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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
October 20, 2000
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders, which
will be held at 11:00 a.m., Friday, December 8, 2000, at The Ritz Carlton
Hotel, Marina del Rey, California. At the meeting, we will present a brief
report on Litton's 2000 business results and our outlook for 2001.
Whether or not you plan to attend, please be sure that your shares are
represented at the Annual Meeting by promptly completing, signing, dating and
returning your proxy in the enclosed envelope.
Very truly yours,
/s/ Michael R. Brown
Michael R. Brown
Chairman and Chief Executive Officer
<PAGE>
October 20, 2000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of Litton Industries, Inc. ("Litton") will
be held on December 8, 2000, at 11:00 a.m., at The Ritz Carlton Hotel, 4375
Admiralty Way, Marina del Rey, California 90292.
Stockholders at the close of business on October 13, 2000, will be entitled to
vote at the Annual Meeting. The items on the agenda are as follows:
1. Election of directors;
2. Approval of the Litton Industries, Inc. 2000 Long-Term Stock Incentive
Plan;
3. Ratification of the appointment of Deloitte & Touche LLP as independent
auditors; and
4. Other business as may properly come before the Annual Meeting or any
adjournment thereof.
A list of stockholders entitled to vote at the Annual Meeting will be open to
the examination of any stockholder 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 Litton's Corporate Office at 21240 Burbank
Boulevard, Woodland Hills, California 91367.
Holders of a majority of Litton's outstanding voting shares must be present
either in person or by proxy in order for the Annual Meeting to be held.
Whether you expect to attend the Annual Meeting or not, your vote is
important. Please sign and date the enclosed proxy and return it in the
enclosed envelope. If you plan to attend the Annual Meeting and wish to vote
your shares in person, you may do so at any time before the proxy is voted.
Attendance and voting are limited to stockholders of record at the close of
business on October 13, 2000. If your shares are held in the name of a broker,
trust, bank or other nominee, you should bring with you a proxy or letter from
the broker, trustee, bank or nominee confirming your beneficial ownership of
the shares.
/s/ Lynne M. O. Brickner
Lynne M. O. Brickner
Vice President and Secretary
<PAGE>
LITTON INDUSTRIES, INC.
21240 Burbank Boulevard
Woodland Hills, CA 91367-6675
PROXY STATEMENT
General Information
The Board of Directors of Litton Industries, Inc. ("Litton" or the "Company")
is soliciting proxies to be voted at the Annual Meeting of Stockholders to be
held on December 8, 2000, and at any adjournment thereof. This Proxy Statement
is being mailed to stockholders beginning on or about October 20, 2000,
accompanied by Litton's annual report to stockholders for the fiscal year
ended July 31, 2000.
Outstanding Securities
At the close of business on October 13, 2000 (the "Record Date"), there were
45,409,342 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.
Voting
A proxy is enclosed for use at the Meeting. All shares represented by valid
proxies will be voted as specified. If no specification is made, all shares
represented by valid proxies received from this solicitation (and not revoked
before they are voted) will be voted for election of the eleven nominees for
directors, for approval of the Litton Industries, Inc. 2000 Long-Term Stock
Incentive Plan and for ratification of the appointment of Deloitte & Touche
LLP as independent auditors.
If a stockholder is a participant in the Litton Employee Stock Purchase Plan,
the proxy card covers the shares in the account for that Plan, as well as
shares registered in the participant's name.
A stockholder may revoke the proxy at any time before it is voted by giving
written notice to the Secretary. A stockholder attending the Annual Meeting in
person may revoke the proxy by giving notice of revocation to the inspector of
election at the Meeting or by voting at the Meeting. If any other matters are
properly brought before the Annual Meeting, the enclosed proxy card gives
discretionary authority to the persons named on the card to vote the shares in
their best judgment. At this time, Litton does not know of any other such
business.
The holders of a majority of the issued and outstanding shares of Common Stock
and Series B Preferred Stock represented in person or by proxy at the Annual
Meeting will constitute a quorum for the transaction of business at the
Meeting. With respect to the election of directors, stockholders may vote in
favor of all nominees, or withhold their votes as to all nominees or specific
nominees. There is no box to "abstain," but checking the box on the enclosed
proxy card that withholds authority to vote for a nominee is the equivalent of
abstaining. With respect to the two other items relating to the Litton
Industries, Inc. 2000 Long-Term Stock Incentive Plan and the independent
auditors, the stockholders may vote in favor of the proposal or against the
proposal, or may abstain from voting. The affirmative vote of the majority of
shares entitled to vote and present in person or by proxy at the Annual
Meeting is required for approval. A stockholder who signs and submits a ballot
or proxy is "present," so an abstention will have the same effect as a vote
against the proposal.
<PAGE>
In instances where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not returned a proxy (so-called
"broker non-votes"), those shares will be treated as present for purposes of
determining the presence of a quorum, but will not be included in the vote
totals and therefore will have no effect on the vote. Under New York Stock
Exchange rules, only Item 2 (approval of the Litton Industries, Inc. 2000
Long-Term Incentive Plan) is "non-discretionary." Brokers who do not receive
instructions from their clients will not have discretion to vote on Item 2,
and these broker "non-votes" will not be counted as votes cast for determining
the outcome.
2
<PAGE>
ITEM ONE: ELECTION OF DIRECTORS
The Board of Directors recommends that you vote FOR all candidates.
Eleven directors will be elected at the Annual Meeting to hold office for one
year and until their successors have been elected and qualified. If any
nominee becomes unavailable for election to the Board of Directors, an event
that is not anticipated, the persons named as proxies have full discretion and
authority to vote or refrain from voting for any other nominee in accordance
with their judgement. All of the nominees are presently serving on the Board
of Directors and were previously elected by the stockholders, except for Dr.
Ronald D. Sugar and James R. Wilson, who were appointed as directors by the
Board of Directors on September 21, 2000.
The nominees for directors furnished the following information concerning
their principal occupation, other affiliations and past business experience.
[PHOTO] ALTON J. BRANN
. Chairman of UNOVA, Inc.
. Age 58
. Director since 1990
Background: UNOVA, Inc. is a global solutions company providing information
and systems integration technology for industrial markets. Chairman of UNOVA,
Inc. since 1997 and former Chief Executive Officer (1997-September 2000).
Chairman of the Board and Chief Executive Officer of Western Atlas Inc. (1994-
1997). Former Litton Chairman of the Board (1994-1995), President (1990-1994)
and Chief Executive Officer (1992-1994). Director of the Los Angeles World
Affairs Council. Chairman of the Board of Governors of Town Hall of Los
Angeles. Vice Chairman of the Board of Directors of the Los Angeles Area
Council of the Boy Scouts of America. Member of the Board of Overseers of the
Executive Council on Foreign Diplomacy, the President's Cabinet of California
Polytechnic State University, the Institute of Electrical and Electronics
Engineers, the Optical Society of America and the Institute of Navigation.
Trustee of the Manufacturers Alliance.
[PHOTO] MICHAEL R. BROWN
. Chairman and Chief Executive Officer of Litton Industries, Inc.
. Age 59
. Director since 1995
Background: Joined Litton in 1968. Chairman since March 1999 and Chief
Executive Officer since March 1998; President (1995-June 2000); Chief
Operating Officer (1995-1998); Executive Vice President (1995); Group
Executive-Information Systems (1995-1997); Senior Vice President (1992-1995)
and Group Executive-Electronic Warfare Systems (1989-1995). Member of the
Board of Governors, Chairman of the Nominating Committee and member of the
Executive Committee of the Aerospace Industries Association. Director of Town
Hall Los Angeles and the Los Angeles World Affairs Council.
[PHOTO] JOSEPH T. CASEY
. Retired Vice Chairman and Chief Financial Officer of Western
Atlas Inc.
. Age 69
. Director since 1981
Background: Former Western Atlas Inc. Vice Chairman and Chief Financial
Officer (1994-1996). Former Litton Vice Chairman and Chief Financial Officer
(1988-1994). Director of Baker Hughes, Inc., UNOVA, Inc. and Pressure Systems,
Inc. Trustee, Claremont McKenna College, RAND Center for Russia and Eurasia
and Don Bosco Technical Institute.
[PHOTO] CAROL B. HALLETT
. President and Chief Executive Officer of Air Transport
Association of America
. Age 63
. Director since 1993
Background: President and Chief Executive Officer of Air Transport Association
of America since 1995. Former Senior Government Relations Advisor, Collier,
Shannon, Rill & Scott (1993-1995). Commissioner of United States Customs
(1989-1993). U.S. Ambassador to the Commonwealth of the Bahamas (1986-1989).
Director of Fleming Companies, Inc., Mutual of Omaha Companies and the
American Association of Exporters and Importers. Member, President's Cabinet
of California Polytechnic State University. Trustee, Junior Statesmen of
America.
3
<PAGE>
[PHOTO] ORION L. HOCH
. Chairman Emeritus of Litton Industries, Inc.
. Age 71
. Director since 1982
Background: Former Litton Chairman of the Board (1988-1994), President (1982-
1988) and Chief Executive Officer (1986-1992). Director of UNOVA, Inc.,
Bessemer Trust Companies and The Bessemer Group, Inc. Trustee, Carnegie Mellon
University.
[PHOTO] DAVID E. JEREMIAH
. President of Technology Strategies & Alliances
. Age 66
. Director since 1994
Background: Technology Strategies and Alliances is a consulting firm engaged in
strategic planning for telecommunications and defense industries. Retired
Admiral, U.S. Navy (1994). Vice Chairman, Joint Chiefs of Staff (1990-1994).
Commander-in-Chief, U.S. Pacific Fleet (1987-1990). Director of Alliant
Techsystems Inc., Geobiotics, Inc., Wang Government Services, Inc. and National
Committee on U.S.-China Relations. Board of Trustees, The MITRE Corporation.
Board of Visitors, Northrop Grumman Corporation (Melbourne Division) and Board
of Advisors, Jewish Institute for National Security Affairs. Member, ManTech
International Advisory Board, the National Defense Policy Board and
Congressionally Chartered Commission to Assess U.S. National Security Space
Management and Organization.
[PHOTO] JOHN M. LEONIS
. Chairman Emeritus of Litton Industries, Inc.
. Age 67
. Director since 1994
Background: Joined Litton in 1959. Chairman of the Board (1995-1999), Chief
Executive Officer (1994-1998), President (1994-1995), Senior Vice President
(1990-1994) and Group Executive-Navigation, Guidance and Control Systems (1988-
1993). Director of HCC Industries Inc.
[PHOTO] WILLIAM P. SOMMERS
. Former President and Chief Executive Officer of SRI
International
. Age 67
. Director since 1994
Background: Former Director and President, Booz-Allen & Hamilton's Technology
Management Group (1963-1993). Former Executive Vice President, Iameter, Inc.
(1993-1994). Director of Evergreen Solar, Inc., Pressure Systems, Inc. and
AtomicTangerine. Trustee, Scudder/Kemper Mutual Funds. Member, Guckenheimer
Enterprises, Inc. Advisory Board and Executive Committee of World Affairs
Council, Jacksonville.
4
<PAGE>
[PHOTO] RONALD D. SUGAR
. President and Chief Operating Officer of Litton Industries,
Inc.
. Age 52
. Director since September 2000
Background: Joined Litton in June 2000 from TRW, Inc., where he served as
President and Chief Operating Officer of TRW Aerospace & Information Systems
and Member of the Chief Executive Office of TRW since 1998. Joined TRW in 1981
and served as Executive Vice President and Chief Financial Officer (1994-1996)
and Executive Vice President and General Manager of the TRW Automotive
Electronics Group (1996-1998). Member, National Security Telecommunications
Advisory Committee, Conference Board Council of Operating Executives and Board
of Governors of the Aerospace Industries Association. Trustee, National Defense
Industrial Association.
[PHOTO] C. B. THORNTON, JR.
. President of Thornton Corporation
. Age 58
. Director since 1981
Background: Thornton Corporation is engaged in a variety of private
investments. President of Thornton Corporation since 1981. Former managing
partner 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.
[PHOTO] JAMES R. WILSON
. Former Chairman of the Board, President and Chief Executive
Officer of Cordant Technologies Inc.
. Age 59
. Director since September 2000
Background: Former Cordant Technologies Inc. Chairman of the Board, President
and Chief Executive Officer (1995-2000), Director (1993-2000), President and
Chief Executive Officer (1993-1995), Executive Vice President and Chief
Financial Officer (1992-1993) and Vice President and Chief Financial Officer
(1989-1992). Director of The BFGoodrich Company, Cooper Industries, Inc. and
First Security Corporation. Chairman of the Board of Trustees, the College of
Wooster.
5
<PAGE>
GENERAL INFORMATION CONCERNING THE BOARD OF DIRECTORS
Committees of the Board
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 and Board
Governance Committee.
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 Litton.
The Audit and Compliance Committee consists of C.B. Thornton, Jr. (Chairman),
Joseph T. Casey, Carol B. Hallett and William P. Sommers. Each of these
individuals qualifies as an "independent" director under the current listing
standards of the New York Stock Exchange ("NYSE"). All members have been
determined to be financially literate and have accounting or related financial
management expertise in accordance with NYSE standards. The Audit and
Compliance Committee acts pursuant to the Audit and Compliance Committee
Charter adopted by the Board of Directors on May 18, 2000, which is attached
as Annex A to this Proxy Statement. The Audit and Compliance Committee's
primary function is to assist the Board in fulfilling its oversight
responsibilities by regular review of Litton's financial information, systems
of internal controls regarding finance, accounting, legal compliance and
ethics and auditing, accounting and financial reporting processes in accord
with the policies established by the Board and management.
On October 2, 2000, the Audit and Compliance Committee submitted to the Board
of Directors the following report:
AUDIT AND COMPLIANCE COMMITTEE REPORT
(1) The Audit and Compliance Committee has reviewed and discussed with
management Litton's audited financial statements as of and for the fiscal
year ended July 31, 2000.
(2) The Committee also discussed with the independent auditors for Litton the
matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards
Board of the American Institute of Certified Public Accountants.
(3) The Committee received the written disclosures and the letter from the
independent auditors for Litton required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, by the
Independence Standards Board, and have discussed with the independent
auditors the independent auditors' independence from management and Litton.
(4) Based on the review and discussions referred to in paragraphs (1) through
(3) above, the Committee recommends to the Board of Directors of Litton
that the audited financial statements referred to in paragraph (1) above be
included in Litton's Form 10-K for the fiscal year ended July 31, 2000 for
filing with the Securities and Exchange Commission.
The members of the Audit and Compliance Committee have furnished the foregoing
Audit and Compliance Committee Report:
<TABLE>
<S> <C>
C.B. Thornton, Jr.,
Chairman Carol B. Hallett
Joseph T. Casey William P. Sommers
</TABLE>
The Compensation and Selection Committee consists of David E. Jeremiah
(Chairman), Carol B. Hallett, William P. Sommers and C.B. Thornton, Jr., each
of whom has been determined to be an "outside director" for the purpose of
Section 162(m) of the Internal Revenue Code. The Compensation and Selection
Committee reviews and recommends succession management and development and
approves all elements of executive compensation for Litton's senior officers.
6
<PAGE>
The Nominating and Board Governance Committee consists of Carol B. Hallett
(Chairman), Alton J. Brann, Michael R. Brown and David E. Jeremiah. The
Nominating and Board Governance Committee reviews and recommends policies and
procedures to ensure that the Board is properly constituted and organized to
carry out its statutory and fiduciary responsibilities and reviews the
qualifications of all Board of Directors candidates and programs and
procedures relating to the compensation, evaluation and terms of directors.
During fiscal year 2000, the Nominating and Board Governance Committee
nominated two new directors, Dr. Sugar and Mr. Wilson, who are standing for
election as directors at the 2000 Annual Meeting. The Nominating and Board
Governance Committee has reported that it will continue its efforts to
identify additional qualified candidates for election to the Board of
Directors and will consider as potential candidates persons recommended by
stockholders. Recommendations should be submitted to the Nominating and Board
Governance Committee in care of the Secretary of Litton.
Board and Committee Meetings
During fiscal year 2000, the Board of Directors of Litton held 10 meetings.
The average attendance at Board meetings was approximately 99%, and attendance
at committee meetings was 98.5%.
. The Executive Committee did not hold any meetings in fiscal year 2000 and
acted 10 times by unanimous written consent.
. The Audit and Compliance Committee held six meetings in fiscal year 2000.
. The Compensation and Selection Committee held seven meetings in fiscal
year 2000 and acted five times by unanimous written consent.
. The Nominating and Board Governance Committee held three meetings in
fiscal year 2000 and acted once by unanimous written consent.
At three of its meetings during fiscal year 2000, the Board of Directors
considered Litton's Rights Agreement, dated as of August 17, 1994, which was
the subject of a stockholder proposal at the 1999 Annual Meeting of
Stockholders. The Board reviewed the terms of the Rights Agreement, industry
data, peer company information and strategic options and considered the
interests of all of Litton's stockholders. Based upon its review, the Board
determined that it is in the best interests of Litton's stockholders to
maintain the Rights Agreement in its current form.
Director Compensation
Directors who are employees of Litton 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 (except for the Executive Committee) meeting
attendance fees of $1,500 per meeting ($2,500 per meeting for the
Chairman of the Committee);
. An additional annual fee of $12,000 for members of the Executive
Committee ($15,000 for the Chairman of the Executive Committee), payable
in equal quarterly installments.
Deferred Compensation Plan for Non-Employee Directors
Under the Litton Industries, Inc. Non-Employee Director Stock Plan (the
"Director Stock Plan"), approved by the stockholders on December 3, 1998, non-
employee directors may defer annual retainers and meeting fees
("Compensation") in the form of shares of Common Stock or stock options.
In addition, non-employee directors may defer Compensation in the form of cash
under a deferral plan adopted by the Board in 1998. Cash deferrals bear
interest at the prime rate in effect at Morgan Guaranty Trust Company, and are
paid after the end of the director's Board service either as a lump sum
payment or in equal annual installment payments.
7
<PAGE>
Non-employee directors electing to defer their Compensation into shares of
Common Stock currently receive a premium of 10% on such Compensation. On the
date the Compensation would normally have been paid, Litton converts the
amount of the Compensation, including the 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.
Non-employee directors may also elect to convert their Compensation into
options to purchase shares of Common Stock at fair market value on the dates
on which their Compensation would otherwise be payable. The number of options
granted pursuant to this election reflects a formula reviewed and approved by
the Board from time to time, and are granted pursuant to the Director Stock
Plan. Currently, a non-employee director who elects to convert Compensation
into stock options receives a number of options equal to four times the amount
of the Compensation divided by the fair market value of a share of Common
Stock on the date on which the Compensation would otherwise be payable.
Stock Options
Under the Director Stock Plan, the Board makes an initial grant of 10,000
options to each new non-employee director, and grants 2,000 options each year
thereafter to each non-employee director. The Director Stock 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 Litton outside of the scope of a
director's normal duties. Options under the Director Stock Plan are granted at
fair market value, vest immediately upon grant and are exercisable for
10 years following the date of grant.
Retirement Program
In 1998, the Board amended the retirement program for directors by terminating
the retirement pension for future directors and preserving the pension rights
of directors who were non-employee directors at that time. Such members of the
Board who retire or die while in office, at or after age 65, will receive the
active Board member's annual retainer fee (or, if greater, 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
Litton implemented stock ownership guidelines in 1998 requiring that non-
employee directors own a number of shares equal in value to at least four
times their annual retainer fee. Directors are given three years to meet this
ownership guideline.
Other Information on Directors
The following individuals receive certain retirement benefits by reason of
their former employment by Litton. John M. Leonis, former Chairman of the
Board, Chief Executive Officer and President of Litton, who retired on April
1, 1999, receives a monthly benefit of $48,554 in the form of a 100% joint and
survivor annuity. Joseph T. Casey, former Vice Chairman of the Board of
Litton, receives a monthly benefit of $27,075 in the form of a 100% joint and
survivor annuity. Orion L. Hoch, a former Chairman of the Board, Chief
Executive Officer and President of Litton, receives a monthly benefit of
$60,391 in the form of a 100% joint and survivor annuity.
In addition, during fiscal year 2000, Mr. Casey received $12,000 as a member
of Litton's Investment Committee. The Investment Committee is responsible for
managing and overseeing the assets and investment choices available under
certain of the Litton Retirement Plans and Litton's Financial Security and
Savings Program ("FSSP"). The Investment Committee reports to the Board of
Directors.
8
<PAGE>
Dr. Sugar was appointed President and Chief Operating Officer of the Company
pursuant to an agreement with the Company dated June 21, 2000. The agreement,
which is summarized in "Employment Contracts" of this Proxy Statement and was
filed with the Securities and Exchange Commission as an exhibit to the
Company's Current Report on Form 8-K dated June 22, 2000, also provides that
Dr. Sugar would be elected a member of the Board of Directors.
The following table sets forth, as of September 30, 2000, unless otherwise
noted, certain information about the beneficial ownership of Litton Common
Stock for each of Litton's directors and each executive officer named in the
Summary Compensation Table of this Proxy Statement and by all directors and
executive officers as a group. No director or executive officer of Litton owns
shares of Litton's Series B Preferred Stock. Unless otherwise stated, the
beneficial owners exercise sole voting and/or investment power over their
shares.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
LITTON COMMON STOCK
<TABLE>
------------------------------------------------------------------------------------------
<CAPTION>
Shares Subject Percent of
Shares of Common to Options Deferred Class
Stock Beneficially Exercisable Within Stock Units Beneficially
Owned as of 9/30/00 60 Days of 9/30/00 (#)(h) Owned*(i)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-Employee Directors
Alton J. Brann 3,400 16,239 1,108 *
Joseph T. Casey 32,954(a) 82,029 1,174 *
Carol B. Hallett 690 26,953 1,210 *
Orion L. Hoch 89,399(b) 37,916 -0- *
David E. Jeremiah 500 19,500 3,610 *
John M. Leonis 42,912 211,277 -0- *
William P. Sommers 1,500 20,000 -0- *
C. B. Thornton, Jr. 1,344,874(b)(c) 36,771 -0- 3.0%
James R. Wilson 2,000 10,000 -0- *
Named Executive Officers
Michael R. Brown 23,070 151,259 2,021 *
Ronald D. Sugar 77,908(d) -0- -0- *
D. Michael Steuert 8,333(e) 14,800 -0- *
Gerald J. St. Pe 30,546 57,000 3,520 *
Harry Halamandaris 33 38,800 9,554 *
Group
Directors and Executive 1,765,865(a)(b) 867,735 25,451 5.7%
Officers as a Group (20) (c)(d)(e)(f)(g)
</TABLE>
-------------------------------------------------------------------------------
* Percentage of shares is given only where such percentage exceeds 1% of the
Common Stock outstanding, exclusive of treasury shares, on October 13,
2000, the record date.
(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 that 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
9
<PAGE>
to have incidents of beneficial ownership. Includes shares that are
beneficially owned by a partnership of which Mr. Thornton is a general
partner.
(d) Represents shares of restricted stock granted to Dr. Sugar in connection
with his employment at Litton. See Summary Compensation Table and
"Employment Contracts."
(e) Includes 6,222 shares of restricted stock granted to Mr. Steuert in
connection with his employment at Litton. See Summary Compensation Table.
(f) Excludes 255,126 shares owned by the Litton Master Trust, which holds
certain retirement funds of Litton and its subsidiaries. Mr. Casey and Mr.
Steuert 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 6.3%.
(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
Litton, and whose directors have investment power over the shares and are
elected and may be removed by the Nominating and Board Governance
Committee of the Board of Directors of Litton.
(h) Individuals with stock units in this column have elected to defer a
portion of their bonus awards, and in the case of directors, of their
compensation. The bonus or compensation 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 the date the award is made or the
compensation is payable. 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 units.
(i) The number of shares subject to options exercisable within 60 days of
September 30, 2000 held by any indicated person or group of persons have
been added to the shares of Common Stock actually outstanding as of the
record date for the purpose of computing the percentage of outstanding
shares owned by such person or such group of persons but not by any other
stockholder.
10
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
<TABLE>
------------------------------------------------------------------------------------------------
<CAPTION>
Named Executive Long-Term Compensation All Other
Officers Annual Compensation Awards Compensation
------------------------------------------------------------------------------------------------
Securities
Other Annual Restricted Underlying
Name and Principal Fiscal Salary Bonus Compensation Stock Options/SARS
Position Year ($)(a) ($)(b) ($)(c) ($)(d) (#)(e) ($)(f)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael R. Brown 2000 725,005 696,005 -- -0- -0- 10,355
Chairman and Chief 1999 675,772 350,000 -- -0- 75,000 10,300
Executive Officer(g) 1998 497,509 570,000 -- -0- 60,000 10,839
Ronald D. Sugar 2000 53,078 600,000 -- 3,510,729 150,000 11,482
President and Chief 1999 -- -- -- -- -- --
Operating Officer(h) 1998 -- -- -- -- -- --
D. Michael Steuert 2000 413,557 332,817 -- -0- -0- 195,496
Senior Vice President 1999 184,618 303,334 -- 448,940 74,000 8,169
and Chief Financial 1998 -- -- -- -- -- --
Officer(i)
Gerald J. St. Pe 2000 415,334 300,079 -- -0- -0- 6,866
Executive Vice 1999 392,509 401,856 -- -0- 15,000 5,266
President; Chief 1998 374,454 420,992 -- -0- 12,000 5,389
Operating Officer,
Litton Ship Systems
Harry Halamandaris 2000 372,203 283,609 -- -0- -0- 7,641
Senior Vice President; 1999 314,591 290,000 -- -0- 21,000 7,798
Group Executive, 1998 296,088 258,750 -- -0- 10,000 9,232
Advanced Electronics
------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount included for Dr. Sugar represents salary for the period June
21, 2000, when he commenced employment with Litton, through July 31, 2000.
(b) Fiscal year 2000 bonus awards are accrued in 2000 and paid in full in
October 2000. The fiscal year 2000 bonus paid to Dr. Sugar includes (i) a
hiring bonus of $250,000, which was paid to him when he commenced
employment with Litton and (ii) a bonus of $350,000 as agreed in
connection with his employment. The fiscal year 1999 bonus paid to Mr.
Steuert includes a hiring bonus of $120,000, which was paid to him when he
commenced employment with Litton. Mr. Halamandaris elected to defer 40% of
his 2000 bonus award, and as a result of such deferral, he has been
credited with 2,619 stock units in the "deferred stock units" column of
the "Security Ownership of Directors and Executive Officers" table of this
Proxy Statement.
(c) For each year, excludes perquisites and other personal benefits,
securities or property which, in the aggregate, do not exceed the lesser
of either $50,000 or 10% of the total of annual salary and bonus for each
named executive officer.
(d) Based on the price of Litton's Common Stock on the date of grant. The
value and number of restricted stock holdings of the named executive
officers on September 30, 2000 (based on the closing price for the
Company's Common Stock of $44.6875 on September 29, 2000) were as follows:
Dr. Sugar, $3,481,514 (77,908 shares), and Mr. Steuert, $278,046 (6,222
shares). In connection with his employment as President and Chief
Operating Officer of Litton, Dr. Sugar received 77,908 shares of
restricted stock on June 21, 2000 pursuant to restricted stock agreements
dated as of June 21, 2000, 12,710 of which vest in equal installments over
a five-year period beginning on the first anniversary of the grant date
and on each of the next four anniversaries of the grant date, and 65,198
shares of which vest in equal installments over a seven-year period
11
<PAGE>
beginning on the first anniversary of the grant date and on each of the
next six anniversaries of the grant date. The shares of restricted stock
granted to Dr. Sugar will vest immediately upon the occurrence of certain
events related to death, disability, termination of employment,
constructive termination or a change in control of Litton. In connection
with his employment as Senior Vice President and Chief Financial Officer of
Litton, Mr. Steuert received 8,333 shares of restricted stock on February
15, 1999 pursuant to restricted stock agreements dated as of February 15,
1999, 5,000 of which vest in equal installments over a five-year period
beginning on the first anniversary of the grant date and on each of the
next four anniversaries of the grant date, and immediately upon termination
of employment by reason of death or disability or termination without
cause, or upon a change in control of Litton, and 3,333 of which vest in
equal installments over a three-year period beginning on the first
anniversary of the grant date and on each of the next two anniversaries of
the grant date, and immediately upon termination of employment by reason of
death or disability or upon a change in control of Litton. Dr. Sugar and
Mr. Steuert are entitled to vote these shares of restricted stock and to
receive any dividends declared and paid on the shares.
(e) No stock appreciation rights were granted to the named executive officers.
With the exception of Dr. Sugar, no stock options were issued to the named
executive officers during fiscal 2000. Grants of stock options to Dr.
Sugar were made in accordance with his employment agreement. See
"Employment Contracts." The following grants of stock options under the
1984 Plan were made to the named executive officers in September 2000: Mr.
Brown, 80,500; Dr. Sugar, 50,000 (in accordance with his employment
agreement); Mr. Steuert, 35,000; Mr. St. Pe, 16,000; and Mr. Halamandaris,
15,000.
(f) Included in this column for fiscal year 2000 are the following: (i)
Litton's matching contributions under the Litton Financial Security and
Savings Program ("FSSP") for the accounts of Mr. Brown, $2,137; Mr.
Steuert, $2,690; Mr. St. Pe, $3,400; and Mr. Halamandaris, $1,980; (ii)
taxable amounts imputed under various life insurance arrangements provided
by Litton for Mr. Brown, $5,328; Mr. St. Pe, $3,466; and Mr. Halamandaris,
$3,034; (iii) taxable amounts representing interest imputed to the holder
of the loans described in "Indebtedness of Management to Litton" below:
Mr. Brown, $2,890; Mr. Steuert, $3,551; and Mr. Halamandaris, $2,627; and
(iv) the amounts of $11,482 and $189,255 paid to Dr. Sugar and Mr.
Steuert, respectively, in connection with their relocations to Litton,
including a provision for income taxes on these relocation allowances.
(g) Mr. Brown also served as President of Litton until June 21, 2000.
(h) Dr. Sugar was elected President and Chief Operating Officer of Litton,
effective June 21, 2000.
(i) Mr. Steuert was elected Senior Vice President and Chief Financial Officer
of Litton, effective February 15, 1999.
12
<PAGE>
The following table provides information about grants of performance-based
restricted stock made by Litton under the 1984 Long-Term Stock Incentive Plan,
as amended and restated (the "1984 Plan"), during fiscal year 2000 to each of
the named executive officers in the Summary Compensation Table.
Long-Term Incentive Plan Awards in 2000 Fiscal Year
<TABLE>
----------------------------------------------------------------------------------
<CAPTION>
Estimated future payouts
under non-stock price-
Individual Grants based plans
----------------------------------------------------------------------------------
Number of Performance or
shares, units or other period until
other rights maturation or Threshold Target Maximum
Name (#)(1) payout(2) ($ or #) ($ or #) (#)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael R. Brown 15,000 1999-2001 (3) (3) 15,000
Ronald D. Sugar (4) -- -- -- --
D. Michael Steuert 5,400 1999-2001 (3) (3) 5,400
Gerald J. St. Pe 5,400 1999-2001 (3) (3) 5,400
Harry Halamandaris 4,900 1999-2001 (3) (3) 4,900
</TABLE>
-------------------------------------------------------------------------------
(1) A grantee does not have the right to vote the performance-based restricted
stock or to receive any dividends declared or paid on Litton Common Stock.
In addition to the shares awarded in fiscal year 2000, in September 2000
Litton made the following maximum grants of performance-based restricted
stock under the 1984 Plan to the named executive officers: Mr. Brown,
16,500; Dr. Sugar, 13,700; Mr. Steuert, 5,900; Mr. St. Pe, 5,600; and Mr.
Halamandaris, 5,600.
(2) Shares of the performance-based restricted stock vest on the third
anniversary of the award date, provided that the grantee is still employed
by Litton on that date and Litton meets the prescribed performance
requirements set forth in the Litton Industries, Inc. Performance-Based
Restricted Stock Agreement.
(3) The number of shares of Litton Common Stock that a grantee can earn is
based upon the three-year internal sales growth of Litton and Cash Flow
Return on Investment ("CFROI") performance objectives, adjusted annually
for certain significant events such as acquisitions and mergers. Earn-outs
over the three-year period range from 0% to 100% of the shares of
performance-based restricted stock awarded to a grantee. In the event of
death, disability or retirement of a grantee prior to vesting of the
performance-based restricted stock, awards may be prorated and made at the
end of the three-year performance period at the discretion of the
Compensation and Selection Committee. In the event of a change in control
of Litton, shares of performance-based restricted stock will vest
immediately.
(4) Dr. Sugar was elected President and Chief Operating Officer of Litton,
effective June 21, 2000.
13
<PAGE>
The following table provides information on option grants to purchase shares
of Litton Common Stock made by Litton during fiscal year 2000 to each of the
named executive officers in the Summary Compensation Table. Litton did not
grant any stock appreciation rights to the named executive officers during
fiscal year 2000.
Option Grants in 2000 Fiscal Year
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Potential Realizable Value At
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term(4)
------------------------------------------------------------------------------------------
% Of
Total
Number of Options
Securities Granted Exercise Hypothetical Hypothetical
Underlying to Price Value realized Value realized
Options Employees Per at 5% stock at 10% stock
Granted in Fiscal Share Expiration appreciation appreciation
Name (#)(1) Year(2) ($)(3) Date ($) ($)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Brown -0- -0- -0- -- -- --
Ronald D. Sugar 150,000 45% 45.4063 6/21/10 4,283,367 10,854,892
D. Michael Steuert -0- -0- -0- -- -- --
Gerald J. St. Pe -0- -0- -0- -- -- --
Harry Halamandaris -0- -0- -0- -- -- --
</TABLE>
-------------------------------------------------------------------------------
(1) Dr. Sugar received aggregate grants of 150,000 non-qualified stock options
under the 1984 Plan on the date of his employment by Litton. The options
were granted at fair market value and vest in equal installments over a
five-year period. The term of each option is 10 years, subject to earlier
termination upon the occurrence of certain events related to death,
disability or termination of employment. The options fully vest and become
exercisable upon the earliest to occur of (i) the expiration of five years
following the date of grant, or (ii) certain events related to death,
disability, termination of employment or a change in control of Litton.
See "Employment Contracts" below. With the exception of Dr. Sugar, no
stock options were issued to the named executive officers during fiscal
2000. In September 2000, the following grants of stock options under the
1984 Plan were made to the named executive officers: Mr. Brown, 80,500;
Dr. Sugar, 50,000 (in accordance with his employment agreement); Mr.
Steuert, 35,000; Mr. St. Pe, 16,000; and Mr. Halamandaris, 15,000.
(2) Litton granted options to purchase 330,610 shares to employees in fiscal
year 2000, including the grants to Dr. Sugar.
(3) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already-owned shares and/or by offset of the
underlying shares, subject to certain conditions.
(4) These amounts, based on assumed appreciation rates of the 5% and 10% rates
prescribed by Securities and Exchange Commission rules, are not intended
to forecast possible future appreciation, if any, of Litton Common Stock.
The actual value of the options will depend on the market value of Litton
Common Stock.
14
<PAGE>
The following table provides information on option exercises in fiscal year
2000 by each of the named executive officers in the Summary Compensation Table
and the values of each of such officer's unexercised options at July 31, 2000.
There were no stock appreciation rights exercised or outstanding.
Aggregated Option Exercises in 2000 Fiscal Year and Fiscal Year-End Option
Values
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Name Shares Underlying Unexercised the-Money Options at
Acquired on Value Options at July 31, 2000(#) July 31, 2000($)(b)
Exercise Realized ----------------------------------------------------------
(#)(a) ($)(a) Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Brown -- -- 151,259 124,600 1,197,541 76,724
Ronald D.Sugar -- -- -0- 150,000 -0- 464,055
D. Michael Steuert -- -- 14,800 59,200 -0- -0-
Gerald J. St. Pe -- -- 57,000 27,000 609,675 18,112
Harry Halamandaris -- -- 35,100 32,900 235,542 86,080
---------------------------------------------------------------------------------------------------
</TABLE>
(a) None of the named executive officers exercised stock options during the
fiscal year ending July 31, 2000.
(b) Based on the difference between $48.50 (the average of the high and low
market price of the Common Stock covered by in-the-money options on July
31, 2000) and the exercise price.
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 Litton's corporate offices and
participating subsidiaries and divisions. Except for Dr. Sugar, all of the
named executive officers in the Summary Compensation Table participate in the
FSSP.
Prior to January 1, 2000, the first 1% to 4% of pay that a participant elected
to deposit to the FSSP created 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 retirement
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 could deposit an additional 1% to 16% 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.
Effective January 1, 2000, Litton provides a 50% Company match on the first 1%
to 4% of pay that a participant elects to deposit to the FSSP, which 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 retirement 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 16% of pay into the Savings Account portion of
the FSSP. 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. Beginning on
January 1, 2001, Litton will increase its matching contribution to 50% of the
first 1% to 6% of pay that a participant elects to deposit to the FSSP.
15
<PAGE>
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 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 from Litton's general assets as an
annuity at normal retirement.
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>
Michael R. Brown $450,310 $404,071
Ronald D. Sugar 635,972 615,943
D. Michael Steuert 401,572 381,809
Gerald J. St. Pe 391,794 333,309
Harry Halamandaris 126,912 118,684
-----------------------------------------------
</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 Litton with supplemental retirement benefits. The
SERP was amended and restated as of August 1, 2000 for all SERP participants
who were actively employed by Litton on that date. For purposes of this
summary, the amended and restated SERP is referred to as the "New SERP" and
the prior SERP is referred to as the "Old SERP". SERP participants who
terminated employment prior to August 1, 2000 will have their SERP benefits
governed by the Old SERP. Individuals who become SERP participants on or after
August 1, 2000 will have their SERP benefits governed by the New SERP. All
other SERP participants will receive the greater of the benefits provided
under the Old SERP or the New SERP.
In general, under the Old SERP, 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 Litton. The Old 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 the later of age 40 or the date of hire (up to a maximum of 25 years).
Under the Old SERP, the credited years of service at September 30, 2000, of
the named executive officers are as follows: Mr. Brown, 19 years; Dr. Sugar,
0 years; Mr. Steuert, 1 year; Mr. St. Pe, 20 years; and Mr. Halamandaris, 5
years. Litton will credit the following named executive officers with
additional years of service for benefit accrual purposes under the Old SERP as
follows: Dr. Sugar, 5 years at date of hire; Mr. Steuert, 10 years at date of
hire; and Mr. Halamandaris, 14 years at age 65.
16
<PAGE>
The following table indicates the approximate annual benefit that would be
received by a participant in the Old 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 Litton-provided pension benefits that the employee either
actually accrued or could have accrued under other Litton-sponsored retirement
plans (for those who have never participated in a Litton defined benefit
pension plan).
<TABLE>
-----------------------------------------
<CAPTION>
Pension Plan Table (Old SERP)
-----------------------------------------
Years of Service
Remuneration --------------------------
(Average Earnings) 15 20 25 or more
-----------------------------------------
<S> <C> <C> <C>
200,000 $53,215 $70,954 $ 88,692
400,000 119,215 158,954 198,692
600,000 185,215 246,954 308,692
800,000 251,215 334,954 418,692
1,000,000 317,215 422,954 528,692
1,200,000 383,215 510,954 638,692
1,400,000 449,215 598,954 748,692
1,600,000 515,215 686,954 858,692
1,800,000 581,215 774,954 968,692
2,000,000 647,215 862,954 1,078,692
</TABLE>
----------------------------------------------
Under the New SERP, there is no minimum age limit for participants, and
vesting occurs when a participant reaches age 55 and has at least five years
of service with Litton. The New SERP retirement benefit is determined based on
a participant's average earnings for the highest three calendar year periods
out of their final 10 calendar years of employment and years of service (up to
a maximum of 25 years) since date of hire. Under the New SERP, the credited
years of service at September 30, 2000, of the named executive officers are as
follows: Mr. Brown, 25 years; Dr. Sugar, 0 years; Mr. Steuert, 1 year; Mr. St.
Pe, 25 years; and Mr. Halamandaris, 5 years. Litton will credit Mr. Steuert
with an additional 10 years of service at date of hire and Mr. Halamandaris
with that number of additional years of service at age 65 necessary to give
him a benefit no less than he would receive under the Old SERP calculated
using the additional 14 years of service granted under the Old SERP.
17
<PAGE>
The following table indicates the approximate annual benefit that would be
received by a participant in the New 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 Litton-provided pension benefits that the employee either
actually accrued or could have accrued under other Litton-sponsored retirement
plans (for those who have never participated in a Litton defined benefit
pension plan).
<TABLE>
-----------------------------------------
<CAPTION>
Pension Plan Table (New SERP)
-----------------------------------------
Years of Service
Remuneration --------------------------
(Average Earnings) 15 20 25 or more
-----------------------------------------
<S> <C> <C> <C>
200,000 $82,500 $95,000 $ 100,000
400,000 165,000 190,000 200,000
600,000 247,500 285,000 300,000
800,000 330,000 380,000 400,000
1,000,000 412,500 475,000 500,000
1,200,000 495,000 570,000 600,000
1,400,000 577,500 665,000 700,000
1,600,000 660,000 760,000 800,000
1,800,000 742,500 855,000 900,000
2,000,000 825,000 950,000 1,000,000
</TABLE>
----------------------------------------------
Change in Control Agreements
Litton is a party to change in control agreements with all of the named
executive officers in the Summary Compensation Table. The agreements become
operative only upon the occurrence of one of the following events: (1) a
change in the majority of the members of Litton's Board of Directors;
(2) acquisition by a third party of at least 30% of Litton's outstanding
voting stock, other than as a result of a repurchase by Litton of its voting
stock; (3) a merger, reorganization or consolidation of Litton with another
party (other than certain limited types of mergers); (4) a sale or disposition
of substantially all of Litton's assets; or (5) stockholder approval of the
liquidation or dissolution of Litton. 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 Litton other than for cause, the executive
terminates his or her employment for good reasons, as defined in the
agreements, or the executive 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. Litton will also provide
the executive with certain pension credits, insurance and other welfare plan
benefits.
The Old SERP, the New 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 benefits and Litton 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 Litton
to pay the benefits from such trust either as a lump sum payment based upon
certain actuarial factors or to pay the benefits
18
<PAGE>
monthly as an annuity. The assets of such trusts would be subject to the
claims of Litton's creditors in the event of the insolvency or bankruptcy of
Litton.
Employment Contracts
In June 2000, Litton entered into an employment agreement with Dr. Sugar,
pursuant to which he was appointed President and Chief Operating Officer of
Litton. Litton also agreed that he would be elected a member of the Board of
Directors and that on or before December 31, 2001, he would be elected Chief
Executive Officer of Litton. It is also contemplated, according to the
agreement, that by December 31, 2002 or within a reasonable period thereafter,
when Litton's strategic status and management team support this additional
position, Dr. Sugar will be elected Chairman of the Board.
Dr. Sugar's initial annual salary was $600,000, with an increase effective
October 1, 2000. He received a hiring bonus of $250,000 and a guaranteed
incentive bonus of $350,000 for fiscal year 2000. For fiscal year 2001 and
fiscal years thereafter, he will participate in Litton's annual incentive plan
with a bonus target for the chief operating officer of 100% of annual salary,
with actual payouts ranging from 0% to 125% of the maximum opportunity. The
incentive bonus structure will not at any time be less favorable to Dr. Sugar
than the structure for fiscal year 2001, unless the Board of Directors changes
the structure for all executives.
In addition, Dr. Sugar was granted 150,000 non-qualified stock options on June
21, 2000, which vest in equal installments over a five-year period. The
exercise price is the fair market value of the Common Stock on the date of
grant. Litton also agreed that he would be eligible for a stock option grant
of at least 43,000 stock options in September 2000. All of the options will be
granted under the 1984 Plan and have a ten-year term. Any unvested options
will vest upon a termination of employment without cause, constructive
termination without cause, death or disability, or a change in control of
Litton. Dr. Sugar will have at least two years to exercise any of the options,
subject to the end of the stated term of the foregoing options. He will also
be eligible for grants of other stock options under the 1984 Plan or successor
plans.
In September 2000, Litton also gave Dr. Sugar the right to receive 13,700
shares of performance-based restricted stock under the 1984 Plan at the
maximum level. The actual number of shares will depend on Litton's achievement
of certain cash flow return on investment and internal revenue growth goals
for the three-year period ending July 31, 2003. Any unvested restricted stock
will become vested and exercisable upon a termination of employment without
cause, constructive termination without cause, death or disability, or a
change in control of Litton.
As compensation for stock, options and benefits under certain TRW, Inc. plans
which Dr. Sugar forfeited upon termination of his employment with TRW, Litton
awarded Dr. Sugar (i) 65,198 shares of restricted stock that vest over seven
years in equal installments on each of the first seven anniversary dates of
his date of hire, provided that he is employed by Litton on the respective
date; (ii) 12,710 shares of restricted stock that vest over five years in
equal installments on each of the first five anniversary dates of his date of
hire, provided that he is employed by Litton on the respective date; (iii)
175,000 non-qualified stock options in two grants: 100,000 on June 21, 2000
and 75,000 on August 1, 2000, which vest in equal installments over a five-
year period and have a ten-year term, subject to the terms of the 1984 Plan;
(iv) in September 2000, an additional 13,700 shares of performance-based
restricted stock subject to the fulfillment of certain criteria over a two-
year performance period ending July 31, 2002; (v) an additional annual
incentive payable in 2001 with a target amount of $571,975, with the actual
amount to be paid based on an agreed-upon goal achievement ranging from 0% to
150% of the target amount; (vi) effective January 1, 2001, a $627,090 credit
into a deferred compensation account under a proposed Litton Executive
Deferred Compensation Plan, or a payment of $822,000 if such Plan is not
approved; (vii) a credit of five additional years of service for vesting under
the SERP; and (viii) the right to receive additional benefits upon termination
after age 55, if his vested benefits under the SERP and Litton's defined
benefit pension plan are less than those projected as of the date of hire
under the TRW pension plan.
19
<PAGE>
The agreement also provides for the granting of a change in control employment
agreement for three years following a change in control event, and relocation
assistance. Dr. Sugar will receive special severance benefits if he is not
elected to the Board of Directors or elected Chief Executive Officer or is
terminated without cause prior to December 31, 2001, including a cash payment
of $5,000,000, the vesting of restricted stock and stock options and certain
other benefits. The special severance benefits will terminate when Dr. Sugar
is elected to the Board and as Chief Executive Officer.
Indebtedness of Management to Litton
As a form of additional incentive, Litton provides loans to certain key
employees. Under Litton's incentive loan program, unsecured loans, not to
exceed an aggregate of $6,000,000 outstanding at any one time, may be made to
not more than 50 employees and may not exceed the annual base salary of the
borrower. These loans presently bear interest at the rate of 4% per annum and
are payable on Litton's demand, or upon (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.
Under the program, loans in an aggregate principal amount of $1,845,000 were
outstanding as of September 18, 2000, to the following executive officers of
Litton: Mr. Brown, $275,000; Mr. Halamandaris, $250,000; Timothy G. Paulson,
$150,000; John E. Preston, $170,000; Mr. Steuert, $400,000; and Dr. Sugar,
$600,000. The total of these amounts also represents the largest aggregate
amount outstanding since August 1, 1999.
20
<PAGE>
REPORT OF THE COMPENSATION AND SELECTION COMMITTEE
The Compensation and Selection Committee of the Board of Directors (the
"Committee") establishes the salaries and other compensation of the executive
officers of Litton, including its CEO and the other individuals listed in the
"Summary Compensation Table" ("Named Executive Officers"). The Committee
consists entirely of non-employee directors.
Compensation Philosophy and Components
Litton's executive compensation program is designed to:
. provide the level of total compensation necessary to attract and retain
executives in its industries;
. link compensation to Litton's performance and to the interests of
stockholders;
. recognize both individual and team performance through incentive
compensation programs;
. balance rewards for short-term versus long-term results; and
. encourage executives to make a long-term career commitment to Litton and
its stockholders.
The program consists of, and is intended to balance, three elements: (1) base
salaries payable in cash; (2) annual performance awards payable in cash or
stock or a combination of both; and (3) long-term, stock-based incentive
awards. The market data used by the Committee to administer the executive
compensation program is provided through surveys conducted by external
compensation consultants and presented to the Committee annually as part of
the determination of the succeeding year's executive compensation structure.
Salaries
The Committee determines the salary ranges for each of the executive officer
positions based upon the scope, level and strategic impact of the position,
and on the pay level for similarly positioned executive officers in comparable
companies. Annual base salary is designed to compensate executives for ongoing
performance throughout the year.
Annual Performance Awards
The Committee administers annual performance awards under the Annual Incentive
Plan which were approved by the Committee pursuant to Litton's Performance
Award Plan approved by Litton's stockholders in 1996. Annual performance
awards are generally based on Litton's financial results as measured against
pre-determined targets. Awards are payable in full in October following the
end of the fiscal year for which the awards are granted. In November 1999, the
Committee established a Fiscal Year 2000 Annual Incentive Plan, which
established performance objectives (such as sales, earnings per share or
operating profit, cash flow return on investment ("CFROI") and free cash flow)
for approximately 450 eligible participants, including the Named Executive
Officers.
At the beginning of each fiscal year, the Committee sets the financial
performance objectives and each participant is assigned a percentage of his or
her base salary as the target of his or her bonus award. A participant's bonus
award is calculated at the end of the fiscal year based upon the participant's
individual achievement and the attainment of financial objectives by his or
her group or division. Certain senior executive officers, including three of
the Named Executive Officers, receive annual performance awards based solely
upon pre-determined financial objectives. In determining the level of awards
following the fiscal year end, the Committee reviews the accomplishments and
achievements of management as well as the financial performance of Litton
during that past year.
21
<PAGE>
Based upon the actual performance of Litton during the 2000 fiscal year, the
performance goals were met at a level that would have entitled the corporate
participants, including corporate executive officers and two of the Named
Executive Officers (excluding Dr. Sugar who received a guaranteed bonus in
accordance with his employment agreement), to receive an award equal to
approximately 104% of their base salaries. Under the Performance Award Plan,
the Committee has discretion to approve appropriate adjustments to the
performance objective if the Committee determines that external changes or
other unanticipated business conditions have materially affected the fairness
of the performance objective. In that regard, the Committee analyzed Litton's
2000 financial results and decided to apply a formula which would correlate
the bonuses with Litton's operating results and therefore substantially
reduced the maximum bonus amounts which would have been paid under the
achievement of corporate performance goals. Bonus awards to the corporate
executive officers would have totaled $4,099,275, but, following the
adjustment by the Committee, bonus awards totaling $3,446,573 were approved.
Long-Term Stock Incentives
The principal component of long-term compensation is stock options granted
annually. The Committee grants stock options pursuant to Litton's regular
stock options program, and sets guidelines for the number and terms of such
grants based on peer group data and Litton's business objectives. Options
granted by the Committee are at fair market value, and generally become
exercisable in cumulative installments over a period of five years.
During fiscal year 2000, a total of 330,610 stock options (including 150,000
options granted to Dr. Sugar in June 2000 as required by his employment
agreement) were granted to participants under the 1984 Plan. In September 2000
(after the end of the 2000 fiscal year), the Committee awarded options to
purchase 1,282,300 shares to approximately 600 holders under the 1984 Plan. Of
the stock options awarded in September 2000, Named Executive Officers received
options to purchase shares as follows: Mr. Brown, 80,500; Dr. Sugar, 50,000;
Mr. Steuert, 35,000; Mr. St. Pe, 16,000; and Mr. Halamandaris, 15,000. Dr.
Sugar also received a grant of options to purchase 75,000 shares on August 1,
2000 in accordance with the terms of his employment agreement.
In fiscal year 2000, the Committee also decided to grant performance-based
restricted stock under the 1984 Plan allowing participants to earn a maximum
of 45,400 shares of Litton Common Stock based upon three-year internal sales
growth and CFROI performance objectives approved by the Committee. In
September 2000 the Committee granted performance-based restricted stock to 16
participants who will be eligible to receive a maximum of 78,750 shares based
upon three-year internal sales growth and CFROI performance objectives. Of
these shares, Named Executive Officers were granted the following maximum
number of shares of performance-based restricted stock: Mr. Brown, 16,500; Dr.
Sugar, 13,700; Mr. Steuert, 5,900; Mr. St. Pe, 5,600 and Mr. Halamandaris,
5,600. The Committee also granted to Dr. Sugar a maximum of 13,700 shares of
performance-based restricted stock that will vest on July 31, 2002 based upon
performance objectives, measured upon two-years' internal sales growth and
CFROI. This grant to Dr. Sugar in September 2000 was made in accordance with
the terms of his employment agreement.
Shares of performance-based restricted stock generally vest at the end of a
three-year period upon achievement of prescribed performance objectives
determined by the Committee. The Committee has determined that grants of
performance-based restricted stock will continue as a component of Litton's
long-term compensation program.
The Committee's decisions concerning the fiscal year 2000 compensation
elements for the executive officers were made within this broad framework and
in light of each executive officer's level of responsibility, performance,
current salary, prior-year bonus and other compensation awards. The
Committee's specific decisions involving fiscal year 2000 compensation were
ultimately based upon the Committee's judgment about the individual executive
officer's performance and potential future
22
<PAGE>
contributions, and whether each particular payment or award would provide an
appropriate reward and incentive for the executive to sustain and enhance
Litton's long-term performance.
Compensation of the Chief Executive Officer
Mr. Brown became Chief Executive Officer in March 1998, and Chairman of the
Board in March 1999. He also served as President until June 21, 2000. Mr.
Brown's total annual compensation earned for the 2000 fiscal year, including
salary and annual performance award, was $1,421,010. The Committee considered
four factors in determining Mr. Brown's total compensation: (1) a review of
the total compensation of CEOs at Litton's peer group of companies and
comparative general industry data; (2) Litton's performance during the 1999
fiscal year to determine fiscal year 2000 salary; (3) Litton's performance
during the 2000 fiscal year to determine his annual performance award; and
(4) Mr. Brown's contributions to Litton's performance.
During fiscal year 2000, Mr. Brown's salary was $725,005, which reflected
additional compensation which was adjusted in March 1999 in recognition of his
additional duties as Chairman of the Board. Based on Litton's performance for
fiscal year 2000, Mr. Brown received an annual performance award of $696,005.
In determining Mr. Brown's performance award, the Committee considered the
achievements highlighted above under the heading "Annual Performance Awards"
and his contribution to those achievements. As noted above, the amount of Mr.
Brown's performance award was reduced because of the Committee's adjustment of
2000 financial performance targets following the end of the fiscal year.
During the 2000 fiscal year, Mr. Brown received a grant of a maximum of 15,000
shares of performance-based restricted stock. In September 2000, Mr. Brown
received a grant of options to purchase 80,500 shares of Litton Common Stock
and a grant of a maximum of 16,500 shares of performance-based restricted
stock.
Tax Policy
The Committee has reviewed the potential consequences for Litton of Section
162(m) of the Internal Revenue Code, which imposes a limit on tax deductions
for annual compensation in excess of $1 million paid to any of the Named
Executive Officers. Litton has designed its executive compensation programs to
preserve its ability to deduct compensation paid to executives under these
programs. The Committee intends to weigh the benefits of full deductibility
with the objectives of the executive compensation program and, if the
Committee believes to do so is in the best interests of Litton and its
stockholders, it may make compensation arrangements which may not be fully
deductible under Section 162(m). This provision did not have a material impact
on Litton during the 2000 fiscal year.
The foregoing report has been furnished by the following members of the
Compensation
and Selection Committee:
David E. Jeremiah, Chairman William P. Sommers
Carol B. Hallett C.B. Thornton, Jr.
23
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based on information available to it, Litton believes that the following
persons held beneficial ownership of more than 5% of the outstanding shares of
Common Stock as of the Record Date:
<TABLE>
-----------------------------------------------------------------
<CAPTION>
Amount and Nature Percent of
Name and Address of Beneficial Class (as of
of Beneficial Owner Ownership Record Date)
-----------------------------------------------------------------
<S> <C> <C>
Unitrin, Inc.
One East Wacker
Drive
Chicago, IL
60601 12,657,764(a) 27.9%
Sanford C. Bernstein & Co., Inc.
767 Fifth Avenue
New York, NY
10153 4,109,975(b) 9.1%
-----------------------------------------------------------------
</TABLE>
(a) Unitrin, Inc. ("Unitrin") has reported in a filing with the SEC on
Schedule 13D that, as of October 5, 1995, shares of Litton'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 and dispositive power with Unitrin
over the shares respectively reported by them.
(b) Sanford C. Bernstein & Co., Inc. ("Bernstein") has reported in a filing
with the SEC on Form 13F that, as of June 30, 2000, it exercises
investment discretion with respect to accounts holding Litton Common
Stock. Bernstein reported that it exercises sole voting power over 468,406
shares, and sole dispositive power over all of the shares.
24
<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, 1995 through July 31, 2000, compared to
the performance of the Standard & Poor's 500 Index ("S & P 500 Index") and the
Standard & Poor's Aerospace/Defense Index ("S & P Aerospace/Defense Index"):
<TABLE>
--------------------------------------------------------------------------
<CAPTION>
1995 1996 1997 1998 1999 2000
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Litton 100.00 111.69 134.90 148.86 178.57 128.41
S & P 500 INDEX 100.00 116.57 177.35 211.55 254.29 277.12
S & P AEROSPACE/DEFENSE INDEX 100.00 129.76 183.87 139.72 146.26 145.55
--------------------------------------------------------------------------
</TABLE>
--------
* Assumes $100 invested on August 1, 1995 in Litton's Common Stock, the S&P
500 Index and the S&P Aerospace/Defense Index (dividends reinvested).
25
<PAGE>
ITEM TWO: PROPOSAL TO APPROVE THE LITTON INDUSTRIES, INC.
2000 LONG-TERM STOCK INCENTIVE PLAN
There will be presented to the Annual Meeting a proposal to adopt the 2000
Litton Industries, Inc. Long-Term Stock Incentive Plan (the "2000 Plan"). The
2000 Plan is intended to help Litton attract, retain and provide appropriate
incentives for employees who are in a position to contribute materially to
increasing the stockholder value of Litton. The availability of the 2000 Plan
will give Litton greater flexibility to provide key employees with meaningful
awards and incentives commensurate with their contributions and competitive
with those offered by other employers. The 2000 Plan also aligns the
employee's long-term interest to that of the stockholders and encourages long-
term retention of stock ownership in Litton. The 2000 Plan will replace the
Litton Industries, Inc. 1984 Long-Term Stock Incentive Plan, as amended and
restated (the "1984 Plan"), which was initially approved by the stockholders
on December 6, 1984 and which, by its terms, expires on October 15, 2001.
As of the date of this Proxy Statement, 541,506 shares of Common Stock
remained available for awards under the 1984 Plan, and options to purchase
5,143,086 shares of Common Stock granted under the 1984 Plan remained
unexercised, 2,052,869 of which were exercisable.
In addition, as of the date of this Proxy Statement, 402,008 shares of Common
Stock remained available for awards under the Non-Employee Director Stock Plan
and options to purchase 57,992 shares of Common Stock remained unexercised,
all of which were exercisable. Options to purchase 135,500 shares of Common
Stock granted under the Litton Industries, Inc. Director Stock Option Plan,
which was replaced by the Non-Employee Director Stock Option Plan, remained
unexercised as of the date of this Proxy Statement, all of which were
exercisable.
The 2000 Plan provides for the grant to officers and other key employees of
Litton and its subsidiaries of incentive awards in the form of stock options,
stock appreciation rights (which options and rights may be granted in tandem
with each other), or restricted stock. Such options may be either options
intended to qualify for federal income tax purposes as "incentive stock
options" or options not qualifying for favorable tax treatment ("nonstatutory
options"). The 2000 Plan does not permit the repricing of outstanding stock
options. No participant may be granted incentive awards in any one fiscal year
covering more than 250,000 shares of Common Stock.
The Board of Directors at its September 21, 2000 meeting adopted the 2000
Plan, subject to the approval of the stockholders at the Annual Meeting. The
Board of Directors recommends that stockholders vote for this proposal.
Following the approval of the 2000 Plan by the stockholders, no further awards
will be made under the 1984 Plan and the 1984 Plan will be terminated. If the
stockholders fail to approve the proposed 2000 Plan at the Annual Meeting, the
1984 Plan will continue. The full text of the proposed 2000 Plan is attached
as Annex B to this Proxy Statement. The essential features of the 2000 Plan
are summarized below, but the following summary is qualified in its entirety
by the full text of the 2000 Plan.
General Information
Stock Available for Grant. The stock subject to the 2000 Plan consists of
4,000,000 shares of Common Stock, comprised as of the date of this Proxy
Statement of (i) 3,458,494 shares of Common Stock and (ii) 541,506 shares of
Common Stock that have already been authorized and remain available for awards
under the 1984 Plan, whether authorized but unissued or reacquired by Litton.
Such maximum amount of shares is subject to appropriate adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
mergers, consolidations, reorganizations, reclassifications, recapitalizations
or other capital adjustments. The number of shares issued pursuant to an
incentive award under the 2000 Plan (or which would have been issued if Litton
had made payment solely in stock pursuant to the exercise of stock
appreciation rights) is charged against the maximum number of shares set forth
above. If any stock option or stock appreciation right granted under the 2000
Plan expires, terminates or is surrendered or cancelled without having been
exercised in full, the shares then subject
26
<PAGE>
thereto are not charged against such maximum number. Shares of performance-
based restricted stock which are reacquired by Litton pursuant to the terms of
restricted stock agreements with participants will also become available for
further incentive awards under the 2000 Plan. The closing sale price of
Litton's Common Stock on October 13, 2000, as reported in the composite
quotations of The Wall Street Journal, was $45 per share. The maximum number
of shares that may be offered under the 2000 Plan constituted 8.8% of the
Common Stock outstanding on the record date (exclusive of treasury shares).
Administration of the 2000 Plan. Under the 2000 Plan, the Compensation and
Selection Committee of the Board of Directors of Litton ("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 Internal Revenue Code of 1954, as amended (the "Code").
The Committee also has authority to delegate certain decisions to officers of
Litton. The Committee consists solely of non-employee directors who are
"disinterested persons" as such term used in Rule 16b-3 of the Securities
Exchange Act of 1934 (the "Exchange Act") and "outside directors" within the
meaning of Section 162(m) of the Code.
Grants under the 2000 Plan
Stock Options. With respect to the grant of stock options under the 2000
Plan, the option price is 100% of the fair market value of Common Stock on the
date of the grant of the stock option. The 2000 Plan does not permit the
repricing of outstanding stock options. The Code limits the aggregate fair
market value of the stock subject to incentive stock options which may be
granted in any one calendar year to a participant, and under the terms of the
2000 Plan no employee may be granted incentive stock options in excess of the
maximum number of options which may qualify as such options under the Code.
The aggregate fair market value (determined on the date of grant) of the
shares of stock subject to "incentive stock options" which may be granted to
any participant in any calendar year may not exceed $100,000, plus any "unused
limit carryover" as defined in Section 422 of the Code.
Stock Appreciation Rights. A stock appreciation right (which may be granted
in connection with a stock option or may be independently granted under the
2000 Plan) generally entitles the holder to receive a cash amount equal to the
difference between the initial value of the right on the date of grant and the
fair market value of the stock, if greater, on the date of exercise. However,
at the time of the grant of a stock appreciation right, the Committee may
determine a maximum amount payable with respect to such right. The initial
value of a stock appreciation right shall be such amount as the Committee may
determine, but shall be not less than 100% of the fair market value of the
stock on the date of the grant of such right. Both the option price and the
initial value of a stock appreciation right, as well as the number of shares
subject to such option or right, will be appropriately adjusted by the
Committee in the event of stock splits, stock dividends, recapitalizations and
certain other events involving a change in Litton's capital.
Restricted Stock. Incentive awards may be made in the form of performance-
based restricted stock. The Committee shall specify the number of shares of
restricted stock subject to such right, the performance criteria which must be
attained in order for restricted stock to vest in whole or in part, and the
nature and duration of the restrictions against transfer which shall apply to
such restricted stock. The Committee may specify the voting and dividend
rights, if any, of a holder of performance-based restricted stock.
Certificates representing restricted stock subject to restrictions against
transfer shall bear an appropriate legend referring to such restrictions.
While restricted stock will be subject to restrictions against transfer for a
period or periods of time, the 2000 Plan does not set forth any minimum or
maximum vesting period with respect to incentive awards in the form of
restricted stock. It is expected that the individual contracts governing
restricted stock awards will ordinarily provide that the restricted stock will
be forfeited if the participant terminates or is terminated prior to the lapse
of the restrictions, subject to exceptions for death, disability or retirement
while employed by Litton.
27
<PAGE>
Exercise of Stock Options and/or Stock Appreciation Rights
No stock option or stock appreciation right granted under the 2000 Plan may be
exercised more than ten years from the date it is granted or such shorter
period as the Committee may determine.
Stock options granted under the 2000 Plan become exercisable in one or more
installments in the manner and at the time or times specified by the
Committee. Typically, the option installments will be cumulative and
exercisable until the expiration of the exercise period.
A stock appreciation right granted under the 2000 Plan shall, if granted in
connection with a stock option, become exercisable at such time or times as
the related stock option shall become exercisable, unless the Committee
specifies a more restrictive period. If not granted in connection with a stock
option, a stock appreciation right granted under the 2000 Plan shall become
exercisable at such time or times as the Committee may determine at the time
of the grant.
Upon the exercise of a stock appreciation right under the 2000 Plan, the
amount to which the holder is entitled may be paid in shares of Litton's
Common Stock valued at their fair market value on the date of the exercise, in
cash, or partly in cash and partly in stock as the Committee shall determine
at the time the stock appreciation right is exercised. Upon exercise of a
stock option granted under the 2000 Plan in connection with a stock
appreciation right, the related stock appreciation right shall be surrendered,
and upon exercise of a stock appreciation right granted under the 2000 Plan in
connection with a stock option, the related stock option shall be surrendered.
Payment for Shares
The Committee may permit payment for shares issuable upon the exercise of
stock options to be made in cash, by the surrender of Common Stock valued at
its then fair market value, or by a combination of stock so valued and cash.
The individual agreements with the participants will specify the appropriate
method of payment and may require the Committee's consent for payment of
shares by the tender of already-owned stock.
Amendment and Termination of the 2000 Plan
The 2000 Plan will terminate on September 20, 2010. Under the 2000 Plan,
options to purchase Common Stock or other awards granted and outstanding as of
the date the 2000 Plan terminates will not be affected or impaired by such
termination. The Board, or the Committee with the approval of the Board, may
amend, alter or discontinue the 2000 Plan in such respects as the Board or the
Committee may deem advisable, subject to the 2000 Plan limitations. No
amendments may be made to increase the maximum number of shares, extend the
term of the 2000 Plan or the terms of any award, or change the class of
eligible employees without stockholder approval.
2000 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. From August 1, 1999 through September 30, 2000,
there were 612 participants in the 1984 Plan. During that period, all current
executive officers as a group (including the named executive officers) were
awarded a total of 507,400 shares under the 1984 Plan, and all employees who
are not executive officers (including the named executive officers) were
awarded a total of 1,181,710 shares under the 1984 Plan.
Transferability
The 2000 Plan provides that the Committee will decide at the time an award is
granted the extent to which the award is transferable, provided that awards
shall not be transferable other than (i) by will or by the laws of descent and
distribution, (ii) by gift or other transfer to a trust or estate in which the
participant or the participant's spouse or other immediate relative has a
substantial beneficial interest, or to a spouse or other immediate relative,
subject to the limitations of Rule 16b-3 of the Exchange Act,
28
<PAGE>
or (iii) pursuant to a qualified domestic relations order, as defined by the
Code. Incentive stock options or stock appreciation rights granted in
conjunction with incentive stock options are only transferable by will or by
the laws of descent and distribution, and are exercisable during the
participant's lifetime only by the participant.
Miscellaneous Provisions
With the exception of the exercise price of stock options, the Committee may,
with the consent of the holder of an incentive award, amend the terms of any
existing award. An example of such amendment would be one to accelerate the
period of exercise or vesting of any incentive award, either absolutely or
contingently, for such reasons as the Committee may deem appropriate,
including the occurrence of events which might lead to a change in the control
of Litton.
If a holder of an incentive award ceases to be an employee of Litton (other
than by reason of death) prior to the time any particular installment of an
incentive award becomes exercisable, such installment shall be forfeited.
However, if a holder of an incentive award while an employee retires or
becomes disabled, such holder will be considered to be an employee for
purposes of the 2000 Plan if (i) such holder and Litton enter into an
agreement providing for the rendering of consulting or advisory services to
Litton; (ii) the holder does not utilize or disclose confidential information
concerning Litton; and (iii) the holder does not engage in any activity which
competes with or is inimical to the interests of Litton. If a holder of an
incentive award dies while employed by Litton, an incentive award may be
exercised by, or vest in, the holder's estate to the extent determined by the
Committee.
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
2000 Plan.
Nonqualified Stock 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 receive compensation taxable as ordinary
income to the extent the amount by which the fair market value of the stock
acquired on the exercise date exceeds the exercise price. Litton will
generally be allowed a deduction in the year of exercise equal to the
compensation income realized by the participant.
If the exercise price of a nonqualified option is paid in whole or in part
with already-owned shares of Litton Common Stock, the participant will not
recognize compensation income with respect to the number of new shares equal
to the number of already-owned shares surrendered. The fair market value of
the additional new shares received will be compensation taxable to the
participant as ordinary income. Litton will generally be entitled to a tax
deduction equal to the compensation income realized by the participant.
Incentive Stock Options. A participant will not realize income at the time
an incentive stock option ("ISO") is granted or exercised, whether the
participant makes payment in cash or in whole or in part with already owned
shares of Litton Common Stock. However, the difference, if any, at exercise
between the exercise price and 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)
Litton will not be allowed a deduction in connection with the exercise.
If shares acquired upon 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.
Litton will generally be allowed a deduction in the year in which the
disposition occurs equal to the ordinary income recognized.
29
<PAGE>
Stock Appreciation Rights. Upon exercise, the holder of a stock appreciation
right will recognize as ordinary income the amount of cash and/or the fair
market value of any Litton Common Stock received, and Litton will generally be
allowed a deduction in the year of exercise equal to such income, provided
that Litton satisfies certain federal income tax withholding and reporting
requirements. Any shares of Common Stock received upon exercise of a stock
appreciation right will have a tax basis equal to their fair market value on
the date received.
Restricted Stock. A participant who is granted performance-based restricted
stock may make an election pursuant to Section 83(b) of the Code, within 30
days of the grant date, 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 Litton Common
Stock at the date of grant. Such amount would then be deductible by Litton.
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
subsequent sale or disposition of the 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 expire, and Litton will be
entitled to a corresponding deduction at such time.
30
<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 2001 fiscal
year.
Deloitte & Touche LLP has served as Litton's independent auditors continuously
since 1954, is familiar with the business and operations of Litton and its
subsidiaries, and has offices in, or convenient to, most of the locations in
the United States and in most other countries where Litton 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Litton's
officers and directors, and persons who own more than 10% of a registered
class of Litton's equity securities, to file reports of ownership and changes
in ownership of such securities with the Securities and Exchange Commission
("SEC").
Based on a review of SEC Forms 3, 4 and 5 and upon written representations by
each officer and director, Litton believes that all reports were timely filed
by such persons during the fiscal year 2000, except for one report describing
purchases of Common Stock by one director, which was inadvertently filed with
the SEC three days later than the filing deadline.
DEADLINE FOR STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at Litton'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 2001 Annual Meeting, Litton must receive
them no later than June 22, 2001. Such proposals should be directed to the
attention of the Secretary of Litton at 21240 Burbank Boulevard, Woodland
Hills, California 91367-6675.
Under Litton's By-Laws, the deadline for submission of stockholder proposals
to be presented at the 2001 Annual Meeting, but which will not be included in
the Proxy Statement and form of proxy relating to such Meeting, is August 1,
2001. Such proposals should also be directed to the attention of the Secretary
of Litton at the above address. Any such proposal received after that date
will be considered untimely, and the persons named in the proxy for such
Meeting may exercise their discretionary voting power with respect to such
proposal.
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OTHER MATTERS
The cost of soliciting proxies will be borne by Litton. Proxies may be
solicited by directors, officers or regular employees of Litton in person or
by telephone, telegraph, facsimile transmission or telex. Litton also has
retained D. F. King & Co., Inc. to aid in the solicitation at an estimated
cost of $9,500, plus out-of-pocket expenses. Arrangements have been made for
brokerage houses, nominees and other custodians to send proxy materials to
their principals, and Litton will reimburse them for doing so.
A stockholder may elect to receive future proxy statements and annual reports
of Litton over the Internet instead of receiving paper copies in the mail.
Stockholders whose shares are registered in their own names may consent to
future Internet delivery by marking the appropriate box on their proxy cards.
Other stockholders should contact the broker, trust, bank or other nominee
that holds their shares to inquire about the availability of Internet
delivery. If stockholders consent to Internet delivery, a notation will be
made on their accounts. When the proxy statement and annual report for the
2001 Annual Meeting become available, such stockholders will receive a notice
instructing them on how to access the documents over the Internet. A
stockholder may revoke consent to Internet delivery or request paper copies of
any of these documents without revoking consent by sending a written request
to: Litton Industries, Inc., Shareholder Services, 21240 Burbank Boulevard,
Woodland Hills, CA 91367-6675.
The Audit and Compliance Committee Report, the Performance Graph and the
Report of the Compensation and Selection Committee included in this Proxy
Statement shall not be deemed soliciting material or otherwise deemed filed
and shall not be deemed to be incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any other
filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that Litton specifically incorporates the Audit and
Compliance Committee Report, the Performance Graph or the Report of the
Compensation and Selection Committee 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. If any other matter comes before
the Annual 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
CHARTER
OF THE
AUDIT AND COMPLIANCE COMMITTEE
OF THE
BOARD OF DIRECTORS
OF
LITTON INDUSTRIES, INC.
as adopted May 18, 2000
The Audit and Compliance Committee is appointed by the Board of Directors
to assist the Board in monitoring (1) the integrity of the financial
statements of the Corporation, (2) the compliance by the Corporation with
legal and regulatory requirements and (3) the independence and performance of
the Corporation's internal and external auditors.
The Audit and Compliance Committee shall meet the composition requirements
of the New York Stock Exchange, and the members of the Audit and Compliance
Committee shall meet the independence and expertise requirements of the New
York Stock Exchange. The members of the Audit and Compensation Committee shall
be appointed by the Board on the recommendation of the Nominating and Board
Governance Committee.
The Audit and Compliance Committee shall have the authority to retain
special legal, accounting or other consultants to advise the Committee. The
Audit and Compliance Committee may request any officer or employee of the
Corporation or the Corporation's outside counsel or independent auditor to
attend a meeting of the Committee or to meet with any members of, or
consultants to, the Committee.
The Audit and Compliance Committee shall make regular reports to the Board.
The Audit and Compliance Committee shall:
1. Review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board of Directors for approval.
2. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices as well as the adequacy of internal controls that could
significantly affect the Corporation's financial statements.
3. Review an analysis prepared by management and the independent auditor
of significant financial reporting issues and judgments made in connection
with the preparation of the Corporation's financial statements.
4. Review with management and the independent auditor the Corporation's
quarterly financial statements prior to the filing of its Form 10-Q.
5. Meet periodically with management to review the Corporation's major
financial risk exposures and the steps management has taken to monitor and
control such exposures.
6. Review major changes to the Corporation's auditing and accounting
principles and practices as suggested by the independent auditor, internal
auditors or management.
7. Recommend to the Board the appointment of the independent auditor,
which firm is ultimately accountable to the Audit and Compliance Committee
and the Board.
8. Approve the fees to be paid to the independent auditor.
9. Receive periodic reports from the independent auditor regarding the
auditor's independence, discuss such reports with the independent auditor,
and if so determined by the Audit and Compliance Committee, recommend that
the Board take appropriate action to satisfy itself of the independence of
the independent auditor.
10. Evaluate together with the Board the performance of the independent
auditor and, if so determined by the Audit and Compliance Committee,
recommend that the Board replace the independent auditor.
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11. Review the appointment and replacement of the senior internal
auditing executive.
12. Review the significant reports to management prepared by the
internal auditing department and management's responses.
13. Meet with the independent auditor prior to the audit to review the
planning and staffing of the audit.
14. Obtain from the independent auditor assurance that Section 10A of
the Securities Exchange Act of 1934 has not been implicated.
15. Obtain reports from management, the Corporation's senior internal
auditing executive and the independent auditor that the Corporation's
subsidiary/foreign affiliated entities are in conformity with applicable
legal requirements and the Corporation's Statement of Principles and
Standards of Conduct.
16. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the conduct
of the audit.
17. Review with the independent auditor any problems or difficulties the
auditor may have encountered and any management letter provided by the
auditor and the Corporation's response to that letter. Such review should
include:
(a) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
required information.
(b) Any changes required in the planned scope of the internal audit.
(c) The internal audit department responsibilities, budget and
staffing.
18. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Corporation's annual proxy
statement.
19. Advise the Board with respect to the Corporation's policies and
procedures regarding compliance with applicable laws and regulations and
with the Corporation's Statement of Principles and Standards of Conduct,
and meet with the chairman of management's compliance board to review
improvements, enforcement and general status at least two times a year.
20. Review with the Corporation's General Counsel legal matters that may
have a material impact on the financial statements, the Corporation's
compliance policies and any material reports or inquiries received from
regulators or governmental agencies.
21. Meet at least annually with the chief financial officer, the senior
internal auditing executive and the independent auditor in separate
executive sessions.
22. Review annually the Reportable Interests Program policies and
procedures and the Reportable Transactions and Conflicts of Interest
Questionnaires completed by certain employees of the Corporation as
submitted to the Audit and Compliance Committee by the Corporate Secretary
and make recommendations thereon.
While the Audit and Compliance Committee has the responsibilities and powers
set forth in this Charter, it is not the duty of the Audit and Compliance
Committee to plan or conduct audits or to determine that the Corporation's
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles. This is the responsibility of
management and the independent auditor. Nor is it the duty of the Audit and
Compliance Committee to conduct investigations, to resolve disagreements, if
any, between management and the independent auditor or to assure compliance
with laws and regulations and the Corporation's Statement of Principles and
Standards of Conduct.
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ANNEX B
LITTON INDUSTRIES, INC.
2000 LONG-TERM STOCK INCENTIVE PLAN
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 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 these
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.
(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 from time to time.
(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.
(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
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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., 2000 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 4,000,000 shares of Stock authorized and
reserved for issuance under the Program. 200,000 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. 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 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, however, that the Committee
shall not have the authority to reduce the exercise price of any outstanding
Stock Option, other than pursuant to Section 10 hereof, and further 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
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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 one or more executive officers 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) Any Employee 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 250,000 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, or have previously been exercised in whole or in part. 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 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.
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(c) All provisions of this Program except Sections 7, 8 and 9 shall apply to
Nonstatutory Stock.
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) and (d) 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 Incentive Stock Option is
granted.
(c) Notwithstanding any other provisions hereof, in the case of
Incentive Stock Options, 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.
(d) 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 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. Performance Based 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.
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(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. 2000 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, if any, 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.
(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, 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
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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 incurs a termination of employment, 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 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
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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 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 September 21, 2000 upon its approval by the
Board. The Program, as so amended, shall terminate on September 20, 2010, 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.
B-7
<PAGE>
LITTON INDUSTRIES, INC. PROXY
Michael R. Brown and Lynne M. O. Brickner, 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 Stockholders to be held at The Ritz Carlton Hotel, 4375 Admiralty
Way, Marina del Rey, California at 11:00 a.m. on Friday, December 8, 2000, 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 Annual Meeting of Stockholders and the Proxy Statement dated
October 20, 2000.
Directors recommend a vote "FOR" Items 1, 2 and 3.
<TABLE>
<S> <C> <C> <C>
1. Election of Directors [_] FOR all nominees [_] WITHHOLD AUTHORITY to [_] EXCEPTIONS* as
listed below vote for ALL nominees listed below indicated
</TABLE>
Alton J. Brann, Michael R. Brown, Joseph T. Casey, Carol B. Hallett, Orion L.
Hoch, David E. Jeremiah, John M. Leonis, William P. Sommers, Ronald D. Sugar,
C. B. Thornton, Jr., James R. Wilson.
To withhold authority to vote for any individual nominee(s), mark the
"EXCEPTIONS" box and print the name(s) of the nominee(s) in the space provided
below.
*EXCEPTIONS ____________________________________________________________________
2. Proposal to approve the adoption of the Litton Industries, Inc. 2000 Long-
Term Stock Incentive Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued, and to be signed and dated, on reverse side)
<PAGE>
(Continued from reverse side)
<TABLE>
<CAPTION>
3. Proposal to ratify the selection of Deloitte & Touche LLP as independent auditors for the fiscal year ending July 31, 2001.
<S> <C> <C>
[_] FOR [_] AGAINST [_] ABSTAIN
Unless otherwise specified, this proxy will be voted FOR Items 1, 2 and 3.
In their discretion, the Proxies are authorized to vote upon such other business as may properly come
before the Annual Meeting.
Dated: ____________________________________ , 2000
__________________________________________________
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 complete, date, sign and mail this Proxy Card promptly in the enclosed envelope.
</TABLE>
