<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
LITTON INDUSTRIES, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LITTON LOGO]
October 28, 1996
DEAR FELLOW SHAREHOLDERS:
Please accept my personal invitation to attend the 1996 Annual Meeting of
Shareholders of Litton Industries, Inc. to be held at the Regent Beverly
Wilshire Hotel in Beverly Hills, California on Thursday, December 5, 1996. The
doors will open at 10:00 a.m. and the meeting will begin at 11:00 a.m.
The following Notice of Annual Meeting of Shareholders and Proxy Statement
describe the business to be conducted at the meeting. In addition, we will
report on the operations, progress and plans of Litton, and you will have an
opportunity to ask questions.
The annual meeting is open to all shareholders or their authorized
representatives.
Your vote is important, and we urge you to sign, date, and return the proxy card
in the envelope provided whether or not you plan to attend the meeting.
I look forward to seeing you on December 5th.
Sincerely,
/s/ John M. Leonis
John M. Leonis
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
<PAGE>
TABLE OF CONTENTS
PAGE NO.
--------
Notice of 1996 Annual Meeting of Shareholders......................... 1
Proxy Statement General Information................................... 2
ITEM ONE: Election of Directors.................................... 3
General Information Concerning Board of Directors................... 5
Board Committees and Meeting Attendance............................. 6
Directors Compensation and Retirement Policies...................... 7
Security Ownership of Directors and Executive Officers................ 8
Security Ownership of Certain Beneficial Owners....................... 9
Section 16(a) Beneficial Ownership Reporting Compliance............... 9
Compensation of Executive Officers.................................... 10
Information Concerning Stock Options................................ 11
Retirement Benefits................................................. 12
The FSSP and Related Retirement Plans............................. 12
Restoration Plan.................................................. 12
Supplemental Plan................................................. 12
Change in Control Agreements........................................ 13
Indebtedness of Management to the Company........................... 14
Performance Graph..................................................... 15
Report of the Compensation and Selection Committee.................... 16
Other Information on Directors........................................ 18
ITEM TWO: Ratification of Appointment of Auditors................... 18
ITEM THREE: Proposal to Approve the Litton Industries, Inc.
Performance Award Plan................................... 19
ITEM FOUR: Proposal to Approve the Litton Industries, Inc. 1984
Long-Term Stock Incentive Plan, as amended and
restated................................................. 20
Shareholder Proposals for 1997 Annual Meeting......................... 22
Other Matters......................................................... 22
ANNEX A: Litton Industries, Inc. Performance Award Plan.............. A-1
ANNEX B: Litton Industries, Inc. 1984 Long-Term Stock Incentive Plan,
as amended and restated..................................... B-1
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 5, 1996
To the Shareholders of Litton Industries, Inc.:
The 1996 Annual Meeting of the Shareholders of LITTON INDUSTRIES, INC. (the
"Company"), will be held at the Regent Beverly Wilshire Hotel, 9500 Wilshire
Boulevard, Beverly Hills, California, on Thursday, December 5, 1996, at 11:00
a.m., for the following purposes:
1. To elect a Board of Directors.
2. To ratify the appointment of Deloitte & Touche LLP as independent
auditors.
3. To approve the Litton Industries, Inc. Performance Award Plan.
4. To approve the 1984 Long-Term Stock Incentive Plan, as amended and
restated.
5. To consider and act upon such other matters as may properly be presented
for action at the meeting or any adjournment thereof.
Only shareholders of record at the close of business on October 11, 1996 are
entitled to vote at the meeting. A list of such shareholders shall be open to
the examination of any shareholder at the meeting, and for a period of ten days
prior to the date of the meeting for any purpose germane to the meeting during
ordinary business hours at Wells Fargo Bank, 9600 Santa Monica Boulevard,
Beverly Hills, California.
Holders of a majority of the Company's outstanding voting shares must be
present either in person or by proxy in order for the meeting to be held.
WHETHER YOU EXPECT TO ATTEND THE ANNUAL MEETING OR NOT, YOUR VOTE IS
IMPORTANT. ACCORDINGLY, YOU ARE REQUESTED TO SIGN AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. If you plan to attend the meeting
and wish to vote your shares in person, you may do so at any time before the
proxy is voted.
/s/ Jeanette M. Thomas
Jeanette M. Thomas
Vice President and Corporate Secretary
21240 Burbank Boulevard
Woodland Hills, CA 91367-6675
October 28, 1996
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE COMPLETED,
SIGNED, AND RETURNED PROMPTLY
<PAGE>
LITTON INDUSTRIES, INC.
21240 BURBANK BOULEVARD, WOODLAND HILLS, CA 91367-6675
October 28, 1996
PROXY STATEMENT
This statement is furnished in connection with the solicitation by the Board
of Directors of Litton Industries, Inc., a Delaware corporation (hereinafter
called the "Company", "Litton" or "LIT"), of proxies to be used at the Annual
Meeting of the Shareholders of the Company to be held on Thursday, December 5,
1996, at 11:00 a.m., at the Regent Beverly Wilshire Hotel, 9500 Wilshire
Boulevard, Beverly Hills, California, and at any adjournment thereof.
A form of proxy is enclosed for use at the meeting. The proxy may be revoked
by the shareholder at any time before it is voted, by giving written notice to
the Secretary of the Company at the Company's address shown above. Unless other
instructions are indicated on the proxy, all shares represented by valid proxies
received from this solicitation (and not revoked before they are voted) will be
voted FOR election of the 11 nominees for directors named below; FOR
ratification of the appointment of Deloitte & Touche LLP as independent
auditors; FOR approval of the Litton Industries, Inc. Performance Award Plan;
and FOR approval of the Litton Industries, Inc. 1984 Long-Term Stock Incentive
Plan, as amended and restated.
This Proxy Statement is being mailed to shareholders beginning on or about
October 28, 1996, accompanied by Litton's annual report to shareholders for the
fiscal year ended July 31, 1996.
At the close of business on October 11, 1996, the record date, there were
46,559,928 shares of $1 par value Common Stock ("Common Stock") and 410,643
shares of Series B $2 Cumulative Preferred Stock, par value $5 ("Series B
Preferred Stock"), outstanding and entitled to vote. Each share of Common Stock
or Series B Preferred Stock entitles the holder to one vote.
Assuming a quorum, the eleven nominees receiving the highest number of votes
will be elected. A majority of votes cast is required to ratify the appointment
of the independent auditors, to approve the Litton Industries, Inc. Performance
Award Plan, and to approve the Litton Industries, Inc. 1984 Long-Term Stock
Incentive Plan, as amended and restated.
To determine whether a matter has received a majority vote, abstentions will
be included in the vote totals, thus an abstention has the same effect as a
negative vote. In instances where brokers are prohibited from exercising
discretionary authority for beneficial owners who have not returned a proxy,
(so-called "broker nonvotes"), those shares will not be included in the vote
totals and therefore will have no effect on the vote.
2
<PAGE>
ITEM ONE: ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A "YES" VOTE FOR ALL CANDIDATES. THE PROXY
HOLDERS WILL VOTE THE PROXIES RECEIVED BY THEM FOR ALL ELEVEN NOMINEES UNLESS
AUTHORIZATION TO VOTE FOR THE ELECTION OF ONE OR MORE NOMINEES HAS BEEN
WITHHELD.
If any nominee, for any reason presently unknown, cannot be a candidate for
election, the shares represented by valid proxies will be voted in favor of the
remaining nominees and may be voted for the election of a substitute nominee
recommended by the Board of Directors (or the number of authorized directors may
be reduced). Each of the nominees was elected to his or her present term of
office at Litton's last Annual Meeting of Shareholders.
As previously announced, Alton J. Brann, while remaining a director of the
Company, stepped down as Chairman of the Board of Litton in December 1995 and
became Chairman of the Executive Committee of the Board. Mr. Brann had served as
Chairman during the transition period following the spin-off of Western Atlas
Inc. during which time Litton successfully changed the focus of its business.
The Board elected John M. Leonis Chairman of the Board and he continued his
responsibilities as Chief Executive Officer. In December 1995, Michael R. Brown
became President and continued as Chief Operating Officer of the Company.
In keeping with the Board's retirement policy, one incumbent member of the
Board, Admiral Thomas B. Hayward, is not standing for re-election. The Company
has benefited greatly from the wise counsel of Admiral Hayward during the
fourteen years he has served as a Board member and thanks him for his service.
INFORMATION REGARDING THE BOARD OF DIRECTORS
The following pages contain information concerning the principal occupation,
other affiliations, and past business experience which was furnished to the
Company by the nominees for directors.
<TABLE>
<S> <C> <C> <C>
ALTON J. BRANN MICHAEL R. BROWN
[PHOTO1] - Chairman and Chief Executive [PHOTO1] - President and Chief Operating
Officer of Western Atlas Inc. Officer of Litton Industries,
- Age 54 Inc.; Group Executive for
- Director since 1990 Information Systems
- Age 55
- Director since 1995
Background: Former Litton Chairman of the Board Background: Joined Litton in 1968 and has held
(1994-1995), President (1990-1994) and Chief various executive positions including Executive
Executive Officer (1992-1994). Director of Los Vice President (1995), Senior Vice President
Angeles World Affairs Council. Board of Governors (1992-1995) and Group Executive Electronic
of Town Hall of Los Angeles. Member of Board of Warfare Systems (1989-1995).
U.S.-Russia Business Council, U.S. Kazakhstan
Council and Overseers of the Executive Council on
Foreign Diplomacy. President's Cabinet of
California Polytechnic State University at San
Luis Obispo. Trustee of Manufacturers Alliance
for Productivity and Innovation (MAPI). Member of
Board of National Association of Manufacturers
(NAM) and Petroleum Equipment Suppliers
Association (PESA).
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
JOSEPH T. CASEY DAVID E. JEREMIAH
[PHOTO1] - Retired Vice Chairman and [PHOTO1] - Partner and President
Chief Financial Officer of Technology Strategies &
Western Atlas Inc. Alliances
- Age 65 - Age 62
- Director since 1981 - Director since 1994
Background: Former Western Atlas Inc. Vice Background: Technology Strategies & Alliances is
Chairman and Chief Financial Officer (1994-1996). a consulting firm engaged in strategic planning
Litton Vice Chairman and Chief Financial Officer for telecommunications and defense industries.
(1988-1994). Trustee of Claremont McKenna College Retired Admiral, U.S. Navy (1994), Vice Chairman,
and of Don Bosco Technical Institute. Joint Chiefs of Staff (1990-1994),
Commander-in-Chief, U.S. Pacific Fleet
(1987-1990). Chairman of Systems Group Advisory
Committee of Texas Instruments Incorporated.
Director of Alliant Techsystems Inc., Geobiotics,
Inc., GSE Systems, Inc., Standard Missile Company
and National Committee on U.S.-China Relations.
Member of Defense Policy Board, ManTech
International Advisory Board.
</TABLE>
<TABLE>
<S> <C> <C> <C>
CAROL B. HALLETT RUDOLPH E. LANG, JR.
[PHOTO1] - President and Chief Executive [PHOTO1] - Senior Vice President and
Officer of Air Transport Chief Financial Officer,
Association Litton Industries, Inc.
- Age 59 - Age 60
- Director since 1993 - Director since 1994
Background: Senior Government Relations Advisor Background: Litton Senior Vice President since
with Collier, Shannon, Rill & Scott and Trade 1988 and Chief Financial Officer since 1994.
Advisor, Clark Company (1993-1995). Commissioner Joined Litton in 1962, became division Vice
of United States Customs (1989-1993). U.S. President of Finance (1969), Group Vice President
Ambassador to the Commonwealth of the Bahamas (1978) and elected Corporate Vice President
(1986-1989). Director of Fleming Companies, Inc., (1984).
ARINC, and American Association of Exporters and
Importers. President's Cabinet of California
Polytechnic State University. Trustee of Junior
Statesmen of America.
</TABLE>
<TABLE>
<S> <C> <C> <C>
ORION L. HOCH ROBERT H. LENTZ
[PHOTO1] - Chairman Emeritus of Litton [PHOTO1] - Independent Venture
Industries, Inc. Capitalist; Consultant
- Age 67 - Age 71
- Director since 1982 - Director since 1993
Background: Former Litton Chairman of the Board Background: Consultant to small privately-held
(1988-1994), President (1982-1988) and Chief companies. Began Litton career in 1954 and was
Executive Officer (1986-1992). Director and Senior Vice President and General Counsel
Chairman of the Executive Committee of Board of (1979-1990). Litton Advisory Director
Directors of Western Atlas Inc. Director of (1990-1993). Former Director of the American
Measurex Corporation. Trustee of Carnegie Mellon Arbitration Association.
University.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C>
JOHN M. LEONIS C. B. THORNTON, JR.
[PHOTO1] - Chairman and Chief Executive [PHOTO1] - President, Thornton
Officer, Litton Industries, Corporation
Inc. - Age 54
- Age 63 - Director since 1981
- Director since 1994
Background: Joined Litton in 1959 and has held Background: Thornton Corporation is engaged in
various key positions including Chairman of the mining and private investments. President and
Board since 1995; was named Chief Executive principal owner of T Lazy S Ranch in Nevada,
Officer and President in 1994, Senior Vice which conducted farming, mining and cattle
President (1990), Group Executive (1988) and operations (1974-1982). Former executive of
Division President (1986). Director, Los Angeles Cessna Aircraft and consultant with McKinsey &
World Affairs Council. Board of Governors Town Company. Trustee of Harvey Mudd College and
Hall of Los Angeles and of Aerospace Industries Harvard-Westlake School.
Association.
</TABLE>
<TABLE>
<S> <C> <C> <C>
WILLIAM P. SOMMERS
[PHOTO1] - President and Chief
Executive Officer, SRI
International
- Age 63
- Director since 1994
GENERAL INFORMATION CONCERNING THE BOARD OF
Background: Former Executive Vice President, DIRECTORS
Iameter, Inc. Thirty years at Booz-Allen & The Board of Directors has overall
Hamilton including positions as a director responsibility for the affairs of the
and President of the Technology Group. Board Company. To assist it in carrying out its
of Trustees of Zurich Kemper Mutual Funds. duties, four standing committees have been
Director of Rohr, Inc., Therapeutic Discovery established. The Board of Directors held 11
Co. and Bay Area Council. Member of The Major meetings during fiscal year 1996, with an
Gifts Committee of University of Michigan. average attendance of 99%. The Board acted
once by unanimous written consent. All
directors attended more than 94% of the
aggregate total number of meetings of the
Board and Committees on which he or she
served. A description of the Committee
membership, the number of meetings during
fiscal 1996, and the principal
responsibilities follows.
</TABLE>
5
<PAGE>
BOARD COMMITTEES AND MEETING ATTENDANCE
<TABLE>
<S> <C>
EXECUTIVE COMMITTEE 7 MEETINGS IN FISCAL 1996
Alton J. Brann, (Chairman) Rudolph E. Lang, Jr.
Michael R. Brown Robert H. Lentz
Joseph T. Casey John M. Leonis
</TABLE>
- Has all powers which may be lawfully delegated to it under Delaware law
and exercises all powers of the Board of Directors when the full Board is
not in session;
- Supervises the management of business of the Company except for matters
which Delaware law specifically requires action of the full Board of
Directors or of the shareholders.
During fiscal 1996, the Executive Committee also took action by unanimous
written consent 14 times without a formal meeting. Actions taken by the
Executive Committee are subsequently ratified by the full Board of Directors.
<TABLE>
<S> <C>
AUDIT AND COMPLIANCE COMMITTEE 5 MEETINGS IN FISCAL 1996
Thomas B. Hayward (Chairman) William P. Sommers
Joseph T. Casey C.B. Thornton, Jr.
Carol B. Hallett
</TABLE>
- Reviews and makes inquiries, as it deems appropriate, concerning the scope
and results of the audit of the Company by the independent auditors, the
activities of the Company's internal auditors and the adequacy of the
Company's system of internal accounting controls and procedures;
- Proposes the appointment of independent auditors for approval by the full
Board and ratification by the shareholders and approves the fees paid to
independent auditors;
- Reviews, implements, and monitors compliance with Litton's Ethics Program
as set forth in the Company's "Statement of Principles and Standards of
Conduct"; and
- Oversees the "Reportable Interests Program" of the Company which is
designed to identify conflicts of interest.
<TABLE>
<S> <C>
COMPENSATION AND SELECTION COMMITTEE 5 MEETINGS IN FISCAL 1996
C. B. Thornton, Jr. (Chairman) David E. Jeremiah
Carol B. Hallett William P. Sommers
</TABLE>
- Formulates policy, reviews, makes recommendations, and approves the design
and implementation of the Company's various executive compensation
programs. Evaluates performance, reviews and approves compensation for
senior executive officers;
- Administers the Company's annual incentive plans and the Company's
long-term incentive plans, designates employees to participate in the
plans and determines the terms of and amounts of the individual awards;
and
- Reviews and approves the terms of change in control agreements with
executive officers and the amount of any loans made by the Company to
executive officers.
<TABLE>
<S> <C>
NOMINATING COMMITTEE 3 MEETINGS IN FISCAL 1996
Carol B. Hallett (Chairman) David E. Jeremiah
Alton J. Brann John M. Leonis
Thomas B. Hayward
</TABLE>
- Reviews the qualifications of all Board of Directors candidates and
recommends possible candidates to fill vacancies on the Board of
Directors.
The Committee will consider nominees to the Board of Directors recommended
by the shareholders. Nominees of shareholders should be submitted in writing to
the Nominating Committee in care of the Secretary of the Company at its address
set forth on the first page of this Proxy Statement.
6
<PAGE>
DIRECTOR'S COMPENSATION AND RETIREMENT POLICIES
Directors who are employees of the Company are not paid any fee or
additional remuneration for services as members of the Board of Directors or any
Committee thereof.
ANNUAL FEES FOR NON-EMPLOYEE DIRECTORS
- Board members receive $27,500, payable in equal quarterly installments;
and
- Board and Committee meeting attendance fee of $1500 per meeting ($2500 per
meeting for Chairman); except for Executive Committee members whose annual
meeting fee is $12,000 ($15,000 for Chairman).
DEFERRED COMPENSATION PLAN FOR DIRECTORS
- Directors may defer annual Board fees, meeting and Committee attendance
fees, bearing interest at the prime rate in effect on first business day
of the calendar quarter, to be paid after the end of the director's Board
service in the number of annual installments requested by the director;
- A change in control of the Company causes deferred amounts to become
immediately due and payable in a lump sum.
DIRECTOR STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On the first business day following the annual meeting, new directors
receive an automatic initial option grant to purchase 10,000 shares of the
Company's Common Stock at fair market value on the date of grant. Each year
thereafter there is an automatic annual option grant to purchase 2,000 shares.
On December 8, 1995 all incumbent non-employee directors received options to
purchase 2,000 shares at a purchase price of $44.0625 per share, which become
fully exercisable on the first anniversary of grant unless, prior thereto, the
director dies, becomes permanently disabled, retires under mandatory retirement
policy, or a change in control of the Company occurs, causing the options to
become fully exercisable.
RETIREMENT PROGRAM FOR DIRECTORS
- Incumbent directors who retire or die while in office, at or after age 65,
will receive the active Board members' annual fee (or, if larger, the fee
in effect at the Annual Meeting immediately following the earlier of their
retirement or death), for the shorter of ten years, the number of years a
director, or the remaining life of the director or surviving spouse;
- Mandatory retirement at next Annual Meeting after reaching age 72; and
- Directors who resign, are removed, or fail to be re-elected prior to their
65th birthday because of a change in control of the Company receive the
annual fee in effect prior to the change in control, for the shorter of
ten years, the number of years a director, or the life of the director or
surviving spouse.
OTHER COMPENSATION
- Information regarding certain additional compensation paid by the Company
to Admiral Hayward, Dr. Hoch and Messrs. Casey and Lentz during the 1996
fiscal year is contained in the section captioned "Other Information on
Directors" on page 18.
7
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
LITTON COMMON STOCK AS OF SEPTEMBER 30, 1996(A)
<TABLE>
<CAPTION>
SHARES
SUBJECT TO
OPTIONS
EXERCISABLE
SHARES AT DECEMBER PERCENT OF
NON-EMPLOYEE DIRECTORS BENEFICIALLY OWNED 31, 1996 CLASS*
- - --------------------------------------------- ------------------ ------------- -------------
<S> <C> <C> <C>
Alton J. Brann............................... 3,400 4,000 *
Joseph T. Casey.............................. 32,023(b) 96,000 *
Carol B. Hallett............................. 390 14,000 *
Thomas B. Hayward............................ 1,012 21,650 *
Orion L. Hoch................................ 89,599(c) 29,916 *
David E. Jeremiah............................ 0 12,000 *
Robert H. Lentz.............................. 7,238(d) 14,000 *
William P. Sommers........................... 150 12,000 *
C. B. Thornton, Jr........................... 872,874(c)(e) 24,000 1.87%
NAMED EXECUTIVE OFFICERS
- - ---------------------------------------------
John M. Leonis............................... 10,757 47,241 *
Michael R. Brown............................. 5,795 43,005 *
Rudolph E. Lang, Jr.......................... 16,842 63,400 *
Gerald J. St. Pe............................. 10,246 53,800 *
John E. Preston.............................. 13,024(c) 4,818 *
GROUP
- - ---------------------------------------------
Directors, Nominees and Executive Officers
as a Group (19 people)...................... 1,140,696(c)(f)(g) 498,370 2.42%
</TABLE>
* Percentage of shares are given only where such percentage exceeds 1% of the
Common Stock outstanding on the record date, exclusive of treasury shares.
(a) No other class of equity security of Litton was then beneficially owned by
any member of the group.
(b) Excludes 10,000 shares held by a charitable corporation of which Mr. Casey
serves as trustee. Mr. Casey has voting and investment power with respect to
such 10,000 shares and may be deemed to have incidents of beneficial
ownership.
(c) Includes shares which are beneficially owned by certain family members of
certain directors and officers who disclaim beneficial ownership of such
shares. The shares are reported on the presumption that the individual may
share voting and/or investment power because of family relationships.
(d) Excludes 358 shares held by a trust under the will of a deceased spouse of
Mr. Lentz.
(e) Excludes 25,378 shares owned by a private foundation of which Mr. Thornton
is an officer and trustee. Mr. Thornton shares voting and investment power
with another trustee and may be deemed to have incidents of beneficial
ownership.
(f) Excludes 255,126 shares owned by the Litton Master Trust which holds
certain retirement funds of the Company and its Subsidiaries. Messrs. Casey,
Lang and Lentz and two officers comprise the Investment Committee which has
sole investment and voting power and thus may be deemed to have incidents of
beneficial ownership. If these shares were included as beneficially owned
shares, then the percentage of Common Stock owned by the group would be
2.97%.
(g) Includes 50,000 shares held by the Foundation of the Litton Industries whose
President and Treasurer vote the shares and are also officers of the
Company, and whose directors have investment power of the shares, are
elected and may be removed by the Nominating Committee of the Board of
Directors of the Company.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the dates indicated, the following table sets forth entities which
were known to own beneficially more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF
NAME AND ADDRESS BENEFICIAL PERCENT OF CLASS
OF BENEFICIAL OWNER OWNERSHIP (AS OF RECORD DATE)
<S> <C> <C>
Unitrin, Inc.
One East Wacker Drive 12,657,764(a) 27.19%
Chicago, Illinois 60601
FMR Corp
82 Devonshire Street 5,075,300(b) 10.90%
Boston, Massachusetts 02109
</TABLE>
(a) Unitrin, Inc., ("Unitrin") has reported in a filing with the Securities and
Exchange Commission (the "SEC") on Schedule 13D under the Exchange Act that,
as of October 5, 1995, the shares of Common Stock are owned by Unitrin
(1,827,893 shares) and two of its subsidiaries, Trinity Universal Insurance
Company (5,378,883 shares) and United Insurance Company of America
(5,450,988 shares). Unitrin reported that such subsidiaries each share
voting power and dispositive power with Unitrin over the shares respectively
reported by them.
(b) On February 14, 1996, FMR Corp. ("FMR") reported in a filing with the SEC on
Schedule 13G under the Exchange Act, aggregate beneficial ownership as of
December 31, 1995, of 5,075,300 shares of Common Stock. FMR reported that it
has sole dispositive power with respect to these shares and sole voting
power with respect to 202,800 shares. Of the reported shares, Fidelity
Management & Research Company, a wholly-owned subsidiary of FMR and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, is the beneficial owner of 4,875,800 shares as a result of
acting as investment adviser to several investment companies registered
under Section 8 of the Investment Company Act of 1940, and as a result of
acting as sub-adviser to Fidelity American Special Situations Trust.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during fiscal year 1996, its executive officers
and directors have complied with all filing requirements of Section 16(a) of the
Securities Exchange Act of 1934 (the "Exchange Act") with the exception of one
late report. Section 16(a) of the Exchange Act requires that Form 3, Initial
Statement of Beneficial Ownership of Securities be filed with the SEC within ten
days of the election of an executive officer. Harry Halamandaris was elected an
executive officer of the Company on September 21, 1995. Mr. Halamandaris' Form 3
was filed with the SEC on October 3, 1995, instead of on October 2, 1995, the
due date.
9
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION ALL OTHER
NAMED EXECUTIVE OFFICERS FISCAL YEAR AWARDS COMPENSATION
SALARY BONUS OPTIONS
NAME AND PRINCIPAL POSITION ($) ($)(A) (#) ($)(B)
<S> <C> <C> <C> <C> <C>
John M. Leonis ................ 1996 574,054 600,000 50,000 6,905
Chairman and Chief Executive 1995 445,681 500,000 -0- 3,688
Officer 1994 376,351 425,000 77,000 62
Michael R. Brown .............. 1996 379,236 400,000 73,000 8,641
President and Chief Operating 1995 277,414 260,000 -0- 4,649
Officer 1994 262,706 200,000 19,000 18,519
Rudolph E. Lang, Jr ........... 1996 349,030 330,000 15,000 6,448
Senior Vice President and 1995 337,418 340,000 -0- 4,531
Chief Financial Officer 1994 310,198 300,000 32,000 2,674
Gerald J. St. Pe .............. 1996 342,020 350,000 15,000 6,242
Senior Vice President 1995 326,385 335,000 -0- 4,670
1994 307,616 315,000 30,000 2,303
John E. Preston ............... 1996 265,552 230,000 14,000 6,527
Senior Vice President and 1995 252,412 205,000 -0- 4,166
General Counsel 1994 224,541 192,000 28,000 2,006
</TABLE>
(a) The awards to Messrs. Leonis, Brown (in fiscal 1996 only), Lang and Preston
represent awards made under the Company's then applicable performance award
plan, which provided that 50% of the award be paid in December following the
fiscal year end the award was made and the remainder be paid in two equal
25% installments in December of each of the two following years, provided
the recipient is then employed by the Company.
(b) Includes for fiscal 1994, 1995 and 1996 respectively: (i) taxable amounts
imputed under various life insurance arrangements provided by the Company as
follows: Mr. Brown, $1,723, $1,811, and $2,516; Mr. Lang, $2,630, $2,746,
and $3,107; Mr. St. Pe, $2,244, $2,325, and $2,624; and Mr. Preston, $1,958,
$2,143, and $2,741; (ii) $16,796 (fiscal 1994 only) paid in connection with
Mr. Brown's relocation expenses; and (iii) the amounts of imputed interest
on the loans described on page 14 as follows: Mr. Leonis, $62, $3,688, and
$6,905; Mr. Brown, $0, $2,838 and $6,125; Mr. Lang, $44, $1,785, and $3,341;
Mr. St. Pe, $59, $2,345, and $3,618; and Mr. Preston, $48, $2,023, and
$3,786.
10
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
NAMED EXECUTIVE OFFICERS INDIVIDUAL GRANTS OF STOCK PRICE
APPRECIATION
FOR OPTION TERM
% OF TOTAL HYPOTHETICAL HYPOTHETICAL
OPTIONS VALUE VALUE
GRANTED TO REALIZED AT REALIZED AT
OPTIONS EMPLOYEES EXERCISE 5% STOCK 10% STOCK
GRANTED IN FISCAL PRICE EXPIRATION APPRECIATION APPRECIATION
NAME (#)* YEAR ($/SH) DATE ($) ($)
<S> <C> <C> <C> <C> <C> <C>
John M. Leonis 50,000 5.95% 43.3125 6/21/06 1,361,950 3,451,450
43,000 5.12% 44.0625 12/9/05 1,191,559 3,019,645
Michael R. Brown 30,000 3.57% 43.3125 6/21/06 817,170 2,070,870
Rudolph E. Lang, Jr. 15,000 1.79% 43.3125 6/21/06 408,585 1,035,435
Gerald J. St. Pe 15,000 1.79% 43.3125 6/21/06 408,585 1,035,435
John E. Preston 14,000 1.67% 43.3125 6/21/06 381,346 966,406
</TABLE>
* Nonstatutory stock options exercisable at the rate of 20% per year
commencing on June 20, 1997 (December 8, 1996 in the case of the 43,000
options granted to Mr. Brown), except in the event of a change in control of
the Company, in which case such options become immediately exercisable.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE AT JULY 31, 1996 (#) JULY 31, 1996 ($)
NAME COMPANY* EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C> <C>
LIT 1,589 65,486 47,241 117,600 1,169,936 2,894,125
WAI 6,000 277,651 26,600 7,400 866,765 405,150
John M. Leonis Total 7,589 343,137 73,841 125,000 2,036,701 3,299,275
LIT 5,795 237,266 31,485 94,720 805,331 929,888
WAI 6,500 291,644 20,680 10,320 656,672 565,020
Michael R. Brown Total 12,295 528,910 52,165 105,040 1,462,003 1,494,908
LIT 15,162 563,689 63,400 41,600 1,698,400 1,138,813
Rudolph E. Lang, WAI 14,600 469,706 -0- 7,400 -0- 405,150
Jr. Total 29,762 1,033,395 63,400 49,000 1,698,400 1,543,963
LIT 6,922 277,587 53,800 40,400 1,377,733 1,087,438
WAI 42,660 1,270,300 7,300 7,400 238,275 405,150
Gerald St. Pe Total 49,582 1,547,887 61,100 47,800 1,616,008 1,492,588
LIT 16,742 388,613 4,818 36,440 98,074 960,713
WAI 7,960 287,718 -0- 4,040 -0- 221,190
John E. Preston Total 24,702 676,331 4,818 40,480 98,074 1,181,903
</TABLE>
* On March 17, 1994, all of the common stock of Western Atlas Inc. ("WAI"), a
wholly-owned subsidiary of the Company, was distributed to the Company's
then shareholders. Under the Company's 1984 Long-Term Stock Incentive Plan,
each Company stock option granted prior to that date was converted into both
a Company option and an option of Western Atlas Inc.
11
<PAGE>
RETIREMENT BENEFITS
- THE FSSP AND RELATED RETIREMENT PLANS
All of the Named Executive Officers participate in Litton's Financial
Security and Savings Program ("FSSP"), a contributory plan intended to qualify
under Section 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"), and in one of Litton's related retirement plans. The first 1% to 4% of
pay a participant elects to contribute to the FSSP results in an annual
retirement benefit payable at age 65 equal to the greater of (A) 60% of such
contributions plus if any, contributions to one of Litton's related defined
benefit retirement plans or (B) 85% of such contributions less 75% of his or her
estimated Social Security primary insurance amount. The benefit is payable as an
annuity and is reduced by the actuarial equivalent of any elected lump sum
distribution of the contributions, as adjusted for earnings or losses.
Participants may contribute an additional 1% to 14% of pay into the savings
fund portion of the FSSP and receive a 50% Company match on the first 1% to 4%
of those contributions. For any calendar year, a participant's contributions to
the FSSP may not exceed the maximum deferral amount prescribed by Section 401(k)
of the Code or, if less, 18% of a participant's annual compensation.
- RESTORATION PLAN
The Litton Industries, Inc. Restoration Plan is an unfunded, nonqualified
retirement plan that restores company-provided retirement benefits and FSSP
savings fund company matching contributions which an FSSP participant could have
received if it were not for the limitations prescribed by the Code. Such benefit
is payable as an annuity at normal retirement from the Company's general assets.
The following table sets forth the current estimated annual retirement
benefits of the Named Executive Officers assuming their continued maximum
participation in the above described plans, retirement at age 65 and election of
a single life annuity.
<TABLE>
<CAPTION>
COMPANY
TOTAL PROVIDED
NAME PENSION PORTION
<S> <C> <C>
John M. Leonis $ 238,515 $ 208,249
Michael R. Brown 293,221 249,299
Rudolph E. Lang, Jr. 304,905 256,906
Gerald St. Pe 391,261 335,898
John E. Preston 301,301 244,865
</TABLE>
- SUPPLEMENTAL PLAN
The Litton Industries, Inc. Supplemental Executive Retirement Plan ("SERP")
is an unfunded, nonqualified defined benefit retirement plan that provides
certain key employees of the Company with supplemental retirement benefits.
Participants must be at least 50 years old. Vesting occurs when a participant
reaches age 60 and has at least fifteen years of service with the Company. The
SERP retirement benefit equals the participant's "average earnings" (the average
of the highest three twelve month periods out of the final 60 months'
compensation) up to $125,000 (indexed for the Consumer Price Index) times 1.6%;
plus average earnings over $125,000, as indexed, times 2.2%; multiplied by years
of service, not exceeding 25, from age 40. In the event of a change in control,
all participants in the SERP become fully vested in their benefit which will be
paid as a lump sum payment based upon certain actuarial factors. Alternatively,
the Compensation and Selection Committee of the Board may direct that in the
event of a change in control, the Company fund a trust with sufficient assets to
adequately satisfy the liabilities of the SERP and to pay the SERP benefits
monthly as an annuity. The assets of such trust would be subject to the claims
of the Company's creditors in the event of the insolvency or bankruptcy of the
Company.
12
<PAGE>
The following table indicates the approximate annual benefit which would be
received by a participant in the SERP, based on the following assumptions: (i)
retirement at age 65 and (ii) payment as a single life annuity. Such benefit
would be reduced by the Social Security benefit and the greater of the maximum
amount of Company provided pension benefits that the employee either actually
accrued or could have accrued under other Company sponsored retirement plans.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
REMUNERATION
(AVERAGE YEARS OF SERVICE
EARNINGS) 15 20 25 OR MORE
<S> <C> <C> <C>
600,000 $ 186,750 $ 249,000 $ 311,250
800,000 252,750 337,000 421,250
1,000,000 318,750 425,000 531,250
1,200,000 384,750 513,000 641,250
1,400,000 450,750 601,000 751,250
1,600,000 516,750 689,000 861,250
1,800,000 582,750 777,000 971,250
</TABLE>
Under the SERP, the credited years of service at September 30, 1996, of the
Named Executive Officers are as follows: Mr. Leonis, 22 years; Mr. Brown, 15
years; Mr. Lang, 20 years; Mr. St. Pe, 16 years; and Mr. Preston, 14 years.
CHANGE IN CONTROL AGREEMENTS
The Company is a party to change in control agreements with all of the Named
Executive Officers. The agreements become operative only upon the occurrence of
a "Change in Control" (as defined in the agreements). Absent a change in
control, the agreements do not require the Company to retain the executives or
to pay them any specified level of compensation or benefits.
With certain exceptions, generally a change in control occurs if: there is a
change in the majority of the members of the Company's Board of Directors; a
third party acquires at least 30% of the Company's outstanding voting stock
(other than as a result of a repurchase by the Company of its voting stock); a
merger, reorganization, or consolidation of the Company with another party
(other than certain limited types of mergers); there is a sale or disposition of
substantially all of the Company's assets; or the shareholders approve the
liquidation or dissolution of the Company.
Each change in control agreement provides that for three years after a
change in control there will be no adverse change in the executive's salary,
bonus opportunity, benefits, or location of employment. If, during this
three-year period, the executive's employment is terminated by the Company other
than for cause, or if the executive terminates his or her employment for good
reasons, as defined in the agreements, or voluntarily leaves during the 30-day
period following the first anniversary of the change in control, the executive
is entitled to receive an accrued salary and annual incentive payment through
the date of termination and, except in the event of death or disability, a lump
sum severance payment equal to three times the sum of the executive's base
salary and annual bonus. The Company will also provide the executive with
certain pension credits, insurance and other welfare plan benefits. If any
payments made under the change in control agreements are subject to any excise
tax imposed by the Code, the Company will make additional payments to restore
the executive to the same after-tax position as if the excise tax had not been
imposed.
13
<PAGE>
INDEBTEDNESS OF MANAGEMENT TO THE COMPANY
INCENTIVE LOANS
As a form of additional incentive, the Company provides loans to certain key
employees. Under the Company's incentive loan program, unsecured loans, not to
exceed $6,000,000 in the aggregate outstanding at any one time, may be made to
not more than 50 employees and may not exceed the annual salary rate of the
borrower. These loans presently bear interest at the rate of 4% per annum and
are payable on the Company's demand, or by (i) termination of the borrower's
employment or (ii) December 31, 2001, whichever occurs first. Loans to any
executive officer of Litton require the approval of the Compensation and
Selection Committee.
As of October 15, 1996, loans upon the terms set forth above in the
aggregate amount of $1,305,000 were outstanding to five executive officers of
the Company: John M. Leonis, $310,000; Michael R. Brown, $275,000; Rudolph E.
Lang, Jr, $150,000; John E. Preston, $170,000; Timothy G. Paulson, $150,000 and
Harry Halamandaris, $250,000. The principal balance of $200,000, plus accrued
interest on a Company incentive loan to Gerald St. Pe was paid in full on
September 30, 1995. The total of $1,305,000 was the largest amount of
indebtedness of executive officers outstanding at any time since July 31, 1995.
14
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph illustrates the performance of Litton Common Stock over
the five-year period from August 1, 1991 through July 31, 1996, compared to the
performance of the S&P 500 Index and the S&P Aerospace/Defense Index:
LITTON INDUSTRIES, INC.
TOTAL RETURN TO SHAREHOLDERS*
AUGUST 1, 1991 - JULY 31, 1996
VALUE OF INVESTMENT ($)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Litton 100 112.52 166.00 216.60 224.62 250.87
S&P 500 Index 100 112.79 122.64 128.96 162.64 189.58
S&P Aerospace/Defense Index 100 101.62 129.75 148.34 220.88 286.63
</TABLE>
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
LITTON 100 112.52 166.00 216.60 224.62 250.87
S&P 500 100 112.79 122.64 128.96 162.64 189.58
S&P AEROSPACE
DEFENSE INDEX 100 101.62 129.75 148.34 220.88 286.63
</TABLE>
- - ------------------------
* Assumes $100 invested August 1, 1991 in Litton Industries, Inc. Common
Stock, the S&P 500 Index and the S&P Aerospace/Defense Index (dividends
reinvested).
15
<PAGE>
REPORT OF THE COMPENSATION AND SELECTION COMMITTEE
COMPENSATION POLICY AND PROGRAM. The Committee views its role as one of
structuring a competitive executive compensation program that will attract,
motivate, reward and retain the executive talent required to achieve the
Company's business objectives and increase shareholder value. A consulting firm
of national reputation in executive compensation is engaged by the Committee
annually to provide a review of each component of the Company's executive
compensation program and to assess its competitiveness in relation to a peer
group of companies.
CHIEF EXECUTIVE OFFICER BASE SALARY. Base salaries of Litton senior
management, including the Chief Executive Officer, generally are determined by
evaluating their level of responsibility and experience, individual performance,
and specific contributions to the Company and its business objectives, including
any unique talents that positively impact the Company. Internal issues and
fairness also are considered, as are comparable levels of responsibility and
compensation at other aerospace and defense companies, including those which
directly compete with the Company for business and talent.
Before setting Mr. Leonis' base salary for fiscal 1996, the Committee
examined a comparative executive compensation study prepared by its consultants.
Mr. Leonis' performance was carefully reviewed and the Committee noted his
leadership in developing and implementing a long-term strategic plan to
competitively position the Company within the defense industry. During fiscal
1995, Mr. Leonis guided efforts which achieved: (i) internal consolidation; (ii)
improved operating efficiency and profit; and (iii) the successful consolidation
of acquisitions which added revenues of $300 million and key market positions
for selected divisions. In light of such positive Company performance; in
anticipation of Mr. Leonis assuming new responsibilities as Chairman of the
Board in December 1995; and based upon comparative data, a salary of $600,000
was set for Mr. Leonis, effective October 1, 1995.
ANNUAL INCENTIVE COMPENSATION. Annual incentive awards are designed to
reward performance related to specific performance goals of the Company and its
operating groups. For fiscal year 1996, certain executive officers, including
the Chief Executive Officer, were eligible for annual incentive awards under
various performance-based plans of the Company and its subsidiaries. Before
performance awards could be granted for fiscal year 1996 under the corporate
Performance Award Plan, net earnings before taxes had to exceed 18% of
shareholder investment for the preceding fiscal year. The Committee may allocate
an amount for awards up to 5% of any excess beyond the 18% shareholder threshold
investment return. Awards are payable in three annual installments; 50% of the
award is paid in December of the year it is granted and 25% in December of each
of the two subsequent years, provided the recipient is then employed by the
Company.
Group executives with responsibility for major operating business units of
the Company are awarded bonuses for achieving group financial performance
consistent with the Company's overall corporate goals. The Committee (or the
Chief Executive Officer in the case of participants who are not senior officers
of the Company) has discretionary authority to adjust bonuses based on factors
including an individual's efforts and contribution toward accomplishing one or
more of the Company's corporate objectives.
For fiscal year 1996, the Committee determined to make $3,753,000 available
for awards under the Performance Award Plan. In making that determination and in
setting the amounts of specific awards for fiscal 1996, the Committee again
considered data that included the financial performance and executive
compensation patterns of a selected peer group of companies and of industry-wide
information presented in the consultant reports. Mr. Leonis' bonus award for
fiscal 1996 was based upon such comparative data, Company performance and Mr.
Leonis' contributions and accomplishments. The Committee considered Mr. Leonis'
leadership in completing and integrating strategic acquisitions during fiscal
1996 which added approximately $1 billion to Company revenues, strengthened
Litton's leadership in defense electronics, positioned the Company as world
leader in shipboard electronic navigation and guidance and broadened its
position in information technology. In view of the foregoing, Mr. Leonis was
granted a bonus award of $600,000 for fiscal year 1996.
16
<PAGE>
LONG-TERM INCENTIVES. Stock option grants are the Company's principal
vehicle for attracting and retaining employees in key positions whose talents
and contributions are important to the long-term success of the Company and for
aligning the employee's interest with the shareholders. Stock options most
directly link shareholder value to compensation over the long term since the
value of the compensation package cannot be realized unless stock price
appreciation occurs. Options granted by the Committee generally become
exerciseable in cumulative installments over a period of five years and the
individual forfeits any installment which has not vested during the period of
his or her employment. The Committee sets guidelines for the number and terms of
stock option awards based on comparative data and business objectives.
In fiscal year 1996, the Named Executive Officers were granted the number of
options to purchase shares of the Company's Common Stock as provided in the
table on page 11. None of such options were granted at less than fair market
value.
COMPENSATION PLANS SUBMITTED TO SHAREHOLDERS. During fiscal year 1996, the
Committee reviewed the Company's executive compensation program in terms of its
philosophy and policies, compared Litton's executive compensation program with
that of other aerospace and defense companies, and addressed issues concerning
rules and regulations governing the deductibility of executive compensation.
The Committee believes it is in the best interest of the Company and its
shareholders to structure the compensation of its executive officers to meet the
requirements of Section 162(m) of the Code. Section 162(m) limits to $1 million
annually the tax deduction for compensation paid to the Named Executive
Officers, except for performance-based compensation. Both the new Litton
Industries, Inc. Performance Award Plan (the "Plan") and the Litton Industries,
Inc. 1984 Long-Term Stock Incentive Plan, as amended and restated, (the "1984
Plan") were adopted by the Committee and the Board, and are submitted to the
shareholders in this proxy statement, to meet the requirements for deductibility
under the Code.
The Committee recommended the adoption of the Plan which is designed to
allow the Committee maximum flexibility to evaluate and set performance
objectives on an annual basis related to the specific business strategy of the
Company. The Plan permits the Committee to offer participants an opportunity to
defer incentive awards in the form of the Company's Common Stock to increase the
employee's stake in the long-term growth of the value of the Company.
The 1984 Plan is intended to be competitive within the industry by allowing
the Committee greater flexibility in the types of awards that may be granted.
The 1984 Plan restricts the grant of options to not less than fair market value.
The Committee may condition the vesting of all types of awards upon the
attainment of performance objectives to ensure that there is a direct link to
shareholder value and performance objectives.
The Committee believes its actions, including its approach towards the
Company's executive compensation plans, will further the executive compensation
program objectives set forth in this report, will focus on executives'
contributions to the Company's success, and will be beneficial to the Company
and its employees and shareholders.
THE FOREGOING REPORT HAS BEEN FURNISHED BY THE FOLLOWING MEMBERS OF THE
COMPENSATION AND SELECTION COMMITTEE:
C. B. Thornton, Jr., CHAIRMAN David E. Jeremiah
Carol B. Hallett William P. Sommers
17
<PAGE>
OTHER INFORMATION ON DIRECTORS
Orion L. Hoch, a former President, Chief Executive Officer and Chairman of
the Company receives certain medical and retirement benefits by reason of his
former employment by the Company. The premium paid by the Company for Dr. Hoch's
medical insurance in fiscal 1996 was $26,187. Under the terms of a
Company-provided contractual pension benefit, and the Restoration Plan described
on page 12, Dr. Hoch receives a combined monthly benefit of $60,391 in the form
of a 100% joint and survivor annuity.
Joseph T. Casey, a former Chief Financial Officer and Vice Chairman of the
Company receives certain retirement benefits by reason of his former employment
by the Company. Under the terms of the Company's basic retirement plan described
on page 12 and under a predecessor supplemental retirement plan of the Company,
Mr. Casey receives a combined monthly benefit of $35,683 in the form of a 100%
joint and survivor annuity. In addition, during fiscal 1996, Mr. Casey received
$12,000 as a member of the Investment Committee of Litton Industries, Inc.
Robert H. Lentz, a former Senior Vice President and General Counsel of the
Company receives certain medical and retirement benefits and is the holder of
certain Common Stock options by reason of his former employment by the Company.
The premium paid by the Company for Mr. Lentz's medical insurance in fiscal year
1996 was $26,187. During fiscal 1996, Mr. Lentz exercised options to purchase
2,000 shares of Company common stock granted to him while an employee of the
Company under the 1984 Long-Term Stock Incentive Plan. Mr. Lentz realized net
value (market value less exercise price) of $75,831 upon such exercise. Under
the terms of the Company's basic retirement plan and the Restoration Plan
described on page 12 and under a predecessor supplemental retirement plan of the
Company, Mr. Lentz receives a combined monthly benefit of $14,081 in the form of
a 100% joint and survivor annuity. In addition, during fiscal 1996, Mr. Lentz
received $12,000 as a member of the Investment Committee of Litton Industries,
Inc.
A subsidiary of the Company has entered into a contract with Thomas B.
Hayward Associates ("Hayward Associates") pursuant to which Hayward Associates
has agreed to provide consulting services to a division of such subsidiary in
connection with the marketing and sales of shipboard electronic warfare systems
to foreign customers for the period from April 30, 1994 through May 1, 1997.
Hayward Associates is paid a monthly retainer of $4,000 for such services.
Admiral Hayward, a director of the Company, is president and sole proprietor of
Hayward Associates.
ITEM TWO: RATIFICATION OF APPOINTMENT OF AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE 1997 FISCAL
YEAR.
Deloitte & Touche LLP and a predecessor firm have served as Litton's
independent auditors continuously since fiscal 1954, are familiar with the
business and operations of the Company and its subsidiaries, and have offices in
or convenient to most of the localities in the United States and in most other
countries where the Company and its subsidiaries operate.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions.
18
<PAGE>
ITEM THREE: PROPOSAL TO APPROVE THE LITTON INDUSTRIES, INC.
PERFORMANCE AWARD PLAN
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE LITTON
INDUSTRIES, INC. PERFORMANCE AWARD PLAN.
The purpose of the plan is to establish and maintain a competitive incentive
compensation program, to attract and retain employees who are in a position to
contribute materially to the success of the Company, and to reward individual
accomplishments related to the achievement of the Company's performance
objectives. The plan is an unfunded, performance based plan designed to tie
compensation of key employees directly to the Company's long term objectives.
The Compensation and Selection Committee of the Board of Directors (the
"Committee") has the flexibility to establish, on an annual basis, specific
performance criteria for the Company and individual performance goals for
participants.
The plan is intended to qualify as a "performance-based" compensation plan
for purposes of Section 162(m) of the Code. Section 162(m) of the Code generally
limits to $1 million the Company's federal income tax deductions for
compensation paid to a Named Executive Officer unless such compensation is
performance-based compensation within the meaning of Section 162(m) of the Code.
The Committee will administer the plan, and the Board may modify, amend,
suspend or terminate the Plan under the terms of its provisions and in keeping
with its intended purpose. The Committee consists solely of non-employee
directors who are outside directors within the meaning of Section 162(m) of the
Code. Participants in the plan are officers and other key employees of the
Company and its subsidiaries and affiliates selected by the Committee. As of
October 11, 1996, 38 employees, including all of the Named Executive Officers,
are eligible to participate in the plan during fiscal 1997.
At the beginning of each fiscal year, Litton performance criteria will be
determined by the Committee using objective financial measurements, either
singularly or combined, based on profits, profit growth, profit related return
ratios, cash flow, total shareholder return, or other objective business
criteria which the Committee deems appropriate. Once performance objectives and
achievement goals are established they can only be adjusted by the Committee if
unanticipated business conditions occur which materially affect the fairness of
the objectives. However, no upward adjustments of awards to any Named Executive
Officers are permitted if a payment under the plan would exceed the deductible
amount permitted under Section 162(m) of the Code. There is a $2,000,000
individual award limit in any fiscal year. The Committee may allow one or more
participants the opportunity to defer receipt of a part or all of the award
payment to be converted to a number of units equivalent to the number of shares
of the Company's Common Stock which could have been purchased at fair market
value on the date of the award. Any such deferred awards will be distributed in
Company Common Stock when the awards are actually paid.
The above description summarizes the principal features of the plan but is
qualified in its entirety by reference to the text of the plan set forth as
Annex A to this proxy statement.
Awards under the plan will be based upon performance objectives established
with respect to each fiscal year. Accordingly, the amount of awards to be paid
in the future to any of the Named Executive Officers cannot be determined at
this time since the performance period has not yet been completed. Actual awards
will depend on actual performance measured against the attainment of the
pre-established performance objectives and on the Committee's discretion to
award such amounts.
If the shareholders fail to approve the plan at the Annual Meeting, the plan
will not qualify as "performance based" for purposes of Section 162(m) of the
Code.
OTHER BONUS PLANS. The Company and its subsidiaries and affiliates have
other arrangements and plans pursuant to which incentive compensation or bonuses
may be awarded to employees. Certain employees eligible to participate in the
above-described plan, including Mr. St. Pe, are eligible to participate in such
other bonus arrangements.
FEDERAL INCOME TAX CONSEQUENCES. The Company will generally be entitled to
a deduction equal to the amount of ordinary income realized by the recipient
upon payment of an award. Any cash or Company Common Stock received under the
Plan as an incentive award will be included in the income of the recipient at
the time of payment and will be subject to tax at ordinary income rates.
19
<PAGE>
ITEM FOUR: PROPOSAL TO APPROVE THE LITTON INDUSTRIES, INC. 1984 LONG-TERM STOCK
INCENTIVE PLAN, AS AMENDED AND RESTATED
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE LITTON
INDUSTRIES, INC. 1984 LONG-TERM STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED.
The Litton Industries, Inc. 1984 Long-Term Stock Incentive Plan (the "1984
Plan") has previously been approved by the shareholders of the Company. The 1984
Plan is intended to help the Company attract, retain, and provide appropriate
incentives for key management personnel. The 1984 Plan aligns the employee's
long-term interest to the shareholders and encourages long-term retention of
stock ownership in the Company.
The Board of Directors has approved the 1984 Plan, as amended and restated,
for approval by the shareholders. Among other things, the changes to the 1984
Plan are intended to qualify the 1984 Plan, as amended and restated, for
continued exemption from the limits on the deductibility of executive
compensation in excess of $1 million as prescribed by Section 162(m) of the
Code.
The 1984 Plan, as amended and restated, neither increases the number of
shares of Company Common Stock available under the 1984 Plan nor extends the
term of the 1984 Plan.
The material modifications provide that effective as of August 1, 1996,
3,500,000 shares of Company Common Stock will be available for grant as
incentive stock options ("ISOs") as defined in Section 422 of the Code. The 1984
Plan also authorizes the award of stock appreciation rights ("SARs") and
restricted stock ("Restricted Stock"); limits the amount of shares of Restricted
Stock which may be granted to twenty percent (20%) of the total number of shares
available; limits the aggregate number of stock options, SARs, and Restricted
Stock which may be granted to any individual in any fiscal year to not more than
150,000; limits the exercise price of options and SARs to fair market value;
provides for the award of Restricted Stock, stock options and SARs conditioned
upon the attainment of predetermined goals; and allows transferability of
nonqualified options, SARs and Restricted Stock.
If the shareholders fail to approve the 1984 Plan, as amended and restated,
at the Annual Meeting, the 1984 Plan will continue, but will not qualify as
"performance based" for purposes of Section 162(m) of the Code.
DESCRIPTION OF THE MATERIAL MODIFICATIONS TO THE 1984 PLAN.
The following description summarizes the material modifications to the 1984
Plan but is qualified in its entirety by reference to the text of the 1984 Plan,
as amended and restated, set forth as Annex B to this proxy statement.
STOCK AVAILABLE FOR GRANT; CERTAIN LIMITATIONS ON GRANTS OF AWARDS. After
July 31, 1996, no more than 3,500,000 ISOs may be granted. In addition, an
aggregate number of no more than 150,000 nonqualified options, ISOs, SARs and
shares of Restricted Stock may be granted to any individual in any Company
fiscal year.
ADMINISTRATION. Under the 1984 Plan, as amended and restated, the
Compensation and Selection Committee of the Board of Directors of the Company
(the "Committee") is authorized to determine the terms and conditions of any
award, including the attainment of specified performance goals, subject to the
limitations of Section 162(m) of the Code. The Committee also has authority to
delegate certain decisions to officers of the Company. The Committee consists
solely of non-employee directors who are "disinterested persons" as such term is
used in SEC Rule 16b-3 and "outside directors" within the meaning of Section
162(m) of the Code.
STOCK OPTIONS. The 1984 Plan has been amended to provide that, effective as
of August 1, 1996, stock options may only be granted at an exercise price not
less than the fair market value of the Company Common Stock on the date of the
option grant. The purchase price of a stock option will continue to be payable
(i) in cash or (ii) in unrestricted Company Common Stock, at the fair market
value of such stock on the exercise date.
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STOCK APPRECIATION RIGHTS. The 1984 Plan has been amended to permit the
award of SARs. An SAR entitles its holder to receive from the Company, at the
time of exercise of such right, an amount equal to the excess of the fair market
value of a share of Company Common Stock at the date of exercise over the
previously specified exercise price. The amount payable may be paid by the
Company in Company Common Stock (valued at its fair market value on the date of
exercise), or in cash.
RESTRICTED STOCK. The 1984 Plan has been amended to permit the award of
Restricted Stock. Restricted Stock vests in the holder upon the attainment of
specified Company performance criteria and upon continued service to the
Company.
TRANSFERABILITY. With respect to transferability, the 1984 Plan has been
amended to provide that all awards will be transferable except that ISOs shall
continue to be transferable only by will or by the laws of descent and
distribution.
FEDERAL INCOME TAX CONSIDERATIONS.
The discussion which follows is a summary, based on current law, of some of
the significant federal income tax considerations relating to awards under the
1984 Plan, as amended and restated.
NONQUALIFIED OPTIONS. A participant will not realize income at the time a
nonqualified option is granted. Upon exercise, where the exercise price is paid
in cash, the participant will realize ordinary income in the amount by which the
fair market value of the stock acquired on the exercise date exceeds the
exercise price. The Company will generally be allowed a deduction in the year of
exercise equal to the amount of income realized by the participant.
If the exercise price of a stock option which is a nonqualified option is
paid in whole or in part with already owned shares of Company Common Stock, the
participant will not recognize compensation income with respect to such shares.
The fair market value of the additional shares received will constitute
compensation taxable to the participant as ordinary income. The Company will
generally be entitled to a tax deduction equal to the compensation income
recognized by the participant.
INCENTIVE STOCK OPTIONS. A participant will not realize income at the time
an ISO is granted, or exercised, whether the participant makes payment in cash
or in whole or in part with already owned shares of Company Common Stock.
However, the difference, if any, at exercise between the exercise price and the
fair market value of the shares will constitute an item includible in the
participant's alternative minimum taxable income.
If shares acquired upon exercise of a stock option which is an ISO are not
disposed of by the participant within two years from the date of grant of the
stock option or within one year after the transfer of such shares to the
participant (the "ISO Holding Period"), then (i) no amount will be reportable as
ordinary income with respect to such shares by the recipient and (ii) the
Company will not be allowed a deduction in connection with such stock exercise.
If shares acquired upon the exercise of an ISO are sold before the ISO
Holding Period has expired, ordinary income will be recognized in the amount of
the difference between the exercise price and the lesser of (i) the fair market
value on the date of exercise or (ii) the amount realized on disposition. The
Company will generally be allowed a deduction in the year in which the
disposition occurs equal to the ordinary income recognized.
STOCK APPRECIATION RIGHTS. Upon exercise, the holder of a SAR will
recognize as ordinary income the amount of cash and/or the fair market value of
any Company Common Stock received, and the Company will generally be allowed a
deduction in the year of exercise equal to such income, provided the Company
satisfies certain federal income tax withholding and reporting requirements. Any
shares of Common Stock received upon exercise of a SAR will have a tax basis
equal to their fair market value on the date received.
RESTRICTED STOCK. A participant who is granted Restricted Stock may make an
election pursuant to Section 83(b) of the Code to have taxed as compensation
income, the amount equal to the difference between the price to be paid for such
Restricted Stock and the fair market value of the equivalent number of shares of
Company Common Stock at the date of grant. Such amount would then be deductible
by the Company. Any further appreciation (or depreciation) in the value of the
shares of Restricted Stock granted would then be taxed as capital gain (or loss)
upon a subsequent sale or disposition of the
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shares. If the election is not made, the grant will be taxed as compensation
income at the fair market value of the Restricted Stock on the date that the
restrictions imposed expire and the Company will be entitled to a corresponding
deduction at such time.
AMENDMENT AND TERMINATION.
The 1984 Plan will terminate on October 15, 2001. Under the 1984 Plan,
options to purchase Common Stock or other awards granted and outstanding as of
the date the 1984 Plan terminates are not affected or impaired by such
termination.
The Board or the Committee with the approval of the Board, may amend, alter,
or discontinue the 1984 Plan in such respects as the Board or the Committee may
deem advisable subject to the 1984 Plan limitations. No amendments may be made
to increase the maximum number of shares, extend the term of the 1984 Plan or
the terms of any award, or change the class of eligible employees without
shareholder approval.
1984 PLAN BENEFITS.
Future awards, which are not presently determinable, will be granted at the
sole discretion of the Committee and may vary from year to year and from
participant to participant. Currently, there are a total of 372 optionees under
the 1984 Plan. The Company has not granted SARs or Restricted Stock. Stock
option awards granted during fiscal 1996 to the Named Executive Officers are
shown in the Option Grant Table on page 11. The number of awards granted during
fiscal 1996 to all current executive officers as a group (including the Named
Executive Officers) and to all employees who are not executive officers as a
group were 228,000 shares, and 612,000 shares, respectively.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Shareholders may submit proposals on matters appropriate for shareholder
action at the Company's annual meetings consistent with regulations adopted by
the SEC. For such proposals to be considered for inclusion in the Proxy
Statement and form of proxy relating to the 1997 Annual Meeting, they must be
received by the Company not later than July 1, 1997. Such proposals should be
directed to the attention of the Secretary of the Company at 21240 Burbank
Boulevard, Woodland Hills, California 91367-6675.
OTHER MATTERS
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the Common Stock Performance Graph on page 15 and the Report
of the Compensation and Selection Committee on pages 16 and 17 shall not be
incorporated by reference into any such filings.
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited by directors, officers, or regular employees of Litton in person or by
telephone, telegraph, facsimile transmission, or telex. The Company also has
retained D. F. King & Co., Inc., to aid in the solicitation at an estimated cost
of $12,000, plus out-of-pocket expenses. Arrangements have been made for
brokerage houses, nominees, and other custodians to send proxy materials to
their principals, and the Company will reimburse them for doing so.
The Board of Directors does not know of any other matters that are to be
presented for action at the December 5, 1996, meeting. Should any other matter
come before the meeting, the accompanying proxy will be voted with respect to
the matter in accordance with the best judgment of the persons voting the proxy.
THE BOARD OF DIRECTORS
LITTON INDUSTRIES, INC.
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ANNEX A
LITTON INDUSTRIES, INC.
PERFORMANCE AWARD PLAN
SECTION 1. Purpose and Term
1.1. PURPOSE. The purpose of the Litton Industries, Inc. Performance Award
Plan (the "Plan") is to establish and maintain a competitive incentive
compensation program (a) to attract and retain employees who are in a position
to contribute materially to the success of Litton Industries, Inc. (the
"Company"), (b) to reward performance, and (c) to qualify as "performance-based"
compensation under the federal tax laws.
1.2. EFFECTIVE DATE AND TERM OF PLAN. The effective date of the Plan is
August 1, 1996, subject to approval by the shareholders of the Company. The Plan
will remain in effect until terminated by the Board of Directors of the Company
(the "Board").
SECTION 2. Eligibility and Participation
2.1. ELIGIBILITY. Eligibility for participation in the Plan shall be
limited to officers and key employees of the Company or its subsidiaries whose
employment and responsibility contribute to the success of the Company.
2.2. PARTICIPATION. Participation in the Plan will be determined annually
by the Compensation and Selection Committee of the Board (the "Committee") from
those eligible. The Committee will, at all times, consist of persons who are
"outside directors" as that term is defined under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code").
SECTION 3. Determination of Performance Objectives
3.1. COMPANY PERFORMANCE OBJECTIVES. To comply with Section 162(m) of the
Code the Committee will establish, prior to the beginning of each fiscal year
(or any other later date allowable under Section 162(m) of the Code), a planned
level of Company performance objectives (the "Performance Objectives")
determined by the following financial measurements of Company performance : (i)
profits; (ii) profit growth; (iii) profit related return ratios; (iv) cash flow;
(v) total shareholder return; or (vi) other objective business criteria the
Committee deems appropriate. The Committee may also provide for additional
opportunities based upon the attainment of various productivity and long-term
growth objectives, including, without limitation, reductions in the Company's
overhead ratio and expense to asset ratio. Any criteria may be measured in
absolute terms or as compared to another company or companies.
3.2. CHANGE OF COMPANY PERFORMANCE OBJECTIVES. Once established, the
Company Performance Objectives ordinarily may not be changed in the same fiscal
year. However, if the Committee determines that external changes or other
unanticipated business conditions have materially affected the fairness of the
Performance Objectives, then the Committee may approve appropriate adjustments.
No adjustments may be made to potential awards under the Plan to executive
officers which would prevent any such awards from meeting the requirements for
deductibility by the Company of such award under Section 162(m) of the Code.
SECTION 4. Awards
4.1. INDIVIDUAL AWARD DETERMINATION. A participant's award for any fiscal
year of the Company will be determined solely on the basis of the participant's
performance. No award to any individual participant may exceed $2,000,000
(valued as of the date of such award) for any such fiscal year.
4.2. PAYMENT OF AWARDS. A participant's award will be paid in the manner
and at the time(s) determined by the Committee. The Committee may elect to delay
the payment of all or a portion of a participant's award until such time as the
amount payable would be deductible to the Company as contemplated by Section
162(m) of the Code.
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4.3. DEFERRAL OF AWARD. The Committee may adopt provisions for any fiscal
year which allow participants to defer all or part of the award payment.
Deferral provisions may allow initial cash awards to be converted to an
equivalent number of shares of Company common stock or stock units which could
have been purchased at fair market value on the date such award was made, to be
distributed in Company common stock at the time of payout.
SECTION 5. Administration
5.1. ADMINISTRATION. The Plan will be administered by the Committee
according to any rules and regulations that it may establish that are consistent
with the provisions and intent of the Plan. The Committee will have full
authority to administer the Plan, including the authority to interpret and
construe any provision of the Plan, and all rules, regulations and
interpretations shall be conclusive and binding on all persons. The Committee
has sole responsibility for selecting eligible participants, establishing
Performance Objectives, setting award targets and determining award amounts.
SECTION 6. Amendment and Termination
6.1. AMENDMENT AND TERMINATION. The Board, in its sole discretion may
modify or amend any or all of the provisions of the Plan at any time, and
without notice, may suspend or terminate it entirely. However, no such
modification, amendment, suspension, or termination, may, without the consent of
the participant (or the consent of any beneficiary in the case of the death of
the participant), reduce the right of a participant (or any beneficiary as the
case may be) to a payment or distribution to which the participant is entitled
by reason of an award as approved by the Committee under Section 4.1.
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ANNEX B
LITTON INDUSTRIES, INC.
1984 LONG-TERM STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED ON SEPTEMBER 19, 1996)
SECTION 1. Purpose
The purpose of the Program is to promote the continued growth and success of
the Corporation by providing, or increasing, through the Incentive Awards
described herein, the proprietary interests of its key Employees who are in a
position to contribute materially to the future accomplishments of the
Corporation. The Program is intended to enable the Corporation through
utilization of these additional incentives to attract and retain experienced
Employees of exceptional talent and industry and align their interest with that
of the stockholders to the economic advantage of the Corporation.
SECTION 2. Definitions
Unless the context clearly indicates otherwise, the following terms, when
used in this Program, shall have the meanings set forth in this Section 2.
(a) "Board" shall mean the Board of Directors of Litton Industries, Inc.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Compensation and Selection Committee of the
Board or such other committee as may be designated by the Board. The Committee
shall consist of two or more members of the Board who are Disinterested Persons.
(d) "Commission" shall mean the Securities and Exchange Commission or any
successor agency.
(e) "Corporation" shall mean Litton Industries, Inc., and its subsidiaries.
(f) "Disinterested Person" shall mean a member of the Board who qualifies
as a disinterested person as defined in Rule 16b-3, as promulgated by the
Commission under the Exchange Act or any successor definition adopted by the
Commission and also qualifies as an "outside director" for purposes of Section
162(m) of the Code.
(g) "Employee" shall mean any common law employee, including officers, of
the Corporation, as determined in the Code and the Treasury Regulations
thereunder, but shall not include a person on a non-medical leave of absence.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" shall mean (1) the average between the highest and
lowest selling prices of the Stock on a particular day or (2) if there are no
sales on such date, then the average of the highest and lowest prices of the
first preceding day and the first succeeding day on which sales were made. Such
prices shall be those reported in the New York Stock Exchange-Composite
Transactions of The WALL STREET JOURNAL or such other publication as the
Committee designates.
(j) "Grantee" shall mean an Employee granted an Incentive Award.
(k) "Incentive Award" shall mean a Stock Option, a Stock Appreciation Right
or Restricted Stock granted pursuant to the Program.
(l) "Incentive Stock Option" shall mean a Stock Option intended to qualify
under Section 422 of the Code and the Treasury Regulations thereunder.
(m) "Nonstatutory Stock Option" shall mean any Stock Option that is not
intended to qualify as an Incentive Stock Option under Section 422 of the Code
and the Treasury Regulations thereunder.
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(n) "Performance Objectives" shall mean the goals, if any, upon which the
Committee may condition the exercisability of one or more Incentive Awards which
goals may relate to profits, profit growth, profit-related return ratios, cash
flow or total shareholder return; where such goals may be stated in absolute
terms or relative to peer performance.
(o) "Program" shall mean the Litton Industries, Inc., 1984 Long-Term Stock
Incentive Plan as set forth herein and as amended from time to time.
(p) "Restricted Stock" shall mean an Incentive Award granted under Section
9.
(q) "Rule 16b-3" shall mean Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act.
(r) "Stock" shall mean shares of the Common Stock of Litton Industries, Inc.
(s) "Stock Appreciation Right" shall mean a right granted under Section 8.
(t) "Stock Option" shall mean either an Incentive Stock Option or a
Nonstatutory Stock Option.
(u) "Subsidiary" shall mean any subsidiary corporation of the Corporation as
defined in Section 424 of the Code.
(v) "Totally Disabled" shall mean the condition when an Employee is wholly
prevented by occupational or non-occupational injury or sickness from performing
any and every duty pertaining to his or her regular occupation or employment.
(w) "Treasury Regulations" shall mean the regulations under the Code.
SECTION 3. Shares of Stock Subject to Grants
Subject to the adjustments required under the provisions of Section 10
hereof, the shares of Stock which may be issued or transferred pursuant to
Incentive Awards shall consist of (i) the 2,500,000 shares of Stock originally
authorized and reserved for issuance under the Program and (ii) during each
fiscal year of the Corporation beginning after July 31, 1992, a number of shares
of Stock of the Corporation equal to one and one half percent (1.5%) of the
total issued and outstanding shares of Stock as of the end of the preceding
fiscal year of the Corporation. Twenty percent (20%) of such shares of Stock
shall be available for the grant of Restricted Stock. Shares of Stock which have
been previously authorized to be granted as Incentive Awards, but which were not
granted, or, if granted, expired without having been exercised in full or shares
of Stock which are reacquired in any way by the Corporation shall be available
for the grant of Incentive Awards at any time prior to the termination of the
Program. Subject to the adjustments required under the provisions of Section 10
hereof, the Stock which may be issued or transferred pursuant to Incentive Stock
Options granted hereunder after July 31, 1996, shall not exceed 3,500,000 shares
of Stock in the aggregate. In instances where an Incentive Award is settled in
cash, the shares of Stock, if any, covered by such Incentive Award shall remain
available for issuance under the Program. Likewise, the payment of cash
dividends and dividend equivalents paid in cash in conjunction with any
outstanding Incentive Awards shall not be counted against the shares of Stock
available for issuance under the Program. Any shares of Stock that are issued by
the Corporation, and any Incentive Awards that are granted through the
assumption of, or in substitution for, any outstanding Incentive Awards
previously granted by an acquired entity shall not be counted against the shares
of Stock available for issuance under the Program.
SECTION 4. Administration of the Program
The Program shall be administered by the Committee. Subject to the express
provisions of the Program, the Committee shall have plenary authority to
interpret the Program; to prescribe, amend, and rescind rules and regulations
relating to it; to determine the terms and provisions of Incentive Award
agreements and amendments thereto; and to make any and all other determinations
necessary or advisable for the administration of the Program. The Committee may
modify, amend or adjust the terms
B-2
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and conditions of any Incentive Award at any time, including, but not limited
to, the Performance Objectives or measurements applicable to performance-based
Incentive Awards pursuant to the terms of the Program; provided, that no such
modification or amendment may be made if it could, in the best judgment of the
Committee, prevent any Incentive Award held by any Grantee who may be subject to
the limits on deductibility of compensation provided in Section 162(m) of the
Code from qualifying for the performance-based compensation exemption under
Section 162(m) of the Code. Any controversy or claim arising out of or related
to this Program shall be determined unilaterally by and at the sole discretion
of the Committee.
The Committee may act only by a majority of its members. The Committee may
(i) delegate to an officer of the Corporation the authority to make decisions
pursuant to paragraphs (b), (c), (e) and (f) of Section 5 (provided that no such
delegation may be made that would cause Incentive Awards or other transactions
under the Program to cease to be exempt from Section 16(b) of the Exchange Act
or Section 162(m) of the Code) and (ii) authorize any one or more of their
members or an officer of the Corporation to execute and deliver documents on
behalf of the Committee.
SECTION 5. Granting of Incentive Awards
(a) Only key Employees of the Corporation shall be eligible to receive
Incentive Awards under the Program.
(b) The Committee shall determine and designate from time to time those
Employees who are to be granted Incentive Awards, the type of Incentive Award to
be granted, and the amount subject to each Incentive Award, PROVIDED, that in
any one fiscal year, no Grantee may be granted Incentive Awards covering more
than 150,000 shares of Stock.
(c) The Committee shall determine whether any particular Stock Option shall
become exercisable in one or more installments and the date or dates upon which
any such installments first become exercisable. Further, the Committee may make
such other provisions, including, but not limited to, Performance Objectives.
(d) No Stock Option shall be exercisable more than ten years from the date
the Stock Option was granted.
(e) Upon the exercise of any Stock Option, the Grantee shall pay the option
exercise price provided in the particular Stock Option agreement. The Committee
may permit payment to be in Stock. To the extent Stock is tendered as payment,
it shall be valued at its then Fair Market Value.
(f) The Committee may at any time grant new Incentive Awards to an Employee
who has previously received Incentive Awards or other grants (including other
Stock Options) whether such prior Incentive Awards or such other grants are
still outstanding, have previously been exercised in whole or in part, or are
canceled in connection with the issuance of new Incentive Awards. The purchase
price of the Incentive Awards may be established by the Committee without regard
to the existing Incentive Awards or such other grants. Further, the Committee
may, with the consent of the Grantee, amend the terms of any existing Incentive
Award previously granted to include any provisions which could be incorporated
in such Incentive Award at the time of such amendment. Solely to illustrate the
foregoing power, but without limiting its scope, such amendments may accelerate
the period of exercise or the vesting period of any Incentive Award, or
installment thereof, either absolutely or conditionally for whatever reasons the
Committee deems appropriate, including without limitation, compensatory
considerations, events which would result in the delisting of the Stock,
significant changes in the management or control of the Corporation, or the
occurrence of any attempt to effect such changes.
SECTION 6. Nonstatutory Stock Options
(a) There shall be available for the grant of Incentive Awards in the form
of Nonstatutory Stock Options the number of shares of Stock specified in Section
3 of the Program, less the number of shares
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of Stock utilized for the grant of Incentive Stock Options and Restricted Stock
pursuant to Sections 7 and 9 of the Program.
(b) When granting a Nonstatutory Stock Option to a key Employee, the
Committee shall determine the purchase price of the Stock subject thereto. Such
price shall not be less than 100% of the Fair Market Value of such Stock on the
date the Nonstatutory Stock Option is granted.
(c) All provisions of this Program except Sections 7, 8 and 9 shall apply to
Nonstatutory Stock Options.
SECTION 7. Incentive Stock Options
An Incentive Award in the form of an Incentive Stock Option shall be subject
to the following provisions:
(a) Subject to subsections (c), (d), and (e) hereof, there shall be
available for the grant of Incentive Awards in the form of Incentive Stock
Options the number of shares of Stock specified in Section 3 of the Program,
less the number of shares of Stock utilized for the grant of Nonstatutory
Stock Options and Restricted Stock pursuant to Sections 6 and 9 of the
Program.
(b) When granting an Incentive Stock Option to a key Employee, the price
of an Incentive Stock Option shall not be less than 100% of the Fair Market
Value of the Stock subject thereto on the date such Incentive Stock Option
is granted.
(c) Subject to the adjustments required under the provisions of Section
10 hereof, the Stock which may be issued or transferred pursuant to
Incentive Stock Options granted hereunder after July 31, 1996, shall not
exceed 3,500,000 shares of Stock in the aggregate.
(d) None of the 2,500,000 shares of Stock originally authorized and
reserved for issuance under the Program may be utilized for the grant of
Incentive Stock Options subsequent to January 18, 1994.
(e) Notwithstanding any other provisions hereof, in the case of
Incentive Stock Options granted after December 31, 1986, the aggregate Fair
Market Value (determined at the time the Incentive Stock Option is granted)
of the Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Grantee during any calendar year (under all
incentive stock option plans of the Grantee's employer corporation and its
parent and subsidiary corporations) shall not exceed $100,000.
(f) All provisions of this Program except Sections 6, 8, 9 and
12(d)(ii) and (iii) shall apply to Incentive Stock Options.
SECTION 8. Stock Appreciation Rights
Stock Appreciation Rights may be granted independently of or in conjunction
with all or part of any Stock Option granted under the Program. In the case of
an Incentive Stock Option, such rights may be granted only at the time of grant
of such Incentive Stock Option. In the case of a Stock Appreciation Right
granted with a related Stock Option, a Stock Appreciation Right shall terminate
and no longer be exercisable upon the termination or exercise of the related
Stock Option.
A Stock Appreciation Right may be exercised by a Grantee in accordance with
procedures established by the Committee and, in the case of a Stock Appreciation
Right granted with a related Stock Option, by surrendering the applicable
portion of the Stock Option in accordance with such procedures. Upon the
exercise of a Stock Appreciation Right, a Grantee shall be entitled to receive
an amount in cash, shares of Stock or both, equal in value to the excess of the
Fair Market Value of one share of Stock over the price per share specified in
the grant of the Stock Appreciation Right, which shall be not less than the Fair
Market Value of the Stock on the date of grant or in the related Stock Option
multiplied by
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the number of shares in respect of which the Stock Appreciation Right shall have
been exercised, with the Committee having the right to determine the form of
payment.
In the case of Stock Appreciation Rights not granted in conjunction with
Stock Options, the Committee may, prior to the grant, condition the vesting of
any such Stock Appreciation Right upon the attainment of Performance Objectives
and upon the continued service of the Grantee.
SECTION 9. Restricted Stock
(a) The Committee shall, prior to grant, condition the vesting of Restricted
Stock upon the attainment of Performance Objectives and upon the continued
service of the Grantee.
To the extent required by Section 162(m) of the Code or otherwise deemed
advisable by the Committee, it shall be a condition precedent to the vesting of
Restricted Stock, or any installment thereof, that the Committee certify in
writing that any Performance Objectives relative to such vesting has or have in
fact been satisfied.
(b) Shares of Restricted Stock shall be evidenced in such manner as the
Committee may deem appropriate, including book-entry registration or issuance of
one or more Stock certificates. Any certificate issued in respect of shares of
Restricted Stock shall be registered in the name of such Grantee and shall bear
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Restricted Stock, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the Litton Industries, Inc. 1984
Long-Term Stock Incentive Plan and a Restricted Stock Agreement.
Copies of such Plan and Agreement are on file at the offices of
Litton Industries, Inc., 21240 Burbank Boulevard, Woodland Hills,
California 91367."
The Committee may require that the certificates evidencing such shares of
Stock be held in custody by the Corporation until the restrictions thereon shall
have lapsed and that, as a condition of any Incentive Award of Restricted Stock,
the Grantee shall have delivered a stock power, endorsed in blank, relating to
the Stock covered by such Incentive Award.
(c) The Committee shall determine the per share amount to be paid by a
Grantee for each Incentive Award in the form of Restricted Stock. There shall be
a minimum payment of the total par value of the Stock by the Grantee to the
Corporation as required by law. Each Incentive Award in the form of Restricted
Stock shall be confirmed by, and be subject to the terms of, a Restricted Stock
agreement.
SECTION 10. Adjustment Provisions
(a) If the shares of Stock outstanding are changed in number or class by
reason of a split-up, merger, consolidation, reorganization, reclassification,
recapitalization, or any capital adjustment, including a stock dividend, or if
any distribution is made to the holders of Stock other than a cash dividend,
then
(1) the aggregate number and class of shares of Stock or other
securities that may be issued or transferred pursuant to Sections 3, 6, 7,
8, or 9 and
(2) the number and class of shares or other securities which are payable
under outstanding Incentive Awards shall be adjusted as provided
hereinafter.
(b) Adjustments under this Section 10 shall be made in an equitable manner
by the Committee, whose determination as to what adjustments shall be made, and
the extent thereof, shall be final, binding, and conclusive. Such adjustments
may include (i) treating employment with a corporation the stock of which was
distributed to holders of Stock (or a subsidiary of such a corporation) as
employment with the Corporation for purposes of the Program and (ii) adjustments
of the purchase price to be paid per share of Stock under outstanding Incentive
Awards.
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(c) In the event of a corporate merger or consolidation, or the acquisition
by the Corporation of property or stock of an acquired corporation or any
reorganization or other transaction qualifying under Section 424 of the Code,
the Committee may, in accordance with the provisions of that Code section,
substitute Incentive Awards under this Program for incentive awards under the
plan of the acquired corporation provided (i) the excess of the aggregate Fair
Market Value of the outstanding Incentive Awards immediately after the
substitution over the aggregate price of such Incentive Awards is not more than
the similar excess immediately before such substitution and (ii) the new
Incentive Awards do not give the Employee additional benefits, including any
extension of the exercise period.
SECTION 11. Termination of Employment
(a) Unless otherwise determined by the Committee, if a Grantee incurs a
termination of employment for any reason other than death, disability or
retirement, any Stock Option held by such Grantee shall thereupon terminate,
except that such Stock Option, to the extent then exercisable, or on such
accelerated basis as the Committee may determine, may be exercised for the
lesser of three months from the date of such termination of employment or the
balance of such Stock Option's term; PROVIDED, HOWEVER, that if the Grantee dies
within such three-month period, any unexercised Stock Option held by such
Grantee shall notwithstanding the expiration of such three-month period,
continue to be exercisable to the extent to which it was exercisable at the time
of death for a period of 12 months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter.
(b) If a Grantee while an Employee retires or becomes Totally Disabled, he
or she will be considered to be an Employee for purposes of this Program so long
as the following conditions are met:
(i) The Grantee and the Corporation enter into a written agreement,
with the approval of the Secretary of the Committee, pursuant to which the
Grantee renders such advisory or consulting services to the Corporation as
may be required by said agreement from time to time;
(ii) The Grantee shall not, without prior written consent of the
Corporation, disclose or utilize confidential information or material
concerning the Corporation, its business and affairs, except in furtherance
of the Corporation's interests and at its request; and
(iii) The Grantee shall not engage in any activity which competes or
conflicts with, or is inimical to, the best interests of the Corporation.
SECTION 12. General Provisions
(a) Each Incentive Award shall be evidenced by a written instrument
containing such terms and conditions, not inconsistent with this Program, as the
Committee shall approve.
(b) The granting of an Incentive Award in any year shall not give the
Grantee any right to similar grants in future years or any right to be retained
in the employ of the Corporation, and all Employees shall remain subject to
discharge to the same extent as if the Program were not in effect.
(c) No Employee, and no beneficiary or other person claiming under or
through such Employee, shall have any right, title, or interest by reason of any
Incentive Award to any particular assets of the Corporation or any shares of
Stock allocated or reserved for the purposes of the Program or subject to any
Incentive Award except as set forth herein. The Corporation shall not be
required to establish any fund or make any other segregation of assets to assure
the payment of any Incentive Award.
(d) The Committee shall determine at the time an Incentive Award is granted
the extent to which such Incentive Award is transferable; provided, however,
that Incentive Awards granted under the Program shall not be transferable or
assignable other than:
(i) by will or the laws of descent and distribution;
(ii) by gift or other transfer of an award to any trust or estate in
which the original Incentive Award Grantee or such Grantee's spouse or other
immediate relative has a substantial beneficial
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<PAGE>
interest, or to a spouse or other immediate relative, provided that any such
transfer is permitted subject to Rule 16b-3 under the Exchange Act as in
effect when such transfer occurs and the Board does not rescind this
provision prior to such transfer; or
(iii) pursuant to a qualified domestic relations order (as defined by
the Code).
However, any Incentive Award so transferred shall continue to be subject to all
the terms and conditions contained in the instrument evidencing such Incentive
Award. Notwithstanding the foregoing, Incentive Awards granted as Incentive
Stock Options or as Stock Appreciation Rights granted in conjunction with
Incentive Stock Options shall (i) only be transferable pursuant to (i) above;
and (ii) shall be exercisable during the Grantee's lifetime only by the Grantee.
In the event that a Grantee terminates employment with the Corporation to
assume a position with a governmental, charitable, educational or non-profit
institution, the Committee may subsequently authorize a third party, including
but not limited to a "blind" trust, to act on behalf of and for the benefit of
such Grantee regarding any outstanding Incentive Awards held by the Grantee
subsequent to such termination of employment. If so permitted by the Committee,
a Grantee may designate a beneficiary or beneficiaries to exercise the rights of
the Grantee and receive any distribution under the Program upon the death of the
Grantee.
(e) Notwithstanding any other provision of this Program or agreements made
pursuant thereto, the Corporation shall not be required to issue or deliver any
certificate or certificates for shares of Stock under this Program prior to
fulfillment of all of the following conditions:
(1) The listing, or approval for listing upon notice of issuance, of
such shares on the New York Stock Exchange, Inc., or such other securities
exchange as may at the time be the principal market for the Stock;
(2) Any registration or other qualification of such shares of the
Corporation under any state or federal law or regulation, or the maintaining
in effect of any such registration or other qualification which the
Committee shall, in its absolute discretion upon the advice of counsel, deem
necessary or advisable; and
(3) The obtaining of any other consent, approval, or permit from any
state or federal governmental agency which the Committee shall, in its
absolute discretion after receiving the advice of counsel, determine to be
necessary or advisable.
(f) All payments to Grantees or to their legal representatives shall be
subject to any applicable tax, community property, or other statutes or
regulations of the United States or of any state having jurisdiction thereof.
The Grantee may be required to pay to the Corporation the amount of any
withholding taxes which the Corporation is required to withhold with respect to
an Incentive Award or its exercise. In such instances, the Committee may, in its
discretion and subject to such rules as it may adopt, permit the Grantee to
satisfy such obligations, in whole or in part, by electing to have the
Corporation withhold shares of Stock, or by transferring to the Corporation
shares of Stock, having a then Fair Market Value which is equal to or more than
the amount of withholding tax required to be withheld.
(g) In the case of a grant of an Incentive Award to any Employee of a
Subsidiary, the Corporation, may, if the Committee so directs, issue or transfer
the shares, if any, covered by the Incentive Award to the Subsidiary, for such
lawful consideration as the Committee may specify, upon the condition or
understanding that the Subsidiary will transfer the shares of Stock to the
Employee in accordance with the terms of the Incentive Award specified by the
Committee pursuant to the provisions of the Program.
SECTION 13. Amendment or Termination
The Board or the Committee with the approval of the Board, may, at any time,
alter, amend, suspend, discontinue, or terminate this Program; provided,
however, that such action shall not adversely affect the right of Grantees to
Incentive Awards previously granted. No amendment without the approval of the
stockholders of the Corporation may (i) increase the maximum number of shares of
Stock which
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<PAGE>
may be awarded under the Program in the aggregate; (ii) materially increase the
benefits accruing to Grantees under the Program; (iii) change the class of
Employees eligible to receive Incentive Awards under the Program; or (iv)
materially modify the eligibility requirements for participation in the Program.
SECTION 14. Effective Date and Duration of Program
The Program became effective January 19, 1984, upon its approval by the
Board. Incentive Awards granted prior to stockholder approval of certain
amendments to the Program at the 1991 Annual Meeting of Shareholders of the
Corporation are governed by the Program as it existed prior to the adoption of
such amendments by the Board on October 16, 1991. Incentive Awards granted after
stockholder approval of such amendments are governed by the Program as amended
by the Board on October 16, 1991. Incentive Awards granted prior to stockholder
approval of certain amendments to the Program at the 1996 Annual Meeting of
Shareholders of the Corporation are governed by the Program as it existed prior
to the adoption of such amendments by the Board on September 19, 1996. Incentive
Awards granted after stockholder approval of such amendments are governed by the
Program as amended by the Board on September 19, 1996. The Program, as so
amended, shall terminate on October 15, 2001, the day immediately preceding the
tenth anniversary of the date of adoption of the first of such amendments by the
Board, and no Incentive Award may be granted under the Program thereafter, but
such termination shall not affect any Incentive Award theretofore granted.
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<PAGE>
LITTON INDUSTRIES, INC.
PROXY
John M. Leonis and Rudolph E. Lang, Jr., or either of them individually and
each of them with power of substitution, are hereby appointed Proxies of the
undersigned to vote all Common Stock and Series B Preferred Stock of Litton
Industries, Inc. owned on the record date by the undersigned at the Annual
Meeting of Shareholders to be held in the Regent Beverly Wilshire Hotel, Beverly
Hills, California at 11:00 a.m. on Thursday, December 5, 1996, or any
adjournment thereof, upon such business as may properly come before the meeting,
including the items on the reverse side of this form, as set forth in the Notice
of 1996 Annual Meeting of Shareholders and the Proxy Statement dated October 28,
1996.
Directors recommend a vote "FOR" Items 1, 2, 3 and 4
1. Election of / / FOR the nominees / / WITHHOLD AUTHORITY / / EXCEPTIONS* as
Directors listed below to vote for ALL indicated
nominees listed
below
Alton J. Brann, Michael R. Brown, Joseph T. Casey, Carol B. Hallett, Orion
L. Hoch, David E. Jeremiah, Rudolph E. Lang, Jr., Robert H. Lentz, John M.
Leonis, William P. Sommers, C. B. Thornton, Jr.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PLEASE MARK THE
"EXCEPTIONS" BOX AND PRINT THAT NOMINEE'S NAME(S) ON THE SPACE PROVIDED.
*EXCEPTIONS
- - --------------------------------------------------------------------------------
2. Proposal to ratify the selection of Deloitte & Touche LLP as independent
auditors for the fiscal year ending July 31, 1997.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM REVERSE SIDE)
3. Proposal to approve the Litton Industries, Inc. Performance Award Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. Proposal to approve the Litton Industries, Inc. 1984 Long-Term Stock
Incentive Plan, as amended and restated.
/ / FOR / / AGAINST / / ABSTAIN
Unless otherwise specified, this proxy will be voted FOR items 1, 2, 3 and
4.
Note: Please sign exactly as shown at left. If stock is jointly held, each
owner should sign. Executors, administrators, trustees, guardians,
attorneys and corporate officers should indicate their fiduciary
capacity or full title when signing.
Dated: , 1996
------------------------------------------
--------------------------------------------------
Signature
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Signature
(if jointly held)
Please Mark, Date, Sign and Mail This Proxy Card Promptly in the Enclosed
Envelope
