<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 Section240.14a-11(c) or
Section240.14a-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.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
October 30, 1998
TO OUR SHAREHOLDERS:
You are invited to attend the Annual Meeting of Shareholders, which will be held
at 11:00 a.m, December 3, 1998, at the Regent Beverly Wilshire Hotel in Beverly
Hills, California.
The matters we will address at the Annual Meeting are described in the Notice of
Annual Meeting and Proxy Statement. There will also be discussions on the
activities of the Company and an opportunity to submit questions or comments on
matters of interest to shareholders generally.
Whether or not you attend the Annual Meeting in person, it is important that
your shares be voted on matters that come before the meeting. I urge you to
specify your choices by completing the accompanying proxy card and returning it
promptly.
Very truly yours,
/s/ John M. Leonis
John M. Leonis
CHAIRMAN
<PAGE>
[LOGO]
October 30, 1998
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 3, 1998
The 1998 Annual Meeting of Shareholders of Litton Industries, Inc. (the
"Company"), will be held on December 3, 1998, at 11:00 a.m., at the Regent
Beverly Wilshire Hotel, 9500 Wilshire Boulevard, Beverly Hills, California.
Shareholders at the close of business on October 13, 1998, will be entitled to
vote at the Annual Meeting. The items on the agenda are as follows:
1. To elect a Board of Directors;
2. To approve the adoption of the Litton Industries, Inc. Non-Employee
Director Stock Plan;
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors; and
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
A list of shareholders entitled to vote at the Annual Meeting 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 relevant 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 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
1
<PAGE>
LITTON INDUSTRIES, INC.
21240 BURBANK BOULEVARD, WOODLAND HILLS, CA 91367-6675
OCTOBER 30, 1998
PROXY STATEMENT
The Board of Directors of Litton Industries, Inc. (the "Company") is
soliciting proxies to be voted at the Annual Meeting of Shareholders to be held
on December 3, 1998, and at any adjournment thereof. This Proxy Statement is
being mailed to shareholders beginning on or about October 30, 1998, accompanied
by the Company's annual report to shareholders for the fiscal year ended July
31, 1998.
At the close of business on October 13, 1998, the record date, there were
45,456,801 shares of $1 par value Common Stock and 410,643 shares of Series B $2
Cumulative Preferred Stock, par value $5, outstanding and entitled to vote. Each
share of Common Stock or Series B Preferred Stock entitles the holder to one
vote.
A 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
Corporate Secretary at the 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 nine nominees for directors; FOR the adoption of the Litton
Industries, Inc. Non-Employee Director Stock Plan; and FOR ratification of the
appointment of Deloitte & Touche LLP as independent auditors.
The holders of a majority of the issued and outstanding shares of Common
Stock represented in person or by proxy at the Annual Meeting will constitute a
quorum for the transaction of business at the meeting. Approval of the adoption
of the Litton Industries, Inc. Non-Employee Director Stock Plan requires
approval by the affirmative vote of the holders of a majority of the outstanding
shares. The election of directors and the ratification of the appointment of
independent auditors will be decided by a majority of the votes cast "for" or
"against" approval. Consequently, abstentions, broker-nonvotes and failure to
vote have the same effect as a negative vote with respect to approval of the
adoption of the Litton Industries, Inc. Non-Employee Director Stock Plan, but
will have no effect on the election of directors and ratification of the
appointment of independent auditors.
2
<PAGE>
ITEM ONE: ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL CANDIDATES.
If any nominee for director, 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 the 1997 Annual Meeting of Shareholders.
The following information concerning the principal occupation, other
affiliations, and past business experience 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 Executive
Officer of UNOVA, Inc. Officer of Litton Industries,
- Age 56 Inc.
- Director since 1990 - Age 57
- Director since 1995
Background: UNOVA, Inc., is a global solutions
company providing information and systems Background: Joined Litton in 1968 and has been
integration technology for the industrial Chief Executive Officer since March 1998, and
markets. Former Litton Chairman of the Board President since 1995. Chief Operating Officer
(1994-1995), President (1990-1994) and Chief (1995-1998); Executive Vice President (1995);
Executive Officer (1992-1994). Director of Baker Group Executive-- Information Systems
Hughes, Inc. Director of the Los Angeles World (1995-1997); Senior Vice President (1992-1995);
Affairs Council. Chairman of the Board of Group Executive-- Electronic Warfare Systems
Governors of Town Hall of Los Angeles. Member, (1989-1995).
the Board of the U.S.- Russia Business Council,
the Board of the National Association of
Manufacturers, the Board of Overseers of the
Executive Council on Foreign Diplomacy, the
President's Cabinet of California Polytechnic
State University, the Board of the Los Angeles
Business Advisors, the Institute of Electrical
and Electronics Engineers, the Optical Society of
America, the Institute of Navigation, and the
Society of Petroleum Engineers. Trustee of the
Manufacturers Alliance. Vice Chairman of the
Board of Directors of the Los Angeles Area
Council of the Boy Scouts of America.
</TABLE>
<TABLE>
<S> <C> <C> <C>
JOSEPH T. CASEY CAROL B. HALLETT
[PHOTO1] - Retired Vice Chairman and [PHOTO1] - President and Chief Executive
Chief Financial Officer of Officer of Air Transport
Western Atlas Inc. Association of America
- Age 67 - Age 61
- Director since 1981 - Director since 1993
Background: Former Western Atlas Inc., Vice Background: Senior Government Relations Advisor,
Chairman and Chief Financial Officer (1994-1996). Collier, Shannon, Rill & Scott (1993-1995).
Former Litton Vice Chairman and Chief Financial Commissioner of United States Customs
Officer (1988-1994). Director, Baker Hughes, (1989-1993). U.S. Ambassador to the Commonwealth
Inc., UNOVA, Inc., and Pressure Systems, Inc. of the Bahamas (1986-1989). Director, Fleming
Trustee, Claremont McKenna College, RAND Center Companies, Inc., Mutual of Omaha Companies, and
for Russian and Urasia and Don Bosco Technical the American Association of Exporters and
Institute. Importers. Member, President's Cabinet of
California Polytechnic State University. Trustee,
Junior Statesmen of America.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C>
ORION L. HOCH DAVID E. JEREMIAH
[PHOTO1] - Chairman Emeritus of Litton [PHOTO1] - Partner and President of
Industries, Inc. Technology Strategies &
- Age 69 Alliances
- Director since 1982 - Age 64
- Director since 1994
Background: Former Litton Chairman of the Board Background: Technology Strategies and Alliances
(1988-1994), President (1982-1988) and Chief is a consulting firm engaged in strategic
Executive Officer (1986-1992). Director, UNOVA, planning for telecommunications and defense
Inc., Bessemer Trust Companies, and The Bessemer industries. Retired Admiral, U.S. Navy (1994).
Group, Inc. Trustee, Carnegie Mellon University. Vice Chairman, Joint Chiefs of Staff (1990-1994).
Commander-in-Chief, U.S. Pacific Fleet
(1987-1990). Director, Alliant Techsystems Inc.,
Geobiotics, Inc., and National Committee on
U.S.-China Relations. Board of Visitors, Northrop
Grumman Corporation (Melbourne Division) and
Board of Advisors, Jewish Institute for National
Security Affairs. Member, ManTech International
Advisory Board.
</TABLE>
<TABLE>
<S> <C> <C> <C>
JOHN M. LEONIS WILLIAM P. SOMMERS
[PHOTO1] - Chairman of Litton [PHOTO1] - President and Chief Executive
Industries, Inc. Officer of SRI International
- Age 65 - Age 65
- Director since 1994 - Director since 1994
Background: Joined Litton in 1959 and has been Background: SRI International is an independent
Chairman of the Board since 1995; Chief Executive nonprofit research, technology, development and
Officer (1994-1998), President (1994-1995), consulting organization. Director of Pressure
Senior Vice President (1990-1994), Group Systems, Inc., Nuance Communications Inc., and
Executive-- Navigation, Guidance and Control the Bay Area Council. Trustee, Scudder/Kemper
Systems (1988-1993). Director, Los Angeles World Mutual Funds. Member of the The Major Gifts
Affairs Council and HCC Industries Inc. Member, Committee of the University of Michigan. Former
Board of Governors of the Town Hall of Los Executive Vice President of Iameter, Inc. Former
Angeles and Board of Directors and Executive Director and President, Booz-Allen & Hamilton's
Committee of the Aerospace Industries Technology Management Group.
Association.
</TABLE>
<TABLE>
<S> <C> <C> <C>
C. B. THORNTON, JR.
[PHOTO1] - President of Thornton
Corporation
- Age 56
- Director since 1981
Background: Thornton Corporation is engaged
in a variety of private investments. Former
President and principal owner of T Lazy S
Ranch in Nevada (1974-1982). Former executive
of Cessna Aircraft Company. Former consultant
with McKinsey & Company. Member, Society of
Experimental Test Pilots. Trustee,
Harvard-Westlake School. Overseer, Hoover
Institution and Member of the Visiting
Committee of the Harvard Business School.
</TABLE>
4
<PAGE>
GENERAL INFORMATION CONCERNING THE BOARD OF DIRECTORS
During fiscal year 1998, the Board of Directors of the Company held eight
meetings and acted once by unanimous written consent. The average attendance at
Board meetings was 97%, and attendance at committee meetings was 100%.
The Board has established four standing committees to assist it in carrying
out its duties: the Executive Committee, the Audit and Compliance Committee, the
Compensation and Selection Committee, and the Nominating Committee.
BOARD COMMITTEES AND MEETING ATTENDANCE
The Executive Committee consists of Alton J. Brann (Chairman), Michael R.
Brown, Joseph T. Casey, and John M. Leonis. The Executive Committee exercises
all powers of the Board of Directors when the full Board is not in session and
supervises the management and business of the Company. The Executive Committee
held two meetings in fiscal year 1998, and acted 22 times by unanimous written
consent. Actions taken by the Executive Committee are subsequently ratified by
the full Board of Directors.
The Audit and Compliance Committee consists of C.B. Thornton, Jr.(Chairman),
Joseph T. Casey, Carol B. Hallett, and William P. Sommers. The Audit and
Compliance Committee is responsible for the oversight of the Company's
accounting policies and compliance functions. It reviews and recommends outside
auditors and determines the scope of the audit; it reviews the activities of the
Company's internal auditors; and it reviews and monitors the Company's ethics
and compliance programs. The Audit and Compliance Committee held six meetings in
fiscal year 1998.
The Compensation and Selection Committee consists of David E. Jeremiah
(Chairman), Carol B. Hallett, C.B. Thornton, Jr., and William P. Sommers. The
Compensation and Selection Committee has responsibility for the design,
implementation, and administration of the Company's executive compensation and
benefits program. The Compensation and Selection Committee held four meetings in
fiscal year 1998.
The Nominating Committee consists of Carol B. Hallett (Chairman), David E.
Jeremiah, Alton J. Brann, and Michael R. Brown. The Nominating Committee reviews
the qualifications of all Board of Directors candidates and recommends possible
candidates to fill vacancies on the Board of Directors. The Nominating Committee
held one meeting in fiscal year 1998.
DIRECTOR COMPENSATION
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
of its Committees.
ANNUAL FEES FOR NON-EMPLOYEE DIRECTORS
Non-employee directors receive the following compensation:
- A retainer of $27,500, payable in equal quarterly installments;
- Board and Committee meeting attendance fees of $1,500 per meeting ($2,500
per meeting for the Chairman of the Committee);
- Additional annual fee of $12,000 for members of the Executive Committee
($15,000 for the Chairman of the Executive Committee).
DEFERRED COMPENSATION PLAN FOR DIRECTORS
Effective September 24, 1998, the Board approved a deferral plan for
non-employee directors which is described below. The shares of Common Stock and
stock options which are contemplated by the
5
<PAGE>
deferral plan will be issued under the Litton Industries, Inc. Non-Employee
Director Stock Plan which is submitted in this Proxy Statement for approval by
the shareholders.
Under the deferral plan, directors may defer annual retainers and meeting
fees in the form of cash or shares of Common Stock. Cash deferrals bear interest
at the prime rate in effect at Morgan Guaranty Trust Co., and are paid after the
end of the director's Board service either as a lump sum payment or in equal
annual installment payments.
Directors electing to defer their fees into shares of Common Stock receive a
10% premium on such fees. On the date the fees would normally have been paid,
the Company will convert the amount of the fees, including the 10% premium, into
a number of stock units equal to the number of shares of Common Stock which
could have been purchased at fair market value on that date. Stock units are
paid in full shares of Common Stock after the end of the director's Board
service.
Directors may also elect to convert their annual retainers and meeting fees
into options to purchase shares of Common Stock at fair market value. The number
of options granted pursuant to this election will reflect a formula reviewed and
approved by the Board from time to time.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Under the existing plan, which terminates on December 31, 1998, new
directors receive an automatic initial option grant to purchase 10,000 shares of
Common Stock, at fair market value, on the first business day following an
Annual Meeting. Each year thereafter there is an automatic annual option grant
to purchase 2,000 shares at fair market value. Option grants become fully
exercisable on the first anniversary of the grant.
On September 24, 1998, the Board approved a new plan for non-employee
directors which is submitted herein for shareholder approval. A description of
the new plan is included on pages 19 and 20. Under the new plan, the Board
intends to continue its practice of making an initial grant of 10,000 options to
new directors, and granting 2,000 options each year thereafter to each
non-employee director. The new plan authorizes the Board to make additional
grants to non-employee directors, for example, to reward a director's
exceptional or extraordinary services as a member of the Board, or in
consideration for services to the Company outside of the scope of a director's
normal duties. Options under the new plan are granted at fair market value and
vest immediately upon grant.
If the shareholders do not approve the new plan at the Annual Meeting, each
director will be eligible to receive one more grant of 2,000 options under the
existing plan.
RETIREMENT PROGRAM FOR DIRECTORS
Effective September 24, 1998, the Board amended the retirement program for
directors by terminating the retirement pension for future directors and
preserving the pension rights of current directors. Current members of the Board
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 as a non-employee director, or the
remaining life of the director or surviving spouse. The mandatory retirement age
remains 72.
STOCK OWNERSHIP GUIDELINES
The Company has implemented ownership guidelines for non-employee directors
to own a number of shares equal in value to at least four times their annual
retainer. Directors are given three years to attain this ownership guideline.
6
<PAGE>
OTHER INFORMATION ON DIRECTORS
Joseph T. Casey, former Chief Financial Officer and Vice Chairman of the
Company receives certain retirement benefits by reason of his former employment
by the Company. Mr. Casey receives a monthly benefit of $27,075, in the form of
a 100% joint and survivor annuity. In addition, during fiscal year 1998, Mr.
Casey received $12,000 as a member of the Company's Investment Committee.
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 year 1998 was $26,187. Under the terms of a
Company-provided contractual pension benefit, and the Restoration Plan described
on page 11, Dr. Hoch receives a combined monthly benefit of $60,391 in the form
of a 100% joint and survivor annuity.
7
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
LITTON COMMON STOCK
<TABLE>
<CAPTION>
SHARES SUBJECT
SHARES OF COMMON STOCK TO OPTIONS DEFERRED
BENEFICIALLY OWNED AS EXERCISABLE AT STOCK UNITS PERCENT OF
OF 9/30/98 9/30/98 (#)(F) CLASS*
<S> <C> <C> <C> <C>
NON-EMPLOYEE DIRECTORS
Alton J. Brann 3,400 8,000 -0- *
Joseph T. Casey 32,954(a) 74,000 -0- *
Carol B. Hallett 690 18,000 -0- *
Orion L. Hoch 89,399(b) 33,916 -0- *
David E. Jeremiah 500 15,500 -0- *
William P. Sommers 500 16,000 -0- *
C. B. Thornton, Jr. 832,874(b)(c) 28,000 -0- 1.83
NAMED EXECUTIVE OFFICERS
John M. Leonis 25,506 100,559 25,049 *
Michael R. Brown 16,141 83,859 2,021 *
Gerald J. St. Pe 18,746 62,400 2,124 *
Larry A. Frame 18,808 32,520 3,429 *
John E. Preston 13,024(b) 29,698 1,777 *
Harry Halamandaris 33 14,450 4,920 *
GROUP
Directors, Nominees and
Executive Officers as a
Group (17 people) 1,134,881(b)(d)(e) 573,238 43,456 2.50
</TABLE>
* Percentage of shares is given only where such percentage exceeds 1% of the
Common Stock outstanding on the record date, exclusive of treasury shares.
(a) Excludes 8,500 shares held by a charitable corporation of which Mr. Casey
serves as trustee. Mr. Casey has voting and investment power with respect to
such 8,500 shares and may be deemed to have incidents of beneficial
ownership.
(b) 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.
(c) 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.
(d) Excludes 255,126 shares owned by the Litton Master Trust which holds certain
retirement funds of the Company and its subsidiaries. Messrs. Casey and
Preston are members of 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 3%.
(e) 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
8
<PAGE>
power of the shares, are elected and may be removed by the Nominating
Committee of the Board of Directors of the Company.
(f) Individuals with stock units in this column have elected to defer a portion
of their bonus awards. On the award date, the bonus is converted into a
number of stock units equal to the number of shares of Common Stock which
could have been purchased at fair market value on that date. Deferred awards
are paid in full shares of Common Stock upon termination of service, death,
or a change of control. Although individuals may be deemed to have incidents
of beneficial ownership, they do not have any voting power with respect to
these shares.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION ALL OTHER
NAMED EXECUTIVE OFFICERS COMPENSATION AWARDS COMPENSATION
Fiscal Salary Bonus Options
Name and Principal Position Year ($) ($)(c) (#) ($)(d)
<S> <C> <C> <C> <C> <C>
John M. Leonis(a) 1998 717,312 725,000 25,000 3,339
CHAIRMAN 1997 675,000 675,000 50,000 5,032
1996 574,054 600,000 50,000 6,905
Michael R. Brown 1998 497,509(b) 570,000 60,000 9,158
PRESIDENT AND CHIEF EXECUTIVE OFFICER 1997 441,542 440,000 35,000 7,740
1996 379,236 400,000 73,000 8,641
Gerald J. St. Pe 1998 374,454 420,992 12,000 3,589
SENIOR VICE PRESIDENT 1997 366,231 350,000 12,000 2,951
1996 342,020 350,000 15,000 6,242
Larry A. Frame 1998 271,000 300,300 10,000 -0-
SENIOR VICE PRESIDENT 1997 263,272 240,000 10,000 -0-
1996 248,284 140,000 10,000 -0-
John E. Preston 1998 297,248 260,000 12,000 8,134
SENIOR VICE PRESIDENT AND GENERAL COUNSEL 1997 284,964 246,000 15,000 7,270
1996 265,552 230,000 14,000 6,527
Harry Halamandaris 1998 296,088 258,750 10,000 7,432
SENIOR VICE PRESIDENT 1997 287,613 240,000 10,000 7,857
1996 250,016 187,000 12,000 1,727
</TABLE>
(a) Mr. Leonis was Chief Executive Officer through March 1998.
(b) Mr. Brown deferred $48,807 of base salary earned during the 1998 fiscal
year.
(c) Fiscal year 1998 bonus awards are paid in full in December 1998. Certain
executive officers have elected to defer the following portions of their
1998 bonus awards: Mr. Leonis, 100%; Mr. Brown, 20%; Mr. St. Pe, 20%; Mr.
Frame, 40%; and Mr. Halamandaris, 60%. As a result of such deferrals these
officers have been credited the following number of stock units included in
the "deferred stock units" column of the Security Ownership of Directors and
Executive Officers table on page 8: Mr. Leonis, 12,853; Mr. Brown, 2,021;
Mr. St. Pe, 1,492; Mr. Frame, 2,129; and Mr. Halamandaris, 2,752.
(d) Includes, if any, taxable amounts imputed under various life insurance
arrangements provided by the Company and amounts of imputed interest on the
loans described on page 13.
9
<PAGE>
OPTION GRANTS IN 1998 FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
NAMED EXECUTIVE STOCK PRICE APPRECIATION
OFFICERS INDIVIDUAL GRANTS FOR OPTION TERM
HYPOTHETICAL HYPOTHETICAL
% OF TOTAL VALUE VALUE
OPTIONS REALIZED AT REALIZED AT
OPTIONS GRANTED TO EXERCISE 5% STOCK 10% STOCK
GRANTED EMPLOYEES IN PRICE EXPIRATION APPRECIATION APPRECIATION
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
<S> <C> <C> <C> <C> <C> <C>
John M. Leonis 25,000 3.15 57.78 6/25/08 908,500 2,302,250
Michael R. Brown 60,000 7.56 57.78 6/25/08 2,180,400 5,525,400
Gerald J. St. Pe 12,000 1.51 57.78 6/25/08 436,080 1,105,080
Larry A. Frame 10,000 1.26 57.78 6/25/08 363,400 920,900
John E. Preston 12,000 1.51 57.78 6/25/08 436,080 1,105,080
Harry Halamandaris 10,000 1.26 57.78 6/25/08 363,400 920,900
</TABLE>
AGGREGATED OPTION EXERCISES IN 1998 FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT JULY 31, 1998 IN-THE-MONEY OPTIONS
EXERCISE REALIZED (#) AT JULY 31, 1998 ($)
NAME COMPANY* (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C> <C>
John M. Leonis LIT 19,991 934,155 100,559 115,300 2,915,138 1,521,239
WAI 40,852 2,948,375 -0- -0- -0- -0-
Total 60,843 3,882,530 100,559 115,300 2,915,138 1,521,239
Michael R. Brown LIT 10,346 346,333 75,259 135,600 2,038,796 957,817
WAI 30,823 2,215,939 -0- -0- -0- -0-
Total 41,169 2,562,272 75,259 135,600 2,038,796 957,817
Gerald J. St. Pe LIT 19,200 980,021 62,400 36,600 1,957,509 377,295
WAI -0- -0- 18,110 -0- 860,762 -0-
Total 19,200 980,021 80,510 36,600 2,818,271 377,295
Larry A. Frame LIT 18,400 869,970 32,520 29,480 924,668 316,669
WAI 25,133 1,697,161 -0- -0- -0- -0-
Total 43,533 2,567,131 32,520 29,480 924,668 316,669
John E. Preston LIT -0- -0- 29,698 38,560 812,653 416,287
WAI 4,977 368,126 -0- -0- -0- -0-
Total 4,977 368,126 29,698 38,560 812,653 416,287
Harry Halamandaris LIT -0- -0- 10,800 36,200 163,637 484,047
WAI -0- -0- -0- -0- -0- -0-
Total -0- -0- 10,800 36,200 163,637 484,047
</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
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 WAI.
10
<PAGE>
RETIREMENT BENEFITS
- THE FSSP AND RELATED RETIREMENT PLANS
Litton's Financial Security and Savings Program ("FSSP") is a defined
contribution plan intended to qualify under Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"). Participation in the FSSP is
generally available to U.S. employees of the Company's corporate offices and
participating subsidiaries and divisions. All of the Named Executive Officers
participate in the FSSP.
The first 1% to 4% of pay a participant elects to deposit in the FSSP
creates an annual retirement benefit payable at age 65 equal to the greater of
(a) 60% of such deposits, or (b) 85% of such deposits, less 75% of estimated
Social Security primary insurance. The benefit is payable as an annuity and is
reduced by the actuarial equivalent of any elected lump sum distribution of the
deposits, as adjusted for earnings or losses. Participants may deposit an
additional 1% to 14% of pay into the Savings Account portion of the FSSP and
receive a 50% Company match on the first 1% to 4% of those deposits. For any
calendar year, a participant's deposits in the FSSP may not exceed the maximum
deferral amount prescribed by Section 401(k) of the Code or, if less, 20% of a
participant's annual compensation.
- RESTORATION PLAN
The Litton Industries, Inc. Restoration Plan (the "Restoration Plan"), is an
unfunded, nonqualified retirement plan that restores company-provided retirement
benefits and FSSP Savings Account 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 PROVIDED
NAME TOTAL PENSION PORTION
<S> <C> <C>
John M. Leonis $ 251,059 $ 210,756
Michael R. Brown 465,196 413,979
Gerald J. St. Pe 409,132 349,442
Larry A. Frame 228,519 185,968
John E. Preston 334,489 280,435
Harry Halamandaris 163,997 155,241
</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. In
general, participants must be at least age 50, and vesting occurs when a
participant reaches age 60 and has at least fifteen years of service with the
Company. The SERP retirement benefit is determined based on a participant's
Average Earnings (for the highest three twelve month periods out of their last
60 months of compensation) and years of service since age 40 (up to a maximum of
25 years). Under the SERP, the credited years of service at September 30, 1998,
of the Named Executive Officers are as follows: Mr. Leonis, 24 years; Mr. Brown,
17 years; Mr. St. Pe, 18 years; Mr. Frame, 22 years; Mr. Preston, 16 years; and
Mr. Halamandaris, 3 years. In order to provide a
11
<PAGE>
comparable executive benefit, the Company will credit Mr. Halamandaris with an
additional 14 years of service at age 65 for benefit accrual purposes.
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 YEARS OF SERVICE
(AVERAGE 25 OR
EARNINGS) 15 20 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>
CHANGE IN CONTROL
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
one of the following events: (1) a change in the majority of the members of the
Company's Board of Directors; (2) 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; (3) a merger, reorganization, or consolidation
of the Company with another party (other than certain limited types of mergers);
(4) a sale or disposition of substantially all of the Company's assets; or (5)
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, the
executive terminates his or her employment, 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 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.
The SERP and the Restoration Plan provide that in the event of a change in
control, all participants in such plans become fully vested in their benefit and
the Company becomes obligated to fund a trust with sufficient assets to
adequately satisfy the liabilities of the SERP and the Restoration Plan. The
Compensation and Selection Committee of the Board may direct the Company to pay
the benefits from such trust either as a lump sum payment based upon certain
actuarial factors or to pay the benefits monthly as an annuity. The assets of
such trusts would be subject to the claims of the Company's creditors in the
event of the insolvency or bankruptcy of the Company.
12
<PAGE>
INDEBTEDNESS OF MANAGEMENT TO THE COMPANY
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. Granting of loans
to executive officers, including the Named Executive Officers, requires the
approval of the Compensation and Selection Committee.
As of October 9, 1998, loans upon the terms set forth above in the aggregate
amount of $695,000 were outstanding to three of the Named Executive Officers:
Mr. Brown, $275,000; Mr. Preston, $170,000; and Mr. Halamandaris, $250,000. The
Company has $458,000 loans outstanding to two other executive officers as of
October 9, 1998. The largest total amount of indebtedness of all executive
officers outstanding at any time since July 31, 1997 was $1,153,000.
13
<PAGE>
REPORT OF THE COMPENSATION AND SELECTION COMMITTEE
The Compensation and Selection Committee of the Board of Directors
establishes the salaries and other compensation of the executive officers of the
Company, including its CEO and the other individuals listed in the "Summary
Compensation Table" ("Named Executive Officers") . The Committee consists
entirely of non-employee directors.
The Committee's executive compensation program is designed to:
- retain executive officers by paying them competitively, motivate them to
contribute to the Company's success, and reward them for their
performance;
- link a substantial part of each executive officer's compensation to the
performance of the Company; and
- encourage ownership of Common Stock by executive officers.
The program consists of, and is intended to balance, three elements: (1)
base salaries based on the Committee's evaluation of individual job performance,
and an assessment of the salaries paid by the Company's peer group of companies
made up of aerospace/defense and information systems companies, many of which
directly compete with the Company for business and talent, and comparative
general industry data; (2) annual performance awards based on an evaluation of
Company and individual performance; and (3) long-term incentive awards currently
consisting of stock options designed to ensure that incentive compensation is
linked to the long-term performance of the Company and its Common Stock.
The Committee annually retains a compensation consulting firm to provide a
review of each component of the Company's executive compensation program, and to
assess its competitiveness in relation to the Company's peer group and general
industry companies.
CEO COMPENSATION
The Committee considered four factors in determining total compensation of
Messrs. Leonis and Brown: (1) a review of the total compensation of CEOs at the
peer group of companies and comparative general industry data; (2) the Company's
performance during the 1997 fiscal year to determine salaries for the 1998
fiscal year; (3) the Company's performance during the 1998 fiscal year to
determine annual performance awards; and (4) Messrs. Leonis and Brown's
contributions to the business.
SALARIES
The Committee determines base annual salaries of the Company's senior
executive management, including the CEO, by evaluating certain criteria, which
include: level of responsibility and experience; individual performance;
specific contributions to the Company and its business objectives; internal
Company issues such as fairness; and comparable levels of responsibility and
compensation at the peer group.
Effective October 1997, the Committee awarded Mr. Leonis a salary adjustment
of 7.4% , increasing his salary to $725,000, and awarded Mr. Brown a salary
adjustment of 13% for his performance as President and Chief Operating Officer,
increasing his salary to $500,000. In June 1998, Mr. Brown received an
additional increase of $70,000 as a result of his assuming new responsibilities
as CEO.
In increasing Mr. Leonis' salary by 7.4%, the Committee gave special
recognition to the following 1997 accomplishments realized under Mr. Leonis'
leadership: the Company's sales for the 1997 fiscal year increased 16% and
diluted earnings per share increased 8% over the previous fiscal year results;
the Company generated strong cash flow enabling it to facilitate acquisitions
and reduce debt; the Company strengthened its position in the marine electronics
and electronic display markets through the acquisition
14
<PAGE>
of the Racal Marine Group and SAI Technology; and Mr. Leonis' success in leading
the Company into new markets.
The 1998 salaries of the other Named Executive Officers are shown in the
"salary" column of the Summary Compensation Table on page 9. These officers
received an average increase of 4.5% from their 1997 salaries.
ANNUAL PERFORMANCE AWARDS
The Committee administers annual performance awards pursuant to various
performance-based plans, including the Company's Performance Award Plan and the
Group Plan (together, the "Plans"). The Committee annually determines which
officers and key employees will be eligible to receive annual performance
awards. Under the Company's Plans, awards are payable in full in December
following the end of the fiscal year for which the awards are granted.
The Performance Award Plan requires the Committee to establish, prior to the
beginning of each fiscal year, a planned level of Company performance objectives
determined by certain financial measurements such as profits, profit growth,
profit related return ratios, cash flow, and total shareholder return. The
Committee has discretion to provide for additional opportunities to receive
annual incentive awards based upon the attainment of various productivity and
long-term growth objectives. For fiscal year 1998, the Committee established a
performance objective based on a formula which calculates earnings per share and
earnings per share growth based on beginning-of-year shares and earnings on an
after-tax basis. Using this formula, the total bonus pool available for fiscal
year 1998 performance awards under the Performance Award Plan is $3,942,000.
For the 1998 fiscal year, annual performance awards of $725,000 for Mr.
Leonis, and $450,000 for Mr. Brown, were approved by the Committee under the
Performance Award Plan. The Board granted Mr. Brown an additional discretionary
bonus of $120,000.
In determining the award amounts for Messrs. Leonis and Brown, the Committee
considered the following accomplishments during the 1998 fiscal year: a 5%
increase in sales and an 11% increase in operating profit; a net income and
diluted earnings per share increase of 12%; the development of a strategic plan
designed to generate internal growth, investments and multi-division technology
cooperation; the successful acquisition and continuous integration of the TASC
group of companies and prior acquisitions; the significant improvement in the
Company's financial operations and operating efficiencies through the
restructuring of a number of foreign assets; and the creation of significant new
business opportunities in all operating groups through technical developments
and alliances.
The annual performance awards for the 1998 fiscal year granted to each of
the Named Executive Officers are shown in the "bonus" column of the Summary
Compensation Table.
The Committee has adopted provisions under the Plans which permit officers
to defer all or part of an incentive award payment. On the day a performance
award is made to an officer, the Company will credit to such officer a number of
stock units equivalent to the number of shares of Company Common Stock which
could have been purchased on such date for fair market value with the dollar
amount of the deferred performance award. The deferral elections for Mr. Leonis,
Mr. Brown and the other Named Executive Officers are discussed in footnote (c)
of the Summary Compensation Table.
LONG-TERM INCENTIVES
The Company uses stock option grants as a long-term incentive to attract and
retain key employees whose talents and contributions are important to the
long-term success of the Company. Stock option grants also align the employee's
interest with that of the shareholders. The Committee grants stock options
pursuant to the Litton Industries, Inc. 1984 Long-Term Stock Incentive Plan
("Incentive Plan"), and sets guidelines for the number and terms of such grants
based on peer group data and the Company's
15
<PAGE>
business objectives. The Incentive Plan requires that options be granted at no
less than 100% of fair market value. Options granted by the Committee generally
become exercisable in cumulative installments over a period of five years.
For the 1998 fiscal year, Mr. Leonis was awarded options to purchase 25,000
shares of Common Stock, and Mr. Brown was awarded options to purchase 60,000
shares of Common Stock. The other Named Executive Officers were awarded the
number of stock options shown in the Option Grants in 1998 Fiscal Year Table on
page 10.
TAX POLICY
The Committee's policy is to qualify for deduction, for Federal income tax
purposes, all executive compensation by compliance with Section 162(m) of the
Internal Revenue Code of 1986, as amended, except in instances where the
Committee may determine it is in the Company's best interest to award
compensation which does not so qualify. The Committee notes that for fiscal year
1998, the Company is not expected to lose tax deductions available to it under
Section 162(m).
THE FOREGOING REPORT HAS BEEN FURNISHED BY THE FOLLOWING MEMBERS OF THE
COMPENSATION AND SELECTION COMMITTEE:
<TABLE>
<S> <C>
David E. Jeremiah, CHAIRMAN William P. Sommers
Carol B. Hallett C.B. Thornton, Jr.
</TABLE>
16
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the dates indicated in the footnotes below, the following table sets
forth entities which were known to own beneficially more than 5% of the
Company's Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF CLASS
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (AS OF RECORD DATE)
<S> <C> <C>
Unitrin, Inc.
One East Wacker Drive
Chicago, Illinois 60601 12,657,764(a) 27.8%
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109 5,612,720(b) 12.3%
Sanford C. Bernstein & Co.
One State Street Plaza
New York, New York 10004 4,201,198(c) 9.2%
</TABLE>
(a) Unitrin, Inc. ("Unitrin") has reported in a filing with the SEC on Schedule
13D that, as of October 5, 1995, shares of the Company's 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) FMR Corp. ("FMR") has reported in a filing with the SEC on Schedule 13G/A
that, as of February 14, 1998, shares of the Company's Common Stock are
owned by FMR (135,900 shares) and a subsidiary, Fidelity Management &
Research Corporation (5,476,820 shares). FMR reported that it exercises sole
voting power over 125,500 shares, and sole dispositive power over all of
these shares.
(c) Sanford C. Bernstein & Co. ("Bernstein") has reported in a filing with the
SEC on Form 13F that, as of June 30, 1998, shares of the Company's Common
Stock are owned by Bernstein. Bernstein reported that it exercises sole
voting power over 2,637,175 shares, and sole dispositive power over all of
these shares.
17
<PAGE>
PERFORMANCE GRAPH
(COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN)
The following graph illustrates the performance of the Company's Common
Stock over the five-year period from August 1, 1993 through July 31, 1998,
compared to the performance of the S&P 500 Index and the S&P Aerospace/Defense
Index:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LITTON INDUSTRIES INC AEROSPACE DEFENSE - 500 S&P 500 INDEX
<S> <C> <C> <C>
1993 $100 $100 $100
1994 $130 $114 $105
1995 $135 $170 $133
1996 $151 $221 $155
1997 $183 $313 $235
1998 $201 $238 $281
</TABLE>
- ------------------------
* Assumes $100 invested August 1, 1993 in the Company's Common Stock, the S&P
500 Index and the S&P Aerospace/Defense Index (dividends reinvested).
18
<PAGE>
ITEM TWO: ADOPTION OF THE LITTON INDUSTRIES, INC.
NON-EMPLOYEE DIRECTOR STOCK PLAN
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE PLAN.
On September 24, 1998, the Board of Directors adopted the Litton Industries,
Inc. Non-Employee Director Stock Plan (the "Plan") for the benefit of the
non-employee directors ("Directors") of the Company, subject to the approval of
the Company's shareholders. The Plan is intended to encourage ownership in the
Company by the Directors, to assist the Company in attracting and retaining
Directors, and to provide appropriate incentives for Directors. There are
currently seven Directors who are eligible to participate in the Plan.
If the shareholders do not approve the Plan at the Annual Meeting, each
Director will be eligible to receive one more grant of 2,000 options under the
existing plan which terminates on December 31, 1998.
REASONS FOR THE PLAN
The Plan is a key component in the Company's efforts to restructure Director
compensation in such a way that the Director's long-term interests are aligned
with those of the Company's shareholders, while still providing competitive
compensation for current and future Directors taking into consideration trends,
developments and evolving "best practices" in directors compensation. In keeping
with this restructuring, the Company has offered Directors a compensation
package with greater emphasis on share ownership and less emphasis on cash
compensation, made stock options immediately vested to avoid service-related pay
contingencies, provided attractive stock-related deferral opportunities,
eliminated the retirement pension for future Directors, and implemented stock
ownership guidelines for all Directors.
DESCRIPTION OF THE PLAN
The principal provisions of the Plan are summarized below. The description
does not purport to be complete and is qualified in its entirety by the terms of
the Plan, the entire text of which is attached hereto as Annex A and
incorporated herein by reference. The various deferral alternatives discussed
below are subject to a deferral plan adopted by the Board on September 24, 1998
and are discussed more fully under the section entitled "Director Compensation"
on pages 5 and 6.
STOCK AVAILABLE FOR GRANT. As of the effective date of the Plan, 460,000
shares of Common Stock will be available for issuance to Directors. The Plan
authorizes the Board to issue shares of Common Stock pursuant to: incentive
grants of stock options; elections to convert a Director's annual retainers and
meeting fees into stock options; elections to defer such amounts into shares of
Common Stock; and other circumstances approved by the Board from time to time.
STOCK OPTIONS. Awards of stock options to Directors will be granted at the
sole discretion of the Board and may vary from year to year and from participant
to participant. The Board intends to continue its past practice of granting
10,000 options to new Directors, and 2,000 options annually to Directors, on the
first business day following an annual meeting. The Plan gives the Board the
flexibility to grant additional options to Directors. For example, the Board
would have the power to grant additional options to reward a Director's
exceptional or extraordinary services as a member of the Board, or in
consideration for services to the Company outside of the scope of a Director's
normal duties.
Directors may also receive options as a result of an election to convert
their annual retainers and meeting fees into options to purchase shares of
Common Stock at fair market value. The number of options granted pursuant to
this election will reflect a formula approved by the Board from time to time
using an appropriate option-pricing methodology and assumptions. The formula the
Board currently intends to use would grant a Director a number of options equal
to four times the amount of the annual
19
<PAGE>
retainer and meeting fees to be earned in a calendar year divided by the fair
market value of Common Stock.
Under the Plan, all options are granted at fair market value, are
immediately vested, and expire in accordance with individual option agreements.
STOCK UNITS. The Plan also authorizes the Board to issue shares of Common
Stock as a result of an election to defer annual retainers and meeting fees. The
Company will convert the deferred amount into a number of stock units equal to
the number of shares of Common Stock which could have been purchased at fair
market value on a specific date; the Company may add a premium to encourage
Directors to accumulate ownership through deferrals into Company Common Stock.
Stock Units are paid in full shares of Common Stock after the end of the
director's Board service.
TRANSFERABILITY. Options are transferable to the extent provided in
individual option agreements or as may be provided by will or the laws of
descent and distribution.
ADMINISTRATION. All grants of options and any other distribution of shares
of Common Stock under the Plan will be administered by the Board. Subject to the
limitations set forth in the Plan, the Board has authority to determine, among
other things: to which Directors options or other awards of shares of Common
Stock will be granted; the type(s) of awards to be made; the number of shares
subject to each award; and the terms and conditions of options granted. The
Board also has authority to amend and terminate the Plan. However, no amendments
may be made to increase the maximum number of shares available under the Plan,
or to change the price at which options may be granted, without shareholder
approval.
TERMINATION. The Plan will terminate on December 31, 2008. Options to
purchase Common Stock or other stock awards granted and outstanding as of the
date the Plan terminates are not affected or impaired by such termination.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
STOCK OPTIONS. Upon exercising an option, a Director will recognize
ordinary income in an amount equal to the difference between the exercise price
and the fair market value of the stock on the date of exercise. If a Director
elects to defer the gain, the Director will recognize ordinary income in an
amount equal to the fair market value of the stock distributed to the Director
on the date of actual distribution. The Company is entitled to a deduction in
the same amount and at the same time as the Director recognizes ordinary income.
If a Director surrenders shares of Common Stock in payment of part or all of
the exercise price for options, no gain or loss will be recognized with respect
to the shares surrendered, and the Director will be treated as receiving an
equivalent number of shares pursuant to the exercise of the option in a
nontaxable exchange. The difference between the aggregate option exercise price
and the aggregate fair market value of the shares received pursuant to the
exercise of the option will be taxed as ordinary income.
STOCK UNITS. Upon receipt of shares of Common Stock attributable to stock
units credited to a Director, a Director will recognize ordinary income in an
amount equal to the fair market value of the Common Stock on the date of
issuance. The Company is entitled to a deduction in the same amount and at the
same time as the Director recognizes ordinary income.
20
<PAGE>
ITEM THREE: 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 1999 FISCAL
YEAR.
Deloitte & Touche LLP has served as the Company's independent auditors
continuously since 1954, is familiar with the business and operations of the
Company and its subsidiaries, and has 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.
SHAREHOLDER PROPOSALS FOR 1999 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 1999 Annual Meeting, they must be
received by the Company no later than August 27, 1999. 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
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited by directors, officers, or regular employees of the Company 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.
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 Securities
Exchange Act of 1934 that might incorporate future filings, including this Proxy
Statement, in whole or in part, the Performance Graph on page 18 and the Report
of the Compensation and Selection Committee on pages 14 through 16 shall not be
incorporated by reference into any such filings.
The Board of Directors does not know of any other matters that are to be
presented for action at the Annual 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.
21
<PAGE>
ANNEX A
LITTON INDUSTRIES, INC.
NON-EMPLOYEE DIRECTOR STOCK PLAN
The purpose of this Plan is to encourage ownership in the Company by
Directors whose services are considered essential to the Company's continued
progress, and thus to provide them with a further incentive to continue to serve
as Directors of the Company. The Plan is also intended to assist the Company in
attracting and retaining experienced and qualified candidates for membership on
the Board of Directors.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan they shall have the
meaning specified below unless the context clearly indicates to the contrary:
1.1 "AWARD" shall mean an incentive grant of Options, or Options or shares
of Stock issued in respect of compensation to be earned but deferred, or any
other issuance of Options or shares of Stock as the Board may authorize from
time to time at its discretion.
1.2 "BOARD OF DIRECTORS" or "BOARD" shall mean the Board of Directors of the
Company.
1.3 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
1.4 "COMPANY" shall mean Litton Industries, Inc., a Delaware corporation,
and any successor thereof.
1.5 "DIRECTOR" shall mean a member of the Board of Directors of the Company
who is not an officer or employee of the Company or any of its subsidiaries.
1.6 "DIRECTOR'S FEES" shall mean the fees payable to a Director for services
as a Director and for services on any committee of the Board, including any
amount of any retainer and meeting fees paid to a Director for services as
chairman of the Board.
1.7 "FAIR MARKET VALUE" shall mean (a) the average of the highest and lowest
quoted selling prices of a share of Stock on a particular day, or (b) 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 Index, or such other publication as the Board designates.
1.8 "OPTION" shall mean an option granted by the Company to purchase shares
of Stock pursuant to the provisions of this Plan and a Stock Option Agreement
executed pursuant hereto.
1.9 "OPTION PRICE" shall mean the per share purchase price of the Stock
subject to the Option. The Option Price shall be determined by the Board of
Directors at the time of grant but shall not be less than the Fair Market Value
of the Stock on the date of grant.
1.10 "PLAN" shall mean the Litton Industries, Inc. Non-Employee Director Stock
Plan.
1.11 "STOCK" shall mean the common stock, par value $1 per share, of the
Company.
1.12 "STOCK UNITS" shall mean a non-voting unit of measurement which is deemed
for bookkeeping and payment purposes to represent one outstanding share of
Stock.
1.13 "STOCK OPTION AGREEMENT" shall mean the agreement between the Company and
the Director under which the Director receives a grant of Options under this
Plan.
A-1
<PAGE>
ARTICLE II
PARTICIPATION
2.1 PARTICIPATION. Each Director shall participate in the Plan upon the
approval of a grant of Options to the Director, or upon an election to defer
Director's Fees into Options or shares of Stock, or upon such other
circumstances approved by the Board of Directors from time to time.
ARTICLE III
SHARES OF STOCK SUBJECT TO THE PLAN
3.1 SHARES AVAILABLE. An aggregate number not to exceed 460,000 shares of
Stock (subject to adjustments contemplated by Section 3.2) may be delivered
pursuant to this Plan. Shares of Stock under this Plan may be either authorized
and unissued shares of Stock or treasury Stock.
3.2 ADJUSTMENTS TO AWARDS ONCE ISSUED. In the event that the outstanding
shares of Stock are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corporation by reason of
merger, consolidation, other reorganization, recapitalization, reclassification,
combination of shares, stock split-up, spin-off, or stock dividend, the Board
shall make such corresponding adjustments, if any, as deemed appropriate in its
sole discretion. The Board may adjust the number and kind of shares which may be
granted under the Plan, and the number, the Option Price, and the kind of shares
or property subject to each outstanding grant. The adjustment by the Board shall
be final, binding and conclusive. Notwithstanding the foregoing, no fractional
shares of Stock shall be issued under the Plan as a result of such adjustment,
but the Board in its discretion may make a cash payment in lieu of fractional
shares.
ARTICLE IV
STOCK OPTIONS
4.1 GRANT. A Director may be granted Options pursuant to this Plan as a
form of incentive payment. Options may also be granted as a result of an
election to convert Director's Fees into Options; the number of Options to be
granted as a result of a deferral election shall be calculated under a formula
as determined by the Board from time to time.
4.2 EXERCISE. Subject to Federal and State statutes then applicable, the
terms and procedures by which any Option may be exercised shall be set forth in
the Director's Stock Option Agreement or in procedures established by the Board.
Options may be exercised only by prior written notice to the Company at its
corporate office accompanied by payment of the full consideration for the shares
as to which they are exercised.
4.3 OPTION PRICE. The Option Price is to be paid (a) by cash, including a
personal check payable to the order of the Company, or (b) by delivering Stock
owned by the Director for at least six months and valued at Fair Market Value as
of the date of delivery (Directors are also permitted to deliver such stock
through attestation or other similar procedures approved by the Board), or (c)
by any combination of (a) and (b).
4.4 STOCK OPTION AGREEMENTS. Each grant of an Option under this Plan shall
be evidenced by a written Stock Option Agreement dated as of the date of the
grant and executed by the Company and the Director. The Stock Option Agreement
shall set forth the terms and conditions of such grant as approved by the Board
of Directors consistent with this Plan.
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ARTICLE V
STOCK UNITS AND OTHER DEFERRAL
5.1 STOCK UNITS. Stock Units will be credited to a Director as a result of
an election to have Director's Fees not yet earned, plus any additional premium
which may be determined by the Board from time to time, deferred and converted
into Stock Units valued at Fair Market Value as of the respective dates on which
such Director's Fees would otherwise have been payable to the Director.
5.2 MANNER OF DISTRIBUTION. Any amounts deferred pursuant to Section 5.1
will be maintained and paid in accordance with the provisions of the Litton
Industries, Inc. Non-Employee Director Deferred Compensation Plan.
ARTICLE VI
PLAN ADMINISTRATION
6.1 ADMINISTRATION. Except as otherwise specifically provided herein, the
Plan, all Stock Option Agreements, and any other distribution of Stock
authorized by the Board, shall be administered by the Board. The Board shall
have full authority and absolute sole discretion:
(a) to determine, consistent with the provisions of this Plan, which of
the Directors shall be granted Options and the form and term of such
Options; the timing of such Option grants; the number of shares
subject to each Award and the Option Price, subject to Section 1.9
hereof, covered by each Option;
(b) to determine the terms and provisions of each respective Stock Option
Agreement, which need not be identical;
(c) to make all other determinations and take all other actions deemed
necessary or advisable for the proper administration of the Plan, or
otherwise contemplated by the Plan;
(d) to adopt, alter, and repeal such rules, guidelines, and practices for
administration of the Plan and for its own acts and proceedings as it
shall deem advisable;
(e) to construe and interpret the terms and provisions of the Plan and
any Award (including the related Stock Option Agreements);
(f) to decide all disputes arising in connection with the Plan; and
(g) to otherwise supervise the administration of the Plan.
6.2 DELEGATION. The Board may delegate ministerial, non-discretionary
functions to individuals who are officers or employees of the Company.
6.3 LIMITATION ON LIABILITY. Neither the Company nor any member of the
Board, nor any other person participating in any determination of any question
under this Plan, or in the interpretation, administration or application of this
Plan, shall have any liability to any party for any action taken (or not taken)
in good faith under this Plan or for the failure of an Award (or action or
payment in respect of any Award) to satisfy Code requirements for realization of
intended tax consequences, to qualify for exemption or relief under federal
securities laws and regulations promulgated thereunder, or to comply with any
other law, compliance with which is not required on the part of the Company.
ARTICLE VII
AMENDMENTS AND TERMINATION
7.1 AMENDMENTS. The Board of Directors shall have the right to amend this
Plan or any Stock Option Agreement in whole or in part from time to time or may
at any time suspend or terminate this Plan
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or any Stock Option Agreement; provided, however, that no amendment or
termination shall cancel or otherwise adversely affect in any way, without a
Director's written consent, any Director's rights under this Plan as of the date
of such amendment or termination; and provided further, that no amendment shall
be made without the approval of the shareholders of the Company which increases
the maximum number of shares of Stock which may be issued under the Plan or
changes the price at which shares of Stock may be purchased. Any amendments
authorized hereby shall be stated in an instrument in writing, and all Directors
shall be bound by such amendment upon receipt of notice of the amendment.
7.2 TERMINATION. The Plan shall terminate on December 31, 2008.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 LIMITATION ON DIRECTOR'S RIGHTS. Participation in this Plan shall not
give any Director the right to continue to serve as a member of the Board or any
rights or interests other than as herein provided. No Director shall have any
right to any payment or benefit hereunder except to the extent provided in this
Plan.
8.2 BENEFICIARIES.
(a) BENEFICIARY DESIGNATION. Subject to applicable laws (including any
applicable community property and probate laws), each Director may
designate in writing the beneficiary that the Director chooses to
receive any payments that become payable after the Director's death.
A Director's beneficiary designation shall be made on form(s)
provided by, and in accordance with procedures established by, the
Company and may be changed by the Director at any time before the
Director's death.
(b) DEFINITION OF BENEFICIARY. A Director's beneficiary or beneficiaries
shall be the person(s), including a revocable living trust
established by and for the benefit of the Director alone, or for the
benefit of the Director and one or more immediate family members,
validly designated by the Director or, in the absence of a valid
designation, entitled by will or the laws of descent and distribution
to receive the amounts otherwise payable to the Director under this
Plan in the event of the Director's death.
8.3 TRANSFERABILITY OF OPTIONS. Each Option granted pursuant to this Plan
shall, during a Director's lifetime, be exercisable only by the Director or his
or her permitted transferees, and neither the Option nor any right thereunder
shall be transferable by the Director, by operation of law or otherwise, other
than as may be provided in the Director's Stock Option Agreement evidencing such
Option or as may be provided by will or the laws of descent and distribution.
Except as may be provided in the Stock Option Agreement evidencing an Option, no
Option shall be pledged or hypothecated (by operation of law or otherwise) or
subject to execution, attachment or similar processes.
8.4 GOVERNING LAW; SEVERABILITY. The validity of this Plan or any of its
provisions shall be construed, administered and governed in all respects under
and by the laws of the State of Delaware. If any provisions of this Plan shall
be held by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
8.5 COMPLIANCE WITH LAWS. This Plan and the offer, issuance and delivery
of shares of Stock are subject to compliance with all applicable Federal and
State laws, rules and regulations (including but not limited to State and
Federal reporting, registration, insider trading and other securities laws) and
to such approvals by any listing agency or any regulatory or governmental
authority as may, in the opinion of counsel for the Company, be necessary or
advisable in connection therewith. Any securities delivered under this Plan
shall be subject to such restrictions, and the person acquiring the securities
shall, if
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requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements.
8.6 PLAN BINDING ON SUCCESSORS. This Plan shall be binding upon the
successors and assigns of the Company.
8.7 HEADINGS NOT PART OF PLAN. Headings and subheadings in this Plan are
inserted for reference only and are not to be considered in the construction of
this Plan.
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LITTON INDUSTRIES, INC. PROXY
John M. Leonis, Michael R. Brown and Jeanette M. Thomas, or any 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 3, 1998, or any
adjournment thereof, upon such business as may properly come before the meeting,
including the items on this form, as set forth in the Notice of 1998 Annual
Meeting of Shareholders and the Proxy Statement dated October 30, 1998.
Directors recommend a vote "FOR" items 1, 2 and 3.
1. ELECTION OF DIRECTORS FOR all nominees WITHHOLD AUTHORITY Exceptions* as
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, John M. Leonis,
William P. Sommers, C. B. Thornton, Jr.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"EXCEPTIONS" BOX AND PRINT THAT NOMINEE'S NAME(S) ON THE SPACE PROVIDED BELOW.
*EXCEPTIONS
- --------------------------------------------------------------------------------
2. Proposal to approve the Litton Industries, Inc. Non-Employee Director Stock
Plan.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM REVERSE SIDE)
3. Proposal to ratify the selection of Deloitte & Touche LLP as independent
auditors for the fiscal year ending July 31, 1999.
/ / FOR / / AGAINST / / ABSTAIN
Unless otherwise specified, this proxy will be voted FOR items 1, 2 and 3.
Dated ______________________, 1998
__________________________________
Signature
__________________________________
Signature (if jointly held)
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.
Please Mark, Date, Sign and Mail This Proxy Card Promptly in the Enclosed
Envelope
