FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________________
Commission File Number 1-3229
NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE No. 95-1055798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1840 Century Park East, Los Angeles, California 90067
(address of principal executive offices)
(310) 553-6262
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock outstanding as of April 24, 2000 69,811,638 shares
<PAGE>
Northrop Grumman Corporation and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS
OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
Dollars in millions 2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 41 $ 142
Accounts receivable, net of progress payments of
$1,724 in 2000 and $1,714 in 1999 1,450 1,402
Inventoried costs, net of progress payments of
$596 in 2000 and $521 in 1999 1,240 1,190
Deferred income taxes 22 23
Prepaid expenses 50 36
- --------------------------------------------------------------------------------------
Total current assets 2,803 2,793
- --------------------------------------------------------------------------------------
Property, plant and equipment 2,854 2,895
Accumulated depreciation (1,630) (1,655)
- --------------------------------------------------------------------------------------
1,224 1,240
- --------------------------------------------------------------------------------------
Goodwill, net of accumulated amortization of
$468 in 2000 and $441 in 1999 3,445 3,469
Other purchased intangibles, net of accumulated
amortization of $406 in 2000 and $388 in 1999 736 761
Prepaid pension cost, intangible pension asset
and benefit trust fund 1,106 946
Assets available for sale 26 26
Investments in and advances to affiliates
and sundry assets 49 50
- --------------------------------------------------------------------------------------
5,362 5,252
- --------------------------------------------------------------------------------------
$ 9,389 $ 9,285
======================================================================================
</TABLE>
I-1
<PAGE>
Northrop Grumman Corporation and Subsidiaries
<TABLE>
<CAPTION>
March 31, December 31,
Dollars in millions 2000 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Shareholders' Equity:
Notes payable to banks $ 95 $ 25
Current portion of long-term debt 200 200
Trade accounts payable 436 490
Accrued employees' compensation 326 366
Advances on contracts 347 316
Income taxes payable including deferred income taxes
of $561 in 2000 and $550 in 1999 641 608
Other current liabilities 489 459
- --------------------------------------------------------------------------------------
Total current liabilities 2,534 2,464
- --------------------------------------------------------------------------------------
Long-term debt 1,800 2,000
Accrued retiree benefits 1,468 1,458
Other long-term liabilities 41 42
Deferred income taxes 137 64
Paid-in capital
Preferred stock, 10,000,000 shares authorized; none issued
Common stock, 200,000,000 shares authorized;
issued and outstanding:
2000 - 69,805,396; 1999 - 69,719,164 1,035 1,028
Retained earnings 2,393 2,248
Accumulated other comprehensive loss (19) (19)
- --------------------------------------------------------------------------------------
3,409 3,257
- --------------------------------------------------------------------------------------
$ 9,389 $ 9,285
======================================================================================
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 March 31,
Dollars in millions, except per share 2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 2,080 $ 2,093
Cost of sales
Operating costs 1,521 1,609
Administrative and general expenses 245 268
- --------------------------------------------------------------------------------------
Operating margin 314 216
Interest expense (46) (55)
Other, net 2 3
- --------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting change 270 164
Federal and foreign income taxes 97 60
- --------------------------------------------------------------------------------------
Income before cumulative effect of
accounting change 173 104
Cumulative effect of change in accounting for
start-up costs, net of income tax benefit of $11 in 1999 (16)
- --------------------------------------------------------------------------------------
Net income $ 173 $ 88
======================================================================================
Weighted average shares outstanding, in millions 69.9 68.9
======================================================================================
Basic earnings per share:
Before cumulative effect of accounting change $ 2.47 $ 1.51
Accounting change (.24)
- --------------------------------------------------------------------------------------
Basic earnings per share $ 2.47 $ 1.27
======================================================================================
Diluted earnings per share:
Before cumulative effect of accounting change $ 2.47 $ 1.50
Accounting change (.24)
- --------------------------------------------------------------------------------------
Diluted earnings per share $ 2.47 $ 1.26
======================================================================================
Dividends per share $ .40 $ .40
======================================================================================
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>
Three months ended March 31,
Dollars in millions 2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Paid-in Capital
At beginning of year $ 1,028 $ 989
Employee stock awards and options exercised 7 1
- --------------------------------------------------------------------------------------
1,035 990
- --------------------------------------------------------------------------------------
Retained Earnings
At beginning of year 2,248 1,892
Net income 173 88
Cash dividends (28) (28)
- --------------------------------------------------------------------------------------
2,393 1,952
- --------------------------------------------------------------------------------------
Accumulated Other Comprehensive Loss (19) (31)
- --------------------------------------------------------------------------------------
Total shareholders' equity $ 3,409 $ 2,911
======================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
I-4
<PAGE>
Northrop Grumman Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
Dollars in millions 2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Sources of Cash
Cash received from customers
Progress payments $ 380 $ 786
Other collections 1,763 1,367
Income tax refunds received 7 22
Interest received 2
Other cash receipts 1 3
- --------------------------------------------------------------------------------------
Cash provided by operating activities 2,153 2,178
- --------------------------------------------------------------------------------------
Uses of Cash
Cash paid to suppliers and employees 2,009 1,967
Interest paid 50 59
Income taxes paid 2 8
Other cash disbursements 1 1
- --------------------------------------------------------------------------------------
Cash used in operating activities 2,062 2,035
- --------------------------------------------------------------------------------------
Net cash provided by operating activities 91 143
- --------------------------------------------------------------------------------------
Investing Activities
Additions to property, plant and equipment (36) (42)
Payment for businesses purchased (3)
Proceeds from sale of property, plant and equipment 7 9
Other investing activities (3) 4
- --------------------------------------------------------------------------------------
Net cash used in investing activities (35) (29)
- --------------------------------------------------------------------------------------
Financing Activities
Repayment of borrowings under lines of credit (80) (53)
Principal payments of long-term debt (50) (50)
Proceeds from issuance of stock 1 2
Dividends paid (28) (28)
- --------------------------------------------------------------------------------------
Net cash used in financing activities (157) (129)
- --------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (101) (15)
Cash and cash equivalents balance at beginning of period 142 44
- --------------------------------------------------------------------------------------
Cash and cash equivalents balance at end of period $ 41 $ 29
======================================================================================
</TABLE>
I-5
<PAGE>
Northrop Grumman Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three months ended March 31,
Dollars in millions 2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income $ 173 $ 88
Adjustments to reconcile net income to net cash provided
Depreciation 45 43
Amortization of intangible assets 50 47
Common stock issued to employees 7
Retiree benefits income (133) (57)
Decrease(increase) in
Accounts receivable (53) (50)
Inventoried costs (127) (122)
Prepaid expenses (15) 20
Increase(decrease) in
Progress payments 85 136
Accounts payable and accruals 1 10
Provisions for contract losses (20) 4
Deferred income taxes 84 43
Income taxes payable 23 23
Retiree benefits (33) (45)
Other transactions 4 3
- --------------------------------------------------------------------------------------
Net cash provided by operating activities $ 91 $ 143
======================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
I-6
<PAGE>
Northrop Grumman Corporation and Subsidiaries
SELECTED INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three months ended March 31,
Dollars in millions 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales
Integrated Systems & Aerostructures $ 1,134 $ 1,173
Electronic Sensors & Systems 601 615
Logicon 378 353
Intersegment sales (33) (48)
- --------------------------------------------------------------------------------------
$ 2,080 $ 2,093
======================================================================================
Operating Margin
Integrated Systems & Aerostructures $ 117 $ 82
Electronic Sensors & Systems 34 45
Logicon 31 19
- --------------------------------------------------------------------------------------
Total 182 146
Other items included in operating margin:
Corporate expenses (7) (8)
Deferred state tax provision (11) (5)
Pension income 150 83
- --------------------------------------------------------------------------------------
Operating margin $ 314 $ 216
======================================================================================
Contract Acquisitions
Integrated Systems & Aerostructures $ 518 $ 1,429
Electronic Sensors & Systems 595 575
Logicon 437 409
Intersegment acquisitions (36) (29)
- --------------------------------------------------------------------------------------
$ 1,514 $ 2,384
======================================================================================
Funded Order Backlog
Integrated Systems & Aerostructures $ 5,760 $ 7,189
Electronic Sensors & Systems 3,518 3,079
Logicon 668 622
Intersegment backlog (88) (150)
- --------------------------------------------------------------------------------------
$ 9,858 $10,740
======================================================================================
</TABLE>
I-7
<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 1999 annual report on Form 10-K report.
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.
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
Earnings
Three months ended March 31, Net Income Shares per Share
---------- ------ ---------
(millions) (millions)
<S> <C> <C> <C>
2000
Basic earnings per share $ 173 69.9 $ 2.47
======= =======
Dilutive effect of stock options
and awards
-----
Diluted earnings per share $ 173 69.9 $ 2.47
======= ===== =======
1999
Basic earnings per share before
cumulative effect of accounting change $ 104 68.9 $ 1.51
======= =======
Dilutive effect of stock options and awards .4
-----
Diluted earnings per share before
cumulative effect of accounting change $ 104 69.3 $ 1.50
======= ===== =======
Basic earnings per share $ 88 68.9 $ 1.27
======= =======
Dilutive effect of stock options and awards .4
-----
Diluted earnings per share $ 88 69.3 $ 1.26
======= ===== =======
</TABLE>
I-8
<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 for the first quarter of 2000 were $2.1 billion, essentially
unchanged from the year ago period. Small decreases in Integrated
Systems and Aerostructures (ISA) segment and Electronic Sensors and
Systems (ESS) segment sales were nearly offset by an increase in Logicon
segment sales.
ISA sales decreased by 3 percent in the first quarter of 2000
compared with the first quarter of 1999, primarily due to lower
Aerostructures sales, partially offset by increased Air Combat Systems
(ACS) sales. The Aerostructures sales decrease was due to lower
commercial work. The ACS increase reflects increased F/A-18E/F sales, as
this program transitioned from the development phase in early 1999 to the
current production phase, partially offset by lower B-2 and F/A-18C/D
sales.
ESS sales for the quarter ended March 31, 2000, were 2 percent lower
than the same period a year ago. The Command, Control, Communications,
Intelligence and Naval Systems (C3I&N) business area decrease is
primarily attributable to lower air defense and air traffic control radar
systems sales for international customers.
Logicon sales were 7 percent higher in the first quarter of 2000
versus the same period in 1999, with all three business areas reporting
increased sales.
I-9
<PAGE>
Northrop Grumman Corporation and Subsidiaries
<TABLE>
<CAPTION>
Sales by business area and units delivered in the first quarter
were:
Three months ended March 31,
$ in millions 2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
Integrated Systems & Aerostructures
Air Combat Systems (ACS) $ 502 $ 451
Aerostructures 282 391
Airborne Early Warning and Electronic Warfare (AEW/EW) 183 192
Airborne Ground Surveillance and
Battle Management (AGS/BM) 176 161
Intrasegment Eliminations (9) (22)
- --------------------------------------------------------------------------------------
1,134 1,173
- --------------------------------------------------------------------------------------
Electronic Sensors & Systems
Aerospace Electronic Systems 257 254
Command, Control, Communications,
Intelligence and Naval Systems (C3I&N) 177 214
Defensive Electronic Systems 96 111
Other 71 36
- --------------------------------------------------------------------------------------
601 615
- --------------------------------------------------------------------------------------
Logicon
Government Information Technology 253 241
Technology Services 92 83
Commercial Information Technology 33 29
- --------------------------------------------------------------------------------------
378 353
- --------------------------------------------------------------------------------------
Intersegment eliminations (33) (48)
- --------------------------------------------------------------------------------------
Total sales $ 2,080 $ 2,093
======================================================================================
Units
- --------------------------------------------------------------------------------------
B-2 1 1
F/A-18 C/D 9
F/A-18 E/F 7
747 6 12
C-17 2 2
- --------------------------------------------------------------------------------------
</TABLE>
I-10
<PAGE>
Northrop Grumman Corporation and Subsidiaries
Operating margin includes pension income of $150 million in the
first quarter of 2000, a $67 million increase from the first quarter of
1999. Pension income for 2000 is expected to be approximately $600 million.
ISA operating margin for the quarter was $117 million, up 43 percent
from the $82 million reported for the first quarter of 1999. The 2000
results reflect the return to profitability on the Joint STARS production
contracts as well as upward cumulative margin rate adjustments of $9 million
on the C-17 program and $8 million on the F/A-18E/F program.
ESS operating margin in the first quarter of 2000 was $34 million as
compared with $45 million in last year's first quarter. The decrease is
primarily the result of the July 1999 merger of three of the company's
pension plans into one.
Logicon operating margin for the quarter was $31 million as compared
with $19 million for the first quarter of 1999. The increase is attributable
in part to increased sales volume and improved performance in all three
business areas. Logicon also benefited from replacing several defined-
contribution employee benefit plans with a defined-benefit type pension plan
in the first quarter of 2000. While the total cash contributions remain the
same, the cost is now included in net pension income, in accordance with
company policy. As a result, the company's pension income is lower
than it otherwise would have been and Logicon's reported operating margin is
higher by $5 million for the quarter, with an additional $5 million of cash
contributions expected to be made in each of the remaining quarters of this
year.
Interest expense for this year's first quarter was $46 million, a
$9 million decrease from the $55 million reported in the first quarter of
1999. The decrease resulted principally from a lower level of average
borrowings in the quarter compared with the first quarter of 1999.
The company's effective tax rate was 36 percent for the first
quarter of 2000, essentially unchanged from the same period in 1999.
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.
In 1999, 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 expensed as incurred.
During the first quarter of 2000, $91 million of cash was generated
by operating activities versus the $143 million generated in the same
period last year. The decline is attributable in part to accelerated
cash collections in 1999 due to customers' Year 2000 concerns. The
decline is somewhat mitigated by improved operating margin and lower
pension plan contributions as a result of the July 1999 pension plan
merger. For the remainder of 2000, cash generated from operations,
supplemented by borrowings under the credit agreement, are expected to be
more than sufficient to service debt, finance capital expenditures, and
continue paying dividends to the shareholders. 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.
I-11
<PAGE>
Northrop Grumman Corporation and Subsidiaries
As previously announced, the company is exploring strategic
alternatives regarding its commercial aerostructures business area. As
part of this review, the company is in discussions with interested
parties, and has retained Salomon Smith Barney to aid in these efforts.
The company cannot predict the outcome of these discussions.
Forward-Looking Information
Certain statements and assumptions in Management's Discussion and
Analysis and elsewhere in this quarterly report on Form 10-Q contain or
are based on "forward-looking" information (that the company believes to
be within the definition in the Private Securities Litigation and Reform
Act of 1995) that involves risk and uncertainties, including statements
and assumptions 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 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; 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 aircraft and electronic
systems and support; as well as other economic, political and
technological risks and uncertainties.
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 March 31, 2000, 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.
I-12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders
Northrop Grumman Corporation
Los Angeles, California
We have reviewed the accompanying condensed consolidated balance
sheet of Northrop Grumman Corporation and Subsidiaries as of March
31, 2000, and the related condensed consolidated statements of
income and cash flows for the three-month periods ending March 31,
2000 and 1999. These financial statements are the responsibility
of the Corporation's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and of making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to such condensed consolidated financial
statements for them to be in conformity with accounting principles
generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the
consolidated balance sheet of Northrop Grumman Corporation and
Subsidiaries as of December 31, 1999, and the related consolidated
statements of income, comprehensive income, changes in
shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated January 26, 2000, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December
31, 1999 is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Los Angeles, California
April 24, 2000
I-13
<PAGE>
Northrop Grumman Corporation and Subsidiaries
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Fanni and related cases
- -----------------------
Five shareholder class action lawsuits, making similar allegations,
were filed between July and September, 1998 in the United States District
Court for the Central District of California against the company, its
directors, and certain of its officers. Three of these lawsuits,
respectively encaptioned Fanni v. Northrop Grumman Corp., et al., Schnee
-----------------------------------------------
v. Northrop Grumman Corp., et al., and Florida State Board of Admin. v.
- --------------------------------- --------------------------------
Northrop Grumman Corp., et al. allege that defendants issued misleading
- ------------------------------
proxy materials in connection with the proposed acquisition of the
company by Lockheed Martin Corporation, in violation of the federal
securities laws. These actions were later consolidated and seek
unspecified damages on behalf of a class of shareholders related to the
accelerated vesting of stock incentive plans upon the shareholder vote to
approve the merger. On April 11, 2000, the Court entered an order
dismissing these actions with prejudice. The other lawsuits,
respectively encaptioned Burroughs v. Northrop Grumman Corp., et al., and
Miller, et al. v. Northrop Grumman Corp., et al., were also consolidated
and allege that defendants disseminated misleading information in
connection with the proposed acquisition, in violation of the federal
securities laws, thereby artificially inflating the market price of the
company's common stock. These actions seek unspecified damages for a
class of shareholders who purchased Northrop Grumman stock between July 3, 1997
and March 9, 1998. On April 11, 2000, the Court entered an order
dismissing these actions without prejudice, allowing plaintiffs thirty
days to file an amended complaint. The company and the individual
defendants deny the allegations made in these actions and intend to
defend the actions vigorously.
U.S. ex rel. McMorrough v. Northrop Grumman Corporation
- -------------------------------------------------------
In October 1998, the United States, acting through the Department of
Justice, intervened in a portion of this civil action initially filed
under seal in the U.S. District Court for the Western District of
Louisiana in March 1995. The government intervened in the portion of
the complaint that alleges the company knowingly supplied improperly heat-
treated parts for Joint STARS aircraft in 1994 and 1995, in violation of
the False Claims Act. The government's allegations regarding the heat
treatment of parts have been settled for $750,000. The Company denied
any liability as part of the settlement and continues to vigorously
defend the allegations being pursued separately by the relators.
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.
II-1
<PAGE>
Northrop Grumman Corporation and Subsidiaries
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(a) Northrop Grumman Corporation Bylaws, as amended and restated
March 15, 2000.
10(a) Northrop Grumman Corporation Non-Employee Directors Equity
Participation Plan, as amended March 15, 2000.
15 Letter from independent accountants regarding unaudited
interim financial information.
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 March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Northrop Grumman Corporation (Registrant)
Date: May 9, 2000 by/s/ R. B. Waugh, Jr.
-------------------- ----------------------------
R. B. Waugh, Jr.
Corporate Vice President and
Chief Financial Officer
Date: May 9, 2000 by/s/J. H. Mullan
-------------------- ----------------------------
John H. Mullan
Corporate Vice President and Secretary
II-2
<PAGE>
EXHIBIT (15)
Letter from Independent Accountants Regarding
Unaudited Interim Financial Information
May 9, 2000
Northrop Grumman Corporation
Los Angeles, California
We have made a review, in accordance with standards
established by the American Institute of Certified Public
Accountants, of the unaudited interim financial information
of Northrop Grumman Corporation and subsidiaries for the
periods ended March 31, 2000 and 1999, as indicated in our
report dated April 24, 2000; because we did not perform an
audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is
included in your Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000, is incorporated by reference
in Registration Statement Nos. 33-55143, 333-78251,
333-85633, and 333-02453 on Form S-3 and Registration
Statement Nos. 33-28797 and 333-02653 on Form S-4.
We also are aware that the aforementioned report, pursuant
to Rule 436(c) under the Securities Act of 1933, is not
considered a part of the Registration Statement prepared or
certified by an accountant or a report prepared or certified
by an accountant within the meaning of Sections 7 and 11 of
that Act.
DELOITTE & TOUCHE LLP
Los Angeles, California
II-3
BYLAWS
OF
NORTHROP GRUMMAN CORPORATION
(A Delaware Corporation)
ARTICLE I
OFFICES
Section 1.01. REGISTERED OFFICE. The registered office of
Northrop Grumman Corporation (the "Corporation") in the State of
Delaware shall be at Corporation Trust Center, 1209 Orange
Street, City of Wilmington, County of New Castle, and the name of
the registered agent at that address shall be The Corporation
Trust Company.
Section 1.02. PRINCIPAL EXECUTIVE OFFICE. The principal
executive office of the Corporation shall be located at 1840
Century Park East, Los Angeles, California 90067. The Board of
Directors of the Corporation (the "Board of Directors") may
change the location of said principal executive office.
Section 1.03. OTHER OFFICES. The Corporation may also have
an office or offices at such other place or places, either within
or without the State of Delaware, as the Board of Directors may
from time to time determine or as the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. ANNUAL MEETINGS. The annual meeting of
stockholders of the Corporation shall be held between May 1 and
July 1 of each year on such date and at such time as the Board of
Directors shall determine. At each annual meeting of
stockholders, directors shall be elected in accordance with the
provisions of Section 3.04 hereof and any other proper business
may be transacted.
Section 2.02. SPECIAL MEETINGS. Special meetings of
stockholders for any purpose or purposes may be called at any
time by a majority of the Board of Directors, the Chairman of the
Board, or by the President and Chief Executive Officer. Special
meetings may not be called by any other person or persons. Each
special meeting shall be held at such date and time as is
requested by the person or persons calling the meeting, within
the limits fixed by law.
Section 2.03. PLACE OF MEETINGS. Each annual or special
meeting of stockholders shall be held at such location as may be
determined by the Board of Directors or, if no such determination
is made, at such place as may be determined by the Chairman of
the Board. If no location is so determined, any annual or
special meeting shall be held at the principal executive office
of the Corporation.
Section 2.04. NOTICE OF MEETINGS. Written notice of each
annual or special meeting of stockholders stating the date and
time when, and the place where, it is to be held shall be
delivered either personally or by mail to stockholders entitled
to vote at such meeting not less than ten (10) nor more than
sixty (60) days before the date of the meeting. The purpose or
purposes for which the meeting is called may, in the case of an
annual meeting, and shall, in the case of a special meeting, also
be stated. If mailed, such notice shall be directed to a
stockholder at his address as it shall appear on the stock books
of the Corporation, unless he shall have filed with the Secretary
of the Corporation a written request that notices intended for
him be mailed to some other address, in which case such notice
shall be mailed to the address designated in such request.
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Section 2.05. CONDUCT OF MEETINGS. All annual and special
meetings of stockholders shall be conducted in accordance with
such rules and procedures as the Board of Directors may determine
subject to the requirements of applicable law and, as to matters
not governed by such rules and procedures, as the chairman of
such meeting shall determine. The chairman of any annual or
special meeting of stockholders shall be the Chairman of the
Board. The Secretary, or in the absence of the Secretary, a
person designated by the Chairman of the Board, shall act as
secretary of the meeting.
Section 2.06. NOTICE OF STOCKHOLDER BUSINESS AND
NOMINATIONS. Nominations of persons for election to the Board and
the proposal of business to be transacted by the stockholders may
be made at an annual meeting of stockholders (a) pursuant to the
Corporation's notice with respect to such meeting, (b) by or at
the direction of the Board or (c) by any stockholder of record of
the Corporation who was a stockholder of record at the time of
the giving of the notice provided for in the following paragraph,
who is entitled to vote at the meeting and who has complied with
the notice procedures set forth in this section.
For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c)
of the foregoing paragraph, (1) the stockholder must have given
timely notice thereof in writing to the Secretary of the
Corporation, (2) such business must be a proper matter for
stockholder action under the General Corporation Law of the State
of Delaware, (3) if the stockholder, or the beneficial owner on
whose behalf any such proposal or nomination is made, has
provided the Corporation with a Solicitation Notice, as that term
is defined in subclause (c )(iii) of this paragraph, such
stockholder or beneficial owner must, in the case of a proposal,
have delivered a proxy statement and form of proxy to holders of
at least the percentage of the Corporation's voting shares
required under applicable law to carry any such proposal, or, in
the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the
Corporation's voting shares reasonably believed by such
stockholder or beneficial holder to be sufficient to elect the
nominee or nominees proposed to be nominated by such stockholder,
and must, in either case, have included in such materials the
Solicitation Notice and (4) if no Solicitation Notice relating
thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient
to have required the delivery of such a Solicitation Notice under
this section. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of
the Corporation not less than 45 or more than 75 days prior to
the first anniversary (the "Anniversary") of the date on which
the Corporation first mailed its proxy materials for the
preceding year's annual meeting of stockholders; provided,
however, that if the date of the annual meeting is advanced more
than 30 days prior to or delayed by more than 30 days after the
anniversary of the preceding year's annual meeting, notice by the
stockholder to be more timely must be so delivered not later than
the close of business on the later of (i) the 90th day prior to
such annual meeting or (ii) the 10th day following the day on
which public announcement of the date of such meeting is first
made. In no event shall the public announcement of an
adjournment of an annual meeting commence a new time period for
the filing of a stockholder's notice as described herein. Such
stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or reelection
as a director all information relating to such person as would be
required to be disclosed in solicitations of proxies for the
election of such nominees as directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder (including such
person's written consent to serve as a director if elected); (b)
as to any other business that the stockholder proposes to bring
before the meeting, a brief description of such business, the
reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made;
(c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on
the Corporation's books, and of such beneficial owner, (ii ) the
class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether either such stockholder or
beneficial owner intends to deliver a proxy statement and form of
proxy to holders of, in the case of a proposal, at least the
percentage of the Corporation's voting shares required under
applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the
Corporation's voting shares to elect such nominee or nominees (an
affirmative statement of such intent, a "Solicitation Notice").
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Notwithstanding anything in the second sentence of the
second paragraph of this Section 2.06 to the contrary, in the
event that the number of directors to be elected to the Board is
increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased
Board made by the Corporation at least 55 days prior to the
Anniversary, a stockholder's notice required by this Bylaw shall
also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the 10th
day following the day on which such public announcement is first
made by the Corporation.
Only persons nominated in accordance with the procedures set
forth in this Section 2.06 shall be eligible to serve as
directors and only such business shall be conducted at an annual
meeting of stockholders as shall have been brought before the
meeting in accordance with the procedures set forth in this
section. The chair of the meeting shall have the power and the
duty to determine whether a nomination or any business proposed
to be brought before the meeting has been made in accordance with
the procedures set forth in these Bylaws and, if any proposed
nomination or business is not in compliance with these Bylaws, to
declare that such defective proposed business or nomination shall
not be presented for stockholder action at the meeting and shall
be disregarded.
Only such business shall be conducted at a special meeting
of stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board may be made at a special
meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the
direction of the Board or (b) by any stockholder of record of the
Corporation who is a stockholder of record at the time of giving
of notice provided for in this paragraph, who shall be entitled
to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.06. Nominations by
stockholders of persons for election to the Board may be made at
such a special meeting of stockholders if the stockholder's
notice required by the second paragraph of this Section 2.06
shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business
on the later of the 90th day prior to such special meeting or the
10th day following on which public announcement is first made of
the date of the special meeting and of the nominees proposed by
the Board to be elected at such meeting.
For purposes of this section, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or a comparable national news service
or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or
15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section
2.06, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to matters set forth in this Section
2.06. Nothing in this Section 2.06 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.
Section 2.07. QUORUM. At any meeting of stockholders, the
presence, in person or by proxy, of the holders of record of a
majority of shares then issued and outstanding and entitled to
vote at the meeting shall constitute a quorum for the transaction
of business; provided, however, that this Section 2.07 shall not
affect any different requirement which may exist under statute,
pursuant to the rights of any authorized class or series of
stock, or under the Certificate of Incorporation of the
Corporation (the "Certificate") for the vote necessary for the
adoption of any measure governed thereby. In the absence of a
quorum, the stockholders present in person or by proxy, by
majority vote and without further notice, may adjourn the meeting
from time to time until a quorum is attained. At any reconvened
meeting following such an adjournment at which a quorum shall be
present, any business may be transacted which might have been
transacted at the meeting as originally notified.
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Section 2.08. VOTES REQUIRED. A majority of the votes cast
at a duly called meeting of stockholders, at which a quorum is
present, shall be sufficient to take or authorize action upon any
matter which may properly come before the meeting, unless the
vote of a greater or different number thereof is required by
statute, by the rights of any authorized class of stock or by the
Certificate. Unless the Certificate or a resolution of the Board
of Directors adopted in connection with the issuance of shares of
any class or series of stock provides for a greater or lesser
number of votes per share, or limits or denies voting rights,
each outstanding share of stock, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a
meeting of stockholders.
Section 2.09. PROXIES. A stockholder may vote the shares
owned of record by him either in person or by proxy executed in
writing (which shall include writings sent by telex, telegraph,
cable or facsimile transmission) by the stockholder himself or by
his duly authorized attorney-in-fact. No proxy shall be valid
after three (3) years from its date, unless the proxy provides
for a longer period. Each proxy shall be in writing, subscribed
by the stockholder or his duly authorized attorney-in-fact, and
dated, but it need not be sealed, witnessed or acknowledged.
Section 2.10. STOCKHOLDER ACTION. Any action required or
permitted to be taken by the stockholders of the Corporation must
be effected at a duly called annual meeting or special meeting of
stockholders of the Corporation, unless such action requiring or
permitting shareholder approval is approved by a majority of the
Continuing Directors (as defined in the Certificate), in which
case such action may be authorized or taken by the written
consent of the holders of outstanding shares of stock having not
less than the minimum voting power that would be necessary to
authorize or take such action at a meeting of stockholders at
which all shares entitled to vote thereon were present and voted,
provided all other requirements of applicable law and the
Certificate have been satisfied.
Section 2.11. LIST OF STOCKHOLDERS. The Secretary of the
Corporation shall prepare and make (or cause to be prepared and
made), at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order and showing
the address of, and the number of shares registered in the name
of, each stockholder. Such list shall be open to the examination
of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the
duration thereof, and may be inspected by any stockholder who is
present.
Section 2.12. INSPECTORS OF ELECTION. In advance of any
meeting of stockholders, the Board of Directors may appoint
Inspectors of Election to act at such meeting or at any
adjournment or adjournments thereof. If such Inspectors are not
so appointed or fail or refuse to act, the chairman of any such
meeting may (and, upon the demand of any stockholder or
stockholder's proxy, shall) make such an appointment.
The number of Inspectors of Election shall be one (1) or
three (3). If there are three (3) Inspectors of Election, the
decision, act or certificate of a majority shall be effective and
shall represent the decision, act or certificate of all. No such
Inspector need be a stockholder of the Corporation.
The Inspectors of Election shall determine the number of
shares outstanding, the voting power of each, the shares
represented at the meeting, the existence of a quorum and the
authenticity, validity and effect of proxies; they shall receive
votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to
vote, count and tabulate all votes or consents, determine when
the polls shall close and determine the result; and finally, they
shall do such acts as may be proper to conduct the election or
vote with fairness to all stockholders. On request, the
Inspectors shall make a report in writing to the secretary of the
meeting concerning any challenge, question or other matter as may
have been determined by them and shall execute and deliver to
such secretary a certificate of any fact found by them.
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ARTICLE III
DIRECTORS
Section 3.01. POWERS. The business and affairs of the
Corporation shall be managed by and be under the direction of the
Board of Directors. The Board of Directors shall exercise all
the powers of the Corporation, except those that are conferred
upon or reserved to the stockholders by statute, the Certificate
or these Bylaws.
Section 3.02. NUMBER. Except as otherwise fixed pursuant
to the provisions of Section 2 of Article Fourth of the
Certificate in connection with rights to elect additional
directors under specified circumstances which may be granted to
the holders of any class or series of Preferred Stock, par value
One Dollar ($1.00) per share of the Corporation ("Preferred
Stock"), the number of directors shall be fixed from time to time
by resolution of the Board of Directors but shall not be less
than three (3). The Board of Directors, as of May 17, 1989, and
thereafter, shall consist of fourteen (14) directors until
changed as herein provided.
Section 3.03. INDEPENDENT OUTSIDE DIRECTORS. At least
sixty percent (60%) of the members of the Board of Directors of
the Corporation shall at all times be "Independent Outside
Directors", which term is hereby defined to mean any director
who:
1. has not in the last five (5) years been an officer
or employee of the Corporation or any of its subsidiaries or affiliates;
and
2. is not related to an officer of the Corporation
(or an officer of any of the Corporation's parents, subsidiaries or
affiliates) by blood, marriage or adoption (except relationships more
remote than first cousin); and
3. is not, and has not within the last two (2) years
been, an officer, director or employee of, and does not own, and has
not within the last two (2) years owned, directly or indirectly, in excess
of one percent (1%) of any firm, corporation or other business or
professional entity which has made or proposes to make during either the
Corporation's or such entity's last or next fiscal year payments for
property or services in excess of one percent (1%) of the gross revenues
either of the Corporation for its last fiscal year or of such entity for
its last fiscal year, but excluding payments determined by competitive
bids, public utility services at rates set by law or government authority,
or payments arising solely from the ownership of securities, or to which
the Corporation was indebted at any time during the Corporation's last
fiscal year in an aggregate amount in excess of one percent (1%) of the
Corporation's total assets at the end of such fiscal year or Five Million
dollars ($5,000,000), whichever is less, but excluding debt securities
which have been publicly offered or which are publicly traded; and
4. is not a director, partner, officer or employee of
an investment banking firm which has performed services for the Corporation
in the last two (2) years or which the Corporation proposes to have perform
services in the next year other than as a participating underwriter in a
syndicate; and
5. is not a control person of the Corporation (other than
as a director of the Corporation) as defined by the regulations of the
Securities and Exchange Commission.
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Section 3.04. ELECTION AND TERM OF OFFICE. Except as
provided in Section 3.07 hereof and subject to the right to elect
additional directors under specified circumstances which may be
granted, pursuant to the provisions of Section 2 of Article
Fourth of the Certificate, to the holders of any class or series
of Preferred Stock, directors shall be elected by the
stockholders of the Corporation. The Board of Directors shall be
and is divided into three classes: Class I, Class II and Class
III. The number of directors in each class shall be the whole
number contained in the quotient obtained by dividing the
authorized number of directors (fixed pursuant to Section 3.02
hereof) by three. If a fraction is also contained in such
quotient, then additional directors shall be apportioned as
follows: if such fraction is one-third, the additional director
shall be a member of Class I; and if such fraction is two-thirds,
one of the additional directors shall be a member of Class I and
the other shall be a member of Class II. Each director shall
serve for a term ending on the date of the third annual meeting
of stockholders of the Corporation following the annual meeting
at which such director was elected; provided, however, that the
directors first elected to Class I shall serve for a term ending
on the date of the annual meeting next following the end of the
calendar year 1985, the directors first elected to Class II shall
serve for a term ending on the date of the second annual meeting
next following the end of the calendar year 1985 and the
directors first elected to Class III shall serve for a term
ending on the date of the third annual meeting next following the
end of the calendar year 1985.
Notwithstanding the foregoing provisions of this Section
3.04: each director shall serve until his successor is elected
and qualified or until his death, resignation or removal; no
decrease in the authorized number of directors shall shorten the
term of any incumbent director; and additional directors, elected
pursuant to Section 2 of Article Fourth of the Certificate in
connection with rights to elect such additional directors under
specified circumstances which may be granted to the holders of
any class or series of Preferred Stock, shall not be included in
any class, but shall serve for such term or terms and pursuant to
such other provisions as are specified in the resolution of the
Board of Directors establishing such class or series.
Nominations for the election of directors may be made by the
Board or a committee thereof or by any stockholder entitled to
vote in the election of directors; provided, however, that a
stockholder may nominate a person for election as a director at a
meeting only if written notice of such stockholder's intent to
make such nomination has been given by such stockholder to, and
received by, the Secretary of the Corporation at the principal
executive offices of the Corporation not less than sixty (60)
days nor more than ninety (90) days prior to the meeting;
provided, however, that (a) in the event that less than seventy
(70) days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the
close of business on the 10th day following the date on which
such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs; and (b) in the event
that less than seventy (70) days shall remain from the date of
public disclosure of the adoption of this bylaw provision to the
date of any meeting, notice by the stockholder to be timely with
respect to such meeting must be so received not later than the
close of business on the 10th day following the date on which
such public disclosure was made. Each such notice shall set
forth: (a) the name and address of the stockholder who intends
to make the nomination and of the person or persons to be
nominated; (b) the name and address as they appear on the
Corporation's books of the stockholder intending to make such
nomination; (c) the class and number of shares of capital stock
of the Corporation which are beneficially owned by such stockholder
(d) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination
or nominations are to be made by the stockholder; (e) the occupations
and business history for the previous five years, other directorships,
names of business entities of which the proposed nominee owns a 10 percent or
more equity interest, a list of any criminal convictions, including
federal and state securities violations and such other information regarding
each proposed nominee as may be required by the federal proxy rules in effect
at the time the notice is submitted and (f) the consent of each nominee to serve
as a director of the Corporation if so elected. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 3.04. The Chairman
of any meeting of stockholders shall direct that any nomination not made in
accordance with these procedures be disregarded.
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Section 3.05. ELECTION OF CHAIRMAN OF THE BOARD. At the
organizational meeting immediately following the annual meeting
of stockholders, the directors shall elect a Chairman of the
Board from among the directors who shall hold office until the
corresponding meeting of the Board of Directors in the next year
and until his successor shall have been elected or until his
earlier resignation or removal. Any vacancy in such office may
be filled for the unexpired portion of the term in the same
manner by the Board of Directors at any regular or special
meeting.
Section 3.06. REMOVAL. Subject to the right to elect
directors under specified circumstances which may be granted
pursuant to Section 2 of Article Fourth of the Certificate to the
holders of any class or series of Preferred Stock, any director
may be removed from office only as provided in Article Tenth of
the Certificate.
Section 3.07. VACANCIES AND ADDITIONAL DIRECTORSHIPS.
Except as otherwise provided pursuant to Section 2 of Article
Fourth of the Certificate in connection with rights to elect
additional directors under specified circumstances which may be
granted to the holders of any class or series of Preferred Stock,
newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or
other cause shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even though
less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of
directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have
been elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 3.08. REGULAR AND SPECIAL MEETINGS. Promptly
after, and on the same day as, each annual election of directors
by the shareholders, the Board shall, if a quorum be present,
meet in an organizational meeting to elect a chairman, appoint
members of the standing committees of the Board, elect officers
of the Corporation and conduct other business as appropriate.
Additional notice of such meeting need not be given if such
meeting is conducted promptly after the annual meeting to elect
directors and if the meeting is held in the same location where
the election of directors was conducted. Regular meetings of the
Board shall be held at such times and places as the Board shall
determine. Notice of regular meetings shall be mailed to each
director at least five days before the meeting, addressed to the
director's usual place of business or to his or her residence
address or to an address specifically designated by the director.
Section 3.09. QUORUM. At all meetings of the Board of
Directors, a majority of the fixed number of directors shall
constitute a quorum for the transaction of business, except that
when the Board of Directors consists of one director, then the
one director shall constitute a quorum. In the absence of a
quorum, the directors present, by majority vote and without
notice other than by announcement, may adjourn the meeting from
time to time until a quorum shall be present. At any reconvened
meeting following such an adjournment at which a quorum shall be
present, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 3.10. VOTES REQUIRED. Except as otherwise provided
by applicable law or by the Certificate, the vote of a majority
of the directors present at a meeting duly held at which a quorum
is present shall be sufficient to pass any measure.
Section 3.11. PLACE AND CONDUCT OF MEETINGS. Each regular
meeting and special meeting of the Board of Directors shall be
held at a location determined as follows: The Board of Directors
may designate any place, within or without the State of Delaware,
for the holding of any meeting. If no such designation is made:
(i) any meeting called by a majority of the directors shall be
held at such location, within the county of the Corporation's
principal executive office, as the directors calling the meeting
shall designate; and (ii) any other meeting shall be held at such
location, within the county of the Corporation's principal
executive office, as the Chairman of the Board may designate or,
in the absence of such designation, at the Corporation's
principal executive office. Subject to the requirements of
applicable law, all regular and special meetings of the Board of
Directors shall be conducted in accordance with such rules and
procedures as the Board of Directors may approve and, as to
matters not governed by such rules and procedures, as the
chairman of such meeting shall determine. The chairman of any
regular or special meeting shall be the Chairman of the Board, or
in his absence a person designated by the Board of Directors.
The Secretary, or in the absence of the Secretary a person
designated by the chairman of the meeting, shall act as secretary
of the meeting.
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Section 3.12. FEES AND COMPENSATION. Directors shall be
paid such compensation as may be fixed from time to time by
resolutions of the Board of Directors (a) for their usual and
contemplated services as directors, (b) for their services as
members of committees appointed by the Board of Directors,
including attendance at committee meetings as well as services
which may be required when committee members must consult with
management staff, and (c) for extraordinary services as directors
or as members of committees appointed by the Board of Directors,
over and above those services for which compensation is fixed
pursuant to items (a) and (b) in this Section 3.12. Compensation
may be in the form of an annual retainer fee or a fee for
attendance at meetings, or both, or in such other form or on such
basis as the resolutions of the Board of Directors shall fix.
Directors shall be reimbursed for all reasonable expenses
incurred by them in attending meetings of the Board of Directors
and committees appointed by the Board of Directors and in
performing compensable extraordinary services. Nothing contained
herein shall be construed to preclude any director from serving
the Corporation in any other capacity, such as an officer, agent,
employee, consultant or otherwise, and receiving compensation
therefor.
Section 3.13. COMMITTEES OF THE BOARD OF DIRECTORS.
Subject to the requirements of applicable law, the Board of
Directors may from time to time establish committees, including
standing or special committees, which shall have such duties and
powers as are authorized by these Bylaws or by the Board of
Directors. Committee members, and the chairman of each
committee, shall be appointed by the Board of Directors. The
Chairman of the Board, in conjunction with the several committee
chairmen, shall make recommendations to the Board of Directors
for its final action concerning members to be appointed to the
several committees of the Board of Directors. Any member of any
committee may be removed at any time with or without cause by the
Board of Directors. Vacancies which occur in any committee shall
be filled by a resolution of the Board of Directors. If any
vacancy shall occur in any committee by reason of death,
resignation, disqualification, removal or otherwise, the
remaining members of such committee, so long as a quorum is
present, may continue to act until such vacancy is filled by the
Board of Directors. The Board of Directors may, by resolution,
at any time deemed desirable, discontinue any standing or special
committee. Members of standing committees, and their chairmen,
shall be elected yearly at the organizational meeting of the
Board of Directors which is held immediately following the annual
meeting of stockholders.
Section 3.14. AUDIT COMMITTEE. There shall be an Audit
Committee of the Board of Directors which shall serve at the
pleasure of the Board of Directors and be subject to its control.
The Committee shall have the following membership and powers:
1. The Committee shall have at least three (3)
members. All members of the Committee shall be Independent
Directors, which term is hereby defined to mean any director
that is "Independent" within the meaning of Rule 303.01 of
the New York Stock Exchange Listed Company Manual, as such
rule (or any successor rule) may be amended from time to
time.
2. The Committee shall recommend to the Board of
Directors for its action the appointment or discharge of the
Corporation's independent auditors, based upon the Committee's
judgment of the independence of the auditors (taking into account
the fees charged both for audit and non-audit services) and the
quality of its audit work. Ratification by the stockholders of the
Board of Directors' appointment of the Corporation's independent
auditors may be sought in conjunction with management's solicitation
of proxies for the annual meeting of stockholders, if so determined by
the Board of Directors. If the auditors must be replaced, the Committee
shall recommend to the Board of Directors for its action the appointment
of new auditors until the next annual meeting of stockholders.
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3. The Committee shall review and approve the scope
and plan of the audit.
4. The Committee shall meet with the independent
auditors at appropriate times to review, among other things,
the results of the audit and any certification, report or
opinion which the auditors propose to render in connection
with the Corporation's financial statements.
5. The Committee shall review and approve each
professional service of a non-audit nature to be provided by
the auditors.
6. The Committee shall meet with the Corporation's
chief internal auditor at least once a year to review his
comments concerning the adequacy of the Corporation's system
of internal controls and such other matters as the Committee
may deem appropriate.
7. The Committee shall have the power to direct the
auditors and the internal audit staff to inquire into and
report to it with respect to any of the Corporation's
contracts, transactions or procedures, or the conduct of the
Corporate Office, or any division, profit center, subsidiary
or other unit, or any other matter having to do with the
Corporation's business and affairs. If authorized by the
Board of Directors, the Committee may initiate special
investigations in these regards.
8. The Committee shall have such other duties as may
be lawfully delegated to it from time to time by the Board
of Directors.
Section 3.15. COMPENSATION AND MANAGEMENT DEVELOPMENT
COMMITTEE. There shall be a Compensation and Management
Development Committee of the Board of Directors which shall serve
at the pleasure of the Board of Directors and be subject to its
control. The Committee shall have the following membership and
powers:
1. The Committee shall be composed of at least three
(3) members. All members of the Committee shall be
Independent Outside Directors. The principal Human
Resources officer of the Corporation shall be a non-voting
member of the Committee.
2. The Committee shall recommend to the Board of
Directors for its action the amount to be appropriated for
awards to be made each year to elected officers under the
Corporation's incentive compensation plan.
3. The Committee shall establish the Corporation's
annual performance objectives under the Corporation's
incentive compensation plans.
4. The Committee shall make recommendations to the
Board of Directors with respect to the base salary and
incentive compensation of the elected officers. The
Committee shall take final action with respect to the base
salary and incentive compensation of the ten (10) employees,
who are not elected officers, receiving the highest base
salaries immediately preceding the date of any such action.
5. The Committee shall review management's
recommendations and take final action with respect to all awards to be
made under the Corporation's long-term incentive plans or other similar
benefit plans which may be adopted by the Board of Directors or the
stockholders and in which corporate officers or directors are eligible
to participate, provided however that all such awards relative to the five
(5) most highly compensated officers must be reported to the Board of
Directors.
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6. The Committee shall review on a continuing basis
the Corporation's general compensation policies and
practices, fringe benefits and the Corporation's compliance
with its various affirmative action plans and programs. The
committee shall also review and recommend to the Board of
Directors for its final action all compensation plans in
which elected officers or directors are eligible to
participate.
7. The Committee shall review from time to time and
report to the Board of Directors actions taken by management
concerning the Corporation's overall executive structure and
the steps being taken to assure the succession of qualified
management.
8. The Committee shall have such other duties as may
be lawfully delegated to it from time to time by the Board
of Directors.
Section 3.16. PUBLIC ISSUES AND POLICY COMMITTEE. There
shall be a Public Issues and Policy Committee of the Board of
Directors which shall serve at the pleasure of the Board of
Directors and be subject to its control. The Committee shall
have the following membership and powers:
1. The Committee shall have at least five (5) members.
At least sixty percent (60%) of the members shall be
Independent Outside Directors.
2. The Committee shall review, approve and monitor the
policy, organization, charter and implementation of the
Northrop Grumman Employees Political Action Committee.
3. The Committee shall review and approve the policy
of the Corporation for engaging the services of Consultants
and Commission Agents.
4. The Committee shall review and report to the Board
of Directors from time to time concerning the Corporation's
compliance with the Corporation's policies, practices and
procedures with respect to consultants and commission
agents.
5. The Committee shall review and make policy and
budget recommendations to the Board of Directors for its
actions concerning proposed charitable contributions and aid
to higher education to be given by the Corporation each
year.
6. The Committee shall have such other duties as
lawfully may be delegated to it from time to time by the
Board of Directors.
Section 3.17. FINANCE COMMITTEE. There shall be a Finance
Committee of the Board of Directors which shall serve at the
pleasure of the Board of Directors and be subject to its control.
The Committee shall have the following membership and powers:
1. The Committee shall have at least five (5) members.
At least fifty percent (50%) of the members of the Committee shall
be Independent Outside Directors. The chief financial officer of
the Corporation shall be a non-voting member of the Committee.
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2. The Committee shall review and give consideration
to management requests for required specific new financing
of a long-term nature, whether debt or equity, and make
recommendations to the Board of Directors for its final
action.
3. The Committee shall review the current financial
condition of the Company and planned financial requirements.
4. The Committee shall review periodically the Corpora
tion's dividend policy in connection with dividend
declarations and make recommendations to the Board of
Directors for its final action.
5. The Committee shall consider management's
recommendations concerning acquisitions, mergers or
divestments which management has determined to be of an
unusual or material nature and shall make recommendations to
the Board of Directors for its final action.
6. The Committee shall consider management's recom
mendations concerning contracts or programs which management
has determined to be of an unusual or material nature and
shall make recommendations to the Board of Directors for its
final action.
7. The Committee shall periodically review the
investment performance of the employee benefit plans,
capital asset requirements and short-term investment policy
when appropriate.
8. The Committee shall have such other duties as
lawfully may be delegated to it from time to time by the
Board of Directors.
Section 3.18. NOMINATING AND CORPORATE GOVERNANCE
COMMITTEE. There shall be a Nominating and Corporate Governance
Committee of the Board of Directors which shall serve at the
pleasure of the Board of Directors and be subject to its control.
The Committee shall have the following membership and powers:
1. The Committee shall have at least three (3)
members. All members of the Committee shall be Independent
Outside Directors.
2. The Committee shall review candidates to serve as
directors and shall recommend nominees to the Board of
Directors for election at each annual meeting of
stockholders or other special meetings where directors are
to be elected and shall recommend persons to serve as
proxies to vote proxies solicited by management in
connection with such meetings.
3. The Committee shall cause the names of all director
candidates that are approved by the Board of Directors to be
listed in the Corporation's proxy materials and shall
support the election of all candidates so nominated by the
Board of Directors to the extent permitted by law.
4. The Committee shall review and make recommendations
to the Board of Directors for its final action concerning
the composition and size of the Board of Directors, its
evaluation of the performance of incumbent directors, its
recommendations concerning the compensation of the
Directors, its recommendations concerning directors to fill
vacancies and its evaluation and recommendations concerning
potential candidates to serve in the future on the Board of
Directors to assure the Board's continuity and succession
and its evaluation and recommendations on matters of
corporate governance as appropriate.
5. The Committee shall have such other duties as
lawfully may be delegated to it from time to time by the Board of
Directors.
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Section 3.19. MEETINGS OF COMMITTEES. Each committee of
the Board of Directors shall fix its own rules of procedure
consistent with the provisions of applicable law and of any
resolutions of the Board of Directors governing such committee.
Each committee shall meet as provided by such rules or such
resolution of the Board of Directors, and shall also meet at the
call of its chairman or any two (2) members of such committee.
Unless otherwise provided by such rules or by such resolution,
the provisions of these Bylaws under Article III entitled
"Directors" relating to the place of holding meetings and the
notice required for meetings of the Board of Directors shall
govern the place of meetings and notice of meetings for
committees of the Board of Directors. A majority of the members
of each committee shall constitute a quorum thereof, except that
when a committee consists of one (1) member, then the one (1)
member shall constitute a quorum. In the absence of a quorum, a
majority of the members present at the time and place of any
meeting may adjourn the meeting from time to time until a quorum
shall be present and the meeting may be held as adjourned without
further notice or waiver. Except in cases where it is otherwise
provided by the rules of such committee or by a resolution of the
Board of Directors, the vote of a majority of the members present
at a duly constituted meeting at which a quorum is present shall
be sufficient to pass any measure by the committee.
ARTICLE IV
OFFICERS
Section 4.01. DESIGNATION, ELECTION AND TERM OF OFFICE.
The Corporation shall have a Chairman of the Board and/or a
President either of whom may be designated Chief Executive
Officer by the Board of Directors, such Vice Presidents (each of
whom may be assigned by the Board of Directors or the Chief
Executive Officer an additional title descriptive of the
functions assigned to him and one or more of whom may be
designated Executive, Group or Senior Vice President) as the
Board of Directors deems appropriate, a Secretary and a
Treasurer. These officers shall be elected annually by the Board
of Directors at the organizational meeting immediately following
the annual meeting of stockholders, and each such officer shall
hold office until the corresponding meeting of the Board of
Directors in the next year or until his earlier resignation,
death or removal. Any vacancy in any of the above offices may be
filled for an unexpired portion of the term by the Board of
Directors at any regular special meeting. The Chief Executive
Officer may, by a writing filed with the Secretary, designate
titles for employees and agents, as, from time to time, may
appear necessary or advisable in the conduct of the affairs of
the Corporation and, in the same manner, terminate or change such
titles.
Section 4.02. CHAIRMAN OF THE BOARD. The Board of
Directors shall designate the Chairman of the Board from among
its members. The Chairman of the Board of Directors shall
preside at all meetings of the Board and the Shareholders, and
shall perform such other duties as shall be delegated to him by
the Board or the officer designated as chief executive.
Section 4.03. PRESIDENT. The President shall perform such
duties and have such responsibilities as may from time to time be
delegated or assigned to him by the Board of Directors or the
officer designated as chief executive.
Section 4.04. CHIEF EXECUTIVE. The Board of Directors
shall designate either the Chairman of the Board or the President
to be the chief executive of the Corporation. The officer so
designated shall be responsible for the general supervision,
direction and control of the business and affairs of the
Corporation.
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Section 4.05. CHIEF FINANCIAL OFFICER. The Chief Financial
Officer of the Corporation shall be responsible to the Chief
Executive Officer for the management and supervision of all
financial matters and to provide for the financial growth and
stability of the Corporation. He shall attend all regular
meetings of the Board of Directors and keep the Directors
currently informed concerning all significant financial matters
that could impact upon the business or affairs of the
Corporation. He shall also perform such additional duties as may
be assigned to him from time to time by the Board of Directors or
the Chief Executive Officer.
Section 4.06. EXECUTIVE VICE PRESIDENTS, SENIOR VICE
PRESIDENTS AND VICE PRESIDENTS. Executive vice presidents,
senior vice presidents and vice presidents of the Corporation
that are elected by the Board of Directors shall perform such
duties as may be assigned to them from time to time by the Chief
Executive Officer.
Section 4.07. CHIEF LEGAL OFFICER. The chief legal officer
of the Corporation shall be the General Counsel who shall be
responsible to the Chief Executive Officer for the management and
supervision of all legal matters. The General Counsel shall
attend all regular meetings of the Board of Directors and shall
keep the Directors currently informed concerning all significant
legal matters, particularly those involving important business,
legal, moral or ethical issues that could impact upon the
business or affairs of the Corporation.
Section 4.08. SECRETARY. The Secretary shall keep the
minutes of the meetings of the stockholders, the Board of
Directors and all committee meetings. The Secretary shall be the
custodian of the corporate seal and shall affix it to all
documents which he is authorized by law or the Board of Directors
to sign and seal. The Secretary also shall perform such other
duties as may be assigned from time to time by the Chief
Executive Officer.
Section 4.09. TREASURER. The Treasurer shall be
accountable to the Senior Vice President, Finance, and shall
perform such duties as may be assigned to the Treasurer from time
to time by the Senior Vice President, Finance.
Section 4.10. APPOINTED OFFICERS. The Chief Executive
Officer may appoint one or more Corporate Staff Vice Presidents,
officers of groups or divisions or assistant secretaries,
assistant treasurers and such other assistant officers as the
business of the Corporation may require, each of whom shall hold
office for such period, have such authority and perform such
duties as may be specified from time to time by the Chief
Executive Officer.
Section 4.11. ABSENCE OR DISABILITY OF AN OFFICER. In the
case of the absence or disability of an officer of the
Corporation the Board of Directors, or any officer designated by
it, or the Chief Executive Officer may, for the time of the
absence or disability, delegate such officer's duties and powers
to any other officer of the Corporation.
Section 4.12. OFFICERS HOLDING TWO OR MORE OFFICES. The
same person may hold any two or more of the above-mentioned
offices. However, no officer shall execute, acknowledge or
verify any instrument in more than one capacity, if such
instrument is required by law, by the Certificate or by these
Bylaws, to be executed, acknowledged or verified by any two or
more officers.
Section 4.13. COMPENSATION. The Board of Directors shall
have the power to fix the compensation of all officers and
employees of the Corporation.
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Section 4.14. RESIGNATIONS. Any officer may resign at any
time by giving written notice to the Board of Directors, to the
Chief Executive Officer, or to the Secretary of the Corporation.
Any such resignation shall take effect at the time specified
therein unless otherwise determined by the Board of Directors.
The acceptance of a resignation by the Corporation shall not be
necessary to make it effective.
Section 4.15. REMOVAL. Any officer of the Corporation may
be removed, with or without cause, by the affirmative vote of a
majority of the entire Board of Directors. Any assistant officer
of the Corporation may be removed, with or without cause, by the
Chief Executive Officer, or by the Board of Directors.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section 5.01. RIGHT TO INDEMNIFICATION. Each person who
was or is made a party, or is threatened to be made a party, to
any actual or threatened action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a
director, officer, employee, or agent of the Corporation
(hereinafter an "indemnitee") shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by
the Delaware General Corporation Law, as the same exists or may
hereafter be amended, or by other applicable law as then in
effect, against all expense, liability, and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or
penalties, and amounts paid in settlement) actually and
reasonably incurred or suffered by such indemnitee in connection
therewith. Any person who was or is made a party, or is
threatened to be made a party, to any proceeding by reason of the
fact that he or she is or was serving at the request of an
executive officer of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, shall also be considered an
indemnitee for the purposes of this Article. The right to
indemnification provided by this Article shall apply whether or
not the basis of such proceeding is alleged action in an official
capacity as such director, officer, employee or agent or in any
other capacity while serving as such director, officer, employee
or agent. Notwithstanding anything in this Section 5.01 to the
contrary, except as provided in Section 5.03 of this Article with
respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection
with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the
Corporation.
Section 5.02. ADVANCEMENT OF EXPENSES. (a) The right to
indemnification conferred in Section 5.01 shall include the right
to have the expenses incurred in defending or preparing for any
such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses") paid by the Corporation; provided,
however, that an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and
not in any other capacity in which service was or is to be
rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking containing such
terms and conditions, including the requirement of security, as
the Board of Directors deems appropriate (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
that such indemnitee is not entitled to be indemnified for such
expenses under this Article or otherwise; and provided, further,
that an advancement of expenses shall not be made if the
Corporation's Board of Directors makes a good faith determination
that such payment would violate any applicable law. The
Corporation shall not be obligated to advance fees and expenses
to a director, officer, employee or agent in connection with a
proceeding instituted by the Corporation against such person.
(b) Notwithstanding anything in Section 5.02(a) to the contrary,
the right of employees or agents to advancement of expenses shall
be at the discretion of the Board of Directors and on such terms
and conditions, including the requirement of security, as the
Board of Directors deems appropriate. The Corporation may, by
action of its Board of Directors, authorize one or more executive
officers to grant rights for the advancement of expenses to
employees and agents of the Corporation on such terms and
conditions as such officers deem appropriate.
14
Section 5.03. RIGHT OF INDEMNITEE TO BRING SUIT. If a
claim under Section 5.01 is not paid in full by the Corporation
within sixty (60) calendar days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses under Section 5.02 in which case the
applicable period shall be thirty (30) calendar days, the
indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If the
indemnitee is successful in whole or in part in any such suit,
the indemnitee shall also be entitled to be paid the expense of
prosecuting or defending such suit.
Section 5.04. NONEXCLUSIVITY OF RIGHTS. (a) The rights to
indemnification and to the advancement of expenses conferred in
this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute,
provisions of the Certificate of Incorporation, Bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise.
Notwithstanding any amendment to or repeal of this Article, any
indemnitee shall be entitled to indemnification in accordance
with the provisions hereof with respect to any acts or omissions
of such indemnitee occurring prior to such amendment or repeal.
(b) The Corporation may maintain insurance, at its expense, to
protect itself and any past or present director, officer,
employee, or agent of the Corporation or another corporation,
partnership, joint venture, trust, or other enterprise against
any expense, liability, or loss, whether or not the Corporation
would have the power to indemnify such person against such
expense, liability, or loss under the Delaware General
Corporation Law. The Corporation may enter into contracts with
any indemnitee in furtherance of the provisions of this Article
and may create a trust fund, grant a security interest or use
other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to
effect indemnification as provided in this Article. (c) The
Corporation may without reference to Sections 5.01 through 5.04
(a) and (b) hereof, pay the expenses, including attorneys fees,
incurred by any director, officer, employee or agent of the
Corporation who is subpoenaed, interviewed or deposed as a
witness or otherwise incurs expenses in connection with any
civil, arbitration, criminal, or administrative proceeding or
governmental or internal investigation to which the Corporation
is a party, target, or potentially a party or target, or of any
such individual who appears as a witness at any trial, proceeding
or hearing to which the Corporation is a party, if the
Corporation determines that such payments will benefit the
Corporation and if, at the time such expenses are incurred by
such individual and paid by the Corporation, such individual is
not a party, and is not threatened to be made a party, to such
proceeding or investigation.
ARTICLE VI
STOCK
Section 6.01. CERTIFICATES. Except as otherwise provided
by law, each stockholder shall be entitled to a certificate or
certificates which shall represent and certify the number and
class (and series, if appropriate) of shares of stock owned by
him in the Corporation. Each certificate shall be signed in the
name of the Corporation by the Chairman of the Board, or the
President, or a Vice President, together with the Secretary, or
an Assistant Secretary, or the Treasurer or Assistant Treasurer.
Any or all of the signatures on any certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
15
Section 6.02. TRANSFER OF SHARES. Shares of stock shall be
transferable on the books of the Corporation only by the holder
thereof, in person or by his duly authorized attorney, upon the
surrender of the certificate representing the shares to be
transferred, properly endorsed, to the Corporation's registrar if
the Corporation has a registrar. The Board of Directors shall
have power and authority to make such other rules and regulations
concerning the issue, transfer and registration of certificates
of the Corporation's stock as it may deem expedient.
Section 6.03. TRANSFER AGENTS AND REGISTRARS. The
Corporation may have one or more transfer agents and one or more
registrars of its stock whose respective duties the Board of
Directors or the Secretary may, from time to time, define. No
certificate of stock shall be valid until countersigned by a
transfer agent, if the Corporation has a transfer agent, or until
registered by a registrar, if the Corporation has a registrar.
The duties of transfer agent and registrar may be combined.
Section 6.04. STOCK LEDGERS. Original or duplicate stock
ledgers, containing the names and addresses of the stockholders
of the Corporation and the number of shares of each class of
stock held by them, shall be kept at the principal executive
office of the Corporation or at the office of its transfer agent
or registrar.
Section 6.05. RECORD DATES. The Board of Directors shall
fix, in advance, a date as the record date for the purpose of
determining stockholders entitled to notice of, or to vote at,
any meeting of stockholders or any adjournment thereof, or
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of
stock, or in order to make a determination of stockholders for
any other proper purpose. Such date in any case shall be not
more than sixty (60) days, and in case of a meeting of
stockholders, not less than ten (10) days, prior to the date on
which the particular action, requiring such determination of
stockholders is to be taken. Only those stockholders of record
on the date so fixed shall be entitled to any of the foregoing
rights, notwithstanding the transfer of any such stock on the
books of the Corporation after any such record date fixed by the
Board of Directors.
Section 6.06. NEW CERTIFICATES. In case any certificate of
stock is lost, stolen, mutilated or destroyed, the Board of
Directors may authorize the issuance of a new certificate in
place thereof upon such terms and conditions as it may deem
advisable; or the Board of Directors may delegate such power to
any officer or officers or agents of the Corporation; but the
Board of Directors or such officer or officers or agents, in
their discretion, may refuse to issue such a new certificate
unless the Corporation is ordered to do so by a court of
competent jurisdiction.
ARTICLE VII
RESTRICTIONS ON SECURITIES REPURCHASES
Section 7.01. RESTRICTIONS ON SECURITIES REPURCHASES.
1. Vote required for certain acquisition of securities.
Except as set forth in Subsection 2 of this Section 7.01,
in addition to any affirmative vote of stockholders
required by any provision of law, the Certificate of
Incorporation or Bylaws of this Corporation, or any
policy adopted by the Board of Directors, neither the
Corporation nor any Subsidiary shall knowingly effect any
direct or indirect purchase or other acquisition of any
equity security of a class of securities which is
registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
issued by the Corporation at a price which is in excess
of the highest Market Price of such equity security on
the largest principal national securities exchange in the
United States on which such security is listed for
trading on the date that the understanding to effect such
transaction is entered into by the Corporation (whether
or not such transaction is concluded or a written
agreement relating to such transaction is executed on
such date, and such date to be conclusively established
by determination of the Board of Directors), from any
Interested Person, without the affirmative vote of the
holders of the Voting Shares representing at least a
majority of the aggregate voting power of all outstanding
voting shares, excluding Voting Shares beneficially owned
by such Interested Person, voting together as a single
class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified, by law or any
agreement with any national securities exchange, or
otherwise.
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2. When A Vote Is Not Required. The provisions of
Subsection 1 of this Section 7.01 shall not be applicable with
respect to:
a. any purchase, acquisition, redemption or exchange
of such equity securities, the purchase, acquisition,
redemption or exchange of which is provided for in the
Corporation's Certificate of Incorporation;
b. any purchase or other acquisition of equity
securities made as part of a tender or exchange offer by the
Corporation to purchase securities of the same class made on
the same terms to all holders of such securities and
complying with the applicable requirements of the Exchange
Act of 1934, as amended and the rules and regulations
thereunder (or any successor provisions to such Act, rules
or regulations);
c. any purchase or acquisition of equity securities
made pursuant to an open market purchase program which has
been approved by the Board of Directors.
3. Certain definitions. For the purpose of this
Section:
a. "Affiliate" and "Associate" shall have their
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act, as in
effect on January 1, 1991.
b. "Beneficial Owner" and "Beneficial Ownership"
shall have the meanings ascribed to such terms in Rule 13d-3
and Rule 13d-5 of the General Rules and Regulations under the
Exchange Act, as in effect on January 1, 1991.
c. "Interested person" shall mean any person (other
than the Corporation or any subsidiary) that is the direct
or indirect Beneficial Owner of five percent (5%) or more of
the aggregate voting power of the Voting Shares, and any
Affiliate or Associate of any such person. For the purpose
of determining whether a person is an Interested Person, the
outstanding Voting Shares include unissued shares of voting
stock of the Corporation of which the Interested Person is
the Beneficial Owner, but shall not include any other shares
of voting stock of the Corporation which may be issuable
pursuant to any agreement, arrangement or understanding, or
upon exercise or conversion of rights, warrants or options,
or otherwise to any person who is not the Interested Person.
d. "Market Price" of shares of the class of equity
security of the Corporation on any day shall mean the
highest sale price (regular way) of shares of such class of
such equity security on such day, or, if that day is not a
trading day, on the trading day immediately preceding such
day, on the largest principal national securities exchange
on which such class of stock is then listed or admitted to
trading, or if not listed or admitted to trading on any
national securities exchange, then the highest reported sale
price for such shares in the over-the-counter market as
reported on the NASDAQ National Market System, or if such
sale price shall not be reported thereon, the highest bid
price so reported, or, of such price shall not be reported
thereon, as the same shall be reported by the National
Quotation Bureau, Incorporated, or if the price is not
determinable as set forth above, as determined in good faith
by the Board of Directors.
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e. "Person" shall mean any individual, partnership,
firm, corporation, association, trust, unincorporated
organization or other entity, as well as any syndicate or
group deemed to be a person pursuant to Section 13(d)(3) of
the Exchange Act, as in effect on January 1, 1991.
f. "Subsidiary" shall mean any company or entity of
which the Corporation owns, directly or indirectly, (i) a
majority of the outstanding shares of equity securities, or
(ii) shares having a majority of the voting power
represented by all of the outstanding Voting Stock of such
company entitled to vote generally in the election of
directors. For the purpose of determining whether a company
is a Subsidiary, the outstanding voting stock and shares of
equity securities thereof shall include unissued shares of
which The Corporation is the beneficial owner but, except
for the purpose of determining whether a company is a
Subsidiary for the purpose of Subsection 3(c) hereof shall
not include any shares which may be issuable pursuant to any
agreement, arrangement, or understanding, or upon the
exercise of conversion rights, warrants or options, or
otherwise to any Person who is not the Corporation.
g. "Voting shares" shall mean the outstanding shares
of capital stock of the Corporation entitled to vote
generally in the election of directors.
ARTICLE VIII
SUNDRY PROVISIONS
Section 8.01. FISCAL YEAR. The fiscal year of the
Corporation shall end on the 31st day of December of each year.
Section 8.02. SEAL. The seal of the Corporation shall bear
the name of the Corporation and the words "Delaware" and
"Incorporated March 12, 1985."
Section 8.03. VOTING OF STOCK IN OTHER CORPORATIONS. Any
shares of stock in other corporations or associations, which may
from time to time be held by the Corporation, may be represented
and voted at any of the stockholders' meetings thereof by the
Chief Executive Officer or his designee. The Board of Directors,
however, may by resolution appoint some other person or persons
to vote such shares, in which case such person or persons shall
be entitled to vote such shares upon the production of a
certified copy of such resolution.
Section 8.04. AMENDMENTS. These Bylaws may be adopted,
repealed, rescinded, altered or amended only as provided in
Articles Fifth and Sixth of the Certificate.
March 15, 2000
18
NORTHROP GRUMMAN CORPORATION
NON-EMPLOYEE DIRECTORS EQUITY PARTICIPATION PLAN
Effective March 1, 1998
TABLE OF CONTENTS
ARTICLE 1-Introduction 1
Section 1.01. Purpose 1
Section 1.02. Effective Date 1
ARTICLE 2-Definitions 2
Section 2.01. Accruals 2
Section 2.02. Annual Accrual 2
Section 2.03. Annual Retainer Fee 2
Section 2.04. Board 2
Section 2.05. Change in Control 2
Section 2.06. Common Stock 2
Section 2.07. Company 2
Section 2.08. Conversion Date 2
Section 2.09. Debilitating Illness 3
Section 2.10. Director 3
Section 2.11. Dividend Equivalent 3
Section 2.12. Electing Outside Director 3
Section 2.13. Equity Participation Account 3
Section 2.14. Fair Market Value Of The Common
Stock 3
Section 2.15. Outside Director 4
Section 2.16. Participant 4
Section 2.17. Plan 4
Section 2.18. Retired Outside Director 5
Section 2.19. Retirement Plan 5
Section 2.20. Special Accrual 5
Section 2.21. Surviving Spouse 5
Section 2.22. Total Disability 5
Section 2.23. Unit 5
Section 2.24. Year Of Service 6
ARTICLE 3-Participation 7
Section 3.01. In General 7
ARTICLE 4-Entitlement To Benefits 8
Section 4.01. Normal Benefit 8
Section 4.02. Partial Benefit 8
Section 4.03. Change in Control Benefit 8
Section 4.04. Better-Of Benefit 9
Section 4.05. Surviving Spouse Benefit 9
Section 4.06. Other Participants 9
ARTICLE 5-Amount Of Benefit 10
Section 5.01. Normal Benefit Amount 10
Section 5.02. Partial Benefit Amount 10
Section 5.03. Change in Control Benefit Amount 10
Section 5.04. Better-Of Benefit Amount 10
ARTICLE 6-Accounts 12
Section 6.01. Equity Participation Accounts 12
Section 6.02. Annual Accruals 12
Section 6.03. Special Accruals 13
Section 6.04. Conversion Of Accruals Into Units 13
Section 6.05. Dividend Equivalents 14
Section 6.06. Change in the Common Stock 14
ARTICLE 7-Distributions 15
Section 7.01. In General 15
Section 7.02. Amount of Installments 15
Section 7.03. Conversion of Units into Dollars 16
Section 7.04. T-Bond Election 16
Section 7.05. Payment to a Trust 18
ARTICLE 8-Miscellaneous Provisions 19
Section 8.01. Amendment And Termination 19
Section 8.02. Plan Unfunded 19
Section 8.03. No Assignments 19
Section 8.04. No Double Payment 20
Section 8.05. No Other Rights 20
Section 8.06. Successors of the Company 21
Section 8.07. Law Governing 21
Section 8.08. Actions By Company 21
Section 8.09. Plan Representatives 21
ARTICLE 5-Change In Control Benefits 22
Section A.01. In General 22
Section A.02. Change In Control 22
Section A.03. Override by Board 24
Section A.04. February, 1998 Vote 24
Section A.05. Vesting at Change in Control 25
Section A.06. Limitation on Amendment Authority 25
ARTICLE 1
Introduction
Section 1.01. Purpose. The purposes of the Plan are to
enable the Company to attract and retain outstanding
individuals to serve as non-employee directors of the
Company, and to further align the interests of non-employee
directors with the interests of the other shareholders of
the Company by making the amount of the compensation of non-
employee directors dependent in part on the value and
appreciation over time of the Common Stock of the Company.
Section 1.02. Effective Date. This restatement of the
Plan is effective as of March 1, 1998. The Plan was
originally effective March 19, 1997.
ARTICLE 2
Definitions
The following terms when used and capitalized in the
Plan will have the following meanings:
Section 2.01. Accrual. Any dollar amounts credited to
the Equity Participation Account, including any Special
Accrual, Annual Accruals, Additional Accruals and Dividend
Equivalents.
Section 2.02. Additional Accrual. This is defined in
Section 6.02.
Section 2.03. Annual Accrual. This is defined in
Section 6.02.
Section 2.04. Annual Retainer Fee. That fixed amount
paid to Directors exclusive of travel expenses, meeting
fees, committee fees, or any other similar remuneration.
Section 2.05. Board. The Board of Directors of the
Company.
Section 2.06. Change in Control. This is defined in
Sections A.02-A.04.
Section 2.07. Common Stock. The Common Stock of the
Company.
Section 2.08. Company. Northrop Grumman Corporation.
Section 2.09. Conversion Date. The date the Outside
Director's service as a member of the Board terminates for
any reason, including death.
2
Section 2.10. Debilitating Illness. Any physical or mental
condition which renders an individual unable to carry on the
normal duties of his or her active business career.
Section 2.11. Director. A member of the Board.
Section 2.12. Dividend Equivalent. An amount equal to
the cash dividend per share which is payable on any dividend
payment date for the Common Stock.
Section 2.13. Electing Outside Director. An Outside
Director participating in the Retirement Plan who, at the
inception of this Plan, elected to terminate participation
in the Retirement Plan and to participate in this Plan
instead.
Section 2.14. Equity Participation Account. An unfunded
bookkeeping account maintained by the Company for a
Participant to which amounts are credited under the Plan.
Section 2.15. Fair Market Value Of The Common Stock.
This is determined as follows:
(a) for relevant Accruals and Conversion Dates that occur
on or before February 18, 1998, the closing price of a share of
Common Stock as reported on the composite tape for
securities listed on the New York Stock Exchange (the
"Exchange") for the date in question. If no sales of Common
Stock were made on the Exchange on that date, the closing
price of a share of Common Stock as reported on said
composite tape for the preceding day on which sales of
Common Stock were made on the Exchange shall be substituted;
and
3
(b) for relevant Accruals and Conversion Dates that
occur after February 18, 1998, the average of the daily
closing prices of a share of Common Stock as reported on the
composite tape for securities listed on the Exchange for the
20 trading days (counting as trading days only days on which
sales of Common Stock are reported) ending with the date in
question.
Section 2.16. Outside Director. A Director who is not a
common law employee of the Company.
Section 2.17. Participant. Each current or former
Outside Director eligible for benefits under the Plan who
has not yet received a complete distribution of his or her
benefits under the Plan, other than a former Outside
Director who terminated service with the Board without any
entitlement to benefits under Sections 4.01-4.03.
Section 2.18. Plan. The Northrop Grumman Corporation
Non-Employee Directors Equity Participation Plan.
4
Section 2.19. Retired Outside Director. An Outside
Director whose service as a member of the Board for any
reason has terminated and who is entitled to receive a
distribution.
Section 2.20. Retirement Plan. The Northrop Grumman
Corporation Board of Directors Retirement Plan.
Section 2.21. Special Accrual. This is defined in
Section 6.03.
Section 2.22. Surviving Spouse. A person who:
(a)was legally married to the Participant for at least
one year prior to the date the Participant ceases
to serve on the Board (including death while
serving on the Board), and
(b)outlives the deceased Participant by at least 30
calendar days,
to the extent he or she is not prevented from receiving
benefits under the Plan by a court order or property
settlement at the time payments would otherwise be due.
Section 2.23. Total Disability. Total disability as
defined in the Northrop Grumman Long-Term Disability
Insurance Plan.
Section 2.24. Unit. An equivalent to a share of Common
Stock, which is the denomination into which all dollar
Accruals to any Equity Participation Account are to be
converted.
Section 2.25. Year Of Service. A 12-consecutive-month
period of service as an Outside Director.
5
ARTICLE 3
Participation
Section 3.01. In General. A Director is eligible to
participate in the Plan if he or she:
(a) becomes an Outside Director after March 19, 1997,
or
(b) is an Electing Outside Director.
6
ARTICLE 4
Entitlement To Benefits
Section 4.01. Normal Benefit. Each Participant who
terminates service on the Board will be entitled to receive
a benefit under Section 5.01 if he or she satisfies (a) or
(b):
(a) He or she completes at least three consecutive
Years of Service.
(b) He or she retires from the Board as a result of
Total Disability or a Debilitating Illness.
Section 4.02. Partial Benefit. A Participant will be
entitled to receive a partial benefit under Section 5.02 if:
(a) he or she terminates service on the Board prior to
completing three consecutive Years of Service, and
(b) his or her termination occurs because he or she
will have attained age 70 prior to the Annual Meeting of
Shareholders.
Section 4.03. Change in Control Benefit. A Participant
who is not entitled to benefits under Section 4.01 will be
entitled to receive a Change in Control benefit under
Section 5.03 if the conditions described in Appendix A are
met.
7
Section 4.04. Better-Of Benefit. A Participant entitled
to a benefit under Sections 4.01-4.03 will be entitled to
"better-of" benefits under Section 5.04 if he or she:
(a) was a Participant in the Plan and a current Outside
Director as of March 1, 1998, and
(b) terminates service on account of death,
Debilitating Illness or Total Disability.
Section 4.05. Surviving Spouse Benefit. Upon a
Participant's death, his or her Surviving Spouse, if any,
will be eligible to receive the remainder of the payments
due the Participant. If there is no Surviving Spouse, all
payments will cease.
Section 4.06. Other Participants. No benefits will be
paid with respect to a Participant who terminates service
with the Board unless the eligibility conditions of Section
4.01, 4.02 or 4.03 are satisfied.
8
ARTICLE 5
Amount Of Benefit
Section 5.01. Normal Benefit Amount. The normal benefit
amount is the full balance of the Participant's Equity
Participation Account.
Section 5.02. Partial Benefit Amount. The partial
benefit amount is the Participant's Equity Participation
Account multiplied by a fraction.
(a) The numerator of the fraction is the number of the
Participant's completed consecutive Years of Service and the
denominator is three.
(b) For purposes of (a), completed Years of Service
include completed months of service (rounded up to the
nearest month) expressed as a fraction of a year to the
nearest quarter.
Section 5.03. Change in Control Benefit Amount. The
Change in Control benefit is equal to the full balance of
the Participant's Equity Participation Account.
Section 5.04. Better-Of Benefit Amount. A Participant
entitled to "better-of" benefits will have his or her
benefits determined under this Section if that would result
in greater benefits than those provided under Sections 5.01-
5.03, as applicable.
9
(a) The benefit under this Section equals the benefit
the Participant would receive (if any) if he or she were a
participant under the Retirement Plan.
(b) If a Participant would not be entitled to any
benefit under the Retirement Plan (e.g., because he or she
failed to meet the five years of service requirement), this
Section will not provide any alternative benefits.
(c) The Retirement Plan benefit will be considered
greater for purposes of this Section if the present value of
the projected Retirement Plan benefit is greater than the
Participant's balance in his or her Equity Participation
Account at the Conversion Date.
(d) For purposes of determining the present value of
the Retirement Plan benefit, the following assumptions will
be used:
(1) An interest rate assumption of 6.5% will be
used.
(2) No mortality factor will be applied. The
Participant will be assumed to get all payments before
dying.
(3) The Annual Retainer Fee used by the Retirement
Plan will be assumed to remain constant for all future
years.
11
ARTICLE 6
Accounts
Section 6.01. Equity Participation Accounts. An Equity
Participation Account will be maintained for each
Participant having an amount to his or her credit under the
Plan. The account will keep track of Accruals and payments
for a Participant's benefit.
Section 6.02. Annual Accruals. On each March 19, the
Company will credit an amount equal to 50% of the Annual
Retainer Fee in effect on that date (an "Annual Accrual") to
the Equity Participation Account of each Participant who
provided a full Year of Service in the immediately preceding
12-month period.
(a) On each March 19 (starting in 2001), the Company
also will credit an amount equal to 5% of the Annual
Retainer Fee in effect on that date (an "Additional
Accrual") to the Equity Participation Account of each
Participant who provided a full Year of Service in the
immediately preceding 12-month period, if the following two
conditions are met:
(1) an amount was appropriated for payment of awards with
respect to the preceding calendar year pursuant to the
Company's Incentive Compensation Plan, and
12
(2) the Company attained the pre-established financial and
non-financial measures set by the Compensation and
Management Development Committee for payment of awards
pursuant to such Incentive Compensation Plan with respect to
that preceding year.
(b) No accrual will be made for any Outside Director
who has provided at least ten consecutive Years of Service.
(c) Participants who have provided less than a full
Year of Service for the immediately preceding 12-month
period will receive a pro rated portion of the normal Annual
Accrual and any Additional Accrual based on their months of
service for the period (rounded up to the nearest month)
divided by 12.
Section 6.03. Special Accruals. As of March 19, 1997,
the Company credited to the Equity Participation Account of
each Electing Outside Director a special, one-time credit (a
"Special Accrual"). The dollar amount of the Special Accrual
was equal to the present value (calculated at a 6.5%
discount rate) of the accrued benefits of an Electing
Outside Director under the Retirement Plan.
13
Section 6.04. Conversion Of Accruals Into Units. Each
Accrual will be converted into Units by dividing the dollar
amount of the Accrual by the Fair Market Value of the Common
Stock on the day the Accrual is made. Units will be
calculated and recorded in Equity Participation Accounts
rounded to the third decimal place.
Section 6.05. Dividend Equivalents. On each date on
which cash dividends are paid on shares of the Common Stock,
Equity Participation Accounts will be credited with one
Dividend Equivalent for each Unit credited to such Account.
(a) Each fraction of a Unit will be credited with a
like fraction of a Dividend Equivalent on such date.
(b) Dividend Equivalents credited to each Equity
Participation Account will be converted into Units by
dividing the dollar amount of the Dividend Equivalent by the
Fair Market Value of the Common Stock on the date the
Dividend Equivalent is accrued.
Section 6.06. Change in the Common Stock. In the event
of any stock dividend, stock split, recapitalization,
distribution of property, merger, split-up, spin-off, or
other change affecting or distribution with respect to the
Common Stock of the Company (other than cash dividends), the
Units in each Account will be adjusted in the same manner
and proportion as the change to the Common Stock.
14
ARTICLE 7
Distributions
Section 7.01. In General.
(a) All distributions of Equity Participation Accounts
to Participants will be made in cash.
(b) The Equity Participation Account of each Retired
Outside Director will be paid in a number of annual
installments equal to the number of full Years of Service
for which benefits have been accrued (not to exceed ten),
subject to (d).
(c) Payments will commence on the 20th business day
following the Conversion Date for such Equity Participation
Account, and then on each anniversary of the Conversion
Date.
(d) All payments will cease no later than:
(1) upon the death of the Surviving Spouse, or
(2) if there is no Surviving Spouse, upon the
death of the Participant.
Section 7.02. Amount of Installments. Each installment
will be in an amount equal to the total dollar value of the
Equity Participation Account as of the Conversion Date or
the applicable anniversary date of the Conversion Date to
which the payment relates divided by the number of
installments remaining to be paid.
15
Section 7.03. Conversion of Units into Dollars. The
total dollar value of the Equity Participation Account will
be determined by multiplying the number of Units then in the
account by the Fair Market Value of the Common Stock on the
Conversion Date or any applicable anniversary. The number of
Units in the account will be reduced by the Unit equivalent
of each payment.
Section 7.04. T-Bond Election: If a Participant makes
an election under this section, the amount of each payment
will be determined under this section rather than under
Section 7.03. The timing and number of payments will still
be determined under Section 7.01.
(a) Account Balance: If a Participant makes an election
under this section, his or her Equity Participation Account
will be converted to a deemed principal amount at the
Conversion Date which will earn deemed interest on the
remaining balance. The Account will be increased for deemed
interest and reduced for payments made. The Account will no
longer be based on the value of the Common Stock.
(b) Initial Principal Amount: The initial principal amount
for any Participant will be determined on the Conversion Date by multiplying
the number of Units in the Participant's Equity Participation Account by the
Fair Market Value of the Common Stock on the Conversion Date.
16
(c) Initial Payment: The initial payment will be equal
to the Initial Principal Amount divided by the total number
of installments to be paid.
(d) Later Payments: Each annual installment after the
Initial Payment will be equal to the remaining Account
balance at the applicable anniversary of the Conversion Date
divided by the number of remaining installments.
(e) Interest Credits: Interest will be credited on the
amount remaining after the Initial Payment and future
account balances at the rate specified in (f), compounded
daily.
(f) T-Bond Rate: The interest rate will be equal to the
average interest rate on 10-year U.S. Treasury bonds for the
52 weeks ending immediately prior to the applicable
anniversary of the Conversion Date.
(g) Elections: An election under this subsection may be
made only by delivering a written election of this T-Bond
option to the Secretary of Northrop Grumman Corporation (or
its successor), on a form specified by the Secretary:
(1) no later than March 1, 1998, in the case of
Participants who were Outside Directors as of February 18, 1998, or
17
(2) no later than 30 days after becoming an
Outside Director with respect to Participants who become
Outside Directors after March 1, 1998.
After the relevant date in (1) or (2), an election (or
failure to make an election) under this Section will become
irrevocable.
Section 7.05. Payment to a Trust. The Participant may
elect that payments under this Article be made to a trust.
Any payments due will be made to the trust as long as the
election by the Participant remains in effect.
18
ARTICLE 8
Miscellaneous Provisions
Section 8.01. Amendment And Termination. The Board may
at any time, or from time to time, amend or terminate the
Plan.
(a) No such amendment or termination may reduce Plan
benefits which accrued prior to the amendment or termination
without the prior written consent of each person entitled to
receive benefits under the Plan who is adversely affected by
such action.
(b) The amendment and termination power of this Section
is also subject to the provisions of Section A.06.
Section 8.02. Plan Unfunded. The Plan is unfunded.
Benefits under the Plan represent only a general contractual
conditional obligation of the Company to pay in accordance
with the provisions of the Plan.
Section 8.03. No Assignments. All payments under the
Plan will be made only to the Participant, to his or her
Surviving Spouse, or to any trust designated by the
Participant under Section 7.05. The right to receive
payments under the Plan may not otherwise be assigned or
transferred by, and is not subject to the claims of
creditors of, any Participant or his or her Surviving
Spouse.
19
Section 8.04. No Double Payment. This Section applies
if, despite the prior Section, with respect to any
Participant (or his or her Surviving Spouse), the Company is
required to make payments under this Plan to a person or
entity other than the proper payees described in the Plan.
In such a case, any amounts due the Participant (or his or
her Surviving Spouse) under this Plan will be reduced by the
actuarial value of the payments required to be made to such
other person or entity.
(a) Actuarial value will be determined using the
following actuarial assumptions specified by Treas. Reg.
1.417(e)-1(d)(2)-(4) (or any successor regulation). The
stability period will be one calendar month and the lookback
month will be the second calendar month preceding the
stability period.
(b) In dividing a Participant's benefit between the
Participant and another person or entity, consistent
actuarial assumptions and methodologies will be used so that
there is no increased cost to the Company on an actuarial
basis.
Section 8.05. No Other Rights. Neither the
establishment of the Plan, nor any action taken under it,
will in any way obligate the Company to nominate an Outside
Director for re-election or continue to retain an
20
Outside Director on the Board or confer upon any Outside
Director any other rights with respect to the Company.
Section 8.06. Successors of the Company. The Plan will
be binding upon any successor to the Company, whether by
merger, acquisition, consolidation or otherwise.
Section 8.07. Law Governing. The Plan will be governed
by the laws of the State of California.
Section 8.08. Actions By Company. Any powers
exercisable by the Company under the Plan will be utilized
by written resolution adopted by the Board or its delegate.
The Board may by written resolution delegate any of the
Company's powers under the Plan and any such delegations may
provide for subdelegations, also by written resolution.
Section 8.09. Plan Representatives. Those authorized to
act as Plan representatives will be designated in writing by
the Board or its delegate.
21
APPENDIX A
Change In Control Benefits
Section A.01. In General. This Appendix provides for
accelerated vesting of benefits in the event of a Change of
Control.
Section A.02. Change In Control. Except as provided in
Sections A.03 and A.04, a Change in Control occurs under any
of the following circumstances:
(a) Any "person" as such term is used in Sections
13(d)(3) and 14(d)(2) of the Securities Exchange Act of
1934, as amended ("Exchange Act") or any successor
provisions, other than a trustee or other fiduciary holding
securities under any other employee benefit plan of the
Company or an Affiliate, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act or any
successor provisions), directly or indirectly, of securities
of the Company representing fifteen percent (15%) or more of
the combined voting power of the Company's then outstanding
securities (unless the event causing the fifteen percent
(15%) threshold to be crossed is an acquisition of
securities directly from the Company).
(c) During any period of two consecutive years, "Continuing
Directors", as described in (2), cease for any reason to constitute at least
a majority of the Board.
22
(1) The period of two consecutive years does not
include any period prior to the adoption of this Plan on
March 19, 1997.
(2) The term "Continuing Directors", for purposes
of this Appendix, means:
(A) individuals who at the beginning of the
two-consecutive-year period constitute the Board, and
(B) any new director whose nomination by the
Board or election by the Company's shareholders was approved
by a vote of at least two-thirds of the directors then still
in office who either were directors at the beginning of the
two-consecutive-year period or whose election or nomination
for election was previously so approved. This clause (B)
does not include a director designated by a person who has
entered into an agreement with the Company to effect a
transaction described in (a) or (c) of this Section.
(c) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, but
only if the transaction closes or is otherwise effectuated.
This subsection (c) does not cover a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into
23
voting securities of the surviving entity) at least 80% of
the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately
after such merger or consolidation.
(d) The shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition of the Company or all or substantially
all of the Company's assets, but only if the transaction
closes or is otherwise effectuated.
Section A.03. Override by Board. Transactions described
in the previous Section do not constitute Changes in Control
if, immediately prior to the change in ownership, merger,
consolidation, sale or other disposition, liquidation or
change in the Board, the Board shall pass a resolution
approved by a vote of the majority of the Continuing
Directors to the effect that it has determined that such
transaction does not constitute a Change in Control within
the intention of this definition. In addition, if a Change
in Control has occurred, no subsequent event shall result in
another Change in Control.
Section A.04. February, 1998 Vote. No Change in Control
will be deemed to have occurred by virtue of the vote of
shareholders on February 26, 1998 to merge with Lockheed
Martin Corporation unless and until that merger closes.
24
Section A.05. Vesting at Change in Control. Any
Participant serving as an Outside Director at the time of a
Change in Control will immediately become entitled to Change
in Control benefits under Section 5.03. Actual payment of
benefits will not commence until termination of his or her
service in accordance with Section 7.01.
Section A.06. Limitation on Amendment Authority. The
Plan may not be amended, terminated, or otherwise modified
or interpreted to eliminate, reduce or defer Change in
Control benefits with respect to the circumstances described
in Section A.02(c) or (d), between the date of the
shareholder vote and the closing or other effectuation of
the transaction. This Section is not intended to reduce the
Board's authority under Section A.03.
25
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