EXHIBIT 4.2
OWNERSHIP RETENTION AGREEMENT
THE UNDERSIGNED EMPLOYEE (THE "EMPLOYEE") OF NORTHROP GRUMMAN CORPORATION
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(THE "COMPANY"), AND THE COMPANY, BY EXECUTING AND DELIVERING THIS INSTRUMENT,
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AND INTENDING TO BE LEGALLY BOUND, AGREE TO THE FOLLOWING:
I. RESTRICTED STOCK RIGHT GRANT.
1.01. The Company hereby grants to the Employee a restricted stock right
(the "Restricted Stock Right") pursuant to which the Employee is entitled to
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receive on March 1, 2000 (the "Payment Date") the number of additional shares
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(the "Additional Shares") of the Company's common stock, $1.00 par value per
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share (the "Common Stock") stated in Annex A, subject to the terms and
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conditions contained herein and in that certain 1998 Restricted Stock Rights
Plan of the Company (the "Plan"), a copy of which is attached hereto as Annex B,
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provided: (a) that prior to the Payment Date the Employee neither voluntarily
terminates (see Section 1.03 concerning Retirement) nor is terminated for Cause
as an employee of the Company and (b) that the Company does not engage in a
merger, consolidation, or similar transaction that becomes effective under
applicable law on or prior to July 1, 1998 with Lockheed Xxxxxx Corporation or
any of its subsidiaries (such transaction is a "Lockheed Merger").
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1.02. If, prior to the Payment Date, the Employee voluntarily terminates,
other than by Retirement, or is terminated for Cause as an employee of the
Company, or if a Lockheed Merger becomes effective on or prior to July 1, 1998,
then the grant contained in this Article I shall terminate and the Employee
shall thereupon have no rights under this Article I or under the Plan to receive
the Additional Shares.
1.03. If, prior to the Payment Date, the Employee dies, Retires, or first
becomes Disabled and has not previously voluntarily terminated his or her
employment with the Company or been terminated for Cause, and if a Lockheed
Merger does not become effective on or prior to July 1, 1998, then a pro rata
portion (equal to the ratio of the number of full weeks between March 1, 1998
and the date of death, Retirement or such Disability, divided by 104) of the
Additional Shares shall be distributed in the form of Common Stock to the
Employee or to his guardian or estate, as appropriate.
1.04. If, prior to the Payment Date, the Employee is terminated for a
reason other than Cause as an employee of the Company and has not previously
voluntarily terminated his or her employment with the Company or been terminated
for Cause, and if a Lockheed Merger does not become effective on or prior to
July 1, 1998, then the Additional Shares shall be distributed in the form of
Common Stock to the Employee.
1.05. The number of Additional Shares shall be subject to proportionate
adjustment in the event, not including a Change in Control, of any stock split,
stock dividend, share exchange, spin-off, merger, combination, recapitalization
or other distribution (other than normal cash dividends) of Company assets to
its stockholders. The determination of whether an adjustment is to be made or
not, and, if so, the amount of the adjustment appropriate to reflect such event,
shall
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be made by and in the sole discretion of the Compensation and Management
Development Committee of the Board of Directors, pursuant to the Plan.
1.06. The Restricted Stock Right is non-transferable and non-assignable.
1.07. The Company shall be entitled to require, as a condition to the
issuance or transfer of any Additional Shares, that the Employee pay any sums
required to be withheld by federal, state or local tax law with respect to the
issuance or transfer of Additional Shares. Alternatively, the Company, in its
sole discretion, may make such provisions for the withholding of taxes as it
deems appropriate.
1.08. The issuance of the Additional Shares is subject to full compliance
with all then applicable requirements of law, and the rules and regulations of
the United States Securities and Exchange Commission, the Commissioner of
Corporations of the State of California and any other regulatory agency having
jurisdiction over the Company and its shares, and any exchange upon which the
stock of the Company may be listed.
1.09. The Employee shall have none of the rights or privileges of a
stockholder of the Company with respect to the Additional Shares until the date,
if any, on which Additional Shares are issued to the Employee.
1.10. The Compensation and Management Development Committee of the Board
of Directors of the Company shall administer the Plan, and may make such waivers
hereunder or under the Plan as such Committee in its sole and absolute
discretion deems appropriate.
II. ESCROW OF THE SHARES AND CASH PAYMENT.
2.01. The amount of federal, state and local income and social security,
medicare and any other applicable employment tax with respect to the vesting of
Restricted Performance Stock Rights, that occurred as a result of the
stockholder vote on February 26, 1998 approving the merger of the Company with a
wholly owned subsidiary of Lockheed Xxxxxx Corporation pursuant to that certain
Agreement and Plan of Merger dated as of July 2, 1997, as amended to the date
hereof, shall be deemed to equal 50% of the number of shares that vested on the
date of such stockholder vote multiplied by $138.25 per share. The amount, if
any, of such deemed tax in excess of the amount heretofore withheld by the
Company with respect to such shares shall be paid as soon as practicable to the
Employee in cash in lieu of an appropriate number of such shares valued at
$138.25 per share. Shares equal in value (at $138.25 per share) to the amount
of the tax withholding and the in-lieu cash payment shall not be issued, and the
Employee shall have no rights therein or thereto.
2.02. The shares of Common Stock to which the Employee is entitled (net of
(i) tax withholding and (ii) the in-lieu cash payment specified in Section 2.01
hereof) are referred to herein as the "Shares." All of the Shares shall remain
the property of the Employee but shall be subject to the restrictions contained
in this Agreement. Annex A sets forth the number of Shares subject to this
Agreement, as well as the number of Additional Shares under the Restricted Stock
Right.
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2.03. The Shares shall be issued in the name of Employee and delivered to
Chase Manhattan Bank and Trust Company, National Association, as Escrow Agent,
pursuant to the terms of that certain Master Escrow Agreement, of even date
herewith, by and among the Company, the Employee and certain other employees of
the Company, and the Escrow Agent, the form of which is attached hereto as Annex
C (the "Master Escrow Agreement"), and shall be held by the Escrow Agent in
accordance with the terms of the Master Escrow Agreement. In lieu of delivering
all of the Shares to the Escrow Agent, the Employee may elect to substitute
other owned shares of Common Stock for an equal number (all or part) of the
Shares, and such substituted shares of Common Stock shall thereupon become
"Shares" for purposes of this Agreement in lieu of the shares for which they
were substituted. During the pendency of this Agreement, the Employee may, in
accordance with the provisions of the Master Escrow Agreement, elect to deliver
other owned shares of Common Stock in exchange for a like number of Shares
previously contributed hereunder, and such shares so exchanged shall be "Shares"
for purposes of this Agreement. The restrictions imposed by this Agreement
shall apply only to the Shares, and only so long as the Shares are held in
escrow.
2.04. If, prior to the Payment Date, the Employee neither voluntarily
terminates nor is terminated for Cause as an employee of the Company, then on or
before the tenth business day after the Payment Date, the Company shall instruct
the Escrow Agent in writing to release and distribute to the Employee the
certificate representing the Shares. If, prior to the Payment Date, the
Employee dies, Retires, is terminated for a reason other than Cause as an
employee of the Company, or first becomes Disabled, and has not previously
voluntarily terminated his or her employment with the Company or been terminated
for Cause, then on or before the twentieth business day after the date of such
death, Retirement, termination or Disability, the Company shall instruct the
Escrow Agent in writing to release and distribute to the Employee (or his
guardian or estate, as appropriate) the certificate representing the Shares.
If, prior to the Payment Date, the Employee voluntarily terminates, other than
by Retirement, or is terminated for Cause, then the Employee shall forfeit to
the Company all of his right, title and interest in and to the Shares and the
Company is hereby empowered, in such event, to instruct the Escrow Agent in
writing to release and distribute to the Company the certificate representing
the Shares.
2.05. The certificates representing the Shares shall have the following
legend conspicuously imprinted on the face thereof:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN AGREEMENT
BETWEEN THE OWNER OF SUCH SHARES AND NORTHROP GRUMMAN CORPORATION AND IN
CERTAIN EVENTS SPECIFIED IN SUCH AGREEMENT MAY BE SUBJECT TO FORFEITURE. A
COPY OF THE AGREEMENT MAY BE INSPECTED AT THE OFFICES OF NORTHROP GRUMMAN
CORPORATION.
2.06. The Shares held in escrow pursuant hereto and pursuant to the Master
Escrow Agreement may not be assigned, alienated, sold, pledged, hypothecated, or
otherwise transferred, disposed of or encumbered, other than by will or the laws
of descent and distribution or pursuant to a qualified domestic relations order
(as defined by the Internal Revenue Code).
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2.07. The Company shall promptly pay to the Employee as owner of the
Shares all dividends and distributions with respect to the Shares as the same
shall have been declared and paid by the Company with respect to the Common
Stock, provided that the Employee shall have no right to receive any such
payment if, on or prior to the date of such payment, the Employee shall have
forfeited all his right, title and interest in and to the Shares pursuant to the
terms of this Agreement.
2.08. As owner of the Shares, the Employee shall retain all voting rights
with respect to the Shares provided to holders of shares of Common Stock under
the charter or bylaws of the Company or the laws of the State of Delaware,
provided that the Employee shall have no such voting rights from and after the
time, if any, at which he forfeits all his right, title and interest in and to
the Shares pursuant to the terms of this Agreement.
2.09. The Compensation and Management Development Committee of the Board
of Directors of the Company may make such waivers hereunder as such Committee in
its sole and absolute discretion deems appropriate.
III. LAPSE OF RESTRICTIONS; ACCELERATION OF ISSUANCE.
3.01. All restrictions on the Shares created pursuant to this Agreement
shall lapse and the Company shall deliver written notice to the Escrow Agent
directing that the Shares be distributed to the Employee, if the Employee is
employed by the Company at the time of the occurrence of a Change in Control
that occurs prior to March 1, 2000. The Restricted Stock Rights shall
immediately vest and the Company shall forthwith issue the Additional Shares to
the Employee if the Employee is employed by the Company at the time of the
occurrence of a Change in Control that occurs prior to March 1, 2000, unless
such Change in Control is a Lockheed Merger effective on or prior to July 1,
1998, in which event Section 1.02 hereof shall control.
IV. PAYMENT FOR TAXES.
4.01. If, after a final determination for federal, state or local tax
purposes, the deposit of the Shares into the escrow created under the Master
Escrow Agreement or the subjection of the Shares to the restrictions contained
in this Agreement results in a tax liability to the Employee in excess of what
the Employee's tax liability would have been had the Shares not been deposited
into the escrow or been made subject to the restrictions contained in this
Agreement, then the Company shall pay to the Employee an amount equal to any
such excess tax liability grossed up to compensate the Employee for any tax
liability incurred with respect to any payment made under this Section 4.01.
4.02. The Employee shall be responsible for all taxes imposed with respect
to the receipt of any Additional Shares pursuant to this Agreement except that
the Company shall pay the Employee an amount equal to any excise tax under
Section 4999 of the Internal Revenue Code arising as a result of the receipt of
the Additional Shares grossed up to compensate the Employee for any tax
liability incurred with respect to any payment made under this Section 4.02.
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4.03. Any payment by the Company pursuant to either Section 4.01 or
Section 4.02 shall be made pursuant to the provisions in the Plan governing such
payment.
V. CALIFORNIA LAW.
5.01. This Agreement shall be construed in accordance with and governed by
the laws of the State of California, without giving effect to its conflicts of
laws or choice of laws rules.
VI. DEFINITIONS.
6.01. For all purposes of this Agreement, the following terms shall have
the meanings assigned thereto in this Section 6.01:
"Cause" means the occurrence of either or both of the following: (i)
the Employee's conviction for committing an act of fraud, embezzlement, theft,
or other act constituting a felony; or (ii) the willful engaging by the Employee
in gross misconduct materially and demonstrably injurious to the Company.
However, no act, or failure to act, on the Employee's part shall be considered
"willful" unless done, or omitted to be done, by the Employee not in good faith
and without reasonable belief that his action or omission was in the best
interest of the Company.
"Change in Control" has the meaning assigned to it in the Plan.
"Disabled" and its correlatives mean total and permanent disability
as defined in the rules of the Social Security Administration of the United
States.
"employee of the Company" and its correlatives mean employment by
the Company or any of its subsidiaries.
"Retire," "Retirement" and their correlatives mean any retirement on
or after March 1, 1999 from active service with the Company with immediate
receipt of a pension benefit under a Company retirement or pension plan or, for
Company elements not covered by such plans, termination by the Employee at or
after age 55 following 10 or more consecutive years of Company service. If the
Employee retires before March 1, 1999, such retirement shall be treated as a
voluntary termination, and not as a Retirement, for all purposes of this
Agreement and the Plan.
VII. AMENDMENTS.
No amendment or modification to this Agreement may be made except in
writing signed by the Company and the Employee.
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BY SIGNING AND DELIVERING THIS AGREEMENT, THE EMPLOYEE EXPRESSLY AGREES
THAT THE EMPLOYEE IS A PARTY TO AND IS BOUND BY THIS AGREEMENT AND THE MASTER
ESCROW AGREEMENT.
IN WITNESS WHEREOF, THE COMPANY AND THE EMPLOYEE HAVE EXECUTED THIS
AGREEMENT AS OF THE ____ DAY OF MARCH, 1998.
NORTHROP GRUMMAN CORPORATION
BY:_________________________
ITS:________________________
EMPLOYEE
SIGNATURE:__________________
PRINTED NAME:_______________
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April 8, 1998
To: Appointed Officer Recipients of the Ownership Retention Plan
Subject: Ownership Retention Plan
We want to clarify one point concerning the Ownership Retention Agreement we
sent you on April 2, 1998. Some Northrop Grumman personnel who want to elect to
be covered by the Ownership Retention Agreement have asked what happens to their
escrowed shares and their rights to the 29% additional shares if they terminate
their employment under the Good Reason provisions of the Company's Change in
Control Severance Agreement.
The answer is that you will get all your escrowed shares and all of the 29%
additional shares if you terminate your employment for "Good Reason." In other
words, it will be treated just as if you had been laid off or otherwise
terminated for reasons other than Cause, and it will not be treated as a
voluntary termination by you. The definition of "Good Reason" will be the same
as set forth in the Company's Change in Control Severance Plan.
To cement this understanding of your benefits into the legal documents, this
letter will serve to modify, as Amendment No. 1, the Ownership Retention
Agreement we sent you. If you sign and return the Ownership Retention Agreement
and this Amendment No. 1, your Ownership Retention Agreement will be
conclusively deemed to include a new Article VIII stating that:
"Termination for Good Reason (as defined in the Company's Change in Control
Severance Plan) by the Employee as an employee of the Company shall be
deemed to be and shall be treated identically to a termination of the
Employee by the Company for reasons other than Cause, for all purposes of
this Agreement, the Master Escrow Agreement and the Plan."
We trust that this Amendment No. 1 clarifies and confirms the extensive
protections of your interests that we built into the Ownership Retention
Agreement. The undersigned, on behalf of Northrop Grumman Corporation, has
executed this Amendment No. 1, intending to be legally bound thereby.
Northrop Grumman Corporation
Xxxx Xxxxx ____________________________
Employee Name (print)
____________________________
Employee Signature
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