<PAGE>
===============================================================================
--------------------------------
\ OMB APPROVAL \
\------------------------------\
\ OMB Number: 3235-0059 \
\ Expires: January 31, 2002 \
\ Estimated average burden \
\ hours per response....13.12 \
--------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
NORTHROP GRUMMAN CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF NORTHROP GRUMMAN]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AND PROXY STATEMENT
NOTICE
The Annual Meeting of Stockholders of Northrop Grumman Corporation (the
"Company") will be held on Wednesday, May 17, 2000 at 10:00 a.m. at the
Fairmont Miramar Hotel, 101 Wilshire Boulevard, Santa Monica, California
90401.
Stockholders at the close of business on March 21, 2000 are entitled to vote
at the Annual Meeting. The following items are on the agenda:
(1) Election of three Class III directors, each for a three year term
expiring in 2003;
(2) Proposal to ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for fiscal year ending December 31, 2000;
(3) Stockholder proposal regarding offset commitments;
(4) Other business as may properly come before the Annual Meeting or any
adjournments thereof.
By order of the Board of Directors,
/s/ John H. Mullan
John H. Mullan
Corporate Vice President and
Secretary
1840 Century Park East
Los Angeles, California 90067
April 3, 2000
IMPORTANT
To assure your representation at the Annual Meeting, please sign, date and
return the enclosed proxy card for which a return envelope is provided. No
postage is required if mailed in the United States.
You may also vote by telephone or over the Internet. For instructions on
electronic voting please see page 3 of this Proxy Statement or the proxy
card.
<PAGE>
PROXY STATEMENT
GENERAL INFORMATION
This proxy statement is issued in connection with solicitation of the
enclosed proxy by the Board of Directors of Northrop Grumman Corporation (the
"Company" or "Northrop Grumman") for use at the Company's 2000 Annual Meeting
of Stockholders (the "Annual Meeting"). The Company's principal office is
located at 1840 Century Park East, Los Angeles, California, 90067. This proxy
material will be sent to stockholders beginning approximately April 3, 2000.
OUTSTANDING SECURITIES
On March 21, 2000 there were 69,798,701 shares of the Company's common
stock, par value $1.00 per share ("Common Stock"), outstanding. Holders of
record at the close of business on that date are entitled to vote at the
Annual Meeting. Each share is entitled to one vote.
VOTING AT THE MEETING OR BY PROXY
Shares represented by a properly executed proxy in the accompanying form
will be voted at the meeting in accordance with the stockholder's
instructions. If no instructions are given, the shares will be voted according
to the Board of Directors' recommendations. Therefore, if no instructions are
given, the persons named on the card will vote FOR Proposal One to elect the
three director nominees listed under "Election of Directors", FOR Proposal Two
to ratify the appointment of Deloitte & Touche LLP as auditors of the Company
for the year ending December 31, 2000 and AGAINST Proposal Three, the
stockholder proposal regarding offset commitments.
A stockholder who executes a proxy may revoke it at any time before its
exercise by delivering a written notice of revocation to the Corporate
Secretary or by signing and delivering another proxy that is dated later. A
stockholder attending the meeting in person may revoke the proxy by giving
notice of revocation to an inspector of election at the meeting or voting at
the meeting. If any other matters are properly brought before the meeting, the
enclosed proxy card gives discretionary authority to the persons named on the
card to vote the shares in their best judgment.
With respect to the election of directors, stockholders may vote in favor of
all nominees, or withhold their votes as to all nominees or specific nominees.
There is no box to "abstain", but checking the box on the enclosed proxy card
that withholds authority to vote for a nominee is the equivalent of
abstaining. The three nominees receiving the greatest number of votes cast for
the election of directors by shares entitled to vote and present in person or
by proxy at the Annual Meeting will be elected directors.
With respect to any proposal other than the election of directors,
stockholders may vote in favor of the proposal, or against the proposal, or
abstain from voting. The affirmative vote of the majority of shares entitled
to vote and present in person or by proxy at the Annual Meeting is required
for approval. A stockholder who signs and submits a ballot or proxy is
"present", so an abstention will have the same effect as a vote against the
proposal.
Brokers who hold shares for the accounts of their clients may vote such
shares either as directed by their clients or in their own discretion if
permitted by the stock exchange or other organization of which they are
members. Members of the New York Stock Exchange ("NYSE") are permitted to vote
their clients' proxies in their own discretion as to the election of directors
if the clients have not furnished voting instructions within ten days of the
meeting. Certain proposals other than the election of directors are "non-
discretionary" and brokers who have received no instructions from their
clients do not have discretion to vote on those items. When a broker votes a
client's shares on some but not all of the proposals at a meeting, the missing
votes are referred to as "broker non-votes". Those shares will be included in
determining the presence of a quorum at the meeting, but are not considered
"present" for purposes of voting on the non-discretionary proposals. They have
no impact on the outcome of any proposals included within this Proxy
Statement.
1
<PAGE>
VOTING BY TELEPHONE OR THE INTERNET
Registered stockholders and participants in the Company's employee stock
ownership plans may vote their shares over the telephone or on the Internet.
The law of Delaware, under which the Company is incorporated, specifically
permits electronically transmitted proxies, provided that each such proxy
contains or is submitted with information from which the inspectors of
election can determine that such proxy was authorized by the shareholder. The
voting procedures available to registered shareholders for the Annual Meeting
are designed to authenticate each shareholder by use of a Control Number, to
allow shareholders to vote their shares, and to confirm that their
instructions have been properly recorded.
Registered shareholders and plan participants may go to
http://www.eproxyvote.com/noc to vote on the Internet. They will be required
to provide the Control Numbers contained on their proxy cards. After providing
the correct Control Number, the voter will be asked to complete an electronic
proxy card. The votes will be generated on the computer screen and the voter
will be prompted to submit or revise them as desired. Any registered
shareholder or plan participant using a touch-tone telephone may also vote by
calling 1-877-779-8683 (toll-free) and following the recorded instructions.
Most beneficial owners whose stock is held in street name receive voting
instruction forms from their banks, brokers or other agents, rather than the
Company's proxy card. Beneficial owners may also be able to vote by telephone
or the Internet. They should follow the instructions on the form they receive
from their bank, broker, or other agent.
The method of voting used will not limit a shareholder's right to attend the
Annual Meeting.
VOTING SECURITIES
On December 31, 1999, there were 69,719,182 shares of the Company's Common
Stock outstanding. The following entities beneficially owned, to the Company's
knowledge, more than five percent of the outstanding Common Stock:
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class
------------------------------------ ----------------- --------
<S> <C> <C>
U.S. Trust Company, N.A.(a)(b).................. 8,910,704 shares 12.78%
555 So. Flower St., Los Angeles, CA 90071-2429
Wellington Management Company, LLP(c)........... 4,763,260 shares 6.83%
75 State Street, Boston, MA 02109
</TABLE>
- -------
(a) This information was provided by U.S. Trust Company, N.A. ("U.S. Trust
Company") in a Schedule 13G filed with the SEC on February 4, 2000. U.S.
Trust Company is an Investment Manager (the "Investment Manager") for the
Northrop Grumman Pension Plan and the pension plans for certain divisions
of the Company (the "Pension Plans"); the Corporation has established a
Master Trust with State Street Bank and Trust Company as Trustee
("Trustee"). Under the Master Trust, the Investment Manager has
responsibility for the management and control of the Northrop Grumman
shares held in the Master Trust as assets of the Pension Plans. The
Investment Manager has shared dispositive and voting power over 8,910,704
shares held in the Master Trust between Northrop Grumman Corporation and
the Trustee. This total includes 4,829,637 shares (6.93%) held for the
account of employee participants in the Employee Stock Ownership Plan
portion of the Northrop Grumman Savings and Investment Plan for which U.
S. Trust Company acts as a trustee.
(b) These shares are held for the account of (but not beneficially owned by)
the Trustee. The Investment Manager has voting power over these shares,
except in the event of a contested election of directors or in connection
with a tender offer. In such cases, the shares are voted in accordance
with instructions received from eligible participants in the Pension Plans
and undirected shares are voted in the same proportion as shares for which
instructions are received.
(c) This information was provided by Wellington Management Company, LLP
("Wellington") in a Schedule 13G filed with the SEC on February 11, 2000.
According to Wellington, as of the date set forth above, Wellington had
shared dispositive power over 4,739,260 shares but shared voting power
over only 1,125,900 shares.
2
<PAGE>
Stock Ownership of Officers and Directors
The following table shows beneficial ownership (as defined by applicable
rules for proxy statement reporting purposes) of the Common Stock as of March
21, 2000 (the Annual Meeting record date) by each director and nominee, by the
Chief Executive Officer and the other four most highly compensated executive
officers (collectively, the "Named Executive Officers") and all directors and
executive officers as a group. Each individual owned less than 1% of the
outstanding Common Stock. Unless otherwise indicated, each individual has sole
investment power and sole voting power with respect to the shares owned by
such person. No family relationship exists between any of the directors or
executive officers of the Company.
<TABLE>
<CAPTION>
Number of Percentage of
Shares Outstanding Shares
Beneficially Owned (6) Beneficially Owned
---------------------- ------------------
<S> <C> <C>
Directors
Jack R. Borsting.................. 7,252(1) *
John T. Chain, Jr................. 7,334 *
Jack Edwards...................... 6,743 *
Vic Fazio......................... 0 *
Phillip Frost..................... 16,487 *
Robert A. Lutz.................... 6,260 *
Aulana L. Peters.................. 10,539 *
John E. Robson.................... 11,181 *
Richard M. Rosenberg.............. 8,721 *
John Brooks Slaughter............. 6,334 *
Richard J. Stegemeier............. 8,713(2) *
Named Executive Officers
Kent Kresa (3).................... 632,978(4) *
Richard B. Waugh, Jr.............. 77,517(5) *
Herbert W. Anderson............... 54,007 *
James G. Roche.................... 41,144 *
Ralph D. Crosby, Jr............... 63,913 *
Directors and Executive Officers as
a Group (21 persons)............... 1,113,229 1.60
</TABLE>
- --------
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding shares of Common Stock.
(1) Includes 1,200 shares held in the Borsting Family Trust of which Dr.
Borsting is trustee.
(2) Includes 1,000 shares held in the Richard J. Stegemeier Family Trust of
which Mr. Stegemeier and his wife are trustees.
(3) Mr. Kresa also serves as Chairman of the Board.
(4) Includes 422,474 shares held by the Kresa Family Trust of which Mr. Kresa
is trustee.
(5) Includes 28,992 shares held by the Waugh Family Trust of which Mr. Waugh
and his wife are trustees.
(6) Includes options exercisable within 60 days and shares or share
equivalents beneficially owned under one or more of the Company's
compensation or benefit plans, respectively, as follows: J.R. Borsting
5,000 and 0 shares; J.T. Chain 5,500 and 0 shares; J. Edwards 5,500 and
225 shares; V. Fazio 0 and 0 shares; P. Frost 5,000 and 666 shares; R. A.
Lutz 4,500 and 551 shares; A.L. Peters 5,500 and 2,623 shares; J.E.
Robson 5,500 and 2,498 shares; R.M. Rosenberg 5,500 and 656 shares; J.B.
Slaughter 5,500 and 0 shares; R.J. Stegemeier 5,500 and 0 shares; K.
Kresa 161,400 and 5,178 shares; R.B. Waugh 45,250 and 3,275 shares; H. W.
Anderson 40,620 and 1,488 shares; J.G. Roche 22,500 and 612 shares; and
R.D. Crosby 39,900 and 2,757 shares.
3
<PAGE>
PROPOSAL ONE: ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a classified Board
of Directors. Three directors in Class III will be elected at the 2000 Annual
Meeting to hold office for three years until the 2003 Annual Meeting of
Stockholders or until their successors have been elected and qualified. Unless
instructed otherwise, the persons named in the accompanying proxy will vote
the shares represented by such proxy for the election of the three Class III
Director Nominees listed in the table below. If any nominee becomes
unavailable for election to the Board of Directors, an event which is not
anticipated, the persons named as proxies have full discretion and authority
to vote or refrain from voting for any other nominee in accordance with their
judgment.
The following information, furnished with respect to each of the three
nominees for election as a Class III director, and each of the four Class I
and four Class II directors whose terms continue after the Annual Meeting, is
obtained from the Company's records or from information furnished directly by
the individual to the Company. All the nominees are presently serving on the
Board of Directors. Members of the Board of Directors are generally ineligible
to stand for election if they will have attained age 70 by the date of the
Company's Annual Meeting of Stockholders at which such election is held. Jack
Edwards, a current Class III director, is ineligible to stand for election by
reason of this policy.
NOMINEES FOR DIRECTOR -- CLASS III
JOHN T. CHAIN, JR., 65. General, United States Air Force (Ret.) and Chairman of
the Board, Thomas Group, a management consulting
company.
Elected 1991
During his military career, General John T. Chain held a number of Air Force
commands. In 1978, he became military assistant to the Secretary of the Air
Force. In 1984, he became the Director of Politico-Military Affairs,
Department of State. General Chain has been Chief of Staff of Supreme
Headquarters Allied Powers Europe, and Commander in Chief, Strategic Air
Command, the position from which he retired in February 1991. In March 1991,
he became Executive Vice President for Burlington Northern Railroad, serving
in that capacity until February 1996. In December 1996, he assumed the
position of President of Quarterdeck Equity Partners, Inc. and in May 1998, he
became Chairman of the Board of Thomas Group, Inc. He is also a director of
Nabisco Holding Group, Inc., R.J. Reynolds, Inc. and Kemper Insurance Company.
VIC FAZIO, 57. Senior Partner, Clark & Weinstock, a consulting firm.
Elected 2000
Vic Fazio served as a Member of Congress for 20 years representing
California's third congressional district. During that time he served as a
member of the Armed Services, Budget and Ethics Committees and was a member of
the House Appropriations Committee where he served as Subcommittee Chair or
ranking member for 18 years. Mr. Fazio was a member of the elected Democratic
Leadership in the House from 1991-1998 including four years as Chair of the
Democratic Caucus, the third ranking position in the party. From 1975 to 1978
Mr. Fazio served in the California Assembly and was a member of the staff of
the California Assembly Speaker from 1971 to 1975. Upon leaving Congress in
early 1999, he became a Senior Partner at Clark & Weinstock, a strategic
communications consulting firm. He is a member of numerous boards including
The California Institute, Coro National Board of Governors, the U.S. Capitol
Historical Society and the Board of Visitors, The University of California at
Davis.
KENT KRESA, 62. Chairman, President and Chief Executive Officer.
Elected 1987
Before joining the Company, Kent Kresa was associated with the Lincoln
Laboratory of M.I.T. and the Defense Advanced Research Projects Agency of the
Department of Defense. In 1975, he joined the Company as Vice President and
Manager of the Company's Research and Technology Center. He became General
Manager
4
<PAGE>
of the Ventura Division in 1976, Group Vice President of the Aircraft Group in
1982 and Senior Vice President for Technology and Development in 1986. Mr.
Kresa was elected President and Chief Operating Officer of the Company in
1987. He was named Chief Executive Officer in 1989 and Chairman of the Board
in 1990. Mr. Kresa is a member of the National Academy of Engineering and is
past Chairman of the Board of Governors of the Aerospace Industries
Association. He is also an Honorary Fellow of the American Institute of
Aeronautics and Astronautics. He serves on the Board of Directors of the W.M.
Keck Foundation and on the Board of Trustees of the California Institute of
Technology, and serves as a director of Avery Dennison Corporation, Atlantic
Richfield Company, the Los Angeles World Affairs Council, the John Tracy
Clinic and Eclipse Aviation. He is also a Member of the Corporation, Draper
Laboratories, Inc. and serves on the Board of Governors of the Performing Arts
Center of Los Angeles.
Vote Required
The vote of a plurality of the shares of Common Stock voting at the Annual
Meeting (with each share entitled to one vote) is required for the election of
directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE THREE NOMINEES FOR
DIRECTOR LISTED ABOVE.
CONTINUING DIRECTORS -- CLASS I
JACK R. BORSTING, 71. E. Morgan Stanley Professor of Business Administration
and Director of the Center for Telecommunications
Management, University of Southern California.
Elected 1991
Dr. Jack R. Borsting was at the Naval Postgraduate School in Monterey,
California from 1959 to 1980. During his tenure at Monterey, he was professor
of Operations Research, Chairman of the Department of Operations Research and
Administration Science, and Provost and Academic Dean. Dr. Borsting was
Assistant Secretary of Defense (Comptroller) from 1980 to 1983 and Dean of the
School of Business at the University of Miami from 1983 to 1988. From 1988 to
1994, he was the Robert R. Dockson professor and Dean of the School of
Business Administration at the University of Southern California, Los Angeles.
He is past president of both the Operations Research Society of America and
the Military Operations Research Society. He is currently Chairman of the
Board of Trustees of the Orthopedic Hospital of Los Angeles and serves as a
director of Whitman Education Group and TRO Learning, Inc. He is also a
trustee of the Rose Hills Foundation.
AULANA L. PETERS, 58. Partner, Gibson, Dunn & Crutcher.
Elected 1992
Aulana L. Peters joined the law firm of Gibson, Dunn & Crutcher in 1973. In
1980, she was named a partner in the firm and continued in the practice of law
until 1984 when she accepted an appointment as Commissioner of the Securities
and Exchange Commission. In 1988, after serving four years as a Commissioner,
she returned to Gibson, Dunn & Crutcher. Ms. Peters is a director of Callaway
Golf Company, Minnesota Mining and Manufacturing Company, and Merrill Lynch &
Co., Inc. She is also a member of the Board of Directors of Community
Television for Southern California (KCET) and of the Legal Advisory Board of
the National Association of Securities Dealers. Ms. Peters is a member of the
Financial Accounting Standards Board Steering Committee for its Financial
Reporting Project and is a member of the Public Oversight Board's Panel on
Audit Effectiveness.
5
<PAGE>
RICHARD M. ROSENBERG, 69. Chairman of the Board and Chief Executive Officer
(Ret.), BankAmerica Corporation and Bank of America
NT&SA.
Elected 1991
Richard M. Rosenberg was the Chairman of the Board and Chief Executive
Officer of BankAmerica Corporation ("BAC") and Bank of America ("BoA") from
1990 to 1996. He had served as President since February 1990 and as Vice
Chairman of the Board and a director of BAC and the BoA since 1987. Before
joining BAC, Mr. Rosenberg served as President and Chief Operating Officer of
Seafirst Corporation and Seattle-First National Bank, which he joined in 1986.
Mr. Rosenberg is a retired Commander in the U.S. Navy Reserve, a director of
Airborne Express Corporation, SBC Communications, Chronicle Publishing,
Pacific Life Insurance Company, and Bank of America Corporation and a member
of the Board of Trustees of the California Institute of Technology.
RICHARD J. STEGEMEIER, 72. Chairman Emeritus of the Board of Directors, Unocal
Corporation, an integrated petroleum company.
Elected 1990
Richard J. Stegemeier joined Union Oil Company of California, principal
operating subsidiary of Unocal Corporation ("Unocal"), in 1951. He became
President and Chief Operating Officer in 1985, and President and Chief
Executive Officer in 1988. In 1989 he was elected Chairman of the Board, the
position from which he retired in 1995. Mr. Stegemeier is a member of the
National Academy of Engineering and a director of Foundation Health Systems,
Inc., Halliburton Company, SempraEnergy and Montgomery Watson, Inc.
CONTINUING DIRECTORS -- CLASS II
PHILLIP FROST, 63. Chairman of the Board and Chief Executive Officer, IVAX
Corporation, a pharmaceutical company.
Elected 1996
Dr. Phillip Frost has served as Chairman of the Board of Directors and Chief
Executive Officer of IVAX Corporation since 1987. He was Chairman of the
Department of Dermatology at Mt. Sinai Medical Center of Greater Miami, Miami
Beach, Florida from 1972 to 1990. Dr. Frost was Chairman of the Board of
Directors of Key Pharmaceuticals, Inc. from 1972 to 1986. He is Chairman of
Whitman Education Group, and Vice Chairman of the Board of Directors of North
American Vaccine, Inc., and Continucare Corporation. He is also a Trustee of
the Board of the University of Miami and a member of the Board of Governors of
the American Stock Exchange.
ROBERT A. LUTZ, 68. Chairman and Chief Executive Officer, Exide Corporation, a
battery manufacturing company.
Elected 1997
Robert A. Lutz has served as Chairman and Chief Executive Officer of Exide
Corporation since December 1998. Previously he had joined Chrysler Corporation
in 1986 as Executive Vice President of Chrysler Motors Corporation and was
elected a director of Chrysler Corporation that same year. He was elected
President in 1991 and Vice Chairman in 1996. He retired from Chrysler
Corporation in July 1998. Prior to joining Chrysler Corporation, Mr. Lutz held
senior positions with Ford Motor Company, General Motors Corporation Europe
and Bavarian Motor Werke. He is an executive director of the National
Association of Manufacturers and a member of the National Advisory Council of
the University of Michigan School of Engineering, the Board of Trustees of the
U.S. Marine Corps University Foundation and the Advisory Board of the
University of California-Berkeley, Haas School of Business. Mr. Lutz is also a
director of ASCOM Holdings, A.G. and Silicon Graphics, Inc.
6
<PAGE>
JOHN E. ROBSON, 69. Senior Advisor, Robertson Stephens, a Fleet Boston Financial
Company, investment bankers.
Elected 1993
From 1989 to 1993, John E. Robson served as Deputy Secretary of the United
States Treasury. He was Dean and Professor of Management at the Emory
University School of Business Administration from 1986 to 1989 and President
and Chief Executive Officer and Executive Vice President and Chief Operating
Officer of G.D. Searle & Co., a pharmaceutical company, from 1977 to 1986.
Previously, he held government posts as Chairman of the U.S. Civil Aeronautics
Board, regulator of the airline industry and Under Secretary of the
U.S. Department of Transportation, and engaged in the private practice of law
as a partner of Sidley and Austin. Mr. Robson is a director of Exide
Corporation, Monsanto Company and ProLogis Trust. He is also a Distinguished
Visiting Fellow of the Hoover Institution at Stanford University, a Visiting
Fellow at the Heritage Foundation and a director of the University of
California San Francisco Foundation.
JOHN BROOKS SLAUGHTER, 66. President Emeritus, Occidental College, and Melbo
Professor of Leadership in Education, University of
Southern California.
Elected 1993
Dr. John Brooks Slaughter held electronics engineering positions with
General Dynamics Convair and the U.S. Navy Electronics Laboratory. In 1975, he
became Director of the Applied Physics Laboratory of the University of
Washington. In 1977, he was appointed Assistant Director for Astronomics,
Atmospherics, Earth and Ocean Sciences at the National Science Foundation.
From 1979 to 1980, he served as Academic Vice President and Provost of
Washington State University. In 1980, he returned to the National Science
Foundation as Director and served in that capacity until 1982 when he became
Chancellor of the University of Maryland, College Park. From 1988 to July
1999, Dr. Slaughter was President of Occidental College in Los Angeles. In
August 1999, he assumed the position of Melbo Professor of Leadership in
Education at the University of Southern California. He is a member of the
National Academy of Engineering, a fellow of the American Academy of Arts and
Sciences and serves as a director of Atlantic Richfield Company, Avery
Dennison Corporation, Solutia, Inc. and International Business Machines
Corporation.
Committees of the Board of Directors
The Board of Directors has Audit, Compensation and Management Development,
Nominating and Corporate Governance, Finance and Public Issues and Policy
Committees. The membership of these committees is usually determined at the
organizational meeting of the Board held in conjunction with the Annual
Meeting. The membership of each committee is as follows, with the chairman
listed first:
<TABLE>
<CAPTION>
Compensation and Nominating and Public Issues
Audit Management Development Corporate Governance Finance and Policy
- --------------------- ---------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Jack Edwards Richard J. Stegemeier Jack R. Borsting Richard M. Rosenberg Aulana L. Peters
Jack R. Borsting Jack R. Borsting John T. Chain, Jr. John T. Chain, Jr. Phillip Frost
Vic Fazio John T. Chain, Jr. Richard M. Rosenberg Jack Edwards Robert A. Lutz
Aulana L. Peters Jack Edwards John Brooks Slaughter Phillip Frost John Brooks Slaughter
John Brooks Slaughter John E. Robson Robert A. Lutz Richard J. Stegemeier
Richard J. Stegemeier John E. Robson
</TABLE>
Audit Committee
The Audit Committee meets periodically with both the Company's independent
auditors and the Company's chief internal auditor to review audit results and
the adequacy of the Company's system of internal controls. In addition, the
Audit Committee recommends to the Board of Directors the appointment or
discharge of the Company's independent auditors, and reviews professional
services of a non-audit nature to be provided by the independent auditors to
evaluate the impact of undertaking such added services on the independence of
the auditors. The Audit Committee held seven meetings in 1999.
7
<PAGE>
Compensation and Management Development Committee
The Compensation and Management Development Committee (the "Compensation
Committee") recommends to the Board of Directors the base salary and incentive
compensation of all elected officers and takes final action with respect to
base salary and incentive compensation for certain other officers and key
employees. It reviews the Company's compensation policies and management
actions to assure the succession of qualified officers. The Committee also
establishes the Company's annual performance objectives under the incentive
compensation plans and recommends to the Board of Directors the amounts to be
appropriated for awards under such plans and under the Company's 1973
Incentive Compensation Plan (the "1973 Incentive Plan"). The Committee grants
awards under and administers the Company's Stock Plans (as defined below) and
recommends to the Board of Directors all compensation plans in which Company
officers are eligible to participate. The Compensation and Management
Development Committee held nine meetings in 1999.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee reviews candidates to
serve as directors and recommends to the Board of Directors nominees for
election. The activities and associations of each candidate are examined to
ensure that there is no legal impediment, conflict of interest or other
consideration that might prevent service on the Board of Directors. In making
its selection, the Board of Directors bears in mind that the foremost
responsibility of a Northrop Grumman director is to represent the interests of
the stockholders as a whole. The Nominating and Corporate Governance Committee
will consider nominees recommended by stockholders if such nominations have
been submitted in writing, accompanied both by a description of the proposed
nominee's qualifications and an indication of the consent of the proposed
nominee and relevant biographical information. The recommendation should be
addressed to the Nominating and Corporate Governance Committee in care of the
Secretary of the Company. In addition, the Nominating and Corporate Governance
Committee makes recommendations to the Board of Directors concerning the
composition and size of the Board of Directors, candidates to fill vacancies,
the remuneration of non-employee directors, and matters of corporate
governance as appropriate. The Nominating and Corporate Governance Committee
held six meetings in 1999.
Finance Committee
The Finance Committee reviews and makes recommendations concerning proposed
dividend actions and issuance of debt or equity securities. The Finance
Committee considers and makes recommendations for final action by the Board on
contracts, programs, acquisitions, mergers or divestments of an unusual or
material nature. The Finance Committee also reviews the investment performance
of the employee benefit plans, capital asset requirements and short-term
investment policy when appropriate. The Finance Committee held six meetings in
1999.
Public Issues and Policy Committee
On March 15, 2000 the Board of Directors approved a change in name of the
Executive and Public Policy Committee to the Public Issues and Policy
Committee. This Committee reviews and monitors the Northrop Grumman Employees
Political Action Committee and makes policy and budget recommendations to the
Board on proposed charitable contributions and aid to higher education. The
Public Issues and Policy Committee reviews and approves the Company's policy
for engaging the services of consultants and commission agents. The Public
Issues and Policy Committee held three meetings in 1999.
BOARD AND COMMITTEE MEETINGS
During 1999, the Board held 12 meetings and the committees described above
held 31 meetings. Average attendance at all such meetings was 92%. Each
incumbent director attended at least 75% of the total number of board and
committee meetings he or she was eligible to attend, with the exception of
Robert A. Lutz who attended 74%.
8
<PAGE>
COMPENSATION OF DIRECTORS
The Company paid each director an annual retainer of $28,000 and an
additional $1,000 for each Board and committee meeting attended during 1999.
Committee chairmen are paid an annual retainer of $3,000. Any director who
performs extraordinary services for the Board at the request of the Chairman
of the Board or the chairman of a committee is paid $1,000 per day. In
December, 1999 the annual retainer was increased to $32,000. Directors are
reimbursed for all reasonable expenses in attending these meetings and in
performing extraordinary services. Directors who are employees of the Company
do not receive any compensation for their service as directors.
The 1993 Stock Plan For Non-Employee Directors provides that 30% of the
retainer earned by each director is paid in shares of Common Stock, issued
following the close of the fiscal year. In addition, directors may defer
payment of all or a portion of their remaining retainer fees, Committee
Chairman retainer fees and/or Board and committee meeting fees. Deferred
compensation may either be distributed in shares of Common Stock, issued after
the close of the fiscal year, or placed in a stock unit account until the
conclusion of a director-specified deferral period, generally for a minimum of
two years from the time the compensation is earned. All deferral elections
must be made prior to the beginning of the year for which the retainer and
fees will be paid. Directors are credited with dividend equivalents in
connection with the shares of Common Stock, which are distributed early in the
year following the year earned or deferred into the stock unit account. The
Board has adopted a Company stock ownership guideline for outside directors
which encourages directors to hold shares of Common Stock equal in market
value to three times the annual retainer, to be achieved within five years of
joining the Board (for existing directors, five years from the 1995 date of
adoption).
The 1995 Stock Option Plan for Non-Employee Directors, as amended, provides
for the annual grant of options to each non-employee director to purchase
1,500 shares of Common Stock with an exercise price equal to the fair market
value of the Common Stock on the grant date. The options have a term of ten
years. If the individual ceases to serve as a director, the options continue
to be exercisable for the lesser of five years or the expiration of the
original term of the options. If termination is for cause, the options
terminate when the director ceases to serve.
The Northrop Grumman Corporation Board of Directors Retirement Plan (the
"Retirement Plan") provides that outside directors, as defined in the
Company's Bylaws, are eligible to receive a retirement benefit if they retire
from the Board following completion of at least five or more consecutive years
of service as an outside Board member. Outside directors are also eligible for
benefits if they are ineligible to stand for election because they will have
attained age 70 prior to the Company's Annual Meeting of Stockholders at which
such election is held and have not completed at least five consecutive years
of service as an outside director. The annual benefit payable is equal to the
annual retainer then being paid to active directors or such lesser amount as
is provided for under the Retirement Plan. Benefits are payable for ten years
or less (as set forth in the Retirement Plan), from the director's retirement
date. In the case of a director's death while receiving benefits, the benefits
are payable to the director's surviving spouse, as defined in the Retirement
Plan. In the event of a change in control (as defined in the Retirement Plan),
all outside directors serving on the Board at that time shall be immediately
vested and entitled to an annual benefit amount for each year of consecutive
service. In addition, benefits payable under the Retirement Plan have been
funded through the establishment of a grantor trust. In March 1997, the Board
of Directors terminated the Retirement Plan with respect to future outside
directors.
On March 19, 1997, the Board of Directors adopted the Northrop Grumman Non-
Employee Directors Equity Participation Plan (the "Equity Plan" and, together
with the Retirement Plan, collectively, the "Directors Plans"). The Equity
Plan is applicable to outside directors who become such after March 1, 1997
and directors serving prior to that date who elected to participate in the
Equity Plan. Directors who elected to participate in the Equity Plan
terminated their participation in the Retirement Plan. Under the Equity Plan,
outside directors shall have an amount equal to 50% of their annual retainer
credited to an equity participation account and converted into stock units
based on the then fair market value of the Common Stock. Beginning in 2001 the
Company will also credit an amount equal to 5% of their annual retainer to the
equity participation account unless: (1) no
9
<PAGE>
amount was appropriated for payment of awards with respect to the preceding
calendar year pursuant to the Company's Incentive Compensation Plan or (2) the
Company did not attain 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. Each stock unit will be credited with dividend
equivalents, which will be deemed reinvested in additional stock units. Each
outside director who terminates service after three or more years of service
shall be entitled to receive cash payments from the equity participation
account in a number of annual installments equal to the number of years for
which benefits have been accrued (not to exceed ten), each installment to be
in an amount equal to the dollar value of the equity participation account
based on Common Stock value as of the date of determination of the installment
payment, divided by the number of installments then remaining to be paid. Upon
a change in control (as defined in the Equity Plan) benefits under the Equity
Plan immediately vest. The Board of Directors believes that the Equity Plan
will further align the interests of the directors with the interests of the
stockholders by making this part of the directors' benefits dependent upon the
value of the Common Stock.
REPORT OF THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
The Compensation and Management Development Committee of the Board of
Directors (the "Compensation Committee") has furnished the following report on
executive compensation applicable to employees elected as executive officers
of the Company. The Compensation Committee is comprised exclusively of outside
directors.
Compensation Philosophy
The Company's executive compensation program is designed to promote
recruitment and retention of key employees of exceptional ability and motivate
them to superior performance. It is comprised of linked plans that encourage
and reward participants for achieving superior current performance, financial
results exceeding specific thresholds, and long-term prosperous growth.
Major components of executive compensation are at risk and vary directly in
their amount with each executive's impact on desired business results.
Successful accomplishment of business goals in both annual operating
performance and resulting stockholder value can produce significant individual
rewards. Failure to attain business goals will have a negative effect on
rewards.
In addition to variations attributable to individual performance against
business goals and Company performance, executive total compensation is
influenced directly by competitive considerations. Base salaries of executives
are targeted at a competitive market median on a job-by-job basis with
individual variations explained by differences in experience, skills and
sustained performance. Annual incentive compensation and long-term incentive
stock compensation vary with individual job level, scope and overall influence
on the Company's business results and individual, unit and Company
performance.
Normalized for these individual variations, annual total cash compensation
- -- the sum of base salary and annual incentive compensation--will be lower
than competitive market median in years of below target performance, and above
competitive market median in years performance exceeds target.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code ("Code") generally limits the
tax deduction to $1 million for compensation paid to the corporation's chief
executive officer ("CEO") and the four other most highly compensated executive
officers. Qualifying performance-based compensation is not subject to the
deduction limit.
10
<PAGE>
In 1995 and 1996 stockholders approved amendments to the Company's Long-Term
Incentive Stock Plan ("1993 Stock Plan") to meet the performance-based
criteria of Section 162(m) with respect to some but not necessarily all of the
awards under the 1993 Stock Plan.
Payments pursuant to the 1973 Incentive Compensation Plan ("Incentive Plan")
are also subject to Section 162(m) of the Code. Although the Incentive Plan is
performance driven, it did not meet the performance based criteria of Section
162(m) and therefore, the CEO elected to defer 1996, 1997 and 1998 cash
compensation to the extent that it would cause the loss of a deduction under
Section 162(m).
In December 1998, the Compensation Committee approved amendments to the
Incentive Plan to comply with the performance based criteria of Section 162(m)
and in May 1999 stockholders adopted the amended and restated Incentive
Compensation Plan. As a result, compensation paid under the Incentive Plan for
1999 and thereafter should be deductible.
Measuring Company Performance
Consistent with the Company's business plan, management in each
organizational element prepares and submits for assessment an Annual Operating
Plan containing Financial and Supplemental Goals together with defined
performance measures and numerical weights.
. Financial Goals focus on operating earnings, cash flow and stockholder
value metrics.
. Supplemental Goals focus on such factors as customer satisfaction, new
product development, new business initiatives, productivity, quality
improvement, workplace diversity, management development, and
environmental management.
Annually, the Compensation Committee reviews, approves or--at its
discretion--modifies the CEO's written proposal of goals and numerical values
for Performance Measurement Factors. Performance highlights against 1999 goals
can be found below in Chief Executive Officer 1999 Compensation.
For Performance Year 1999 the Compensation Committee established Performance
Measurement Factors addressing Shareholder Value Creation, Pre-tax Return on
3-Year Average Stockholder Equity, Cash Flow and Supplemental Goals in order
to judge the company's performance and that of executive officers.
Determining Competitive Compensation
In determining base salaries and incentive compensation for the named
executive officers, sources of competitive compensation information are
independent surveys of industry peer companies. Peer companies include:
. Companies comprising the aerospace and defense group depicted in the
performance graph in the Shareowner Return Performance Presentation
following this Report;
. Other companies designated by the Compensation Committee.
The Company uses executive surveys provided by Hewitt Associates and Towers
Perrin as well as periodic custom surveys of companies selected by the
Compensation Committee to assess competitiveness of executive compensation.
Competitive award guidelines contained in the Company's Long-Term Incentive
Stock Plan Guide to Administration have been established by the Compensation
Committee with the assistance of Frederic W. Cook, Inc., an independent
compensation consulting firm.
11
<PAGE>
Establishing Executive Compensation
The Company's executive compensation program includes the following linked
elements:
. Base Salary
. Annual Incentive Compensation
. Long-Term Incentive Compensation.
Base Salary
Annually, the Compensation Committee reviews, and accepts or modifies as it
deems appropriate, base salary recommendations submitted by the CEO for
executive officers (other than the CEO). Separately, the Compensation
Committee reviews the base salary of the CEO, considering competitive
compensation data, its assessment of past performance and its expectation of
future contributions. The Board then approves or modifies the Compensation
Committee's recommendations for executive officers and the CEO.
Annual Incentive Compensation
Executive officers are eligible for incentive compensation annually under
the Company's stockholder-approved 1973 Incentive Plan as amended. Performance
criteria, as approved by shareholders, include objective tests of operating
income and return on equity. The Committee appropriates an amount (Tentative
Appropriated Incentive Compensation) to the Plan equal to 3% of the Company's
income before income taxes. However, no appropriation shall be made with
respect to any Performance Year that would reduce the pre-tax return on
stockholder equity below 10%, or in which no dividend is declared on common
stock.
As stipulated by the Plan, the maximum potential individual Incentive
Compensation award for a Performance Year for an executive officer shall be
the lesser of $3,000,000 or the respective percentage of Appropriated
Incentive Compensation, as follows:
<TABLE>
<S> <C>
Chief Executive Officer: 30.0%
Each Other Section 162(m) Officer: 17.5%
</TABLE>
Accompanying his annual performance report, the CEO submits recommendations
to the Compensation Committee for individual incentive awards for the
executive officers, except the CEO, which reflect judgments as to
contributions to the accomplishment of annual goals and the Company's long-
term business plan. Separately, the Compensation Committee considers an
incentive compensation award for the CEO based on its assessment of
performance.
As part of this process, the Committee reviews the amount of the total
Tentative Appropriated Incentive Compensation for that Performance Year and in
its sole discretion may reduce (but not increase) that amount after taking
into account the overall performance of the Company in the attainment of
predetermined financial and non-financial objectives selected by the
Committee. Each executive officer's Incentive Compensation award is based upon
the foregoing and the Committee's assessment of the individual's performance.
The incentive compensation determinations for the executive officers and the
CEO must be ratified by the Board.
Long-Term Incentive Compensation
The 1993 Stock Plan provides the flexibility to grant awards in a variety of
forms spanning a number of years, including stock options, restricted stock
rights (RSRs) and restricted performance stock rights (RPSRs). The purpose of
this form of compensation is to establish long-term performance horizons for
participants. By promoting ownership of the Company's common stock, the 1993
Stock Plan creates stockholder-managers interested in the sustained growth and
prosperity of the Company.
In November 1998 elected and appointed officers were awarded a grant of
premium priced stock options. The CEO received 1/3 of his stock options at a
20% premium over the market value on the date of grant, 1/3 at a 35% premium
and 1/3 at a 60% premium. Elected and appointed officers received 1/2 of their
options at a
12
<PAGE>
20% premium over the market value on the date of grant and 1/2 at a 35%
premium. Premium stock options have a positive spread value only when the
price at exercise exceeds the market price on date of grant by an amount
greater than the premium. The next regular grant of stock options for these
executives is planned for May 2001.
In late 1999 the Committee recognized that the potential value of the
premium priced options granted in 1998 had significantly diminished due, in
large part, to the general downturn of stock prices in the aerospace and
defense sector. The Company's stock price declined despite the overall
improvement in financial performance. Based on a recommendation of the
Committee, the Board approved grants of Restricted Stock Rights to affected
elected and appointed officers in order to ensure retention of those key
executives. Vesting of the Restricted Stock Rights occurs over five years and
is predicated on continued employment with the Company.
In 1998, to further promote alignment of management and stockholder
interests, the Board adopted Stock Ownership Guidelines for the CEO and other
officers of the Company. These guidelines contemplate that officers own
Company stock denominated as a percentage of their annual salaries,
accumulated over a 3-year period: seven (7) times annual salary for the CEO;
three (3) times annual salary for other elected officers; one and one-half
times annual salary for appointed officers.
1999 Chief Executive Officer Compensation
After giving careful consideration to executive compensation survey data
from nationally recognized survey sources, the Committee recommended and the
Board approved a 5% salary increase to Mr. Kresa in 1999 to maintain its
philosophy of targeting executive salaries at the market 50th percentile.
In considering the performance of Mr. Kresa and establishing his annual
incentive compensation, the Committee reviewed the overall performance of the
Company against the 1999 financial and supplemental goals and Mr. Kresa's
contributions during the year. The Committee noted that the Company exceeded
most of the Performance Measurement Criteria set forth at the beginning of the
period. Additionally, the Committee recognized that under Mr. Kresa's
leadership the Company:
. Strengthened its position within the industry, successfully resolved key
customer issues such as the Joint STARS claim, and successfully resolved
operating issues in the DIRCM program, which is now in production for
both the U.S. and Great Britain;
. Generated a record $1.2 billion in cash from operations and reduced its
net debt by $700 million, from $2.8 billion at the end of 1998 to $2.1
billion at December 31, 1999;
. Won several important contracts in line with its strategy to move into
businesses with cutting-edge products and services. Logicon reported
record results across the board and the Electronics Sensors and Systems
Sector (ESSS) achieved more than $3.1 billion in acquisitions despite
delays in several of its international contracts;
. Won contracted Contract Research and Development programs valued at $285
million, exceeding goal;
. Successfully completed all planned remediation and test activities to
ensure all information systems were Y2K compliant before year-end.
13
<PAGE>
Based on its assessment, the Committee determined and the Board ratified an
incentive compensation award for Mr. Kresa for 1999 as depicted in the Summary
Compensation Table.
THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
RICHARD J. STEGEMEIER, CHAIRMAN
JACK R. BORSTING
JOHN T. CHAIN, JR.
JACK EDWARDS
JOHN E. ROBSON
14
<PAGE>
Stockholder Return Performance Presentation
The line graph below compares the relative change for the 5 year period
ended December 31, 1999 in the cumulative total stockholder return on the
Company's Common Stock against the cumulative total return of the S&P
Composite-500 Stock Index, and the S&P Aerospace/Defense Index comprised of
The Boeing Company, General Dynamics Corporation, B.F. Goodrich, Lockheed
Martin Corporation, Northrop Grumman Corporation, Raytheon Company (B),
Rockwell International Corporation and United Technologies Corporation.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG NORTHROP GRUMMAN CORPORATION,
S&P 500 INDEX & S&P AEROSPACE/DEFENSE INDEX
[GRAPH OF NORTHROP GRUMMAN]
<TABLE>
<CAPTION>
Measurement Period NORTHROP S&P S&P
(Fiscal Year Covered) GRUMMAN 500 INDEX AEROSPACE/DEFENSE
- ------------------- ---------- --------- -----------------
<S> <C> <C> <C>
Measurement Pt-1994 $100 $100 $100
FYE 1995 $156 $137 $165
FYE 1996 $206 $168 $212
FYE 1997 $290 $224 $220
FYE 1998 $188 $287 $203
FYE 1999 $143 $347 $198
</TABLE>
15
<PAGE>
EXECUTIVE COMPENSATION
The table below shows the annual and long-term compensation for services in
all capacities to the Company for the years ended December 31, 1999, 1998 and
1997 of the Named Executive Officers at December 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------- --------------------------------
Awards Payouts
--------------------- ----------
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Compensation Award(s) Options/ LTIP Compensation
Position Year Salary($)(1) Bonus($) ($) (2) ($) SARs(#) Payouts($) ($)(3)
--------- ---- ------------ --------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1) KENT KRESA.......... 1999 936,346 1,400,000 296,420(4) 1,384,250 6,400
Chairman of the Board,
President 1998 900,000 0 50,068(5) 200,000 * 6,400
and Chief Executive
Officer 1997 889,167 1,711,125 66,308(6) 2,303,220 6,400
2) RICHARD B. WAUGH,
JR.................... 1999 436,154 400,000 565,000 6,400
Corporate Vice
President 1998 390,885 92,000 56,217(7) 75,000 * 6,400
and Chief Financial
Officer 1997 370,833 530,000 803,390 6,400
3) JAMES G. ROCHE...... 1999 444,231 425,000 65,299(8) 565,000 6,400
Corporate Vice
President 1998 385,731 111,000 63,527(9) 75,000 * 6,400
and President
Electronic Sensors 1997 358,333 450,000 669,645 6,400
and Systems Sector
4) HERBERT W.
ANDERSON.............. 1999 369,231 575,000(10) 508,500 7,500 6,400
Corporate Vice
President, 1998 306,827 182,000(10) 60,000 * 6,400
President and Chief
Executive 1997 265,833 285,000 64,896(11) 6,400
Officer, Logicon, Inc.
5) RALPH D. CROSBY,
JR.................... 1999 436,154 400,000 59,814(12) 565,000 6,400
Corporate Vice
President and 1998 357,693 50,000 75,000 * 6,400
President, Integrated
Systems 1997 316,666 385,000 696,440 6,400
and Aerostructures
Sector
</TABLE>
- -------
(1) The amounts listed in this column do not include amounts paid for
vacation hours accrued but not used for the following individuals in the
following years: Mr. Waugh: $12,100 in 1999, $9,109 in 1998, $10,096 in
1997; Dr. Roche: $23,468 in 1999, $16,053 in 1998, $19,903 in 1997; Mr.
Anderson: $1,062 in 1999, $1,292 in 1998, $19,332 in 1997; and Mr.
Crosby: $4,185 in 1998, $3,692 in 1997.
(2) RSRs vest over a five year period with 20% of the total grant vesting
one year after the date of the grant and 20% vesting annually
thereafter. There are no dividends paid on RSRs.
(3) "All Other Compensation" consists of Company contributions to the
Northrop Grumman Savings and Investment Plan for the Named Executive
Officers.
(4) As a result of the Company's decision in 1997 to relocate its corporate
offices to Northern Virginia and the subsequent abandonment of that
decision following the termination of the proposed merger with Lockheed
Martin Corporation, the Company in 1999 paid $211,200 to a third party
relocation company in connection with the relocation company's purchase
(at appraised value) of the Alexandria, Virginia house that Mr. Kresa
had purchased in connection with the planned Corporate office move. It
also paid $31,229 to transport Mr. Kresa's household goods to California
under its applicable policies.
(5) Amount includes $20,464 for car allowance and $17,526 for premium
amounts paid on behalf of Mr. Kresa for life, accidental death and
dismemberment, medical, dental and long-term disability insurance.
(6) Amount includes, among other items, $19,872 for car allowance.
(7) Amount includes $17,295 for car allowance, $15,000 for income tax
preparation services and $18,838 for premium amounts paid on behalf of
Mr. Waugh for life, accidental death and dismemberment, medical, dental
and long-term disability insurance.
16
<PAGE>
(8) Amount includes, among other items, $16,571 for spouse travel.
(9) Amount includes, among other items, $15,934 for car allowance.
(10) In connection with the merger with Logicon, Inc. and the Company's desire
to retain certain key employees, the Company paid Mr. Anderson bonus
compensation equal to 33 1/3% of his pre-merger base salary one year
following the merger and 66 2/3% of pre-merger base salary two years
following the merger. Under this arrangement, Mr. Anderson received
$90,000 in 1998 and $180,000 in 1999.
(11) Amount includes $31,194 in moving expenses incurred by Mr. Anderson in
his transfer to the Logicon Sector.
(12) Amount includes $17,940 for car allowance and $18,947 for spouse travel.
* Upon the February 26, 1998 shareholder vote in favor of the proposed
merger of the Company with Lockheed Martin Corporation (the "Merger
Vote"), the unvested RPSRs under the 1993 Stock Plan vested and became
distributable. In response to these accelerations, the Compensation
Committee and the Board of Directors adopted a program ("Program") to
preserve the incentive and employee-retention benefits of such amounts.
The Program involved placing in escrow the net shares of Company stock
issued to the executive officers after the acceleration. Fifty percent of
the number of RPSRs that vested upon the shareholder vote were issued,
and the remaining fifty percent was deemed tax owed with respect to the
vested RPSRs. Of the fifty percent deemed tax owed, any amount in excess
of the amount each executive officer previously instructed the Company to
withhold for taxes was paid to the executive officer in cash. The shares
issued were placed in escrow pursuant to the terms of the Program as
described on Page 22, and remained subject to the risks of forfeiture,
company performance and overall market conditions until the expiration of
the escrow period and the release of those shares on March 1, 2000.
The 1993 Stock Plan provides for release of RPSRs in annual interim
installments in the third and fourth years, with final reconciliation in
the fifth year in the event payments are then due to the executive. For the
Named Executive Officers, the numbers of shares placed in escrow and the
aggregate dollar value of RPSR shares which vested under the 1993 Stock
Plan are as follows:
Mr. Kresa, 43,926 shares, $12,145,539; Mr. Waugh, 13,276 shares,
$3,670,952; Dr. Roche, 12,328 shares, $3,408,554; Mr. Anderson, 11,899
shares, $3,290,074; and Mr. Crosby, 12,365 shares, $3,418,923. The dollar
amounts of the RPSR shares that accelerated were calculated using the
vesting date price per share of $138.25. On March 1, 2000, the date the
escrow period expired, the price of a share of Company stock was $43.8125.
OPTION GRANTS IN LAST FISCAL YEAR
The table below shows individual grants of stock options made in 1999 to a
named executive officer.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value
At Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (1)
---------------------------------------------------------------- ----------------------------
Number of Securities % of Total Options Exercise or
Underlying Options Granted to Employees Base Price Expiration
Granted (#) (2) in Fiscal Year ($/Sh) Date 5% (#) 10% ($)
-------------------- -------------------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Herbert W. Anderson..... 3,750 2.13 88.125 8/2/09 102,079 358,291
3,750 2.13 99.141 8/2/09 60,769 316,981
</TABLE>
- --------
(1) The potential realizable value of each grant of options assuming that the
market price of the Company's Common Stock from the date of grant
($70.8125) to the end of the option term (10 years) appreciates in value
at an annualized rate of 5% and 10%.
(2) The first installment of 25% of the total grant becomes exercisable two
years after the date of the grant, with 25% vesting annually thereafter.
17
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Unexercised
Number of In-the-Money
Securities Underlying Options at
Unexercised Options at FY-End($)
Shares Acquired on FY-End(#) Exercisable/
Name Exercise (#) Value Realized ($) Exercisable/Unexercisable Unexercisable(1)
- ---- ------------------ ------------------ ------------------------- ----------------
<S> <C> <C> <C> <C>
Kent Kresa.............. 500,000(/2/) 18,875,000 161,400/200,000 1,072,450/0
Richard B. Waugh, Jr. .. 0 0 60,400/75,000 767,362/0
James G. Roche.......... 0 0 22,500/75,000 0/0
Herbert W. Anderson..... 0 0 40,620/67,500 369,696/0
Ralph D. Crosby, Jr. ... 2,780 98,500 39,900/75,000 284,637/0
</TABLE>
- --------
(1) Based on the market value at December 31, 1999 of $54.0625
(2) The options exercised by Mr. Kresa on November 23, 1999 had an expiration
date of January 3, 2000. After paying the exercise price and related taxes
in transactions with the Company as provided in the Plan, he received
218,545 shares.
Restricted Performance Stock Rights Grants in Last Fiscal Year
There is shown below information concerning grants of Restricted Performance
Stock Rights made to Named Executive Officers during the last completed fiscal
year.
LONG TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Estimated Future Payouts Under
Number of Shares, Performance or Non-Stock Price-Based Plans
Units or Other Other Period Until ------------------------------------
Name Rights (#) (1) Maturation or Payout Threshold (#) Target (#) Maximum (#)
- ---- ----------------- -------------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Herbert W. Anderson..... 1,500 5 yrs. 0 1,500 2,250
</TABLE>
- --------
(1) The number of Restricted Performance Stock Rights that may be earned under
the 1993 Stock Plan is based on Company total stockholder return compared
to that of companies in the Industry Peer Group. Earnouts over a five year
performance period range from 0% to 150% of the rights awarded. Dividend
equivalents will be distributed in shares on those shares earned over the
five year period. Interim payments may be made if earned by prorata
performance at the end of years 3 and 4. Interim payments are reconciled
with and offset by any final payment due at the end of year 5 based on
performance. In the unlikely event that the sum of interim payments made
at the end of years 3 and 4 exceed the final payment due, no restoration
of shares received will be required.
18
<PAGE>
Pension Plans
For purposes of illustration, the following table shows the amount of annual
retirement benefits that would be accrued at age 65 under the Northrop Grumman
Pension Plan (the "Pension Plan"), as supplemented by the Northrop Corporation
ERISA Supplemental Plan 1 ("ERISA 1") and the ERISA Supplemental Program 2
("ERISA 2") (collectively, the "Supplemental Retirement Plans").
<TABLE>
<CAPTION>
Annual
Average
Compensation
(highest 3 Years of Benefit Service
years out of --------------------------------------------------------------------
last 10) 5 10 15 20 25 30 35
- ------------ -------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 8,300 $ 16,700 $ 25,000 $ 33,300 $ 41,700 $ 50,000 $ 50,000
150,000 12,500 25,000 37,500 50,000 62,500 75,000 75,000
200,000 16,700 33,300 50,000 66,700 83,300 100,000 100,000
250,000 20,800 41,700 62,500 83,300 104,200 125,000 125,000
300,000 25,000 50,000 75,000 100,000 125,000 150,000 150,000
400,000 33,300 66,700 100,000 133,300 166,700 200,000 200,000
500,000 41,700 83,300 125,000 166,700 208,300 250,000 250,000
600,000 50,000 100,000 150,000 200,000 250,000 300,000 300,000
1,000,000 83,300 166,700 250,000 333,300 416,700 500,000 500,000
1,400,000 116,700 233,300 350,000 466,700 583,300 700,000 700,000
1,800,000 150,000 300,000 450,000 600,000 750,000 900,000 1,050,000
2,200,000 183,300 366,700 550,000 733,300 916,700 1,100,000 1,283,300
2,600,000 216,700 433,300 650,000 866,700 1,083,300 1,300,000 1,516,700
</TABLE>
Compensation covered by the plans for executive officers is substantially
equivalent to salary and bonuses as reflected in the Summary Compensation
Table. Benefit Service earned after January 1, 1995 in excess of 30 years will
not be taken into account for accrual of retirement benefits. Benefits payable
under the Supplemental Retirement Plans have been secured through the
establishment of two grantor trusts. The credited years of service under the
Pension Plan and Supplemental Retirement Plans of the five individuals named
in the Summary Compensation Table are as follows: Mr. Kresa, 25 years; Mr.
Waugh, 21 years; Dr. Roche, 16 years; Mr. Anderson, 15 years; and Mr. Crosby,
19 years. Benefits are calculated on a straight life annuity basis at selected
compensation levels and years of service reflected in the table above. The
listed benefit amounts are not subject to any reduction for Social Security
benefits or other offset amounts.
The Company maintains a Supplemental Retirement Income Program for Senior
Executives ("SRI"), under which certain employees are designated by the Board
of Directors to receive benefits in lieu of benefits otherwise payable under
the Pension Plan and the Supplemental Retirement Plans. The amount of the
supplemental benefit under the SRI is equal to the greater of (1) the
participant's benefit under the Pension Plan calculated without regard to the
limits imposed under Sections 415 and 401(a)(17) of the Code, or (2) a fixed
percentage of the participant's final average salary (which term includes
bonus and is based on the highest 3 years out of the last 5) equal to 30% at
age 55, increasing 4% for each year up to and including age 60, and increasing
2% for each year beyond age 60 to 65, in each case offset by the benefit
allowable under the Pension Plan. Mr. Kresa, who is eligible to receive an
annual benefit (estimated to be $1,566,675 payable at age 65, assuming
continued employment and based upon estimated levels of final average salary)
under SRI, is the only Named Executive Officer currently participating in the
SRI. SRI eligibility, in addition to designation by the Board of Directors
requires the attainment of age 55 and 10 years of vesting service. The vesting
service requirement may be waived by the CEO.
On February 25, 1998, the Northrop Grumman Board adopted the CPC
Supplemental Executive Retirement Program (the "CPC SERP"). The CPC SERP is
applicable to elected officers who report directly to the CEO (which group
currently consists of seven elected executive officers of Northrop Grumman as
of January 1, 2000). The CPC SERP provides to each participant a pension
accrual of 1.667% of final average pay for each year or
19
<PAGE>
portion thereof that the participant has served as an elected officer
reporting to the CEO. The total accrual percentage under the CPC SERP cannot
exceed the greater of the maximum of 1) 10% or 2) the percentage necessary for
the participant to receive an annuity of 50% of final average salary when all
pension benefits are taken in total. This provides a pension accrual to the
elected officer for the period that he has served as such, in addition to
regular pension benefits payable from Northrop Grumman's tax qualified and
supplemental retirement plans on the basis of all creditable years of service.
The benefits paid from this plan are paid in a lump sum or in installments
upon termination of employment. The amount is the actuarial equivalent of the
straight life benefit beginning on the retirement date. The compensation used
in the calculation of benefit is the same as for the qualified plan. The
pension table is applicable if benefit years of service is considered only for
CPC Service. The CPC service years for the four Named Executive Officers who
report directly to the CEO are as follows: Mr. Waugh 7.08, Dr. Roche, 7.58,
Mr. Anderson 5.00, and Mr. Crosby, 5.58.
Change in Control Arrangements
March 2000 Special Agreements. Effective March 1, 2000, Northrop Grumman
entered into special severance agreements (the "March 2000 Special
Agreements") with its executive officers, including Messrs. Kresa, Waugh,
Roche, Anderson and Crosby. The purpose of the March 2000 Special Agreements
is to encourage these key executives to continue to carry out their duties in
the event of the possibility of a change in control of Northrop Grumman.
The March 2000 Special Agreements are generally effective until February 28,
2003. The term of the March 2000 Special Agreements will be extended for
additional one-year periods until notice is given that the agreements will
terminate. If a Change in Control (as defined below) occurs during the term of
the agreements, the term of the agreements will not end earlier than two years
following the Change in Control. The March 2000 Special Agreements replace
Northrop Grumman's "Special Agreements" that generally were entered into in
August 1996 and terminated in February 2000.
Under the March 2000 Special Agreements, a "Change in Control," is generally
deemed to occur when (1) certain persons acquire more than 33 1/3% of Northrop
Grumman's voting securities; (2) certain majority changes in Northrop
Grumman's Board of Directors occur during a 24-month period; (3) Northrop
Grumman is liquidated or all or substantially all of Northrop Grumman's assets
are sold in one or a series of related transactions; or (4) Northrop Grumman
is merged, consolidated, or reorganized and Northrop Grumman's stockholders
before the event do not own more than 50% of the voting stock of the resulting
or surviving entity.
Executives are entitled to severance benefits under the March 2000 Special
Agreements only (1) upon a termination of the executive's employment that
constitutes a Qualifying Termination, and (2) only if the termination occurs
during a Protected Period (as defined below) prior to a Change in Control or
in the 24-month period following a Change in Control. A "Qualifying
Termination" generally means that the executive's employment by Northrop
Grumman is terminated by the Company for any reason other than Cause (as
defined below) or by the executive for Good Reason (as defined below), that
Northrop Grumman breaches the agreement, or that a successor breaches or fails
to assume the agreement.
The "Protected Period" is the period of time that the executive is entitled
to severance protections under the March 2000 Special Agreement prior to a
Change in Control. Depending on the nature of the Change in Control, the
Protected Period may commence as early as six months prior to a Change in
Control event.
The March 2000 Special Agreements define "Cause" as: (1) the executive's
conviction for committing an act of fraud, embezzlement, theft, or other act
constituting a felony; or (2) the willful engaging by the executive in
misconduct which would have resulted in the executive's termination by
Northrop Grumman under its policies and practices applicable to the executive
on September 1, 1999. However, no act or failure to act, on an executive's
part, will be considered "willful" for this purpose unless done, or omitted to
be done, by the executive not in good faith and without reasonable belief that
the act or omission was in the best interest of Northrop Grumman.
20
<PAGE>
"Good Reason" is defined in the March 2000 Special Agreements to include:
(1) certain material reductions in the nature or status of the executive's
authorities, duties and/or responsibilities (when such authorities, duties,
and/or responsibilities are viewed in the aggregate); (2) a reduction of the
executive's base salary as in effect on the date of the agreement or as
increased thereafter; (3) a significant reduction of the executive's aggregate
incentive opportunities under the Northrop Grumman short and/or long term
incentive programs as such opportunities exist on the date of the agreement or
as increased thereafter; (4) Northrop Grumman's failure to maintain the
executive's relative level of coverage and accruals under the Company's
employee benefit and/or retirement plans, policies, practices or arrangements
in which the executive participates as of the date of the agreement; (5) the
failure of Northrop Grumman to obtain a satisfactory agreement from any
successor to assume and agree to perform Northrop Grumman's obligations under
the agreement; and (6) any purported termination of the executive's employment
with Northrop Grumman that is not effected pursuant to the procedures set
forth in the agreement. If an executive is a vice president, the executive's
loss of vice president status (other than a promotion to a higher level
office) will constitute Good Reason. In addition, if an executive reports
directly to the Northrop Grumman Chief Executive Officer immediately prior to
the start of the Protected Period, Good Reason will be deemed to exist if the
executive's reporting relationship is changed such that the executive does not
report to one of the following: the Chairman of the Northrop Grumman Board of
Directors, or the Northrop Grumman Chief Executive Officer, President, or
Chief Operating Officer.
Severance benefits generally consist of: (1) an amount equal to three times
the executive's highest annualized base salary earned with respect to the
three full fiscal years prior to the date of the termination of the
executive's employment; (2) an amount equal to three times the greater of (a)
the average of the executive's bonus earned with respect to the three full
fiscal years prior to the date of the termination of the executive's
employment or (b) the executive's target annual bonus established for the
bonus plan year during which the executive's termination occurs; (3) an amount
equal to the executive's unpaid base salary and accrued vacation pay through
the effective date of termination, together with a pro rata portion of the
executive's target bonus for the bonus plan year during which termination
occurs; (4) continuation for 36 months following the effective date of
termination of all benefits pursuant to all welfare benefit plans under which
the executive or his family is eligible to receive benefits as of the
effective date of the Change in Control, and further continuation of medical
benefits for the lives of the executive and his spouse; (5) a lump sum cash
payment representing the present value of the executive's benefits accrued
under Northrop Grumman's qualified defined benefit pension plan and
supplemental retirement plans (calculated as though the executive's employment
had continued for three years) offset by the actuarial present value
equivalent of the benefits payable to the executive from Northrop Grumman's
qualified defined benefit pension plan accrued through the effective date of
termination; and (6) a lump sum cash payment equal to the entire balance of
the executive's deferred compensation, if any, together with any interest
thereon. Executives had the ability to elect, on or before March 1, 2000, an
override of the benefit described in clause (5). If an executive elected an
override, his supplemental retirement plan benefits will be paid in accordance
with the provisions of those plans rather than an automatic lump sum payment.
The March 2000 Special Agreements also provide that if, following a Change
in Control, excise taxes under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") apply to payments made under the March 2000
Special Agreements or other plans or agreements, the executive will be
entitled to receive an additional payment (net of income, Medicare and excise
taxes) to compensate the executive for any excise tax imposed.
Long-Term Incentive Stock Plans. The 1993 Stock Plan and the 1987 Stock Plan
(collectively, the "Stock Plans"), permit grants to selected employees of the
Company consisting of stock options ("Stock Options"), RPSRs, RSRs and RASs. A
Stock Option granted under the Stock Plans is a right to purchase a number of
shares of Common Stock for a specified period of time at a price per share not
less than the fair market value on the date of grant. An RPSR is a right to
receive a number of shares of Common Stock on a specified future date
conditioned upon continued employment and Northrop Grumman's achievement of
specified performance in relation to a list of peer companies. RSRs are the
right to receive a specified number of shares of Common Stock contingent upon
continued employment with the Company and other terms set forth in the Stock
Plans. RASs are restricted shares of Common Stock granted under the 1987 Stock
Plan.
21
<PAGE>
Prior to amendment of the 1993 Stock Plan on November 18, 1998, under the
Stock Plans, a "Change in Control" had the same definition as used in the
Special Agreements. Consequently, the Merger Vote constituted a "Change in
Control" for purposes of the Stock Plans, and, upon the Merger Vote, (a) all
Stock Options under the Stock Plans outstanding as of February 26, 1998 vested
and became fully exercisable; (b) the RPSRs under the Stock Plans outstanding
as of February 26, 1998 vested and became payable in shares of Northrop
Grumman Common Stock, which payment is calculated based upon attainment of
certain stock price performance targets; and (c) the RSRs and RASs under the
Stock Plans outstanding as of February 26, 1998 vested and became
distributable.
On November 18, 1998, the Board amended the 1993 Stock Plan to provide that
the vesting of stock options would not accelerate upon a vote of the
Stockholders favoring a change in control of the Company. Rather, options
would accelerate: (i) if a successor company failed to continue those options;
or (ii) if continued only following both an actual close of a change in
control transaction and either termination of an option holder not for Cause
or termination by an option holder for Good Reason. Following a change in
control, RPSRs would accelerate only prorated on time lapsed from the start of
the performance period for which they were granted.
1998 Restricted Stock Rights Plan. In response to the acceleration of RPSR,
RSR and RAS stock awards under the Stock Plans caused by the Merger Vote, the
uncertainty created by the Government's decision to challenge the Merger on
antitrust grounds and the Company's agreement to defer the closing of the
Merger pending resolution of the Government's antitrust challenge, the
Compensation Committee and the Board of Directors of the Company concluded
that it was appropriate to adopt a program that would undertake to ensure that
receipt by the Company's executive officers and key employees of shares
("Shares") of Common Stock issuable pursuant to the RPSR, RSR and RAS stock
awards would not adversely affect their incentive to serve the Company's and
the stockholders' best interests. The Compensation Committee and the Board of
Directors also concluded that a program pursuant to which the Shares were
placed into escrow for a period of time would have the effect of creating an
incentive for such persons to remain with the Company and to create additional
value in the Company in other ways in the event that the Merger was not
consummated. Accordingly, on March 24, 1998, the Board of Directors adopted
the 1998 Restricted Stock Rights Plan and related Ownership Retention
Agreements (the "1998 Plan"). All executive officers of the Company (including
the Named Executive Officers) voluntarily agreed to participate in the 1998
Plan and placed their Shares (net of tax withholding as described below) into
escrow until the earlier of (i) March 1, 2000, (ii) a "Change in Control"
(which includes consummation of the Merger) or (iii) the executive officer's
death, qualifying Retirement (as defined therein) subsequent to March 1, 1999,
disability or termination by the Company other than for Cause. They also
agreed to forfeit their Shares if they voluntarily left the Company other than
for Good Reason (which has the same definition as in the Special Agreements)
or if they were terminated for Cause. Pursuant to the 1998 Plan, applicable
tax owed with respect to receipt of the Shares was deemed to equal the value
of the remaining fifty percent of vested Shares as of the vesting date
(February 26, 1998), with any amount in excess of the amount the executive
officers previously instructed the Company to withhold for taxes paid to the
executive officer in cash.
The 1998 Plan also applied to the vested Shares received by Northrop Grumman
key employees other than executive officers, with the addition that, any key
employee who voluntarily placed his or her Shares into escrow, also received
an award of additional shares ("Additional Shares") of Common Stock when the
Merger had not been consummated on or prior to July 1, 1998. The awards made
to key employees consisted of a restricted stock right (the "Right") to
receive subject to the terms and conditions of the 1998 Plan, a number of
Additional Shares equal to 14.5% of the total number of his or her Shares (29%
of the shares placed in escrow). As stated on page 17, the escrow period ended
and the shares were released on March 1, 2000. The 1998 Plan terminated on
March 24, 2000.
Certain Transactions
Ms. Peters is a partner of the law firm of Gibson, Dunn & Crutcher. Another
partner of Gibson, Dunn & Crutcher is a consultant for the Company, providing
analysis and advice with respect to pending and proposed legislation. The firm
also provided legal counsel in connection with various corporate matters.
22
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the
New York Stock Exchange. The SEC requires officers, directors and greater than
ten percent beneficial owners to furnish the Company with copies of all Forms
3, 4 and 5 they file.
The Company believes that all its officers, directors and greater than ten
percent beneficial owners complied with all their applicable filing
requirements for 1999 transactions. This is based on the Company's review of
copies of Forms 3, 4 and 5 it has received and written representations from
certain reporting persons that they were not required to file a Form 5.
PROPOSAL TWO: APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that the stockholders ratify the Board's
appointment of Deloitte & Touche LLP as the Company's independent auditors for
2000. Deloitte & Touche LLP served the Company as its independent auditors for
1999. Should the stockholders fail to ratify the appointment of Deloitte &
Touche LLP, the Board of Directors will consider this an indication to select
other auditors for the following year.
A representative of Deloitte & Touche LLP will be present at the Annual
Meeting of Stockholders and will have the opportunity to make a statement if
such representative desires to do so and also will be available to answer
appropriate questions from stockholders.
Vote Required
The affirmative vote of a majority of the shares of Common Stock voting at
the annual meeting (with each share entitled to one vote) is required for
approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ABOVE PROPOSAL.
PROPOSAL THREE: STOCKHOLDER PROPOSAL
The proponent of a stockholder proposal has stated that the proponent
intends to present a proposal at the Annual Meeting. The name, address and
number of shares held by the proponent will be furnished by the Company upon
request to the Corporate Secretary. The proposal and supporting statement, for
which the Board of Directors accepts no responsibility, is set forth below.
The Board of Directors opposes the proposal for the reasons stated after the
proposal.
RESOLVED: Shareholders request company disclosure of all current promises
made to foreign governments and foreign firms to offset the cost of weapons
purchases with U.S. dollars, exported jobs, foreign plant construction, and
technology transfers.
WHAT ARE OFFSETS?
Offsets are agreements by U.S. weapons manufacturers and the U.S. government
to direct some benefits--usually jobs or technology--back to the purchasing
country as a condition of sale. The value of offsets frequently exceeds the
weapons' cost.
Direct offsets transfer purchasing dollars and/or work and military technology
(often through licensing or joint production) to the recipient country to
produce a U.S. weapon system, its components, or sub-components.
23
<PAGE>
Indirect offsets may involve investments in the purchasing country, counter-
trade agreements to market foreign goods, or transfers of commercial
technology.
U.S. taxpayers finance offsets by (1) paying for the research and development
of weapons and (2) providing grants, loans and loan guarantees for the sale.
Offsets also lead to the loss of U.S. jobs.
ARE OFFSET AGREEMENTS PROPRIETARY?
The U.S. arms industry guards information on offsets closely, claiming
"proprietary privilege." However, purchasing countries often disclose such
information for their own political purposes: to convince their citizens that
they are gaining some tangible benefits from the millions or billions of
dollars they are spending on arms.
The proponents believe that insofar as U.S. arms manufacturers (1) engage in
foreign policy by negotiating private offset agreements with foreign
governments, and (2) export domestic jobs while claiming that foreign military
sales create jobs, they forfeit their proprietary claims to this information.
Sound public policy demands transparency and public debate on these matters.
OFFSET EXAMPLES
Last year, two U.S. companies offered lucrative production-sharing contracts
with Israeli military manufacturers, in connection with the companies' bidding
on a contract with Israel.
Between 1993 and 1996, U.S. defense companies entered into new offset
agreements valued at $15.1 billion in support of $29.1 billion worth of
defense contracts. For every dollar a U.S. company received from an arms sale
associated with offsets, it returned 52 cents worth of offset obligations to
the purchasing country (December 1998 GAO Report, "Defense Trade: U.S.
Contractors Employ Diverse Activities to Meet Offset Obligations.")
The $1.8 billion sale of F/A-18 fighters to Spain in 1982 included $1.5
billion in offsets such as agreements to market Spanish-made steel coils,
chemicals, sunflower seed oil, sailboats, paper products, zinc and marble in
the United States.
The $2.3 billion sale of F/A-18 fighters to Canada in 1982 included offsets
that could total 150 percent of the contract value, according to the OMB.
ARMS EXPORTS DON'T CREATE JOBS
The faith-based proponents submit this resolution for Board consideration
because arms exports do not create jobs. Current weapons proliferation and the
export of jobs and technology through offsets raise profound moral and
ethical, as well as fiscal, questions that shareholders should address.
MANAGEMENT'S POSITION
Northrop Grumman's offset arrangements provide the Company with a
competitive advantage in the international defense market. Competition for
defense contracts with foreign governments has grown in recent years due to
decreased defense spending and increased reliance on local and regional
contractors to fulfill military needs. These factors confirm the Company's
belief that offset arrangements influence a foreign government's decision to
select a defense contractor. Any action by the Company to alter the current
offset programs would harm this competitive advantage.
Typically, the terms of offset arrangements are private and not subject to
disclosure. In fact, the existing offset arrangements prohibit the Company
from disclosing the terms of the offset and disclosing the specific offset
projects that will be implemented. Foreign governments disclose few details
about offset programs. Even the U.S. Government has taken the position that
offsets are private arrangements between the foreign government
24
<PAGE>
and the defense contractor. By disclosing information about offsets, the
Company would breach the majority of its existing offset arrangements and
hinder its chances of receiving defense contracts from foreign governments.
Northrop Grumman's international sales provide the means for the Company to
create new jobs and maintain its current labor force. While offset may
occasionally result in the transfer of some jobs and technology overseas, the
benefits from the international contracts--maintaining the production base,
adding new jobs in the United States and lowering the per unit price of
similar goods and services to the United States Government--outweigh any
harmful effects.
This proposal requires the approval of holders of a majority of the shares
voting at the Annual Meeting. Because the proposal is only a recommendation,
its approval would not effectuate the changes it references. Offset disclosure
would require separate approval by the Board of Directors.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST" THE ABOVE PROPOSAL
NUMBER THREE.
MISCELLANEOUS
Voting on Other Matters
Management is not aware of any other business to be transacted at the Annual
Meeting other than proposals of stockholders that have been omitted from this
proxy statement in accordance with rules of the Securities and Exchange
Commission which may be sought to be presented. The Company's Bylaws outline
procedures, including minimum notice provisions, for stockholder nomination of
directors and submission of other stockholder business to be transacted before
the Annual Meeting. A copy of the pertinent Bylaw provisions is available on
request to Corporate Secretary, Northrop Grumman Corporation, 1840 Century
Park East, Los Angeles, California 90067. If any such stockholder proposals or
other business to be transacted properly come before the Annual Meeting, it is
intended that the shares represented by proxies will be voted in accordance
with the judgment of the persons authorized to vote them.
Proposal of Stockholders
Copies of proposals which stockholders of the Company wish to be included in
the Company's proxy statement relating to is Annual Meeting to be held in 2001
must be received by the Company no later than December 4, 2000.
In addition, the Bylaws of the Corporation establish an advance notice
requirement, for any proposal of business to be transacted at an annual
meeting of stockholders. Written notice must be delivered to the Secretary of
the Company not less than 45 days nor more than 75 days prior to the first
anniversary of the date on which the Company first mailed its proxy materials
for the 2000 Annual Meeting of Stockholders, provided, however, that if the
date of the 2001 Annual Meeting of Stockholders is advanced more than 30 days
prior to, or delayed more than 30 days after, the first anniversary of the
date on which the Company first mailed its proxy materials for the 2000 Annual
Meeting of Stockholders, then such notice must be delivered on the later of
the 90th day prior to the 2001 Annual Meeting of Stockholders or the 10th day
following the day on which public announcement of the date of the 2001 Annual
Meeting of Stockholders is first made. Such written notice must contain
specified information concerning the matter to be brought before such meeting
and concerning the stockholder proposing such a matter. Any stockholder
desiring a copy of the Bylaws of the Company will be furnished one without
charge upon written request to the Secretary of the Company.
Copies of such proposals should be sent to the Corporate Secretary, Northrop
Grumman Corporation, 1840 Century Park East, Los Angeles, California 90067.
25
<PAGE>
Cost of Soliciting Proxies
The cost of soliciting proxies in the accompanying form will be paid by the
Company. In addition to solicitation by mail, arrangements will, where
appropriate, be made with brokerage houses and other custodians, nominees and
fiduciaries to send proxy materials to beneficial owners. The Company will,
upon request, reimburse them for reasonable expenses incurred. The Company has
retained Georgeson Shareholder Communications, Inc. of New York at an
estimated fee of $12,000 plus reasonable disbursements. Officers, directors
and regular employees of the Company may request the return of proxies
personally, by means of materials prepared for stockholders and employee-
stockholders or by telephone or telegram to the extent deemed appropriate by
the Board of Directors. No additional compensation will be paid to such
individuals for this activity. The extent to which this solicitation will be
necessary will depend upon how promptly proxies are received; therefore,
stockholders are urged to return their proxies without delay.
/s/ John H. Mullan
John H. Mullan
Corporate Vice President and
Secretary
April 3, 2000
NOTICE: THE COMPANY FILED AN ANNUAL REPORT ON FORM 10-K ON FEBRUARY 24,
2000. STOCKHOLDERS OF RECORD ON MARCH 21, 2000 MAY OBTAIN A COPY OF THESE
REPORTS WITHOUT CHARGE FROM THE CORPORATE SECRETARY, NORTHROP GRUMMAN
CORPORATION, 1840 CENTURY PARK EAST, LOS ANGELES, CALIFORNIA 90067.
26
<PAGE>
DIRECTIONS TO
NORTHROP GRUMMAN CORPORATION
2000 ANNUAL MEETING
OF STOCKHOLDERS
Fairmont Miramar Hotel
101 Wilshire Boulevard
Santa Monica, California
Take Santa Monica Freeway (10) west to City of Santa Monica. Take Lincoln
Boulevard exit and turn right (heading in a northwest direction).
Go approximately 3/4 of a mile to Wilshire Boulevard and turn left. Go seven
blocks to Ocean Avenue and turn right. You will immediately see signs for
valet parking on the right side of Ocean Avenue
<PAGE>
PROXY
PROXY VOTING
INSTRUCTION
CARD
NORTHROP GRUMMAN CORPORATION
Annual Meeting of Stockholders on May 17, 2000
Proxy Solicited by the Board of Directors
The undersigned hereby authorizes and appoints Richard R. Molleur and John
H. Mullan, and each of them, proxies of the undersigned, with full power of
substitution in each of them, to vote all shares of Common Stock of Northrop
Grumman Corporation which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders to be held at the Fairmont Miramar Hotel, 101 Wilshire
Boulevard, Santa Monica, California on May 17, 2000 at 10:00 a.m. and at any
adjournments thereof, on the following matters as indicated on the reverse side,
with all of the powers the undersigned would possess if personally present and
voting, as specified below, and in their discretion on any other matters that
may properly come before the Annual Meeting and as to which discretionary
authority is permitted by applicable law.
This card also provides confidential voting instructions, as applicable, to
the Trustee for shares, if any, held on behalf of the undersigned in any of the
Company's Savings Plans.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NOT OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED "FOR" PROPOSALS 1 AND 2 AND "AGAINST" PROPOSAL 3.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY, EVEN IF YOU PLAN
TO ATTEND THE ANNUAL MEETING.
(Continued and to be signed on the other side)
SEE REVERSE
SIDE
- - FOLD AND DETACH HERE -
NORTHROP GRUMMAN CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 2000
10:00 a.m.
Fairmont Miramar Hotel
101 Wilshire Boulevard
Santa Monica, California 90401
5398
Please mark your
votes as indicated in this example.
This proxy is solicited by the Board of Directors of the Company. This proxy
will be voted as marked. If not otherwise marked, this proxy will be voted "FOR"
Proposals 1 and 2 and "AGAINST" Proposal 3.
The Board of Directors recommends a vote "FOR" Proposals 1 and 2.
FOR AGAINST
Proposal 1-Election of Class III directors to hold office for three years.
WITHHELD, for the following nominee(s) only (write name(s) below):
Directors:
John T. Chain, Jr.
Vic Fazio
Kent Kresa
FOR AGAINST ABSTAIN
Proposal 2-Proposal to ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditor.
The Board of Directors recommends a vote "AGAINST" Proposal 3.
FOR AGAINST ABSTAIN
Proposal 3-Shareholder proposal regarding offset commitments.
- --------------------------------------------------------------------------------
SIGNATURE (S) DATE
- --------------------------------------------------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
- FOLD AND DETACH HERE -
NORTHROP GRUMMAN CORPORATION
PROXY/VOTING INSTRUCTION CARD
Your vote is important. Please consider the issues discussed in the proxy
statement and cast your vote by:
. Accessing the World Wide Web site http://www.eproxyvote.com/noc to
vote via the internet.
. Using a touch-tone telephone to vote by phone toll free from the
U.S. or Canada. Simply dial 1-877-779-8683 and follow the
instructions. When you are finished voting, your vote will be
confirmed and the call will end.
. Completing, dating, signing and mailing the proxy/instruction card
in the U.S. postage paid envelope included with the proxy
statement.
You can vote by phone or via the internet anytime on or before May 12, 2000. You
will need the control number printed at the top of this instruction card to vote
by phone or via the internet. If you do so, you do not need to mail in your
proxy card. If you mail your proxy card, it must be received by May 16, 2000.
If shares are held on your behalf under any of the Company Savings Plans, the
proxy serves to provide confidential instructions to the plan Trustee who then
votes the shares. Instructions must be received by May 12, 2000 to be included
in the tabulation for the Trustee's vote.
