 1981 Long-Term
Incentive Plan, the Company shall pay to the Executive in
cash an additional amount or amounts (the "Gross-Up
Payment(s)") such that the net amount retained by the
Executive after the deduction of any Excise Tax on such
payments, benefits and/or amounts so received and any
Federal, state and local income tax and Excise Tax upon the
Gross-Up Payment(s) provided for by this Section 4.1 shall
be equal to such payments, benefits and/or amounts so
received had they not been subject to the Excise Tax. Such
payment(s) shall be made by the Company to the Executive as
soon as practicable following the receipt or deemed receipt
of any such payments, benefits and/or amounts so received,
and may be satisfied by the Company making a payment or
payments on Executive's account in lieu of withholding for
tax purposes but in all events shall be made within thirty
(30) days of the receipt or deemed receipt by the Executive
of any such payment, benefit and/or amount.
.2 Tax Computation. For purposes of determining whether
any payments, benefits and/or amounts, including amounts
paid as Severance Benefits, will be subject to Excise Tax,
and the amount of any such Excise Tax:
(a) Any other payments, benefits and/or amounts
received or to be received by the Executive in connection
with or contingent upon a Change in Control of the Company
or the Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, or with any
Person whose actions result in a Change in Control of the
Company or any Person affiliated with the Company or such
Persons) shall be combined to determine whether the
Executive has received any "parachute payment" within the
meaning of Section 280G(b)(2) of the Code, and if so, the
amount of any "excess parachute payments" within the meaning
of Section 280G(b)(1) that shall be treated as subject to
the Excise Tax, unless in the opinion of tax counsel
selected by the Company's independent auditors and
acceptable to the Executive, such other payments, benefits
and/or amounts (in whole or in part) do not constitute
parachute payments, or such excess parachute payments
represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject
to the Excise Tax;
12
(b) The value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay Federal income
taxes at the highest marginal rate of Federal income
taxation in the calendar year in which the Gross-Up Payment
is to be made. Such highest marginal rate shall take into
account the loss of itemized deductions by the Executive and
shall also include the Executive's share of the hospital
insurance portion of FICA and state and local income taxes
at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Effective Date
of Termination, net of the maximum reduction in Federal
income taxes that could be obtained from the deduction of
such state and local taxes.
.3 Subsequent Recalculation. In the event the Internal
Revenue Service adjusts the computation of the Company under
Section 4.2 herein, so that the Executive did not receive
the greatest net benefit, the Company shall reimburse the
Executive as provided herein for the full amount necessary
to place the Executive in the same after-tax position as he
would have been in had no Excise Tax applied.
Article 5. The Company's Payment Obligation
.1 Payment Obligations Absolute. The Company's obligation
to make the payments and the arrangements provided for
herein shall be absolute and unconditional, and shall not be
affected by any circumstances, including, without
limitation, any offset, counterclaim, recoupment, defense,
or other right which the Company may have against the
Executive or anyone else. All amounts payable by the
Company hereunder shall be paid without notice or demand.
Each and every payment made hereunder by the Company shall
be final, and the Company shall not seek to recover all or
any part of such payment from the Executive or from
whomsoever may be entitled thereto, for any reasons
whatsoever, except as otherwise provided in Article 7
hereof.
13
The Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or
arrangements made under any provision of this Agreement, and
the obtaining of any such other employment shall in no event
effect any reduction of the Company's obligations to make
the payments and arrangements required to be made under this
Agreement, except to the extent provided in Section 2.4(d)
herein.
.2 Contractual Rights to Benefits. This Agreement
establishes and vests in the Executive a contractual right
to the benefits to which he is entitled hereunder and the
Company expressly waives any ability, if possible, to deny
liability for any breach of its contractual commitment
hereunder upon the grounds of lack of consideration, accord
and satisfaction or any other defense. In any dispute
arising after a Change in Control as to whether the
Executive is entitled to benefits under this Agreement,
there shall be a presumption that the Executive is entitled
to such benefits and the burden of proving otherwise shall
be on the Company. However, nothing herein contained shall
require or be deemed to require, or prohibit or be deemed to
prohibit, the Company to segregate, earmark, or otherwise
set aside any funds or other assets, in trust or otherwise,
to provide for any payments to be made or required
hereunder.
.3 Pension Plans. All payments, benefits and amounts
provided under this Agreement shall be in addition to and
not in substitution for any pension rights under the
Company's tax-qualified pension plan, and any disability,
workers' compensation or other Company benefit plan
distribution that the Executive is entitled to at his
Effective Date of Termination. Notwithstanding the
foregoing, this Agreement shall not create an inference that
any duplicate payments shall be required.
Article 6. Term of Agreement
This Agreement will commence on the Effective Date and
shall continue in effect through February 28, 2003.
However, at the end of such three (3) year period and, if
extended, at the end of each additional year thereafter, the
term of this Agreement shall be extended automatically for
one (1) additional year, unless the Committee delivers
written notice at least six (6) months prior to the end of
such term, or extended term, to the Executive, that this
Agreement will not be extended. In such case, this
Agreement will terminate at the end of the term, or extended
term, then in progress.
However, in the event a Change in Control occurs during
the original or any extended term, this Agreement will
remain in effect for the longer of: (i) twenty-four (24)
months beyond the month in which such Change in Control
occurred; or (ii) until all obligations of the Company
hereunder have been fulfilled, and until all benefits
required hereunder have been paid to the Executive. Any
subsequent Change in Control ("Subsequent Change in
Control") that occurs during the original or any extended
term shall also continue the term of this Agreement until
the later of: (i) twenty-four (24) months beyond the month
in which such Subsequent Change in Control occurred; or (ii)
until all obligations of the Company hereunder have been
fulfilled, and until all benefits required hereunder have
been paid to the Executive; provided, however, that if a
Subsequent Change in Control occurs, it shall only be
considered a Change in Control under this Agreement if it
occurs no later than twenty-four (24) months after the
immediately preceding Change in Control or Subsequent Change
in Control.
14
Article 7. Resolution of Disputes
.1 Arbitration of Claims. The Company and the Executive
hereby consent to the resolution by arbitration of all
claims or controversies arising out of or in connection with
this Agreement that the Company may have against the
Executive, or that the Executive may have against the
Company or against its officers, directors, employees or
agents acting in their capacity as such. Each party's
promise to resolve all such claims or controversies by
arbitration in accordance with this Agreement, rather than
through the courts, is consideration for the other party's
like promise. It is further agreed that the decision of an
arbitrator on any issue, dispute, claim or controversy
submitted for arbitration shall be final and binding upon
the Company and the Executive and that judgment may be
entered on the award of the arbitrator in any court having
proper jurisdiction.
All expenses of such arbitration, including the fees
and expenses of the counsel for the Executive, shall be
advanced and borne by the Company; provided, however, that
if it is finally determined that the Executive did not
commence the arbitration in good faith and had no reasonable
basis therefore, the Executive shall repay all advanced fees
and expenses and shall reimburse the Company for its
reasonable legal fees and expenses in connection therewith.
Except as otherwise provided in this procedure or by
mutual agreement of the parties, any arbitration shall be
administered: (1) in accordance with the then-current Model
Employment Arbitration Procedures of the American
Arbitration Association ("AAA") before an arbitrator who is
licensed to practice law in the state in which the
arbitration is convened; or (2) if locally available, the
Judicial Arbitration & Mediation Services, Inc. ("JAMS"), in
accordance with the JAMS procedures then in effect. The
party who did not initiate the claim can designate between
JAMS or AAA (the "Tribunal"). The arbitration shall be held
in the city in which the Executive is or was last employed
by the Company in the nearest Tribunal office or at a
mutually agreeable location. Pre-hearing and post-hearing
procedures may be held by telephone or in person as the
arbitrator deems necessary.
The arbitrator shall be selected as follows: if the
parties cannot agree on an arbitrator, the Tribunal (JAMS or
AAA) shall then provide the names of nine (9) available
arbitrators experienced in business employment matters along
with their resumes and fee schedules.
Each party may strike all names on the list it deems
unacceptable. If more than one common name remains on the
list of all parties, the parties shall strike names
alternately until only one remains. The party who did not
initiate the claim shall strike first. If no common name
remains on the lists of the parties, the Tribunal shall
furnish an additional list or lists until an arbitrator is
selected.
15
The arbitrator shall interpret this Agreement, any
applicable Company policy or rules and regulations, any
applicable substantive law (and the law of remedies, if
applicable) of the state in which the claim arose, or
applicable federal law. In reaching his or her decision,
the arbitrator shall have no authority to change or modify
any lawful Company policy, rule or regulation, or this
Agreement. The arbitrator, and not any federal, state or
local court or agency, shall have exclusive and broad
authority to resolve any dispute relating to the
interpretation, applicability, enforceability or formation
of this Agreement, including but not limited to, any claim
that all or any part of this Agreement is voidable.
The arbitrator shall have authority to entertain a
motion to dismiss and/or motion for summary judgment by any
party and shall apply the standards governing such motions
under the Federal Rules of Civil Procedure.
.2 Discovery. Each party shall have the right to take the
deposition of one individual and any expert witness(es)
designated by another party. Each party shall also have the
opportunity to obtain documents from another party through
one request for production of documents. Additional
discovery may be had only when the arbitrator so orders upon
a showing of substantial need. Any disputes regarding
depositions, requests for production of documents or other
discovery shall be submitted to the arbitrator for
determination.
.3 Subpoenas. Each party shall have the right to subpoena
witnesses and documents for the arbitration hearing by
requesting a subpoena from the arbitrator. Any such request
shall be served on all other parties, who shall advise the
arbitrator in writing of any objections that the party may
have to issuance of the subpoena within ten (10) calendar
days of receipt of the request.
.4 Designation of Witnesses. At least thirty (30)
calendar days before the arbitration, the parties must
exchange lists of witnesses, including any expert(s), and
copies of all exhibits intended to be used at the
arbitration.
Article 8. Successors.
The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation, or
otherwise) of all or substantially all of the business
and/or assets of the Company or of any division or
subsidiary thereof (the business and/or assets of which
constitute at least fifty percent (50%) of the total
business and/or assets of the Company) to expressly assume
and agree to perform the Company's obligations under this
Agreement in the same manner and to the same extent that the
Company would be required to perform them if no such
succession had taken place. Failure of the Company to
obtain such assumption and agreement in a written instrument
prior to the effective date of any such succession shall be
a breach of this Agreement and shall entitle the Executive
to compensation from the Company in the same amount and on
the same terms as he would be entitled to hereunder if he
had terminated his employment with the Company voluntarily
for Good Reason. Except for purposes of implementing the
foregoing, the date on which any such succession becomes
effective shall be deemed the Effective Date of Termination
if the Executive so elects, but any delay or failure by the
Executive to so elect shall not be a waiver or release of
any rights hereunder which may be asserted at any time.
16
This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal
representatives, executors, administrators, successors,
heirs, distributees, devisees, and legatees. If the
Executive should die while any amount would still be payable
to him hereunder had he continued to live, all such amounts,
unless otherwise provided herein, shall be paid to the
Executive's Beneficiary in accordance with the terms of this
Agreement. If the Executive has not named a Beneficiary,
then such amounts shall be paid to the Executive's devisee,
legatee, or other designee, or if there is no such designee,
to the Executive's estate.
Article 9. Miscellaneous
.1 Employment Status. The Executive and the Company
acknowledge that, except as may be provided under any other
written agreement between the Executive and the Company, the
employment of the Executive by the Company is "at will,"
and, prior to the effective date of a Change in Control, may
be terminated by either the Executive or the Company at any
time, subject to applicable law.
.2 Beneficiaries. The Executive may designate one or more
persons or entities as the primary and/or contingent
Beneficiaries of any Severance Benefits owing to the
Executive under this Agreement. The Executive may make or
change such designation at any time, provided that any
designation or change thereto must be in the form of a
signed writing acceptable to and received by the Committee.
.3 Entire Agreement. This Agreement contains the entire
understanding of the Company and the Executive with respect
to the subject matter hereof.
.4 Gender and Number. Except where otherwise indicated by
the context any masculine term used herein also shall
include the feminine, the plural shall include the singular,
and the singular shall include the plural.
.5 Severability. In the event any provision of this
Agreement shall be held illegal or invalid for any reason,
the illegality or invalidity shall not affect the remaining
parts of this Agreement, and this Agreement shall be
construed and enforced as if the illegal or invalid
provision had not been included. Further, the captions of
this Agreement are not part of the provisions hereof and
shall have no force and effect.
.6 Modification. No provision of this Agreement may be
modified, waived, or discharged unless such modification,
waiver, or discharge is agreed to in writing and signed by
the Executive and by an authorized member of the Committee,
or by the respective parties' legal representatives and
successors.
17
.7 Notice. For purposes of this Agreement, notices,
including Notice of Termination for Good Reason, and all
other communications provided for in this Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or on the date stamped as received by the U.S.
Postal Service for delivery by certified or registered mail,
postage prepaid and addressed: (i) if to the Executive, to
his latest address as reflected on the records of the
Company, and (ii) if to the Company: Northrop Grumman
Corporation, 1840 Century Park East, Los Angeles, California
90067, Attn: President, or to such other address as the
Company may furnish to the Executive in writing with
specific reference to this Agreement and the importance of
the notice, except that notice of change of address shall be
effective only upon receipt.
.8 Applicable Law. To the extent not preempted by the
laws of the United States, the laws of the State of
California shall be the controlling law in all matters
relating to this Agreement. Any statutory reference in this
Agreement shall also be deemed to refer to all final rules
and final regulations promulgated under or with respect to
the referenced statutory provision.
IN WITNESS WHEREOF, the parties have executed this
Agreement on this ___________ day of ____________________,
_______.
Northrop Grumman Corporation Executive
By:
Attest: Print Name:
18
NORTHROP GRUMMAN CORPORATION
MARCH 2000 CHANGE-IN-CONTROL
SEVERANCE PLAN
<PAGE>
NORTHROP GRUMMAN CORPORATION
MARCH 2000 CHANGE-IN-CONTROL SEVERANCE PLAN
Article 1. Establishment, Term, and Purpose
.1. Establishment of the Plan. Northrop Grumman Corporation
(hereinafter referred to as the "Company") hereby establishes a change
in control severance plan to be known as the "Northrop Grumman
Corporation March 2000 Change-in-Control Severance Plan" (the "Plan").
This Plan shall become effective March 1, 2000 (the "Effective Date").
.2. Term of the Plan. This Plan will commence on the Effective Date
and shall continue in effect through February 28, 2003. However, at
the end of such three (3) year period and, if extended, at the end of
each additional year thereafter, the term of this Plan shall be
extended automatically for one (1) additional year, unless the
Committee delivers written notice at least six (6) months prior to the
end of such term, or extended term, to each Participant that this Plan
will not be extended, and if such notice is timely given this Plan
will terminate at the end of the term then in progress; provided,
however, that this provision for automatic extension shall have no
application following a Change in Control.
However, in the event a Change in Control occurs during the
original or any extended term, this Plan will remain in effect for the
longer of: (i) twenty-four (24) months beyond the month in which such
Change in Control occurred; or (ii) until all obligations of the
Company hereunder have been fulfilled, and until all benefits required
hereunder have been paid to Participants. Any subsequent Change in
Control ("Subsequent Change in Control") that occurs during the
original or any extended term shall also continue the term of this
Plan until the later of: (i) twenty-four (24) months beyond the month
in which such Subsequent Change in Control occurred; or (ii) until all
obligations of the Company hereunder have been fulfilled, and until
all benefits required hereunder have been paid to Participants;
provided, however, that if a Subsequent Change in Control occurs, it
shall only be considered a Change in Control under this Plan if it
occurs no later than twenty-four (24) months after the immediately
preceding Change in Control or Subsequent Change in Control.
.3. Purpose of the Plan. The purpose of this Plan is to provide for
continuity in the management of the Company by offering certain key
employees of the Company employment protection and financial security
in the event of a Change in Control of the Company.
Article 2. Definitions
Whenever used in this Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
(a) "Base Salary" means the salary of record paid to a Participant by
the Company as annual salary (whether or not deferred), but
excludes amounts received under incentive or other bonus plans.
(b) "Beneficial Owner" shall have the meaning ascribed to such term
in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act.
(c) "Beneficiary" means the persons or entities designated or deemed
designated by a Participant pursuant to Section 10.2 herein.
1
<PAGE>
(d) "Board" means the Board of Directors of the Company.
(e) "Cause" shall mean the occurrence of either or both of the
following:
(i) The Participant's conviction for committing an act of fraud,
embezzlement, theft, or other act constituting a felony; or
(ii) The willful engaging by the Participant in misconduct which
would have resulted in his or her termination by the Company
under its policies and practices applicable to the Participant on
September 1, 1999 (or, in the case of a Participant hired by the
Company after September 1, l999, those policies and practices
applicable to the Participant on his or her date of hire).
However, no act or failure to act, on the Participant's part
shall be considered "willful" unless done, or omitted to be done,
by the Participant not in good faith and without reasonable
belief that his action or omission was in the best interest of
the Company.
(f) "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 satisfied:
(i) Any Person (other than those Persons in control of the Company as
of the Effective Date, or other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company)
becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing thirty three and one-third
percent (33-1/3%) or more of the combined voting power of the
Company's then outstanding securities and for purposes of this
subsection (i) "Person" or "group" shall not include
underwriters acquiring newly-issued voting securities (or
securities convertible into voting securities) directly
from the Company with a view towards distribution.
(ii) On any day after the Effective Date (the "Measurement Date")
Continuing Directors cease for any reason to constitute a
majority of the Board. A director is a "Continuing Director"
if he or she either:
(1) was a member of the Board on the applicable
Initial Date (an "Initial Director"); or
(2) was elected to the Board, or was nominated for
election by the Company's stockholders, by a vote
of at least two-thirds (2/3) of the Initial
Directors then in office.
A member of the Board who was not a director on the
applicable Initial Date shall be deemed to be an
Initial Director for purposes of clause (2) above if
his or her election, or nomination for election by the
Company's stockholders, was approved by a vote of at
least two-thirds (2/3) of the Initial Directors
(including directors elected after the applicable
Initial Date who are deemed to be Initial Directors by
application of this provision) then in office.
2
<PAGE>
"Initial Date" means the later of (1) the Effective
Date or (2) the date that is two (2) years before the
Measurement Date.
(iii) The Company is liquidated; all or substantially all of the
Company's assets are sold in one or a series of related
transactions; or the Company is merged, consolidated, or
reorganized with or involving any other corporation, other than
a merger, consolidation, or reorganization that results 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 fifty percent (50%) of the combined
voting power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger,
consolidation, or reorganization. Notwithstanding the foregoing,
an event described in this clause (iii) that occurred prior to
the Effective Date shall not constitute a Change in Control.
(g) "Code" means the United States Internal Revenue Code of 1986, as
amended.
(h) "Committee" means the Compensation and Management Development
Committee of the Board, or any other committee appointed by the Board
to perform the functions of the Compensation and Management
Development Committee.
(i) "Company" means Northrop Grumman Corporation, a Delaware
corporation (including, for purposes of determining whether a
Participant is employed by the Company, any and all subsidiaries
specified by the Committee), or any successor thereto as provided in
Article 10 herein.
(j) "Disability" shall mean, for all purposes of this Plan, the
incapacity of a Participant, due to injury, illness, disease, or
bodily or mental infirmity, to engage in the performance of
substantially all of the usual duties of employment with the Company,
such Disability to be determined by the Committee upon receipt and in
reliance on competent medical advice from one (1) or more individuals,
selected by the Committee, who are qualified to give such professional
medical advice.
(k) "Effective Date" means March 1, 2000.
(l) "Effective Date of Termination" means the date on which a
Qualifying Termination occurs.
(m) "Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
(n) "Good Reason" means, without the Participant's express written
consent, the occurrence of any one or more of the following:
(i) If the Participant is a vice president, the Participant's loss of
vice president status (other than a promotion to a higher level
officer); provided that the Participant's loss of vice president
status will not, in and of itself, constitute Good Reason if the
Participant's lack of a vice president title is generally
consistent with the manner in which the title of vice president
is used within the Participant's business unit. For the purposes
of the preceding sentence, the Participant's lack of a
vice-president title will only be considered generally consistent
with the manner in which such title is used if most persons in
the business unit with authorities, duties, and responsibilities
comparable to those of the Participant immediately prior to the
commencement of the Protected Period do not have the title of
vice-president.
3
<PAGE>
(ii) A reduction by the Company in the Participant's Base Salary as in
effect on the Effective Date or as the same shall be increased
from time to time.
(iii) A material reduction in the aggregate value of the
Participant's level of participation in any of the Company's
short and/or long-term incentive compensation plans (excluding
stock-based incentive compensation plans), employee benefit or
retirement plans, or policies, practices, or arrangements in
which the Participant participates immediately prior to the start
of the Protected Period.
(iv) A material reduction in the Participant's aggregate level of
participation in the Company's stock-based incentive
compensation plans from the level in effect immediately prior
to the start of the Protected Period; provided, however, that
a reduction in the aggregate level of participation shall not be
deemed to be "Good Reason" if the reduced level of participation
remains substantially consistent with the average level of
participation of other employees who have positions commensurate
with the position held by the Participant immediately prior to
the start of the Protected Period.
(v) The failure of the Company to obtain a satisfactory agreement
from any successor to the Company to assume and agree to perform
this Plan, as contemplated in Article 10 herein.
(vi) Any purported termination by the Company of the Participant's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 4.8 herein
and for purposes of this Plan, no such purported termination
shall be effective.
(o) "Participant" means an employee of the Company who fulfills the
eligibility and participation requirements, as provided in Article 3
herein.
(p) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
(q) "Plan" means this Northrop Grumman Corporation March 2000 Change-
in-Control Severance Plan.
(r) "Qualifying Termination" means any of the events described in
Section 4.3(a) herein.
(s) "Severance Benefits" means the payments and/or benefits provided
in Section 4.4 herein.
4
<PAGE>
Article 3. Participation
.1. Eligible Employees. Individuals eligible to participate in this
Plan shall include such employees of the Company as may be determined
by the Committee in its sole discretion.
.2. Participation. Subject to the terms of this Plan, the Committee
may, from time to time select from all eligible employees those who
shall participate in this Plan. The Committee also may, from time to
time and by written notice to the affected Participant(s), remove any
previously-selected Participant(s) from continued participation in
this Plan; provided that any removal of a Participant shall not be
effective if it occurs after the commencement of the Protected Period
(as such term is defined in Section 4.3(b)).
Article 4. Severance Benefits
.1. Right to Severance Benefits. A Participant shall be entitled to
receive from the Company Severance Benefits, as described in Section
4.4 herein, if the Participant has incurred a Qualifying Termination
as described in Section 4.3.
Participants shall not be entitled to receive Severance Benefits
if they are terminated for Cause, or if their employment with the
Company ends due to death or Disability, or due to a voluntary
termination of employment by the Participant without Good Reason.
.2. Services During Certain Events. In the event a Person begins a
tender or exchange offer, circulates a proxy to stockholders of the
Company, or takes other steps seeking to effect a Change in Control,
each Participant agrees that he or she will not voluntarily leave the
employ of the Company and will render service until such Person has
abandoned or terminated his or its efforts to effect a Change in
Control, or until six (6) months after a Change in Control has
occurred; provided, however, that the Company may terminate the
Participant's employment for Cause at any time, and the Participant
may terminate his or her employment at any time after the Change in
Control for Good Reason.
.3. Qualifying Termination.
(a) The occurrence of any one or more of the following events within
the Protected Period (as such term is defined in Section 4.3(b))
corresponding to a Change in Control of the Company, or within
twenty-four (24) calendar months following the date of a Change
in Control of the Company shall constitute a Qualifying Termination
and trigger the payment of Severance Benefits to a Participant under
this Plan:
(i) An involuntary termination of the Participant's employment by the
Company for reasons other than Cause;
(ii) A voluntary termination of employment by the Participant for Good
Reason;
(iii) A successor company fails or refuses to assume by written
instrument the Company's obligations under this Plan, as required
by Article 10 herein; or
(iv) The Company or any successor company repudiates or breaches any
of the provisions of this Plan.
5
<PAGE>
If more than one of the events set forth in this subsection
occurs, such events shall constitute but a single Qualifying
Termination and the Participant shall be entitled to but a
single payment of the Severance Benefits.
(b) The "Protected Period" corresponding to a Change in Control of
the Company shall be a period of time determined in accordance with
the following:
(i) If the Change in Control is triggered by a tender offer for
shares of the Company's stock or by the offeror's acquisition of
shares pursuant to such a tender offer, the Protected Period
shall commence on the date of the initial tender offer and
shall continue through and including the date of the Change in
Control; provided that in no case will the Protected Period
commence earlier than the date that is six (6) months prior
to the Change in Control.
(ii) If the Change in Control is triggered by a merger,
consolidation, or reorganization of the Company with or
involving any other corporation, the Protected Period shall
commence on the date that serious and substantial discussions
first take place to effect the merger, consolidation, or
reorganization and shall continue through and including the date
of the Change in Control; provided that in no case will the
Protected Period commence earlier than the date that is
six (6) months prior to the Change in Control.
(iii) In the case of any Change in Control not described in
clause (i) or (ii) above, the Protected Period shall commence
on the date that is six (6) months prior to the Change in
Control and shall continue through and including the date of
the Change in Control.
(c) Notwithstanding anything else contained herein to the contrary, a
Participant's termination of employment on account of reaching
mandatory retirement age, as such age may be defined from time to
time in policies adopted by the Company prior to the commencement
of the Protected Period, and consistent with applicable law, shall
not be a Qualifying Termination.
(d) Notwithstanding anything else contained herein to the contrary,
the termination of a Participant's employment shall not constitute a
Qualifying Termination if the termination (or events giving rise to
Good Reason) would have otherwise occurred as part of the predictable
consequences of a corporate restructuring or downsizing program that
commenced prior to the Protected Period.
(e) Notwithstanding anything else contained herein to the contrary, a
Participant shall not be entitled to Severance Benefits under this
Plan if the Participant receives or is entitled to receive severance
benefits under a Northrop Grumman Corporation Special Agreement,
under a Northrop Grumman Corporation March 2000 Special Agreement,
or under the Northrop Grumman Corporation Change-In-Control Severance
Plan.
6
<PAGE>
.4. Description of Severance Benefits. In the event that a
Participant becomes entitled to receive Severance Benefits, as
provided in Sections 4.1 and 4.3 herein, the Company shall pay to the
Participant and provide him or her with the following:
(a) An amount equal to two (2) times the highest rate of the
Participant's annualized Base Salary in effect at any time up to and
including the Effective Date of Termination.
(b) An amount equal to two (2) times the greater of: (i) the average
of the Participant's bonus earned with respect to the three (3) full
fiscal years prior to the Effective Date of Termination; or (ii) the
Participant's target annual bonus established for the bonus plan year
in which the Participant's Effective Date of Termination occurs.
(c) An amount equal to the Participant's unpaid Base Salary and
accrued vacation pay through the Effective Date of Termination.
(d) An amount equal to the Participant's unpaid targeted annual
bonus, established for the plan year in which the Participant's
Effective Date of Termination occurs, multiplied by a fraction, the
numerator of which is the number of days completed in the then-
existing fiscal year through the Effective Date of Termination, and
the denominator of which is three hundred sixty-five (365).
(e) A continuation of the welfare benefits of medical insurance,
dental insurance, group term life insurance and participation in any
disability plan for two (2) full years after the Effective Date of
Termination. These benefits shall be provided to Participants at the
same premium cost, and at the same coverage level, as in effect as of
the Participant's Effective Date of Termination. However, in the
event the premium cost and/or level of coverage shall change for all
employees of the Company, the cost and/or coverage level, likewise,
shall change for each Participant in a corresponding manner.
The continuation of these welfare benefits shall be
discontinued prior to the end of the two (2) year period in
the event the Participant has available substantially
similar benefits from a subsequent employer, as determined
by the Committee.
(f) Except as provided in Section 4.9, a lump-sum cash payment of the
actuarial present value equivalent of the aggregate benefits accrued
by the Participant as of the Effective Date of Termination under the
qualified defined benefit pension plan or plans in which the
Participant participates (the "qualified plan"), and under any and
all supplemental retirement plans in which the Participant
participates. For this purpose, such benefits shall be calculated
as if the Participant's employment continued for two full years
following the Effective Date of Termination (i.e., the Participant
receives two additional years of vesting and benefit accruals, and
his age is also increased two years from his age as of the Effective
Date of Termination); provided, however, that for purposes of
determining "Final Average Pay" under such plans, the Participant's
actual pay history as of the Effective Date of Termination shall be
used; and in addition, there shall be offset from the lump sum
payment the actuarial present value equivalent of benefits payable
(calculated assuming that the Participant retired and went into pay
status under the terms of the qualified plan in which he participates
on or as soon as possible after his Effective Date of Termination)
to the Participant from the qualified plan as actually accrued by the
Participant through the Effective Date of Termination under the
qualified plan (or such other date as determined under the terms of
the qualified plan); the intent of this provision being that the
qualified plan benefits will be paid in the normal course under the
terms of the qualified plan, with additional benefits payable as a
result of the imputation of age and service under this provision being
paid from this Plan; and such additional two years of age and service
to count towards eligibility under one or more of the Company retiree
medical programs for which the Participant would have been eligible
absent any such termination.
7
<PAGE>
(g) A lump-sum cash payment of the entire balance of the
Participant's compensation which has been deferred under the Company's
nonqualified deferred compensation plan(s) together with all interest
that has been credited with respect to such deferred compensation
balance.
.5. Termination for Total and Permanent Disability. Following a
Change in Control of the Company, if a Participant's employment is
terminated due to Disability, the Company shall pay the Participant
his or her full Base Salary and accrued vacation through the effective
date of the Participant's termination, at the rate then in effect,
plus all other amounts to which the Participant is entitled under any
compensation plans of the Company, at the time such payments are due,
and, following the effective date of the Participant's termination,
the Participant's benefits shall be determined in accordance with the
Company's disability, retirement, insurance, and other applicable
plans and programs then in effect and the Company shall have no
further obligations to the Participant under this Plan; provided,
however, that if immediately prior to the condition or event leading
to, or the commencement of, the Disability of the Participant, the
Participant would have been entitled to invoke any of the clauses of
Section 4.3(a) of this Plan if he had terminated at that time, then
upon termination of his employment for Disability he shall be entitled
to collect immediately his full Severance Benefits hereunder.
.6. Termination for Retirement or Death. Following a Change in
Control of the Company, if a Participant's employment is terminated by
reason of his or her retirement or death, the Company shall pay the
Participant his or her full Base Salary and accrued vacation through
the date of the Participant's death or retirement, as applicable, at
the rate then in effect, plus all other amounts to which the
Participant is entitled under any compensation plans of the Company,
at the time such payments are due, and, following the date of the
Participant's death or retirement, as applicable, the Participant's
benefits shall be determined in accordance with the Company's
survivor's benefits, retirement, insurance, and other applicable plans
and programs then in effect and the Company shall have no further
obligations to the Participant under this Plan; provided, however,
that if immediately prior to the Participant's retirement (but not
death), the Participant would have been entitled to invoke any of the
clauses of Section 4.3(a) of this Plan if he had terminated at that
time, then upon his retirement he shall (subject to Section 4.3(c)) be
entitled to collect immediately his full Severance Benefits hereunder.
.7. Termination for Cause or by a Participant Other Than for Good
Reason or Retirement. Following a Change in Control of the Company,
if a Participant's employment is terminated either: (i) by the Company
for Cause; or (ii) by the Participant other than for retirement and
other than for Good Reason, the Company shall pay the Participant his
or her full Base Salary and accrued vacation through the effective
date of the Participant's termination, at the rate then in effect,
plus all other amounts to which the Participant is entitled under any
compensation plans of the Company, at the time such payments are due,
and the Company shall have no further obligations to the Participant
under this Plan.
8
<PAGE>
.8. Notice of Termination. Any termination by the Company for Cause
or by a Participant for Good Reason shall be communicated by Notice of
Termination. For purposes of this Plan, a "Notice of Termination"
shall mean a written notice which shall indicate the specific
termination provision in this Plan relied upon, and shall set forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Participant's employment under the
provision so indicated. If a Participant is terminating for Good
Reason hereunder, the Notice of Termination shall be effective on the
date specified in Section 11.6 of this Plan.
.9. Alternative Form of Payment Election.
(a) Section 4.4(f) contains a provision for a lump sum cash
payout of the actuarial present value equivalent of the
aggregate benefits accrued by Participants under
supplemental nonqualified plans. For Participants who
timely elect an alternative form of payment in accordance
with Section 4.9(d), that lump sum override of the form of
payment provisions of other plans is rescinded.
Accordingly, the form of payment of benefits under those
plans with respect to those Participants will be determined
in accordance with the provisions of those plans.
(b) A Participant's rescission of the lump sum override in
accordance with Section 4.9(a) is not meant to have any
effect on the lump sum payout provision in Section 4.4(f)
with respect to the 2+2 benefits (i.e., the imputed two
additional years of vesting and benefit accruals and two
years of age). Accordingly, a Participant's 2+2 benefits
shall be paid in a lump sum in accordance with Section
4.4(f) notwithstanding a Participant's alternative form of
payment election (if any).
(c) If the payout provisions in other supplemental nonqualified
retirement plans made operative by the rescission of the
lump sum override in accordance with Section 4.9(a) contain
reduction in benefit provisions (such as forfeitures or
penalties attached to a lump sum election), the reduced
amounts will not be restored by this Plan.
(d) An individual who is a Participant on the Effective Date may
elect the alternative form of payment described in Section
4.9(a) on a form and in the manner prescribed by the
Committee; provided that (i) in order to be effective, such
election must be received by the Committee before the close
of business on March 1, 2000, and (ii) such election will
not apply to any Severance Benefits that relate to a Change
in Control that occurs on or before June 1, 2000. An
individual who first becomes a Participant after the
Effective Date may elect the alternative form of benefit
described in Section 4.9(a) on a form and in the manner
prescribed by the Committee; provided that (i) in order to
be effective, such election must be received by the
Committee before the close of business on the day that is
sixty (60) days after the date the individual first becomes
a Participant, and (ii) such election will not apply to
Severance Benefits that relate to a Change in Control that
occurs on or before the date that is six (6) months after
the date the Committee receives the election.
Article 5. Form and Timing of Severance Benefits
.1. Form and Timing of Severance Benefits. The Severance Benefits
described in Section 4.4(a), 4.4(b), 4.4(c), 4.4(d), 4.4(f) (except as
provided in Section 4.9), and 4.4(g) herein shall be paid in cash to
the Participant in a single lump sum as soon as practicable following
the Effective Date of Termination, but in no event beyond thirty (30)
days from such date.
9
<PAGE>
.2. Withholding of Taxes. The Company shall be entitled to withhold
from any amounts payable under or pursuant to this Plan all taxes as
legally shall be required (including, without limitation, any United
States Federal taxes, and any other state, city, or local taxes).
Article 6. Excise Tax Limitation
.1. Determination of Termination Payment Limit.
(a) Notwithstanding anything contained in this Plan to the contrary,
to the extent that any payment or distribution of any type to or for a
Participant by the Company, any affiliate of the Company, any person
who acquires ownership or effective control of the Company or
ownership of a substantial portion of the Company's assets (within the
meaning of Section 280G of Code and regulations thereunder), or any
affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Plan or otherwise (the
"Total Payments") is or will be subject to the excise tax imposed
under Section 4999 of the Code (the "Excise Tax"), then the Total
Payments shall be reduced (but not below zero) so that the maximum
amount of the Total Payments (after reduction) shall be one dollar
($1) less than the amount which would cause the Total Payments to be
subject to the Excise Tax.
Unless the Participant shall have given prior written notice
specifying a different order to the Company to effectuate
the foregoing, the Company shall reduce or eliminate the
Total Payments, by first reducing or eliminating the portion
of the Total Payments which are not payable in cash and then
by reducing or eliminating cash payments, in each case in
reverse order beginning with payments or benefits which are
to be paid the farthest in time from the Determination (as
hereinafter defined); provided that, if the Participant does
not give prior written notice, the reduction shall first
occur to benefits (cash or non-cash) arising under this
Plan. Any notice given by the Participant pursuant to the
preceding sentence shall take precedence over the provisions
of any other plan, arrangement or agreement governing the
Participant's rights and entitlements to any benefits or
compensation.
(b) The determination of whether the Total Payments shall be reduced
as provided in Section 6.1(a) and the amount of such reduction shall
be made at the Company's expense by an accounting firm selected by the
Company from among the five largest accounting firms in the United
States (the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed supporting
calculations and documentation to the Company and the Participant
within ten (10) days of the Effective Date of Termination.
.2. Right to Elect a Determination by Outside Counsel. Within twenty
(20) days following delivery of the Accounting Firm's Determination,
the Participant shall have the right, at the Company's expense, to
obtain the opinion of an "outside counsel," which opinion need not be
unqualified, which sets forth: (i) the amount of the Participant's
"annualized includible compensation for the base period" (as defined
in Code Section 280G(d) (1)); (ii) the present value of the Total
Payments; and (iii) the amount and present value of any "excess
parachute payment." The opinion of such outside counsel shall be
supported: by the opinion of a certified public accounting firm and,
if necessary or required by the Company, a firm of recognized
executive compensation consultants. The outside counsel's opinion
shall be binding upon the Company and the Participant. The Company
shall pay (or, to the extent paid by the Participant, reimburse the
Participant for) the certified public accounting firm's and, if
applicable, the executive compensation consultant's reasonable and
customary fees for rendering such opinion. For purposes of this
Section 6.2, "outside counsel" means a licensed attorney selected by
the Participant who is recognized in the field of executive
compensation and has experience with respect to the calculation of the
Excise Tax; provided that the Company must approve the Participant's
selection, which approval shall not be unreasonably withheld.
10
<PAGE>
In the event that the outside counsel determines that there would
be an "excess parachute payment," the Severance Benefits hereunder or
any other payment determined by such counsel to be includible in Total
Payments shall be reduced (but not below zero) so that the maximum
amount of the Total Payments (after reduction) shall be one dollar
($1) less than the amount which would cause the Total Payments to be
subject to the Excise Tax. Any reduction to the Total Payments to
effectuate the foregoing shall be made in accordance with the second
paragraph of Section 6.1(a).
The provisions of this Section 6.2, including the calculations,
notices, and opinion provided for herein shall be based upon the
conclusive presumption that: (i) the compensation and benefits
provided for in Section 4.4 herein, and (ii) any other compensation
earned prior to the Effective Date of Termination by the Participant
pursuant to the Company's compensation programs (if such payments
would have been made in the future in any event, even though the
timing of such payment is triggered by the Change in Control), are
reasonable.
.3. Subsequent Recalculation. As a result of the uncertainty in the
application of Sections 280G and 4999 of the Code at the time of the
initial determination by the Accounting Firm or the outside counsel
under this Article 6, it is possible that Total Payments to the
Participant which will not have been made by the Company should have
been made ("Underpayment"). The Accounting Firm (or, if outside
counsel was selected in accordance with Section 6.2, the outside
counsel) shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Participant.
If, despite the application of the prior provisions of this
Article 6, there is a final determination that the Total Payments
(after giving effect to any prior reduction in accordance with this
Article 6) result in the imposition of any Excise Tax, then the amount
of such Total Payments that exceeds an amount equal to one dollar ($1)
less than the applicable threshold under Section 280G of the Code
shall be deemed to be a loan from the Company to the Participant and
the Participant shall promptly reimburse the Company for the amount of
such excess together with interest on such amount (at the same rate as
is applied to determine the present value of payments under Section
280G of the Code or any successor thereto), from the date the
reimbursable payment was received by the Participant to the date the
same is repaid to the Company. For purposes of the preceding
sentence, the term "final determination" means a determination by the
Internal Revenue Service which is not contested by either the
Participant or the Company or, if a determination by the Internal
Revenue Service is contested, a final determination by a court of
competent jurisdiction.
11
<PAGE>
Article 7. The Company's Payment Obligation
.1. Payment of Obligations Absolute. The Company's obligation to
make the payments and the arrangements provided for herein shall be
absolute and unconditional, and shall not be affected by any
circumstances, including, without limitation, any offset,
counterclaim, recoupment, defense, or other right which the Company
may have against the Participant or anyone else. All amounts payable
by the Company hereunder shall be paid without notice or demand. Each
and every payment made hereunder by the Company shall be final, and
the Company shall not seek to recover all or any part of such payment
from the Participant or from whomsoever may be entitled thereto, for
any reasons whatsoever, except as otherwise provided in Article 6 or
Article 8.
Participants shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any
provision of this Plan, and the obtaining of any such other employment
shall in no event effect any reduction of the Company's obligations to
make the payments and arrangements required to be made under this
Plan, except to the extent provided in Section 4.4(e) herein.
.2. Contractual Right to Benefits. This Plan establishes and vests
in each Participant a contractual right to the benefits to which he or
she is entitled hereunder. The Company expressly waives any ability,
if possible, to deny liability for any breach of its contractual
commitment hereunder upon the grounds of lack of consideration, accord
and satisfaction or any other defense. In any dispute arising after a
Change in Control as to whether the Participant is entitled to
benefits under this Plan, there shall be a presumption that the
Participant is entitled to such benefits and the burden of proving
otherwise shall be on the Company. However, nothing herein contained
shall require or be deemed to require, or prohibit or be deemed to
prohibit, the Company to segregate, earmark, or otherwise set aside
any funds or other assets, in trust or otherwise, to provide for any
payments to be made or required hereunder.
.3. Pension Plans. All payments, benefits and amounts provided under
this Plan shall be in addition to and not in substitution for any
pension rights under the Company's tax-qualified pension plan, and any
disability, workers' compensation or other Company benefit plan
distribution that a Participant is entitled to at his or her Effective
Date of Termination. Notwithstanding the foregoing, this Plan shall
not create an inference that any duplicate payments shall be required.
Article 8. Resolution of Disputes
.1. Arbitration of Claims. The Company and the Participant hereby
consent to the resolution by arbitration of all claims or
controversies arising out of or in connection with this Plan, that the
Company may have against the Participant, or that the Participant may
have against the Company or against its officers, directors, employees
or agents acting in their capacity as such. Each party's promise to
resolve all such claims or controversies by arbitration in accordance
with this Plan rather than through the courts, is consideration for
the other party's like promise. It is further agreed that the
decision of an arbitrator on any issue, dispute, claim or controversy
submitted for arbitration, shall be final and binding upon the Company
and the Participant and that judgment may be entered on the award of
the arbitrator in any court having proper jurisdiction.
All expenses of such arbitration, including the fees and expenses
of the counsel for the Participant, shall be advanced and borne by the
Company; provided, however, that if it is finally determined that the
Participant did not commence the arbitration in good faith and had no
reasonable basis therefore, the Participant shall repay all advanced
fees and expenses and shall reimburse the Company for its reasonable
legal fees and expenses in connection therewith.
12
<PAGE>
Except as otherwise provided in this procedure or by mutual
agreement of the parties, any arbitration shall be administered: (1)
in accordance with the then-current Model Employment Arbitration
Procedures of the American Arbitration Association ("AAA") before an
arbitrator who is licensed to practice law in the state in which the
arbitration is convened; or (2) if locally available, the Judicial
Arbitration & Mediation Services, Inc. ("JAMS"), in accordance with
the JAMS procedures then in effect. The party who did not initiate the
claim can designate between JAMS or AAA (the "Tribunal"). The
arbitration shall be held in the city in which the Participant is or
was last employed by the Company in the nearest Tribunal office or at
a mutually agreeable location. Pre-hearing and post-hearing
procedures may be held by telephone or in person as the arbitrator
deems necessary.
The arbitrator shall be selected as follows: if the parties
cannot agree on an arbitrator, the Tribunal (JAMS or AAA) shall then
provide the names of nine (9) available arbitrators experienced in
business employment matters along with their resumes and fee
schedules. Each party may strike all names on the list it deems
unacceptable. If more than one common name remains on the list of all
parties, the parties shall strike names alternately until only one
remains. The party who did not initiate the claim shall strike first.
If no common name remains on the lists of the parties, the Tribunal
shall furnish an additional list or lists until an arbitrator is
selected.
The arbitrator shall interpret this Plan, any applicable Company
policy or rules and regulations, any applicable substantive law (and
the law of remedies, if applicable) of the state in which the claim
arose, or applicable federal law. In reaching his or her decision,
the arbitrator shall have no authority to change or modify any lawful
Company policy, rule or regulation, or this Plan. The arbitrator, and
not any federal, state or local court or agency, shall have exclusive
and broad authority to resolve any dispute relating to the
interpretation, applicability, enforceability or formation of this
Plan, including but not limited to, any claim that all or any part of
this Plan is voidable.
The arbitrator shall have authority to entertain a motion to
dismiss and/or motion for summary judgment by any party and shall
apply the standards governing such motions under the Federal Rules of
Civil Procedure.
.2. Discovery. Each party shall have the right to take the
deposition of one individual and any expert witness(es) designated by
another party. Each party shall also have the opportunity to obtain
documents from another party through one request for production of
documents. Additional discovery may be had only when the arbitrator
so orders upon a showing of substantial need. Any disputes regarding
depositions, requests for production of documents or other discovery
shall be submitted to the arbitrator for determination.
.3. Subpoenas. Each party shall have the right to subpoena witnesses
and documents for the arbitration hearing by requesting a subpoena
from the arbitrator. Any such request shall be served on all other
parties, who shall advise the arbitrator in writing of any objections
that the party may have to issuance of the subpoena within ten (10)
calendar days of receipt of the request.
.4. Designation of Witnesses. At least thirty (30) calendar days
before the arbitration, the parties must exchange lists of witnesses,
including any expert(s), and copies of all exhibits intended to be
used at the arbitration.
13
<PAGE>
Article 9. Outplacement Assistance
Following a Qualifying Termination (as described in Section 4.3
herein) the Participant shall be reimbursed by the Company for the
costs of all outplacement services obtained by the Participant within
the two (2) year period after the Effective Date of Termination;
provided, however, that the total reimbursement shall be limited to an
amount equal to fifteen percent (15%) of the Participant's Base Salary
as of the Effective Date of Termination.
Article 10. Successors and Assignment
.1. Successors to the Company. The Company will require any
successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) of all or substantially all of the
business and/or assets of the Company or of any division or subsidiary
thereof (the business and/or assets of which constitute at least fifty
percent (50%) of the total business and/or assets of the Company) to
expressly assume and agree to perform the Company's obligations under
this Plan in the same manner and to the same extent that the Company
would be required to perform them if such succession had not taken
place. Failure of the Company to obtain such assumption and agreement
in a written instrument prior to the effective date of any such
succession shall be a breach of this Plan and shall entitle
Participants to compensation from the Company in the same amount and
on the same terms as they would be entitled to hereunder if they had
terminated their employment with the Company voluntarily for Good
Reason. Except for the purpose of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed a
Participant's Effective Date of Termination if the Participant so
elects, but any delay or failure by a Participant to so elect shall
not be a waiver or release of any rights hereunder which may be
asserted at any time.
.2. Assignment by the Participant. This Plan shall inure to the
benefit of and be enforceable by each Participant's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees. If a Participant dies while any
amount would still be payable to him or her hereunder had he or she
continued to live, all such amounts, unless otherwise provided herein,
shall be paid to the Participant's Beneficiary in accordance with the
terms of this Plan. If the Participant has not named a Beneficiary,
then such amounts shall be paid to the Participant's devisee, legatee,
or other designee, or if there is no such designee, to the
Participant's estate.
Article 11. Miscellaneous
.1. Employment Status. Except as may be provided under any other
written agreement between a Participant and the Company, the
employment of the Participant by the Company is "at will," and, prior
to the effective date of a Change in Control, may be terminated by
either the Participant or the Company at any time, subject to
applicable law.
.2. Beneficiaries. Each Participant may designate one or more
persons or entities as the primary and/or contingent Beneficiaries of
any Severance Benefits owing to the Participant under this Plan.
Participants may make or change such designation at any time, provided
that any designation or change thereto must be in the form of a signed
writing acceptable to and received by the Committee.
.3. Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the
feminine, the plural shall include the singular, and the singular
shall include the plural.
14
<PAGE>
.4. Severability. In the event any provision of this Plan shall be
held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of this Plan, and this Plan shall
be construed and enforced as if the illegal or invalid provision had
not been included. Further, the captions of this Plan are not part of
the provisions hereof and shall have no force and effect.
.5. Modification. No provision of this Plan may be modified, waived,
or discharged unless as to a Participant such modification, waiver, or
discharge is agreed to in writing and signed by each affected
Participant and by an authorized member of the Committee or its
designee, or by the respective parties' legal representatives and
successors.
.6. Notice. For purposes of this Plan, notices, including Notice of
Termination for Good Reason, and all other communications provided for
in this Plan shall be in writing and shall be deemed to have been duly
given when delivered or on the date stamped as received by the U.S.
Postal Service for delivery by certified or registered mail, postage
prepaid and addressed: (i) if to the Participant, to his latest
address as reflected on the records of the Company, and (ii) if to the
Company: Northrop Grumman Corporation, 1840 Century Park East, Los
Angeles, California 90067, Attn: President, or to such other address
as the Company may furnish to the Participant in writing with specific
reference to this Plan and the importance of the notice, except that
notice of change of address shall be effective only upon receipt.
.7. Applicable Law. To the extent not preempted by the laws of the
United States, the laws of the State of California shall be the
controlling law in all matters relating to this Plan. Any statutory
reference in this Plan shall also be deemed to refer to all applicable
final rules and final regulations promulgated under or with respect to
the referenced statutory provision.
15
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