As filed with the Securities and Exchange Commission on March 5, 2001
Registration No. 333-54800
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NNG, INC.
(Exact name of registrant as specified in its charter)
Delaware 3812 95-4840775
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employee
incorporation or organization) Classification Code Number) Identification Number)
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NNG, Inc.
1840 Century Park East
Los Angeles, California 90067
(310) 553-6262
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
W. Burks Terry
Corporate Vice President and General Counsel
NNG, Inc.
1840 Century Park East
Los Angeles, California 90067
(310) 553-6262
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies To:
Andrew E. Bogen
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
(213) 229-7000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this registration statement becomes
effective and upon consummation of the offer to purchase or exchange described
in the enclosed prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
registration statement shall become effective on such date as the commission,
acting pursuant to said Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this offer to purchase or exchange may change. +
+NNG may not sell these securities until the registration statement filed with +
+the Securities and Exchange Commission is effective. This offer to purchase +
+or exchange is not an offer to sell these securities and NNG is not +
+soliciting an offer to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Offer to Purchase or Exchange
Each Outstanding Share of Common Stock
(together with associated rights)
of
LITTON INDUSTRIES, INC.
for
any of the following, at the election of tendering holders of common stock
$80.00 net per share, in cash, not subject to proration
or
$80.25 in market value (determined as described below) of shares of
NNG, Inc. Common Stock, subject to proration
or
0.80 shares of NNG, Inc. Series B Preferred Stock, subject to proration
and
Each Outstanding Share of Series B $2 Cumulative Preferred Stock
of
LITTON INDUSTRIES, INC.
for
$35.00 net per share, in cash, not subject to proration
by
NNG, INC., a wholly-owned subsidiary
of
NORTHROP GRUMMAN CORPORATION
NNG, Inc. (the initials stand for "New Northrop Grumman") is a newly-
organized corporation which will become the parent holding company for Northrop
Grumman Corporation immediately prior to the purchase of Litton shares in the
offer. At such time, NNG, Inc. will change its name to "Northrop Grumman
Corporation" and the present Northrop Grumman Corporation will change its name
to "Northrop Grumman Operations Corporation."
The offer and withdrawal rights will expire at 12:00 Midnight, New York City
time, on Thursday, March 1, 2001 unless extended. Shares of Litton common stock
and Litton preferred stock tendered pursuant to the offer may be withdrawn at
any time prior to the expiration of the offer and, unless previously accepted
for purchase or exchange pursuant to the offer, may also be withdrawn at any
time after Tuesday, March 6, 2001.
The offer is made pursuant to an Amended and Restated Agreement and Plan of
Merger, dated as of January 23, 2001 (referred to as the "amended merger
agreement"), among Northrop Grumman Corporation, Litton Industries, Inc., NNG,
Inc. and LII Acquisition Corp. The board of directors of Litton has approved
and deemed advisable the amended merger agreement, the offer and the merger of
LII Acquisition with and into Litton (referred to as the "Litton merger"),
determined that the offer is fair to, and in the best interests of, holders of
Litton common stock and recommends that holders of Litton common stock accept
the offer and tender their Litton common stock pursuant to the offer. The
Litton board of directors makes no recommendation with respect to the tender of
the Litton preferred stock.
The number of shares of NNG common stock to be exchanged for each share of
Litton common stock for which a tendering holder elects to receive NNG common
stock will be determined by dividing $80.25 by the average of the closing
prices of Northrop Grumman common stock on the New York Stock Exchange ("NYSE")
for the five consecutive trading days ending prior to the open of the second
full trading day before the expiration of the offer.
There is no limit on the number of shares of Litton common stock or Litton
preferred stock that may be exchanged for cash in the offer and consequently
the cash consideration offered will not be subject to proration. Subject to
NNG's option (described below) to substitute cash for shares of NNG common
stock in certain circumstances, the maximum number of shares of NNG common
stock that will be issued in the offer is 13,000,000 (referred to as the
"maximum common stock consideration"), and the maximum number of shares of NNG
preferred stock that will be issued in the offer is 3,500,000 (referred to as
the "maximum preferred stock consideration"). Therefore, elections to receive
NNG common stock and NNG preferred stock will be subject to proration if
holders of Litton common stock request in the aggregate more than the maximum
amount of such consideration available. Holders of Litton preferred stock may
exchange their Litton preferred stock only for cash.
The offer is subject to the conditions listed under "The Offer--Conditions of
the Offer," including, that there be validly tendered and not withdrawn prior
to the expiration of the offer a total of at least 25,646,399 shares of Litton
common stock and Litton preferred stock (referred to as the "minimum tender
condition"). After the consummation of the offer, NNG common stock will trade
on the NYSE under the symbol "NOC." NNG will seek to list the NNG preferred
stock on the NYSE if there are enough holders to satisfy NYSE listing
requirements. The Litton common stock and the Litton preferred stock currently
trade on the NYSE and the Pacific Exchange under the symbols "LIT" and "LIT.B,"
respectively.
See "Important Considerations Concerning Elections to Receive NNG Stock"
beginning on page 11 for a discussion of certain factors that holders of Litton
common stock should consider in connection with the offer.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this offer to purchase or exchange. Any representation
to the contrary is a criminal offense.
The date of this offer to purchase or exchange is March 5, 2001
TABLE OF CONTENTS
Page
----
SUMMARY.................................................................. 1
The Amended Merger Agreement............................................. 1
The Companies............................................................ 1
The Northrop Reorganization.............................................. 2
The Litton Merger........................................................ 3
Choices Available to Litton Stockholders................................. 3
Elections and Proration.................................................. 4
NNG Option to Reduce the Maximum Common Stock Consideration.............. 5
The NNG Preferred Stock.................................................. 5
Conditions to the Offer.................................................. 7
Litton's Support of the Offer and the Litton Merger...................... 7
Fairness Opinion......................................................... 8
Agreement With Litton's Largest Stockholder.............................. 8
Litton Stockholder Approval of the Litton Merger......................... 8
Appraisal Rights......................................................... 8
Tendering Litton Shares.................................................. 8
Tax Consequences of the Receipt of Cash, NNG Common Stock and NNG
Preferred Stock......................................................... 9
Extension of the Offer Period............................................ 9
Delay; Termination; Waiver; Amendment.................................... 10
Withdrawal Rights........................................................ 10
Reasons for the Proposed Transactions.................................... 10
Accounting Treatment..................................................... 10
Material Differences in Rights of Stockholders........................... 10
Questions About the Offer and the Litton Merger.......................... 10
IMPORTANT CONSIDERATIONS CONCERNING ELECTIONS TO RECEIVE NNG STOCK....... 11
RECENT RESULTS OF NORTHROP GRUMMAN CORPORATION........................... 13
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LITTON................ 17
COMPARATIVE PER SHARE INFORMATION........................................ 18
MARKET PRICES AND DIVIDENDS.............................................. 20
THE OFFER................................................................ 22
Exchange of Litton Shares; Exchange Ratio................................ 22
Elections by Tendering Stockholders...................................... 22
Pro Rata Reduction of Elections for NNG Stock............................ 23
Reduction in Number of Shares of NNG Common Stock........................ 23
Illustrative Table of NNG Common Stock Exchange Ratios at Specified
Average Closing Prices.................................................. 24
More Information About NNG Common Stock Exchange Ratio................... 24
Stockholder Rights Plans................................................. 24
Stockholders List........................................................ 25
Extension; Termination; Amendment........................................ 25
Purchase and Exchange of Litton Stock; Delivery of NNG Stock............. 26
Cash Instead of Fractional Shares of NNG Stock........................... 26
Transfer Charges......................................................... 27
Interest................................................................. 27
Withdrawal Rights........................................................ 27
Procedures for Tendering................................................. 28
Purpose of the Offer; The Litton Merger.................................. 30
Conditions of the Offer.................................................. 31
i
TABLE OF CONTENTS--(Continued)
Page
----
Regulatory Approvals..................................................... 32
Reduced Liquidity; Possible Delisting.................................... 33
Status as "Margin Securities"............................................ 34
Registration Under The Exchange Act...................................... 34
Source and Amount of Funds............................................... 34
Relationships with Litton................................................ 35
Fees and Expenses........................................................ 35
BACKGROUND OF THE AMENDED MERGER AGREEMENT............................... 37
Certain projections...................................................... 38
Reasons for the Offer and the Litton Merger.............................. 40
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................. 41
THE AMENDED MERGER AGREEMENT............................................. 45
The Northrop Reorganization.............................................. 45
The Litton Merger........................................................ 46
Conditions to the Completion of the Litton Merger........................ 46
Effective Time of the Litton Merger...................................... 46
Additional Effects of the Litton Merger and the Northrop Reorganization.. 46
The Litton Board......................................................... 47
Litton Stock Options..................................................... 48
Representations and Warranties........................................... 48
Conduct of Business of Litton Prior to the Litton Merger................. 51
Conduct of Business of Northrop Grumman and NNG Prior to the Litton
Merger.................................................................. 52
Other Potential Acquirers................................................ 52
Litton Stockholders Meeting.............................................. 54
Access to Information and Confidentiality................................ 54
Confidentiality.......................................................... 55
Additional Agreements.................................................... 55
Antitrust Approvals...................................................... 55
Directors' and Officers' Liability Insurance and Indemnification......... 57
Employee Matters......................................................... 57
Additional Covenants..................................................... 58
Termination Events....................................................... 58
Termination Fee; Expenses................................................ 59
OTHER AGREEMENTS......................................................... 61
The Stockholder's Agreement.............................................. 61
The Registration Rights Agreement........................................ 63
Change of Control Severance Agreements................................... 64
Confidentiality Agreement................................................ 65
RATIO OF COMBINED EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS...... 66
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............. 67
DESCRIPTION OF NNG CAPITAL STOCK......................................... 73
Authorized Capital Stock................................................. 73
Common Stock............................................................. 73
Series B Preferred Stock................................................. 74
Transfer and Dividend Paying Agent and Registrar......................... 77
COMPARISON OF STOCKHOLDERS' RIGHTS....................................... 77
ii
TABLE OF CONTENTS--(Continued)
Page
----
SUMMARY OF CERTAIN STATUTORY PROVISIONS.................................... 82
Appraisal Rights........................................................... 82
Certain Business Combinations.............................................. 85
ADDITIONAL INFORMATION..................................................... 86
FORWARD-LOOKING STATEMENTS................................................. 87
LEGAL MATTERS.............................................................. 89
EXPERTS.................................................................... 89
ANNEX A DIRECTORS AND EXECUTIVE OFFICERS................................... A-1
ANNEX B SECTION 262. APPRAISAL RIGHTS...................................... B-1
iii
This offer to purchase or exchange incorporates by reference important
business and financial information about Northrop Grumman and Litton. That
information is available without charge to Litton stockholders upon request.
For information regarding Northrop Grumman, Litton stockholders must address
their requests to: Investor Relations, Northrop Grumman Corporation, 1840
Century Park East, Los Angeles, California 90067 (310) 201-3423. For
information regarding Litton, Litton stockholders must address their request
to: Investor Relations, Litton Industries, Inc., 21240 Burbank Boulevard,
Woodland Hills, California 91367 (818) 598-2026.
SUMMARY
The following summary highlights selected information from this offer to
purchase or exchange. This summary may not contain all of the information that
is important to Litton stockholders. To better understand the offer and the
other proposed transactions, Litton stockholders should read this entire
document carefully, as well as the additional documents to which this offer to
purchase or exchange refers. See "Additional Information" on page 86.
The Amended Merger Agreement
Northrop Grumman and Litton entered into an Agreement and Plan of Merger on
December 21, 2000 which provided for the original offer to purchase all of the
outstanding Litton common stock for $80.00 in cash per share and all of the
outstanding Litton preferred stock for $35.00 in cash per share by a subsidiary
of Northrop Grumman. The original offer commenced on January 5, 2001. On
January 23, 2001, the original Agreement and Plan of Merger was amended and
restated to provide that the original offer be amended to become an offer by
NNG to exchange NNG common stock and NNG preferred stock for a portion of the
Litton common stock on a tax-free basis, in addition to the cash consideration
in the original offer. NNG is making the offer pursuant to the amended merger
agreement.
The Companies
Northrop Grumman Corporation. Northrop Grumman is a Delaware corporation
with its principal executive offices located at 1840 Century Park East, Los
Angeles, California 90067. Its telephone number is (310) 553-6262. Northrop
Grumman is an advanced technology company operating in the Integrated Systems
Sector, or "ISS", Electronic Systems and Sensor Sector, or "ES3" and
Information Technology, or "Logicon" segments of the broadly defined aerospace
and defense industry. The ISS segment includes the design, development and
manufacture of aircraft and aircraft subassemblies. The ES3 segment includes
the design, development, manufacturing and integration of electronic systems
and components for military and commercial use. Logicon, Northrop Grumman's
information technology segment, includes the design, development, operation and
support of computer systems for scientific and management information.
Litton Industries, Inc. Litton is a Delaware corporation with its principal
executive offices located at 21240 Burbank Boulevard, Woodland Hills,
California 91367. Its telephone number is (818) 598-5000. According to Litton's
Annual Report on Form 10-K for the fiscal year ended July 31, 2000, Litton
designs, builds and overhauls surface ships for government and commercial
customers worldwide and is a provider of defense and commercial electronics
technology, components and materials for customers worldwide. In addition,
Litton is a prime contractor to the U.S. government for information technology
and provides specialized information technology services to commercial
customers in local and foreign jurisdictions.
Litton's businesses are divided into four business segments: Advanced
Electronics, Information Systems, Ship Systems, and Electronic Components and
Materials. The Advanced Electronics group is a major supplier
1
and integrator of electronic systems and related services to the U.S. and
international military and commercial markets. The Information Systems group
designs, develops, integrates and supports computer-based information systems
and provides information technology and services primarily for government
customers. The Ship Systems group builds non-nuclear ships for the U.S. Navy
and designs, builds and overhauls surface ships for government and commercial
customers worldwide. The Electronic Components and Materials group designs,
manufactures and produces a broad range of high-tech materials and products
integral to the telecommunications and computer markets including complex many-
layered backplanes and assemblies, specialty brushless motors, slip rings, high
density electronic and fiber optic connectors, cylindrical connectors,
microelectronic attachment materials including solder spheres, precision wires
and pastes, laser crystals, gallium arsenide substrates and microwave
components for primarily commercial markets worldwide.
NNG, Inc. NNG is a newly-formed Delaware corporation that is wholly-owned by
Northrop Grumman. Its principal executive offices are located at 1840 Century
Park East, Los Angeles, California 90067 and its telephone number is (310) 553-
6262. NNG was incorporated on January 16, 2001 in preparation for the offer and
the Northrop reorganization described below and has not conducted any business
activities to date. As a result of the Northrop reorganization and after the
consummation of the offer, Northrop Grumman and Litton will become subsidiaries
of NNG. Accordingly, the business of NNG will consist of the business currently
conducted by Litton and Northrop Grumman.
The Northrop Reorganization
Immediately prior to NNG purchasing Litton common stock and Litton preferred
stock in the offer, Northrop Grumman will be reorganized. Currently, NNG has
two wholly-owned subsidiaries, NGC Acquisition Corp. and LII Acquisition Corp.,
as illustrated below:
[GRAPHIC APPEARS HERE]
NGC Acquisition Corp. and LII Acquisition Corp. are newly-formed Corporations
which were organized for the purpose of the transactions described herein.
In the Northrop reorganization, immediately prior to the purchase of Litton
common stock and Litton preferred stock in the offer, NGC Acquisition will
merge with and into Northrop Grumman. As a result,
2
Northrop Grumman will become a wholly-owned subsidiary of NNG. NNG will change
its name to "Northrop Grumman Corporation," and, Northrop Grumman will be
renamed "Northrop Grumman Operations Corporation." All of Northrop Grumman's
capital stock will be converted into capital stock of NNG. The outstanding
shares of Northrop Grumman common stock will automatically be deemed to be
outstanding shares of NNG common stock with no exchange of certificates and
the NNG common stock will have the same rights, preferences and privileges as
the Northrop Grumman common stock. The NNG common stock will be publicly
traded and listed on the NYSE. The following chart illustrates the resulting
corporate structure:
[GRAPHIC APPEARS HERE]
The Litton Merger
Following NNG's purchase of Litton common stock and Litton preferred stock
in the offer, LII Acquisition will merge with and into Litton. At the
effective time of the Litton merger, each outstanding share of Litton common
stock, except for shares held by dissenting Litton stockholders, NNG, Litton
or their subsidiaries, will be converted into the right to receive $80.00 in
cash, and each outstanding share of Litton preferred stock will remain
outstanding without any change.
Choices Available to Litton Stockholders
Holders of Litton common stock who desire to tender their shares in the
offer may select one of the following forms of payment for each of their
shares of Litton common stock:
. $80.00 cash;
. $80.25 in market value (as described below) of NNG common stock, subject
to proration; and
. 0.80 of a share of NNG preferred stock, subject to proration.
The number of shares of NNG common stock to be issued in exchange for each
share of Litton common stock will be determined by dividing $80.25 by the
average of the closing prices for Northrop Grumman common stock on the NYSE
for the five consecutive trading days ending prior to the open of the second
full trading day before expiration of the offer. The final exchange ratio will
be set prior to 9:00 a.m. New York City time on the second full trading day
before the expiration of the offer. For example, if the offer expired at
Midnight, New York City time, on a Friday, the final exchange ratio would be
set prior to 9:00 a.m. New York City time on the immediately preceding
Thursday. No fractional shares of NNG common stock or NNG preferred stock will
be issued. Cash will be delivered in lieu of fractional shares of NNG common
stock or NNG preferred stock.
Holders of Litton preferred stock who desire to tender their shares in the
offer will receive $35.00 in cash for each share.
The exchange ratios for the consideration to be offered in exchange for
shares of Litton common stock and Litton preferred stock in the offer were
determined through arm's-length negotiations between Litton and Northrop
Grumman. Merrill Lynch & Co. acted as Litton's financial advisor and Salomon
Smith Barney Inc. acted as Northrop Grumman's financial advisor in these
negotiations.
For more information on the NNG common stock exchange ratio, see "The
Offer" beginning on page 22.
3
Elections and Proration
Elections by Tendering Stockholders
There is no limit on the number of shares of Litton common stock or Litton
preferred stock that may be exchanged for cash in the offer. There is a limit
on the number of shares of NNG common stock and the number of shares of NNG
preferred stock that may be issued in exchange for Litton common stock in the
offer. The maximum number of shares of NNG common stock that will be issued in
the offer is 13,000,000, and the maximum number of shares of NNG preferred
stock that will be issued in the offer is 3,500,000. It is possible that the
maximum common stock consideration could be reduced, as described under
"Reduction in Number of Shares of NNG Common Stock" below. Elections for the
NNG common stock and the NNG preferred stock will be subject to pro rata
reduction if Litton stockholders request more than the maximum common stock
consideration or the maximum preferred stock consideration, as the case may be.
In addition to deciding whether to receive cash, NNG common stock or NNG
preferred stock, or a combination of this consideration, tendering Litton
common stockholders who elect to receive NNG common stock or NNG preferred
stock must choose among the available alternatives described below for the
treatment of any shares of Litton common stock not exchanged by reason of
proration for the class of NNG stock they have elected to receive:
Alternative A. A tendering Litton common stockholder may make an Alternative
A election with respect to Litton common stock which is tendered for either NNG
common stock or NNG preferred stock. If the total number of NNG common stock
elections (including the deemed elections referred to in the next sentence)
exceeds the NNG common stock available, the Alternative A elections will first
be reduced, pro rata, to the extent necessary so that the total number of
shares of NNG common stock required for common stock elections does not exceed
the maximum common stock consideration. If the tendering stockholder elects to
receive NNG preferred stock, any shares subject to the Alternative A election
which are not exchanged for NNG preferred stock by reason of proration will be
deemed subject to an Alternative A common stock election.
The stockholder's agreement among Northrop Grumman, NNG and Unitrin
provides, in substance, that Unitrin and certain of its subsidiaries will
accept NNG common stock in exchange for all of their shares of Litton common
stock which are not exchanged for NNG preferred stock in the offer. However,
Unitrin and its subsidiaries agreed to accept NNG common stock only to the
extent that other Litton stockholders do not elect to receive the available NNG
common stock. Pursuant to the stockholder's agreement, Unitrin will specify
Alternative A for all of the Litton common stock tendered by it. While
Alternative A may be selected by any holder of Litton common stock, it is
expected that Litton stockholders other than Unitrin will likely find it in
their interests to select either:
. Alternative B, if they wish to maximize the NNG common stock received in
the offer; or
. Alternative C, if they wish to receive only NNG preferred stock or cash.
The stockholder's agreement is described below under "Other Agreements--The
Stockholder's Agreement".
Alternative B. A tendering Litton common stockholder may make an Alternative
B election with respect to Litton common stock which is tendered for either NNG
common stock or NNG preferred stock. In the event that proration of elections
to receive of NNG common stock is still required after the elimination of
shares in
4
accordance with Alternative A elections, holders of shares of Litton common
stock who elect Alternative B will have their elections to receive NNG common
stock reduced pro rata based on the number of shares covered thereby. If the
tendering Litton common stockholder elects to receive NNG preferred stock, any
shares subject to the Alternative B election which are not exchanged for NNG
preferred stock by reason of proration will be deemed subject to an Alternative
B common stock election.
Alternative C. An Alternative C election is only available for those Litton
common stockholders who elect to receive NNG preferred stock in exchange for
tendered Litton shares. Any such shares which are not exchanged for NNG
preferred stock by reason of proration will be exchanged for $80.00 in cash per
share.
If no election among the three alternatives described above is made in
connection with a tender of Litton common stock in exchange for NNG common
stock or NNG preferred stock, the tendering stockholder will be deemed to have
elected Alternative B.
Pro Rata Reduction of Elections for NNG Stock
If holders tendering Litton common stock elect to receive more than the
maximum common stock consideration or the maximum preferred stock
consideration, elections will be subject to pro rata reduction as described
below.
Elections to receive NNG preferred stock will be reduced, pro rata in
accordance with the numbers of shares covered thereby, until all of the shares
subject to the elections remaining can be exchanged for NNG preferred stock.
Shares of Litton common stock which are not so exchanged by reason of proration
will be exchanged for:
. $80.00 per share in cash, if Alternative C is selected by the tendering
stockholder; or
. NNG common stock (subject to further proration, if required) in all
other cases.
Elections to receive NNG common stock will also be subject to pro rata
reduction, in accordance with the numbers of shares covered thereby, until all
the shares subject to the elections remaining can be exchanged for the maximum
common stock consideration. As described above, shares subject to Alternative A
elections will be reduced before any shares subject to Alternative B elections.
Shares of Litton common stock which are not so exchanged for NNG common stock
by reason of proration will be exchanged for $80.00 in cash per share.
NNG Option to Reduce the Maximum Common Stock Consideration
If the average of the closing prices for Northrop Grumman common stock on
the NYSE for any five consecutive trading days ending not later than two full
trading days before expiration of the offer is less than $75.00, NNG may
irrevocably elect to substitute cash for all or a portion of the NNG common
stock at the rate of $80.00 per share of Litton common stock. In such event,
NNG promptly will publicly announce the amount of cash to be substituted for
NNG common stock and the amount of the new maximum common stock consideration
and the offer will be extended, if necessary, in accordance with the applicable
rules of the SEC to allow Litton stockholders to consider the information.
The NNG Preferred Stock
The NNG preferred stock will have the following principal terms:
. Conversion Right. Subject to approval by the stockholders (the
"Stockholder Approval") of Northrop Grumman (if prior to the purchase of
Litton shares in the offer) or by the stockholders of NNG (if
thereafter) of the issuance of the shares of NNG common stock into which
the NNG preferred stock is convertible, shares of NNG preferred stock
will be convertible into shares of NNG common stock at a
5
conversion price equal to 127% of the average of the closing prices for
Northrop Grumman common stock on the NYSE for the five consecutive trading
days ending prior to the open of the second full trading day before
expiration of the offer (including the date the offer expires). The
initial conversion price is subject to adjustment under certain
circumstances, as described in "Description of NNG Capital Stock-Series B
Preferred Stock."
. Dividend Rate. Holders of shares of NNG preferred stock will be entitled
to cumulative cash dividends, payable quarterly in April, July, October
and January of each year. If the NNG preferred stock is issued prior to
the 2001 annual meeting of stockholders of Northrop Grumman (currently
scheduled for May 16, 2001), the initial dividend rate per share will be
$7.00 per year. Commencing after the dividend payment date in October
2001, the dividend rate per share will be $7.00 per year if the
Stockholder Approval has been obtained or $9.00 per year if it has not
been obtained. If the NNG preferred stock is issued after the 2001
Northrop Grumman annual meeting, the initial dividend rate per share
will be $7.00 per year if the Stockholder Approval has been obtained and
$9.00 per year if it has not been obtained. If the dividend rate per
share is set at $9.00 per year, it will be reduced from $9.00 to $7.00
per year after the Stockholder Approval is obtained.
. Redemption.
. Mandatory Redemption For Cash After Twenty Years. Each share of NNG
preferred stock will be subject to mandatory redemption for cash,
in an amount equal to the liquidation value of $100.00 per share of
NNG preferred stock plus accrued but unpaid dividends, whether or
not declared, to the mandatory redemption date. The mandatory
redemption date will be 20 years and one day from the date of
issuance. In the event that Stockholder Approval has not occurred
by the mandatory redemption date, the amount payable for each share
of NNG preferred stock will be the greater of (a) the liquidation
value of $100.00 per share of NNG preferred stock plus accrued but
unpaid dividends to the redemption date, whether or not declared,
and (b) the current market price on the redemption date of the
number of shares of NNG common stock which would be issued upon
conversion of a share of NNG preferred stock into NNG common stock
on the redemption date pursuant to the provision for conversion.
. Optional Redemption For Common Stock After Seven Years. NNG has the
option to redeem all but not less than all of the shares of NNG
preferred stock at any time after seven years from the initial
issuance date for a number of shares of NNG common stock equal to
the liquidation value of $100.00 per share plus accrued but unpaid
dividends, whether or not declared, to the redemption date, divided
by the current market price of a share of NNG common stock on the
redemption date. In the event that Stockholder Approval has not
occurred by the redemption date, the number to be divided in the
above calculation will be the greater of the amount described above
and the current market price on the redemption date of the number
of shares of NNG common stock which would be issued upon conversion
of a share of NNG preferred stock into NNG common stock on the
redemption date pursuant to the provision for conversion.
. Liquidation. In any liquidation of NNG, each share of NNG preferred
stock will be entitled to a liquidation preference of $100.00 plus
accrued but unpaid dividends, whether or not declared, before any
distribution may be made on the NNG common stock or any other class or
series of NNG stock which is junior to the NNG preferred stock. In any
liquidation of NNG, no distribution may be made on any NNG stock ranking
on a parity with the NNG preferred stock, unless the holders of NNG
preferred stock participate ratably in the distribution along with the
holders of any NNG stock that ranks on a parity with the NNG preferred
stock. In the event the Stockholder Approval has not occurred at the
time of liquidation, the amount payable on liquidation will be the
greater of the amount described above and the amount that would be
distributed if such share of NNG preferred stock had been converted into
NNG common stock pursuant to the provision for conversion.
6
. Change of Control. For a period of not less than 20 business days
following any merger, consolidation, sale of all or substantially all of
NNG's assets, liquidation or recapitalization of the NNG common stock in
which more than one-third of the previously outstanding NNG common stock
is changed into or exchanged for cash, property or securities other than
capital stock of NNG or another corporation, holders of shares of NNG
preferred stock may exchange any and all such shares for shares of NNG
common stock. Each share of NNG preferred stock so exchanged shall be
exchanged for that number of shares of NNG common stock determined by
dividing the liquidation value of $100.00 per share plus accrued and
unpaid dividends as of the exchange date by the current market price of
a share of NNG common stock. In the event the Stockholder Approval has
not occurred by the exchange date, the number to be divided in the above
calculation will be the greater of the amount described above and the
current market price on the exchange date of the number of shares of NNG
common stock which would be issued if such shares of NNG preferred stock
were converted into NNG common stock on the exchange date pursuant to
the provision for conversion.
. Voting Rights. Holders of shares of NNG preferred stock generally will
have no voting rights, except that approval of the holders of two-thirds
of the NNG preferred stock will be required for certain actions that
would adversely affect the rights of such holders. If NNG fails to pay
or declare and set aside funds for six or more quarterly dividends
(whether or not consecutive), the holders of shares of NNG preferred
stock will have the right to elect two directors of NNG.
See "Description of NNG Capital Stock-Series B Preferred Stock--Voting
Rights" on page 73 for a more detailed description of the voting and other
rights and preferences of the NNG preferred stock.
Conditions to the Offer
The offer is subject to conditions, including, but not limited to:
. the satisfaction of the minimum tender condition;
. the expiration or termination of any applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(referred to in this offer to purchase or exchange as the "HSR Act") or
under Council Regulation (EEC) No. 4064/89 of the Council of the
European Union;
. the Registration Statement on Form S-4 filed with the Securities and
Exchange Commission to register the issuance of the NNG common stock and
NNG preferred stock (of which this offer to purchase or exchange is a
part) in the offer will have become effective and not be the subject of
any stop order or proceeding seeking a stop order; and
. the shares of NNG common stock to be issued in the offer will have been
approved for listing on the NYSE.
These conditions and the other conditions to the offer are discussed in
greater detail in "The Offer--Conditions of the Offer" beginning on page 31.
Litton's Support of the Offer and the Litton Merger
Litton's board of directors has determined that the offer is fair to, and in
the best interests of, holders of Litton common stock, and recommends that
holders of Litton common stock accept the offer and tender their shares of
Litton common stock in the offer. Litton's board of directors makes no
recommendation regarding whether holders of Litton preferred stock should
accept the offer and tender their shares of Litton preferred stock in the
offer. Litton's board of directors has approved and declared advisable the
amended merger agreement and the Litton merger. Information about the
recommendation of Litton's board is more fully set forth in Litton's Amended
Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed
to Litton stockholders together with this offer to purchase or exchange.
7
Fairness Opinion
Litton has received an opinion from Merrill Lynch & Co., dated January 23,
2001, substantially to the effect that, as of January 23, 2001, the aggregate
consideration to be received by holders of Litton common stock other than
Northrop Grumman and its affiliates pursuant to the offer and the Litton merger
is fair from a financial point of view to the holders of Litton common stock.
The opinion is attached as an annex to Litton's Schedule 14D-9.
Agreement With Litton's Largest Stockholder
Unitrin and certain of its subsidiaries, who collectively owned
approximately 27.8% of the outstanding shares of Litton common stock as of
January 23, 2001, have agreed to tender all of their shares of Litton common
stock in the offer and elect to receive not less than 3,000,000 shares of NNG
preferred stock and, as to the remainder, NNG common stock pursuant to the
stockholder's agreement described in greater detail in "Other Agreements--The
Stockholder's Agreement" on page 61.
Litton Stockholder Approval of the Litton Merger
The Litton merger will require the affirmative vote of at least a majority
of the shares of Litton common stock and Litton preferred stock outstanding on
the record date for the meeting to approve the Litton merger, unless 90% or
more of the outstanding shares of Litton common stock and 90% or more of the
outstanding shares of Litton preferred stock are acquired in the offer, in
which case the Litton merger can be accomplished without a meeting or vote of
the Litton stockholders. If the minimum tender condition is satisfied and NNG
purchases the tendered Litton common stock and Litton preferred stock, approval
of the merger by Litton stockholders will be assured because NNG will own over
50% of the outstanding voting stock of Litton.
Appraisal Rights
There are no appraisal rights available in connection with the offer. After
the offer and subject to Delaware state law, appraisal rights will be available
to holders of Litton common stock, and may be available (depending on
circumstances at the time) to holders of Litton preferred stock who do not vote
in favor of the Litton merger. See "Summary of Certain Statutory Provisions--
Appraisal Rights" beginning on page 82.
Tendering Litton Shares
To tender Litton shares, Litton stockholders should do the following:
. If the Litton shares are held in the stockholder's own name, the
stockholder should complete and sign the enclosed letter of transmittal
and return it with the Litton share certificates to EquiServe Trust
Company, the depositary for the offer, at the applicable address on the
back cover of this offer to purchase or exchange.
. If the Litton shares are held in uncertificated form in the
stockholder's name, the stockholder should complete and sign the
enclosed letter of transmittal and return it to EquiServe Trust Company
at the applicable address printed on the back cover of this offer to
purchase or exchange.
. If the Litton shares are held in "street name" through a broker, the
stockholder will need to ask its broker to tender its Litton shares.
For more information on the timing of the offer, extensions of the offer
period and Litton stockholders' rights to withdraw previously tendered Litton
shares from the offer, see "The Offer" beginning on page 22, or call the
information agent, Georgeson Shareholder Communications Inc., toll-free at
(800) 223-2064.
8
Litton Stockholders Who Already Tendered Their Shares
Litton stockholders who have already tendered shares of Litton common stock
in the original offer need take no action if they still wish to receive $80.00
in cash per share. If any such holder wishes to elect to receive consideration
other than cash, such holder must submit a new letter of transmittal (or
agent's message, if applicable), properly completed to indicate such election,
and clearly identifying the shares previously tendered.
Litton stockholders who have already tendered shares of Litton preferred
stock need take no action if they still wish to tender such shares for $35.00
in cash per share.
Shares previously tendered will not be returned unless withdrawn as
described herein or upon expiration of the offer if not accepted for payment
or exchange. For information concerning the status of previously tendered
Litton shares, please call the information agent, Georgeson Shareholder
Communications, Inc., toll free at (800) 223-2064.
Tax Consequences of the Receipt of Cash, NNG Common Stock and NNG Preferred
Stock
If the offer and the Litton merger are consummated as contemplated, for
federal income tax purposes:
. Litton stockholders who receive only cash for their Litton common stock
or Litton preferred stock will recognize any gain or loss;
. Litton stockholders who receive solely NNG common stock or NNG preferred
stock for their Litton common stock will recognize neither gain nor
loss; and
. Litton stockholders who receive a combination of cash, NNG common stock
and NNG preferred stock for their Litton common stock will not recognize
any loss and will recognize any gain in an amount not to exceed the cash
received.
The federal income tax consequences of the offer and the Litton merger will
also depend on each Litton stockholder's particular circumstances. For a more
detailed discussion of the potential federal income tax consequences, see
"Material Federal Income Tax Consequences" beginning on page 41. Litton
stockholders also should consult their tax advisors and other financial
advisors for a full understanding of these and other tax consequences.
Extension of the Offer Period
The offer is currently scheduled to expire at Midnight, New York City time,
on Thursday, March 1, 2001.
The amended merger agreement provides that NNG may, without Litton's
consent:
. from time to time extend the offer for successive periods of up to five
business days until each of the conditions to the offer have been
satisfied or waived; or
. extend the offer for any period required by any rule, regulation,
interpretation or position of the SEC.
If the offer is extended for any reason, NNG will promptly publicly
announce the extension no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date. During any
extension of the offer, all Litton common stock and Litton preferred stock
previously tendered and not withdrawn will remain subject to the offer,
subject to the holder's right to withdraw. See "The Offer--Withdrawal Rights"
beginning on page 27 and "The Amended Merger Agreement" beginning on page 45
for more details.
9
Delay; Termination; Waiver; Amendment
Subject to the SEC's rules and regulations and the terms of the amended
merger agreement, NNG also reserves the right, in its sole discretion, at any
time or from time to time:
. to delay acceptance for payment or exchange of any shares of Litton
common stock or Litton preferred stock pursuant to the offer if any of
the conditions of the offer have not been satisfied; and
. to waive any condition (other than the minimum tender condition)
by giving oral or written notice of the delay, termination or amendment to the
depositary and by making a public announcement as promptly as practicable after
the delay, termination or amendment. Subject to applicable law (including Rules
14d-4(d) and 14d-6(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which require that any material change in the information
published, sent or given to stockholders in connection with the offer be
promptly sent to stockholders in a manner reasonably designed to inform
stockholders of such change) and without limiting the manner in which NNG may
choose to make any public announcement, NNG assumes no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service.
Withdrawal Rights
Tenders of shares of Litton common stock and Litton preferred stock in the
offer may be withdrawn at any time prior to the expiration of the offer and at
any time after Tuesday, March 6, 2001, unless NNG previously has accepted the
shares for payment.
Reasons for the Proposed Transactions
NNG and Northrop Grumman are proposing the offer and the Litton merger
because they believe that the offer and the Litton merger will significantly
benefit Northrop Grumman's stockholders and customers. Northrop Grumman
believes that the offer and the Litton merger will provide access to new
product areas, increase diversification into new markets, increase market
presence and opportunities and increase operating efficiencies. See "Background
of the Amended Merger Agreement--Reasons for the Offer and the Litton Merger"
beginning on page 40.
Accounting Treatment
NNG will account for the Litton merger as a "purchase" transaction for
accounting and financial reporting purposes, in accordance with United States
generally accepted accounting principles. Accordingly, NNG will make a
determination of the fair value of Litton's assets and liabilities and allocate
the purchase price on its books to the acquired assets.
Material Differences in Rights of Stockholders
The governing documents of NNG and Litton vary, and to that extent, holders
of Litton common stock will have different rights as NNG stockholders. The
differences are described in more detail under "Comparison of Stockholders'
Rights" beginning on page 77.
Questions About the Offer and the Litton Merger
If you have any questions about the offer or the Litton merger, please call
our information agent, Georgeson Shareholder Communications Inc., toll-free at
(800) 223-2064.
10
IMPORTANT CONSIDERATIONS CONCERNING ELECTIONS TO RECEIVE NNG STOCK
In deciding whether to tender shares of Litton stock pursuant to the offer,
Litton stockholders should read this offer to purchase or exchange and the
accompanying Schedule 14D-9 of Litton carefully. Litton common stockholders
also should carefully consider the following factors before electing to
receive NNG stock in the offer.
Elections to Receive NNG Stock are Subject to Pro Rata Reduction Because of
the Limited Numbers of Shares Available
Only 13,000,000 shares of NNG common stock and 3,500,000 shares of NNG
preferred stock are available for exchange in the offer. The maximum common
stock consideration could be reduced as described below under "--The Amount of
NNG Common Stock Offered in Exchange for Litton Common Stock is Subject to
Possible Reduction." If Litton common stockholders elect to receive more than
the available number of shares of either class of NNG stock, their elections
will be subject to pro rata reduction. Several alternative elections are
available to Litton common stockholders for treatment of any shares of Litton
common stock not exchanged by reason of proration for the class of NNG stock
they have elected to receive. Litton common stockholders who are considering
such elections should carefully consider the information provided herein under
"The Offer--Possible Pro Rata Reductions of Elections for NNG Stock."
The Trading Market for NNG Preferred Stock May Be Limited
The total number of NNG preferred shares to be issued in the offer is
limited to 3,500,000, with each share having a liquidation preference of
$100.00. As the result, the total initial liquidation value of the issue will
be no more than $350,000,000, and the liquidity of those shares may be
limited. Of course, the actual market value of the NNG preferred stock may be
more or less than $100.00 per share depending on circumstances over time.
Resales of NNG Common Stock Following the Offer May Adversely Affect the
Market Value of Such Shares
The issuance of 13,000,000 new shares of NNG common stock in the offer
could lead to a significant redistribution of the new shares following their
initial issuance. Resales of a large number of the new NNG shares could
adversely affect the market price for NNG common stock.
The Exchange Ratio for NNG Common Stock in the Offer, and the Conversion
Price for the NNG Preferred Stock, Will Not be Known Until Two Full Trading
Days Prior to Expiration of the Offer
The exact number of NNG common shares to be exchanged for each Litton
common share will be determined by dividing $80.25 by the average of the
closing prices for Northrop Grumman common stock on the NYSE for the five
consecutive trading days ending prior to the open of the second full trading
day before expiration of the offer (including the date the offer expires).
Accordingly, Litton stockholders will not be able to know the NNG common stock
exchange ratio until immediately prior to the open of the last two trading
days during which the offer is open. Further, the exchange ratio which results
may not reflect the actual market price for NNG common stock following
completion of the offer.
The conversion price for NNG preferred stock will be 127% of the average of
the closing prices of the Northrop Grumman common stock used to set the NNG
common stock exchange ratio. Accordingly, the conversion price for NNG
preferred stock will also not be known until two full trading days prior to
the expiration of the offer.
The Amount of NNG Common Stock Offered in Exchange for Litton Common Stock
is Subject to Possible Reduction
If the average of the closing prices for Northrop Grumman common stock on
the NYSE for any five consecutive trading days ending not later than two full
trading days before expiration of the offer is less than
11
$75.00, NNG will have the irrevocable option to reduce the number of shares of
NNG common stock available for exchange in the offer and substitute cash at
the rate of $80.00 per share of Litton common stock. If this should occur, a
public announcement of the fact will be made and the offer will be extended,
if necessary, in accordance with the applicable rules of the SEC to allow
Litton stockholders to consider the information.
Convertibility of the NNG Preferred Stock is Subject to a Vote of Northrop
Grumman Stockholders Which Will Not Occur Until the 2001 Meeting of
Northrop Grumman Stockholders
The issuance of NNG common stock upon conversion of the NNG preferred stock
is conditioned upon the approval of stockholders of Northrop Grumman (if such
vote occurs prior to the issuance of shares in the offer) or NNG (if the vote
occurs thereafter). The matter will be voted on at the 2001 annual meeting of
stockholders, currently scheduled for May 16, 2001, which is expected to be
after expiration of the offer. As the result, Litton stockholders who elect to
receive NNG preferred stock must recognize that such shares may not be
convertible into common stock. See "Description of NNG Capital Stock--Series B
Preferred Stock."
The Indebtedness of NNG Following the Offer Will be Much Higher Than the
Existing Indebtedness of Northrop Grumman
The indebtedness of Northrop Grumman as of September 30, 2000 was
approximately $1.820 billion. NNG's pro forma indebtedness as of September 30,
2000 giving effect to the offer and the Litton merger and assuming the Minimum
Equity Issuance (as described in "Selected Consolidated Financial Data"
below), is approximately $6.4 billion. As a result of the increase in debt,
demands on the cash resources of Northrop Grumman will increase after the
Litton merger, which could have important effects on the investment in NNG's
common stock and NNG's preferred stock. For example, the increased levels of
indebtedness could:
. reduce funds available for investment in research and development and
capital expenditures; or
. create competitive disadvantages compared to other companies with lower
debt levels.
Successful Integration of the Northrop Grumman and Litton Businesses is not
Assured
Integrating and coordinating the operations and personnel of Northrop
Grumman and Litton will involve complex technological, operational and
personnel-related challenges. This process will be time-consuming and
expensive, and may disrupt the business of the companies. The integration of
the companies may not result in the benefits expected by the companies. The
difficulties, costs and delays that could be encountered may include:
. unanticipated issues in integrating the information, communications and
other systems;
. negative impacts on employee morale and performance as a result of job
changes and reassignments;
. loss of customers;
. unanticipated incompatibility of systems, procedures and operating
methods;
. inability to obtain necessary consents of third parties;
. unanticipated costs in termination or relocation of facilities and
operations, and
. the effect of complying with any government imposed organizational
conflict-of-interest rules.
Risks Relating to the Businesses of Northrop Grumman and Litton
Results of operation of NNG will be subject to numerous risks affecting the
businesses of Northrop Grumman and Litton, many of which are beyond the
companies' control. Many of these risks are identified under "Forward-Looking
Statements" on page 87.
12
RECENT RESULTS OF NORTHROP GRUMMAN CORPORATION
On January 24, 2001, Northrop Grumman announced its results of operations
for the three months and year ended December 31, 2000 as follows [unaudited]:
Three months ended Year ended
December 31, 2000 December 31, 2000
------------------ -----------------
($ in millions, except per share)
Net sales............................. $2,229 $7,618
Operating margin...................... 252 1,098
Interest expense (net)................ (31) (145)
Income from continuing operations..... 144 625
Diluted earnings per share from
continuing operations................ $ 1.99 $ 8.82
13
SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of selected historical consolidated financial
data of Northrop Grumman for each of the years in the five-year period ended
December 31, 1999 and for the nine-month periods ended September 30, 2000 and
1999 and selected unaudited pro forma combined financial data of Northrop
Grumman and Litton for the year ended December 31, 1999 and the nine-month
period ended September 30, 2000. The operating results for the nine months
ended September 30, 2000 are not necessarily indicative of results for the full
fiscal year ending December 31, 2000. See "Additional Information" on page 86.
Litton stockholders should read this summary together with the financial
statements referred to below and incorporated by reference and their
accompanying notes and in conjunction with management's discussion and analysis
of operations and financial conditions of Northrop Grumman and Litton contained
in such reports.
The historical consolidated financial data of Northrop Grumman for each of
the years in the three year period ended December 31, 1999 are derived from the
audited financial statements of Northrop Grumman contained in its Current
Report on Form 8-K as filed on August 8, 2000, which is incorporated by
reference in this offer to purchase or exchange. The historical consolidated
financial data for the fiscal years ended December 31, 1996 and 1995 are
derived from the audited financial statements of Northrop Grumman. The
historical consolidated financial data for the nine-month periods ended
September 30, 2000 and 1999 are derived from the unaudited financial statements
of Northrop Grumman contained in its Quarterly Report on Form 10-Q as filed on
November 3, 2000, which is incorporated by reference in this offer to purchase
or exchange.
The selected unaudited pro forma combined financial data of Northrop Grumman
and Litton was derived from Northrop Grumman's audited consolidated financial
statements for the year ended December 31, 1999, Northrop Grumman's unaudited
consolidated financial statements for the nine months ended and as of September
30, 2000, Litton's audited consolidated financial statements for the year ended
July 31, 2000 and Litton's unaudited consolidated financial statements for the
quarter ended and as of October 31, 2000. In addition, the audited financial
statements contained in Litton's Annual Report on Form 10-K for the fiscal year
ended July 31, 1999 and the unaudited financial statements of Litton contained
in Litton's Quarterly Reports on Form 10-Q for the periods ended January 31,
2000 and 1999 have been used to bring the financial reporting periods of Litton
to within 31 days of those of Northrop Grumman.
The selected unaudited pro forma combined financial data give effect to the
offer and the Litton merger as if they had occurred on the dates referenced
under "Unaudited Pro Forma Condensed Combined Financial Information" beginning
on page 68. The selected unaudited pro forma combined financial data do not
include the realization of any cost savings from operating efficiencies,
synergies or other restructurings resulting from the offer and the Litton
merger. Two pro forma transaction scenarios are presented: Minimum Equity
Issuance and Maximum Equity Issuance. The Minimum Equity Issuance scenario is
based upon the assumption that Unitrin tenders its shares of Litton common
stock for NNG stock as described in "Other Agreements--The Stockholder's
Agreement," beginning on page 61 and all other stockholders tender their shares
for cash. The Maximum Equity Issuance scenario is based upon the assumption
that the maximum number of shares of NNG common stock (i.e. 13,000,000) and
maximum number of shares of NNG preferred stock (i.e. 3,500,000) are issued,
with the remainder of the consideration in the offer paid in cash. The selected
unaudited pro forma combined financial data do not purport to represent what
NNG's results of operations or financial position actually would have been if
the transactions referred to therein had been consummated on the date or for
the periods indicated or what such results will be for any future date or any
future period. Litton stockholders should read this summary together with
"Unaudited Pro Forma Condensed Combined Financial Information" beginning on
page 67 and the accompanying notes.
14
NORTHROP GRUMMAN CORPORATION
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(In millions, except per share data)
Pro Forma
------------------
Minimum Maximum
Equity Equity
Issuance Issuance Historical Data
-------- -------- ---------------------------------------
Year ended
December 31, Year ended December 31,
------------------ ---------------------------------------
1999 1999 1999 1998 1997 1996 1995
-------- -------- ------ ------ ------ ------- ------
Operating data:
Net sales............. $12,826 $12,826 $7,616 $7,367 $7,798 $ 7,667 $6,310
Operating margin...... 1,255 1,255 954 752 741 752 526
Interest expense
(net)................ (505) (474) (206) (221) (240) (261) (136)
Income from continuing
operations before
accounting changes... 403 423 474 193 318 330 246
Diluted earnings per
share from continuing
operations before
accounting change.... $ 4.78 $ 4.68 $ 6.80 $ 2.78 $ 4.67 $ 5.18 $ 4.19
Balance sheet data:
Total assets.......... $9,285 $9,536 $9,667 $ 9,645 $5,642
Net working capital... 329 666 221 106 435
Total debt............ 2,225 2,831 2,791 3,378 1,372
Shareholders' equity.. 3,257 2,850 2,623 2,282 1,586
Other data:
Net cash from
operations........... $1,207 $ 244 $ 730 $ 743 $ 777
Funded order backlog.. 8,499 8,415 9,700 10,451 8,063
Depreciation and
amortization......... $ 613 $ 613 352 360 381 342 255
Earnings before
interest, taxes,
depreciation and
amortization
(EBITDA)(a).......... $ 1,774 $ 1,774 1,305 890 1,133 1,081 790
15
NORTHROP GRUMMAN CORPORATION
SELECTED UNAUDITED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
(In millions, except per share data)
Pro Forma
------------------
Minimum Maximum
Equity Equity Historical
Issuance Issuance Data
-------- -------- --------------
Nine months
Nine months ended ended
September 30, September 30,
------------------ --------------
2000 2000 2000 1999
-------- -------- ------ ------
Operating data:
Net sales.................................. $ 9,670 $ 9,670 $5,389 $5,436
Operating margin........................... 1,140 1,140 846 699
Interest expense (net)..................... (358) (331) (114) (172)
Income from continuing operations before
accounting changes........................ 507 524 481 335
Diluted earnings per share from continuing
operations before accounting changes...... $ 6.14 $ 5.94 $ 6.84 $ 4.82
Balance sheet data:
Total assets............................... $16,542 $16,543 $9,354 $9,630
Net working capital........................ 810 810 271 433
Total debt................................. 6,413 5,983 1,820 2,599
Shareholders' equity....................... 4,520 4,951 3,805 3,135
Other data:
Net cash from operations................... $ 596 $ 633
Funded order backlog....................... 9,080 9,876
Depreciation and amortization.............. $ 466 466 261 260
Earnings before interest, taxes,
depreciation and amortization
(EBITDA)(a)............................... 1,643 1,643 1,131 962
--------
(a) EBITDA was calculated by adding back net interest expense and depreciation
and amortization expense to income from continuing operations before taxes
and accounting change. Since all companies do not calculate EBITDA or
similarly titled financial measures in the same manner, disclosures by
other companies may not be comparable with EBITDA as defined herein. EBITDA
is a financial measure used by analysts to value companies. Therefore,
Northrop Grumman's management believes that the presentation of EBITDA
provides relevant information to investors. EBITDA should not be construed
as an alternative to operating income or cash flows from operating
activities as determined in accordance with United States generally
accepted accounting principles ("GAAP") or as a measure of liquidity.
Amounts reflected as EBITDA are not necessarily available for discretionary
use as a result of restrictions imposed by applicable law upon the payment
of dividends or distributions, among other things.
16
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LITTON
The following is a summary of selected consolidated financial data of Litton
for each of the years in the five-year period ended July 31, 2000 and the
three-month periods ended October 31, 2000 and October 31, 1999. The operating
results for the three months ended October 31, 2000 are not necessarily
indicative of results for the full fiscal year ending July 31, 2001. This
information is derived from the audited consolidated financial statements of
Litton contained in its Annual Report on Form 10-K for the fiscal year ended
July 31, 2000 and from the unaudited consolidated financial statements of
Litton contained in its Current Report on Form 8-K, as filed on January 30,
2001, which are incorporated by reference in this offer to purchase or
exchange, and from Litton's Quarterly Report on Form 10-Q for the period ended
October 31, 1999, and is qualified in its entirety by such documents. See
"Additional Information" on page 86. You should read this summary together with
the financial statements to which we refer and their accompanying notes and in
conjunction with management's discussion and analysis of operations and
financial conditions of Litton contained in such reports.
LITTON INDUSTRIES, INC. AND SUBSIDIARIES
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(In millions, except per share data)
Three Months
Ended October 31 Year Ended July 31
---------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
-------- -------------- ------ ------ ------ ------
(unaudited)
Operating data:
Sales and service
revenues................ $ 1,413 $ 1,371 $5,588 $4,828 $4,400 $4,176 $3,612
Total segment operating
profit.................. 114 132 562 339 410 370 320
Income before accounting
change ................. 45 53 221 121 181 162 151
Diluted earnings per
share before accounting
change.................. $ .97 $ 1.13 $ 4.80 $ 2.58 $ 3.82 $ 3.40 $ 3.15
Balance sheet data:
Total assets............. $ 4,849 $ 4,937 4,836 4,260 4,114 3,545 3,454
Net working capital...... 539 246 500 295 164 163 107
Total debt............... 1,424 1,667 1,399 1,033 1,046 680 787
Total stockholders'
investment.............. 1,545 1,351 1,496 1,300 1,187 1,039 917
Other data:
Net cash from
operations.............. 29 7 250 244 228 223 70
Depreciation and
amortization............ 46 47 190 161 148 138 114
Earnings before interest,
taxes, depreciation and
amortization
(EBITDA)(a)............. 146 162 683 441 502 452 381
--------
(a) EBITDA was calculated by adding back net interest expense and depreciation
and amortization expense to income from continuing operations before taxes
and accounting change. Since all companies do not calculate EBITDA or
similarly titled financial measures in the same manner, disclosure by other
companies may not be comparable with EBITDA as defined herein. EBITDA is a
financial measure used by analysts to value companies. Therefore, Northrop
Grumman's management believes that the presentation of EBITDA provides
relevant information to investors. EBITDA should not be construed as an
alternative to operating income or cash flows from operating activities as
determined in accordance with GAAP or as a measure of liquidity. Amounts
reflected as EBITDA are not necessarily available for discretionary use as
a result of restrictions imposed by applicable law upon the payment of
dividends or distributions, among other things.
17
COMPARATIVE PER SHARE INFORMATION
The following table summarizes unaudited per share information for Northrop
Grumman and Litton on a historical, pro forma combined and equivalent pro forma
combined basis. The following information should be read in conjunction with
the audited consolidated financial statements of Northrop Grumman and Litton,
the unaudited interim consolidated financial statements of Northrop Grumman and
Litton, and the unaudited pro forma condensed combined financial information
included elsewhere or incorporated by reference in this offer to purchase or
exchange. The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial
position that would have occurred if the offer, the Litton merger and the
Northrop reorganization had been consummated as of the beginning of the
respective periods presented, nor is it necessarily indicative of the future
operating results or financial position of the combined companies. The
historical book value per share is computed by dividing total stockholders'
equity by the number of common shares outstanding at the end of the period. The
pro forma per share earnings from continuing operations is computed by dividing
the pro forma income from continuing operations by the pro forma weighted
average number of shares outstanding. The pro forma combined book value per
share is computed by dividing total pro forma stockholders' equity by the pro
forma number of common shares outstanding at the end of the period. Litton's
equivalent pro forma combined per share amounts are calculated by multiplying
Northrop Grumman's pro forma combined per share amounts by 0.9106, the
percentage of a share of NNG common stock that would be exchanged for each
share of Litton common stock in the offer, based upon the average of the
closing prices for Northrop Grumman common stock on the NYSE for the five
consecutive trading days ending on January 26, 2001 ($88.125).
Nine months ended Year ended
September 30, December 31,
2000 1999
----------------- ------------
NORTHROP GRUMMAN
Historical per common share data:
Basic earnings per share....................... $ 6.86 $ 6.84
Diluted earnings per share..................... 6.84 6.80
Book value per common share.................... 54.13 46.72
Dividends declared--Common..................... 1.20 1.60
Dividends declared--Preferred.................. -- --
Pro forma combined per common share data:
Minimum Equity Issued
Basic earnings per share....................... $ 6.23 $ 4.86
Diluted earnings per share..................... 6.14 4.78
Book value per common share.................... 57.00 48.44
Dividends declared--Common..................... 1.20(a) 1.60(a)
Dividends declared--Preferred.................. 6.75 9.00
Maximum Equity Issued
Basic earnings per share....................... $ 6.02 $ 4.75
Diluted earnings per share..................... 5.94 4.68
Book value per common share.................... 58.80 50.75
Dividends declared--Common..................... 1.20(a) 1.60(a)
Dividends declared--Preferred.................. 6.75 9.00
18
Nine months ended Year ended
September 30, December 31,
2000 1999
----------------- ------------
LITTON
Historical per common share data:
Basic earnings per share before accounting
change....................................... $ 3.87 $ 2.59
Diluted earnings per share before accounting
change....................................... 3.84 2.55
Book value per common share................... 33.77 30.18
Dividends declared--Common.................... -- --
Dividends declared--Preferred................. 1.50 2.00
Equivalent pro forma combined per common share
data:
Minimum Equity Issued
Basic earnings per share...................... $ 5.67 $ 4.43
Diluted earnings per share.................... 5.59 4.35
Book value per common share................... 51.90 44.11
Dividends declared--Common.................... 1.09 1.46
Dividends declared--Preferred................. 6.15 8.20
Maximum Equity Issued
Basic earnings per share...................... $ 5.48 $ 4.33
Diluted earnings per share.................... 5.41 4.26
Book value per common share................... 53.54 46.21
Dividends declared--Common.................... 1.09 1.46
Dividends declared--Preferred................. 6.15 8.20
--------
(a) Pro forma dividends declared per common share assumes consistent rate
maintained for additional shares issued in the offer and actual shares.
19
MARKET PRICES AND DIVIDENDS
Northrop Grumman common shares currently are listed and principally traded
on the NYSE and the Pacific Exchange under the symbol "NOC." After the
consummation of the offer, the NNG common stock will trade on the NYSE under
the symbol "NOC," and NNG will seek to list the NNG preferred stock on the NYSE
if there are enough holders to satisfy the NYSE minimum listing requirements.
The Litton common stock and the Litton preferred stock are listed and
principally traded on the NYSE under the symbols, "LIT" and "LIT.B"
respectively.
The last reported sale price for Northrop Grumman common stock on January
31, 2001 was $86.68 and the last reported sale prices for Litton common stock
and Litton preferred stock on January 31, 2001 were $79.08 and $34.30,
respectively.
The following table sets forth, for the calendar quarters ended on the dates
indicated, the high and low last reported sale prices per share of Northrop
Grumman common stock, Litton common stock and preferred stock, in each case as
reported on the NYSE Composite Transaction Tape. The following tables also set
forth the cash dividends declared per share of Northrop Grumman common stock,
Litton common stock and preferred stock for the corresponding periods.
Northrop Grumman
Common Stock Litton Common Stock
------------------------ ----------------------
High Low Dividend High Low Dividend
------- ------- -------- ------ ------ --------
1998
March 31, 1998............... $139.00 $103.50 $0.40 $62.88 $55.88 --
June 30, 1998................ 109.69 99.00 0.40 63.44 56.06 --
September 30, 1998........... 108.00 59.63 0.40 61.81 47.56 --
December 31, 1998............ 83.19 69.50 0.40 67.19 56.44 --
1999
March 31, 1999............... 73.25 57.00 0.40 64.50 51.63 --
June 30, 1999................ 73.31 57.75 0.40 73.88 54.94 --
September 30, 1999........... 75.69 59.94 0.40 72.44 54.75 --
December 31, 1999............ 62.31 49.00 0.40 55.50 42.50 --
2000
March 31, 2000............... 55.19 43.56 0.40 50.81 27.94 --
June 30, 2000................ 80.25 52.44 0.40 45.69 38.81 --
September 30, 2000........... 91.81 65.63 0.40 58.47 41.00 --
December 31, 2000............ 92.50 74.13 0.40 79.88 44.00 --
2001
Quarter through January 31,
2001........................ 89.50 79.81 -- 79.08 78.69 --
20
Litton Preferred Stock
----------------------
High Low Dividend
------ ------ --------
1998
March 31, 1998......................................... $35.50 $32.00 $0.50
June 30, 1998.......................................... 33.75 30.00 $0.50
September 30, 1998..................................... 33.25 30.00 $0.50
December 31, 1998...................................... 33.25 29.00 $0.50
1999
March 31, 1999......................................... 33.50 30.00 $0.50
June 30, 1999.......................................... 32.50 28.75 $0.50
September 30, 1999..................................... 31.50 27.50 $0.50
December 31, 1999...................................... 30.00 25.25 $0.50
2000
March 31, 2000......................................... 26.75 24.75 $0.50
June 30, 2000.......................................... 26.50 23.50 $0.50
September 30, 2000..................................... 25.50 23.00 $0.50
December 31, 2000...................................... 35.00 23.25 $0.50
2001
Quarter through January 31, 2001....................... 34.63 34.00 --
21
THE OFFER
Exchange of Litton Shares; Exchange Ratio
Litton stockholders who tender shares of Litton common stock in the offer
may elect to receive any of the following in exchange for each share of Litton
common stock:
. $80.00 in cash;
. $80.25 in market value of shares of NNG common stock, determined by
dividing $80.25 by the average of the closing prices for Northrop Grumman
common stock on the NYSE for the five consecutive trading days ending on
the second trading day before expiration of the offer; or
. 0.80 of a share of NNG preferred stock.
Litton stockholders who tender shares of Litton preferred stock in the offer
will receive $35.00 in cash in exchange for each share of Litton preferred
stock. Holders of Litton preferred stock cannot exchange their Litton preferred
stock for NNG common stock or NNG preferred stock, only cash.
Each form of consideration paid in the offer will be paid net of any
required withholding of taxes and without the payment of interest.
The exchange ratios for the consideration to be offered in exchange for
shares of Litton common stock and Litton preferred stock in the offer were
determined through arm's-length negotiations between Litton and Northrop
Grumman. Merrill Lynch & Co. acted as Litton's financial advisor and Salomon
Smith Barney Inc. acted as Northrop Grumman's financial advisor in these
negotiations.
Elections by Tendering Stockholders
There is no limit on the number of shares of Litton common stock or Litton
preferred stock that may be exchanged for cash in the offer. There is a limit
on the number of shares of NNG common stock and the number of shares of NNG
preferred stock that may be issued in exchange for Litton common stock in the
offer. The maximum number of shares of NNG common stock that will be issued in
the offer is 13,000,000, and the maximum number of shares of NNG preferred
stock that will be issued in the offer is 3,500,000. It is possible that the
maximum common stock consideration could be reduced. Elections for the NNG
common stock and the NNG preferred stock will be subject to pro rata reduction
if Litton common stockholders request more than the maximum common stock
consideration or the maximum preferred stock consideration, as the case may be.
In addition to deciding whether to receive cash, NNG common stock or NNG
preferred stock, or a combination of this consideration, tendering stockholders
who elect to receive NNG common stock or NNG preferred stock must choose among
the available alternatives described below for the treatment of any shares of
Litton common stock not exchanged, by reason of proration, for the class of NNG
stock they have elected to receive:
Alternative A. A tendering Litton stockholder may make an Alternative A
election with respect to Litton common stock which is tendered for either NNG
common stock or NNG preferred stock. If the total number of NNG common stock
elections (including the deemed elections referred to in the next sentence)
exceeds the NNG common stock available, the Alternative A elections will first
be reduced, pro rata, to the extent necessary so that the total number of
shares of NNG common stock required for common stock elections does not exceed
the maximum common stock consideration. If the tendering stockholder elects to
receive NNG preferred stock, any shares subject to the Alternative A election
which are not exchanged for NNG preferred stock by reason of proration will be
deemed subject to an Alternative A common stock election.
The stockholder's agreement provides, in substance, that Unitrin and certain
of its subsidiaries will accept NNG common stock in exchange for all of their
shares of Litton common stock which are not exchanged for NNG preferred stock
in the offer. However, Unitrin and its subsidiaries agreed to accept NNG common
stock only to the extent that other Litton stockholders do not elect to receive
the available NNG common stock. Pursuant to the stockholder's agreement,
Unitrin will specify Alternative A for all of the Litton common stock
22
tendered by it. While Alternative A may be selected by any holder of Litton
common stock, it is expected that Litton stockholders other than Unitrin will
likely find it in their interests to select either:
. Alternative B, if they wish to maximize the NNG common stock received in
the offer (for any shares not exchanged, by reason of proration, for NNG
preferred stock, or otherwise); or
. Alternative C, if they wish to receive only NNG preferred stock or cash.
The stockholder's agreement is described below under "Other Agreements--The
Stockholder's Agreement."
Alternative B. A tendering Litton stockholder may make an Alternative B
election with respect to Litton common stock which is tendered for either NNG
common stock or NNG preferred stock. In the event that proration of elections
to receive shares of NNG common stock is still required after the elimination
of shares in accordance with Alternative A elections, holders of shares of
Litton common stock who elect Alternative B will have their elections to
receive NNG common stock reduced pro rata based on the number of shares covered
thereby. If the tendering stockholder elects to receive NNG preferred stock,
any shares subject to the Alternative B election which are not exchanged for
NNG preferred stock by reason of proration will be deemed subject to an
Alternative B common stock election.
Alternative C. An Alternative C election is only available for those Litton
common stockholders who elect to receive NNG preferred stock in exchange for
tendered Litton shares. Any such shares which are not exchanged for NNG
preferred stock by reason of proration will be exchanged for $80.00 in cash per
share.
If no election among the three alternatives described above is made in
connection with a tender of Litton common stock in exchange for NNG common or
preferred stock, the tendering stockholder will be deemed to have elected
Alternative B.
Pro Rata Reduction of Elections for NNG Stock
If holders tendering Litton common stock elect to receive more than the
maximum common stock consideration or the maximum preferred stock
consideration, elections will be subject to pro rata reduction as described
below.
Elections to receive NNG preferred stock will be reduced, pro rata in
accordance with the numbers of shares covered thereby, until all of the shares
subject to the elections remaining can be exchanged for NNG preferred stock.
Shares of Litton common stock which are not so exchanged by reason of proration
will be exchanged for:
. $80.00 per share in cash, if Alternative C is selected by the tendering
stockholder; or
. NNG common stock (subject to further proration, if required) in all other
cases.
Elections to receive NNG common stock will also be subject to pro rata
reduction, in accordance with the numbers of shares covered thereby, until all
the shares subject to the elections remaining can be exchanged for the maximum
common stock consideration. As described above, shares subject to Alternative A
elections will be reduced before any shares subject to Alternative B elections.
Shares of Litton common stock which are not so exchanged for NNG common stock
by reason of proration will be exchanged for $80.00 in cash per share.
Reduction in Number of Shares of NNG Common Stock
Pursuant to the amended merger agreement, if the average of the closing
prices for Northrop Grumman common stock on the NYSE is less than $75.00 for
any five consecutive trading days ending not later than two full trading days
before expiration of the offer, NNG will have the option to irrevocably elect
to reduce the number of shares of NNG common stock available for exchange in
the offer and substitute cash at the rate of $80.00 per share of Litton common
stock. If this should occur, NNG will promptly publicly announce the
23
amount of cash to be substituted and the new maximum common stock consideration
and will extend the offer, if necessary, in accordance with the applicable
rules of the SEC to allow Litton stockholders to consider the information.
Illustrative Table of NNG Common Stock Exchange Ratios at Specified Average
Closing Prices
The following table illustrates the number of shares of NNG common stock
that would be issued for one share of Litton common stock at each of the
average Northrop Grumman trading prices presented in the table.
Average Closing
Prices of
Northrop Grumman NNG Common Stock
Common Stock Exchange Ratio
---------------- ----------------
$70.00........................................... 1.1464
$75.00........................................... 1.0700
$80.00........................................... 1.0031
$85.00........................................... .9441
$90.00........................................... .8917
The values of Northrop Grumman common stock used in the table above are for
purposes of illustration only. The average closing prices used in calculating
the NNG common stock exchange ratio may be higher or lower than these numbers,
depending on what the average of the closing prices of Northrop Grumman common
stock on the NYSE actually is for the five consecutive trading days ending two
full trading days before expiration of the offer.
More Information about NNG Common Stock Exchange Ratio
The exchange ratios for the consideration to be offered in exchange for
shares of Litton common stock and Litton preferred stock in the offer were
determined through arm's-length negotiations between Litton and Northrop
Grumman. Merrill Lynch & Co. acted as Litton's financial advisor and Salomon
Smith Barney Inc. acted as Northrop Grumman's financial advisor in these
negotiations.
NNG will notify Litton stockholders by issuing a press release announcing
the final NNG common stock exchange ratio and filing the press release with the
SEC. Litton stockholders may also call the information agent, Georgeson
Shareholder Communications Inc., at any time toll free at (800) 223-2064 to
request information about the NNG common stock exchange ratio, including the
average trading price of shares of Northrop Grumman common stock used to
calculate the number of shares of NNG common stock issuable per share of Litton
common stock in the offer.
Stockholder Rights Plans
The offer to acquire Litton common stock is also an offer to acquire the
associated preferred stock purchase rights issued pursuant to the rights
agreement dated as of August 17, 1994 between Litton and The Bank of New York
as amended as of December 21, 2000 and January 23, 2001. All references to
Litton common stock include the associated rights to purchase preferred stock.
Under no circumstances will additional consideration be paid for those rights.
The shares of NNG common stock to be issued in the offer include the
associated NNG preferred stock purchase rights pursuant to the rights agreement
between NNG and ChaseMellon Shareholder Services to be entered into prior
expiration of the offer. The NNG rights agreement will be on the same terms and
conditions as Northrop Grumman's current rights agreement dated as of September
23, 1998 between Northrop Grumman and ChaseMellon Shareholder Services.
However, provisions will be added to permit the acquisition by Unitrin of NNG
common stock (and NNG common stock issuable upon conversion of the NNG
preferred stock) as contemplated by the offer and the stockholder's agreement
described under "Other Agreements--The Stockholder's Agreement" on page 61. All
references to shares of NNG common stock in this offer to purchase or exchange
are also references to the associated NNG preferred stock purchase rights.
24
Stockholders List
NNG has relied on Litton's stockholders list and security position listings
to communicate with Litton stockholders and to distribute the offer. NNG will
send this offer to purchase or exchange, related letter of transmittal and
other relevant materials to Litton stockholders and to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the
names of whose nominees, appear on Litton's stockholders list or, if
applicable, who are listed as participants in a clearing agency's security
position listing.
Extension; Termination; Amendment
The offer is currently scheduled to expire at Midnight, New York City time,
on Thursday, March 1, 2001.
Subject to the terms of the amended merger agreement, NNG may extend the
period of time during which the offer remains open without Litton's consent by
giving oral or written notice of such extension to the depositary. If the
offer is extended for any reason, NNG will make an announcement to that effect
no later than 9:00 a.m., New York City time, on the next business day after
the previously scheduled expiration date. The amended merger agreement,
subject to certain exceptions, allows NNG to extend the offer for successive
periods of up to five business days until all conditions have been satisfied
or waived. Northrop Grumman has agreed to cause NNG to extend the offer for
the shortest time periods which it reasonably believes are necessary until the
consummation of the offer if the conditions of the offer have not been
satisfied or waived. During any such extension, all shares of Litton stock
previously tendered and not withdrawn will remain subject to the offer,
subject to each tendering stockholder's right to withdraw its Litton common
stock or Litton preferred stock. Litton stockholders should read the
discussion under the caption "The Offer--Withdrawal Rights" beginning on page
27 for more details about withdrawal rights.
Subject to the SEC's applicable rules and regulations and subject to the
terms of the amended merger agreement, NNG also reserves the right, in its
sole discretion, at any time or from time to time to waive any condition
(other than the minimum tender condition) or otherwise amend the offer by
giving oral or written notice of such delay or amendment to the depositary and
by making a public announcement. NNG will follow any amendment or delay as
promptly as practicable with a public announcement. Subject to applicable law
(including Rules 14d-4(d) and 14d-6(c) under the Exchange Act, which require
that any material change in the information published, sent or given to
stockholders in connection with the offer be promptly sent to stockholders in
a manner reasonably designed to inform stockholders of such change) and
without limiting the manner in which NNG may choose to make any public
announcement, NNG assumes no obligation to publish, advertise or otherwise
communicate any such public announcement other than by making a release to the
Dow Jones News Service.
Subject to the terms of the amended merger agreement, if NNG makes a
material change in the terms of the offer or the information concerning the
offer (including any election to substitute cash for NNG common stock), or if
NNG waives a material condition of the offer, NNG will extend the offer to the
extent required under the Exchange Act. If, prior to the expiration date, NNG
changes the consideration offered for Litton shares, that change will apply to
all holders whose Litton common stock or Litton preferred stock are accepted
for purchase or exchange pursuant to the offer. If at the time notice of that
change is first published, sent or given to Litton stockholders, the offer is
scheduled to expire at any time earlier than the tenth business day from and
including the date that such notice is first published, sent or given, NNG
will extend the offer in accordance with the applicable rules of the SEC to
allow Litton stockholders to consider the information. For purposes of the
offer, a "business day" means any day other than a Saturday, Sunday or federal
holiday and consists of the time period from 12:01 a.m. through 12:00
Midnight, New York City time.
25
Purchase and Exchange of Litton Stock; Delivery of NNG Stock
Upon the terms and subject to the conditions of the offer, including the
terms and conditions of any extension or amendment of the offer, NNG will
accept, and will purchase or exchange, shares of Litton common stock (in
accordance with the elections of tendering Litton stockholders) or Litton
preferred stock validly tendered and not properly withdrawn as promptly as
practicable after the expiration date. In addition, subject to applicable rules
of the SEC and the terms of the amended merger agreement, NNG expressly
reserves the right to delay acceptance of Litton stock in order to comply with
any applicable law. In all cases, purchases and exchanges of Litton stock
tendered and accepted for exchange will be made only after timely receipt by
the depositary of:
. certificates for the shares of Litton common stock or Litton preferred
stock tendered (if such certificates were ever issued) or a confirmation
of a book-entry transfer of those shares of Litton common stock or Litton
preferred stock in the depositary's account at The Depository Trust
Company, referred to as the "DTC";
. a properly completed and duly executed letter of transmittal (or a
facsimile of that document) or agent's message if applicable; and
. any other required documents.
For purposes of the offer, NNG will be deemed to have accepted for purchase
and exchange shares of Litton stock tendered when NNG notifies the depositary
of its acceptance of those shares. The depositary will deliver cash, NNG common
stock and NNG preferred stock in exchange for Litton stock pursuant to the
offer. The depositary will act as agent for tendering stockholders for the
purpose of receiving cash and shares of NNG stock (including cash to be paid
instead of fractional shares) from NNG and transmitting such cash and NNG stock
to tendering Litton stockholders. NNG will not pay interest on any amount
payable in the offer or the Litton merger, regardless of any delay in making
payment.
If NNG does not accept any Litton stock tendered in the offer for any
reason, or if stock certificates are submitted for more shares of Litton stock
than are tendered, NNG will return certificates for such tendered or untendered
Litton stock, as the case may be, without expense to the tendering stockholder
or, in the case of Litton stock tendered by book-entry transfer into the
depositary's account at DTC pursuant to the procedures set forth below under
the discussion entitled "The Offer--Procedures for Tendering," those shares of
Litton stock will be credited to an account maintained within DTC, as soon as
practicable following expiration or termination of the offer.
If NNG increases the consideration offered to Litton stockholders in the
offer prior to the expiration date, such increased consideration will be given
to all stockholders whose Litton shares are tendered pursuant to the offer,
whether or not such Litton shares were tendered or accepted for exchange prior
to such increase in consideration.
Cash Instead of Fractional Shares of NNG Stock
NNG will not issue certificates representing fractional shares of NNG stock
pursuant to the offer. Instead, each tendering stockholder who would otherwise
be entitled to a fractional share of NNG stock will receive cash in an amount
equal to such fraction (expressed as a decimal and rounded to the nearest 0.01
of a share) multiplied by (i) the average of the closing prices for Northrop
Grumman common stock on the NYSE for the five consecutive trading days ending
on the second trading day before expiration of the offer, in the case of NNG
common stock, or (ii) $100.00 in the case of NNG preferred stock, in each case
minus any required withholding of taxes and without payment of interest.
26
Transfer Charges
Litton stockholders who tender Litton common stock or Litton preferred stock
in the offer, will not be obligated to pay any charges or expenses of the
depositary. Except as set forth in the instructions to the letter of
transmittal, transfer taxes on tenders will be paid by NNG or on NNG's behalf.
Record owners of Litton common stock or Litton preferred stock who tender
shares in the offer will not have to pay brokerage fees or incur similar
expenses. Holders who own Litton common stock or Litton preferred stock through
a broker or other nominee, and whose broker or other nominee exchanges such
Litton stock on the holder's behalf, may be subject to a charge from the broker
or nominee for doing so. Litton stockholders should consult their broker or
nominee to determine whether any charges will apply.
Interest
NNG will not pay interest on any amount payable in the offer or the Litton
merger, regardless of any delay in making payment.
Withdrawal Rights
All tenders of Litton stock in the offer are irrevocable, except that Litton
stock previously tendered may be withdrawn at any time prior to expiration of
the offer, and, unless previously accepted for purchase or exchange pursuant to
the offer, may also be withdrawn at any time after Tuesday, March 6, 2001.
For a withdrawal to be effective, the depositary must receive a written,
telegraphic, telex or facsimile transmission notice of withdrawal at one of its
addresses set forth on the back cover of this offer to purchase or exchange,
and such notice must include the tendering stockholder's name, the number of
shares of Litton common stock or Litton preferred stock to be withdrawn and the
name of the registered holder, if it is different from that of the person who
tendered the shares of Litton stock being withdrawn.
A financial institution must guarantee all signatures on the notice of
withdrawal. Most banks, savings and loan associations and brokerage houses are
able to effect these signature guarantees. The financial institution must be a
participant in the Securities Transfer Agents Medallion Program, the NYSE
Medallion Signature Program or the Stock Exchange Medallion Program, any of
which is an "eligible institution," unless the Litton shares have been tendered
for the account of any eligible institution. If Litton shares have been
tendered pursuant to the procedures for book-entry transfer discussed under the
caption entitled "Procedures for Tendering," any notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawn Litton shares and must otherwise comply with DTC's procedures. If
certificates have been delivered or otherwise identified to the depositary, the
name of the registered holder and the serial numbers of the particular
certificates evidencing the shares of Litton stock being withdrawn must also be
furnished to the depositary, prior to the physical release of such
certificates. NNG will decide all questions as to the form and validity
(including time of receipt) of any notice of withdrawal, in NNG's sole
discretion, and NNG's decision will be final and binding. Neither NNG, the
depositary, the information agent nor any other person has any duty to give
notification of any defects or irregularities in any notice of withdrawal or
will incur any liability for failure to give any such notification. Any shares
of Litton stock properly withdrawn will be deemed not to have been validly
tendered for purposes of the offer. However, a Litton stockholder may retender
withdrawn shares of Litton stock by following one of the procedures discussed
in the section entitled "The Offer--Procedures for Tendering" below at any time
prior to expiration of the offer.
If a holder withdraws any shares of Litton common stock, such holder
automatically withdraws the associated rights to purchase preferred stock. A
holder may not withdraw the rights to purchase preferred stock unless the
associated shares of Litton common stock are also withdrawn.
27
Procedures for Tendering
To validly tender Litton shares pursuant to the offer, before expiration of
the offer, a Litton stockholder must transmit a properly completed and duly
executed letter of transmittal (or manually executed facsimile of that
document), along with any required signature guarantees, an agent's message in
connection with a book-entry transfer, and any other required documents to the
depositary at one of its addresses set forth on the back cover of this offer to
purchase or exchange, and certificates for Litton stock being tendered must be
received by the depositary at such address. Shares of Litton stock held in
book-entry form must be tendered pursuant to the procedures for book-entry
exchange set forth below and a confirmation of receipt of such tender (we refer
to this confirmation below as a "book-entry confirmation") must be received by
the depository. In the alternative, Litton stockholders may comply with the
guaranteed delivery procedures set forth below.
The term "agent's message" means a message, transmitted by DTC to the
depositary and forming a part of a book-entry confirmation, which states that
DTC has received an express acknowledgment from the participant exchanging the
Litton shares which are the subject of such book-entry confirmation, that the
participant has received and agrees to be bound by the terms of the letter of
transmittal and that NNG may enforce that agreement against such participant.
The depositary will establish accounts with respect to the Litton stock at
DTC for the offer within two business days after the date of this offer to
purchase or exchange, and any financial institution that is a participant in
DTC may make book-entry delivery of Litton stock by causing DTC to transfer
such stock into the depositary's account in accordance with DTC's procedure for
such transfer. However, although delivery of Litton stock may be effected
through book-entry at DTC, the letter of transmittal (or facsimile thereof),
with any required signature guarantees, or an agent's message in connection
with a book-entry transfer, and any other required documents, must be
transmitted to the depositary at the applicable address set forth on the back
cover of this offer to purchase or exchange prior to the expiration date, or
the guaranteed delivery procedures described below must be followed.
Signatures on all letters of transmittal must be guaranteed by an eligible
institution, except in cases in which Litton stock is tendered either by a
registered holder of Litton stock who has not completed either the box entitled
"Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the letter of transmittal or for the account of an eligible
institution.
If the certificates for Litton stock are registered in the name of a person
other than the person who signs the letter of transmittal, or if certificates
for untendered Litton shares are to be issued to a person other than the
registered holder(s), the certificates must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name of the
registered owner appears on the certificates, with the signature(s) on the
certificates or stock powers guaranteed in the manner described above.
The method of delivery of Litton share certificates and all other required
documents, including delivery through DTC, is at the tendering stockholder's
option and risk, and delivery will be deemed made only when actually received
by the depositary. If delivery is by mail, NNG recommends registered mail with
return receipt requested, properly insured. In all cases, holders must allow
sufficient time to ensure timely delivery.
To prevent backup federal income tax withholding with respect to any cash
received in the offer, the depositary must be provided with the tendering
stockholder's correct taxpayer identification number and certification whether
the tendering stockholder is subject to backup withholding of federal income
tax by means of the substitute Form W-9 included in the letter of transmittal.
Some stockholders (including, among others, all corporations and some foreign
individuals) are not subject to backup withholding and reporting requirements.
In order for a foreign individual to qualify as an exempt recipient, the
stockholder must submit a Form W-8, signed under penalties of perjury,
attesting to that person's exempt status.
28
A stockholder who wishes to tender shares of Litton stock in the offer and
whose stock certificates are not immediately available or who cannot deliver
the certificates and all other required documents to the depositary prior to
the expiration date or cannot complete the procedure for book-entry transfer on
a timely basis, may nevertheless tender Litton common stock and Litton
preferred stock, so long as all of the following conditions are satisfied:
(a) tender is made by or through an eligible institution;
(b) a properly completed and duly executed notice of guaranteed delivery,
substantially in the form made available by NNG, is received by the
depositary as provided below on or prior to the expiration date; and
(c) the certificates for all shares of Litton common stock or Litton
preferred stock to be tendered (or a confirmation of a book-entry
transfer of such securities into the depositary's account at DTC as
described above), in proper form for transfer, together with a properly
completed and duly executed letter of transmittal (or facsimile
thereof), with any required signature guarantees (or, in the case of a
book-entry transfer, an agent's message) and all other documents
required by the letter of transmittal are received by the depositary
within three NYSE trading days after the date the notice of guaranteed
delivery is executed.
The notice of guaranteed delivery may be delivered to the depositary by hand
or transmitted by telegram, telex, facsimile transmission or mail. A guarantee
by an eligible institution in the form set forth in that notice must be
provided.
In all cases, NNG will exchange shares of Litton common stock or Litton
preferred stock tendered and accepted for exchange only after timely receipt by
the depositary of certificates for such shares (or timely confirmation of a
book-entry transfer of such securities into the depositary's account at DTC as
described above), properly completed and duly executed letter(s) of transmittal
(or facsimile(s) thereof), or an agent's message in connection with a book-
entry transfer, and any other required documents. Accordingly, holders may be
paid at different times depending upon when the depositary actually receives
the certificates for their Litton common stock or Litton preferred stock or
confirmations of book-entry transfers of those shares.
If a holder's shares of Litton common stock or Litton preferred stock were
never issued in certificated form, the holder must follow all of the
requirements for tendering shares other than the requirement to deliver the
share certificates for the tendered shares. A holder who has lost a share
certificate, must contact the Bank of New York, the transfer agent for the
Litton stock, at (800) 432-0140 and receive a replacement certificate in order
to tender the Litton shares represented by the lost share certificate.
Receiving a replacement certificate may take time, so Litton stockholders who
have lost their share certificate and want to tender Litton shares in the offer
should contact the transfer agent to request a replacement certificate as soon
as possible.
By executing a letter of transmittal as set forth above, a tendering Litton
stockholder irrevocably appoints NNG's designees as the holder's attorneys-in-
fact and proxies, each with full power of substitution, to the full extent of
the holder's rights with respect to the Litton common stock or Litton preferred
stock tendered in the offer and any other Litton common stock or Litton
preferred stock and other securities issued or issuable in respect of the
Litton common stock or Litton preferred stock on or after February 1, 2001.
That appointment is effective, and voting rights will be affected, when and
only to the extent that NNG deposits with the depositary cash, the shares of
NNG common stock and NNG preferred stock for the Litton common stock tendered.
All such proxies shall be considered coupled with an interest and are not
revocable. Upon the effectiveness of such appointment, all prior proxies of the
tendering stockholder will be revoked, and any subsequent proxies will not be
deemed effective. NNG's designees will be empowered, among other things, to
exercise all of the tendering stockholder's voting and other rights as they, in
their sole discretion, deem proper at any annual, special or adjourned meeting
of Litton's stockholders or otherwise. NNG reserves the right to require that,
in order for shares of Litton common stock and Litton preferred stock to be
deemed validly tendered, NNG must be able to exercise full voting rights to the
extent permitted under applicable law with respect to such shares immediately
upon acceptance of such shares for purchase or exchange.
29
NNG will determine questions as to the validity, form, eligibility,
including time of receipt, and acceptance for exchange of any tender of Litton
common stock or Litton preferred stock, in its sole discretion, and NNG's
determination shall be final and binding. NNG reserves the absolute right to
reject any tenders of Litton common stock or Litton preferred stock that NNG
determines are not in proper form or the acceptance for exchange of or exchange
for which may, in the opinion of NNG's counsel, be unlawful. NNG also reserves
the absolute right to waive any of the conditions of the offer (other than the
minimum tender condition) or any defect or irregularity in the tender of any
shares of Litton common stock or Litton preferred stock. No tender of Litton
common stock or Litton preferred stock will be deemed to have been validly made
until all defects and irregularities have been cured or waived. Neither NNG,
the depositary, the information agent nor any other person is under any duty to
give notification of any defects or irregularities in the tender of any Litton
common stock or Litton preferred stock or will incur any liability for failing
to give any such notification. NNG's interpretation of the terms and conditions
of the offer, including the letter of transmittal and instructions thereto will
be final and binding.
The tender of shares of Litton stock pursuant to any of the procedures
described above will constitute a binding agreement between NNG and the
tendering stockholder upon the terms and subject to the conditions of the
offer.
Purpose of the Offer; The Litton Merger
NNG is making the offer in order to acquire control of, and ultimately the
entire common equity interest in, Litton. The offer is the first step in NNG's
acquisition of Litton, and is intended to facilitate the acquisition of all
Litton shares. Litton stockholders do not have appraisal rights in connection
with the offer. As soon as practicable after consummation of the offer, NNG
intends to merge LII Acquisition, its wholly-owned subsidiary, with and into
Litton. The purpose of the Litton merger is to acquire all shares of Litton
common stock not exchanged in the offer. At the effective time of the Litton
merger, each share of Litton common stock, except for Litton common stock held
by Litton, NNG or their subsidiaries, will be converted into the right to
receive the same amount of cash as is paid per share of Litton common stock in
the offer, subject to appraisal rights that may be available to Litton
stockholders under Delaware law and minus any required withholding of taxes and
without interest. Each share of Litton preferred stock not tendered or accepted
for payment in the offer will remain outstanding, without change, as a share of
Series B $2 Cumulative Preferred Stock of Litton, the corporation surviving the
Litton merger.
If two-thirds or more of the shares of Litton preferred stock are tendered
for purchase in the offer and NNG acquires such percentage of the Litton
preferred stock, NNG will have sufficient voting power to amend the terms of
the Litton preferred stock in accordance with the provisions set forth in
Litton's Restated Certificate of Incorporation. If, after the offer, there are
less than 300 registered holders of Litton preferred stock remaining, NNG
currently anticipates that it will deregister and delist the Litton preferred
stock from the NYSE, Northrop Grumman and NNG do not intend to redeem any
shares of Litton preferred stock that are not tendered and accepted by NNG for
purchase in the offer. However, following the Litton merger, NNG may seek to
acquire the shares of Litton preferred stock that remain outstanding for cash
at a price or prices not exceeding $35.00 per share through open market
transactions, an amendment to the Certificate of Incorporation of Litton, a
subsequent merger or otherwise.
See "Summary of Certain Statutory Provisions--Appraisal Rights" for
information concerning appraisal rights in the Litton merger.
Rule 13e-3 of the General Rules and Regulations under the Exchange Act would
require, among other things, that some financial information concerning Litton,
and some information relating to the fairness of the Litton merger and the
consideration offered to Litton stockholders, be filed with the SEC and
disclosed to Litton stockholders prior to consummation. Rule 13e-3 will not
apply to the Litton merger if it occurs within one year after the consummation
of the offer.
30
NNG reserves the right to acquire additional Litton stock through open
market purchases, privately negotiated transactions, a tender offer or exchange
offer, or otherwise following the consummation or termination of the offer,
upon such terms and at such prices as NNG decides, which may be more or less
favorable than those of the offer. NNG and its affiliates also reserve the
right to dispose of any or all shares of Litton stock acquired pursuant to the
offer or otherwise, upon such terms and at such prices as NNG determines.
Upon consummation of the offer, NNG intends to take appropriate actions to
optimize and rationalize the combined entities' assets, operations, management,
personnel, general and administrative functions and corporate structure. Other
than the Litton merger, NNG currently does not have any plans or proposals that
would result in an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, or sale of a material amount of assets,
involving Litton or any of its subsidiaries, or any material changes in
Litton's corporate structure or business.
Upon consummation of the offer, NNG may also elect or seek the election of
nominees of its choice to Litton's board of directors. Pursuant to the amended
merger agreement, until the merger is completed, Litton has agreed to use its
best efforts to ensure that at least three members of Litton's board of
directors as of January 23, 2001 remain members of Litton's board of directors.
See "The Amended Merger Agreement--The Litton Board."
Conditions of the Offer
Notwithstanding any other provisions of the offer relating to NNG's
obligation to accept for payment or exchange any tendered Litton common stock
or Litton preferred stock and subject to the terms and conditions of the
amended merger agreement and any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act, NNG shall not be required to
accept for payment or exchange or pay for or exchange any shares of Litton
stock, if:
(i) less than 25,646,399 shares of Litton common stock and Litton
preferred stock, which represent a majority of the total outstanding
common stock and preferred stock on a fully diluted basis, have been
tendered pursuant to the offer by the expiration of the offer and not
withdrawn;
(ii) any applicable waiting period under the HSR Act or Regulation (EEC)
No. 4064/89 of the Council of the European Union shall not have
expired or been terminated prior to the expiration of the offer;
(iii) the registration statement relating to the offer shall not have
become effective under the Securities Act of 1933, as amended (the
"Securities Act"), or shall be the subject of any stop order or
proceeding seeking a stop order;
(iv) the shares of NNG common stock to be issued in the offer shall not
have been approved for listing on the NYSE, subject to official
notice of issuance; or
at any time on or after the date hereof and prior to the expiration of the
offer, any of the following conditions shall have occurred and continued to
exist:
(a) there shall have been any statute, rule, regulation, judgment, order
or injunction enacted or entered and which shall remain in effect by any
state or U.S. government or governmental authority or by any state, U.S. or
European Union court or any agency or authority of the European Union,
other than the routine application to the offer, the Northrop
reorganization and the Litton merger or other subsequent business
combination of waiting periods under the HSR Act or Regulation (EEC) No.
4064/89 of the Council of the European Union, that has the effect of (i)
making the acceptance for payment of, or the payment for, some or all of
the Litton shares illegal or otherwise prohibiting consummation of the
offer, (ii) imposing limitations on the ability of NNG or Northrop Grumman
to acquire or hold or to exercise effectively all rights of ownership of
the Litton shares, or to control effectively the business, assets or
operations of Northrop Grumman, Litton and their subsidiaries, of such
magnitude as would have a material adverse effect on the business, assets,
long-term earning capacity or financial condition of Northrop Grumman,
Litton and their subsidiaries, taken as a whole;
31
(b) a Company Material Adverse Effect, as defined in the amended merger
agreement, shall have occurred and continued to exist;
(c) there shall have occurred and continued to exist (i) any general
suspension of trading in, or limitation on prices for, securities on the
NYSE (excluding any coordinated trading halt triggered solely as a result
of a specified decrease in a market index and suspensions or limitations
resulting from physical damage to or interference with such exchange not
related to market conditions), (ii) the declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States
(whether or not mandatory), (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or
indirectly involving the United States and having a Company Material
Adverse Effect, (iv) any material limitation (whether or not mandatory) by
any U.S. governmental authority or agency on the extension of credit by
banks or other financial institutions, (v) from December 21, 2000 through
the date of termination or expiration of the offer, a decline of at least
27.5% in the Standard & Poor's 500 Index or (vi) in the case of any of the
situations described in clauses (i) through (v) inclusive, existing at the
date of the commencement of the offer, a material acceleration or worsening
thereof; or
(d) the amended merger agreement shall have been terminated in
accordance with its terms; or
(e) (i) the representations of Litton contained in the amended merger
agreement shall not be true and correct at and as of consummation of the
offer with the same effect as if made at and as of such date or if such
representations speak as of an earlier date, as of such earlier date,
except, in either such case to the extent that the breach thereof would not
have a Company Material Adverse Effect, or (ii) Litton shall have failed to
comply with its covenants and agreements contained in the amended merger
agreement in all material respects; or
(f) prior to the purchase of Litton shares pursuant to the offer, the
Litton board of directors shall have withdrawn or modified (including by
amendment of the Schedule 14D-9) in a manner adverse to NNG its approval or
recommendation of the offer, the merger agreement or the Litton merger or
shall have recommended another offer, or shall have adopted any resolution
to effect any of the foregoing.
Regulatory Approvals
Under the HSR Act and the rules that have been promulgated thereunder by the
Federal Trade Commission (the "FTC"), certain acquisition transactions may not
be consummated unless certain information has been furnished to the Antitrust
Division and the FTC and certain waiting period requirements have been
satisfied. The purchase of Litton common stock and Litton preferred stock
pursuant to the offer is subject to such requirements.
Pursuant to the requirements of the HSR Act, Northrop Grumman first filed a
Notification and Report Form with respect to the offer and Litton merger with
the Antitrust Division and the FTC on January 4, 2001. This filing was
voluntarily withdrawn on January 16, 2001 with the result that the statutory
waiting period requirement of 30 days applicable to the exchange offer began
again when the filing was resubmitted on January 31, 2001. The waiting period
applicable to the purchase of Litton common stock and Litton preferred stock
pursuant to the offer is scheduled to expire at 11:59 p.m., New York City time,
thirty days after such filing. However, prior to such time, the Antitrust
Division or the FTC may extend the waiting period by requesting additional
information or documentary material relevant to the offer from Northrop
Grumman. If such a request is made, the waiting period will be extended until
11:59 p.m., New York City time, on the thirtieth day after substantial
compliance by Northrop Grumman with such request, (or the next business day, if
such date falls on a weekend or holiday). Thereafter, such waiting period can
be extended only by court order.
Any extension of the waiting period will not give rise to any withdrawal
rights not otherwise provided for by applicable law. See "The Offer--Withdrawal
Rights" beginning on page 27. If NNG's purchase of Litton common stock or
Litton preferred stock is delayed pursuant to a request by the Antitrust
Division or the FTC for additional information or documentary material pursuant
to the HSR Act, the offer will be extended in
32
certain circumstances. See "The Amended Merger Agreement--Conditions to the
Completion of the Litton Merger."
The Antitrust Division and the FTC scrutinize the legality under the
antitrust laws of transactions such as the purchase of Litton common stock and
Litton preferred stock by NNG pursuant to the offer. At any time before or
after the consummation of any such transactions, the Antitrust Division or the
FTC could take such action under the antitrust laws of the United States as it
deems necessary or desirable in the public interest, including seeking to
enjoin the purchase of Litton common stock and/or Litton preferred stock
pursuant to the offer or seeking divestiture of the Litton common stock and/or
Litton preferred stock so acquired or divestiture of substantial assets of
Northrop Grumman or Litton. Private parties (including individual states) may
also bring legal actions under the antitrust laws of the United States. NNG
does not believe that the consummation of the offer will result in a violation
of any applicable antitrust laws. However, there can be no assurance that a
challenge to the offer on antitrust grounds will not be made, or if such a
challenge is made, what the result will be, including conditions with respect
to litigation and certain governmental actions. See "The Amended Merger
Agreement--Conditions to the Completion of the Litton Merger." See "The Amended
Merger Agreement--Termination Events" for certain termination rights.
The parties conduct business in a number of foreign countries. Under the
laws of certain foreign nations and multinational authorities, such as the
European Commission (under Council Regulation (EEC) 4064/89, or "ECMR"), the
transaction may not be completed or control may not be exercised unless certain
filings are made with these nations' antitrust regulatory authorities or
multinational antitrust authorities and these antitrust authorities approve or
clear closing of the transaction. Other foreign nations and multinational
authorities have voluntary and/or post-merger notification systems. The parties
have filed or intend to file shortly all non-United States pre-merger
notifications that they believe are required, including that required under the
ECMR. Should any other approval or action be required, the parties currently
contemplate that such approval or action would be sought. Although the parties
believe that they will obtain all material required regulatory approvals in a
timely manner, it is not certain that all such approvals will be received in a
timely manner or at all or that foreign or multinational antitrust authorities
will not impose unfavorable conditions for granting the required approvals.
Reduced Liquidity; Possible Delisting
The tender of Litton common stock and Litton preferred stock pursuant to the
offer will reduce the number of holders of Litton common stock and Litton
preferred stock and the number of shares of Litton common stock and Litton
preferred stock that might otherwise trade publicly and could adversely affect
the liquidity and market value of the remaining shares of Litton common stock
and Litton preferred stock held by the public. Litton common stock and Litton
preferred stock currently are listed and principally traded on the NYSE.
Depending on the number of shares of Litton common and Litton preferred stock
acquired in the offer, following consummation of the offer, Litton common stock
or Litton preferred stock may no longer meet the requirements of the NYSE for
continued listing. For example, published guidelines of the NYSE indicate that
the NYSE would consider delisting the outstanding Litton common stock and
Litton preferred stock if, among other things:
. the number of publicly held shares of Litton common stock or Litton
preferred stock (exclusive of holdings of officers, directors and members
of their immediate families and other concentrated holdings of 10% or
more) should fall below 600,000;
. the number of record holders of 100 or more shares of Litton common stock
or Litton preferred stock should fall below 1,200; or
. the aggregate market value of publicly held shares of Litton common stock
or Litton preferred stock should fall below $5,000,000.
33
According to Litton, as of November 30, 2000, there were approximately
45,518,647 shares of Litton common stock (excluding 2,734,083 shares of common
stock held in Litton's treasury) and 410,643 shares of Litton preferred stock
outstanding.
If the NYSE were to delist the Litton common stock or Litton preferred
stock, including after the exchange of Litton stock in the offer but prior to
the Litton merger, the market for Litton common stock or Litton preferred stock
could be adversely affected. It is possible that Litton's shares would be
traded on other securities exchanges or in the over-the-counter market, and
that price quotations would be reported by such exchanges, or through NASDAQ or
by other sources. However, the extent of the public market for Litton common
stock and Litton preferred stock and the availability of such quotations would
depend upon the number of holders and/or the aggregate market value of the
Litton common stock or Litton preferred stock remaining at such time, the
interest in maintaining a market in the Litton common stock or Litton preferred
stock on the part of securities firms, the possible termination of registration
of Litton stock under the Exchange Act, as described below, and other factors.
Status as "Margin Securities"
The Litton common stock and Litton preferred stock are presently "margin
securities" under the regulations of the Federal Reserve Board, which has the
effect, among other things, of allowing brokers to extend credit with such
stock as collateral. Depending on the factors similar to those described above
with respect to listing and market quotations, following consummation of the
offer, Litton common stock and Litton preferred stock stock may no longer
constitute "margin securities" for the purposes of the Federal Reserve Board's
margin regulations, in which event Litton common stock and Litton preferred
stock would be ineligible as collateral for margin loans made by brokers.
Registration Under The Exchange Act
Litton common stock and Litton preferred stock are currently registered
under the Exchange Act. Litton can terminate that registration upon application
to the SEC if the outstanding shares are not listed on a national securities
exchange and if there are fewer than 300 holders of record of Litton common
stock or Litton preferred stock, as the case may be. Termination of
registration of the Litton stock under the Exchange Act would reduce the
information that Litton must furnish to its stockholders and to the SEC and
would make certain provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b), the requirement of furnishing a
proxy statement in connection with stockholders meetings pursuant to Section
14(a) and the related requirement of furnishing an annual report to
stockholders, and the requirements of Rule 13e-3 (described above) no longer
applicable with respect to Litton stock that is no longer registered.
Furthermore, the ability of "affiliates" of Litton and persons holding
"restricted securities" of Litton to dispose of such securities pursuant to
Rule 144 under the Securities Act may be impaired or eliminated. In addition,
if registration of the shares under the Exchange Act were terminated, they
would no longer be eligible for NYSE listing or for continued inclusion on the
Federal Reserve Board's list of "margin securities."
Source and Amount of Funds
The offer is not conditioned upon any financing arrangements. NNG estimates
that the total amount of funds required to purchase all of the outstanding
Litton stock pursuant to the offer and the Litton merger and to pay related
fees and expenses will be between approximately $2.3 billion and $2.9 billion,
depending upon the actual number of shares of NNG common stock and NNG
preferred stock issued in the offer. NNG expects to obtain the funds necessary
to consummate the offer and the Litton merger from Northrop Grumman. Northrop
Grumman has received a commitment letter from Credit Suisse First Boston, The
Chase Manhattan Bank and JP Morgan providing for the structure, arrangement and
syndication of senior unsecured loans of up to $6,000,000,000, the initial
proceeds of which will be used solely to acquire Litton common stock and
preferred stock in the offer and the Litton merger, to retire and refinance
certain outstanding debt of Litton and to pay any related expenses. The
proceeds of subsequent borrowings under the loans will be used for general
corporate
34
purposes of NNG, Northrop Grumman and Litton. The loans will be in the form of
a 364-day revolving credit facility with an aggregate maximum principal amount
of $2,500,000,000, a five-year revolving credit facility with an aggregate
principal amount of up to $2,500,000,000 and a 364-day term facility with an
aggregate principal amount of $1,000,000,000. Each of the facilities will be an
unsecured senior credit facility and will contain usual and customary
affirmative and negative covenants, including customary financial covenants.
Interest rates for the loans will be adjusted LIBOR (which will at all times
include statutory reserves) or the adjusted base rate, at the election of
Northrop Grumman, in each case plus spreads depending upon a schedule of
certain specified Standard & Poor's and Moody's Investor Services ratings of
Northrop Grumman. Northrop Grumman may elect periods of one, two, three or six
months for adjusted LIBOR borrowings under the loans.
It is expected that the loan documents will be negotiated while the offer is
outstanding and signed on or before expiration of the offer.
Relationships with Litton
Except as set forth in this offer to purchase or exchange, neither NNG nor
Northrop Grumman nor, to the best of its knowledge, any of NNG's or Northrop
Grumman's directors or executive officers, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of Litton, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, finder's fees, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss, guarantees of profits,
division of profits or loss or the giving or withholding of proxies.
Except as described in this offer to purchase or exchange, neither NNG nor
Northrop Grumman nor, to the best of its knowledge, any of NNG's or Northrop
Grumman's directors or executive officers, has had any business relationship or
transaction with Litton or any of its executive officers, directors or
affiliates that is required to be reported under the rules and regulation of
the SEC applicable to the offer. Except as described in this offer to purchase
or exchange, there have been no contracts, negotiations or transactions between
NNG and Northrop Grumman or to the best of its knowledge any of NNG's or
Northrop Grumman's directors or executive officers, on the one hand, and Litton
or its affiliates, on the other hand, concerning a merger, consolidation or
acquisition, a tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
In the normal course of their business, Northrop Grumman and Litton are
parties to transactions and agreements. During the two years ended October 31,
2000, no such transaction had an aggregate value in excess of 1% of Litton's
consolidated revenues.
Fees and Expenses
NNG has retained Georgeson Shareholder Communications Inc. to act as the
information agent in connection with the offer. The information agent may
contact holders of Litton stock by mail, telephone, telex, telegraph and
personal interviews and may request brokers, dealers and other nominee
stockholders to forward the offer materials to beneficial owners of Litton
stock. The information agent will be paid a customary fee for such services,
plus reimbursement of out-of-pocket expenses, and NNG will indemnify the
information agent against certain liabilities and expenses in connection with
the offer, including liabilities under federal securities laws.
Salomon Smith Barney Inc. is acting as the dealer manager in connection with
the offer and as financial advisor to NNG and Northrop Grumman in connection
with the offer and the Litton merger, for which services Salomon Smith Barney
Inc. will receive reasonable and customary compensation. Northrop Grumman has
agreed to reimburse Salomon Smith Barney Inc. for reasonable fees and expenses
incurred in performing its services, including reasonable fees and expenses of
its legal counsel and to indemnify Salomon Smith Barney Inc. and certain
related parties against certain liabilities, including liabilities under the
federal securities laws,
35
arising out of its engagement. In the ordinary course of business, Salomon
Smith Barney Inc. and its affiliates may actively trade or hold the securities
of Northrop Grumman, Litton and their respective affiliates for Salomon Smith
Barney's and its affiliates' own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
NNG will not pay any fees or commissions to any broker, dealer or other
persons (other than the information agent and the dealer manager) for
soliciting tenders of Litton stock pursuant to the offer. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by NNG
for customary mailing and handling expenses incurred by them in forwarding
offering materials to their customers.
Merrill Lynch & Co. provided certain financial advisory services to Litton
in connection with the offer and the Litton merger, including providing an
opinion dated January 23, 2001 substantially to the effect that, as of such
date, the aggregate consideration to be received by holders of Litton common
stock, other than Northrop Grumman and its affiliates, pursuant to the amended
merger agreement is fair from a financial point of view to the holders of
Litton common stock. The opinion is attached as an exhibit to Litton's Schedule
14D-9, which is being mailed to the stockholders of Litton with this offer to
purchase or exchange.
36
BACKGROUND OF THE AMENDED MERGER AGREEMENT
In May 2000, Kent Kresa, Chairman and Chief Executive Officer of Northrop
Grumman, and Michael Brown, Chairman and Chief Executive Officer of Litton,
agreed that a small group of directors, officers and senior employees from the
two companies would have discussions looking into the possibility of a
strategic transaction. A confidentiality letter agreement was signed, dated
June 23, 2000 (the "confidentiality agreement"), by which each company agreed
to maintain the confidentiality of non-public information which might be
received from the other and also agreed that no disclosure would be made
concerning the discussions between the parties. From that time to the present a
number of meetings and conversations have taken place between representatives
of the two companies.
In mid-September 2000, Mr. Kresa contacted Mr. Brown to advise him that
Northrop Grumman would have an interest in acquiring Litton in a transaction in
which the holders of Litton common stock would receive a combination of cash
and stock having a value equivalent, on a per share basis, to 0.70 of a share
of Northrop Grumman common stock. Subsequent to the conversation, a
representative of Northrop Grumman was advised that Litton did not wish to
pursue the proposal.
On October 20, 2000, Litton publicly announced its intention to explore the
sale of its Advanced Electronics group. Later the same day, Mr. Kresa spoke
with Mr. Brown and wrote to him reiterating Northrop Grumman's interest in an
acquisition of Litton in a transaction involving cash and stock valued at 0.70
of a share of Northrop Grumman common stock, for each share of Litton common
stock. Mr. Kresa pointed out that the sale of the Advanced Electronics group
would be inconsistent with Northrop Grumman's plans for the combined company
and would diminish Northrop Grumman's interest in the combination. In response,
Mr. Brown advised Mr. Kresa that the transaction value proposed by Northrop
Grumman was not sufficient for Litton's board of directors to support such a
transaction.
On November 2, 2000, Mr. Kresa again wrote to Mr. Brown increasing the value
of Northrop Grumman's proposal so that holders of Litton common stock would
receive a combination of cash and Northrop Grumman common stock having a value
equivalent, on a per share basis, to 0.75 of a share of Northrop Grumman common
stock and offering the potential for some additional value to be delivered to
the holders of Litton common stock through a contingent value mechanism.
Following a meeting of the Litton board of directors on November 3, 2000,
Mr. Brown again advised Mr. Kresa that the value proposed by Northrop Grumman
was considered insufficient by the Litton board of directors. On November 29,
2000, Mr. Kresa wrote to Mr. Brown to specifically propose two alternatives for
a potential transaction. The first proposed alternative would provide Litton's
stockholders with a combination of cash and stock valued at 0.75 of a share of
Northrop Grumman common stock plus a contingent value instrument which would
provide the Northrop Grumman's stockholders with 75% of the net after-tax
recovery in Northrop Grumman's pending litigation with Honeywell, Inc. as well
as certain other litigation, and between 40% and 60% of the net after-tax value
of the Electronic Components and Materials business segment achieved within the
five-year period following closing. The second alternative proposed was for an
acquisition for cash at $72.00 per share of Litton common stock.
Following further discussions and negotiations and the exchange of
additional non-public information between the parties, the board of directors
of Northrop Grumman met on December 20, 2000 and unanimously approved the
merger agreement. The Litton board of directors met on December 21, 2000 and
also approved the merger agreement and determined unanimously that the
transactions contemplated thereby, including the offer and the Litton merger,
were fair to, and in the best interests of, the holders of Litton common stock.
On December 21, 2000, the merger agreement was executed by Northrop Grumman,
LII Acquisition and Litton, and Northrop Grumman and Litton issued a joint
press release announcing the transaction. On January 5, 2001, LII Acquisition
commenced an offer to purchase all of the Litton common stock and Litton
preferred stock for cash.
37
Following execution of the merger agreement on December 21, 2000
representatives of Litton and Northrop Grumman had a number of conversations
with representatives of Litton's largest stockholder, Unitrin. In those
conversations, Unitrin expressed its strong desire that the proposed
transactions be modified to provide a means for the exchange of Litton common
stock for stock of Northrop Grumman, or an affiliated company, on a tax-
deferred basis. On January 16, 2001, Northrop Grumman and Litton announced that
they were considering a possible amendment of the proposed transaction to
provide the means for a tax-free exchange of Litton common stock for capital
stock of Northrop Grumman following completion of the then-pending all cash
tender offer for Litton common stock at $80.00 per share in cash.
In the course of discussions among Litton, Northrop Grumman and Unitrin,
Litton advised of its willingness to consider alternative structures for the
transaction, provided that: (i) no stockholder who wanted cash would be
required to accept securities in the transaction; (ii) the restructured
transaction would be at least as certain to be completed as the original
transaction; (iii) it would not materially delay the time at which Litton
stockholders who wanted to sell their shares for cash would be paid; and (iv)
all holders of Litton common stock would be treated equally. The parties
considered a number of alternative possible structures for attaining the
desired objectives and finally determined that the amended merger agreement
accomplished their mutual objectives. The amended merger agreement, dated as of
January 23, 2001 was executed and delivered on January 24, 2001. At the same
time, Northrop Grumman and Unitrin executed and delivered a stockholder's
agreement, dated as of January 23, 2001. On January 24, 2001, Unitrin stated,
in a filing with the SEC, that it had agreed to tender its shares of Litton
common stock in the offer pursuant to the terms of the amended merger
agreement.
Certain Projections
Prior to entering into the amended merger agreement, Litton provided to
Northrop Grumman certain information which was not publicly available,
including a variety of projected financial data based on various differing
assumptions for future fiscal years. Litton has advised that it does not
publicly disclose projections, and the projections furnished to Northrop
Grumman were not prepared with a view to public disclosure. Northrop Grumman
analyzed the information in the projections, certain publicly available
information and additional information obtained in Northrop Grumman's due
diligence review of Litton, along with Northrop Grumman's own estimates of
potential cost savings and benefits in evaluating the offer and the Litton
merger.
Litton does not as a matter of course make public projections as to future
sales, earnings or other results. However, the management of Litton has
prepared the prospective financial information set forth below to assist
Northrop Grumman's management in assessing Litton's future financial
performance. The accompanying prospective financial information was not
prepared with a view toward public disclosure or with a view toward complying
with the guidelines established by the American Institute of Certified Public
Accountants with respect to prospective financial information. This information
is not fact and should not be relied upon as being necessarily indicative of
future results, and Litton stockholders are cautioned not to place undue
reliance on the prospective financial information.
Neither Litton's nor Northrop Grumman's independent auditors, nor any other
independent accountants, have compiled, examined or performed any procedures
with respect to the prospective financial information contained herein, nor
have they expressed any opinion or any other form of assurance on such
information or its achievability, and assume no responsibility for, and
disclaim any association with, the prospective financial information.
The projections provided to Northrop Grumman by Litton included, among other
things, the following forecasts of Litton's revenues, net income (excluding
pension income) and earnings per share (excluding
38
pension income), respectively (in millions, except per share data): $5,850.0,
$151.9 and $3.31 in 2001; $6,473.0, $186.4 and $4.06 in 2002; $6,827.0, $220.8
and $4.81 in 2003; $7,183.0, $248.4 and $5.41 in 2004; and $7,436.0, $278.7,
and $6.07 in 2005. Including pension income, the projected net income and
earnings per share were, respectively (in millions, except per share data):
$220.5 and $4.80 in 2001; $254.9 and $5.55 in 2002; $289.4 and $6.30 in 2003;
$317.0 and $6.90 in 2004; and $347.3 and $7.56 in 2005.
Other projections provided to Northrop Grumman by Litton indicated the
potential for increased profitability based upon more aggressive assumptions.
Based upon the more aggressive assumptions, these projections indicated
revenues and net income (including pension income), respectively (in millions),
of: $6,019.0 and $228.0 in 2001; $6,740.0 and $300.0 in 2002; $7,329.0 and
$414.0 in 2003; $7,920.0 and $490.0 in 2004; and $8,426.0 and $548.0 in 2005.
Litton has advised Northrop Grumman that these projections do not give effect
to customary processes of adjustment by senior management of projections
provided by operating/divisional management.
The projections are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those statements and should be read with caution. The projections are
subjective in many respects and thus susceptible to interpretations and
periodic revisions based on actual experience and recent developments. While
presented with numerical specificity, the projections were not prepared by
Litton in the ordinary course and are based upon a variety of estimates and
hypothetical assumptions made by management of Litton with respect to, among
other things, industry performance, general economic, market, interest rate and
financial conditions, sales, cost of goods sold, operating and other revenues
and expenses, capital expenditures and working capital of Litton, and other
matters which may not be realized and are inherently subject to significant
business, economic and competitive uncertainties and contingencies, all of
which are difficult to predict and many of which are beyond Litton's control.
Litton's operations are subject to various additional risks and uncertainties
resulting from its position as a supplier, either directly or as subcontractor
or team member, to the United States government and its agencies as well as to
foreign governments and agencies; actual outcomes are dependent upon factors,
including, without limitation, Litton's successful performance of internal
plans; government customers' budgetary restraints; customer changes in short-
range and long-range plans; domestic and international competition in both the
defense and commercial areas; product performance; continued development and
acceptance of new products; performance issues with key suppliers and
subcontractors; government import and export policies; acquisition or
termination of government contracts; the outcome of political and legal
processes; legal, financial, and governmental risks related to international
transactions and global needs for military aircraft, military and civilian
electronic systems and support and information technology. Accordingly, there
can be no assurance that the assumptions made in preparing the projections will
prove accurate, and actual results may be materially greater or less than those
contained in the projections. In addition, the projections do not take into
account any of the transactions contemplated by the amended merger agreement,
including the offer and the Litton merger. These events may cause actual
results to differ materially from the projections.
For these reasons, as well as the bases and assumptions on which the
projections were compiled by Litton, the inclusion of such projections herein
should not be regarded as an indication that Litton, Northrop Grumman, NNG or
any of their respective affiliates or representatives considers such
information to be an accurate prediction of future events, and the projections
should not be relied on as such. No party nor any of their respective
affiliates or representatives has made, or makes, any representation to any
person regarding the information contained in the projections and none of them
intends to update or otherwise revise the projections to reflect circumstances
existing after the date when made or to reflect the occurrences of future
events even in the event that any or all of the assumptions are shown to be in
error.
39
Reasons for the Offer and the Litton Merger
Northrop Grumman believes that the proposed acquisition of Litton by means
of the offer and the Litton merger will produce the following benefits:
. Access to New Product Areas. Litton's proprietary technology and products
will provide NNG with technology and products to complement Northrop
Grumman's existing technology and products.
. Increased Diversification into New Markets. The combination of Northrop
Grumman and Litton under NNG provides the affiliated entities with the
opportunity for diversification into new markets and access to new
customers.
. Increased Market Presence and Opportunities. The combination of Northrop
Grumman and Litton under NNG provides the affiliated entities with
increased market presence and opportunities for growth that could allow
them to be better able to respond to the needs of customers, the
increased competitiveness of the marketplace and opportunities that
changes in the market for their respective products might bring.
. Product Mix. The complementary nature of Northrop Grumman's and Litton's
products and services will benefit clients of both companies.
. Operating Efficiencies. The combination of Northrop Grumman and Litton
under NNG provides the opportunity for potential economies of scale and
cost savings.
The reasons for the Litton board's recommendation are set forth in Litton's
Solicitation/Recommendation Statement on Schedule 14D-9 which is being mailed
to Litton stockholders together with this offer to purchase or exchange.
40
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
that will apply to the following Litton stockholders:
. holders of Litton common stock who tender their shares for cash, NNG
common stock or NNG preferred stock (or a combination thereof) pursuant
to the offer;
. holders of Litton preferred stock who tender their shares for cash
pursuant to the offer; and
. holders of Litton common stock who receive cash in the Litton merger.
The following discussion does not address any aspect of state, local or
foreign taxation. It also does not address all aspects of federal income
taxation that may be important to particular taxpayers in light of their
personal investment circumstances or to taxpayers subject to special treatment
under the federal income tax laws including:
. life insurance companies;
. foreign persons;
. banks or other financial institutions;
. tax-exempt entities;
. dealers in securities;
. employee benefit plans;
. persons that hold such shares as part of a straddle, a hedge against
currency risk or as a constructive sale or conversion transaction; and
. persons who acquired their Litton common stock or Litton preferred stock
pursuant to the exercise of employee stock options or otherwise as
compensation.
This summary is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), applicable Treasury Regulations thereunder,
judicial decisions, and current administrative rulings. No rulings have been or
will be requested from the Internal Revenue Service with respect to any of the
matters discussed herein, and the opinion of counsel described below is not
binding on the Internal Revenue Service. Neither the delivery of the opinion of
counsel described below, nor the delivery of any other tax opinion, is a
condition to closing the offer or the Litton merger. There can be no assurance
that future legislation, regulations, administrative rulings or court decisions
will not adversely affect the accuracy of the statements contained in this
summary.
It is the opinion of Gibson, Dunn & Crutcher LLP, counsel for Northrop
Grumman, and Ivins, Phillips & Barker Chartered, special tax counsel to
Northrop Grumman, that the exchange of Litton common stock for NNG common
stock, NNG preferred stock and cash will be treated together with the Northrop
reorganization and the Litton merger as a transaction governed by Section
351(a) or Section 351(b) of the Code and that this discussion accurately sets
forth the material federal income tax consequences of the transaction. Such
opinions are based upon, among other things, a representation letter and other
information provided by Northrop Grumman to counsel.
The discussion below also reflects the opinion of Gibson, Dunn & Crutcher
LLP and Ivins, Phillips & Barker Chartered that the NNG preferred stock will
not be "nonqualified preferred stock." Under Section 351(g) of the Code,
enacted in 1997, "nonqualified preferred stock" is treated as taxable "boot" in
a Section 351 transaction. Since this provision is recent and since
implementing regulations have not yet been promulgated, the Internal Revenue
Service could take a position contrary to that expressed in the opinions of
counsel. In such an event, holders of Litton common stock who receive NNG
preferred stock would be taxed as though they had received cash equal to the
fair market value of the NNG preferred stock. The discussion below is based on
the conclusion that the NNG preferred stock will not be nonqualified preferred
stock.
41
Treatment of Holders of Litton Common Stock Who Tender Their Stock in the
Offer
The discussion below assumes that all holders of Litton common stock hold
their stock as capital assets.
Exchange of Litton Common Stock Solely for Cash
A holder of Litton common stock who receives solely cash in exchange for
Litton common stock pursuant to the offer will recognize capital gain or loss
equal to the difference between the tax basis of the Litton common stock
surrendered and the amount of cash received therefore. That capital gain or
loss will constitute long-term capital gain or loss if the Litton common stock
has been held by the holder for more than one year on the date of closing of
the offer. Gain or loss must be calculated separately for each block of Litton
common stock (i.e., shares of stock acquired at the same time in a single
transaction).
Exchange of Litton Common Stock Solely for NNG Common Stock and/or NNG
Preferred Stock
Except as discussed below under "--Cash in Lieu of Fractional Shares," a
holder of Litton common stock who receives solely NNG common stock or NNG
preferred stock, or some of each, in exchange for Litton common stock pursuant
to the offer will not recognize gain or loss upon such exchange.
The aggregate tax basis of the NNG common stock and NNG preferred stock
received by the holder will be equal to the aggregate tax basis of the Litton
common stock surrendered (excluding any portion of the holder's basis
allocated to fractional shares). If a holder receives both NNG common stock
and NNG preferred stock, the holder's basis in his shares of Litton common
stock will be allocated to the shares of each class of stock received in
proportion to the fair market value of each class.
The holding period of the NNG common stock and NNG preferred stock will
include the holding period of the Litton common stock surrendered.
A holder of Litton common stock who is considering making an election to
receive NNG common stock or NNG preferred stock in the exchange should note
that there can be no assurance that such holder will receive only NNG common
stock or NNG preferred stock (because of the possibility of proration). Such
stockholders may receive some cash. Accordingly, there can be no assurance
that a holder who makes such an election will recognize no taxable gain upon
such holder's exchange of Litton common stock.
Exchange of Litton Common Stock for a Combination of Cash and NNG Common
Stock or NNG Preferred Stock or Some of Each
Except as discussed below under "--Cash in Lieu of Fractional Shares," a
holder of Litton common stock who receives a combination of cash and either
NNG common stock, NNG preferred stock, or some of each, in exchange for Litton
common stock (by reason of the elections made by the holder or by the
application of the proration procedures) will not recognize any loss realized
in the transaction but will recognize some capital gain, if any gain is
realized. The amount of capital gain recognized will be calculated separately
for each block of Litton common stock surrendered, in an amount equal to the
lesser of
. the amount of gain realized in respect of the block (i.e., the excess of
(a) the sum of the amount of cash and the fair market value of NNG common
stock and NNG preferred stock received that is allocable to the block
over (b) the tax basis of the block); and
. the amount of cash received that is allocable to the block.
For this purpose, all of the cash, NNG common stock and NNG preferred stock
received by a holder will be allocated in proportion to fair market values
among the blocks of Litton common stock surrendered by such holder.
Any capital gain will constitute long-term capital gain if the block of
Litton common stock has been held for more than one year on the date of
closing of the offer.
42
The aggregate tax basis of the NNG common stock and NNG preferred stock
received in exchange for a block of Litton common stock will be equal to the
tax basis of the surrendered block of Litton common stock, decreased by the
amount of cash received in respect of the block and increased by the amount of
gain recognized in respect of the block. If a holder receives both NNG common
stock and NNG preferred stock, the holder's basis will be allocated to the
shares of each class of stock received in proportion to the fair market value
of each class.
The holding period of the NNG common stock and NNG preferred stock will
include the holding period of the block of Litton common stock surrendered.
Federal Income Tax Considerations in Making an Election
A holder of Litton common stock who elects to receive cash pursuant to the
offer will not be subject to any proration. However, holders who elect to
receive NNG common stock or NNG preferred stock pursuant to the offer might
receive cash as a result of the proration procedures. Thus, the actual federal
income tax consequences to each Litton shareholder electing to receive NNG
common stock or NNG preferred stock will not be ascertainable at the time the
election is made because the extent to which the proration procedures will
apply to those elections will not be known.
Cash in Lieu of Fractional Shares
A holder of Litton common stock who receives cash in lieu of fractional
shares of NNG common stock or NNG preferred stock will be treated as having
received such fractional shares at the closing of the offer and then as having
exchanged such fractional shares for cash in a redemption by NNG. Any gain or
loss attributable to fractional shares generally will be capital gain or loss.
The amount of such gain or loss will be equal to the difference between the
ratable portion of the tax basis of the Litton common stock surrendered in the
exchange that is allocated to such fractional shares and the cash received in
lieu thereof. Any such capital gain or loss will constitute long-term capital
gain or loss if the Litton common stock surrendered has been held by the
holder for more than one year on the date of closing of the offer.
Treatment of Holders of Litton Preferred Stock Who Tender Their Litton
Preferred Stock in the Offer
The following discussion assumes that all holders of Litton preferred stock
hold their stock as capital assets. A holder of Litton preferred stock who
participates in the offer will receive solely cash for the Litton preferred
stock tendered.
Holders of Litton Preferred Stock Who Hold No Litton Common Stock
A holder of Litton preferred stock who does not hold any Litton common
stock and who participates in the offer will recognize capital gain or loss
equal to the difference between the tax basis of the Litton preferred stock
surrendered and the amount of cash received in the exchange. Such capital gain
or loss will constitute long-term capital gain or loss if the Litton preferred
stock has been held by the holder for more than one year on the date of
closing of the offer. Gain or loss must be calculated separately for each
block of Litton preferred stock (i.e., shares acquired at the same time in a
single transaction).
Holders of Litton Preferred Stock Who Also Hold Litton Common Stock That is
Tendered in the Offer
A holder of Litton preferred stock who also holds Litton common stock and
who participates in the offer will be taxed according to the rules described
above for holders of Litton common stock who tender their stock in the offer.
The cash received for any Litton preferred stock will be treated the same as
cash received for Litton common stock.
43
Treatment of Holders of Litton Common Stock in the Litton Merger
The following discussion assumes that all holders of Litton common stock
hold their stock as capital assets. Holders of Litton common stock who do not
tender their stock pursuant to the offer will receive solely cash for their
Litton common stock in the Litton merger.
Holders of Litton Common Stock Who Tender No Stock in the Offer
A holder of Litton common stock who does not tender any stock in the offer
will receive cash in the Litton merger. Such a holder will recognize capital
gain or loss equal to the difference between the tax basis of the Litton common
stock surrendered in the Litton merger and the amount of cash received
therefore. Such capital gain or loss will constitute long-term capital gain if
the Litton common stock has been held by the holder for more than one year at
the effective time of the merger. Gain or loss must be calculated separately
for each block of Litton common stock (i.e., shares acquired at the same time
in a single transaction).
Holders of Litton Common Stock Who Tender Litton Common Stock in the Offer
A holder of Litton common stock who tenders some (but not all) of that
common stock in the offer will receive cash in the Litton merger for any Litton
common stock that is not tendered in the offer. Such a holder will be taxed
according to the rules described above for holders of Litton common stock who
tender all their stock in the offer. The cash received in the Litton merger
will be treated the same as cash received for Litton common stock tendered in
the offer (except that the holding period for stock surrendered in the Litton
merger will end on the merger effective date rather than the closing date of
the offer).
Reporting Requirements
Each holder of Litton common stock that receives NNG common stock or NNG
preferred stock pursuant to the offer will be required to retain records and
file with such holder's federal income tax return a statement setting forth
certain facts relating to the Litton merger. The statement and such records
must include, among other things, the adjusted tax basis and number of shares
of Litton common stock which you transfer pursuant to the offer and the number
of shares and fair market value of the NNG common stock and NNG preferred stock
received.
This federal income tax discussion is for general information only and may
not apply to all holders of Litton common stock and Litton preferred stock.
Litton stockholders are urged to consult their own tax advisors as to the
specific tax consequences of the offer and the Litton merger.
44
THE AMENDED MERGER AGREEMENT
The amended merger agreement is filed as an exhibit to the registration
statement of which this offer to purchase or exchange is a part and is
incorporated by reference herein. The following summary describes the material
terms of the amended merger agreement. However, the legal rights and
obligations of the parties are governed by the specific language of the amended
merger agreement, and not this summary.
The amended merger agreement sets forth the principal terms of the offer,
including:
. the consideration offered;
. the exchange ratio for exchanging Litton common stock for NNG common
stock and NNG preferred stock;
. terms and conditions of the NNG preferred stock;
. the elections available to tendering stockholders;
. the procedures for pro rata reduction of elections to receive NNG stock
if required because of the limited amounts of NNG common stock and NNG
preferred stock available; and
. the conditions to the offer.
The amended merger agreement prohibits NNG from taking any of the following
actions without the prior written consent of Litton:
. any decrease in the amount of cash or stock consideration offered per
share of Litton common or preferred stock;
. any change in the form of consideration payable in the offer;
. any decrease in the number of shares of common or preferred sought in the
offer, except as disclosed under "The Offer--Possible Reduction in Number
of Shares of NNG Common Stock";
. the imposition of additional conditions in the offer;
. an amendment of the offer in a manner adverse to the holders of Litton
common or preferred stock;
. any reduction in the time in which the offer will remain open; or
. any waiver of the minimum tender condition.
The Northrop Reorganization
Immediately prior to the acceptance for purchase and exchange of Litton
common and Litton preferred stock in the offer, a wholly-owned subsidiary of
NNG will merge with and into Northrop Grumman, in order that Northrop Grumman
will become a wholly-owned subsidiary of NNG. That merger is referred to as the
"Northrop reorganization."
In the Northrop reorganization, all of the outstanding shares of capital
stock of Northrop Grumman will become the same number of shares of the same
class of capital stock of NNG. Outstanding options to acquire common stock of
Northrop Grumman will become options to acquire common stock of NNG. The
certificate of incorporation and bylaws of NNG will be identical, in all
material respects, to the certificate of incorporation and bylaws of Northrop
Grumman, and NNG will adopt a stockholder rights plan which is identical, in
all material respects, to the stockholder rights plan of Northrop Grumman. The
directors and officers of Northrop Grumman will constitute the board of
directors and officers of NNG.
Upon completion of the Northrop reorganization, the name of NNG will be
changed to "Northrop Grumman Corporation" and the name of the present Northrop
Grumman Corporation will be changed to "Northrop Grumman Operations
Corporation."
45
The common stock of Northrop Grumman following the Northrop reorganization
(i.e. the NNG common stock) will be listed for trading on the NYSE, and
certificates representing shares of Northrop Grumman common stock will continue
to represent shares of common stock of Northrop Grumman Corporation.
No vote of the stockholders of Northrop Grumman is required for the Northrop
reorganization.
The Litton Merger
At the effective time of the Litton merger, LII Acquisition will merge with
and into Litton. Litton will survive the Litton merger as a wholly-owned
subsidiary of NNG.
Conditions to the Completion of the Litton Merger
The Litton merger is subject to the satisfaction or waiver of the following
conditions:
. if required by Delaware law, the Litton stockholders must have approved
and adopted the amended merger agreement;
. no statute, rule, regulation, executive order, decree, ruling or
injunction must have been enacted, entered, promulgated, or enforced by
any U.S. court or U.S. or European Union governmental entity prohibiting,
restraining or enjoining consummation of the Litton merger;
. the expiration or termination of the applicable waiting period under the
HSR Act, approval of the Litton merger by the Commission of the European
Union under Regulation (EEC) No. 4064/89 of the Council of the European
Union; and
. NNG must have purchased Litton common stock in the offer.
Effective Time of the Litton Merger
The Litton merger will become effective upon the filing of a certificate of
merger with the Delaware Secretary of State or such later time as is mutually
agreed by Northrop Grumman and Litton and is permissible in accordance with the
DGCL. The filing of the certificate of merger will take place as soon as
practicable after the closing of the Litton merger.
Additional Effects of the Litton Merger and the Northrop Reorganization
Upon completion of the Litton merger:
. each share of common stock held as treasury stock by Litton or its
subsidiaries or owned by NNG or its subsidiaries will be canceled without
payment;
. each outstanding share of capital stock of LII Acquisition will be
converted into one share of common stock of Litton, as the surviving
corporation;
. each issued and outstanding share of Litton common stock will be
converted into the right to receive the highest amount of cash equal to
the per share amount of cash received by holders of Litton common stock
who tendered their shares for cash in the offer;
. each issued and outstanding share of Litton preferred stock, other than
shares of Litton preferred stock held by NNG, will remain outstanding,
without any change, as a share of preferred stock of Litton as the
surviving corporation;
. each outstanding share of Litton preferred stock held by NNG will be
canceled;
. the directors of LII Acquisition will become the directors of Litton as
the corporation surviving the Litton merger;
46
. the officers of Litton at the effective time of the Litton merger will
become the officers of Litton as the corporation surviving the merger;
. the certificate of incorporation of Litton, as in effect immediately
prior to the effective time of the Litton merger, will be amended as of
the effective time of the Litton merger to provide that Litton will be
authorized to issue 3,000,000 shares of common stock, par value $1.00 per
share, 600,000 shares of preferred stock, par value $5.00 per share, and
1,000 shares of preference stock, par value, $2.50 per share, and, as so
amended, such certificate of incorporation will be the certificate of
incorporation of Litton as the corporation surviving the Litton merger;
and
. the bylaws of Litton at the effective time of the Litton merger will
become the bylaws of Litton as the corporation surviving the Litton
merger.
Upon completion of the Northrop reorganization:
. the directors and officers of Northrop Grumman prior to the Northrop
reorganization will be the directors and officers of both Northrop
Grumman and NNG after the Northrop reorganization;
. the certificate of incorporation of Northrop Grumman, as in effect
immediately prior to the effective time of the Northrop reorganization,
will be amended as of the effective time of the reorganization to change
Northrop Grumman's name to "Northrop Grumman Operations Corporation" and
to specify that any act or transaction by or involving Northrop Grumman
that requires the approval of the stockholders of Northrop Grumman will
also require the approval of the stockholders of NNG and, as so amended,
such certificate of incorporation will be the certificate of
incorporation of Northrop Grumman as the corporation surviving the
reorganization;
. the bylaws of Northrop Grumman at the effective time of the
reorganization will become the bylaws of Northrop Grumman as the
corporation surviving the Northrop reorganization; and
. the certificate of incorporation and bylaws of NNG immediately following
the effective time of the Northrop reorganization will contain provisions
identical to the certificate of incorporation and bylaws of Northrop
Grumman immediately prior to the effective time of the Northrop
reorganization, except that the name of NNG will be changed to "Northrop
Grumman Corporation."
The Litton Board
Upon the purchase of Litton common stock in the offer, NNG will be entitled
to designate a number of Litton directors, constituting at least a majority of
the Litton board, equal to the product of the number of Litton directors and
the percentage that the number of shares of Litton common stock then held by
NNG bears to the total number of outstanding Litton shares. Until the effective
time of the Litton merger, Litton has agreed to use its best efforts to ensure
that at least three members of Litton's board of directors as of January 23,
2001 remain members of Litton's board of directors. The amended merger
agreement provides that, before the effective time of the Litton merger, if NNG
designees are elected to the Litton board, the affirmative vote of a majority
of the continuing Litton directors will be required to:
. amend or terminate the amended merger agreement;
. waive any of Litton's rights under the amended merger agreement;
. extend the time for performance of Northrop Grumman's, NNG's or LII
Acquisition's obligations under the amended merger agreement; or
. approve any other action by Litton adversely affecting the rights of
Litton's stockholders, other than Northrop Grumman, NNG or LII
Acquisition, with respect to the transactions contemplated by the amended
merger agreement.
47
Litton Stock Options
The amended merger agreement provides that each outstanding option to
purchase shares of Litton common stock that is vested at the effective time of
the Litton merger will be converted into the right to receive a cash payment
equal to the difference between the exercise price per share of Litton common
stock subject to the option and $80.00.
At the effective time of the Litton merger, each of up to 1,244,523
outstanding options to purchase shares of Litton common stock that is unvested
will become an option to purchase shares of NNG common stock. Any unvested
options in excess of 1,244,523 will be converted pro rata into the right to
receive a cash payment equal to the difference between the exercise price per
share of Litton common stock subject to the option and $80.00 and subject to
compliance with Section 424 of the Code.
NNG may provide holders of vested options and holders of unvested options
whose options would be converted into cash, the opportunity to elect, prior to
the Litton merger, to convert their options into options to acquire NNG common
stock on a pro rata basis. If NNG provides these optionholders with the
election, conversion will be allowed only to the extent a vote of Northrop
Grumman's or NNG's stockholders would not be required pursuant to applicable
law or the rules of any national securities exchange.
At the effective time of the Litton merger each outstanding share of
restricted stock will vest and holders of shares of restricted stock will have
the right to receive a cash payment equal to $80.00 per share or any greater
cash amount paid per share of Litton common stock in the offer.
For more information on the treatment of Litton stock options in connection
with the offer and the Litton merger, please refer to Item 4 of Litton's
Amended Solicitation/Recommendation Statement on Schedule 14D-9 which is being
mailed to Litton stockholders together with this offer to purchase or exchange.
Representations and Warranties
The amended merger agreement contains customary representations and
warranties relating to, among other things:
. corporate organization and similar corporate matters of Northrop Grumman,
Litton, NNG and LII Acquisition;
. authorization, execution, delivery and enforceability of the amended
merger agreement and approval and recommendation of the board of
directors of each of Northrop Grumman, Litton, NNG, LII Acquisition and
NGC Acquisition with respect to the amended merger agreement and the
transactions contemplated thereby;
. due authorization, execution, delivery, performance and enforceability
of, and required consents, approvals and authorizations of governmental
authorities relating to, the amended merger agreement and related matters
pertaining to each of the parties to the amended merger agreement;
. the capital structure of each of Northrop Grumman, NNG and Litton;
. amendment of Litton's rights plan so that none of Northrop Grumman, NNG
or LII Acquisition will be deemed an acquiring person;
. no current default of Northrop Grumman, Litton or their subsidiaries
under governing documents, agreements and applicable laws;
. proper filing of all SEC reports by Litton since October 1, 1997 and by
Northrop Grumman since December 31, 1997 and the accuracy of information
contained in such documents;
. non-contravention of governing documents and agreements of and laws
applicable to each of Litton, Northrop Grumman, NNG, LII Acquisition and
NGC Acquisition as a result of the transactions contemplated by the
amended merger agreement;
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. financial statements included in documents filed by Northrop Grumman and
Litton with the SEC, the accuracy of the information in such financial
statements, compliance with applicable accounting standards and
requirements in such financial statements;
. resolutions of the board of directors of Litton recommending that the
stockholders of Litton approve and adopt the amended merger agreement;
. the accuracy of information supplied by each of Northrop Grumman, Litton,
NNG, LII Acquisition and NGC Acquisition in connection with this offer to
purchase or exchange and the registration statement of which it is a
part;
. the absence of pending or threatened material litigation of each of
Northrop Grumman and Litton;
. the absence of material events, changes or effects concerning Litton or
its subsidiaries since July 31, 2000 through the date of the amended
merger agreement;
. the absence of material events, changes or effects concerning Northrop
Grumman or its subsidiaries since September 30, 2000 through the date of
the amended merger agreement;
. compliance with applicable laws and required permits, licenses,
variances, exemptions, orders and approvals of all governmental entities
by Litton and Northrop Grumman and their respective subsidiaries;
. receipt of a written opinion of Litton's financial advisor that the
aggregate consideration to be received by holders of Litton common stock
other than Northrop Grumman and its affiliates in connection with the
offer and the Litton merger is fair from a financial point of view to
holders of Litton common stock;
. absence of brokers' or finders' fees and expenses to be paid by Northrop
Grumman, Litton and LII Acquisition;
. subsidiaries of Litton;
. timely filing of tax returns and payment of taxes by Litton and the
absence of any penalties or tax sharing agreements or indemnity
agreements;
. timely filing of tax returns by Northrop Grumman and the absence of any
action by Northrop Grumman, NNG, NGC Acquisition or LII Acquisition that
would prevent the offer and the Litton merger, taken together, from
qualifying as a tax exempt exchange under Section 351 of the Code;
. material employee benefit plans of Litton;
. employment agreements with executive officers of Litton;
. the Employee Retirement Income Security Act of 1974 for Litton and
Northrop Grumman;
. any acceleration of benefits under any plan of Litton as a result of the
Litton merger;
. the absence of pending or threatened material controversies between
Litton or any of its subsidiaries and any of their respective employees;
. software, intellectual property and infringement matters concerning
Litton and Northrop Grumman;
. the compliance by Litton and Northrop Grumman with all applicable
federal, state, local and foreign environmental regulations, except where
noncompliance would not have a material adverse effect on Litton or
Northrop Grumman;
. contracts and other commitments between Litton or Northrop Grumman on the
one hand and the U.S. government or prime contractors to the U.S.
government on the other hand;
49
. the absence of any unlawful contributions, gifts or other unlawful uses
of funds related to political activities or in violation of the Foreign
Corrupt Practices Act of 1977, as amended, by Litton or its subsidiaries
or Northrop Grumman or its subsidiaries;
. confirmation by Litton that the affirmative vote of holders of a majority
of Litton common stock, voting together as one class, is the only vote of
stockholders necessary to approve and adopt the amended merger agreement;
. the absence of actions or threats by Litton customers to cancel or
terminate their relationship with Litton from July 31, 2000 to December
21, 2000;
. material ownership interests of Litton in any customer of Litton or any
customer's subsidiaries;
. the requirement that Northrop Grumman have sufficient funds or firm
commitment letters for the payment of cash consideration and the
performance of its obligations under the amended merger agreement at the
time the conditions to the offer are satisfied or waived and at the
effective time of the Litton merger;
. requisite actions taken by NNG to reserve for issuance the NNG common
stock and NNG preferred stock to be issued in the Litton merger;
. the receipt by Litton of copies of Northrop Grumman's commitment letters
which Northrop Grumman obtained to provide funds for the offer and the
Litton merger;
. the absence of any obligation or liability or other activity by NNG, LII
Acquisition or NGC Acquisition except obligations incurred in connection
with formation of each of NNG, LII Acquisition or NGC Acquisition or in
connection with the amended merger agreement;
. the absence of a vote of Northrop Grumman's stockholders to approve and
adopt the amended merger agreement;
. the absence of a vote of NNG's stockholders, other than Northrop Grumman
to approve and adopt the amended merger agreement and the Litton merger
or the Northrop reorganization;
. the absence of a vote of Northrop Grumman's or NNG's stockholders
pursuant to the rules of any national securities exchange;
. the absence of actions by Northrop Grumman customers from July 31, 2000
to December 21, 2000 canceling or terminating or threatening to cancel or
terminate their relationship with Northrop Grumman or its subsidiaries;
and
. material ownership interests of Northrop Grumman in its customers or any
subsidiaries of its customers.
All representations and warranties of Northrop Grumman, Litton, NNG, LII
Acquisition and NGC Acquisition expire at the time the Litton merger becomes
effective or the amended merger agreement is terminated.
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Conduct of Business of Litton Prior to the Litton Merger
Litton has agreed that Litton and its subsidiaries will carry on their
respective businesses in the ordinary course in substantially the same manner
as conducted before the date of the amended merger agreement and, to the extent
consistent with such previous conduct, to preserve substantially intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers and others having significant business dealings with them. The
amended merger agreement further provides that, except as expressly provided in
the amended merger agreement or as set forth in the disclosure schedules
thereto, during the period from the execution and delivery of the amended
merger agreement to the effective time of the Litton merger, Litton will not,
without the prior written consent of Northrop Grumman and LII Acquisition, and
will not permit any of its subsidiaries to:
. amend its governing documents;
. issue or agree to issue any stock of any class or any other debt or
equity equivalents, except for shares of Litton common stock (i) issued
and sold under previously granted options, performance-based restricted
stock or deferred stock units, (ii) issued and sold pursuant to rights
previously granted or (iii) issued and sold by a subsidiary of Litton to
any entity which is wholly-owned by Litton;
. split, combine or reclassify any shares of capital stock, declare, set
aside or pay any dividend or other distribution, or make any other
actual, constructive or deemed distribution in respect of its capital
stock, except dividend payments made on the Litton preferred stock and
dividend or distribution payments made by a wholly-owned subsidiary of
Litton to Litton or another wholly-owned subsidiary of Litton;
. redeem or otherwise acquire any of its securities or any securities of
any of its subsidiaries;
. adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalitzation or other reorganization
of Litton or any of its subsidiaries other than the Litton merger;
. alter through merger, liquidation, reorganization, restructuring or any
other fashion the corporate structure of ownership of any subsidiary,
except as provided in the amended merger agreement;
. (i) incur any debt except for borrowings under existing lines of credit
or in the ordinary course of business; (ii) assume, guarantee, endorse or
otherwise become liable or responsible for the obligations of any other
person except in the ordinary course of business and for obligations of
subsidiaries of Litton incurred in the ordinary course of business; (iii)
make any loans, advances or capital contributions to or investments in
any other person; (iv) pledge or otherwise encumber shares of capital
stock of Litton or its subsidiaries except in connection with certain
borrowings; or (v) mortgage or pledge any of its material assets,
tangible or intangible, or create or suffer to exist any material lien
thereupon;
. enter into, adopt, amend or terminate any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation
right, restricted stock, performance unit, stock equivalent, stock
purchase agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan,
fund or other arrangement for the benefit or welfare of any director,
officer or employee in any manner or increase in any manner the
compensation or fringe benefits of any director, officer or employee or
pay any benefit not contemplated by any plan and arrangement in effect as
of the date of the amended merger agreement, subject to certain
exceptions;
. acquire, sell, lease or dispose of any assets in any single transaction
or series of related transactions having a fair market value in excess of
$10,000,000 in the aggregate other than in connection with outsourcing
agreements entered into with customers of Litton or its subsidiaries and
in the ordinary course of business;
. change any of the accounting principles or practices used by Litton,
except as a result of a change in law or in generally accepted accounting
principles other than immaterial changes;
. revalue in any material respect any of Litton's assets other than in the
ordinary course of business or as required by generally accepted
accounting principles;
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. (i) acquire any corporation, partnership or other business organization
by merger, consolidation or acquisition of stock or assets, other than in
connection with outsourcing agreements entered into with customers of
Litton or its subsidiaries; (ii) enter into any contract or agreement
other than in the ordinary course of business consistent with past
practice which would be material to Litton and its subsidiaries, taken as
a whole; or (iii) authorize any new capital expenditure or expenditures
which individually is in excess of $10,000,000 or capital expenditures in
the aggregate are in excess of $210,000,000; provided that none of the
foregoing shall limit any capital expenditure required pursuant to
existing customer contracts or pursuant to Litton's existing capital
expenditures budget;
. make any material tax election or settle or compromise any income tax
liability material to Litton and its subsidiaries, other than in the
ordinary course of business;
. settle or compromise any pending or threatened suit, action or claim
relating to the offer and the Litton merger or which would have a
material adverse effect on Litton;
. commence any material research and/or development project or terminate
any material research and/or development project that is ongoing, with
certain exceptions;
. amend the rights agreement between Litton and The Bank of New York dated
as of August 17, 1994 and amended as of December 21, 2000 and January 23,
2001 in any manner that would permit any person other than Northrop
Grumman or its affiliates to acquire more than 15% of the Litton common
stock, or redeem the rights; or
. take or agree to take any of the foregoing actions.
Conduct of Business of Northrop Grumman and NNG Prior to the Litton Merger
The amended merger agreement contains restrictions on Northrop Grumman's,
its subsidiaries' and NNG's conduct of their respective businesses pending the
effective time of the Litton merger or the termination of the amended merger
agreement. These restrictions are designed to prevent major changes in Northrop
Grumman and NNG until the Litton merger takes place, except to the extent
Litton consents to the changes. In general, Northrop Grumman and NNG have
agreed that neither Northrop Grumman nor its subsidiaries nor NNG will:
. acquire or agree to acquire any entity if such transaction would prevent
or materially delay the consummation of the offer, the Litton merger or
the Northrop reorganization, other than the purchase of assets from
suppliers, clients or vendors in the ordinary course of business;
. amend their governing documents if such amendment would have a material
adverse impact on the consummation of the offer, the Litton merger or the
Northrop reorganization;
. take any action that would prevent the offer, the Litton merger and the
Northrop reorganization, taken together, from qualifying as an exchange
described in Section 351 of the Code;
. split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution, make any other
actual, constructive or deemed distribution in respect of its capital
stock or otherwise make any payments to stockholders, except for the
payment of ordinary cash dividends in respect of the Northrop Grumman
common stock;
. adopt a plan of complete or partial liquidation or dissolution of
Northrop Grumman or any of its material subsidiaries; or
. take or agree to take any of the foregoing actions.
Other Potential Acquirers
The amended merger agreement prohibits Litton and its subsidiaries,
officers, directors, employees, representatives and agents from providing non-
public information to, or having discussions or negotiations
52
with, anyone other than Northrop Grumman, NNG or LII Acquisition with respect
to a potential third party acquisition of Litton, unless:
. Litton's board of directors receives an unsolicited proposal from a third
party. In this case Litton or its representatives may make such inquiries
or conduct such discussions as the Litton board of directors, based on
the advice of its legal counsel, may deem necessary to inform itself for
the purpose of exercising its fiduciary duties; or
. Litton's board of directors receives an unsolicited proposal from a third
party that Litton's board of directors by a majority vote decides in good
faith, after consultation with its financial advisor, is reasonably
likely to be a "superior proposal" (as defined below). In this case
Litton and its representatives may conduct such additional discussions or
provide such information as Litton's board of directors shall decide, if
the third party enters into a confidentiality agreement with terms
similar to the confidentiality agreement between Litton and Northrop
Grumman and a majority of Litton's board of directors decides in good
faith, based on the advice of its legal counsel, that its actions are
necessary to comply with Litton's board of directors' fiduciary duties.
The amended merger agreement does not prohibit Litton's board of directors
from taking and disclosing to Litton's stockholders a position contemplated by
Rules 14d-9 and 14e-2 under the Exchange Act with regard to any tender offer.
Litton's board of directors has agreed not to withdraw, change or modify its
recommendation of the offer and the Litton merger or approve or recommend any
third party acquisition, or cause Litton to enter into any agreement for a
third party acquisition, unless a majority of Litton's board of directors
decides in good faith, after consultation with and based upon the advice of its
legal counsel, that it is required to do so in order to comply with its
fiduciary duties, in which case the Litton board of directors may withdraw its
recommendation of the offer and the Litton merger and approve or recommend a
superior proposal if:
. Litton has provided written notice to Northrop Grumman specifying the
material terms, conditions and identity of the person making the superior
proposal; and
. Northrop Grumman has not made an equally favorable proposal within five
business days of Northrop Grumman's receiving notice of a superior
proposal.
However, Litton may not enter into an agreement with respect to a superior
proposal until the amended merger agreement is terminated and Litton has paid
Northrop Grumman a termination fee in the amount of $110,000,000 as liquidated
damages simultaneously with such termination. See "--The Amended Merger
Agreement--Termination Fee; Expenses" on page 59.
The amended merger agreement defines a "third party acquisition" to mean any
of the following:
. the acquisition of Litton by merger or otherwise by a party other than
Northrop Grumman, LII Acquisition or any of their affiliates;
. the acquisition of 20% of more of the assets of Litton and its
subsidiaries taken as a whole by a party other than Northrop Grumman, LII
Acquisition or any of their affiliates;
. the acquisition of 20% or more of the outstanding Litton common stock by
a party other than Northrop Grumman, LII Acquisition or any of their
affiliates;
. Litton's adoption of a plan of liquidation or the declaration or payment
of an extraordinary dividend;
. the repurchase of more than 20% of its outstanding common stock by Litton
or any of subsidiaries; or
. Litton's acquisition by merger, purchase of stock or assets, joint
venture or otherwise of a direct or indirect ownership interest or
investment in any business whose annual revenues, net income or assets is
equal to or greater than 20% of the annual revenues, net income or assets
of Litton.
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The amended merger agreement defines a "superior proposal" as any bona fide
proposal:
. to acquire 50% or more of the common stock of Litton or substantially all
the assets of Litton for cash and/or securities; and
. that is determined by the Litton board of directors by a majority vote,
based on the advice of its financial advisor, to be more favorable, from
a financial point view, to Litton's stockholders than the Litton merger.
Litton has agreed to promptly advise Northrop Grumman of any request for
information relating to a third party acquisition proposal or any inquiry
relating to or which could result in a third party acquisition proposal,
including the terms, conditions and the identity of the person submitting the
third party proposal. Litton has also agreed to inform Northrop Grumman of the
status and any developments regarding any third party acquisition proposal.
Litton Stockholders Meeting
If required by applicable law to complete the Litton merger, the amended
merger agreement requires Litton as soon as practicable after consummation of
the offer to call a meeting of its stockholders to consider and vote upon the
adoption and approval of the amended merger agreement and to prepare and file
with the SEC a proxy statement. Under the amended merger agreement, at any such
meeting, Northrop Grumman, NNG and their subsidiaries have agreed to vote all
Litton shares acquired in the offer or otherwise beneficially owned by them in
favor of adoption of the amended merger agreement.
Litton's board of directors may withdraw, modify or amend its recommendation
that Litton common stockholders accept the offer and that Litton stockholders
approve and adopt the amended merger agreement and the Litton merger if:
. Litton receives a superior proposal; and
. Litton's board of directors determines in its good faith judgment by a
majority vote, based on the advice of its legal counsel, that it is
required to recommend the superior proposal to comply with its fiduciary
duties.
Litton has also agreed to use all reasonable efforts to:
. obtain and provide the information required to be included in the proxy
statement;
. respond promptly to any comments from the SEC concerning the proxy
statement, after consultation with Northrop Grumman and NNG;
. mail the proxy statement to Litton's stockholders as soon as possible
after the expiration or termination of the offer; and
. obtain the necessary approvals of Litton's stockholders of the amended
merger agreement.
Access to Information and Confidentiality
Litton has agreed to give Northrop Grumman and its representatives, and
Northrop Grumman and its representatives have agreed to:
. give Litton reasonable access during normal business hours to all
employees, plants, offices, warehouses and other facilities;
. give Litton reasonable access during normal business hours to all books
and records of itself and its subsidiaries;
. to furnish the other party with financial and operating data and such
other information concerning its business and properties and those of its
subsidiaries as may be reasonably requested; and
. to permit the other party to make inspections as may be reasonably
required.
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Confidentiality
The amended merger agreement provides that Litton is not required to provide
certain confidential information. Litton and Northrop Grumman have entered into
a confidentiality agreement relating to all documents and information provided
to the other party in connection with the offer, the Litton merger and the
Northrop reorganization.
Additional Agreements
Each of Litton, Northrop Grumman, NNG and LII Acquisition has agreed to:
. use all reasonable best efforts to take, or cause to be taken, all
reasonable actions necessary, proper or advisable to consummate and make
effective as promptly as practicable the offer, Litton merger and the
Northrop reorganization;
. reasonably cooperate with the others in connection with actions necessary
to consummate the offer, Litton merger and the Northrop reorganization;
. use all reasonable efforts to obtain all necessary waivers, consents and
approvals from other parties to material loan agreements, leases and
other contracts;
. use all reasonable efforts to obtain all consents, approvals and
authorizations that are required to be obtained under any federal, state,
local or foreign law or regulation;
. use all reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the
parties to consummate the offer, Litton merger and Northrop
reorganization;
. use all reasonable efforts to effect all necessary registrations and
filings including, but not limited to, filings and submissions of
information requested or required by any domestic or foreign government
or governmental or multinational authority, including, the Antitrust
Division of the Department of Justice, the Federal Trade Commission, any
State Attorney General, or the European Commission (referred to
collectively as "governmental antitrust authority");
. use all reasonable efforts to fulfill all conditions to the amended
merger agreement; and
. use all reasonable efforts to prevent the entry, enactment or
promulgation of a threatened or pending preliminary or permanent
injunction or other order, decree or ruling or statute, rule, regulation
or executive order that would adversely affect the ability of the parties
to consummate the offer, the Litton merger and the Northrop
reorganization.
None of Northrop Grumman, NNG and LII Acquisition has to take any of the
above actions if such action would have a material adverse effect on the
business, assets, long-term earning capacity or financial condition of Northrop
Grumman, Litton or their respective subsidiaries, taken as a whole.
Antitrust Approvals
Each of Litton, Northrop Grumman, NNG and LII Acquisition has agreed to:
. use their best efforts to resolve any objections that may be asserted
with respect to the offer, the Litton merger or the Northrop
reorganization under any antitrust, competition or trade regulatory laws
or regulations of any domestic or foreign government or governmental or
multinational authority (collectively, the "antitrust laws");
. use their best efforts to avoid the entry of, or to have vacated or
terminated, any decree, order, or judgment that would restrain, prevent,
or unreasonably delay the consummation of the offer, Litton merger,
Northrop reorganization; and
55
. take any and all steps necessary to avoid or eliminate any impediment,
including the institution of proceedings, under any antitrust laws that
may be asserted by any governmental antitrust authority with respect to
the offer, the Litton merger, and the Northrop reorganization, including:
. proposing, negotiating, committing to and effecting the sale,
divestiture or disposition of such assets or businesses of Northrop
Grumman or its subsidiaries, Litton or its subsidiaries; or
. otherwise taking or committing to take any action that limits its
freedom of action with respect to any of the businesses, product lines
or assets of Northrop Grumman or its affiliates, Litton or its
affiliates, as may be required in order to avoid the entry of, or to
effect the dissolution of, any injunction, temporary restraining order,
or other order in any suit or proceeding, which would otherwise have
the effect of preventing or unreasonably delaying the consummation of
the offer, the Litton merger or the Northrop reorganization.
None of Northrop Grumman, NNG and LII Acquisition has to take any of the
above actions if the taking of such action would have a material adverse effect
on the business, assets, long-term earning capacity or financial condition of
Northrop Grumman and Litton and their respective subsidiaries, taken as a
whole.
Each of Litton, Northrop Grumman, NNG and LII Acquisition also agreed to
keep the other parties apprised of the status of matters relating to the
completion of the offer, the Litton merger and the Northrop reorganization and
to reasonably cooperate in connection with obtaining the requisite approvals,
consents or orders of any governmental antitrust authority, including:
. cooperating with the other parties in connection with filings under the
HSR Act or any other antitrust laws;
. providing copies of filings under the HSR Act or any other antitrust laws
to the non-filing parties and their advisers prior to filing, other than
documents containing confidential business information that will be
shared only with outside counsel to the non-filing parties, and if
requested, to accept all reasonable additions, deletions or changes
suggested in connection with any such filing;
. furnishing to each other all information required for any application or
other filing to be made pursuant to the HSR Act or any other antitrust
laws in connection with the offer, the Litton merger and the Northrop
reorganization;
. promptly notifying the other parties of any communications from or with
any governmental antitrust authority with respect to the offer, the
Litton merger or the Northrop reorganization;
. permitting the other parties to review in advance and considering in good
faith the views of the other parties in connection with any proposed
communication with any governmental antitrust authority in connection
with proceedings under or relating to the HSR Act or any other antitrust
laws;
. not agreeing to participate in any meeting or discussion with any
governmental antitrust authority in connection with proceedings under or
relating to the HSR Act or any other antitrust laws unless it consults
with the other parties in advance, and, to the extent permitted by such
governmental antitrust authority, gives the other parties the opportunity
to attend and participate thereat; and
. consulting and cooperating with the other parties in connection with any
analyses, appearances, presentations, memoranda, briefs, arguments,
opinions and proposals made or submitted by or on behalf of any party
hereto in connection with proceedings under or relating to the HSR Act or
any other antitrust laws.
If any party or any of their respective affiliates receives a request for
additional information or documentary material from any governmental antitrust
authority with respect to the offer, the Litton merger or the Northrop
reorganization, such party will endeavor in good faith to make, or cause to be
made, as soon as practicable and after consultation with the other party, an
appropriate response in compliance with such request. Northrop Grumman, NNG and
LII Acquisition will advise Litton promptly in respect of any understandings,
56
undertakings or agreements which Northrop Grumman, NNG and LII Acquisition
propose to make or enter into with any governmental antitrust authority in
connection with the offer, the Litton merger or the Northrop reorganization.
Directors' and Officers' Liability Insurance and Indemnification
The amended merger agreement provides that Northrop Grumman and Litton, as
the surviving corporation in the Litton merger, will jointly and severally
indemnify and hold harmless the current and former directors and officers of
Litton or any of its subsidiaries against:
. all losses, claims, damages, costs, expenses, settlement payments or
liabilities arising out of or in connection with any claim, demand,
action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such person is or was an
officer or director of Litton or any of its subsidiaries whether or not
pertaining to any matter existing or occurring at or prior to the
effective time of the Litton merger and whether or not asserted or
claimed prior to or at or after the effective time of the Litton merger
(collectively, "indemnified liabilities"); and
. all indemnified liabilities based on or arising out of or pertaining to
the amended merger agreement or the offer, the Litton merger or the
Northrop reorganization, to the fullest extent required or permitted
under applicable law or under the governing documents of Litton, as the
surviving corporation of the Litton merger, provided, however, that the
provisions of the governing documents of Litton, as the surviving
corporation of the Litton merger relating to indemnification and
exoneration from liability will be at least as favorable as the
provisions of Litton's governing documents as of the date of the amended
merger agreement.
Furthermore, each of Litton, Northrop Grumman and NNG intend, to the extent
not prohibited by applicable law, that the indemnification described above will
apply to negligent acts or omissions by current and former directors and
officers of Litton or any of its subsidiaries.
The amended merger agreement provides that Litton, as the surviving
corporation in the Litton merger, will maintain for six years after the Litton
merger directors' and officers' liability insurance on terms no less favorable
than Litton's current insurance policy, subject to a limitation on the amount
of the premium required to be paid for the insurance to 300% of the amount paid
as of December 21, 2000.
Employee Matters
Except as otherwise provided in the amended merger agreement, NNG has agreed
to assume and honor in accordance with their terms all Litton employee plans
and all employment agreements disclosed to Northrop Grumman and all accrued
benefits vested thereunder. In addition, for a period of not less than two
years from the effective time of the Litton merger, NNG has agreed to provide
current and former employees of Litton and its subsidiaries ("Litton
employees"), for a period of not less than two years following the effective
time of the Litton merger, with employee benefits in the aggregate no less
favorable than those benefits provided to Litton employees immediately prior to
the effective time of the Litton merger. However, Northrop Grumman is not
prevented from terminating any employment agreement or employee plan in
accordance with its terms or reducing the employment or otherwise changing the
compensation or employee benefits of any individual Litton employee.
Under any new employee benefit plan enacted by NNG, a Litton employee will
be credited with all years of services for which such Litton employee was
credited before the effective time of the Litton merger under similar Litton
employee plans, except to the extent such credit would result in a duplication
of benefits. Each Litton employee will be immediately eligible to participate
in any new employee benefit plans to the extent coverage under the new employee
benefit plan replaces coverage under a comparable Litton employee plan in which
such Litton employee participated immediately prior to the effective time of
the Litton merger. In
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addition, NNG will assume and honor Litton's obligations to provide lifetime
benefits under Litton's Supplemental Medical Insurance Plan. Furthermore, NNG
has agreed not to demand repayment of the loans outstanding under Litton's
Incentive Loan Program before December 31, 2001.
On or before January 31, 2001, Litton has agreed to provide Northrop Grumman
with copies of certain documents and information pertaining to employee plans,
employee agreements and arrangements.
Additional Covenants
Each of Northrop Grumman, LII Acquisition and Litton has undertaken
additional covenants in the amended merger agreement. The following summarizes
the principal additional covenants.
Each of Northrop Grumman, NNG, LII Acquisition and Litton has agreed to:
. consult with each other before issuing press releases or public
statements regarding the offer, Litton merger and Northrop
reorganization.
Northrop Grumman has agreed to:
. cause NNG to issue a press release prior to the opening of trading on the
second full trading day prior to the expiration of the offer announcing
the exchange ratio for exchanging shares of Litton common stock for NNG
common stock;
. use reasonable best efforts to list the NNG common stock and NNG
preferred stock to be issued in the offer on the NYSE; and
. cause NNG to file an amended and restated certificate of incorporation
and certificate of designations of the rights, preferences and privileges
of the NNG preferred stock in the forms attached to the amended merger
agreement with the Secretary of the State of Delaware.
Northrop Grumman or NNG, as applicable, have agreed to:
. use reasonable efforts to seek at its 2001 annual stockholder meeting
stockholder approval for the issuance of shares of NNG common stock upon
conversion of NNG preferred stock.
Litton has agreed to:
. provide Litton's quarterly unaudited balance sheet and related financial
statements to Northrop Grumman within 25 business days after the end of
each fiscal quarter.
Termination Events
The amended merger agreement may be terminated at any time prior to the
purchase of Litton common stock in the offer:
. by the mutual written consent of Northrop Grumman, LII Acquisition and
Litton; or
. by either Northrop Grumman and LII Acquisition or Litton if:
. any court of competent jurisdiction or other U.S. or European Union
governmental entity issues a non-appealable, final ruling prohibiting
the offer, Litton merger or Northrop reorganization;
. the offer is not completed by September 15, 2001; unless the party
seeking to terminate the amended merger agreement is responsible for
the delay due to that party's failure to fulfill its obligations under
the amended merger agreement; or
. by Northrop Grumman and LII Acquisition if:
. Litton breaches any representation or warranty in the amended merger
agreement or if any representation or warranty of Litton becomes untrue
and such breach would have a material adverse effect on the business,
assets, long-term earning capacity or financial condition of Litton and
its subsidiaries and such breach is not capable of being rectified by
September 15, 2001;
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. Litton breaches any covenants or agreements in the amended merger
agreement that would have a material adverse effect on the business,
assets, long-term earning capacity or financial condition of Litton and
its subsidiaries or would materially adversely affect or materially
delay the consummation of the offer, the Litton merger or the Northrop
reorganization, and the breach has not been cured within twenty
business days after Northrop Grumman or LII Acquisition gives Litton
notice of such breach, so long as neither Northrop Grumman nor LII
Acquisition has not breached any of its obligations under the amended
merger agreement;
. Litton's board of directors enters into, or recommends to its
stockholders, a superior proposal;
. Litton's board of directors withdraws, modifies or changes its approval
or recommendation of the amended merger agreement, the offer, Litton
merger or Northrop reorganization or adopts any resolution to such
effect;
. a third party acquisition occurs, except that, the definition of third
party acquisition relating to the acquisition of Litton common stock
will be deemed to occur only upon the acquisition by a third party of
50% or more of the outstanding Litton common stock; or
. by Litton if:
. Northrop Grumman, NNG or LII Acquisition breaches any representation or
warranty in the amended merger agreement or any representation or
warranty becomes untrue and such breach would have a material adverse
effect on the business, assets, long-term earning capacity or financial
condition of Northrop Grumman or would materially adversely affect the
consummation of the offer, Litton merger or the Northrop reorganization
and is not cured within twenty business days after notice by Litton of
such breach, so long as Litton has not breached any of its obligations
under the amended merger agreement; or
. Northrop Grumman, NNG or LII Acquisition breaches any of their
respective covenants or agreements under the amended merger agreement
and such breach would have a material adverse effect on the business,
assets, long-term earning capacity or financial condition of Northrop
Grumman or would materially adversely affect the consummation of the
offer, Litton merger or the Northrop reorganization and is not cured
within twenty business days after notice by Litton of such breach, so
long as Litton has not breached any of its obligations under the
amended merger agreement; or
. Litton's board of directors receives a superior proposal and resolves
to accept the superior proposal after providing Northrop Grumman an
opportunity to make an equally favorable proposal, and paying Northrop
Grumman $110,000,000 in liquidated damages.
Termination of the amended merger agreement by the parties as described
above will void the agreement without any liability to Northrop Grumman, NNG,
LII Acquisition, or Litton or any of their affiliates, directors, officers or
stockholders, other than:
. the liability for breach of the amended merger agreement;
. the obligations of the parties to keep confidential all nonpublic
information furnished in connection with the offer and Litton merger; and
. the liquidated damages and expense provisions described immediately
below.
Termination Fee; Expenses
Litton has agreed to pay Northrop Grumman $110,000,000 as liquidated damages
within three business days after the termination of the amended merger
agreement, if the amended merger agreement is terminated:
. By Northrop Grumman and LII Acquisition because Litton's board of
directors enters into or recommends to its stockholders a superior
proposal;
59
. By Northrop Grumman and LII Acquisition because Litton's board of
directors withdraws, modifies or changes its approval or recommendation
of the amended merger agreement, the offer, Litton merger or Northrop
reorganization or adopts any resolution to such effect;
. By Northrop Grumman and LII Acquisition because a third party acquisition
occurs, except that, the definition of third party acquisition relating
to the acquisition of Litton common stock will be deemed to occur only
upon the acquisition by a third party of 50% or more of the outstanding
Litton common stock;
. By Litton because Litton's board of directors receives a superior
proposal and resolves to accept such superior proposal, except that,
Litton must pay the $110,000,000 liquidated damages fee simultaneously
with such termination;
. By Northrop Grumman and LII Acquisition because Litton breaches its
covenants or agreements contained in the amended merger agreement and
such breaches would have a material adverse effect on the business,
assets, long-term earnings capacity or financial condition of Litton and
its subsidiaries, and within twelve months after termination of the
amended merger agreement Litton enters into an agreement with respect to
or consummates an acquisition by a third party:
. with whom Litton had negotiations concerning a third party acquisition;
. to whom Litton furnished information in connection with a third party
acquisition;
. who had submitted a proposal for a third party acquisition at the time
of the breach, in each case after December 21, 2000 and prior to the
termination of the amended merger agreement; or
. By Northrop Grumman and LII Acquisition if the offer is not completed by
September 15, 2001; as long as neither Northrop Grumman nor LII
Acquisition is principally responsible for the delay due to its failure
to fulfill its obligations under the amended merger agreement, and:
. the minimum tender condition is not satisfied;
. there is an outstanding publicly announced offer by a third party to
consummate a third party acquisition;
. no other condition of the offer is unsatisfied; and
. within twelve months thereafter Litton enters into an agreement with
respect to a third party acquisition or a third party acquisition
occurs in either case involving the third party referred to above.
Except for the liquidated damages described above, each party will pay its
own expenses in connection with the amended merger agreement.
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OTHER AGREEMENTS
The Stockholder's Agreement
The stockholder's agreement is filed as an exhibit to the registration
statement of which this offer to purchase or exchange is a part and is
incorporated by reference herein. The following summary describes the material
terms of the stockholder's agreement. However, the rights of the parties are
governed by its specific terms and provisions and not this summary.
Effective as of January 23, 2001, Northrop Grumman, NNG and Unitrin, a
principal stockholder of Litton, entered into the stockholder's agreement
described below. Unitrin and its subsidiaries collectively hold an aggregate of
12,657,764 outstanding shares of Litton common stock, representing
approximately 27.8% of the outstanding Litton common stock as of January 23,
2001.
Tender and Voting of Shares. Unitrin has agreed to:
. tender all of the shares of Litton stock owned by it and its subsidiaries
in the offer, and elect to receive (a) NNG preferred stock in the offer,
with respect to at least 3,750,000 shares of Litton common stock it owns
and (b) NNG common stock in exchange for the remainder of the shares it
owns;
. specify Alternative A in connection with its tender;
. vote its shares of Litton stock at any meeting of the Litton
stockholders:
. in favor of the Litton merger and the amended merger agreement;
. against any action which could reasonably be expected to impede,
interfere with, delay, postpone or materially adversely affect the
offer, Litton merger and Northrop reorganization or the consummation of
these transactions; and
. in favor of any other matter necessary for consummation of the offer,
Litton merger and Northrop reorganization considered at a meeting of
the Litton stockholders.
In addition, Unitrin and its subsidiaries have agreed not to withdraw their
tenders or elections unless the stockholder's agreement is terminated.
No Inconsistent Arrangements. Other than actions contemplated in the amended
merger agreement and the stockholder's agreement, Unitrin has agreed not do any
of the following:
. transfer or consent to any transfer of the shares of Litton stock it owns
or interest therein;
. create or permit to exist any pledge, lien, security interest, mortgage,
trust, charge, claim, equity, option, proxy, voting restriction, voting
trust or agreement, understanding, arrangement, right of first refusal,
limitation on disposition, adverse claim of ownership or encumbrance of
any kind on the shares of Litton stock it owns;
. enter into any contract, option or other agreement or understanding to
any transfer of any of shares of Litton stock it owns or interest
therein;
. grant any proxy, power-of-attorney or other authorization in or with
respect to its shares of Litton stock;
. deposit its shares of Litton stock into a voting trust or enter into a
voting agreement or arrangement with respect to its shares of Litton
stock; or
. take any other action that would in any way restrict, limit or interfere
with the performance of its obligations under the stockholder's agreement
or the amended merger agreement.
Proxy. Unitrin and three of its subsidiaries which own Litton common stock
granted NNG and Northrop Grumman, or any nominee of NNG and Northrop Grumman,
an irrevocable proxy for all of the shares of Litton common stock Unitrin and
such subsidiaries own to vote on the matters and in the manner discussed above
at every Litton stockholders meeting.
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Stop Transfer. Unitrin cannot request that Litton register the transfer of
any shares of its Litton stock, unless the transfer is made in compliance with
the stockholder's agreement.
No Solicitation. Unitrin and its subsidiaries have agreed not to or permit
any of their officers, directors, employees, agents or representatives to:
. solicit or initiate, or encourage any inquiries regarding or the
submission of, any proposal for a third party acquisition; or
. enter into any agreement or proposal with respect to any proposal for a
third party acquisition.
Unitrin and its subsidiaries have agreed to cease any existing discussions,
activities or negotiations with any parties concerning a third party
acquisition. In addition, Unitrin has agreed to notify Northrop Grumman of the
existence of any proposal, discussion, negotiation or inquiry received by it,
and to provide Northrop Grumman with the terms of any proposal, discussion,
negotiation or inquiry which it may receive and the identity of the person
making such proposal or inquiry or engaging in such discussion or negotiation.
The stockholder's agreement does not prevent Unitrin and its subsidiaries
from complying with their obligations under Section 13(d) of the Exchange Act.
Representations And Warranties. The stockholder's agreement contains
customary representations and warranties of Unitrin, relating to, among other
things:
. authorization, execution, delivery and performance of the stockholder's
agreement, tendering of the shares of Litton stock, appointment of NNG
and Northrop Grumman as proxy and consummation of the transactions
contemplated by the stockholder's agreement;
. enforceability of the stockholder's agreement;
. no conflict with or violation of any applicable laws;
. no breach of or default under any note, bond, mortgage, indenture,
contract, agreement lease, license, permit, franchise or other
instruments and applicable law;
. no consents, approvals, authorizations or permits of, or the filing with
or notification to any governmental or regulatory authority, domestic or
foreign, are required, subject to limitation;
. ownership of the shares of Litton stock; and
. the shares of Litton stock being free and clear of any pledge, lien,
security interest, mortgage, trust, charge, claim, equity, option, proxy,
voting restriction, voting trust or agreement, understanding,
arrangement, right of first refusal, limitation on disposition, adverse
claim of ownership or encumbrance of any kind.
The stockholder's agreement also contains customary representations and
warranties of NNG and Northrop Grumman, relating to, among other things:
. organization, good standing and similar corporate matters;
. authorization, execution, delivery and enforceability of the
stockholder's agreement;
. no conflict with or violation of any applicable law;
. no breach of or default under any note, bond, mortgage, indenture,
contract, agreement lease, license, permit, franchise or other
instruments and applicable law; and
. no consents, approvals, authorizations or permits of, or the filing with
or notification to any governmental or regulatory authority, domestic or
foreign, are required, subject to limitation.
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Termination. The stockholder's agreement provides that the stockholder's
agreement and the proxies granted under the stockholder's agreement will
terminate:
. upon the mutual written consent of the parties;
. automatically upon the termination of the amended merger agreement;
. at the election of Unitrin after September 15, 2001; and
. automatically upon the effective time of the Litton merger.
The covenants and agreements of Unitrin and its subsidiaries and the proxies
will terminate at Unitrin's election if Northrop Grumman and NNG:
. amend or provide any waiver of the amended merger agreement without
Unitrin's prior written consent, if such amendment or waiver would:
. change the amount or terms of the NNG common stock or the NNG preferred
stock that Unitrin and its subsidiaries would receive in the offer, the
Litton merger or upon conversion of the NNG preferred stock;
. change the U.S. tax treatment to Unitrin or its subsidiaries or the
offer and Litton merger;
. materially adversely affect Unitrin's and its subsidiaries' interests;
. take any actions having the effect of any of the foregoing; or
. materially breach the stockholder's agreement.
The Registration Rights Agreement
The registration rights agreement is filed as an exhibit to the registration
statement, of which this offer to purchase or exchange is a part, and is
incorporated by reference herein. The following summary describes the material
terms of the registration rights agreement. However, the rights of the parties
are governed by its specific terms and conditions and not this summary.
Effective as of January 23, 2001, Northrop Grumman, NNG and Unitrin entered
into the registration rights agreement described below.
Unitrin, its subsidiaries and affiliates and approved transferees may
request that NNG register all or a portion of its shares so long as the
aggregate offering to the public is at least $100,000,000. NNG is required to
file three registration statements in response to a demand for registration by
Unitrin and NNG is not required to file more than one registration statement in
any six month period. NNG may postpone the filing of any registration statement
for up to 75 days if NNG would be required to disclose nonpublic information
and NNG's board of directors determines that disclosure of such nonpublic
information would materially and adversely affect an existing or pending
material business, transaction or negotiation or otherwise materially and
adversely affect Northrop Grumman. NNG may exercise this right to postpone once
in any 12 month period.
If NNG registers any securities for public sale, Unitrin will have the right
to include its shares in this registration. Unitrin's right, however, does not
apply to a registration statement relating to any of NNG's employee benefit
plans or to a corporate reorganization. If marketing reasons dictate, the
managing underwriter of any underwritten offering will have the right to limit
the number of shares registered by Unitrin and its subsidiaries and affiliates
to be included in the registration statement on a pro rata basis to the extent
required.
NNG is not obligated to register securities pursuant to the registration
rights described above if, in the opinion of NNG's counsel, the sale or
disposition of all of Unitrin's registrable securities may be effected without
registering such registrable securities under the Securities Act, except with
respect to a demand registration pursuant to an underwritten public offering.
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Either NNG or Northrop Grumman will pay all expenses incurred in connection
with the filings described above. In addition, Unitrin may be required to agree
not to sell its shares of NNG stock during the 7 day period prior to, and
during the 90 day period beginning with, the effectiveness of such registration
statement.
Change of Control Severance Agreements
Litton is party to change of control employment agreements with 53 of its
executives, including all its executive officers. The parties to the amended
merger agreement acknowledged and agreed that the consummation of the offer
will constitute a "change of control" under these agreements. Accordingly, upon
termination of employment by the executive officer for "good reason" or
"without cause" by Litton within three years following the change of control,
or, if the executive officer terminates employment for any reason during the
30-day period following the first anniversary of the change of control, the
executive officer will be entitled to three times the executive officer's base
salary and highest bonus award of any type, including, without limitation, any
annual or signing bonus paid during the last three full fiscal years,
continuation of welfare benefits for three years, three years of service credit
under Litton's pension plan and, if applicable, the Supplemental Executive
Retirement Plan, and provision of certain other benefits in accordance with
Litton's plans and practices. On December 21, 2000, the compensation and
selection committee of the Litton board of directors specified that the
following comprise these other benefits:
. Incentive Loan Program:
. use of a company automobile by the executive officer without cost, with
a tax gross-up, for three years following termination;
. executive financial planning for an additional year following
termination;
. Directors' and Officers' Liability Insurance for six years following
termination;
. continued participation in the Hyatt Legal Plan for three years
following termination; and
. educational assistance programs for three years following termination.
In addition, the compensation and selection committee of the Litton board of
directors specified that the welfare plan benefits that continue under the
agreements during the three-year period following termination include:
. the supplemental medical insurance plan for key executive employees;
. the executive survivor benefit plan; and
. the executive physical plan.
Under the terms of the change of control employment agreements, Litton will
also pay any legal fees and expenses incurred by the executive officer in
connection with a dispute arising out of the subject matter of the agreement.
If any payment received under an executive officer's change of control
employment agreement or otherwise is subjected to the excise tax imposed under
Section 4999 of the Code, the executive officer is entitled to an additional
payment to restore the executive officer to the same after-tax position that
the executive officer would have been in if the excise tax had not been
imposed.
On December 21, 2000, Dr. Sugar's change of control employment agreement,
dated June 21, 2000, was modified to clarify the intent of both parties that
Dr. Sugar's letter agreement, dated June 21, 2000, was not to be superseded by
his change of control employment agreement.
It is estimated that the total maximum amount of cash severance payable to
each executive officer under these agreements, not including any excise tax
gross-up, would be: $6,188,052 for Mr. Brown, $5,000,000 for Dr. Sugar,
$3,084,869 for Mr. Steuert, $2,997,540 for Mr. St. Pe, $3,366,800 for Mr.
Halamandaris, and $16,128,160 for all remaining executive officers as a group.
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Employment Agreement between Northrop Grumman and Dr. Sugar. On December 21,
2000, Northrop Grumman entered into a letter agreement with Dr. Sugar pursuant
to which Dr. Sugar will serve as Corporate Vice President of Northrop Grumman,
President and Chief Executive Officer of Litton, and a member of the board of
directors of Northrop Grumman effective upon the closing date of the Litton
merger, provided that the Litton merger closes on or before December 31, 2001.
On January 31, 2001, Northrop Grumman and Dr. Sugar amended the letter
agreement to provide that Dr. Sugar would be named as an officer and director
of NNG. In general, under the terms of this letter agreement, Northrop Grumman
assumes Litton's obligations under Dr. Sugar's change of control employment
agreement and his letter agreement dated June 21, 2000. However, Dr. Sugar's
rights under those agreements are modified in two respects. First, Dr. Sugar
will not be entitled to severance benefits under those agreements if he
terminates his employment during the employment period commencing on the
closing date of the Litton merger and ending on the later of (i) the date six
months following the closing date or (ii) December 31, 2001, although he will
retain the right to receive severance benefits if he terminates his employment
after that employment period on the basis of an event that occurs during that
employment period that constitutes "good reason" under his change of control
employment agreement or a "constructive termination without cause" prior to
December 31, 2001 under the letter agreement dated June 21, 2000. Second,
during the 30-day period following such employment period, Dr. Sugar will have
the right to voluntarily terminate his employment for any reason and such
termination will be considered a termination for "good reason" under his change
of control employment agreement and a "constructive termination without cause"
prior to December 31, 2001 under the letter agreement dated June 21, 2000. The
letter agreement affirms that in the event of any such termination, Dr. Sugar
will be entitled to a total severance benefit under those agreements equal to
the greater of (i) $5,000,000 or (ii) three times the sum of his annual base
salary and highest bonus award during the last three full fiscal years. In
addition, the letter agreement will not affect Dr. Sugar's right to accelerated
vesting of stock options or restricted stock upon the consummation of the
offer.
Confidentiality Agreement
The confidentiality agreement described below is filed as an exhibit to the
Schedule TO filed by Northrop Grumman and LII Acquisition on January 5, 2001
and subsequently amended, and is incorporated herein by this reference. The
following summary describes the material terms of the agreement. However, the
rights of the parties are governed by its specific terms and provisions and not
this summary.
On June 23, 2000, Northrop Grumman and Litton entered into a confidentiality
letter agreement dated as of the same date. The confidentiality agreement
contains customary provisions pursuant to which, among other matters, Northrop
Grumman and Litton have mutually agreed, subject to certain exceptions, to keep
confidential all non-public, confidential or proprietary information exchanged
between each other, including analyses, compilations, forecasts, studies,
notes, summaries, reports, analyses or other materials derived from the
information exchanged, and to use such confidential information solely for the
purpose of evaluating a possible transaction involving Northrop Grumman and
Litton, together with any of their subsidiaries or affiliates. Northrop Grumman
and Litton each agreed not to solicit certain members of the other's directors,
officers or employees with whom they have had dealings for employment for a
period of two years from June 23, 2000. Northrop Grumman and Litton also agreed
for the same period not to:
. acquire more than one percent of any securities of the other party or any
of its subsidiaries;
. solicit proxies or consents with respect to the other party or any of its
subsidiaries;
. seek to advise, control or influence the management, board of directors
or policies of the other party or any of its subsidiaries;
. make any proposal or any public announcement relating to a tender or
exchange offer for securities of the other party or any of its
subsidiaries
. enter into any discussions or understandings with any third party with
respect to any of the foregoing; or
. advise, assist or encourage any other person in connection with any of
the foregoing.
65
RATIO OF COMBINED EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
The following table sets forth the ratios of combined earnings to fixed
charges and preferred dividends of Northrop Grumman for the one year period
ended December 31, 1999 and for the nine-month period ended September 30, 2000
and pro forma combined ratios of Northrop Grumman and Litton for the year ended
December 31, 1999 and nine-month period ended September 30, 2000.
The Pro Forma Ratios of Combined Earnings to Fixed Charges and Preferred
Dividends are based upon the historical financial statements of Northrop
Grumman and Litton adjusted to give effect to the business combination. Two pro
forma transaction scenarios are presented: Minimum Equity Issuance and Maximum
Equity Issuance. The Minimum Equity Issuance scenario is based upon the
assumption that Unitrin, Inc. tenders its shares of Litton common stock for NNG
stock as described in "Other Agreements--The Stockholder's Agreement" beginning
on page 62 of this offer to purchase or exchange and all other shareholders
tender their shares of Litton common stock for cash. The Maximum Equity
Issuance scenario is based upon the assumption that the maximum number of
shares of NNG common stock (i.e. 13,000,000) and the maximum number of shares
of NNG preferred stock (i.e. 3,500,000) are issued, with the remainder of the
purchase price paid in cash. The pro forma amounts have been developed from (a)
the audited consolidated financial statements of Northrop Grumman contained in
Northrop Grumman's Current Report on Form 8-K as filed on August 8, 2000 and
from the unaudited consolidated financial statements of Northrop Grumman
contained in Northrop Grumman's Quarterly Report on Form 10-Q for the period
ended September 30, 2000, which are incorporated by reference in this offer to
purchase or exchange, and (b) the audited consolidated financial statements
contained in Litton's Annual Report on Form 10-K for the fiscal year ended July
31, 2000 and from the unaudited consolidated financial statements as of and for
the quarter ended October 31, 2000 contained in Litton's Current Report on Form
8-K, as filed on January 30, 2001, which are incorporated by reference in this
offer to purchase or exchange. In addition, the audited consolidated financial
statements contained in Litton's Annual Report on Form 10-K for the fiscal year
ended July 31, 1999 and the unaudited consolidated financial statements of
Litton contained in Litton's Quarterly Reports on Form 10-Q for the periods
ended January 31, 1999 and 2000 have been used to bring the financial reporting
periods of Litton to within 31 days of those of Northrop Grumman.
Pro Forma
-----------------------------------------------------
Minimum Equity Issuance Maximum Equity Issuance
-------------------------- --------------------------
Nine months Nine months Nine months Fiscal Year
ended Year ended ended Year ended ended Ended
September 30, December 31, September 30, December 31, September 30, December 31,
2000 1999 2000 1999 2000 1999
------------- ------------ ------------- ------------ ------------- ------------
Fixed Charges Ratio:... 2.69 1.95 2.82 2.03 5.50 3.78
For purposes of computing the ratios of combined earnings to fixed charges
and preferred dividends, earnings represent earnings from continuing operations
before income taxes and fixed charges, and fixed charges consist of interest
expense, the portion of rental expense calculated to be representative of the
interest factor, and preferred stock dividend. The ratios of earnings to fixed
charges should be read in conjunction with the financial statements and other
financial data included or incorporated by reference in this offer to purchase
or exchange. See "Additional Information" on page 86.
66
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Combined Financial Information of Northrop
Grumman and Litton presented below is derived from the historical consolidated
financial statements of each of Northrop Grumman and Litton. The Unaudited Pro
Forma Condensed Combined Financial Information is prepared using the purchase
method of accounting, with Northrop Grumman treated as the acquiror and as if
the transactions had been completed as of the beginning of the periods
presented for statements of operations purposes and on September 30, 2000 for
balance sheet purposes.
For a summary of the proposed business combination, see "The Offer"
beginning on page 23 of this offer to purchase or exchange.
The Unaudited Pro Forma Condensed Combined Financial Information is based
upon the historical financial statements of Northrop Grumman and Litton
adjusted to give effect to the business combination. Two pro forma transaction
scenarios are presented: Minimum Equity Issuance and Maximum Equity Issuance.
The Minimum Equity Issuance scenario is based upon the assumption that Unitrin
tenders its shares for stock as described in "Other Agreements--The
Stockholder's Agreement" beginning on page [ ] of this offer to purchase or
exchange and all other shareholders tender their shares for cash. The Maximum
Equity Issuance scenario is based upon the assumption that the maximum number
of shares of NNG common stock (i.e. 13,000,000) and the maximum number of
shares of NNG preferred stock (i.e. 3,500,000) are issued, with the remainder
of the purchase price paid in cash. The pro forma adjustments for each
transaction scenario are described in the accompanying notes presented on the
following pages. The pro forma statements have been developed from (a) the
audited consolidated financial statements of Northrop Grumman contained in
Northrop Grumman's Current Report on Form 8-K as filed on August 8, 2000 and
from the unaudited consolidated financial statements of Northrop Grumman
contained in Northrop Grumman's Quarterly Report on Form 10-Q for the period
ended September 30, 2000, which are incorporated by reference in this offer to
purchase or exchange, and (b) the audited consolidated financial statements
contained in Litton's Annual Report on Form 10-K for the fiscal year ended July
31, 2000 and from the unaudited consolidated financial statements as of and for
the quarter ended October 31, 2000 contained in Litton's Current Report on Form
8-K, as filed on January 30, 2001, which are incorporated by reference in this
offer to purchase or exchange. In addition, the audited consolidated financial
statements contained in Litton's Annual Report on Form 10-K for the fiscal year
ended July 31, 1999 and the unaudited consolidated financial statements of
Litton contained in Litton's Quarterly Reports on Form 10-Q for the periods
ended January 31, 1999 and 2000 have been used to bring the financial reporting
periods of Litton to within 31 days of those of Northrop Grumman.
The final determination and allocation of the purchase price paid for the
acquisition of Litton may differ from the amounts assumed in this Unaudited Pro
Forma Condensed Combined Financial Information.
Under the purchase method of accounting, the purchase price will be
allocated to the underlying tangible and intangible assets and liabilities
acquired based on their respective fair market values, with the excess recorded
as goodwill. As of the date of this filing, Northrop Grumman has not commenced
the valuation studies necessary to arrive at the required estimates of the fair
market value of the assets and liabilities to be acquired and the related
allocations of purchase price, nor has it identified the adjustments, if any,
necessary to conform Litton data to Northrop Grumman's accounting policies.
Accordingly, Northrop Grumman has used the historical book values of the assets
and liabilities of Litton and has used the historical revenue recognition
policies of Litton to prepare the unaudited pro forma financial statements set
forth herein, with the excess of the purchase price over the historical net
assets of Litton recorded as goodwill and other purchased intangibles. Once
Northrop Grumman has completed the valuation studies necessary to finalize the
required purchase price allocation and have identified any necessary conforming
changes, such pro forma financial statements will be subject to adjustment.
Such adjustments will likely result in changes to the pro forma statement of
financial position to reflect the final allocation of purchase price and the
pro forma statement of income, and there can be no assurance that such
adjustments will not be material.
67
The Unaudited Pro Forma Condensed Combined Financial Information is provided
for illustrative purposes only and does not purport to represent what the
actual consolidated results of operations or the consolidated financial
position of NNG would have been had the offer and the Litton merger occurred on
the date assumed, nor is it necessarily indicative of future consolidated
results of operations or financial position.
The Unaudited Pro Forma Condensed Combined Financial Information does not
include the realization of cost savings from operating efficiencies, synergies
or other restructurings resulting from the offer and the Litton merger.
The Unaudited Pro Forma Condensed Combined Financial Information should be
read in conjunction with the separate historical consolidated financial
statements and accompanying notes of Northrop Grumman and Litton that are
incorporated by reference in this offer to purchase or exchange.
68
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF FINANCIAL POSITION
September 30, 2000
($ in millions)
Minimum Equity Maximum Equity
Issuance Issuance
----------------------- -----------------------
Northrop Pro Forma Pro Forma Pro Forma Pro Forma
Grumman Litton Adjustment Combined Adjustment Combined
-------- ------ ---------- --------- ---------- ---------
ASSETS
Current assets:
Cash.................. $ 753 $ 66 $ -- $ 819 $ -- $ 819
Accounts receivable... 1,292 765 2,057 2,057
Inventoried costs..... 603 774 1,377 1,377
Deferred income
taxes................ 14 386 400 400
Prepaid expenses...... 47 36 83 83
------- ------ ------- ------- ------- -------
Total current
assets............. 2,709 2,027 -- 4,736 -- 4,736
------- ------ ------- ------- ------- -------
Property, plant and
equipment.............. 2,298 1,826 4,124 4,124
Accumulated
depreciation........... (1,335) (969) (2,304) (2,304)
------- ------ ------- ------- ------- -------
963 857 -- 1,820 -- 1,820
------- ------ ------- ------- ------- -------
Other assets:
Goodwill and other
purchased
intangibles.......... 4,134 1,243 2,284 (a) 7,661 2,285 (a) 7,662
Prepaid retiree
benefits cost,
intangible pension
asset and benefit
trust fund........... 1,321 538 1,859 1,859
Other assets.......... 227 184 55 (a) 466 55 (a) 466
------- ------ ------- ------- ------- -------
5,682 1,965 2,339 9,986 2,340 9,987
------- ------ ------- ------- ------- -------
$ 9,354 $4,849 $ 2,339 $16,542 $ 2,340 $16,543
======= ====== ======= ======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and
current portion of
long term debt....... $ 215 $ 137 $ -- $ 352 $ -- $ 352
Accounts payable...... 364 326 690 690
Accrued employees'
compensation......... 341 241 582 582
Advances on
contracts............ 412 242 654 654
Income taxes.......... 652 65 717 717
Other current
liabilities.......... 454 477 931 931
------- ------ ------- ------- ------- -------
Total current
liabilities........ 2,438 1,488 -- 3,926 -- 3,926
------- ------ ------- ------- ------- -------
Long-term debt.......... 1,605 1,287 2,869 (a) 5,761 2,389 (a) 5,281
Accrued retiree
benefits............... 1,095 302 1,397 1,397
Deferred tax and other
long-term liabilities.. 411 227 638 638
Mandatorily redeemable
preferred stock........ 300 (a) 300 350 (a) 350
Shareholders' equity:
Paid in capital....... 1,177 399 316 (a) 1,892 747 (a) 2,323
Retained earnings..... 2,647 1,205 (1,205)(a) 2,647 (1,205)(a) 2,647
Accumulated other
comprehensive loss... (19) (59) 59 (a) (19) 59 (a) (19)
------- ------ ------- ------- ------- -------
3,805 1,545 (830) 4,520 (399) 4,951
------- ------ ------- ------- ------- -------
$ 9,354 $4,849 $ 2,339 $16,542 $ 2,340 $16,543
======= ====== ======= ======= ======= =======
(See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements)
69
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2000
($ in millions, except per share data)
Minimum Equity Maximum Equity
Issuance Issuance
---------------------- ----------------------
Northrop Pro Forma Pro Forma Pro Forma Pro Forma
Grumman Litton Adjustments Combined Adjustments Combined
-------- ------ ----------- --------- ----------- ---------
Net sales............... $5,389 $4,281 $ -- $9,670 $ -- $9,670
Cost of sales
Operating costs....... 3,899 3,552 64 (b) 7,515 64 (b) 7,515
Administrative and
general expenses..... 644 371 -- 1,015 -- 1,015
------ ------ ----- ------ ----- ------
Operating margin........ 846 358 (64) 1,140 (64) 1,140
Interest expense........ (135) (77) (167)(c) (379) (140)(d) (352)
Other, net.............. 45 13 -- 58 -- 58
------ ------ ----- ------ ----- ------
Income from continuing
operations before
income taxes........... 756 294 (231) 819 (204) 846
Federal and foreign
income taxes........... 275 118 (81)(e) 312 (71)(e) 322
------ ------ ----- ------ ----- ------
Income from continuing
operations............. $ 481 $ 176 $(150) $ 507 $(133) $ 524
====== ====== ===== ====== ===== ======
Less, dividends paid to
preferred
shareholders........... (20)(f) (20) (24)(f) (24)
----- ------ ----- ------
Income available to
common shareholders.... $(170) $ 487 (157) $ 500
===== ====== ===== ======
Average shares basic.... 70.1 78.2 83.1
Average shares diluted.. 70.3 79.3 84.2
Basic earnings per
share:
Continuing
operations........... $ 6.86 $ 6.23 $ 6.02
Diluted earnings per
share:
Continuing
operations........... $ 6.84 $ 6.14 $ 5.94
(See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements)
70
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Year ended December 31, 1999
($ in millions, except per share data)
Minimum Equity Maximum Equity
Issuance Issuance
---------------------- ----------------------
Northrop Pro Forma Pro Forma Pro Forma Pro Forma
Grumman Litton Adjustments Combined Adjustments Combined
-------- ------ ----------- --------- ----------- ---------
Net sales............... $7,616 $5,210 $ -- $12,826 $ -- $12,826
Cost of sales:
Operating costs....... 5,634 4,307 85 (b) 10,026 85 (b) 10,026
Administrative and
general expenses..... 1,028 517 -- 1,545 -- 1,545
------ ------ ----- ------- ----- -------
Operating margin...... 954 386 (85) 1,255 (85) 1,255
Interest expense...... (224) (90) (209)(c) (523) (178)(d) (492)
Special Charges*...... -- (81) -- (81) -- (81)
Other, net............ 17 (12) -- 5 -- 5
------ ------ ----- ------- ----- -------
Income from continuing
operations before
income taxes........... 747 203 (294) 656 (263) 687
Federal and foreign
income taxes........... 273 83 (103)(e) 253 (92)(e) 264
------ ------ ----- ------- ----- -------
Income from continuing
operations............. $ 474 $ 120 $(191) $ 403 $(171) $ 423
====== ====== ===== ======= ===== =======
Less, dividends paid to
preferred
shareholders........... (27)(f) (27) (32)(f) (32)
----- ------- ----- -------
Income available to
common shareholders.... $(218) $ 376 $(203) $ 391
===== ======= ===== =======
Average shares basic.... 69.3 77.3 82.3
Average shares diluted.. 69.7 78.7 83.6
Basic earnings per
share:
Continuing
operations........... $ 6.84 $ 4.86 $ 4.75
Diluted earnings per
share:
Continuing
operations........... $ 6.80 $ 4.78 $ 4.68
--------
* Special Charges were primarily due to acceptance of plan to exit the
mainframe outsourcing and professional services business.
(See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements)
71
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(a) Adjustments to (i) eliminate the equity of Litton (ii) record issuance of
preferred and common stock and (iii) record new financing for the
acquisition of Litton along with additional acquisition related costs and
refinancing of debt using the Revolving Credit Facility.
(b) Adjustment to amortize goodwill and other purchased intangible assets
arising out of the acquisition of Litton over an estimated weighted average
life of 27 years on a straight line basis.
(c) Adjustment to record interest on new financing for the acquisition of
Litton: under the minimum equity issuance, a weighted average rate of 7.03
percent and an annualized weighted average of 7.54 percent was used, for
the year ended December 31, 1999 and for the nine months ended September
30, 2000, respectively, plus the amortization of debt issuance costs.
(d) Adjustment to record interest on new financing for the acquisition of
Litton: under the maximum equity issuance, a weighted average rate of 7.14
percent and an annualized weighted average of 7.53 percent was used, for
the year ended December 31, 1999 and for the nine months ended September
30, 2000, respectively, plus the amortization of debt issuance costs.
(e) Adjustment to record income tax effects on pre-tax pro forma adjustments,
using a statutory tax rate of 35 percent.
(f) Adjusted for dividends to preferred shareholders using $9 per share
dividend rate for minimum equity issuance of 3,000,000 shares and the
maximum equity issuance of 3,500,000 shares of preferred stock.
72
DESCRIPTION OF NNG CAPITAL STOCK
The terms and conditions of the capital stock of NNG are determined by NNG's
restated certificate of incorporation, which is identical in all material
respects with the certificate of incorporation of Northrop Grumman, and which
is filed as an exhibit to the registration statement, of which this offer to
purchase or exchange a part. The rights preferences and privileges of the NNG
preferred stock are also governed by a certificate of designations, preferences
and rights, which is also filed as an exhibit to the abovementioned
registration statement. The following summary describes the material terms of
these documents. However the legal rights and obligations of stockholders are
governed by the specific language of the restated certificate of incorporation
and certificate of designations, preferences and right, not by this summary.
Authorized Capital Stock
Under NNG's certificate of incorporation, immediately prior to consummation
of the offer, NNG will be authorized to issue (i) 200,000,000 shares of common
stock, par value $1.00 per share, and (ii) 10,000,000 shares of preferred
stock, par value $1.00 per share, of which 3,500,000 will be shares of Series B
Preferred Stock, par value $1.00 per share. As of January 31, 2001, 1,000 of
NNG's common stock and no shares of Series B Preferred Stock were issued and
outstanding. NNG's common stock will be listed on the NYSE under the symbol
"NOC." NNG will seek to list the NNG preferred stock on the NYSE if there are
enough holders to satisfy the minimum listing requirements.
NNG's board of directors is authorized to provide for the issuance by NNG
from time to time of preferred stock in one or more classes or series and, as
to each class or series, to fix the designation or title, the dividend rate, if
any, the voting rights, if any, and the preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions.
Common Stock
Full Payment and Nonassessability
The outstanding shares of NNG's common stock are, and the shares of NNG's
common stock issued pursuant to the offer will be, duly authorized, validly
issued, fully paid and nonassessable when issued and delivered against payment
for the shares.
Voting Rights
Each holder of NNG's common stock is entitled to one vote for each share of
NNG common stock held of record on the applicable record date on all matters
submitted to a vote of stockholders. The NNG common stock does not have
cumulative voting rights.
Dividends
Dividends may be paid on the common stock and on any class or series of
stock entitled to participate with the common stock as to dividends when and as
declared by NNG's board of directors.
Liquidation
If NNG is liquidated, holders of common stock are entitled to receive all
remaining assets available for distribution to stockholders after satisfaction
of NNG's liabilities and the preferential rights of any preferred stock that
may be outstanding at the time. The holders of NNG common stock do not have any
preemptive, conversion or redemption rights.
73
Rights Plan
For a description of the rights to acquire NNG preferred stock that are
attached to shares of our common stock, see "Comparison of Stockholders'
Rights--Rights Plan" on page 81.
Series B Preferred Stock
Conversion
The conversion rights of the NNG preferred stock are subject to stockholder
approval of the issuance of NNG common stock upon conversion of the NNG
preferred stock. No conversion rights may be exercised until
such stockholder approval is obtained. Northrop Grumman and NNG have agreed to
seek the necessary stockholder approval at the annual meeting of stockholders
in May 2001.
Subject to stockholder approval, each share of NNG preferred stock will be
convertible, at any time, at the option of the holder into the right to receive
shares of NNG common stock, par value $1.00 per share. Initially, each share of
NNG preferred stock will be convertible into the right to receive the number of
shares of NNG common stock equal to the liquidation value of $100.00 per share
divided by 127% of the average closing price of Northrop Grumman common stock
for the five trading days ending two full trading days prior to expiration of
the offer.
The conversion ratio is subject to adjustment in the event of certain
dividends and distributions; a reclassification; a merger, consolidation or
sale of substantially all of NNG's assets; liquidation or distribution and
certain other events.
If any adjustment in the number of shares of common stock into which each
share of NNG preferred stock may be converted would result in an increase or
decrease of less than 1% in the number of shares of NNG common stock into which
each share of NNG preferred stock is then convertible, the amount of the
adjustment will be carried forward and the adjustment will be made at the time
of and together with any subsequent adjustment, which, together with any
amounts so carried forward, will aggregate at least 1% of the number of shares
of NNG common stock into which each share of NNG preferred stock is then
convertible.
Liquidation
In any liquidation of NNG, each share of the NNG preferred stock will be
entitled to a liquidation preference of $100.00 plus accrued but unpaid
dividends, whether or not declared, before any distribution may be made on the
NNG common stock or any other class or series of NNG stock which is junior to
the NNG preferred stock. In any liquidation of NNG, no distribution may be made
on any NNG stock ranking on a parity with the NNG preferred stock as to
dividends, redemption payments and rights upon liquidation dissolution or
winding up of NNG, unless the holders of NNG preferred stock participate
ratably in the distribution along with the holders of any NNG stock ranking on
a parity with the NNG preferred stock as to such matters. In the event
stockholder approval has not occurred, the amount payable in liquidation will
be the greater of the amount described above and the amount that would be
distributed if such share of NNG preferred stock had been converted into NNG
common stock pursuant to the provision for conversion.
Reacquired Shares
Any shares of NNG preferred stock converted, redeemed, purchased or
otherwise acquired by NNG will be retired and canceled. The reacquired shares
will become authorized but unissued shares of NNG preferred stock, which NNG
may reissue at a later date.
74
Full Payment and Nonassessability
The shares of NNG's Series B Preferred Stock (referred to as the "NNG
preferred stock") issued pursuant to the offer will be duly authorized, validly
issued, fully paid and nonassessable when issued and delivered against payment
for the shares.
Rank
The NNG preferred stock ranks with respect to payment of dividends,
redemption payments and rights upon liquidation, dissolution or winding up,
prior to the NNG common stock and any class or series of preferred stock which
by its terms ranks junior to the NNG preferred. The NNG preferred stock ranks
on parity with each other class or series of preferred stock.
Voting Rights
Holders of NNG preferred stock have no voting rights except in certain
specified circumstances described below or as required by applicable law. The
affirmative vote of the holders of two-thirds of the aggregate number of
outstanding shares of the NNG preferred stock is required for an amendment of
the NNG restated certificate of incorporation, merger or other action which
would:
. authorize any class or series of stock ranking prior to the NNG preferred
stock as to dividends, redemption payments or rights upon liquidation,
dissolution or winding up;
. adversely alter the preferences, special rights or powers given to the
NNG preferred stock; or
. cause or permit the purchase or redemption of less than all of the NNG
preferred stock unless all dividends to which such shares are entitled
have been declared and paid or provided for.
If accrued dividends on the NNG preferred stock are not paid for six
quarterly dividend periods (whether or not consecutive), a majority of the
holders of the NNG preferred stock, voting separately as a class, will have the
right to elect two directors. If such holders exercise their right to elect two
directors to NNG's board, the size of NNG's board will be increased by two
members until the dividends in default are paid in full or payment is set
aside.
Dividends
Holders of NNG preferred stock will be entitled to cumulative cash
dividends, payable quarterly in April, July, October and January of each year.
If the NNG preferred stock is issued prior to the 2001 annual meeting of
stockholders of Northrop Grumman (scheduled for May 16, 2001), the initial
dividend rate per share will be $7.00 per year. Commencing after the dividend
payable in October 2001, the dividend rate per share will be $7.00 per year if
stockholder approval for the issuance of NNG common stock upon conversion of
the NNG preferred stock has been obtained or $9.00 per year if it has not been
obtained. The dividend rate per share will be reduced from $9.00 to $7.00 per
year after stockholder approval is obtained. If the NNG preferred stock is
issued after the Northrop Grumman 2001 annual meeting, the initial dividend
rate will be $7.00 per year if stockholder approval for the issuance of the NNG
common stock upon conversion has been obtained and $9.00 per year if
stockholder approval has not been obtained. If the dividend rate per share is
set at $9.00 per year, it will be reduced from $9.00 to $7.00 per year after
stockholder approval is obtained. Dividends are cumulative and payable in cash.
If dividends are payable and have not been paid or set apart in full, the
deficiency must be fully paid or set apart for payment before:
. distributions or dividends are paid on stock ranking junior to the NNG
preferred stock; and
. the redemption, repurchase or other acquisition for consideration of any
NNG stock ranking junior to the NNG preferred stock.
75
Redemption
. Mandatory Redemption For Cash After Twenty Years. NNG is required to
redeem all of the shares of NNG preferred stock for cash twenty years
and one day from the date of issuance of the NNG preferred stock. The
redemption price per share is equal to the liquidation value of $100.00
per share plus accrued but unpaid dividends, whether or not declared, to
the mandatory redemption date. In the event that Stockholder Approval
has not occurred by the mandatory redemption date, the amount payable
for each share of NNG preferred stock will be the greater of (a) the
liquidation value of $100.00 per share of NNG preferred stock plus
accrued but unpaid dividends to the redemption date, whether or not
declared, and (b) the current market price on the redemption date of the
number of shares of NNG common stock which would be issued upon
conversion of a share of NNG preferred stock into NNG common stock
pursuant to the provision for conversion.
. Optional Redemption For Common Stock After Seven Years. NNG has the
option to redeem shares of the NNG preferred stock in exchange for NNG
common stock seven years from the date of the initial issuance of the
NNG preferred. Upon redemption, holders of NNG preferred stock will
receive the number of shares of NNG common stock equal to the
liquidation value of $100.00 per share plus accrued but unpaid dividends
to the redemption date divided by the current market price of the NNG
common stock on the redemption date. In the event that stockholder
approval has not occurred by the redemption date, the number to be
divided in the above calculation will be the greater of the amount
described above and the current market price on the redemption date of
the number of shares of NNG common stock which would be issued if all
shares of NNG preferred stock were converted on the redemption date into
NNG common stock pursuant to the provision for conversion.
Change in Control
Upon a fundamental change in control, as defined below, of NNG, holders of
NNG preferred stock have the right, which may be exercised during the period of
20 business days following notice from NNG, to exchange their shares of NNG
preferred stock for NNG common stock. Each share of NNG preferred stock may be
exchanged in such circumstances for that number of shares of NNG common stock
determined by dividing the liquidation value of $100.00 per share, plus accrued
but unpaid dividends to such date by the current market value of the NNG common
stock on the exchange date. In the event stockholder approval has not been
obtained for the issuance of NNG common stock upon conversion of the NNG
preferred stock, the number to be divided in the above calculation will be the
greater of the amount described above or the current market price of the number
of shares of NNG common stock which would be issued if such share of NNG
preferred stock were converted into NNG common stock pursuant to the provision
for conversion.
A "fundamental change in control" is defined as any merger, consolidation,
sale of all or substantially all of NNG's assets, liquidation or
recapitalization (other than solely a change in the par value of equity
securities) of the NNG common stock in which more than one-third of the
previously outstanding NNG common stock is exchanged for cash, property or
securities other than capital stock of NNG or another corporation.
If the change in control occurred as a result of a transaction (excluding
certain dividends or distributions on, and reclassifications of, NNG common
stock) in which the previously outstanding NNG common stock is changed into or
exchanged for different securities of NNG or securities of another corporation
or interests in a noncorporate entity, the NNG common stock that would
otherwise have been issued to a holder of NNG preferred stock for each share of
NNG preferred stock will be deemed to instead be the kind and amount of
securities and property receivable upon completion of such transaction in
respect of the NNG common stock that would result in the fair market value of
such securities and property, measured as of the exchange date, being equal to
the liquidation value plus accrued and unpaid dividends. In the event that the
Stockholder Approval has not occurred, the fair market value of the securities
and property will instead be calculated to be equal to the greater of the
amount described above, and the fair market value of the securities and
property which would have been issued if such share of NNG preferred stock had
been converted into NNG common stock, if conversion were permitted.
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Transfer and Dividend Paying Agent and Registrar
EquiServe Trust Company is the transfer and dividend paying agent and
registrar for the NNG common stock.
COMPARISON OF STOCKHOLDERS' RIGHTS
Upon completion of the offer, stockholders of Litton who request NGC stock
will become stockholders of NNG. As an NNG stockholder, the rights of former
Litton stockholders will be governed by NNG's restated certificate of
incorporation and NNG's bylaws, which differ in certain material respects from
Litton's restated certificate of incorporation and Litton's bylaws. Set forth
on the following pages is a summary comparison of certain material differences
between the rights of NNG's stockholders under the NNG restated certificate of
incorporation and the NNG bylaws and the rights of a Litton stockholder under
the current Litton restated certificate of incorporation and the current Litton
bylaws. Delaware is the jurisdiction of incorporation for both NNG and Litton.
Therefore, the rights of former Litton stockholders who become NNG stockholders
will continue to be governed by the DGCL.
The restated certificate of incorporation and bylaws of NNG are filed as
exhibits to the registration statement of which this offer to purchase or
exchange is a part. The specific provisions of such documents, and not this
summary, determine the rights and obligations of the parties.
Amendments to Certificate of Incorporation
The affirmative vote of a majority of the outstanding shares entitled to
vote is required to amend NNG's restated certificate of incorporation. In
addition, amendments which make changes relating to the capital stock by
increasing or decreasing the par value or the aggregate number of authorized
shares of a class or otherwise adversely affect the rights of such class, must
be approved by the majority vote of each class of stock affected, unless, in
the case of an increase in the number of shares, the charter takes away such
right, and provided that, if the amendment affects some but not all series,
then only those affected series will have a vote. NNG's restated certificate of
incorporation provides that certain articles may only be adopted, repealed,
rescinded, altered or amended by the affirmative vote of the holders of at
least 80% of the voting power of all outstanding shares of voting stock
regardless of class and voting together as a single voting class. However, if
such action is proposed by an interested stockholder, as defined in NNG's
restated certificate of incorporation, or by an associate or affiliate of an
interested stockholder, the affirmative vote of a majority of the voting power
of all of the outstanding shares of voting stock other than shares held by such
interested person is required, voting together as a single class; provided,
however, that where such action is approved by a majority of the continuing
directors, the affirmative vote of a majority of the voting power of all
outstanding shares of voting stock, regardless of class and voting together as
a single class shall be required for approval of such action. In general, NNG's
charter defines an "interested stockholder" as a beneficial owner of 10% or
more of the voting power of all outstanding shares of voting stock.
Under the DGCL, the affirmative vote of a majority of the outstanding shares
entitled to vote is required to amend Litton's restated certificate of
incorporation. In addition, the affirmative vote of the holders of at least
two-thirds of the aggregate number of shares of the affected class or series of
preferred stock outstanding are entitled to vote on any amendment of Litton's
restated certificate of incorporation that would:
. create a new class of stock having rights or preferences with respect to
payment of dividends or distribution of assets that are prior to the
shares of such class of preferred stock;
. alter or change the preferences, special rights or powers given to any
class or series of preferred stock so as to adversely affect such class
of stock; or
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. effect a purchase or redemption of less than all of the shares of
preferred stock then outstanding unless the full dividends to which all
shares of the preferred stock of all series then outstanding shall then
be entitled shall have been paid or declared and a sum set aside
sufficient for the payment thereof.
Amendments to the NNG Bylaws and the Litton Restated Bylaws
Under the NNG restated certificate of incorporation and the NNG bylaws, the
NNG bylaws may be adopted, repealed, rescinded, altered or amended by NNG
stockholders, but only by the affirmative vote of the holders of at least 80%
of the voting power of all outstanding shares of voting stock, regardless of
class and voting together as a single class. However, if an interested
stockholder or any associate or affiliate of an interested stockholder proposes
amending the NNG bylaws, then, approval by the holders of a majority of the
voting power of all outstanding shares or voting stock other than the shares
held by such interested stockholder is required, regardless of class and voting
together as a single class; provided, however, that where such action is
approved by a majority of the continuing directors, the affirmative vote of a
majority of the voting power of all outstanding shares of voting stock,
regardless of class and voting together as a single class shall be required for
approval of such action.
The Litton restated certificate of incorporation provides that the Litton
board of directors may make, alter, amend, change, add to, or repeal the Litton
restated bylaws. The Litton restated bylaws provide that they may be altered or
repealed and new bylaws may be adopted either:
. at any annual or special meeting of stockholders by the affirmative vote
of a majority of the issued and outstanding voting stock, if notice of
the proposed alteration, repeal or adoption of the new provision(s) is
contained in the notice of such special meeting; or
. by the affirmative vote of a majority of the directors present at any
regular meeting, or at any special meeting of the Litton board of
directors, if notice of the proposed alteration, repeal or new
provision(s) is contained in the notice of such special meeting.
Vote Required for Merger and Other Business Combinations
Under the DGCL, generally, the approval of a majority of the outstanding
shares is needed to adopt a plan of merger or consolidation. Section 203 of the
DGCL prohibits a Delaware corporation which has a class of stock which is
listed on a national securities exchange or which has 2,000 or more
stockholders of record from engaging in a business combination with an
interested stockholder (generally, the beneficial owner of 15% or more of the
corporation's outstanding voting stock) for three years following the time the
stockholder became an interested stockholder, unless, prior to that time, the
corporation's board of directors approved either the business combination or
the transaction that resulted in the stockholder becoming an interested
stockholder, or if two-thirds of the outstanding shares not owned by such
interested stockholder approve the business combination, or if, upon becoming
an interested stockholder, such stockholder owned 85% of the outstanding shares
excluding those held by officers, directors and some employee stock plans.
In addition to the DGCL requirements, NNG's restated certificate of
incorporation provides that, subject to some exceptions, any business
combination between NNG or any NNG subsidiary and an interested stockholder
must be approved by at least 80% of the voting power of all outstanding voting
stock, regardless of class and voting together as a single class and a majority
of the voting power of all outstanding shares of voting stock, other than the
shares held by any interested stockholder which is a party to such business
combination or by any affiliate or associate of such interested stockholder,
regardless of class and voting together as a single class.
The Litton restated certificate of incorporation and the Litton bylaws do
not contain any special voting requirements regarding a merger or other
business combination.
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Directors
Classification of Board of Directors. A classified board is one with respect
to which a designated number of directors, but not necessarily all, are elected
on a rotating basis each year. Under the DGCL, classification of a board of
directors is permitted but not required, pursuant to which the directors can be
divided into as many as three classes with staggered terms of office, with only
one class of directors standing for election each year. NNG's restated
certificate of incorporation provides that the NNG board of directors be
divided into three classes of directors as nearly equal in number as reasonably
possible, with staggered three-year terms. Each director will serve until his
or her successor is duly elected and qualified or until the director's death,
resignation or removal. See "Removal of Directors" below.
Litton does not have a classified board of directors. Each Litton director
is elected each year at the annual meeting of stockholders. Each director
serves until a successor is duly elected and qualified, or until the director
resigns, or is otherwise removed.
Removal of Directors. NNG's restated certificate of incorporation provides
that NNG directors may be removed only for cause and only by the affirmative
vote of the holders of at least 80% of all outstanding shares of capital stock
of NNG having general voting power entitled to vote in connection with the
election of such director, regardless of class and voting together as a single
voting class; provided, however, that if a proposal to remove a director is
approved by a majority of continuing directors, the affirmative vote of a
majority of all outstanding shares of voting stock entitled to vote in
connection with the election of such director, regardless of class and voting
together as a single voting class, is required for approval of such removal.
Pursuant to Litton's bylaws, Litton directors may be removed, either with or
without cause, at any time by the affirmative vote of the holders of a majority
of all outstanding shares of voting stock entitled to vote at a special meeting
of the stockholders called for that purpose.
Newly Created Directorships and Vacancies. Under NNG's restated certificate
of incorporation and NNG's bylaws, newly created directorships resulting from
death, resignation, disqualification, an increase effected by NNG's board of
directors, or any other cause, may be filled solely by the affirmative vote of
a majority of the directors then in office, although less than a quorum, or by
a sole remaining director. Each director so chosen to fill a vacancy will hold
office for the remainder of the full term of the class of directors in which
the vacancy occurred and until such director's successor shall have been
elected and qualified. No reduction of the authorized number of directors will
have the effect of removing any director prior to the expiration of his or her
term of office.
Under the Litton restated bylaws, vacancies in the Litton board of directors
may be filled by the affirmative vote of a majority of the directors then in
office. Each director so chosen to fill a vacancy will hold office for the
remainder of the term and until a successor is duly chosen. However, Litton's
charter provides that the holders of preferred stock, voting separately as
class, will be entitled to elect two directors, if and whenever accrued
dividends on any series of preferred stock of Litton have not been paid or
declared and a sum sufficient for the payment thereof set aside, in an amount
equivalent to six quarterly dividends or three semiannual dividends on all
shares of such series of preferred stock at the time outstanding.
Size of Board. NNG's bylaws provide that the number of directors will be
fixed by resolution of the board of directors, but will not be less than three.
The Litton restated bylaws provide that the number of directors shall be
fixed from time to time by resolution of the board of directors but shall not
be less than eight nor more than fourteen.
Quorum of the Board. NNG's bylaws provide for a quorum of a majority of the
board of directors, except that when the board of directors consists of one
director, then that one director will constitute a quorum.
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Litton's restated bylaws provide for a quorum of a majority of the board of
directors. No more than a minority of the number of directors necessary to
constitute a quorum of the board of directors can be non U.S. citizens.
Stockholders
Annual Meetings. NNG's bylaws provide that the annual meeting of
stockholders will be held between May 1 and July 1 of each year on a date and
time fixed by the board of directors.
Litton's restated bylaws provide that the annual meeting of stockholders,
and all other meetings of the stockholders, will be held on a date fixed by
resolution of the board of directors.
Special Meetings. Under NNG's restated certificate of incorporation and
NNG's bylaws, special stockholder meetings may be called at any time by a
majority of the board of directors, the Chairman of the board of directors or
by the President and Chief Executive Officer.
Under Litton's restated bylaws, special stockholder meetings may be called
by resolution of the Litton board of directors or the Litton executive
committee or at any time by the written request of stockholders of record
owning at least 51% of the issued and outstanding voting shares of Litton
common stock.
Quorum Requirements. Under both the NNG bylaws and the Litton restated
bylaws, the presence in person or by proxy of the holders of record of a
majority of the shares issued and outstanding and entitled to vote at the
meeting constitutes a quorum for that meeting, except as otherwise provided by
the DGCL.
Certain Voting Requirements. Under the NNG bylaws, except as otherwise
provided by NNG's charter or by applicable law, action by NNG stockholders
generally is taken by the affirmative vote, at a meeting at which a quorum is
present, of a majority of the outstanding shares entitled to vote thereon,
including extraordinary actions, such as mergers, consolidations and amendments
to NNG's charter. However, NNG's restated certificate of incorporation requires
the affirmative vote of at least 80% of the outstanding shares of voting stock
to approve an amendment of specified articles in the restated certificate of
incorporation. The restated certificate of incorporation also requires the
affirmative vote of (i) at least 80% of all outstanding shares entitled to vote
and (ii) a majority of all outstanding shares other than shares held by an
interested stockholder and its affiliates for the approval of:
. certain business combinations (as defined in the restated certificate of
incorporation) and other significant transactions involving the
interested stockholder or its affiliate, and
. the amendment of specified provisions of the restated certificate of
incorporation if proposed by the interested stockholder.
Litton does not have any special voting provisions beyond those described
above for holders of Litton preferred stock. See "Description of NNG Capital
Stock--Series B Preferred Stock--Voting Rights" beginning on page 75.
Stockholder Action by Written Consent. Under NNG's restated certificate of
incorporation and NNG's bylaws, any action required or permitted to be taken by
stockholders must be effected at a duly called annual meeting or at a special
meeting of stockholders, unless such action requiring or permitting stockholder
approval is approved by a majority of the continuing directors, in which case
such action may be authorized or taken by the written consent of the holders of
outstanding shares of voting stock having at least the minimum voting power
that would be necessary to authorize or take such action at a meeting of
stockholders at which all shares entitled to vote thereon were present and
voted, provided all other requirements of applicable law and the NNG restated
certificate of incorporation have been satisfied.
Under Litton's restated certificate of incorporation and Litton's restated
bylaws, stockholder actions may not be taken by written consent, in lieu of a
meeting.
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Stockholder Proposal Procedures. Under NNG's bylaws, for a matter to be
properly brought before an annual meeting by a stockholder, the stockholder
generally must have given timely notice thereof in writing to NNG's Secretary
not less than 45 days nor more than 75 days prior to the anniversary date of
the immediately preceding annual meeting. A stockholder's notice must state as
to each matter the stockholder proposes to bring before the annual meeting: (a)
a brief description of the matter desired to be brought, the reasons for
conducting such business at the meeting, any material interest in such business
of the stockholder and the beneficial owner, if any, on whose behalf the
proposal is made, or (b) if the stockholder is nominating an individual as a
director (i) information regarding the person whom the stockholder proposes to
nominate as a director; (ii) the name and address of the stockholder proposing
such action; (iii) the class and number of shares of NNG which are beneficially
owned by the stockholder; and (iv) whether the stockholder intends to deliver a
proxy statement and form of proxy to a sufficient number of holders of NNG's
voting shares to elect such nominee.
Under Litton's restated bylaws, for a matter to be properly brought before
an annual meeting by a stockholder, the stockholder generally must have given
timely notice thereof in writing to Litton's Secretary not less than 90 days
nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting. Litton stockholders are subject to the same
stockholder notice requirements set forth above for NNG stockholders except
that a Litton stockholder is not subject to the requirement of disclosing his
or her intention to deliver a proxy statement and form of proxy.
Rights Plan
NNG has adopted a rights plan pursuant to which a preferred share purchase
right is attached to each share of NNG common stock that is or becomes
outstanding prior to October 31, 2008. The NNG rights become exercisable 10
days after the public announcement that any person or group has (i) acquired
15% or more of the outstanding shares of NNG common stock, or (ii) initiated a
tender offer for shares of NNG common stock, which, if consummated, would
result in any person or group acquiring 15% or more of the outstanding shares
of NNG common stock. Once exercisable, each NNG right will entitle the holder
to purchase one one-thousandth of a share of NNG Series A junior participating
preferred stock, par value $1.00 per share, at a price of $250.00 per one one-
thousandth of a share, subject to adjustment. Alternatively, under certain
circumstances involving an acquisition of 15% or more of the NNG common stock
outstanding, each NNG right will entitle its holder to purchase, at a fifty
percent discount, a number of shares of NNG common stock having a market value
of two times the exercise price of the NNG right. NNG may (i) exchange the NNG
rights at an exchange ratio of one share of NNG common stock per NNG right, and
(ii) redeem the NNG rights, at a price of $0.01 per NNG right, at any time
prior to an acquisition of 15% or more of the outstanding shares of Litton
common stock by any person or group.
The NNG rights plan will contain provisions to permit the acquisition by
Unitrin of NNG common stock (and NNG common stock issuable upon conversion of
NNG preferred stock) as contemplated by the offer and the stockholder's
agreement. See "Other Agreements--The Stockholder's Agreement" on page 61.
These rights have certain anti-takeover effects and cause substantial
dilution to a person or group that attempts to acquire control of the
corporation on terms not approved by the corporation's board of directors.
Litton has adopted a rights plan pursuant to which a preferred share
purchase right is attached to each share of Litton common stock that is or
becomes outstanding prior to August 17, 2004. The terms upon which the Litton
rights become exercisable are identical to those for the NNG rights. Once
exercisable, each Litton right will entitle the holder to purchase one one-
thousandth of a share of Litton Series A participating preferred stock, par
value $5.00 per share, at a price of $150.00 per one one-thousandth of a share,
subject to adjustment. Under certain circumstances involving an acquisition of
15% or more of the Litton common stock outstanding, each Litton right will
entitle its holder to purchase, at a 50% discount, a number of shares of Litton
common stock having a market value of two times the exercise price of the
Litton right. Litton may (i) exchange the Litton rights at an exchange ratio of
one share of Litton common stock per Litton right, and (ii) redeem the
Litton rights, at a price of $0.01 per Litton right, at any time prior to an
acquisition of 15% or more of the
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outstanding shares of Litton common stock by any person or group. Litton's
board of directors has amended the Litton rights plan so that none of Northrop
Grumman, NNG or LII Acquisition will be deemed an acquiring person.
SUMMARY OF CERTAIN STATUTORY PROVISIONS
Appraisal Rights
No appraisal rights are available in connection with the offer.
If NNG acquires at least 90% of the shares of Litton common stock and at
least 90% of the shares of Litton preferred stock pursuant to the offer, the
Litton merger may be consummated without a meeting or vote of the Litton
stockholders.
If less than 90% of the shares of Litton preferred stock are acquired
pursuant to the offer and a stockholder vote is required to approve the Litton
merger, holders of Litton preferred stock may have appraisal rights in
connection with the Litton merger under certain circumstances. If the Litton
preferred stock is not listed on a national securities exchange or quoted on
the NASDAQ National Market System on the record date fixed to determine the
stockholders entitled to receive notice of and to vote on the Litton merger,
the Litton preferred stock will have appraisal rights pursuant to Section 262
of the DGCL ("Section 262").
In addition, holders of Litton common stock at the effective time of the
Litton merger who do not wish to accept the same amount of cash consideration
in the Litton merger as was paid to holders of Litton common stock in the offer
will have the right to seek an appraisal and to be paid the "fair value" of
their shares of Litton common stock at the effective time of the Litton merger
(exclusive of any element of value arising from the accomplishment or
expectation of the merger) judicially determined and paid to it in cash,
provided that such holder complies with the provisions of such Section 262.
The following is a brief summary of the statutory procedures to be followed
in order to dissent from the Litton merger and perfect appraisal rights under
Delaware law. This summary is not intended to be complete and is qualified in
its entirety by reference to Section 262, the text of which is set forth in
Annex B to this offer to purchase or exchange. Any Litton stockholder
considering demanding appraisal is advised to consult legal counsel.
Dissenters' rights, if any, will not be available unless and until the Litton
merger (or a similar business combination) is consummated.
Litton stockholders of record who desire to exercise their appraisal rights
must fully satisfy all of the following conditions. A written demand for
appraisal of Litton common stock or Litton preferred stock must be delivered to
the Secretary of Litton (x) before the taking of the vote on the approval and
adoption of the amended merger agreement if the Litton merger is not being
effected without a vote of stockholders pursuant to Section 253 of the DGCL (a
"short-form merger"), but rather is being consummated following approval
thereof at a meeting of the Litton stockholders (a "long-form merger") or (y)
within twenty days after the date that Litton, as the corporation surviving the
Litton merger, mails to the Litton stockholders a notice (the "Notice of
Merger") to the effect that the Litton merger is effective and that appraisal
rights are available (and includes in such notice a copy of Section 262 and any
other information required thereby) if the Litton merger is being effected as a
short-form merger without a vote or meeting of the Litton stockholders. If the
Litton merger is effected as a long-form merger, this written demand for
appraisal must be in addition to and separate from any proxy or vote abstaining
from or against the approval and adoption of the amended merger agreement, and
neither voting against, abstaining from voting, nor failing to vote on the
amended merger agreement will constitute a demand for appraisal within the
meaning of Section 262. In the case of a long-form merger, any stockholder
seeking appraisal rights must hold the Litton common stock or Litton preferred
stock for which appraisal is sought on the date the demand is made and,
continuously hold such Litton common stock or Litton preferred stock through
the effective time of the Litton merger, and otherwise comply with the
provisions of Section 262.
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In the case of both a short-form merger and a long-form merger, a demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the stock certificates. If
shares of Litton common stock and Litton preferred stock are owned of record in
a fiduciary capacity, such as by a trustee, guardian or custodian, such demand
must be executed by the fiduciary. If shares of Litton common stock or Litton
preferred stock are owned of record by more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by all joint owners.
An authorized agent, including an agent for two or more joint owners, may
execute the demand for appraisal for a stockholder of record; provided,
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, he is acting as agent for the record
owner.
A record owner, such as a broker, who holds Litton common stock or Litton
preferred stock as a nominee for others, may exercise appraisal rights with
respect to the Litton common stock or Litton preferred stock held for all or
less than all beneficial owners of Litton common stock or Litton preferred
stock as to which the holder is the record owner. In such case the written
demand must set forth the number of Litton common stock or Litton preferred
stock covered by such demand. Where the number of shares of Litton common stock
or Litton preferred stock is not expressly stated, the demand will be presumed
to cover all shares of Litton common stock or Litton preferred stock
outstanding in the name of such record owner. Beneficial owners who are not
record owners and who intend to exercise appraisal rights should instruct the
record owner to comply strictly with the statutory requirements with respect to
the exercise of appraisal rights before the date of any meeting of stockholders
of the Company called to approve the Litton merger in the case of a long-form
merger and within twenty days following the mailing of the Notice of Merger in
the case of a short-form merger.
Stockholders who elect to exercise appraisal rights must mail or deliver
their written demands to: Secretary, Litton Industries, Inc., 21240 Burbank
Boulevard, Woodland Hills, California 91367. The written demand for appraisal
should specify the stockholder's name and mailing address, the number of shares
of Litton common stock or Litton preferred stock covered by the demand and that
the stockholder is thereby demanding appraisal of such shares. In the case of a
long-form merger, Litton must, within ten days after the effective time of the
Litton merger, provide notice of the effective time of the Litton merger to all
stockholders who have complied with Section 262 and have not voted for approval
and adoption of the amended merger agreement.
In the case of a long-form merger, stockholders electing to exercise their
appraisal rights under Section 262 must not vote for the approval and adoption
of the amended merger agreement or consent thereto in writing. Voting in favor
of the approval and adoption of the amended merger agreement, or delivering a
proxy in connection with the stockholders meeting called to approve the amended
merger agreement (unless the proxy votes against, or expressly abstains from
the vote on, the approval and adoption of the amended merger agreement), will
constitute a waiver of the stockholder's right of appraisal and will nullify
any written demand for appraisal submitted by the stockholder.
Regardless of whether the Litton merger is effected as a long-form merger or
a short-form merger, within 120 days after the effective time of the Litton
merger, either Litton or any Litton stockholder who has complied with the
required conditions of Section 262 and who is otherwise entitled to appraisal
rights may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of the dissenting Litton
stockholders. If a petition for an appraisal is timely filed, after a hearing
on such petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and thereafter will appraise the
Litton common stock and/or Litton preferred stock owned by such Litton
stockholders, determining the fair value of such Litton common stock and/or
Litton preferred stock exclusive of any element of value arising from the
accomplishment or expectation of the Litton merger, together with a fair rate
of interest to be paid, if any, upon the amount determined to be the fair
value. In determining fair value, the Delaware Court of Chancery is to take
into account all relevant factors. In Weinberger v. UOP, Inc., et al., the
Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered and
that "[f]air price obviously
83
requires consideration of all relevant factors involving the value of a
company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider "market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which were
known or which could be ascertained as of the date of merger which throw any
light on future prospects of the merged corporation." The Delaware Supreme
Court has construed Section 262 to mean that "elements of future value,
including the nature of the enterprise, which are known or susceptible of proof
as of the date of the merger and not the product of speculation, may be
considered." However, the court noted that Section 262 provides that fair value
is to be determined "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Litton stockholders who in the future consider seeking appraisal should have
in mind that the fair value of their Litton common stock or Litton preferred
stock determined under Section 262 could be more than, the same as, or less
than the cash consideration paid for such Litton stock in the offer if they do
seek appraisal of their Litton common stock or Litton preferred stock, and that
opinions of investment banking firms as to fairness from a financial point of
view are not necessarily opinions as to fair value under Section 262. Moreover,
NNG intends to cause Litton, as the corporation surviving the Litton merger, to
argue in any appraisal proceeding that, for purposes thereof, the "fair value"
of the Litton common stock or Litton preferred stock, as the case may be, is
less than that paid in the offer. The cost of the appraisal proceeding may be
determined by the Delaware Court of Chancery and taxed upon the parties as the
Delaware Court of Chancery deems equitable in the circumstances. Upon
application of a dissenting stockholder, the Delaware Court of Chancery may
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all Litton common stock and/or Litton
preferred stock entitled to appraisal. In the absence of such a determination
or assessment, each party bears its own expenses.
Any Litton stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the effective time, of the Litton merger, be
entitled to vote for any purpose the Litton common stock and/or Litton
preferred stock subject to such demand or to receive payment of dividends or
other distributions on such Litton common stock or Litton preferred stock,
except for dividends or other distributions payable to stockholders of record
at a date prior to the effective time of the Litton merger.
At any time within 60 days after the effective time of the Litton merger,
any former holder of Litton common stock or Litton preferred stock shall have
the right to withdraw his or her demand for appraisal and to accept the merger
consideration paid for such Litton stock in the offer. After this period, such
holder may withdraw his or her demand for appraisal only with the consent of
Litton, as the corporation surviving the Litton merger. If no petition for
appraisal is filed with the Delaware Court of Chancery within 120 days after
the effective time of the Litton merger, stockholders' rights to appraisal
shall cease and all stockholders shall be entitled to receive the cash
consideration paid for the same class or series of the offer. Inasmuch as
Litton has no obligation to file such a petition, and NNG has no present
intention to cause or permit Litton to do so, any stockholder who desires such
a petition to be filed is advised to file it on a timely basis. However, no
petition timely filed in the Delaware Court of Chancery demanding appraisal
shall be dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and such approval may be conditioned upon such terms as the
Delaware Court of Chancery deems just.
Failure to take any required step in connection with the exercise of
appraisal rights may result in the termination or waiver of such rights.
Appraisal rights cannot be exercised at this time. The information set forth
above is for informational purposes only with respect to alternatives available
to stockholders if the Litton merger is consummated. Stockholders who will be
entitled to appraisal rights in connection with the Litton merger will receive
additional information concerning appraisal rights and the procedures to be
followed in connection therewith before such stockholders have to take any
action relating thereto.
84
Litton stockholders who sell or exchange Litton common stock or sell Litton
preferred stock in the offer will not be entitled to exercise appraisal rights
in connection with the offer but, rather, will receive the cash consideration
paid in the offer for such shares.
The foregoing summary of the rights of objecting stockholders under the DGCL
does not purport to be a complete statement of the procedures to be followed by
Litton stockholders desiring to exercise any available dissenters' rights. The
foregoing summary is qualified in its entirety by reference to Section 262. The
preservation and exercise of dissenters' rights require strict adherence to the
applicable provisions of the DGCL. See Annex B attached to this offer to
purchase or exchange.
Certain Business Combinations
Delaware law restricts the ability of certain persons to acquire control of
a Delaware corporation.
Section 203 of the DGCL limits specified business combinations of Delaware
corporations with interested stockholders. Under the DGCL, if a person acquires
beneficial ownership of 15% or more of the stock of a Delaware corporation,
thereby becoming an interested stockholder, that person generally may not
engage in specified transactions with the corporation for a period of three
years following the time that such stockholder became an interested stockholder
unless:
. the corporation's board of directors approved the acquisition of stock
or the transaction prior to the time that the person became an
interested stockholder;
. upon consummation of the transaction in which the person became an
interested stockholder, the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, excluding voting stock owned by directors who are
also officers and certain employee stock ownership plans; or
. at or subsequent to such time, the transaction is approved by the board
of directors and at an annual or special meeting by the affirmative vote
of 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Litton has represented to Northrop Grumman, NNG and LII Acquisition in the
amended merger agreement that all actions necessary to ensure that Section 203
of the DGCL does not apply to NNG in connection with the offer, the Litton
merger and the other transactions contemplated by the amended merger agreement
and the stockholder's agreement have been taken.
85
ADDITIONAL INFORMATION
Northrop Grumman and Litton file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy any
such reports, statements or other information at the SEC's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's public
reference rooms in New York, New York or Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from commercial document
retrieval services and at the SEC's Internet web site at www.sec.gov. NNG
filed a registration statement on Form S-4 with the SEC to register the shares
of NNG common stock and NNG preferred stock to be issued in the offer. This
offer to purchase or exchange is a part of that registration statement. As
allowed by SEC rules, this offer to purchase or exchange does not contain all
of the information you can find in the registration statement or the exhibits
to the registration statement.
Northrop Grumman and LII Acquisition also filed with the SEC an amendment
to their statement on Schedule TO originally filed on January 5, 2001, as
subsequently amended, pursuant to rule 14d-3 under the Securities Exchange Act
of 1934, as amended, furnishing certain information about the offer. You may
read and copy the Schedule TO and any amendments to it at the SEC's public
reference rooms referred to above.
The SEC allows NNG to "incorporate by reference" certain information into
this offer to purchase or exchange, which means that NNG can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed
to be part of this offer to purchase or exchange, except for any information
amended or superseded by information contained in this offer to purchase or
exchange. This offer to purchase or exchange incorporates by reference the
documents set forth below that Northrop Grumman or Litton have previously
filed with the SEC. These documents contain important information about
Northrop Grumman and Litton and their respective financial condition.
Documents filed by Northrop Grumman and incorporated by reference are
available without charge upon request to: Investor Relations, Northrop Grumman
Corporation, 1840 Century Park East, Los Angeles, California 90067. Documents
filed by Litton and incorporated by reference are available without charge
upon request to: Investor Relations, Litton Industries, Inc., 21240 Burbank
Boulevard, Woodland Hills, California 91367.
The following documents filed by Northrop Grumman with the SEC are hereby
incorporated by reference:
. Annual Report on Form 10-K for the fiscal year ended December 31, 1999;
. Proxy Statement for the Annual Meeting of Stockholders held on May 17,
2000;
. Quarterly Report on Form 10-Q for the period ended September 30, 2000,
which each contain consolidated financial statements beginning on page 1
of the report;
. Current Report on Form 8-K filed July 24, 2000 and Current Report on
From 8-K filed August 8, 2000 in connection with the restatement of
Northrop's consolidated financial statements to reflect the sale of its
Aerostructures business and the discontinuance of the Aerostructures
operations; and
The following documents filed by Litton with the SEC are hereby
incorporated by reference:
. Annual Report on Form 10-K for the fiscal year ended July 31, 2000;
. Proxy Statement for the Annual Meeting of Stockholders held on December
8, 2000;
. Quarterly Report on Form 10-Q for the period ended October 31, 2000; and
. Form 8-A12B/A filed on January 4, 2001, which amends and restates in
their entirety Items 1 and 2 of Litton's registration statement on Form
8-A (File No. 001-03998), filed with the SEC on August 24,
86
1994, in connection with the amendment to the terms of the Rights
Agreement, dated as of August 17, 1994 between Litton and The Bank of New
York.
. Current Report on Form 8-K, filed January 30, 2001.
All documents filed by Northrop Grumman or Litton pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act of 1934 from the date of this offer to
purchase or exchange to the date that Litton shares are accepted for exchange
in the offer (or the date that the offer is terminated) and, if later, until
the earlier of the date of the meeting of the Litton stockholders to approve
the Litton merger and the date on which the Litton merger is consummated shall
also be deemed to be incorporated in this offer to purchase or exchange by
reference.
FORWARD-LOOKING STATEMENTS
Certain of the information included in this offer to purchase or exchange
and in the documents incorporated by reference are forward-looking statements
within the meaning of the securities laws. These include statements and
assumptions with respect to expected future revenues, margins, program
performance, earnings and cash flows, acquisitions of new contracts, the
outcome of competitions for new programs, the outcome of contingencies
including litigation and environmental remediation, the effect of completed and
planned acquisitions and divestitures of businesses or business assets, the
anticipated costs of capital investments, and anticipated industry trends.
Actual results and trends may differ materially from the information,
statements and assumptions as described, and actual results could be materially
less than planned.
Important factors that could cause actual results to differ materially from
those suggested by the forward-looking statements include:
. Northrop Grumman and Litton depend on a limited number of customers. Both
companies' businesses are heavily dependent on government contracts, many
of which are only partially funded. The termination or failure to fund
one or more of these contracts could have a negative impact on
operations. Northrop Grumman and Litton are suppliers, either directly or
as subcontractors or team members, to the U.S. Government and its
agencies as well as foreign governments and agencies. These contracts are
subject to each customer's political and budgetary constraints, changes
in short-range and long-range plans, the timing of contract awards, the
congressional budget authorization and appropriation processes, the
government's ability to terminate contracts for convenience or for
default, as well as other risks such as contractor debarment in the event
of certain violations of legal and regulatory requirements.
. Many of the companies' contracts are fixed price contracts. While firm,
fixed price contracts allow the companies to benefit from cost savings,
they also create exposure to the risk of cost overruns. If adjustments to
the estimates used for calculating the contract price are required,
losses may result. In addition, some contracts have provisions relating
to cost controls and audit rights and failure to meet the terms specified
in those contracts can have costly consequences.
. Success or failure in winning new contracts or follow on orders for
existing or future products may cause material fluctuations in future
revenues and operating results. Failure to meet the terms and conditions
specified in those contracts may have adverse consequences.
. Operations are subject to external events which can adversely affect the
ability of Northrop Grumman and Litton to meet contract obligations
within anticipated cost and time parameters. Problems and delays in
delivery may result from issues with respect to design technology,
licensing and patent rights, labor or materials and components that
prevent achievement of contract requirements. Delivery or performance
issues with key suppliers and subcontractors, as well as other factors
may arise. Changes in inventory requirements or other production cost
increases may also have a negative impact on operating results.
87
. The businesses of Northrop Grumman and Litton are dependent upon the
companies' ability to anticipate changing needs for defense products,
military and civilian electronic systems and support, and information
technology. Failure to design new products which will respond to such
requirements within customers' price limitations would adversely affect
the companies' ability to compete.
. In recent periods, Northrop Grumman has realized significant amounts of
pension income. Future pension income is based upon market performance of
pension assets, which may fluctuate with external economic conditions. As
the result, the portion of earnings attributed to pension income could
vary significantly.
. Results of operations for Northrop Grumman and Litton require management
to make estimates of cost to complete major contracts and other factors
which materially affect reported earnings. Changes in such estimates and
failures to achieve anticipated levels of performance can result in
significant charges against earnings.
See also "Important Considerations Concerning Elections to Receive NNG
Stock" beginning on page 11. Readers are cautioned not to put undue reliance on
forward-looking statements. NNG disclaims any intent or obligation to update
these forward-looking statements, whether as a result of new information,
future events or otherwise.
88
LEGAL MATTERS
The legality of NNG common stock and preferred stock offered by this offer
to purchase or exchange will be passed upon by John H. Mullan, Corporate Vice
President, Secretary and Associate General Counsel of NNG. Mr. Mullan is paid a
salary by Northrop Grumman, is a participant in various employee benefit plans
offered to employees of Northrop Grumman generally and owns and has options to
purchase shares of Northrop Grumman common stock.
EXPERTS
The consolidated financial statements as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999 and the
related financial statement schedule incorporated in this offer to purchase or
exchange by reference from Northrop Grumman Corporation's Current Report on
Form 8-K dated August 8, 2000 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information as of March 31,
2000, June 30, 2000, and September 30, 2000 and for the periods ended March 31,
2000 and 1999, June 30, 2000 and 1999, and September 30, 2000 and 1999 which is
incorporated herein by reference, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their report included in Northrop Grumman
Corporation's Current Report on Form 8-K dated August 8, 2000 for the quarter
ended March 31, 2000 and Northrop Grumman Corporation's Quarterly Reports on
Form 10-Q for the quarters ended June 30, 2000 and September 30, 2000 and
incorporated by reference herein, they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are
not subject to the liability provisions of Section 11 of the Securities Act of
1933 for their report on the unaudited interim financial information because
those reports are not "reports" or a "part" of the registration statement
prepared or certified by an accountant within the meaning of Sections 7 and 11
of the Act.
The consolidated financial statements incorporated in this offer to purchase
or exchange by reference from Litton Industries, Inc.'s Annual Report on Form
10-K for the year ended July 31, 2000 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
89
ANNEX A
DIRECTORS AND EXECUTIVE OFFICERS
Directors And Executive Officers Of Northrop Grumman and NNG
The name, age, business address, present principal occupation or employment
and five-year employment history of each of the directors and executive
officers of Northrop Grumman and NNG are set forth below. Unless otherwise
indicated, each occupation set forth opposite an individual's name refers to
employment with Northrop Grumman and each individual has held such
occupation(s) for at least the last five years. Each director and executive
officer listed below is a citizen of the United States of America. Unless
otherwise indicated below, the business address of each person is c/o Northrop
Grumman Corporation at 1840 Century Park East, Los Angeles, California 90067.
DIRECTORS
(including executive officers who are directors)
Present Principal and Five Year Employment
Name Age History
---- --- ------------------------------------------
Kent Kresa*............. 62 Kent Kresa is Chairman, President and Chief
Executive Officer of Northrop Grumman and Chief
Executive Officer of NNG. Before joining Northrop
Grumman, Mr. 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
Northrop Grumman as Vice President and Manager of
Northrop Grumman's Research and Technology
Center. He became General Manager 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 Northrop Grumman 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 a 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, 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. Mr. Kresa
became Chief Executive Officer of NNG in January
2001.
A-1
Present Principal and Five Year Employment
Name Age History
---- --- ------------------------------------------
Jack R. Borsting*....... 72 E. Morgan Stanley Professor of Business
Administration and Director of the Center for
Telecommunications Management, University of
Southern California. 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.
John T. Chain, Jr.*..... 66 General, United States Air Force (Ret.) and
Chairman of the Board, Thomas Group, a management
consulting company. 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
R.J. Reynolds, Inc. and Kemper Insurance Company.
A-2
Present Principal and Five Year Employment
Name Age History
---- --- ------------------------------------------
Vic Fazio*.............. 58 Senior Partner, Clark & Weinstock, a consulting
firm. Vic Fazio served as a Member of Congress
for twenty 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 eighteen
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.
Phillip Frost*.......... 64 Chairman of the Board and Chief Executive
Officer, IVAX Corporation, a pharmaceutical
company. 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 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.
Charles R. Larson*...... 64 Admiral, United States Navy (Ret.). Charles R.
Larson was superintendent of the U.S. Naval
Academy from 1983 to 1986. In 1991, he became
senior military commander in the Pacific. He
returned to the U.S. Naval Academy in 1994, where
he served as superintendent until 1998.
Currently, he is Chairman of the Board of the
U.S. Naval Academy Foundation, Vice Chairman of
the Board of Regents of the University System of
Maryland and serves on the board of directors of
such organizations as Constellation Energy Group,
Inc., the White House Fellows Foundation, Edge
Technologies, Inc., Fluor Global Services, the
Atlantic Council, Military.com and the National
Academy of Sciences' Committee on International
Security and Arms Control. In addition, he is a
member of the Council on Foreign Relations and is
a senior fellow of The CNA Corporation. His
decorations include the Defense Distinguished
Service Medal, seven Navy Distinguished Service
Medals, three Legions of Merit, Bronze Star
Medal, Navy Commendation and the Navy Achievement
Medal.
A-3
Present Principal and Five Year Employment
Name Age History
---- --- ------------------------------------------
Robert A. Lutz*......... 69 Chairman and Chief Executive Officer, Exide
Corporation, a battery manufacturing company.
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 of Chrysler Corporation 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.
Aulana L. Peters*....... 59 Retired Partner, Gibson, Dunn & Crutcher. 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 SEC. In 1988,
after serving four years as a Commissioner, she
returned to Gibson, Dunn & Crutcher. Ms. Peters
retired from Gibson, Dunn & Crutcher in December
2000. 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.
John E. Robson*......... 70 Senior Advisor, Robertson Stephens, a Fleet
Boston Financial Company, investment bankers.
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.
A-4
Present Principal and Five Year Employment
Name Age History
---- --- ------------------------------------------
Richard M. Rosenberg*... 70 Chairman of the Board and Chief Executive Officer
(Ret.), BankAmerica Corporation and Bank of
America NT&SA. Richard M. Rosenberg was the
Chairman of the Board and Chief Executive Officer
of BankAmerica Corporation ("BAC") and Bank of
America ("BofA") 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 BofA 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.
John Brooks Slaughter*.. 67 President and CEO of the National Action Council
for Minorities in Engineering, Inc. 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 and in August 1999, he assumed the
position of Melbo Professor of Leadership in
Education at the University of Southern
California. In June 2000, Dr. Slaughter was named
President and CEO of the National Action Council
for Minorities in Engineering, Inc. 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 Avery
Dennison Corporation, Solutia, Inc. and
International Business Machines Corporation.
Richard J. Stegemeier*.. 73 Chairman Emeritus of the Board of Directors,
Unocal Corporation, an integrated petroleum
company. 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 of Unocal in 1985, and President and
Chief Executive Officer in 1988. In 1989 he was
elected Chairman of the Board of Unocal, 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, Sempra Energy and Montgomery Watson,
Inc.
Lewis W. Coleman*....... 59 Mr. Coleman became President of the Gordon and
Betty Moore Foundation in January 2001. In
December 2000, he resigned as Chairman of Banc of
America Securities, LLC, a subsidiary of Bank of
America Corporation. Mr. Coleman joined Banc of
America
A-5
Present Principal and Five Year Employment
Name Age History
---- --- ------------------------------------------
Securities, LLC in December 1995. Prior to that,
he spent ten years at BankAmerica Corporation
where he held various positions including Chief
Financial Officer, head of World Banking Group
and head of Capital Markets. He is also on the
Board of Directors of Chiron Corporation.
Herbert W. Anderson..... 61 Mr. Anderson has been Corporate Vice President of
Northrop Grumman and President and Chief
Executive Officer, Logicon, Inc. since 1998. Mr.
Anderson also became Corporate Vice President of
NNG in January 2001. Prior to this, Mr. Anderson
was Corporate Vice President and General Manager,
Data Systems and Services Division.
Ralph D. Crosby, Jr..... 53 Mr. Crosby has been Corporate Vice President of
Northrop Grumman and President, Integrated
Systems and Aerostructures Sector since 1998.
Prior to this, Mr. Crosby was Corporate
Vice President and General Manager, Commercial
Aircraft Division. Prior to September 1996, he
was Corporate Vice President and Deputy General
Manager, Commercial Aircraft Division. Prior to
March 1996, he was Corporate Vice President and
Deputy General Manager, Military Aircraft Systems
Division. Prior to January 1996, he was Corporate
Vice President and General Manager, B-2 Division.
Mr. Crosby also became Vice President of NNG in
January 2001.
J. Michael Hateley...... 54 Mr. Hateley has been Corporate Vice President and
Chief Human Resources Administrative Officer of
Northrop Grumman since 2000. Prior to January
1999, Mr. Hateley was Vice President, Human
Resources, Security and Administration Military
Aircraft Systems Division. Prior to 1996, he was
Vice President, Human Resources, Security and
Administration, B-2 Division. Mr. Hateley also
became Corporate Vice President and Chief Human
Resources Administrative Officer of NNG in
January 2001.
Robert W. Helm.......... 49 Mr. Helm has been Corporate Vice President,
Government Relations of Northrop Grumman since
1994. Mr. Helm also became Corporate Vice
President of NNG in January 2001.
John H. Mullan.......... 58 Mr. Mullan has been Corporate Vice President and
Secretary of Northrop Grumman since 1999. Prior
to this, Mr. Mullan was Acting Secretary. Prior
to May 1998, he was Senior Corporate Counsel.
Mr. Mullan also became Corporate Vice President,
Secretary and Associate General Counsel of NNG in
January 2001.
Albert F. Myers......... 55 Mr. Myers has been Corporate Vice President and
Treasurer of Northrop Grumman since 1994. Mr.
Myers also became Corporate Vice President and
Treasurer of NNG in January 2001.
Rosanne P. O'Brien...... 57 Ms. O'Brien has been Corporate Vice President,
Communications of Northrop Grumman since August
2000. Prior to this, Ms. O'Brien was Vice
President, Communications since January 1999.
Ms. O'Brien was Senior Consultant to Alleghany
Teledyne, Inc. from 1996 to 1999, and Vice
President, Corporate Relations for Teledyne, Inc.
from 1993 through 1995.
A-6
Name Age Present Principal and Five Year Employment History
---- --- --------------------------------------------------
James G. Roche......... 61 Mr. Roche has been Corporate Vice President of
Northrop Grumman and President, Electronic Sensors
and Systems Sector since 1998. Prior to this, Mr.
Roche was Corporate Vice President and General
Manager, Electronic Sensors and Systems Division.
Prior to 1996, he was Corporate Vice President and
Chief Advanced Development, Planning, and Public
Affairs Officer. Mr. Roche also became Corporate
Vice President of NNG in January 2001.
W. Burks Terry......... 50 Mr. Terry has been Corporate Vice President and
General Counsel of Northrop Grumman since August
2000. Prior to this, Mr. Terry became Vice
President, Deputy General Counsel and Sector
Counsel in October 1998 and prior to October, 1998
he was Vice President and Assistant General
Counsel. Mr. Terry also became Corporate Vice
President and General Counsel of NNG in January
2001.
Robert B. Spiker....... 47 Mr. Spiker has been Corporate Vice President and
Controller of
Northrop Grumman since December 2000. Prior to
this, Mr. Spiker was Vice President, Finance and
Controller, Electronic Sensors and Systems Sector.
Prior to 1999, he was Business Manager for C3&I
Naval Systems. Mr. Spiker also became Corporate
Vice President and Controller of NNG in January
2001.
Richard B. Waugh, Jr... 57 Mr. Waugh has been Corporate Vice President and
Chief Financial Officer of Northrop Grumman since
1993. Mr. Waugh also became Corporate Vice
President and Chief Financial Officer of NNG in
January 2001.
--------
* Member of Northrop Grumman's board of directors and NNG's board of
directors.
None of the executive officers and directors of Northrop Grumman or LII
Acquisition currently is a director of, or holds any position with, Litton or
any of its subsidiaries. We believe that none of our directors, executive
officers, affiliates or associates beneficially owns any equity securities, or
rights to acquire any equity securities, of Litton. We believe no such person
has been involved in any transaction with Litton or any of Litton's directors,
executive officers, affiliates or associates which is required to be disclosed
pursuant to the rules and regulations of the SEC.
A-7
ANNEX B
Section 262. Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to (S)(S) 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the
effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs paragraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c.
of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
B-1
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or (S)
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such
notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record date
is fixed and the notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day on which the
notice is given.
B-2
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of
B-3
uncertificated stock forthwith, and the case of holders of shares represented
by certificates upon the surrender to the corporation of the certificates
representing such stock. The Court's decree may be enforced as other decrees in
the Court of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
B-4
The letter of transmittal, certificates of Litton common stock and preferred
stock and any other required documents should be sent or delivered by each
Litton stockholder or his or her broker, dealer, commercial bank, trust company
or other nominee to the depositary at one of its addresses set forth below.
The Depositary for the offer is:
EQUISERVE TRUST COMPANY
By Mail: By Hand Delivery: By Overnight Delivery:
EQUISERVE TRUST COMPANY EQUISERVE TRUST COMPANY EQUISERVE TRUST COMPANY
PO Box 842010 c/o Securities Transfer and Reporting 40 Campanelli Drive
Boston, Massachusetts Services, Inc. Braintree, Massachusetts
002284-2010 100 William Street--Galleria 02184
New York, New York 10038
By Facsimile Transmission:
(for Eligible Institutions only)
Fax: (781) 575-4826
or
(781) 575-4827
Confirm by Telephone:
(781) 575-4816
Any questions or requests for assistance or additional copies of the offer
to purchase or exchange, the letter of transmittal and the notice of guaranteed
delivery and related exchange offer materials may be directed to the
information agent at its telephone number and location listed below. You may
also contact your local broker, commercial bank, trust company or nominee for
assistance concerning the offer.
The Information Agent for the offer is:
[LOGO OF GEORGESON SHAREHOLDER COMMUNICATIONS INC.]
17 State Street, 10th Floor
New York, New York
Bankers and Brokers Call Collect: (212) 440-9800
All Others Call Toll Free: (800) 223-2064
The Dealer Manager for the offer is:
Salomon Smith Barney
388 Greenwich Street
New York, New York 10013
(877) 319-4978
Any questions or requests for assistance or additional copies of the offer
to purchase or exchange, the letter of transmittal and the notice of guaranteed
delivery and related exchange offer materials may be directed to the
information agent at its telephone number and location listed above. You may
also contact your local broker, commercial bank, trust company or nominee for
assistance concerning the offer.
PART II. INFORMATION NOT REQUIRED IN OFFER TO PURCHASE OR EXCHANGE/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL provides that a corporation may indemnify directors
and officers as well as other employees and individuals against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation--a "derivative action"), if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceedings, had no reasonable cause to believe their conduct was unlawful.
A similar standard is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement
of such action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, bylaws,
disinterested director vote, stockholder vote, agreement or otherwise.
As permitted by Section 145 of the DGCL, Article EIGHTEENTH of NNG's
restated certificate of incorporation, as amended, provides:
"A director of the Corporation shall not be personally liable to the
Corporation or to its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or to its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derives any improper personal benefit. If, after approval of this
Article by the stockholders of the Corporation, the General Corporation Law of
the State of Delaware is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent permitted
by the General Corporation Law of the State of Delaware, as so amended. Any
repeal or modification of this Article by the stockholders of the Corporation
as provided in Article Seventeen hereof shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification."
NNG plans to purchase insurance on behalf of any person who is or was a
director, officer, employee or agent of NNG, or is or was serving at the
request of NNG as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not NNG would have the power to
indemnify him against such liability under the provisions of NNG's restated
certificate of incorporation, as amended.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit
Number Description of Exhibits
------- -----------------------
**2.1 Agreement and Plan of Merger dated as of December 21, 2000 among
Northrop Grumman Corporation, Litton Industries, Inc. and LII
Acquisition Corp., filed as exhibit (d)(1) to the Tender Offer
Statement on Schedule TO (the "Schedule TO") filed with the SEC on
January 5, 2001 and incorporated herein by reference.
**2.2 Amended and Restated Agreement and Plan of Merger dated as of January
23, 2001, among Northrop Grumman Corporation, Litton Industries,
Inc., NNG, Inc. and LII Acquisition Corp.
**3.1 Amended and Restated Certificate of Incorporation of NNG, Inc.
**3.2 Restated Bylaws of NNG, Inc.
**4.1 Registration Rights Agreement dated as of January 23, 2001 by and
among Northrop Grumman Corporation, NNG, Inc. and Unitrin, Inc.,
filed as exhibit (d)(6) to Amendment No. 4 to the Schedule TO filed
with the SEC on January 31, 2001 and incorporated herein by
reference.
**4.2 Form of Certificate of Designations, Preferences and Rights of Series
B Preferred Stock of Northrop Grumman Corporation.
5.1 Opinion of John H. Mullan as to the legality of the securities.
**8.1 Opinion of Gibson, Dunn & Crutcher LLP regarding certain tax matters.
**8.2 Opinion of Ivins, Phillips & Barker Chartered regarding certain tax
matters.
**10.1 Stockholder's Agreement dated as of January 23, 2001 among Northrop
Grumman Corporation, NNG, Inc. and Unitrin, Inc., including form of
Stockholder Subsidiary Proxy, filed as exhibit (d)(5) to Amendment
No. 4 to the Schedule TO filed with the SEC on January 31, 2001 and
incorporated herein by reference.
**10.2 Employment Agreement with Dr. Sugar, filed as exhibit 99(e)(7) to the
Solicitation/Recommendation Statement on Schedule 14D-9 filed with
the SEC by Litton on January 5, 2001 and incorporated herein by
reference.
**10.3 Form of Change of Control Employment Agreement of Litton Industries,
Inc.
**10.4 Confidentiality Agreement dated June 23, 2000, between Northrop
Grumman Corporation and Litton Industries, Inc., filed as exhibit
(d)(2) to the Schedule TO filed with the SEC on January 5, 2001 and
incorporated herein by reference.
**10.5 $6,000,000,000 Senior Credit Facilities Commitment Letter dated
January 30, 2001, from Credit Suisse First Boston, The Chase
Manhattan Bank and J.P. Morgan, filed as exhibit (b)(ii) to the
Schedule TO filed with the SEC on February 1, 2001 and incorporated
herein by reference.
**12.1 Statement regarding computation of earnings to fixed charges ratio.
**15.1 Letter from Independent Accountants Regarding Unaudited Interim
Financial Information.
**23.1 Consent of Deloitte & Touche LLP.
**23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of John H. Mullan (included in opinion filed as Exhibit 5.1).
**23.4 Consent of Gibson, Dunn & Crutcher LLP (included in its opinion filed
as Exhibit 8.1).
**23.5 Consent of Ivins, Phillips & Barker Chartered (included in its opinion
filed as Exhibit 8.2).
**24.1 Power of Attorney for Northrop Grumman Corporation and NNG, Inc.
II-2
Exhibit
Number Description of Exhibits
------- -----------------------
**24.2 Power of Attorney for Kent Kresa.
**24.3 Power of Attorney for Richard B. Waugh, Jr.
**24.4 Power of Attorney for Jack R. Borsting.
**24.5 Power of Attorney for John T. Chain, Jr.
**24.6 Power of Attorney for Vic Fazio.
**24.7 Power of Attorney for Phillip Frost.
**24.8 Power of Attorney for Charles R. Larson.
**24.9 Power of Attorney for Robert A. Lutz.
**24.10 Power of Attorney for Aulana L. Peters.
**24.11 Power of Attorney for John E. Robson.
**24.12 Power of Attorney for Richard M. Rosenberg.
**24.13 Power of Attorney for Richard J. Stegemeier.
**24.14 Power of Attorney for John Brooks Slaughter.
**99.1 Letter of Transmittal, Common Stock and Preferred Stock, each dated
February 1, 2001, filed as exhibit (a)(1)(vi) Amendment No. 5 to the
Schedule TO filed with the SEC on February 1, 2001 and incorporated
herein by reference.
**99.2 Notice of Guaranteed Delivery, Common Stock and Preferred Stock, each
dated February 1, 2001, filed as exhibit (a)(1)(vii) to Amendment
No. 5 to the Schedule TO filed with the SEC on February 1, 2001 and
incorporated herein by reference.
**99.3 Notice to Participants in the Litton Industries Employee Stock
Purchase Plan prior to December 1, 1993, dated February 1, 2001 and
filed as exhibit (a)(1)(viii) to Amendment No. 5 to the Schedule TO
filed with the SEC on February 1, 2001 and incorporated by reference.
**99.4 Notice to Participants in the Litton Industries Employee Stock
Purchase Plan after November 1, 1994, dated January 5, 2001, filed as
exhibit (a)(1)(ix) to Amendment No. 5 to the Schedule TO filed with
the SEC on February 1, 2001 and incorporated by reference.
**99.5 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees, dated February 1, 2001, filed as exhibit (a)(5)(x) to
Amendment No. 5 to the Schedule TO filed with the SEC on February 1,
2001 and incorporated herein by reference.
**99.6 Letter to Clients, Common Stock and Preferred Stock, each dated
February 1, 2001, filed as exhibit (a)(5)(xi) to Amendment No. 5 to
the Schedule TO filed with the SEC on February 1, 2001 and
incorporated herein by reference.
**99.7 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9, filed as exhibit (a)(1)(xii) to Amendment No. 5
to the Schedule TO filed with the SEC on February 1, 2001 and
incorporated by reference.
--------
** previously filed
II-3
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by a person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes
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that such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (a) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on March 5, 2001.
NNG, INC.
/s/ John H. Mullan
By: _________________________________
Name: John H. Mullan
Title: Corporate Vice President,
Secretary and Associate
General Counsel
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Richard B. Waugh, Jr., W. Burks Terry
and John H. Mullan with full power to act alone, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement and any subsequent registration
statement filed by the registrant pursuant to Rule 462(b) of the Securities
Act, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board, March 5, 2001
____________________________________ President and Chief
Kent Kresa Executive Officer and
Director (Principal
Executive Officer)
* Corporate Vice President and March 5, 2001
____________________________________ Chief Financial Officer
Richard B. Waugh, Jr. (Principal Financial
Officer and Principal
Accounting Officer)
* Director March 5, 2001
____________________________________
Jack R. Borsting
* Director March 5, 2001
____________________________________
John T. Chain, Jr.
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Signature Title Date
--------- ----- ----
Director March 5, 2001
____________________________________
Lewis W. Coleman
* Director March 5, 2001
____________________________________
Vic Fazio
* Director March 5, 2001
____________________________________
Phillip Frost
* Director March 5, 2001
____________________________________
Charles R. Larson
* Director March 5, 2001
____________________________________
Robert A. Lutz
* Director March 5, 2001
____________________________________
Aulana L. Peters
* Director March 5, 2001
____________________________________
John E. Robson
* Director March 5, 2001
____________________________________
Richard M. Rosenberg
* Director March 5, 2001
____________________________________
John Brooks Slaughter
* Director March 5, 2001
____________________________________
Richard J. Stegemeier
*By: /s/ John H. Mullan
____________________________________
John H. Mullan,
Attorney-in-fact
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