As filed with the Securities and Exchange Commission on June 14, 2001
Registration No. 333-61506
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 2
to
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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NORTHROP GRUMMAN CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 3812 95-4840775
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
1840 Century Park East
Los Angeles, California 90067
(310) 553-6262
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
John H. Mullan
Corporate Vice President and Secretary
1840 Century Park East
Los Angeles, California 90067
(310) 553-6262
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Stephen Fraidin
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this registration statement becomes
effective and upon completion of the transactions described in the enclosed
prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus may change. We may not complete the +
+exchange offer and issue these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[NORTHROP GRUMMAN LOGO]
NORTHROP GRUMMAN CORPORATION
Offer To Exchange Each Outstanding Share Of Common Stock
(Including Associated Preferred Stock Purchase Rights)
of
NEWPORT NEWS SHIPBUILDING INC.
for
Shares of Common Stock
of
NORTHROP GRUMMAN CORPORATION
Valued at $67.50
or
$67.50 Net to the Seller in Cash
subject, in each case, to the election and proration procedures and limitations
described in this prospectus and the related letter of election and transmittal
Our offer and your withdrawal rights will expire at 12:00 midnight, New York
City time, on June 20, 2001 unless extended. Shares tendered pursuant to our
offer may be withdrawn at any time prior to the expiration of our offer, but
not during any subsequent offering period.
Northrop Grumman Corporation, a Delaware corporation, hereby offers, upon the
terms and subject to the conditions set forth in this prospectus and in the
related letter of election and transmittal, to issue shares of Northrop Grumman
common stock, par value $1.00 per share, designed to provide a value of $67.50
per share, or to pay $67.50 in cash, for each of the outstanding shares of
common stock, par value $0.01 per share, of Newport News Shipbuilding Inc., a
Delaware corporation, including the associated Series A participating
cumulative preferred stock purchase rights issued pursuant to the Newport News
stockholder protection rights agreement. Each Newport News stockholder will be
able to elect to receive cash for all of his or her Newport News shares or
Northrop Grumman shares for all of his or her Newport News shares subject, in
each case, to the election and proration procedures and limitations described
in this prospectus and the related letter of election and transmittal.
The purpose of our offer is for Northrop Grumman to acquire control of, and
ultimately the entire common equity interest in, Newport News. We intend,
promptly after the completion of our offer, to seek to have Newport News
complete a merger with Northrop Grumman or a wholly owned subsidiary of
Northrop Grumman in which each outstanding share of common stock of Newport
News (except for treasury shares of Newport News and shares beneficially owned
directly or indirectly by Northrop Grumman for its own account) would be
converted into the right to receive, pro rata, the number of shares of Northrop
Grumman common stock and the amount of cash available for our offer and the
merger, to the extent those forms of consideration are remaining after
completion of our offer, subject to appraisal rights available under Delaware
law.
As more fully described in this prospectus, we believe that our proposed
business combination with Newport News would be more favorable to you than the
proposed merger of Newport News and General Dynamics announced on April 24,
2001. We believe that the General Dynamics proposal raises serious antitrust
issues and so has a substantial likelihood of not receiving required
governmental approvals and thus not being completed. We believe that our
proposal, unlike the General Dynamics proposal, has a high likelihood of
completion and would provide you with superior value to that proposed by
General Dynamics.
Our obligation to exchange Northrop Grumman common stock and cash for Newport
News common stock is subject to the conditions listed under "Our Offer--
Conditions to Our Offer."
Our common stock is listed on the New York Stock Exchange under the symbol
"NOC" and Newport News' common stock is listed on the New York Stock Exchange
under the symbol "NNS."
See "Risk Factors" beginning on page 20 for a discussion of various factors
that you should consider about our offer.
We are not asking you for a proxy and you are requested not to send us a
proxy. Any solicitation of proxies will be made pursuant only to separate proxy
solicitation materials complying with the requirements of Section 14(a) of the
Securities Exchange Act of 1934.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------
The Dealer Manager for Our Offer is
Salomon Smith Barney
-----------
The date of this preliminary prospectus is June 14, 2001
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE PROPOSED ACQUISITION...................... 1
WHERE YOU CAN FIND MORE INFORMATION....................................... 6
SUMMARY................................................................... 8
RISK FACTORS.............................................................. 20
The Anticipated Benefits of the Acquisition May Not Be Realized and as a
Result the Price of Northrop Grumman Shares May Decline................. 20
Exchange Ratio of Our Offer Could Work to Your Disadvantage.............. 20
You May Not Receive All Consideration in the Form You Have Elected....... 20
The Receipt of Northrop Grumman Shares in Connection with Our Offer May
Be Taxable to You....................................................... 20
Resales of Northrop Grumman Shares Following Our Offer May Cause the
Market Price of that Stock to Fall, Decreasing the Value of the Northrop
Grumman Shares Issued in Our Offer...................................... 21
The Trading Price of Northrop Grumman Common Stock May Be Affected by
Factors Different from Those Affecting the Price of Newport News Common
Stock................................................................... 21
Failure to Complete the Merger Could Negatively Impact Newport News'
Stock Price and Future Business and Operations.......................... 21
Our Indebtedness Following Our Offer Will Be Higher Than Our Existing
Indebtedness............................................................ 21
Successful Integration of the Northrop Grumman and Newport News Business
Is Not Assured.......................................................... 22
We May Be Unable to Retain Personnel Who Are Key to Northrop Grumman's
and Newport News' Business.............................................. 22
Risks Related to the Business of Northrop Grumman and Newport News....... 22
INFORMATION ABOUT NORTHROP GRUMMAN AND NEWPORT NEWS....................... 23
Northrop Grumman Corporation............................................. 23
Newport News............................................................. 24
REASONS FOR OUR OFFER..................................................... 25
BACKGROUND OF OUR OFFER................................................... 26
Background............................................................... 26
The General Dynamics-Newport News Merger Agreement....................... 28
OUR OFFER................................................................. 32
Consideration to Be Paid................................................. 32
Timing of Our Offer...................................................... 36
Extension, Termination and Amendment..................................... 37
Exchange of Newport News Shares; Delivery of Northrop Grumman Common
Stock and Cash.......................................................... 38
Cash Instead of Fractional Shares of Northrop Grumman Common Stock....... 38
Withdrawal Rights........................................................ 38
Procedure for Tendering.................................................. 39
Guaranteed Delivery...................................................... 41
Material U.S. Federal Income Tax Consequences of Our Offer and the
Merger.................................................................. 42
Effect of Our Offer on Market for Newport News Shares; Registration Under
the Exchange Act........................................................ 47
Purpose of Our Offer; the Merger; Appraisal Rights....................... 48
Plans for Newport News After the Merger.................................. 49
Conditions to Our Offer.................................................. 49
Regulatory Approvals..................................................... 52
Source and Amount of Funds............................................... 53
Certain Relationships with Newport News.................................. 53
Fees and Expenses........................................................ 53
Accounting Treatment..................................................... 54
Stock Exchange Listing................................................... 54
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION............... 55
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.............. 56
i
Page
DESCRIPTION OF NORTHROP GRUMMAN COMMON STOCK............................. 61
COMPARISON OF RIGHTS OF HOLDERS OF NORTHROP GRUMMAN SHARES AND NEWPORT
NEWS SHARES............................................................. 62
NEWPORT NEWS INFORMATION................................................. 68
FORWARD-LOOKING STATEMENTS............................................... 69
LEGAL MATTERS............................................................ 70
EXPERTS.................................................................. 70
Annex A -- DIRECTORS AND EXECUTIVE OFFICERS OF NORTHROP GRUMMAN.......... A-1
Annex B -- SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW --
COMBINATIONS WITH INTERESTED STOCKHOLDERS..................... B-1
----------------
This prospectus incorporates important business and financial information
about Northrop Grumman, Litton Industries, Inc. and Newport News from documents
filed with the SEC that have not been included in or delivered with this
prospectus.
This information is available on the SEC's website at http://www.sec.gov and
from other sources. See "Where You Can Find More Information" on page 6.
You may also request copies of these documents from us, without charge, upon
written or oral request to our information agent, D. F. King & Co., Inc., 77
Water Street, New York, New York 10005, toll-free at 1-800-758-5378.
In order to receive timely delivery of the documents, you must make your
requests no later than June 13, 2001 (five business days before the initial
scheduled expiration date of our offer).
ii
QUESTIONS AND ANSWERS ABOUT THE PROPOSED ACQUISITION
Q: What is Northrop Grumman proposing?
A: We are proposing to acquire control of, and ultimately the entire common
equity interest in, Newport News by offering to exchange all outstanding
shares of Newport News common stock and the associated rights for shares of
Northrop Grumman common stock and cash. We intend, promptly after completion
of our offer, to seek to merge Newport News with Northrop Grumman or a
wholly owned subsidiary of Northrop Grumman. As a result of the merger, each
share of Newport News common stock that has not been exchanged or accepted
for exchange in our offer would be converted into the right to receive,
pro rata, the number of shares of Northrop Grumman common stock and the
amount of cash available in our offer and the merger, to the extent those
forms of consideration are remaining after completion of our offer, subject
to appraisal rights.
Q: What will I receive in exchange for my shares?
A: Each person who is a Newport News stockholder will have the opportunity to
elect to receive, for those shares of Newport News common stock he or she
owns, either
. $67.50 in cash, without interest, per Newport News share; or
. a number of shares of Northrop Grumman common stock (the "exchange
ratio") designed to provide a value of $67.50, per Newport News share,
subject, in each case, to the election and proration procedures and
limitations described more fully in "Our Offer" on page 32.
We will determine the exact exchange ratio by dividing $67.50 by the average
of the closing sale prices for a share of Northrop Grumman common stock on
the New York Stock Exchange as reported in The Wall Street Journal over the
10-day trading period ending on the third trading day before we complete our
offer (the "Northrop Grumman Stock Value"). However, in no event will the
exchange ratio be more than .7941176 ($67.50/$85.00) or less than .7105263
($67.50/$95.00).
We will issue 16,636,885 shares of our common stock (the "Northrop Grumman
Available Shares") in our offer and the merger. The portion of these shares
available in our offer will equal the number of Northrop Grumman Available
Shares times the percentage of outstanding Newport News shares tendered in
our offer. All Northrop Grumman Available Shares not exchanged in our offer
will be issued in the merger. Other than with respect to the "top up"
described below, we will not pay more in cash for the Newport News shares in
our offer and the merger than $891,934,380 (subject to increase for
fractional shares and to the extent the number of outstanding Newport News
shares increases due to option exercises) (the "Base Cash Amount").
If the Northrop Grumman Stock Value is less than $90.00 but equal to or
greater than $85.00, we will increase the aggregate amount of cash available
for our offer and the merger by the product of (a) the excess of $90.00 over
the Northrop Grumman Stock Value and (b) the number of Northrop Grumman
Available Shares (the "Top Up Amount").
If the Northrop Grumman Stock Value is less than $85.00, we will increase
the aggregate of amount of cash available for our offer and the merger by
the Top Up Amount for an $85.00 Northrop Grumman Stock Value, but we will
not increase it beyond that point.
If the Northrop Grumman Stock Value is greater than $90.00 but less than or
equal to $95.00, we will reduce the aggregate amount of cash available for
our offer and the merger by the product of (a) the excess of the Northrop
Grumman Stock Value over $90.00 and (b) the number of Northrop Grumman
Available Shares.
1
If the Northrop Grumman Stock Value is greater than $95.00, we will reduce
the aggregate of amount of cash available for our offer and the merger by
reduction for a $95.00 Northrop Grumman Stock Value as described in the
prior paragraph, but we will not reduce the cash beyond that point.
Because of the manner in which the exchange ratio is calculated,
stockholders who receive solely Northrop Grumman common stock or a
combination of Northrop Grumman common stock and cash in our offer or the
merger will receive $67.50 per share of value (based on the Northrop Grumman
Stock Value) if the Northrop Grumman Stock Value is between $85.00 and
$95.00, will receive less than $67.50 per share of value if the Northrop
Grumman Stock Value is less than $85.00 and will receive more than $67.50 of
value if the Northrop Grumman Stock Value is more than $95.00.
To the extent the demand for either the cash or the stock component of our
offer exceeds the aggregate amount of cash or stock in our offer, we will
prorate the total cash or stock, as the case may be, proportionally among
the stockholders who elect that component. Stockholders who do not make an
election will be allocated whatever component is remaining (or a
proportionate share of each component if neither is oversubscribed), after
taking into account the preferences of the tendering stockholders who make
elections. We describe our procedures for prorating cash and common stock
under the caption "Our Offer--Consideration to Be Paid--Consequences of
Over- and Under-Election."
You will not receive any fractional Northrop Grumman shares. Instead, you
will receive cash in an amount equal to the market value of the fractional
Northrop Grumman shares you would otherwise have been entitled to receive.
Q: How can I find the final exchange ratio?
A: Before our offer expires, we will notify you by issuing a press release
announcing the final exchange ratio and by filing the press release with the
SEC. We will issue the press release before 9:00 A.M., New York City time,
on the second trading day before our offer closes, announcing the final
exchange ratio and the average closing price of the Northrop Grumman shares
over the 10-day trading period. For more information, see "Our Offer--
Consideration to Be Paid."
Q: Why is a transaction with Northrop Grumman better than the proposed merger
of Newport News and General Dynamics?
A: We believe that the General Dynamics proposal raises serious antitrust
issues, including the creation of a monopoly on the manufacture of
submarines and naval nuclear propulsion. We therefore believe that the
General Dynamics transaction has a substantial likelihood of not receiving
required governmental approvals and thus not being completed. Because there
are no program overlaps between Northrop Grumman and Newport News, we
believe that our proposal, unlike the General Dynamics proposal, has a high
likelihood of completion. In addition, we believe our proposal would then
provide you with superior value to that proposed by General Dynamics because
you will have (1) the opportunity to receive your consideration on a tax-
free basis (as opposed to General Dynamic's fully taxable transaction) and
(2) the opportunity to retain an equity interest in one of the industry's
leading diversified defense electronics, systems integration, information
technology and shipbuilding enterprises, with significant market
capitalization and potential for further appreciation.
In addition, our offer has been made based solely on publicly available
information regarding Newport News. If we are provided the opportunity to
conduct a due diligence review of Newport News, we would be prepared to
enter into negotiations immediately with respect to all aspects of our
offer.
Q: How do I participate in your offer?
A: To tender your shares, you should do the following:
. if you hold shares in your own name, complete and sign the enclosed
letter of election and transmittal and return it with your share
certificates to Mellon Investor Services LLC, the exchange agent for our
offer, at the appropriate address specified on the back cover page of
this prospectus before the expiration date of our offer; or
2
. if you hold your shares in "street name" through a broker, instruct your
broker to tender your shares before the expiration date of our offer.
Q: Am I required to make an election?
A: No. If you do not make an election, you will still receive payment for your
Newport News shares. However, if you have a preference for receiving either
Northrop Grumman shares or cash and do not make an election, we will not
take your preference into account and you will be allocated whatever
component is remaining (or a proportionate share of each component if
neither is oversubscribed) after taking into account the preferences of
other tendering stockholders.
Q: Will I continue to receive dividends and have voting rights with respect to
Newport News shares that I tender to you?
A: Yes. Until we accept your Newport News shares for exchange at the completion
of our offer, you will be entitled to receive any dividends paid on your
tendered Newport News shares and you will continue to have the right to vote
your tendered Newport News shares. Once we complete our offer and exchange
all Newport News shares tendered by you in our offer and not properly
withdrawn, you will have all dividend and voting rights of a Northrop
Grumman stockholder to the extent you acquire Northrop Grumman stock in our
offer.
Q: When and how can I withdraw tendered shares?
A: Your tender of Newport News shares pursuant to our offer is irrevocable,
except that Newport News shares tendered pursuant to our offer may be
withdrawn at any time prior to the expiration date, and, unless we have
previously accepted them pursuant to our offer, may also be withdrawn at any
time after July 21, 2001. Your withdrawal will be effective only if the
exchange agent receives a written notice of withdrawal at one of its
addresses on the back cover of this prospectus. The written notice must
contain your name, address, social security number, the number of Newport
News shares to be withdrawn and the certificate number or numbers for these
shares and the name of the registered holder of the shares, if different
from the person who tendered the shares. All signatures on the notice of
withdrawal must be guaranteed by a financial institution in accordance with
the procedures set forth in this prospectus under "Our Offer--Withdrawal
Rights" on page 38.
Q: How are you funding your offer?
A: As described more fully under "Our Offer--Source and Amount of Funds" on
page 53, we expect to fund the cash portion of our offer from working
capital and currently available lines of credit.
Q: How would you go about completing your proposed acquisition?
A: We have taken several steps in furtherance of our offer, including the
following:
. we have contacted Newport News' board of directors to encourage them to
enter into negotiation for a merger between our two companies on
mutually favorable terms;
. we filed on May 18, 2001 the necessary application with the Department
of Justice to obtain the regulatory approvals necessary to complete our
offer and the merger;
. we commenced our offer on May 23, 2001; and
. once we acquire shares in our offer, we plan to have Newport News merge
with Northrop Grumman or a wholly owned subsidiary of Northrop Grumman.
We expect that Newport News would continue its current operations,
except that it would cease to be publicly owned and would instead be
wholly owned by Northrop Grumman.
3
Q: How long will it take to complete your offer?
A: The timing of completion of our offer will depend on whether and when
Newport News meets with us to negotiate an agreement to provide for the
completion of our offer and second-step merger. We believe that if we enter
into a definitive agreement with Newport News in June, 2001, we could
complete our offer in the third quarter of 2001. By tendering your shares,
you will be sending a message to Newport News' management and board of
directors that you want Newport News to participate in a combination with
us.
Q: What are the conditions to your offer?
A: Our offer is subject to several conditions, including:
. the tender of enough shares of Newport News so that, after the
completion of our offer, we own a majority of Newport News shares on a
fully diluted basis;
. the stockholders of Newport News not having approved the merger of
General Dynamics and Newport News;
. the valid termination of the merger agreement between General Dynamics
and Newport News;
. the execution of a definitive merger agreement between Northrop Grumman
and Newport News;
. making Newport News' "poison pill" stockholder rights plan inapplicable
to our offer and the proposed Northrop Grumman-Newport News merger; and
. the expiration or termination of the waiting periods under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 applicable to the
purchase of Newport News shares under our offer.
These conditions and other conditions to our offer are discussed in this
prospectus under "Our Offer--Conditions to Our Offer."
Q: Will I be taxed on the Northrop Grumman shares and cash that I receive?
A: In general, if you receive only Northrop Grumman shares in our offer and the
merger you will not be taxed on the receipt of those shares. If you receive
a combination of Northrop Grumman shares and cash or solely cash you will be
taxed on the cash received up to the amount of gain, if any, you realize on
the exchange (that is the excess, if any, of value of the consideration you
receive over the tax basis of the Newport News shares you exchange for that
consideration). If you realize a loss on the Newport News shares you
exchange, you will not be able to recognize that loss. Special rules apply
with respect to cash received in lieu of fractional shares. This treatment
assumes that our offer and the merger will be treated as a single integrated
transaction for federal income tax purposes. In the opinion of our counsel,
Fried, Frank, Harris, Shriver & Jacobson, our offer and the merger will be
treated as a single integrated transaction for federal income tax purposes,
but that treatment is not free from doubt under some circumstances. For more
information, see "Our Offer--Material U.S. Federal Income Tax Consequences
of Our Offer and the Merger"on page 42.
Q: What happens if you increase the consideration to be paid in your offer
after I have already tendered my shares?
A: All Newport News stockholders will receive the highest consideration paid to
any stockholder in our offer. Accordingly, if we were to increase the
consideration to be paid in our offer after you have already tendered your
shares, you would receive that increased consideration upon the completion
of our offer.
4
Q: Do the statements on the cover page regarding the possibility that the
information in this prospectus may be changed and the registration statement
filed with the SEC not yet being effective mean that your offer has not
commenced?
A: No. Completion of this prospectus and effectiveness of the registration
statement are not necessary for our offer to commence. The SEC recently
changed its rules to permit exchange offers to begin before the related
registration statement has become effective. We are taking advantage of the
rule changes with the goal of combining Northrop Grumman and Newport News
faster than similar combinations could previously have been accomplished. We
cannot, however, accept for exchange any shares tendered in our offer until
the registration statement is declared effective by the SEC and the other
conditions to our offer have been satisfied or, where permissible, waived.
Our offer commences when we mail this prospectus and the related letter of
election and transmittal to Newport News stockholders.
Q: Where can I find out more information about Northrop Grumman and Newport
News?
A: You can find out information about Northrop Grumman and Newport News from
various sources described under "Where You Can Find More Information" on
page 6.
Q: Who can I call with questions about the offer?
A: You can contact our information agent, D. F. King & Co., Inc., toll free at
1-800-758-5378 if you have questions about our offer, the procedures for
tendering your shares or the exchange ratio and concomitant share
allocation.
5
WHERE YOU CAN FIND MORE INFORMATION
Northrop Grumman and Newport News file annual, quarterly and special
reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy this information at the following
locations of the SEC:
Public Reference Room North East Regional Office Midwest Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
You may obtain information on the operation of the Public Reference Rooms by
calling the SEC at 1-800-SEC-0330. You may also obtain copies of this
information by mail from the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 10549, at prescribed rates.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers like Northrop
Grumman and Newport News who file electronically with the SEC. The address of
that site is http://www.sec.gov.
We filed a registration statement on Form S-4 with the SEC under the
Securities Act of 1933 to register the Northrop Grumman common stock to be
issued in our offer and the merger. This prospectus is a part of that
registration statement. As allowed by SEC rules, this prospectus does not
contain all the information you can find in the registration statement or the
exhibits to the registration statement. In addition, on May 23, 2001 we also
filed with the SEC a statement on Schedule TO pursuant to Rule 14d-3 under the
Exchange Act to furnish various information about our offer. You may obtain
copies of the Form S-4 and the Schedule TO, and any amendments to those
documents, in the manner described above.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this prospectus,
except for any information superseded by information contained directly in this
prospectus.
This prospectus incorporates by reference the documents listed below that
Northrop Grumman, Litton Industries Inc. (currently, a 97% owned subsidiary of
Northrop Grumman) and Newport News have previously filed with the SEC. These
documents contain important information about Northrop Grumman and Newport News
and their business, financial condition and results of operations.
The following documents filed by Northrop Grumman with the SEC are
incorporated by reference:
. Annual Report on Form 10-K/A, for the fiscal year ended December 31,
2000, as filed on March 8, 2001;
. Quarterly Report on Form 10-Q for the period ended March 31, 2001, as
filed on May 10, 2001;
. Proxy Statement for the Annual Meeting of Stockholders held on May 16,
2001, as filed on April 13, 2001;
. The description of Northrop Grumman's common stock set forth in Northrop
Grumman's registration statement on Form S-4 filed by Northrop Grumman
pursuant to Section 12 of the Exchange Act, including any amendment or
report filed for purposes of updating the description as filed on
March 27, 2001;
. Current Report on Form 8-K, as filed on April 17, 2001; and
. Tender Offer Statement on Schedule TO, as filed on May 23, 2001, as it
may be amended from time to time.
6
The following documents filed by Litton with the SEC are incorporated by
reference:
. Annual Report on Form 10-K for the fiscal year ended July 31, 2000, as
filed on October 11, 2000; and
. Quarterly Report on Form 10-Q for the period ended January 31, 2001, as
filed on March 6, 2001.
The following documents filed by Newport News with the SEC are incorporated
by reference:
. Annual Report on Form 10-K for the fiscal year ended December 31, 2000,
as filed on March 26, 2001 (except for the report of Newport News'
independent accountants contained in that report which is not
incorporated in this prospectus by reference because the consent of
Newport News' independent accountants has not yet been obtained);
. Quarterly Report on Form 10-Q for the period ended March 31, 2001, as
filed on April 27, 2001;
. The description of Newport News' common stock set forth in Newport News'
registration statement on Form 10 filed by Newport News pursuant to
Section 12 of the Exchange Act, including any amendment or report filed
for purposes of updating the description as filed on October 30, 1996;
. Current Reports on Form 8-K, as filed on April 25, 2001; and
. Solicitation/Recommendation Statement on Schedule 14D-9, as filed on May
4, 2001, and as amended on May 9, 2001, May 14, 2001 and May 17, 2001,
and as it may be amended from time to time.
All documents filed by Northrop Grumman or Newport News pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act from the date of this prospectus
to the date that shares are accepted for exchange pursuant to our offer (or the
date that our offer is terminated) shall also be deemed to be incorporated in
this prospectus by reference.
Documents incorporated by reference are available from us without charge
upon request to our information agent, D. F. King & Co., Inc., 77 Water Street,
New York, New York 10005, toll-free at 1-800-758-5378. In order to ensure
timely delivery, any request should be submitted no later than June 13, 2001
(five business days before the initial scheduled expiration date of our offer).
If you request any incorporated documents from us, we will mail them to you by
first class mail, or another equally prompt means, within one business day
after we receive your request.
We have not authorized anyone to give any information or make any
representation about our offer that is different from, or in addition to, that
contained in this prospectus or in any of the materials that we have
incorporated by reference into this prospectus. Therefore, if anyone does give
you information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this prospectus are unlawful,
or if you are a person to whom it is unlawful to direct these types of
activities, then our offer presented in this prospectus does not extend to you.
The information contained in this prospectus speaks only as of the date of this
prospectus unless the information specifically indicates that another date
applies.
7
SUMMARY
This summary does not contain all of the information that is important to
you. To understand our offer fully, you should read this entire prospectus
carefully and the other documents to which this prospectus refers. See "Where
You Can Find More Information" on page 6. References to "Northrop Systems"
refer to Northrop Grumman Systems Corporation, formerly Northrop Grumman
Corporation; references to "Northrop Grumman" refer to Northrop Grumman
Corporation, formerly NNG, Inc.; references to "Litton" refer to Litton
Industries, Inc.; references to "Newport News" refer to Newport News
Shipbuilding Inc. Unless the context requires otherwise, references to "we,"
"us" or "our" refer collectively to Northrop Grumman and its subsidiaries.
For Each Outstanding Newport News Share We Are Offering to Issue Northrop
Grumman Shares Designed to Provide a Value of $67.50 or Pay $67.50 in Cash
(Page 32)
Each Newport News stockholder will have the opportunity to elect to receive,
for those shares of Newport News common stock he or she owns, either
. $67.50 in cash, without interest, per Newport News share; or
. a number of shares of Northrop Grumman common stock (the "exchange
ratio") designed to provide a value of $67.50, per Newport News share,
subject, in each case, to the election and proration procedures and limitations
described more fully in "Our Offer" on page 32.
We will determine the exact exchange ratio by dividing $67.50 by the average
of the closing sale prices for a share of Northrop Grumman common stock on the
New York Stock Exchange as reported in The Wall Street Journal over the 10-day
trading period ending on the third trading day before we complete our offer
(the "Northrop Grumman Stock Value"). However, in no event will the exchange
ratio be more than .7941176 ($67.50/$85.00) or less than .7105263
($67.50/$95.00). We will issue a press release before 9:00 A.M., New York City
time, on the second trading day before our offer closes, announcing the
exchange ratio and the average closing price of the Northrop Grumman shares
over the 10-day trading period.
We will issue 16,636,885 shares of our common stock (the "Northrop Grumman
Available Shares") in our offer and the merger. The portion of these shares
available in our offer will equal the number of Northrop Grumman Available
Shares times the percentage of outstanding Newport News shares tendered in our
offer. All Northrop Grumman Available Shares not exchanged in our offer will be
issued in the merger. Other than with respect to the "top up" described below,
we will not pay more in cash for the Newport News shares in our offer and the
merger than $891,934,380 (subject to increase for fractional shares and to the
extent the number of outstanding Newport News shares increases due to option
exercises) (the "Base Cash Amount").
If the Northrop Grumman Stock Value is less than $90.00 but equal to or
greater than $85.00, we will increase the aggregate amount of cash available
for our offer and the merger by the product of (a) the excess of $90.00 over
the Northrop Grumman Stock Value and (b) the number of Northrop Grumman
Available Shares (the "Top Up Amount").
If the Northrop Grumman Stock Value is less than $85.00, we will increase
the aggregate of amount of cash available for our offer and the merger by the
Top Up Amount for an $85.00 Northrop Grumman Stock Value, but we will not
increase it beyond that point.
If the Northrop Grumman Stock Value is greater than $90.00 but less than or
equal to $95.00, we will reduce the aggregate amount of cash available for our
offer and the merger by the product of (a) the excess of the Northrop Grumman
Stock Value over $90.00 and (b) the number of Northrop Grumman Available
Shares.
8
If the Northrop Grumman Stock Value is greater than $95.00, we will reduce
the aggregate of amount of cash available for our offer and the merger by
reduction for a $95.00 Northrop Grumman Stock Value as described in the prior
paragraph, but we will not reduce the cash beyond that point.
Because of the manner in which the exchange ratio is calculated,
stockholders who receive solely Northrop Grumman common stock or a combination
of Northrop Grumman common stock and cash in our offer or merger will receive
$67.50 per share of value (based on the Northrop Grumman Stock Value) if the
Northrop Grumman Stock Value is between $85.00 and $95.00, will receive less
than $67.50 per share of value if the Northrop Grumman Stock Value is less than
$85.00 and will receive more than $67.50 of value if the Northrop Grumman Stock
Value is more than $95.00.
To the extent the demand for either the cash or the stock component of our
offer exceeds the aggregate amount of cash or stock in our offer, we will
prorate the total cash or stock, as the case may be, proportionally among the
stockholders who elect that component. Stockholders who do not make an election
will be allocated whatever component is remaining (or a proportionate share of
each component if neither is oversubscribed), after taking into account the
preferences of the tendering stockholders who make elections. We describe our
procedures for prorating cash and common stock under the caption "Our Offer--
Consideration to Be Paid--Consequences of Over- and Under-Election."
You will not receive any fractional Northrop Grumman shares. Instead, you
will receive cash in an amount equal to the market value of the fractional
Northrop Grumman shares you would otherwise have been entitled to receive.
We intend, promptly after completion of our offer, to seek to merge Newport
News with Northrop Grumman or a wholly owned subsidiary. Each share of Newport
News common stock that has not been exchanged or accepted for exchange in our
offer would be converted into the right to receive, pro rata, the number of
shares of Northrop Grumman common stock and the amount of cash available in our
offer and the merger, to the extent those forms of consideration are remaining
after completion of our offer.
See "Our Offer" on page 32.
The $67.50 Cash Component May Be Subject to Federal Income Tax, but the Common
Stock Component Generally Is Not Expected to Be Subject to Federal Income Tax
(Page 42)
In general, if you receive only Northrop Grumman shares in our offer and the
merger you will not be taxed on the receipt of those shares. If you receive a
combination of Northrop Grumman shares and cash or solely cash you will be
taxed on the cash received up to the amount of gain, if any, you realize on the
exchange (that is the excess, if any, of value of the consideration you receive
over the tax basis of the Newport News shares you exchange for that
consideration). If you realize a loss on your Newport News shares you will not
be able to recognize that loss. Special rules apply with respect to cash
received in lieu of fractional shares. This treatment assumes that our offer
and the merger will be treated as a single integrated transaction for federal
income tax purposes. In the opinion of our counsel, Fried, Frank, Harris,
Shriver & Jacobson, our offer and the merger will be treated as a single
integrated transaction for federal income tax purposes, but that treatment is
not free from doubt under some circumstances. For more information, see "Our
Offer--Material U.S. Federal Income Tax Consequences of Our Offer and the
Merger" on page 42.
You are urged to consult your tax advisor to determine the specific tax
consequences to you of our offer and the merger, including any federal, state,
local, foreign or other tax consequences and any tax return filing or other
reporting requirements.
9
Information about Northrop Grumman and Newport News (Page 23)
Northrop Grumman
1840 Century Park East
Los Angeles, California 90067
(310) 553-6262
We are a leading global aerospace and defense company providing products and
services in defense and commercial electronics, systems integration,
information technology and non-nuclear-powered shipbuilding and systems.
Northrop Grumman is a holding company formed in connection with the recently
completed acquisition of Litton Industries Inc. Northrop Systems is a wholly
owned subsidiary of Northrop Grumman. Litton is a 97% owned subsidiary of
Northrop Grumman.
Northrop Systems
Northrop Systems is a leading defense electronics, systems integration and
information technology company with strong capabilities in military aircraft
systems and modifications and marine systems. As a prime contractor, principal
subcontractor, partner, or preferred supplier, Northrop Systems participates in
many high-priority defense and commercial programs in the United States and
abroad.
Litton
Litton designs, builds and overhauls non-nuclear-powered surface ships and
is a provider of defense and commercial electronics technology, components and
materials for government and commercial customers world wide. In addition,
Litton is a prime contractor to the U.S. Government for information technology
services and provides specialized information technology services to commercial
customers and governments in local and foreign jurisdictions.
Based on the closing price of Northrop Grumman common stock on May 22, 2001
our market capitalization was approximately $7.7 billion.
Newport News
4101 Washington Avenue
Newport News, VA 23607
(757) 380-2000
Newport News' primary business is the design, construction, repair,
maintenance, overhaul and refueling of nuclear-powered aircraft carriers and
submarines for the U.S. Navy. Based on the closing price of Newport News common
stock on May 22, 2001, Newport News' market capitalization was approximately
$1.9 billion.
Reasons for Northrop Grumman Offer (Page 25)
We believe that our acquisition of Newport News represents a compelling
opportunity to enhance value for both Newport News stockholders and Northrop
Grumman stockholders for reasons that include the following:
. a combination of Northrop Grumman (which recently completed its purchase
of Litton) and Newport News would offer a variety of strategic benefits,
including making Northrop Grumman a complete full-line shipbuilding
competitor and providing an opportunity for significant cost savings to
the U.S. Navy and the opportunity for Newport News to realize
efficiencies available as part of a larger, more diversified company;
and
. if the proposed General Dynamics transaction is permitted to proceed, it
would leave the United States vulnerable with only one nuclear capable
builder of submarines and ships. Also, a 1999 Department of Defense
analysis indicated that "over 75 percent of the total shipyard
engineering
10
talent and over 95 percent of the Navy R&D investment would exist in a
combined General Dynamics-Newport News entity." This would leave the
Navy vulnerable to a General Dynamics virtual monopoly in shipbuilding
research and development. We believe that nothing has materially changed
since that analysis and that the proposed acquisition of Newport News by
General Dynamics would therefore not be in the best interests of the
United States, the Navy or Northrop Grumman and its stockholders.
In addition, our offer has been made based solely on publicly available
information regarding Newport News. If we are provided the opportunity to
conduct a due diligence review of Newport News, we would be prepared to enter
into negotiations immediately with respect to all aspects of our offer.
Comparative Market Price Information
(Page 19)
Northrop Grumman common stock trades on the New York Stock Exchange and on
the Pacific Stock Exchange under the symbol "NOC" and Newport News common stock
trades on the New York Stock Exchange under the symbol "NNS."
The following table lists the closing prices of Northrop Grumman common
stock and Newport News common stock on May 8, 2001, the last trading day before
we announced our offer, and on May 22, 2001, the last trading day before the
date of this prospectus.
Northrop
Grumman
Common Newport News
Stock Common Stock
-------- ------------
May 8, 2001........................................ $91.50 $65.00
May 22, 2001....................................... 90.20 63.91
You should obtain current stock price quotations for Northrop Grumman common
stock and Newport News common stock. You can get these quotations from a
newspaper, on the Internet or by calling your broker.
Dividend Policy of Northrop Grumman (Page 55)
The holders of Northrop Grumman common stock receive dividends if and when
declared by the Northrop Grumman board of directors out of legally available
funds. For the past 12 fiscal quarters, we have paid a cash dividend of $0.40
per common share, and we paid a cash dividend of $0.40 per common share for our
most recent fiscal quarter ended March 31, 2001.
Following completion of our offer and the merger, we expect to continue
paying quarterly cash dividends on a basis consistent with our past practice.
However, the declaration and payment of dividends will depend upon business
conditions, operating results, capital and reserve requirements and our board
of directors' consideration of other relevant factors. We can give you no
assurance that we will continue to pay dividends on our common stock in the
future.
Our Offer (Page 32)
For Each Outstanding Newport News Share We Are Offering to Issue Northrop
Grumman Shares Designed to Provide a Value of $67.50 or to Pay $67.50 in Cash
Each Newport News stockholder will have the opportunity to elect to receive,
for those shares of Newport News common stock he or she owns, either
. $67.50 in cash, without interest, per Newport News share; or
11
. a number of shares of Northrop Grumman common stock (the "exchange
ratio") designed to provide a value of $67.50, per Newport News share,
subject, in each case, to the election and proration procedures and limitations
described more fully in "Our Offer" on page 32.
Our Offer Is Subject to Various Conditions
Our obligation to exchange shares of our common stock and cash for Newport
News shares pursuant to our offer is subject to several conditions referred to
below under "Our Offer--Conditions to Our Offer," including the following
conditions:
. the tender of enough shares of Newport News so that, after the
completion of our offer, we own a majority of Newport News shares on a
fully diluted basis;
. the stockholders of Newport News not having approved the merger of
General Dynamics and Newport News;
. the valid termination of the merger agreement between General Dynamics
and Newport News;
. the execution of a definitive merger agreement between Northrop Grumman
and Newport News;
. making Newport News' "poison pill" stockholder rights plan inapplicable
to our offer and the merger; and
. the expiration or termination of the waiting periods under the Hart-
Scott-Rodino Antitrust Improvements Act applicable to the purchase of
Newport News shares under our offer.
These conditions and other conditions to our offer are discussed in this
prospectus under "Our Offer--Conditions to Our Offer" on page 49.
Our Offer Is Currently Scheduled to Expire on June 20, 2001
Our offer is scheduled to expire at 12:00 midnight, New York City time, on
June 20, 2001. The term "expiration date" means 12:00 midnight, New York City
time, on June 20, 2001, unless we extend the period of time for which our offer
is open, in which case the term "expiration date" means the latest time and
date on which our offer, as so extended, expires.
If we decide to extend our offer, we will make an announcement regarding
that extension as described under "Our Offer--Extension, Termination and
Amendment" on page 37.
Our Offer May Be Extended, Terminated or Amended
We expressly reserve the right, in our sole discretion, at any time or from
time to time, to extend the period of time during which our offer remains open,
and we can do so by giving oral or written notice of the extension to the
exchange agent. We are not providing any assurance that we will exercise our
right to extend our offer, although we currently intend to do so until all
conditions have been satisfied or, where permissible, waived. During any
extension, all Newport News shares previously tendered and not properly
withdrawn will remain subject to our offer, subject to your right to withdraw
your Newport News shares.
12
Subject to the SEC's applicable rules and regulations, we also reserve the
right, in our sole discretion, at any time or from time to time:
. to delay our acceptance for exchange or exchange of any Newport News
shares pursuant to our offer, or to terminate our offer and not accept
for exchange or exchange any Newport News shares not previously accepted
for exchange or exchanged, upon the failure of any of the conditions of
our offer to be satisfied prior to the expiration date, or upon the
failure of the condition relating to regulatory approvals to be
satisfied at any time after the expiration date regardless of whether we
previously accepted for exchange or exchanged any Newport News shares,
and
. to waive any condition (other than the conditions relating to regulatory
approvals, the absence of an injunction and the effectiveness of the
registration statement for the Northrop Grumman shares to be issued in
our offer) or otherwise to amend our offer in any respect, by giving
oral or written notice of such delay, termination or amendment to the
exchange agent and by making a public announcement.
We will follow any extension, termination, amendment or delay, as promptly
as practicable, with a public announcement. In the case of an extension, any
related announcement will be issued no later than 9:00 A.M., New York City
time, on the next business day after the previously scheduled expiration date.
Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the
Exchange Act, which require that any material change in the information
published, sent or given to Newport News stockholders in connection with our
offer be promptly sent to those stockholders in a manner reasonably designed to
inform those stockholders of that change) and without limiting the manner in
which we may choose to make any public announcement, we assume no obligation to
publish, advertise or otherwise communicate any public announcement of this
type other than by making a release to the Dow Jones News Service.
Delivery of Northrop Grumman Common Stock and Cash to Occur Promptly After the
Expiration Date
Upon the terms and subject to the conditions of our offer (including, if our
offer is extended or amended, the terms and conditions of any extension or
amendment), we will accept for exchange, and will exchange, Newport News shares
validly tendered and not properly withdrawn promptly after the expiration date
and promptly after they are tendered during any subsequent offering period.
Tendered Shares May Be Withdrawn at Any Time Prior to the Exchange of Those
Shares
Your tender of Newport News shares pursuant to our offer is irrevocable,
except that Newport News shares tendered pursuant to our offer may be withdrawn
at any time prior to the expiration date, and, unless we previously accepted
them pursuant to our offer, may also be withdrawn at any time after July 21,
2001.
We May Provide a Subsequent Offering Period
We may elect to provide a subsequent offering period of not less than three
or more than 20 business days after the acceptance of Newport News shares
pursuant to our offer if the requirements of Rule 14d-11 under the Exchange Act
have been met. You will not have the right to withdraw Newport News shares that
you tender in the subsequent offering period, if any.
Procedure for Tendering Shares
For you to validly tender Newport News shares pursuant to our offer:
. a properly completed and duly executed letter of election and
transmittal, along with any required signature guarantees, or an agent's
message in connection with a book-entry transfer, and any other required
documents, must be received by the exchange agent at one of its
addresses set forth on the back cover of this prospectus, and
certificates for tendered Newport News shares must be received by
13
the exchange agent at one of those addresses, or those Newport News
shares must be tendered pursuant to the procedures for book-entry tender
set forth (and a confirmation of receipt of that tender received), in
each case before the expiration date; or
. you must comply with the guaranteed delivery procedures set forth in
"Our Offer--Guaranteed Delivery."
No Appraisal Rights in Connection with Our Offer (Although Appraisal Rights
Will Exist in Connection with the Merger) (Page 48)
Although Newport News stockholders do not have appraisal rights as a result
of our offer, Newport News stockholders who have not validly tendered their
shares in our offer and do not vote in favor of the merger will have the right
under the Delaware General Corporation Law to dissent and demand appraisal of
their Newport News shares in accordance with Section 262 of the Delaware
General Corporation Law in connection with the merger. See "Our Offer--Purpose
of Our Offer; the Merger; Appraisal Rights."
Northrop Grumman Will Account for the Merger Using the "Purchase" Method (Page
54)
Northrop Grumman will account for the merger as a purchase for financial
reporting purposes.
Forward-Looking Statements May Prove Inaccurate (Page 69)
Various information included in this prospectus and in the documents
incorporated by reference are forward-looking statements within the meaning of
the securities laws. These include statements and assumptions with respect to
expected future revenues, margins, program performance, earnings and cash
flows, acquisitions of new contracts, the outcome of competitions for new
programs, the outcome of contingencies including litigation and environmental
remediation, the effect of completed and planned acquisitions and divestitures
of businesses or business assets, the anticipated costs of capital investments,
and anticipated industry trends. Actual results and trends may differ
materially from the information, statements and assumptions as described, and
actual results could be materially more or less than planned.
14
NORTHROP GRUMMAN
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
Northrop Systems (formerly Northrop Grumman Corporation) for each of the years
in the five-year period ended December 31, 2000 and for the quarter ended March
31, 2000 and for Northrop Grumman for the quarter ended March 31, 2001, and
selected unaudited pro forma condensed combined financial data of Northrop
Grumman, Litton and Newport News for the year ended December 31, 2000 and the
quarter ended March 31, 2001. Consolidated financial data for the years ended
December 31, 2000, 1999, 1998 and 1997 have been derived from, and are
qualified by reference to, the audited consolidated financial statements and
notes thereto filed by us with the SEC. Consolidated financial data for the
year ended December 31, 1996 and for the three months ended March 31, 2001 and
2000 have been derived from unaudited consolidated financial statements and
notes thereto of Northrop Systems and Northrop Grumman. This data does not give
effect to the Litton acquisition or the resulting debt. See also "Where You Can
Find More Information" and "Unaudited Pro Forma Condensed Combined Financial
Information."
The operating results for the quarter ended March 31, 2001 are not
necessarily indicative of results for the full fiscal year ending December 31,
2001. Newport News stockholders should read this summary together with the
financial statements referred to below and incorporated by reference and their
accompanying notes and in conjunction with management's discussion and analysis
of operations and financial conditions of Northrop Grumman, Litton and Newport
News contained in such reports. Earnings per share is calculated by dividing
income from continuing operations available for the holders of common stock by
the weighted average number of shares outstanding.
The Unaudited Pro Forma Condensed Combined Financial Data is based upon the
historical financial statements of Northrop Systems, Northrop Grumman, Litton
and Newport News adjusted to give effect to the Litton and Newport News
acquisitions. The pro forma adjustments are described in the accompanying notes
on page 60. The pro forma statements have been developed from (a) the audited
consolidated financial statements of Northrop Systems contained in its Annual
Report on Form 10-K/A for the year ended December 31, 2000 and the unaudited
consolidated financial statements of Northrop Grumman contained in its
Quarterly Report on Form 10-Q for the three months ended March 31, 2001, which
are incorporated by reference in this prospectus, (b) the audited consolidated
financial statements of Litton contained in its Annual Report on Form 10-K for
the fiscal year ended July 31, 2000 and the unaudited consolidated financial
statements of Litton contained in its Quarterly Report on Form 10-Q for the
period ended January 31, 2001, which are incorporated by reference in this
prospectus, and (c) the audited consolidated financial statements of Newport
News contained in its Annual Report on Form 10-K for the year ended December
31, 2000 and the unaudited consolidated financial statements of Newport News
contained in its Quarterly Report on Form 10-Q for the quarter ended March 18,
2001, which are incorporated by reference in this prospectus. In addition, the
audited consolidated financial statements contained in Litton's Annual Report
on Form 10-K for the fiscal year ended July 31, 2000 and the unaudited
consolidated financial statements of Litton contained in Litton's Quarterly
Reports on Form 10-Q for the period ended January 31, 2001 have been used to
bring the financial reporting periods of Litton to within 90 days of those of
Northrop Systems and Northrop Grumman.
The final determination and allocation of the purchase price paid for the
Litton and Newport News acquisitions may differ from the amounts assumed in
this Unaudited Pro Forma Condensed Combined Financial Data.
Under the purchase method of accounting, the purchase price will be
allocated to the underlying tangible and intangible assets and liabilities
acquired based on their respective fair market values, with the excess recorded
as goodwill. As of the date of this prospectus, Northrop Grumman has not
completed the valuation
15
studies necessary to arrive at the required estimates of the fair market value
of the Litton assets acquired, the Newport News assets to be acquired, and the
Litton liabilities assumed and the Newport News liabilities to be assumed and
the related allocations of purchase price, nor has it identified the
adjustments necessary, if any, to conform Litton or Newport News data to
Northrop Grumman's accounting policies. Accordingly, Northrop Grumman has used
the historical book values of the assets and liabilities of Litton and Newport
News and has used the historical revenue recognition policies of Litton and
Newport News to prepare the unaudited pro forma financial statements set forth
herein, with the excess of the purchase price over the historical net assets of
Litton and Newport News recorded as goodwill and other purchased intangibles.
Once Northrop Grumman has completed the valuation studies necessary to finalize
the required purchase price allocations and identified any necessary conforming
changes, these pro forma financial statements will be subject to adjustment.
These adjustments will likely result in changes to the pro forma statement of
financial position to reflect the final allocation of purchase price and the
pro forma statement of income, and there can be no assurance that these
adjustments will not be material.
The Unaudited Pro Forma Condensed Combined Financial Data is provided for
illustrative purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial position of
Northrop Grumman would have been had our offer and the Litton acquisition
occurred on the date assumed, nor is it necessarily indicative of future
consolidated results of operations or financial position.
The Unaudited Pro Forma Condensed Combined Financial Data does not include
the realization of cost savings from operating efficiencies, synergies or other
restructurings resulting from the Litton and Newport News acquisitions.
The Unaudited Pro Forma Condensed Combined Financial Data should be read in
conjunction with the separate historical consolidated financial statements and
accompanying notes of Northrop Systems, Northrop Grumman, Litton and Newport
News that are incorporated by reference in this prospectus and the unaudited
pro forma condensed combined financial information on page 56.
Northrop Northrop
Grumman/ Grumman/
Litton/Newport Litton/Newport
News News
Historical
Pro Forma Data Pro Forma Historical Data
-------------- -------------- -------------- ----------------------------------
Quarter Ended March 31, Year Ended Year Ended December 31,
----------------------------- December 31, ----------------------------------
2001 2001 2000 2000 2000 1999 1998 1997 1996
-------------- ------- ------ -------------- ------ ------ ------ ------ ------
(in millions, except per share data)
Operating Data:
Net sales.............. $ 3,816 $ 1,986 $1,802 $15,316 $7,618 $7,616 $7,367 $7,798 $7,667
Income from continuing
operations, net of
tax................... 112 103 156 674 625 474 193 318 330
Basic earnings per
share, from continuing
operations............ 1.04 1.43 2.23 6.48 8.86 6.84 2.82 4.76 5.27
Diluted earnings per
share, from continuing
operations............ 1.03 1.42 2.23 6.45 8.82 6.80 2.78 4.67 5.18
Cash dividends per
share................. .40 .40 .40 N/A 1.60 1.60 1.60 1.60 1.60
Balance Sheet Data:
Total assets........... $20,602 $11,185 $9,389 N/A $9,622 $9,285 $9,536 $9,677 $9,645
Total long-term
obligations........... 9,592 4,594 3,446 N/A 3,015 3,564 4,319 4,339 4,694
16
SELECTED HISTORICAL FINANCIAL DATA OF NEWPORT NEWS
The following is a summary of selected consolidated financial data of
Newport News for each of the years in the five-year period ended December 31,
2000 and the quarters ended March 18, 2001 and March 19, 2000. The operating
results for the quarter ended March 18, 2001 are not necessarily indicative of
results for the full fiscal year ended December 31, 2001. This information is
derived from the audited consolidated financial statements of Newport News
contained in its Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, the unaudited consolidated financial statements of Newport
News contained in its Quarterly Reports on Form 10-Q for the periods ended
March 18, 2001 and March 19, 2000, and is qualified in its entirety by such
documents. See "Where You Can Find More Information" on page 6. You should read
this summary together with the financial statements which are incorporated by
reference in this prospectus and their accompanying notes and in conjunction
with management's discussion and analysis of operations and financial
conditions of Newport News contained in such reports.
Quarter Ended Year Ended December 31,
------------------- -----------------------------------
March 18, March 19, 2000 1999 1998 1997 1996
2001 2000
(in millions, except per share data)
Operating Data:
Revenues.............. $ 485 $ 469 $2,072 $1,863 $1,862 $1,707 $1,870
Net earnings (loss)... 24 21 90 97 66 (48) 55
Net earnings (loss)
per common share,
basic................ .80 .65 2.91 2.83 1.91 (1.39) 1.60
Net earnings (loss)
per common share,
diluted.............. .75 .63 2.77 2.72 1.85 (1.39) 1.60
Cash dividends
declared per
share (a)............ .04 .04 .16 .16 .16 .16 -
Balance Sheet Data:
Total assets.......... $1,489 $1,490 $1,476 $1,512 $1,600 $1,515 $1,535
Total long-term
obligations (b)...... 891 889 915 917 972 949 1,001
- --------
(a) Cash dividends declared per common share were four cents per share for each
quarter in 2000, 1999, 1998, and 1997. Since Newport News was a wholly
owned subsidiary prior to December 12, 1996, there are no comparable
results for prior periods.
(b) In order to conform to the presentation used by Northrop Grumman, the
postretirement benefit liability, which is reported as a current liability
in the audited consolidated financial statements of Newport News contained
in its annual reports on Form 10-K for the fiscal years ended December 31,
2000, 1999 and 1998 and in its quarterly reports on Form 10-Q for the
periods ended March 18, 2001 and March 19, 2000, has been reclassified to
total long-term obligations.
17
COMPARATIVE PER SHARE INFORMATION
The following table summarizes unaudited per share information for Northrop
Systems, Northrop Grumman, Litton and Newport News on an historical, pro forma
combined and equivalent pro forma combined basis. The following information
should be read in conjunction with the audited consolidated financial
statements of Northrop Systems, Litton and Newport News, the unaudited interim
consolidated financial statements of Northrop Grumman, Litton and Newport News,
and the unaudited pro forma condensed combined financial information included
elsewhere or incorporated by reference in this prospectus. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred if our offer, the Newport News merger and the Litton acquisition had
been completed as of the beginning of the respective periods presented, nor is
it necessarily indicative of the future operating results or financial position
of the combined companies. The historical book value per share is computed by
dividing total stockholders' equity by the number of common shares outstanding
at the end of the period. The pro forma per share earnings from continuing
operations is computed by dividing the pro forma income from continuing
operations available to holders of common stock by the pro forma weighted
average number of shares outstanding. The pro forma combined book value per
share is computed by dividing total pro forma stockholders' equity by the pro
forma number of common shares outstanding at the end of the period. Newport
News equivalent pro forma combined per share amounts are calculated by
multiplying Northrop Grumman pro forma combined per share amounts by .75, the
percentage of a share of Northrop Grumman common stock that would be exchanged
for each share of Newport News common stock in our offer, based upon a Northrop
Grumman common stock price of $90.00 per share. The historical per share
information of Litton and Newport News was derived from their respective
historical annual and quarterly financial statements and was adjusted as
necessary to bring the information to within 90 days of the dates listed below.
Quarter Year
Ended Ended
March 31, 2001 December 31, 2000
-------------- -----------------
Northrop Grumman and Northrop Systems --
Historical
Historical per common share:
Income per basic share..................... $ 1.43 $ 8.86
Income per diluted share................... 1.42 8.82
Dividends declared-Common.................. 0.40 1.60
Dividends declared-Preferred............... -- --
Book value per share....................... 55.43 54.38
Litton -- Historical
Historical per common share:
Income per basic share..................... $ 1.08 $ 4.95
Income per diluted share................... 1.06 4.90
Dividends declared-Common.................. -- --
Dividends declared-Preferred............... 0.50 2.00
Book value per share....................... 35.24 35.24
Newport News -- Historical
Historical per common share:
Income per basic share..................... $ 0.80 $ 2.91
Income per diluted share................... 0.75 2.77
Dividends declared-Common.................. 0.04 0.16
Dividends declared-Preferred............... -- --
Book value per share....................... 8.75 8.69
Unaudited Pro Forma Combined
Unaudited pro forma per share of Northrop
Grumman common shares:
Income per basic share..................... $ 1.04 $ 6.48
Income per diluted share................... 1.03 6.45
Dividends declared-Common.................. 0.40 1.60
Dividends declared-Preferred............... 1.75 7.00
Book value per share....................... 65.02 N/A
Unaudited Pro Forma Newport News Equivalents
Unaudited pro forma per share of Newport
News common shares:
Income per basic share..................... $ 0.78 $ 4.86
Income per diluted share................... 0.77 4.84
Dividends declared-Common.................. 0.30 1.20
Dividends declared-Preferred............... 1.31 5.25
Book value per share....................... 48.77 N/A
18
Comparative Market Data (See page 55)
Northrop Grumman's common stock trades on the New York Stock Exchange and on
the Pacific Stock Exchange under the symbol "NOC" and Newport News' common
stock trades on the New York Stock Exchange and on the Chicago Stock Exchange
under the symbol "NNS." The following table presents trading information for
Northrop Grumman and Newport News common stock on May 8, 2001 and May 22, 2001.
May 8, 2001 was the last trading day before the announcement of our intention
to make an offer for Newport News shares and May 22, 2001 was the last trading
day before the date of this prospectus. Newport News equivalent per share
amounts are calculated by multiplying Northrop Grumman per share amounts by
.75, the percentage of a share of Northrop Grumman common stock that would be
exchanged for each share of Newport News common stock in our offer, based upon
a Northrop Grumman common stock price of $90.00 per share. You should read the
information presented below in conjunction with "Comparative Per Share Market
Price and Dividend Information" on page 55.
Northrop Grumman Newport News Newport News
Common Stock Common Stock Equivalent Per Share
--------------------- --------------------- ---------------------
High Low Closing High Low Closing High Low Closing
------ ------ ------- ------ ------ ------- ------ ------ -------
May 8, 2001.. $92.46 $90.74 $91.50 $65.20 $64.93 $65.00 $69.35 $68.06 $68.63
May 22,
2001........ 91.25 89.58 90.20 64.45 63.90 63.91 68.44 67.19 67.65
19
RISK FACTORS
In deciding whether to tender your shares pursuant to our offer, you should
read carefully this prospectus and the documents to which we refer you. You
should also carefully consider the following factors:
The Anticipated Benefits of the Acquisition May Not Be Realized and as a Result
the Price of Northrop Grumman Shares May Decline
If we complete the proposed acquisition, Northrop Grumman expects that
Newport News initially will continue to operate as a separate business from
that of Northrop Grumman. However, there will be inherent challenges in
transferring ownership of Newport News to Northrop Grumman. These challenges
may result in significant diversions of management time and attention. Our
current efforts to integrate the Litton acquisition may also contribute to the
diversion of management time and attention. In addition, the acquisition of
Newport News could result in business or operational difficulties not currently
anticipated by Northrop Grumman. As a result, Northrop Grumman may not realize
the benefits it anticipates from the ownership of Newport News and so Northrop
Grumman's business could be adversely affected.
Exchange Ratio of Our Offer Could Work to Your Disadvantage
We are offering to exchange shares of Northrop Grumman common stock designed
to have a value of $67.50, or $67.50 in cash, at your election, for each
outstanding share of Newport News common stock you own, subject, in each case,
to the election and proration procedures and limitations described in this
prospectus and the related letter of election and transmittal. If you receive
Northrop Grumman common stock (either because you have elected to receive
Northrop Grumman shares or because of the allocation procedures), you will not
be able to capture gains from possible increases in value of Newport News
common stock. Also, while you may benefit from possible increases in value in
Northrop Grumman common stock, you may incur losses from possible decreases in
value in Northrop Grumman common stock. In particular, because of the manner in
which the exchange ratio is calculated, stockholders who receive solely
Northrop Grumman shares or a combination of Northrop Grumman shares and cash in
our offer or the merger will receive less than $67.50 per share of value if the
value of Northrop Grumman shares determined for purposes of the exchange ratio
is less than $85.00.
You May Not Receive All Consideration in the Form You Have Elected
At the time you tender your shares and make your election, you will not know
exactly what combination of stock and/or cash you will receive because it will
also depend upon the elections made by other tendering stockholders. You can
tell us your preference to receive either Northrop Grumman common stock
designed to have a value of $67.50 or $67.50 in cash for each of your Newport
News common shares, and you will receive either cash, Northrop Grumman common
stock, or a combination of cash and Northrop Grumman common stock, based upon
your stated preference and the preferences of other tendering stockholders. To
the extent the demand for either the cash or the stock component of our offer
exceeds the aggregate amount of cash or stock in our offer, we will prorate the
total cash or stock, as the case may be, proportionally among the stockholders
who elect that component. Stockholders who do not make an election will be
allocated whatever component is remaining (or a proportionate share of each
component if neither is oversubscribed), after taking into account the
preferences of the tendering stockholders who make elections. We describe our
procedures for prorating cash and common stock under the caption "Our Offer--
Consideration to Be Paid--Consequences of Over- and Under-Election."
The Receipt of Northrop Grumman Shares in Connection with Our Offer May Be
Taxable to You
If our offer and the merger are not treated as an integrated transaction for
federal income tax purposes, or if the merger is not completed, the exchange of
your Newport News shares for Northrop Grumman shares will be taxable to you for
U.S. federal income tax purposes. In the opinion of Fried, Frank, Harris,
Shriver & Jacobson, our counsel, our offer and the merger will treated as an
integrated transaction, but that treatment is not free from doubt under some
circumstances. See "Our Offer--Material U.S. Federal Income Tax
20
Consequences of Our Offer and Merger--Treatment of Our Offer and the Merger for
Tax Purposes as a Single Transaction" on page 43.
The treatment of exchange of your Newport News shares for Northrop Grumman
shares as a tax free transaction for federal income tax purposes will depend on
several factors that have been assumed will be true but will not be
definitively known prior to completion of our offer and the merger, including
assumptions regarding the value of the Northrop Grumman shares at the time of
the transaction. For more information, see "Our Offer--Material U.S. Federal
Income Tax Consequences of Our Offer and the Merger--Tax Consequences if the
Offer and Merger Are Treated as a Single Transaction" on page 43.
You are urged to consult your tax advisor to determine the specific tax
consequences to you of our offer and the merger, including any federal, state,
local, foreign or other tax consequences, and any tax return filing or other
reporting requirements.
Resales of Northrop Grumman Shares Following Our Offer May Cause the Market
Price of that Stock to Fall, Decreasing the Value of the Northrop Grumman
Shares Issued in Our Offer
As of May 21, 2001, Northrup Grumman had 85,317,361 shares of common stock
outstanding and also had options outstanding to purchase an additional
5,505,727 shares of common stock. We expect that we will issue 16,636,885
shares in connection with our offer and the subsequent merger. The sale of
those new shares and the sale of additional shares of our common stock that may
become eligible for sale in the public market from time to time upon exercise
of options could have the effect of depressing the market price for our common
stock. This could negatively affect those who receive our shares in connection
with our offer or the subsequent merger.
The Trading Price of Northrop Grumman Common Stock May Be Affected by Factors
Different from Those Affecting the Price of Newport News Common Stock
Upon completion of our offer and the merger, holders of Newport News common
stock will become holders of Northrop Grumman common stock. Northrop Grumman's
business differs from that of Newport News, and Northrop Grumman's results of
operations, as well as the trading price of Northrop Grumman common stock, may
be affected by factors different from those affecting Newport News' results of
operations and the price of Newport News common stock.
Failure to Complete the Merger Could Negatively Impact Newport News' Stock
Price and Future Business and Operations
If the merger is not completed for any reason, Newport News may be subject
to a number of material risks, including the following:
. the price of Newport News common stock may decline to the extent that
the current market price of Newport News common stock reflects a market
assumption that a merger will be completed; and
. costs incurred by Newport News related to the merger, including legal
and accounting fees as well as a portion of the financial advisor fees
that would be payable upon completion of the merger, must be paid by
Newport News even if the merger is not completed.
Our Indebtedness Following Our Offer Will Be Higher Than Our Existing
Indebtedness
The indebtedness of Northrop Grumman as of March 31, 2001 was approximately
$3.105 billion. Northrop Grumman's pro forma indebtedness as of March 31, 2001
giving effect to the Litton acquisition and our offer and the merger (as
described in "Selected Historical and Unaudited Pro Forma Combined Financial
Data") is approximately $7.004 billion. As a result of the increase in debt,
demands on the cash resources of Northrop Grumman will increase after the
merger, which could have important effects on an investment in our common
stock. For example, the increased levels of indebtedness could:
. reduce funds available for investment in research and development and
capital expenditures; or
. create competitive disadvantages compared to other companies with lower
debt levels.
21
Successful Integration of the Northrop Grumman and Newport News Business Is Not
Assured
Integrating and coordinating the operations and personnel of Northrop
Grumman and Newport News will involve complex technological, operational and
personnel-related challenges. This process will be time-consuming and
expensive, and may disrupt the business of the companies. In addition,
integration of the Litton acquisition is expected to require significant
management time and attention. The integration of the companies may not result
in the benefits expected by Northrop Grumman. The difficulties, costs and
delays that could be encountered may include:
. anticipated issues in integrating the information, communications and
other systems;
. negative impacts on employee morale and performance as a result of job
changes and reassignments;
. loss of customers;
. unanticipated incompatibility of systems, procedures and operating
methods;
. unanticipated costs in termination or relocation of facilities and
operations; and
. the effect of complying with any government imposed organizational
conflict-of-interest rules.
We May Be Unable to Retain Personnel Who Are Key to Northrop Grumman's and
Newport News' Business
The success of our operations is dependent, among other things, on our
ability to attract and retain highly qualified professional personnel.
Competition for key personnel in the various localities and business segments
in which we operate is intense. Our ability to attract and retain key
personnel, in particular senior officers and experienced and top rate
engineers, is dependent on a number of factors, including prevailing market
conditions and compensation packages offered by companies competing for the
same talent, who may offer compensation packages that include considerable
equity based incentives through stock option or similar programs. These same
pressures and concerns also apply to Newport News' business.
Risks Related to the Business of Northrop Grumman and Newport News
Results of operation of Northrop Grumman will be subject to numerous risks
affecting the businesses of Northrop Grumman and Newport News, many of which
are beyond the companies' control. Many of the risks affecting Northrop Grumman
are identified under "Forward-Looking Statements" on page 69.
22
INFORMATION ABOUT NORTHROP GRUMMAN AND NEWPORT NEWS
Northrop Grumman Corporation
We are a leading global aerospace and defense company providing products and
services in defense and commercial electronics, systems integration,
information technology and non-nuclear-powered shipbuilding and systems.
Northrop Grumman is a holding company formed in connection with the acquisition
of Litton Industries Inc. by Northrop Grumman. Northrop Systems is a wholly
owned subsidiary of Northrop Grumman. Litton is a 97% owned subsidiary of
Northrop Grumman.
Northrop Systems
Northrop Systems is a leading defense electronics, systems integration and
information technology company with strong capabilities in military aircraft
systems and modifications and marine systems. As a prime contractor, principal
subcontractor, partner, or preferred supplier, Northrop Systems participates in
many high-priority defense and commercial programs in the United States and
abroad.
Northrop Systems is aligned into three business sectors as follows:
Integrated Systems Sector (ISS). This sector includes the design,
development and production of airborne early warning, electronic warfare and
surveillance and battlefield management systems. ISS is the prime contractor
for the Joint STARS advanced airborne targeting and battle management system,
the U.S. Air Force's B-2 Spirit stealth bomber, unmanned vehicles including The
Global Hawk, and the EA-6B Prowler electronic countermeasures aircraft, and is
upgrading the E-2C Hawkeye early warning aircraft. ISS also has a principal
role in producing the U.S. Navy's F/A18 Hornet strike fighter.
Electronic Sensors and Systems Sector (ESSS). This sector includes the
design, development, manufacture, and integration of a wide variety of defense
electronics and systems, airspace management systems, precision weapons, marine
systems, logistics systems, space systems, and automation and information
systems. Significant programs include fire control radars for the F-16 and F-22
fighter aircraft and the Longbow Apache helicopter, the AWACS airborne early
warning radar, the Joint STARS air-to-ground surveillance radar sensor, the
Longbow Hellfire missile and the BAT "brilliant" anti-armor submunition. ESSS
also provides tactical military radars and country-wide air defense systems,
plus airborne electronic countermeasures systems intended to jam enemy aircraft
and weapons systems.
On April 20, 2001 we announced that we had signed a definitive agreement to
acquire the electronics and information systems group of Aerojet-General
Corporation for $315 million in cash. The transaction is subject to normal
government reviews and is expected to close by the second or third quarter of
this fiscal year. We expect to integrate the Aerojet-General circuit into the
Aerospace Division of our Electronic Sensors and Systems sector.
Logicon, Inc. This sector includes the design, development, operation and
support of computer systems for scientific and management information. Logicon
has extensive expertise in command, control, communications, computers,
intelligence, surveillance and reconnaissance (C4ISR). It is a key management
support element for major weapons systems, such as the U.S. Navy's AEGIS class
destroyer and also provides mission planning for the U.S. Navy, Air Force and
Special Operations Command. Logicon provides base operations support for NASA's
Kennedy Space Center, Cape Canaveral Air Station and Patrick Air Force Base,
among others. In addition, Logicon provides information technology services to
commercial customers and to the other Northrop Systems sectors.
Litton
Litton designs, builds and overhauls non-nuclear-powered surface ships and
is a provider of defense and commercial electronics technology, components and
materials for government and commercial customers
23
worldwide. In addition, Litton is a prime contractor to the U.S. Government for
information technology services and provides specialized information technology
services to commercial customers and governments in local and foreign
jurisdictions. Northrop Grumman acquired 97% of Litton in a transaction that
closed April 3, 2001.
The principal executive offices of Northrop Grumman, Northrop Systems and
Litton are located at 1840 Century Park East, Los Angeles, California 90067 and
our telephone number is (310) 553-6262.
Additional information concerning Northrop Grumman is included in the
Northrop Grumman reports incorporated by reference in this prospectus. See
"Where You Can Find More Information" beginning on page 6.
Newport News
Newport News is the largest non-government-owned shipyard in the United
States, as measured by each of revenues, size of facilities, and number of
employees. Its primary business is the design, construction, repair,
maintenance, overhaul, life-cycle support and refueling of nuclear-powered
aircraft carriers and the design, life-cycle support and construction of
submarines for the U.S. Navy. Newport News disclosed in its Annual Report on
Form 10-K for the year ended December 31, 2000 that it believes it was, at that
time:
. the only shipyard capable of building the U.S. Navy's nuclear-powered
aircraft carriers;
. the only non-government-owned shipyard capable of refueling and
overhauling the U.S. Navy's nuclear-powered aircraft carriers; and
. one of only two shipyards capable of building the U.S. Navy's nuclear-
powered submarines.
U.S. Navy contracts for aircraft carrier and submarine construction and
carrier refuelings and overhauls have generated the majority of Newport News'
revenues. Overall, Newport News' U.S. Navy business accounted for approximately
98% of its revenues for 2000 and 1999, and 92% for 1998. Newport News has built
10 of the 12 active aircraft carriers in the U.S. fleet, including all nine
nuclear-powered aircraft carriers. For the last 40 years, Newport News has been
the sole designer and builder of the U.S. Navy's aircraft carriers.
The principal office of Newport News is located at 4101 Washington Avenue,
Newport News, Virginia, 23607, telephone number (757) 380-2000.
Additional information concerning Newport News is included in the Newport
News reports incorporated by reference in this prospectus. See "Where You Can
Find More Information" beginning on page 6.
24
REASONS FOR OUR OFFER
We believe that our proposed acquisition of Newport News represents a
compelling opportunity to enhance value for both Newport News stockholders and
Northrop Grumman stockholders for reasons that include the following:
. a combination of Northrop Grumman (which recently completed its purchase
of Litton) and Newport News would offer a variety of strategic benefits,
including making Northrop Grumman a complete full-line shipbuilding
competitor and providing an opportunity for significant cost savings to
the U.S. Navy and the opportunity for Newport News to realize
efficiencies available as part of a larger, more diversified company;
and
. if the proposed General Dynamics transaction is permitted to proceed, it
would leave the United States vulnerable with only one nuclear capable
builder of submarines and ships. Also, a 1999 Department of Defense
analysis indicated that "over 75 percent of the total shipyard
engineering talent and over 95 percent of the Navy R&D investment would
exist in a combined General Dynamics-Newport News entity." This would
leave the Navy vulnerable to a General Dynamics virtual monopoly in
shipbuilding research and development. We believe that nothing has
materially changed since that analysis and that the proposed acquisition
of Newport News by General Dynamics would therefore not be in the best
interests of the United States, the Navy or Northrop Grumman and its
stockholders.
In addition, our offer has been made based solely on publicly available
information regarding Newport News. If we are provided the opportunity to
conduct a due diligence review of Newport News, we would be prepared to enter
into negotiations immediately with respect to all aspects of our offer.
25
BACKGROUND OF OUR OFFER
Background
On May 6, 1999, Litton proposed to acquire Newport News in a stock-for-stock
merger valued at $35.61 per Newport News share of common stock based on the May
6, 1999 closing price of $64.75 for Litton Industries common stock. Newport
News was unwilling to accept the Litton proposal and in July, 1999, Litton
withdrew its proposal.
On March 9, 2001 Kent Kresa, Chairman, President and Chief Executive Officer
of Northrop Grumman, called William Fricks, Chairman and Chief Executive
Officer of Newport News. Mr. Kresa advised Mr. Fricks that Northrop Grumman was
in the process of completing the Litton acquisition, and was looking forward to
working with Newport News in the shipbuilding industry. Mr. Kresa referred to
the fact that, in the past, Litton had been interested in, and had in fact
proposed, a possible acquisition of Newport News. Mr. Kresa noted that while
this was not the time to discuss a possible transaction with Newport News, he
looked forward to the possibility of having such discussions on this topic in
the future. Mr. Fricks acknowledged Mr. Kresa's comments and stated that
nothing in this regard was currently being considered.
On April 24, 2001, General Dynamics and Newport News announced that they had
entered into a merger agreement providing for an offer by General Dynamics to
acquire all of the issued and outstanding shares of Newport News common stock
for $67.50 in cash per share. The General Dynamics offer is subject to various
conditions including Hart-Scott-Rodino approval.
On May 4, 2001, General Dynamics commenced a cash tender offer pursuant to
the merger agreement for all of the shares of Newport News common stock and
mailed its offer to purchase and other tender offer materials to Newport News
stockholders.
On May 8, 2001 Mr. Kresa called Mr. Fricks and told him that Northrop
Grumman was disappointed to read about the proposed General Dynamics
transaction before having had a chance to discuss a possible Northrop Grumman-
Newport News transaction, and that Northrop Grumman would now be sending Mr.
Fricks a letter offering to acquire Newport News. Mr. Fricks indicated that he
would review the letter when it arrived.
On May 8, 2001, Northrop Grumman sent a letter to Newport News, setting
forth an offer by Northrop Grumman to acquire all outstanding shares of Newport
News common stock for common stock of Northrop Grumman and cash, valued at
$67.50 per Newport News share, requesting that the board of directors enter
into discussions with Northrop Grumman about its offer and stating that
Northrop Grumman expected to commence an exchange offer. On May 9, 2001,
Northrop Grumman issued a press release which attached a copy of the letter.
The full text of the Northrop Grumman letter is as follows:
May 8, 2001
Mr. William P. Fricks
Chairman and Chief Executive Officer
Newport News Shipbuilding Inc.
4101 Washington Avenue
Newport News, VA 23607-2770
Dear Bill,
We were disappointed by your April 25th announcement that Newport News
had agreed to be acquired by General Dynamics for cash without exploring
alternatives with Northrop Grumman. Moreover, we believe your proposed
transaction with General Dynamics raises serious antitrust issues. As
the Department of Defense previously noted, over 75% of the total
shipyard engineering
26
talent and over 95% of the shipbuilding Navy R&D investment would exist
in a combined General Dynamics-Newport News entity. Furthermore, this
combination would leave the nation vulnerable to only one nuclear
capable submarine and shipbuilder.
While you stated that a nuclear "monopoly" already exists due to your
recent history of Navy approved "teaming" with General Dynamics (your
only nuclear capable competitor), we believe, and we believe many
already agree, that there is enormous national security value for the
United States in maintaining, not eliminating, competition. In short, we
believe the General Dynamics-Newport News combination would eliminate
competition, endanger national security and be costly both to the Navy
and to the American taxpayer.
A business combination between Northrop Grumman and Newport News, on the
other hand, should receive regulatory approval, and will be of greater
benefit to your stockholders and other constituencies than would your
current agreement with General Dynamics. Our Board of Directors has
authorized me to advise you that we will match General Dynamics' offer
of $67.50 per share for all the outstanding shares of Common Stock of
Newport News, comprised 75% of Northrop Grumman common stock with the
remainder in cash. We expect to commence an exchange offer shortly,
subject to customary conditions.
We have great respect for Newport News' management team and expect that
it would be well-represented in the senior management ranks of the
combined shipbuilding business, including mutually agreed upon possible
Board representation. A combination of Newport News and Northrop Grumman
would offer a variety of benefits, including significant cost savings to
the Navy and the opportunity for Newport News' employees and communities
to become part of a larger, more diversified defense company.
Northrop Grumman believes its proposal is superior to the General
Dynamics offer for the following reasons:
a) Certainty of Completion. Northrop Grumman can provide Newport
News shareholders with greater certainty of completion than the
current merger agreement with General Dynamics. As previously
mentioned, the General Dynamics combination would create a
monopoly for submarines and naval nuclear propulsion. The
combination would result in a significant majority of U.S. Navy
ship-related revenues and nearly all of the Navy-related
shipbuilding R&D in a single company. In contrast, the
businesses of Northrop Grumman and Newport News, while not
overlapping, do provide opportunities for efficiencies, and the
combination of our two companies would preserve the current
competitive landscape of the military shipbuilding industry.
b) Superior Overall Value. Our proposal provides Newport News
shareholders with the opportunity to retain an equity interest
in one of the industry's leading diversified defense
electronics, systems integration, information technology and
shipbuilding enterprises with significant market capitalization
and potential for further appreciation. Our proposal provides
Newport News shareholders with the opportunity to elect the
consideration of their choice (i.e., cash, Northrop Grumman
common stock or a combination of both) and exchange their
shares for Northrop Grumman common stock on a tax-free basis,
providing superior value to General Dynamics' taxable
transaction.
Our company's extensive experience in reviewing acquisition
opportunities gives us the ability to conduct an efficient and
expeditious due diligence process. We are prepared to move quickly in
completing any potential transaction in an effort to meet any reasonable
time schedule established by you and are prepared to negotiate a merger
agreement consistent with the structure of our proposal on terms
substantially similar to your agreement with General Dynamics. As such,
your Board of Directors should be aware that, once we have completed due
diligence, we will be prepared to enter into negotiations immediately
with respect to all aspects of our proposal.
27
Our offer is a fully financed, cash and stock offer for all Newport
News shares. As a company with $15 billion in revenues, an investment
grade credit rating, a market capitalization of $8 billion and 80,000
employees, Northrop Grumman clearly has the financial wherewithal to
consummate a transaction with Newport News. Accordingly and consistent
with the terms of your merger agreement with General Dynamics, we
believe the Board of Directors of Newport News has a fiduciary
obligation to provide its shareholders with the opportunity to consider
and take advantage of our offer. We trust that you will not take any
action that would prevent stockholders from having a full opportunity
to consider our offer.
We are convinced this transaction is truly a "win-win" opportunity for
Newport News shareholders, employees, customers and is in the national
interest. Our objective is a transaction that has the full support of
you and the Newport News Board of Directors, as well as your employees,
shareholders and many loyal customers and suppliers. We believe your
Board of Directors will conclude, after considering all the factors and
information available, that this offer is a Superior Proposal as
defined in your agreement with General Dynamics. Accordingly, we will
take the liberty of contacting you shortly to discuss the merits of
this offer and arrange for a meeting.
Sincerely,
/s/ Kent Kresa
-----------------------------
Kent Kresa
Chairman, President and CEO
Northrop Grumman Corporation
On May 9, 2001, Newport News issued a press release stating that it had
received the Northrop Grumman letter and that the "Newport News Board of
Directors will meet in due course to consider Northrop Grumman's proposed
exchange offer once the definitive terms of the offer have been made
available."
On May 18, 2001, we filed notification with the U.S. Department of Justice
and the Federal Trade Commission of our intention to acquire Newport News, in
compliance with the Premerger Notification requirements of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976.
On May 23, 2001, we commenced our offer.
The General Dynamics-Newport News Merger Agreement
The following description summarizes the material provisions of the General
Dynamics-Newport News merger agreement. This summary does not purport to
describe all of the terms of the General Dynamics-Newport News merger agreement
and is qualified in its entirety by reference to the complete text of the
merger agreement filed as Exhibit 2.1 to the Current Report on Form 8-K filed
with the SEC by Newport News on April 24, 2001.
The General Dynamics Offer
The General Dynamics-Newport News merger agreement provides that Grail
Acquisition Corporation, a wholly owned subsidiary of General Dynamics, will
commence an offer to purchase all of the outstanding shares of common stock of
Newport News for a cash price of $67.50 per share.
The General Dynamics-Newport News Merger
The General Dynamics-Newport News merger agreement provides that following
the completion of the General Dynamics offer and subject to the conditions set
forth in the General Dynamics-Newport News merger
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agreement, Grail Acquisition Corporation will be merged with and into Newport
News in accordance with the provisions of the Delaware General Corporation Law.
Following the General Dynamics-Newport News merger, Newport News will continue
as the surviving corporation and the separate corporate existence of Grail
Acquisition Corporation will cease.
Covenants
The General Dynamics-Newport News merger agreement contains covenants by
Newport News and General Dynamics, including mutual covenants by the parties to
use their best efforts to complete and make effective the transactions
contemplated by the General Dynamics-Newport News merger agreement, to make all
required filings under the HSR Act, to provide one another with notice of any
material developments affecting the ability of the parties to complete the
transactions contemplated by the General Dynamics-Newport News merger
agreement, to consult with one another before issuing any press release or
otherwise making any public announcements with respect to the transactions
contemplated by the General Dynamics-Newport News merger agreement and to give
all required notices to third parties and governmental entities and use its
best efforts to obtain all third party and governmental consents and approvals
required in connection with the transactions contemplated by the General
Dynamics-Newport News merger agreement.
Other Potential Acquirers
The General Dynamics-Newport News merger agreement contains restrictions on
the ability of Newport News, its subsidiaries and their respective directors,
officers, employees, agents and representatives to solicit, initiate or
participate in any discussions or negotiations regarding, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any "Company Takeover
Proposal." For purposes of the General Dynamics-Newport News merger agreement,
a "Company Takeover Proposal" is any proposal or offer for a merger,
consolidation, dissolution, liquidation, recapitalization or other business
combination involving Newport News or any significant subsidiary, any proposal
or offer for the issuance by Newport News of a material amount of its equity
securities as consideration for the assets or securities of any person or any
proposal or offer to acquire in any manner, directly or indirectly, a material
equity interest in any voting securities of, or a substantial portion of the
assets of, Newport News or any of its subsidiaries.
The General Dynamics-Newport News merger agreement generally prohibits
Newport News, its subsidiaries and their respective directors, officers,
employees, representatives and agents from soliciting, initiating or
encouraging, directly or indirectly, any Company Takeover Proposal or engaging
in any negotiations or discussions with, furnishing any information to or
entering into any agreement with any party relating to any Company Takeover
Proposal (other than various permissible confidentiality agreements). The
General Dynamics-Newport News merger agreement provides, however, that Newport
News may participate in discussions and negotiations with, and furnish
information or data to, a party submitting an offer or proposal not solicited
by Newport News and that did not otherwise result from a breach of the General
Dynamics-Newport News merger agreement and that the Board of Directors of
Newport News believes in good faith could result in a "Company Superior
Proposal." A "Company Superior Proposal" is any proposal to acquire, directly
or indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction more than 50% of the combined voting power of all of the
outstanding shares of common stock of Newport News then outstanding or all or
substantially all of the assets of Newport News, which proposal the Board of
Directors of Newport News has determined (1) is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other
aspects of such proposal and the third party making the proposal, and (2)
presents to Newport News and its stockholders more favorable financial and
other terms, taken as a whole, than the terms of the General Dynamics-Newport
News merger agreement.
Pursuant to the terms of the General Dynamics-Newport News merger agreement,
Newport News must, promptly upon its receipt of any Company Takeover Proposal,
provide General Dynamics with the material
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terms and conditions of such Company Takeover Proposal, including the identity
of the acquiring party. Newport News must also promptly inform General Dynamics
of the status and content of any discussions or negotiations involving any
Company Takeover Proposal.
Newport News is prohibited under the terms of the General Dynamics-Newport
News merger agreement from providing any non-public information regarding
Newport News or any of its subsidiaries to any party making a Company Takeover
Proposal unless such party enters into a written confidentiality agreement
containing provisions similar to those contained in the confidentiality
agreement dated as of March 26, 2001 between Newport News and General Dynamics
(other than the "standstill" provisions).
Termination Events
The General Dynamics-Newport News merger agreement may be terminated and the
General Dynamics offer and the General Dynamics-Newport News merger may be
abandoned at any time prior to the effective time (notwithstanding any approval
of the merger agreement by the stockholders of Newport News) under various
circumstances including the following:
(i) by either General Dynamics or Newport News if completion of the General
Dynamics offer has not occurred on or before November 30, 2001, unless this
date is extended by Newport News to April 30, 2002 if the only conditions to
the General Dynamics offer not satisfied are the minimum tender condition, the
HSR condition and the conditions described in clause (ii)(A) of Section 15 of
the General Dynamics offer to purchase;
(ii) by General Dynamics prior to the completion of the General Dynamics
offer if Newport News or its Board of Directors:
(A) enters into any agreement, or resolves or agrees to do so, other
than a confidentiality agreement as permitted under the General
Dynamics-Newport News merger agreement, with respect to any
Company Takeover Proposal other than the General Dynamics offer or
the General Dynamics-Newport News merger;
(B) amends, conditions, qualifies, withdraws, modifies or contradicts,
or resolves or agrees to do any of the foregoing, in a manner
adverse to General Dynamics or Grail Acquisition Corporation, its
approval or recommendation of the General Dynamics offer, the
General Dynamics merger and the General Dynamics-Newport News
merger agreement;
(C) solicits, approves or recommends, or resolves or agrees to do so,
any Company Takeover Proposal other than the General Dynamics
offer or the General Dynamics-Newport News merger; or
(D) violates Section 6.7 of the General Dynamics-Newport News merger
agreement (which relates to other potential acquirers), or
resolves or agrees to do so;
(iii) by Newport News prior to the completion of the General Dynamics offer
if at any time prior to the completion of the General Dynamics offer (A)
Newport News receives a Company Superior Proposal and (B) Newport News complies
with Section 6.7 of the General Dynamics-Newport News merger agreement (which
relates to other potential acquirers); provided that Newport News may not
terminate the General Dynamics-Newport News merger agreement unless and until:
(1) three business days have elapsed following delivery to General Dynamics of
a written notice of such determination by the Board of Directors of Newport
News and during such three business day period Newport News has given General
Dynamics reasonable opportunity to discuss with Newport News the Company
Superior Proposal and any proposed amendments to the General Dynamics-Newport
News merger agreement; (2) at the end of that three business day period, the
Company Takeover Proposal continues to constitute a Company Superior Proposal
(taking into account any modifications to the terms proposed by General
Dynamics) and the Board of Directors of Newport News
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confirms its determination that it is a Company Superior Proposal; (3)
following that termination Newport News enters into a definitive acquisition,
merger or similar agreement to effect a Company Superior Proposal; and (4)
Newport News prior to that termination pays to General Dynamics in immediately
available funds the termination fee (as described below).
Termination Fee
The General Dynamics-Newport News merger agreement provides that Newport
News will be obligated to pay General Dynamics a termination fee equal to $50
million if the General Dynamics-Newport News merger agreement is terminated by:
(1) General Dynamics for the reasons described in clause (ii) above under "--
Termination Events," which payment shall be payable on the date the General
Dynamics-Newport News merger agreement is terminated; (2) by Newport News for
the reasons described in clause (iii) above under "--Termination Events," which
payment shall be payable on the date the General Dynamics-Newport News merger
agreement is terminated; (3) (A) in the event a Company Takeover Proposal shall
have been publicly announced or any person has publicly announced an intention
to make a Company Takeover Proposal, (B) the completion of the General Dynamics
offer shall not have occurred prior to the November 30, 2001, (C) on November
30, 2001, the only condition to the General Dynamics offer that shall not have
been satisfied shall be the minimum tender condition, (D) the General Dynamics-
Newport News merger agreement is thereafter terminated by either General
Dynamics or Newport News pursuant to clause (i) above under "--Termination
Events" and (E) within 12 months after that termination, Newport News or any of
its significant subsidiaries enters into an agreement with respect to, or
completes, that Company Takeover Proposal; or (4) in the event (A) there is a
publicly announced Company Takeover Proposal, (B) Newport News thereafter
breaches one of its covenants in the General Dynamics-Newport News merger
agreement, (C) General Dynamics thereafter terminates the General Dynamics-
Newport News merger agreement and (D) within 12 months after that termination,
Newport News or any of its significant subsidiaries enters into an agreement
with respect to, or completes, that Company Takeover Proposal; provided that
with respect to clauses (3) and (4) no fee shall be payable by Newport News
until and unless the agreement is entered into or Newport News Takeover
Proposal is actually completed within the 12 months following that termination
and shall be payable on the earlier of (y) the date the agreement is entered
into or (z) Newport News Takeover Proposal is completed.
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OUR OFFER
Consideration to Be Paid
Under the terms of our offer, we will exchange a combination of cash and
newly issued Northrop Grumman common stock for any and all Newport News shares
outstanding at the time we complete our offer.
Election Right. Each Newport News stockholder will have the opportunity to
elect to receive, for those shares of Newport News common stock he or she owns,
either
. $67.50 in cash, without interest, per Newport News share; or
. a number of shares of Northrop Grumman common stock (the "exchange
ratio") designed to provide a value of $67.50, per Newport News share,
subject, in each case, to the election and proration procedures and limitations
described below.
We will determine the exact exchange ratio by dividing $67.50 by the average
of the closing sale prices for a share of Northrop Grumman common stock on the
New York Stock Exchange as reported in The Wall Street Journal over the 10-day
trading period ending on the third trading day before we complete our offer
(the "Northrop Grumman Stock Value"). However, in no event will the exchange
ratio be more than .7941176 ($67.50/$85.00) or less than .7105263
($67.50/$95.00). We will issue a press release before 9:00 A.M., New York City
time, on the second trading day before our offer closes, announcing the
exchange ratio and the average closing price of the Northrop Grumman shares
over the 10-day trading period.
We will issue 16,636,885 shares of our common stock (the "Northrop Grumman
Available Shares") in our offer and the merger. The portion of these shares
available in our offer will equal the number of Northrop Grumman Available
Shares times the percentage of outstanding Newport News shares tendered in our
offer. All Northrop Grumman Available Shares not exchanged in our offer will be
issued in the merger. Other than with respect to the "top up" described below,
we will not pay more in cash for the Newport News shares in our offer and the
merger than $891,934,380 (subject to increase for fractional shares and to the
extent the number of outstanding Newport News shares increases due to option
exercises) (the "Base Cash Amount").
If the Northrop Grumman Stock Value is less than $90.00 but equal to or
greater than $85.00, we will increase the aggregate amount of cash available
for our offer and the merger by the product of (a) the excess of $90.00 over
the Northrop Grumman Stock Value and (b) the number of Northrop Grumman
Available Shares (the "Top Up Amount").
If the Northrop Grumman Stock Value is less than $85.00, we will increase
the aggregate of amount of cash available for our offer and the merger by the
Top Up Amount for an $85.00 Northrop Grumman Stock Value, but we will not
increase it beyond that point.
If the Northrop Grumman Stock Value is greater than $90.00 but less than or
equal to $95.00, we will reduce the aggregate amount of cash available for our
offer and the merger by the product of (a) the excess of the Northrop Grumman
Stock Value over $90.00 and (b) the number of Northrop Grumman Available
Shares.
If the Northrop Grumman Stock Value is greater than $95.00, we will reduce
the aggregate of amount of cash available for our offer and merger by reduction
for a $95.00 Northrop Grumman Stock Value as described in the prior paragraph,
but we will not reduce the cash beyond that point.
Because of the manner in which the exchange ratio is calculated,
stockholders who receive solely Northrop Grumman common stock or a combination
of Northrop Grumman common stock and cash in our offer or merger will receive
$67.50 per share of value (based on the Northrop Grumman Stock Value) if the
Northrop Grumman Stock Value is between $85.00 and $95.00, will receive less
than $67.50 per share of value if the Northrop Grumman Stock Value is less than
$85.00 and will receive more than $67.50 of value if the Northrop Grumman Stock
Value is more than $95.00.
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Consequences of Over- and Under-Election. If Newport News stockholders elect
to receive cash in excess of the Base Cash Amount immediately before the
closing of our offer plus any Top Up Amount, the amount of cash that Newport
News stockholders will receive for each Newport News share for which they made
a cash election will be reduced pro rata so the total amount of cash that we
will pay to all Newport News stockholders in our offer does not exceed the Base
Cash Amount plus any Top Up Amount. If this reduction occurs, in addition to
the reduced amount of cash, we will issue, in respect of each Newport News
share for which a cash election was made, Northrop Grumman shares in lieu of
the cash the Newport News stockholder would have otherwise received. The number
of shares we will issue for each Newport News share subject to a cash election
in this situation will be calculated by multiplying the exchange ratio by the
percentage reduction in the cash consideration paid to Newport News
stockholders making cash elections.
If Newport News stockholders elect to receive Northrop Grumman shares in
excess of the product of the Northrop Grumman Available Shares times the
percentage of outstanding Newport News shares tendered in our offer, the number
of Northrop Grumman shares Newport News stockholders will receive for each
Newport News share for which they made a share election will be reduced pro
rata so that the total number of shares that we will issue to all Newport News
stockholders will equal that product. If this reduction occurs, in addition to
the reduced number of Northrop Grumman shares, we will pay, in respect of each
Newport News share for which a share election was made, cash in lieu of the
Northrop Grumman shares that the Newport News stockholder would have otherwise
received. The amount of cash to be paid for each Newport News share subject to
a share election in this situation will be calculated by multiplying $67.50 by
the percentage reduction in Northrop Grumman shares issued to Newport News
stockholders making share elections.
In the case of an over-election for either cash or Northrop Grumman shares,
those Newport News stockholders who fail to make a valid election with respect
to their shares will receive the under-elected form of consideration for those
shares. We, therefore, encourage Newport News stockholders to make a valid
election with respect to all of their shares.
If all Newport News stockholders together make valid cash elections for less
than the Base Cash Amount plus any Top Up Amount and valid share elections for
fewer than the Northrop Grumman Available Shares, all of the remaining cash and
Northrop Grumman shares that will be paid and issued in our offer will be
allocated pro rata among the holders of non-electing shares. This means that
non-electing stockholders would receive both cash and Northrop Grumman shares
for their Newport News shares.
Certain Examples. Following are examples of how these rules would work. In
each of these examples we assume that 35,396,356 Newport News shares are
outstanding, that 92% of those shares are tendered in our offer, and that all
stockholders make either a stock election or a cash election. For ease of
illustration, the examples also include payment of fractional Northrop Grumman
shares although as discussed above cash will be issued in lieu of fractional
shares.
Case 1: Northrop Grumman Stock Value Is Between $85.00 and $90.00
Example 1: More Cash Consideration Is Elected than Cash Available
Assuming 70% of the tendered shares elect cash and the Northrop Grumman
Stock Value is $87.00, then:
. each Newport News stockholder tendering 100 shares and electing to
receive cash for those shares would receive $4,131.76 in cash and
30.09 Northrop Grumman shares for a total value of $6,750.00
(i.e., $67.50 per tendered share); and
. each Newport News stockholder tendering 100 shares and electing to
receive Northrop Grumman stock for those shares would receive
77.59 Northrop Grumman shares valued at $6,750.00 (i.e., $67.50
per tendered share).
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Example 2: More Stock Consideration Is Elected than Stock Available
Assuming 70% of the tendered shares elect Northrop Grumman stock and the
Northrop Grumman Stock Value is $87.00, then:
. each Newport News stockholder tendering 100 shares and electing to
receive cash for those shares would receive $6,750.00 in cash
(i.e., $67.50 per tendered share); and
. each Newport News stockholder tendering 100 shares and electing to
receive Northrop Grumman stock for those shares would receive
67.15 Northrop Grumman shares and $908.36 in cash for a total
value of $6,750.00 (i.e., $67.50 per tendered share).
Case 2: Northrop Grumman Stock Value Is Between $90.00 and $95.00
Example 1: More Cash Consideration Is Elected than Cash Available
Assuming 70% of the tendered shares elect cash and the Northrop Grumman
Stock Value is $92.00, then:
. each Newport News stockholder tendering 100 shares and electing to
receive cash for those shares would receive $3,766.84 in cash and
32.43 Northrop Grumman shares for a total value of $6,750.00
(i.e., $67.50 per tendered share); and
. each Newport News stockholder tendering 100 shares and electing to
receive Northrop Grumman stock for those shares would receive
73.37 Northrop Grumman shares valued at $6,750.00 (i.e., $67.50
per tendered share).
Example 2: More Stock Consideration Is Elected than Stock Available
Assuming 70% of the tendered shares elect Northrop Grumman stock and the
Northrop Grumman Stock Value is $92.00, then:
. each Newport News stockholder tendering 100 shares and electing to
receive cash for those shares would receive $6,750.00 in cash
(i.e., $67.50 per tendered share); and
. each Newport News stockholder tendering 100 shares and electing to
receive Northrop Grumman stock for those shares would receive
67.15 Northrop Grumman shares and $572.64 in cash for a total
value of $6,750.00 (i.e., $67.50 per tendered share).
Case 3: Northrop Grumman Stock Value Is Greater than $95.00
Example 1: More Cash Consideration Is Elected than Cash Available
Assuming 70% of the tendered shares elect cash and the Northrop Grumman
Stock Value is $97.00, then:
. each Newport News stockholder tendering 100 shares and electing to
receive cash for those shares would receive $3,547.89 in cash and
33.71 Northrop Grumman shares for a total value of $6,817.41
(i.e., $68.17 per tendered share); and
. each Newport News stockholder tendering 100 shares and electing to
receive Northrop Grumman stock for those shares would receive
71.05 Northrop Grumman shares valued at $6,892.11 (i.e., $68.92
per tendered share).
Example 2: More Stock Consideration Is Elected than Stock Available
Assuming 70% of the tendered shares elect Northrop Grumman stock and the
Northrop Grumman Stock Value is $97.00, then:
. each Newport News stockholder tendering 100 shares and electing to
receive cash for those shares would receive $6,750.00 in cash
(i.e., $67.50 per tendered share); and
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. each Newport News stockholder tendering 100 shares and electing to
receive Northrop Grumman stock for those shares would receive
67.15 Northrop Grumman shares and $371.20 in cash for a total
value of $6,884.29 (i.e., $68.84 per tendered share).
Case 4: Northrop Grumman Stock Value Is Less than $85.00
Example 1: More Cash Consideration Is Elected than Cash Available
Assuming 70% of the tendered shares elect cash and the Northrop Grumman
Stock Value is $83.00, then:
. each Newport News stockholder tendering 100 shares and electing to
receive cash for those shares would receive $4,277.73 in cash and
29.09 Northrop Grumman shares for a total value of $6,691.83
(i.e., $66.92 per tendered share); and
. each Newport News stockholder tendering 100 shares and electing to
receive Northrop Grumman stock for those shares would receive
79.41 Northrop Grumman shares with a total value of $6,591.18
(i.e., $65.91 per tendered share).
Example 2: More Stock Consideration Is Elected than Stock Available
Assuming 70% of the tendered shares elect Northrop Grumman stock and the
Northrop Grumman Stock Value is $83.00, then:
. each Newport News stockholder tendering 100 shares and electing to
receive cash for those shares would receive $6,750.00 in cash
(i.e., $67.50 per tendered share); and
. each Newport News stockholder tendering 100 shares and electing to
receive Northrop Grumman stock for those shares would receive
67.15 Northrop Grumman shares and $1,042.65 in cash for a total
value of $6,615.71 (i.e., $66.16 per tendered share).
Other Aspects of Our Offer. We are making our offer in order to acquire
control of, and ultimately the entire common equity interest in, Newport News.
Our offer is the first step in our acquisition of Newport News and is intended
to facilitate the acquisition of all Newport News shares. We intend, as soon as
possible after completion of our offer, to seek to have Newport News merge with
Northrop Grumman or a wholly owned subsidiary of Northrop Grumman. The purpose
of the merger would be to acquire all Newport News shares not tendered or
exchanged in our offer. In the merger, each outstanding share of Newport News
common stock would be converted into the right to receive, pro rata, the number
of shares of Northrop Grumman common stock and the amount of cash available for
our offer and the merger, to the extent those forms of consideration are
remaining after completion of our offer, subject to appraisal rights that may
be available under Delaware law, except that Newport News common stock held by
Newport News, us or any of our subsidiaries (other than in a fiduciary capacity
or in respect of debt previously contracted) would be retired.
If we obtain all of the shares of Newport News pursuant to our offer, former
stockholders of Newport News would own approximately 16.3% of the shares of
common stock of Northrop Grumman. On a pro forma basis as of March 31, 2001,
giving effect to our offer and the proposed Northrop Grumman-Newport News
merger, Newport News would contribute approximately 18.3% of the assets of the
combined company.
Our obligation to exchange shares of Northrop Grumman common stock and cash
for Newport News shares pursuant to our offer is subject to several conditions
referred to below under "--Conditions to Our Offer," including the minimum
tender condition, the merger agreement condition, the rights plan condition,
the antitrust condition and other conditions that are discussed below.
If you tender your shares, you will not be obligated to pay any charges or
expenses of the exchange agent or any brokerage commissions. Except as set
forth in the instructions to the letter of election and transmittal, transfer
taxes on the exchange of Newport News common stock pursuant to our offer will
be paid by us or on our behalf.
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Our offer to acquire Newport News common stock is also an offer to acquire
Newport News Series A participating cumulative preferred stock purchase rights
associated with each share of Newport News common stock, or "Newport News
rights," and, when we refer to the shares of Newport News common stock, we are
also referring to the associated rights, unless we indicate otherwise. In
addition, all references to the Newport News rights include the benefits to
holders of those rights pursuant to the Newport News stockholder protection
rights agreement, or the "Newport News rights agreement," including the right
to receive any payment due upon redemption of Newport News rights.
You must tender one Newport News right for each Newport News share tendered
in order to effect a valid tender of Newport News shares, unless the Newport
News rights have been redeemed. The Newport News rights are currently
represented by the certificates for the Newport News shares and your tender of
Newport News shares prior to the Newport News distribution date will also
constitute a tender of the associated Newport News rights. We will not make a
separate payment to you for the Newport News rights.
Upon the Newport News distribution date, which is the earlier to occur of:
. the time Newport News learns that a person or group (including any
affiliate or associate of that person or group) has acquired, or
obtained the right to acquire, beneficial ownership of more than 15% of
the outstanding Newport News common stock; and
. the date, if any, as may be designated by the Newport News board of
directors following the commencement of, or first public disclosure of
an intention to commence, a tender or exchange offer for outstanding
Newport News common stock which could result in the person or group
becoming the beneficial owner of more than 15% of the outstanding
Newport News common stock,
separate certificates representing the Newport News rights will be mailed to
holders of record of Newport News shares as soon as practicable after the
Newport News distribution date, and those separate Newport News rights
certificates alone will evidence the Newport News rights.
If the Newport News distribution date occurs and Newport News or the related
rights agent distributes separate certificates representing the Newport News
rights to you prior to the time that you tender your Newport News shares
pursuant to our offer, certificates representing a number of Newport News
rights equal to the number of Newport News shares tendered must be delivered to
the exchange agent, or, if available, the exchange agent must receive a book-
entry confirmation with respect to these rights, in order for those Newport
News shares to be validly tendered. If the Newport News distribution date
occurs and separate certificates representing the Newport News rights are not
distributed prior to the time Newport News shares are tendered pursuant to our
offer, Newport News rights may be tendered prior to the time that you receive
the certificates for Newport News rights by use of the guaranteed delivery
procedure described under "--Guaranteed Delivery" below.
We have asked Newport News for its stockholder list and security position
listings in order to communicate with you and to distribute our offer to you.
As permitted under applicable law, Newport News notified us that, in lieu of
providing that information to us, it has elected to deliver this prospectus,
the related letter of election and transmittal and other relevant materials to
you and to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on Newport News'
stockholder list or, if applicable, who are listed as participants in a
clearing agency's security position listing, so that they can in turn send
these materials to beneficial owners of Newport News shares.
Timing of Our Offer
Our offer is scheduled to expire at 12:00 midnight, New York City time on
June 20, 2001. For more information, you should read the discussion below under
the caption "--Extension, Termination and Amendment."
The term "expiration date" means 12:00 midnight, New York City time, on June
20, 2001, unless we extend the period of time for which our offer is open, in
which case the term "expiration date" means the latest time and date on which
our offer, as so extended, expires.
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Extension, Termination and Amendment
We expressly reserve the right, in our sole discretion, at any time or from
time to time, to extend the period of time during which our offer remains open,
and we can do so by giving oral or written notice of that extension to the
exchange agent. We can give you no assurance that we will exercise our right to
extend our offer, although currently we intend to do so until all conditions
have been satisfied or, where permissible, waived. During any extension, all
Newport News shares previously tendered and not withdrawn will remain subject
to our offer, subject to your right to withdraw your Newport News shares. You
should read the discussion under the caption "--Withdrawal Rights" on page 38
for more details.
Subject to the SEC's applicable rules and regulations, we also reserve the
right, in our sole discretion, at any time or from time to time:
. to delay acceptance for exchange of or exchange of any Newport News
shares pursuant to our offer, or to terminate our offer and not accept
for exchange or exchange any Newport News shares not previously accepted
for exchange or exchanged, upon the failure of any of the conditions of
our offer to be satisfied prior to the expiration date, or upon the
failure of the regulatory approvals condition to be satisfied at any
time thereafter regardless of whether we previously accepted for
exchange or exchanged any Newport News shares; and
. to waive any condition (other than the antitrust condition and the
conditions relating to the absence of an injunction and the
effectiveness of the registration statement for the Northrop Grumman
shares to be issued in our offer) or otherwise amend our offer in any
respect, by giving oral or written notice of such delay, termination or
amendment to the exchange agent and by making a public announcement.
We will follow any extension, termination, amendment or delay, as promptly
as practicable, with a public announcement. In the case of an extension, the
related announcement will be issued no later than 9:00 A.M., New York City
time, on the next business day after the previously scheduled expiration date.
Subject to applicable law (including Rules 14d-4(d) and 14d-6(c) under the
Exchange Act, which require that any material change in the information
published, sent or given to Newport News stockholders in connection with our
offer be promptly sent to stockholders in a manner reasonably designed to
inform stockholders of that change) and without limiting the manner in which we
may choose to make any public announcement, we assume no obligation to publish,
advertise or otherwise communicate any public announcement of this type other
than by making a release to the Dow Jones News Service.
We confirm to you that if we make a material change in the terms of our
offer or the information concerning our offer, or if we waive a material
condition of our offer, we will extend our offer to the extent required under
the Exchange Act. If, prior to the expiration date, we change the percentage of
Newport News shares being sought or the consideration offered to you, that
change will apply to all holders whose Newport News shares are accepted for
exchange pursuant to our offer. If at the time notice of that change is first
published, sent or given to you, our offer is scheduled to expire at any time
earlier than the tenth business day from and including the date that the
related notice is first so published, sent or given, we will extend our offer
until the expiration of that ten business day period. For purposes of our
offer, a "business day" means any day other than a Saturday, Sunday or federal
holiday and consists of the time period from 12:01 A.M. through 12:00 midnight,
New York City time.
We may elect to provide a subsequent offering period of not more than three
to 20 business days after the acceptance of Newport News shares pursuant to our
offer if the requirements under Exchange Act Rule 14d-11 have been met. You
will not have the right to withdraw Newport News shares that you tender in the
subsequent offering period, if any.
If Newport News agrees upon a negotiated merger with us, we may amend or
terminate our offer without purchasing any Newport News shares.
37
Exchange of Newport News Shares; Delivery of Northrop Grumman Common Stock and
Cash
Upon the terms and subject to the conditions of our offer (including, if our
offer is extended or amended, the terms and conditions of any extension or
amendment), we will accept, and will exchange, Newport News shares validly
tendered and not properly withdrawn promptly after the expiration date and
promptly after they are tendered during any subsequent offering period. In
addition, subject to applicable rules of the SEC, we expressly reserve the
right to delay acceptance for exchange or exchange of Newport News shares in
order to comply with any applicable law. In all cases, exchange of Newport News
shares tendered and accepted for exchange pursuant to our offer will be made
only after timely receipt by the exchange agent of:
. certificates for those Newport News shares (or a confirmation of a book-
entry transfer of those Newport News shares in the exchange agent's
account at The Depository Trust Company, which we refer to as "DTC");
. a properly completed and duly executed letter of election and
transmittal; and
. any other required documents.
For purposes of our offer, we will be deemed to have accepted for exchange
Newport News shares validly tendered and not withdrawn, if and when we notify
the exchange agent of our acceptance for exchange of the tenders of those
Newport News shares pursuant to our offer. The exchange agent will deliver cash
and Northrop Grumman common stock in exchange for Newport News shares pursuant
to our offer and cash instead of fractional shares of Northrop Grumman common
stock as soon as practicable after receipt of that notice. The exchange agent
will act as agent for tendering stockholders for the purpose of receiving
Northrop Grumman common stock and (including cash to be paid instead of
fractional shares of Northrop Grumman common stock) from us and transmitting
the stock and cash to you. You will not receive any interest on any cash that
we pay you regardless of any delay in making the exchange.
If we do not accept any tendered Newport News shares for exchange pursuant
to the terms and conditions of our offer for any reason, or if certificates are
submitted for more Newport News shares than are tendered, we will return
certificates for those tendered Newport News shares or untendered Newport News
shares without expense to the tendering stockholder or, in the case of Newport
News shares tendered by book-entry transfer of those Newport News shares into
the exchange agent's account at DTC pursuant to the procedures set forth below
under the discussion entitled "--Procedure for Tendering," those Newport News
shares will be credited to an account maintained within DTC, as soon as
practicable following expiration or termination of our offer.
If we increase the consideration offered to Newport News stockholders in our
offer prior to the expiration date, the increased consideration will be paid to
all stockholders whose Newport News shares are tendered pursuant to our offer,
whether or not these Newport News shares were tendered or accepted for exchange
prior to the increase in consideration.
Cash Instead of Fractional Shares of Northrop Grumman Common Stock
We will not issue certificates representing fractional shares of our common
stock pursuant to our offer. Instead, each tendering stockholder who would
otherwise be entitled to a fractional share of our common stock will receive
cash in an amount equal to that fraction (expressed as a decimal, rounded to
the nearest 0.01 of a share) multiplied by the closing price for shares of our
common stock on the New York Stock Exchange Composite Tape on the date that we
accept that stockholder's Newport News shares for exchange.
Withdrawal Rights
Your tender of Newport News shares pursuant to our offer is irrevocable,
except that Newport News shares tendered pursuant to our offer may be withdrawn
at any time prior to the expiration date, and, unless we previously accepted
them pursuant to our offer, may also be withdrawn at any time after July 21,
2001. If we elect to provide a subsequent offering period under Exchange Act
Rule 14d-11, you will not have the right to withdraw Newport News shares that
you tender in the subsequent offering period.
38
For your withdrawal to be effective, the exchange agent must receive from
you a written notice of withdrawal at one of its addresses set forth on the
back cover of this prospectus, and your notice must include your name, address,
social security number, the certificate number(s) and the number of Newport
News shares to be withdrawn as well as the name of the registered holder, if it
is different from that of the person who tendered those Newport News shares.
A financial institution must guarantee all signatures on the notice of
withdrawal. Most banks, savings and loan associations and brokerage houses are
able to effect these signature guarantees for you. The financial institution
must be a participant in the Securities Transfer Agents Medallion Program, an
"eligible institution," unless those Newport News shares have been tendered for
the account of any eligible institution.
If Newport News shares have been tendered pursuant to the procedures for
book-entry tender discussed under the caption entitled "--Procedure for
Tendering," any notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawn Newport News shares and must
otherwise comply with DTC's procedures. If certificates have been delivered or
otherwise identified to the exchange agent, the name of the registered holder
and the serial numbers of the particular certificates evidencing the Newport
News shares withdrawn must also be furnished to the exchange agent, as stated
above, prior to the physical release of those certificates.
We will decide all questions as to the form and validity (including time of
receipt) of any notice of withdrawal in our sole discretion, and our decision
shall be final and binding. None of us, the exchange agent, the information
agent, any dealer manager or any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
will incur any liability for failure to give any notification. Any Newport News
shares properly withdrawn will be deemed not to have been validly tendered for
purposes of our offer. However, you may retender withdrawn Newport News shares
by following one of the procedures discussed under the captions entitled "--
Procedure for Tendering" or "--Guaranteed Delivery" at any time prior to the
expiration date.
If you withdraw any of your Newport News shares, you automatically withdraw
the associated Newport News rights. You may not withdraw Newport News rights
unless you also withdraw the associated Newport News shares.
Procedure for Tendering
For you to validly tender Newport News shares pursuant to our offer, (a) a
properly completed and duly executed letter of election and transmittal, along
with any required signature guarantees, or an agent's message in connection
with a book-entry transfer, and any other required documents, must be received
by the exchange agent at one of its addresses set forth on the back cover of
this prospectus, and certificates for tendered Newport News shares must be
received by the exchange agent at that address or those Newport News shares
must be tendered pursuant to the procedures for book-entry tender set forth
below (and a confirmation of receipt of that tender received (we refer to this
confirmation below as a "book-entry confirmation")), in each case before the
expiration date, or (b) you must comply with the guaranteed delivery procedures
set forth below under "--Guaranteed Delivery."
The term "agent's message" means a message, transmitted by DTC to, and
received by, the exchange agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment from
the participant in DTC tendering the Newport News shares and, if applicable,
Newport News rights, that are the subject of that book-entry confirmation, that
the participant has received and agrees to be bound by the terms of the letter
of election and transmittal and that we may enforce that agreement against the
participant.
You must tender one Newport News right for each Newport News share tendered
to effect a valid tender of Newport News shares, unless the board of directors
of Newport News has previously redeemed the Newport News rights. Unless the
Newport News distribution date occurs, a tender of Newport News shares will
39
constitute a tender of the associated Newport News rights. If the Newport News
distribution date occurs and separate certificates representing the Newport
News rights are distributed by Newport News or the rights agent to holders of
Newport News shares prior to the time that you tender Newport News shares
pursuant to our offer, certificates representing a number of Newport News
rights equal to the number of Newport News shares tendered must be delivered to
the exchange agent, or, if available, a book-entry confirmation must be
received by the exchange agent with respect to the certificates, in order for
those Newport News shares to be validly tendered.
If the Newport News distribution date occurs and separate certificates
representing the Newport News rights are not distributed prior to the time that
you tender Newport News shares pursuant to our offer, Newport News rights may
be tendered prior to a stockholder's receipt of the certificates for Newport
News rights by use of the guaranteed delivery procedures described below under
"--Guaranteed Delivery." If Newport News rights certificates are distributed
but are not available to you before Newport News shares are tendered pursuant
to our offer, a tender of Newport News shares constitutes an agreement by you
to deliver to the exchange agent pursuant to the guaranteed delivery procedures
described below, prior to the expiration of the period to be specified in the
notice of guaranteed delivery and the related letter of election and
transmittal for delivery of Newport News rights certificates or a book-entry
confirmation for Newport News rights (we refer to this as the "Newport News
rights delivery period"), Newport News rights certificates representing a
number of Newport News rights equal to the number of Newport News shares
tendered. We reserve the right to require receipt of those Newport News rights
certificates (or a book-entry confirmation with respect to those Newport News
rights) prior to accepting Newport News shares for exchange.
Nevertheless, we will be entitled to accept for exchange Newport News shares
that you tender prior to receipt of the Newport News rights certificates
required to be tendered with the Newport News shares or a book-entry
confirmation with respect to the Newport News rights and either (a) subject to
complying with applicable rules and regulations of the SEC, withhold payment
for those Newport News shares pending receipt of the Newport News rights
certificates or a book-entry confirmation for those Newport News rights or (b)
exchange Newport News shares accepted for exchange pending receipt of the
Newport News rights certificates or a book-entry confirmation for the Newport
News rights in reliance upon the guaranteed delivery procedures described below
under "--Guaranteed Delivery." In addition, after expiration of the Newport
News rights delivery period, we may instead elect to reject as invalid a tender
of Newport News shares with respect to which Newport News rights certificates
or a book-entry confirmation for an equal number of Newport News rights have
not been received by the exchange agent. Any determination by us to make
payment for Newport News shares in reliance upon the guaranteed delivery
procedure or, after expiration of the Newport News rights delivery period, to
reject a tender as invalid, shall be made, subject to applicable law, in our
sole and absolute discretion.
The exchange agent has established accounts with respect to the Newport News
shares at DTC for purposes of our offer, and any financial institution that is
a participant in DTC may make book-entry delivery of the Newport News shares by
causing DTC to transfer the Newport News shares into the exchange agent's
account in accordance with DTC's procedure for that transfer. However, although
delivery of Newport News shares may be effected through book-entry at DTC, the
letter of election and transmittal with any required signature guarantees, or
an agent's message in connection with a book-entry transfer, and any other
required documents, must, in any case, be received by the exchange agent at one
or more of its addresses set forth on the back cover of this prospectus prior
to the expiration date, or the guaranteed delivery procedures described below
must be followed. We cannot assure you, however, that book-entry delivery of
Newport News rights will be available. If book-entry delivery is not available,
you must tender Newport News rights by means of delivery of Newport News rights
certificates or pursuant to the guaranteed delivery procedure set forth below
under "--Guaranteed Delivery."
Signatures on all letters of transmittal must be guaranteed by an eligible
institution, except in cases in which Newport News shares are tendered either
by a registered holder of Newport News shares who has not completed the box
entitled "Special Issuance Instructions" on the letter of election and
transmittal or for the account of an eligible institution.
40
If the certificates for Newport News shares or Newport News rights (if any)
are registered in the name of a person other than the person who signs the
letter of election and transmittal, or if certificates for unexchanged Newport
News shares or Newport News rights (if any) are to be issued to a person other
than the registered holder(s), the certificates must be endorsed or accompanied
by appropriate stock powers, in either case signed exactly as the name or names
of the registered owner or owners appear on the certificates, with the
signature(s) on the certificates or stock powers guaranteed in the manner we
have described above.
The method of delivery of share certificates and all other required
documents, including delivery through DTC, is at your option and risk, and the
delivery will be deemed made only when actually received by the exchange agent.
If delivery is by mail, we recommend registered mail with return receipt
requested, properly insured. In all cases, you should allow sufficient time to
ensure timely delivery.
To prevent backup federal income tax withholding with respect to cash
received pursuant to our offer, you must provide the exchange agent with your
correct taxpayer identification number and certify whether you are subject to
backup withholding of federal income tax by completing the substitute form W-9
included in the letter of election and transmittal. Some stockholders
(including, among others, all corporations and some foreign individuals) are
not subject to these backup withholding and reporting requirements. In order
for a foreign individual to qualify as an exempt recipient, the stockholder
must submit a form W-8, signed under penalties of perjury, attesting to that
individual's exempt status.
Guaranteed Delivery
If you wish to tender Newport News shares pursuant to our offer and your
certificates are not immediately available or you cannot deliver the
certificates and all other required documents to the exchange agent prior to
the expiration date or cannot complete the procedure for book-entry transfer on
a timely basis, your Newport News shares may nevertheless be tendered, so long
as all of the following conditions are satisfied:
. you make your tender by or through an "eligible institution" (see "--
Withdrawal Rights" above);
. a properly completed and duly executed notice of guaranteed delivery,
substantially in the form made available by us, is received by the
exchange agent as provided below on or prior to the expiration date; and
. the certificates for all tendered Newport News shares (or a confirmation
of a book-entry transfer of such securities into the exchange agent's
account at DTC as described above), in proper form for transfer,
together with a properly completed and duly executed letter of election
and transmittal with any required signature guarantees (or, in the case
of a book-entry transfer, an agent's message) and all other documents
required by the letter of election and transmittal are received by the
exchange agent within three New York Stock Exchange trading days after
the date of execution of the notice of guaranteed delivery.
You may deliver the notice of guaranteed delivery by hand or transmit it by
facsimile transmission or mail to the exchange agent and you must include a
guarantee by an eligible institution in the form set forth in that notice.
In all cases, we will exchange Newport News shares tendered and accepted for
exchange pursuant to our offer only after timely receipt by the exchange agent
of certificates for Newport News shares (or timely confirmation of a book-entry
transfer of those securities into the exchange agent's account at DTC as
described above), properly completed and duly executed letter(s) of
transmittal, or an agent's message in connection with a book-entry transfer,
and any other required documents.
By executing a letter of election and transmittal as set forth above, you
irrevocably appoint our designees as your attorneys-in-fact and proxies, each
with full power of substitution, to the full extent of your rights with respect
to your Newport News shares tendered and accepted for exchange by us and with
respect to any and all
41
other Newport News shares and other securities issued or issuable in respect of
the Newport News shares on or after June 20, 2001. That appointment is
effective, and voting rights will be affected, when and only to the extent that
we deposit the shares of our common stock and the cash consideration for
Newport News shares that you have tendered with the exchange agent. All proxies
shall be considered coupled with an interest in the tendered Newport News
shares and therefore shall not be revocable. Upon the effectiveness of the
appointment, all prior proxies that you have given will be revoked, and you may
not give any subsequent proxies (and, if given, they will not be deemed
effective). Our designees will, with respect to the Newport News shares for
which the appointment is effective, be empowered, among other things, to
exercise all of your voting and other rights as they, in their sole discretion,
deem proper at any annual, special or adjourned meeting of Newport News'
stockholders or otherwise. We reserve the right to require that, in order for
Newport News shares to be deemed validly tendered, immediately upon our
exchange of those Newport News shares, we must be able to exercise full voting
rights with respect to those Newport News shares.
We will determine questions as to the validity, form, eligibility (including
time of receipt) and acceptance for exchange of any tender of Newport News
shares, in our sole discretion, and our determination shall be final and
binding. We reserve the absolute right to reject any and all tenders of Newport
News shares that we determine are not in proper form or the acceptance of or
exchange for which may, in the opinion of our counsel, be unlawful. We also
reserve the absolute right to waive any of the conditions of our offer (other
than the regulatory approvals condition and the conditions relating to the
absence of an injunction and the effectiveness of the registration statement
for Northrop Grumman shares to be issued in our offer), or any defect or
irregularity in the tender of any Newport News shares. No tender of Newport
News shares will be deemed to have been validly made until all defects and
irregularities in tenders of Newport News shares have been cured or waived.
None of us, the exchange agent, the information agent, the dealer manager or
any other person will be under any duty to give notification of any defects or
irregularities in the tender of any Newport News shares or will incur any
liability for failure to give any notification. Our interpretation of the terms
and conditions of our offer (including the letter of election and transmittal
and its instructions) will be final and binding.
The tender of Newport News shares and Newport News rights (if any) pursuant
to any of the procedures described above will constitute a binding agreement
between us and you upon the terms and subject to the conditions of our offer.
Material U.S. Federal Income Tax Consequences of Our Offer and the Merger
The discussion below reflects the opinion of Fried, Frank, Harris, Shriver &
Jacobson, outside counsel to Northrop Grumman, as to the material U.S. federal
income tax consequences of our offer and the merger to Newport News, and the
holders of Newport News common stock who are citizens or residents of the
United States or that are domestic corporations. The discussion below:
. is based upon current provisions of the Internal Revenue Code, currently
applicable Treasury regulations promulgated under the Internal Revenue
Code, and judicial and administrative decisions, all of which are
subject to change, possibly with retroactive effect;
. does not purport to address all aspects of U.S. federal income taxation
that may affect particular stockholders in light of their particular
circumstances, that are generally assumed to be known by investors or
that may affect stockholders to which special provisions of the U.S.
federal income tax laws may apply based on their particular
circumstances or status (see "--Qualifications" below);
. assumes that the shares of Newport News common stock are held as capital
assets;
. assumes that our offer and the merger and related transactions will take
place in accordance with all of the terms and conditions of our offer
and as described in this prospectus without the waiver or modification
of any of those terms or conditions; and
42
. does not address possible tax consequences of our offer or the merger
under foreign, state or local laws.
Neither Northrop Grumman nor Newport News has requested a ruling from the
Internal Revenue Service with regard to any of the U.S. federal income tax
consequences of our offer or the merger. The opinions of counsel will not be
binding on the Internal Revenue Service and there can be no assurance that the
Internal Revenue Service will not challenge the conclusions reflected in Fried,
Frank, Harris, Shriver & Jacobson's opinions and that a court would not sustain
a challenge of that type.
Treatment of Our Offer and the Merger for Tax Purposes as Single Transaction
The tax consequences of our offer and the merger will depend on whether
exchanges of Newport News shares for Northrop Grumman shares and cash pursuant
to our offer and the merger will be treated for purposes of the reorganization
provisions of the Internal Revenue Code as exchanges pursuant to a single
integrated "plan of reorganization." In the opinion of Fried, Frank, Harris,
Shriver & Jacobson, our offer and the merger will, for such purposes, be
treated as being pursuant to such a plan; although the issue is not free from
doubt if 80% or more of Newport News' shares outstanding (as determined for tax
purposes) are acquired in our offer. The opinion assumes that the Northrop
Grumman-Newport News merger agreement will be a binding agreement and that not
more than a majority of the outstanding shares will be required to approve the
merger. If our offer and the merger are not treated as a single integrated
transaction, the exchange of Newport News shares for Northrop Grumman shares
and/or cash pursuant to our offer will be a fully taxable transaction to the
Newport News stockholders who participate in our offer. See "--Tax Consequences
if Our Offer and the Merger Are Not Treated as a Single Transaction" below.
Tax Consequences if Our Offer and the Merger Are Treated as a Single
Transaction
Assuming our offer and the merger are treated as a single integrated
transaction the material federal income tax consequences to Newport News and
Newport News stockholders of our offer and the merger are as set forth below.
The consequences set forth below are based on various assumptions regarding the
qualification of our offer and the merger as a reorganization within the
meaning of Section 368 of the Internal Revenue Code, including that:
. the value of the Northrop Grumman stock issued to Newport News
stockholders pursuant to our offer and the merger will represent a
sufficient percentage of the value of all consideration furnished to the
Newport News stockholders in our offer and the merger (under IRS ruling
standards 50% is sufficient) to satisfy the continuity of stockholder
interest requirement for a reorganization. For these purposes, if
Northrop Grumman, Newport News or various persons related thereto,
acquire Newport News stock in transactions, other than our offer or the
merger, which are considered for tax purposes to be in connection with
our offer or the merger, the consideration paid for such Newport News
stock will count against continuity and any Northrop Grumman stock
issued to such persons for such Newport News stock will not count in
favor of continuity. In addition, consideration paid in our offer or the
merger will not be taken into account if paid to Newport News or various
Newport News trusts and Northrop Grumman stock issued in our offer or
the merger will be taken into account as other than Northrop Grumman
stock if such stock is subsequently reacquired in connection with our
offer or the merger by Northrop Grumman or certain persons related to
Northrop Grumman;
. Northrop Grumman, or, if Newport News is merged into a subsidiary of
Northrop Grumman, that subsidiary, will continue Newport News' historic
business or will use a significant portion of Newport News' historic
business assets in a business; and
. if Newport News is merged into a subsidiary of Northrop Grumman, that
subsidiary, will acquire substantially all of Newport News' assets
pursuant to our offer and the merger.
43
Consequences to Newport News Stockholders
Only Shares of Northrop Grumman Common Stock Received. Except as discussed
below with respect to cash received in lieu of a fractional share of Northrop
Grumman common stock, a Newport News stockholder who receives solely shares of
Northrop Grumman common stock in exchange for the holder's shares of Newport
News common stock will not recognize gain or loss. The tax basis of the shares
of Northrop Grumman common stock will be the same as the tax basis of the
shares of Newport News common stock exchanged. The holding period of the shares
of Northrop Grumman common stock received will include the holding period of
the shares of Newport News common stock exchanged.
Only Cash Received. A Newport News stockholder who receives solely cash in
our offer and the merger in exchange for the stockholder's shares of Newport
News common stock generally will recognize capital gain or loss measured by the
difference between the amount of cash received and the tax basis of the
exchanged shares of Newport News common stock. This capital gain or loss will
be long-term capital gain or loss if the stockholder's holding period with
respect to his or her Newport News common stock exceeds one year as of the
effective time of the exchange pursuant to our offer or the merger, as the case
may be. If, however, a stockholder who receives solely cash in our offer and
the merger constructively owns shares of Newport News common stock for which
consideration other than cash will be received, or actually or constructively
owns shares of Northrop Grumman common stock after our offer and the merger,
the consequences to the stockholder may be similar to those discussed below
under "--Shares of Northrop Grumman Common Stock and Cash Received--Treatment
of Gain Recognized," except that the amount of consideration treated as a
dividend might not be limited to the amount of the stockholder's gain realized
in the transaction. See also "--Shares of Northrop Grumman Common Stock and
Cash Received--Effect of Overlapping or Constructive Ownership" for a general
discussion of the effect of a stockholder's overlapping or constructive
ownership on the dividend/capital gain issue.
Shares of Northrop Grumman Common Stock and Cash Received
General. Except as discussed below with respect to cash received in lieu of
a fractional share of Northrop Grumman common stock, a Newport News stockholder
who receives both shares of Northrop Grumman common stock and cash in exchange
for shares of Newport News common stock will recognize gain equal to the lesser
of:
. the amount, if any, by which the sum of the amount of cash and fair
market value, as of the effective time of the exchange pursuant to our
offer or the merger as the case may be, of Northrop Grumman common stock
received with respect to the stockholder's Newport News stock exceeds
the stockholder's tax basis in the Newport News common stock exchanged;
and
. the amount of cash received in the exchange.
No loss will be recognized in the exchange. For this purpose gain or loss
must be calculated separately for each identifiable block of shares surrendered
in the exchange, and a loss realized on one block of shares cannot be used to
offset a gain realized on another block of shares. Any recognized capital gain
will be long-term capital gain if the stockholder's holding period with respect
to its Newport News common stock exceeds one year as of the effective time of
the exchange pursuant to our offer or the merger, as the case may be.
Treatment of Gain Recognized. Any gain recognized will be treated as gain
from the sale or exchange of stock, except in the circumstances described in
this paragraph. These circumstances primarily include cases where there is
overlapping or constructive ownership or where the stock election is
oversubscribed. A Newport News stockholder will be required to treat any gain
recognized as a dividend, to the extent of the stockholder's ratable share of
earnings and profits, if, as a result of the deemed redemption described in
step (2) below, the stockholder's interest in Northrop Grumman was not reduced
sufficiently to cause the cash received to be not "essentially equivalent to a
dividend" under Section 302 of the Internal Revenue Code. Whether a
stockholder's interest was reduced sufficiently to cause the cash received to
be not "essentially equivalent to a
44
dividend" requires a determination based on a stockholder's particular facts
and circumstances. However, the Internal Revenue Service has indicated in
published rulings that a distribution that results in any reduction in interest
of a small, minority stockholder in a publicly held corporation will
sufficiently reduce the stockholder's interest in the corporation if the
stockholder exercises no control with respect to corporate affairs. In
addition, if the deemed redemption described in step (2) below is
"substantially disproportionate" with respect to the stockholder, the gain
recognized will be taxed as capital gain. The deemed redemption generally will
be substantially disproportionate if the percentage of Northrop Grumman common
stock owned after the deemed redemption described in step (2) below is less
than 80 percent of the percentage of Northrop Grumman common stock owned after
step (1) below.
For purposes of determining whether a stockholder's interest has been
reduced, a Newport News stockholder will be treated as if the stockholder had
engaged in a hypothetical transaction in which the stockholder and all other
Newport News stockholders (though it is unclear whether Newport News
stockholders who receive solely cash in our offer and the merger are counted
for this purpose) (1) received solely shares of Northrop Grumman common stock
in exchange for all of their shares of Newport News common stock, and
(2) thereafter had a portion of those shares of Northrop Grumman common stock
redeemed for the cash portion of the consideration in the merger. A Newport
News stockholder's hypothetical interest in Northrop Grumman after step (1) is
compared to the stockholder's interest in Northrop Grumman subsequent to the
deemed redemption in step (2). In each case, subject to limited exceptions,
shares of Northrop Grumman common stock actually or constructively owned, under
the constructive ownership rules described in "--Effect of Overlapping or
Constructive Ownership" below, by a stockholder will be considered owned for
purposes of applying these tests.
Effect of Overlapping or Constructive Ownership. Under the applicable
constructive ownership rules of Section 318 of the Internal Revenue Code, a
stockholder will, in general, be treated as owning shares owned by some family
members and other related entities, or that are subject to options owned or
deemed owned by that person. The actual or constructive ownership of shares of
Northrop Grumman or Newport News common stock may have the effect of causing a
Newport News stockholder who would otherwise qualify for capital gain treatment
to fail to so qualify and subject the stockholder to dividend treatment on the
cash portion of our offer or the merger consideration to the extent of the
stockholder's ratable share of earnings and profits, even if the stockholder
receives solely cash in our offer and the merger. Therefore, Newport News
stockholders who:
. constructively own shares of Newport News common stock; or
. actually or constructively own shares of Northrop Grumman common stock;
should consult their tax advisors as to the tax consequences of receiving cash,
whether or not the stockholder intends to make a stock election.
Tax Basis and Holding Period of Shares of Northrop Grumman Common Stock
Received in Our Offer and the Merger. The tax basis of the shares of Northrop
Grumman common stock received in our offer and the merger will be the same as
the tax basis of the exchanged shares of Newport News common stock, increased
by the amount of gain recognized on the exchange with respect to those shares
of Newport News common stock, decreased by the tax basis of any portion of
those shares of Newport News common stock that are converted into cash in lieu
of receipt of a fractional share of Northrop Grumman common stock, and further
decreased by the amount of cash received with respect to those shares of
Newport News common stock, other than cash received in lieu of a fractional
share interest. The holding period of the shares of Northrop Grumman common
stock received will include the holding period of the exchanged shares of
Newport News common stock.
45
Fractional Shares
A Newport News stockholder who receives cash in lieu of a fractional share
of Northrop Grumman common stock should be treated as having received the
fractional share of Northrop Grumman common stock and then having exchanged the
fractional share for cash in a redemption by Northrop Grumman. Gain or loss
recognized as a result of that exchange would generally be equal to the cash
amount received for the fractional share of Northrop Grumman common stock less
the proportion of the stockholder's tax basis in shares of Newport News common
stock exchanged and allocable to the fractional share of Northrop Grumman
common stock. It is possible, however, that the cash received in lieu of a
fractional share of Northrop Grumman common stock would instead be treated in
the same manner as other cash received in our offer and the merger. See "--
Shares of Northrop Grumman Common Stock and Cash Received."
Consequences to Northrop Grumman and Newport News
Neither Northrop Grumman nor Newport News will recognize gain or loss as a
result of our offer and the merger.
Tax Consequences if Our Offer and the Merger Are Not Treated as a Single
Transaction
Our Offer
If our offer and the merger are not treated as a single integrated
transaction for federal income tax purposes, a sale or exchange of Newport News
common stock pursuant to our offer will generally constitute a fully taxable
transaction to an exchanging Newport News stockholder, including a Newport News
stockholder who receives only Northrop Grumman stock pursuant to our offer.
Accordingly, a Newport News stockholder who participates in our offer will
generally recognize capital gain or loss equal to the difference between the
amount of cash plus the fair market value of any Northrop Grumman stock
received and the tax basis of the shares of Newport News common stock exchanged
therefor. This capital gain or loss will be long-term capital gain or loss if
the stockholder's holding period with respect to his or her Newport News common
stock exchanged exceeds one year as of closing of our offer.
The Merger
If our offer and the merger are not treated as a single integrated
transaction for purposes of the reorganization provisions of the Internal
Revenue Code, the consequences of the merger to Newport News and Newport News
stockholders who exchange Newport News common stock for Northrop Grumman stock
and cash, will generally parallel those described above under "--Tax
Consequences if Our Offer and the Merger Are Treated as a Single Transaction--
Shares of Northrop Grumman Stock and Cash Received," except that only
consideration received in the merger (and not our offer and the merger) would
be taken into account (although Northrop Grumman stock received in our offer
and held at the time of the merger would be taken into account for purposes of
determining the character of any gain recognized in the merger). This
description of the consequences of the merger is based on the assumptions
outlined above in this section "--Tax Consequences if Our Offer and the Merger
Are Treated as a Single Transaction" plus the further assumption that the
assumption regarding continuity of stockholder interest is met without regard
to consideration (stock or cash) provided to Newport News stockholders pursuant
to our offer.
Backup Withholding
For a discussion of potential backup withholding with respect to
consideration received by Newport News stockholders, see "Our Offer--Procedure
for Tendering" on page 39.
46
Qualifications
As noted above, the foregoing discussion does not address aspects of U.S.
federal income taxation that may be relevant to Newport News stockholders to
which special provisions of the U.S. federal income tax law may apply based on
their particular circumstances or status. For example, the discussion does not
address aspects of U.S. federal income taxation that may be relevant to:
. dealers in securities or currencies;
. traders in securities;
. financial institutions;
. tax-exempt organizations;
. insurance companies;
. persons holding shares of Newport News common stock as part of a
hedging, "straddle," conversion or other integrated transaction;
. non-United States persons;
. persons whose functional currency is not the United States dollar;
. persons who acquired their shares of common stock through the exercise
of employee stock options or otherwise as compensation; or
. stockholders who exercise dissenters' rights.
The preceding discussion sets forth the material U.S. federal income tax
consequences of our offer and the merger but does not purport to be a complete
analysis or discussion of all potential tax effects relevant thereto. Thus,
Newport News stockholders are urged to consult their own tax advisors as to the
specific tax consequences to them of our offer and the merger, including tax
return reporting requirements, whether gain, if any, will be treated as capital
gain or a dividend, the applicability and effect of U.S. federal, state, local
and other applicable tax laws and the effect of any proposed changes in the tax
laws.
Effect of Our Offer on Market for Newport News Shares; Registration Under the
Exchange Act
Reduced Liquidity; Possible Delisting
The tender of Newport News shares pursuant to our offer will reduce the
number of holders of Newport News shares and the number of Newport News shares
that might otherwise trade publicly and could adversely affect the liquidity
and market value of the remaining Newport News shares held by the public.
Newport News shares are listed and principally traded on the New York Stock
Exchange. Depending on the number of Newport News shares acquired pursuant to
our offer, following the completion of our offer, Newport News shares may no
longer meet the requirements of the New York Stock Exchange for continued
listing. For example, published guidelines of the New York Stock Exchange
indicate that the New York Stock Exchange would consider delisting the
outstanding Newport News shares if, among other things:
. the number of publicly held Newport News shares (exclusive of holdings
of officers, directors and members of their immediate families and other
concentrated holdings of 10 percent or more) should fall below 600,000;
. the number of record holders of 100 or more Newport News shares should
fall below 1,200; or
. the aggregate market value of publicly held shares should fall below $5
million.
According to Newport News, there were as of April 18, 2001 35,396,356
Newport News common shares outstanding, held by approximately 32,000 holders of
record.
47
If the New York Stock Exchange were to delist the Newport News shares,
including after the exchange of shares in our offer but prior to the merger,
the market for them could be adversely affected. It is possible that Newport
News shares would be traded on other securities exchanges or in the over-the-
counter market, and that price quotations would be reported by those exchanges,
or through the Nasdaq Stock Market or by other sources. The extent of the
public market for the Newport News shares and the availability of such
quotations would, however, depend upon the number of holders and/or the
aggregate market value of the Newport News shares remaining at that time, the
interest in maintaining a market in the Newport News shares on the part of
securities firms, the possible termination of registration of Newport News
shares under the Exchange Act, as described below, and other factors.
Status as "Margin Securities"
The Newport News shares are presently "margin securities" under the
regulations of the Federal Reserve Board, which has the effect, among other
things, of allowing brokers to extend credit on the collateral of Newport News
shares. Depending on the factors similar to those described above with respect
to listing and market quotations, following completion of our offer, the
Newport News shares may no longer constitute "margin securities" for the
purposes of the Federal Reserve Board's margin regulations, in which event the
Newport News shares would be ineligible as collateral for margin loans made by
brokers.
Registration Under the Exchange Act
Newport News shares are currently registered under the Exchange Act. Newport
News can terminate that registration upon application to the SEC if the
outstanding shares are not listed on a national securities exchange and if
there are fewer than 300 holders of record of Newport News shares. Termination
of registration of the Newport News shares under the Exchange Act would reduce
the information that Newport News must furnish to its stockholders and to the
SEC and would make some provisions of the Exchange Act, including the short-
swing profit recovery provisions of Section 16(b) and the requirement of
furnishing a proxy statement in connection with stockholders meetings pursuant
to Section 14(a) and the related requirement of furnishing an annual report to
stockholders, no longer applicable with respect to Newport News shares.
Furthermore, the ability of "affiliates" of Newport News and persons holding
"restricted securities" of Newport News to dispose of securities pursuant to
Rule 144 under the Securities Act may be impaired or eliminated. If
registration of the shares under the Exchange Act were terminated, they would
no longer be eligible for New York Stock Exchange listing or for continued
inclusion on the Federal Reserve Board's list of "margin securities."
Purpose of Our Offer; the Merger; Appraisal Rights
We believe that our proposed acquisition of Newport News represents a
compelling opportunity to enhance value for both Newport News and Northrop
Grumman stockholders. See "Reasons for Our Offer." We are making our offer in
order to acquire control of, and ultimately the entire common equity interest
in, Newport News. Our offer is the first step in our acquisition of Newport
News, and is intended to facilitate the acquisition of all Newport News shares.
You will not have appraisal rights as a result of the completion of our offer.
We intend, as soon as practicable after the completion of our offer, to seek
to merge Newport News with Northrop Grumman or a wholly owned subsidiary. The
purpose of the merger is to acquire all Newport News shares not tendered and
exchanged pursuant to our offer. In the merger, each then outstanding Newport
News share (except for Newport News shares held in Newport News' treasury and
Newport News shares that we own for our own account) would be converted into
the right to receive, pro rata, the number of shares of Northrop Grumman common
stock and the amount of cash available in our offer and the merger, to the
extent those forms of consideration are remaining after completion of our
offer. Assuming the minimum tender condition is satisfied and we complete our
offer, we would have sufficient voting power to effect the merger under Section
251 of the Delaware General Corporation Law without the vote of any other
stockholder of Newport News.
48
The merger may be completed pursuant to Section 253 of the Delaware General
Corporation Law. Under Section 253, a parent corporation owning at least 90% of
the outstanding shares of each class of a subsidiary corporation may merge the
subsidiary corporation into itself without the approval of the stockholders of
the parent corporation or of the board of directors or stockholders of the
subsidiary corporation.
Although stockholders do not have appraisal rights as a result of our offer,
Newport News stockholders at the time of the merger who do not vote in favor of
the merger will have the right under the Delaware General Corporation Law to
dissent and demand appraisal of their Newport News shares in accordance with
Section 262 of the Delaware General Corporation Law. Under Section 262,
dissenting stockholders who comply with the applicable statutory procedures
will be entitled to receive a judicial determination of the fair value of their
Newport News shares (exclusive of any element of value arising from the
accomplishment or expectation of the merger) and to receive payment of the fair
value in cash, together with a fair rate of interest, if any.
In Cede & Co. and Cinerama, Inc. v. Technicolor, Inc., the Supreme Court of
the State of Delaware construed Section 262 of the Delaware General Corporation
Law and held that the "accomplishment or expectation" exclusion from the
calculation of fair value set forth in the preceding sentence is narrow and is
designed to eliminate use of pro forma data and projections of a speculative
variety relating to the completion of a merger. The court held that it is
appropriate to include in the calculation of fair value any known elements of
value, including those elements of value which exist on the date of the merger
because of a majority acquiror's interim action in a two-step cash-out
transaction. We cannot assure you as to the methodology a court would use to
determine fair value or how a court would select which of the elements of value
are to be included in a determination. Any judicial determination of the fair
value of Newport News shares could be based upon factors other than, or in
addition to, the price per Newport News share to be paid in the merger or the
market value of the Newport News shares. The value determined could be more or
less than the value of the consideration per Newport News share to be paid in
the merger.
Rule 13e-3 of the General Rules and Regulations under the Exchange Act,
which we do not believe would apply to the merger if the merger occurred within
one year of the completion of our offer, would require, among other things,
that some financial information concerning Newport News, and some information
relating to the fairness of the proposed transaction and the consideration
offered to stockholders of Newport News, be filed with the SEC and disclosed to
you prior to the completion of the merger.
Plans for Newport News After the Merger
Our intention is to keep the headquarters of Newport News in Newport News,
Virginia and to retain Newport News' management team. We also intend to
continue to operate Newport News' main shipyard located in Newport News,
Virginia. This plan is intended to ensure that the shipyards of Newport News
remain active in the future. We do not anticipate any reduction in the
production trades or engineering work force at the facility. The directors (as
determined by us and Newport News) of the wholly owned subsidiary of Northrop
Grumman (if formed) will be the initial directors of the surviving corporation,
and the officers of Newport News will be the initial officers of the surviving
corporation. Upon the completion of our offer and the merger, we intend to
conduct a detailed review of Newport News and its assets, corporate structure,
capitalization, operations, policies, management and personnel. After that
review, we will determine what actions or changes, if any, would be desirable
in light of the circumstances that then exist.
Conditions to Our Offer
Our offer is subject to a number of conditions, which are described below:
Minimum Tender Condition
There must be validly tendered and not withdrawn, prior to the expiration of
our offer, a number of Newport News shares which, together with any shares of
Newport News common stock that we beneficially own for our own account, will
constitute at least a majority of the total number of outstanding Newport News
49
shares on a fully diluted basis (as though all options or other securities
convertible into or exercisable or exchangeable for Newport News shares had
been so converted, exercised or exchanged) as of the date that we accept the
Newport News shares for exchange pursuant to our offer.
Termination of General Dynamics-Newport News Merger Agreement Condition
This condition will be satisfied if the stockholders of Newport News do not
approve and adopt the General Dynamics-Newport News merger agreement in
satisfaction of Section 251 of the Delaware General Corporation Law and the
General Dynamics-Newport News merger agreement is terminated.
Antitrust Condition
Our offer is also subject to the condition that all applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, will have terminated or expired. We will call this the "antitrust
condition." Under the provisions of the Hart-Scott-Rodino Act applicable to our
offer, the acquisition of Newport News common stock pursuant to our offer may
be completed following the expiration of a 30-calendar day waiting period
following the filing by us of a Notification and Report Form with respect to
our offer, unless we receive a request for additional information or
documentary material from the Antitrust Division of the Department of Justice
or the Federal Trade Commission. If, within the initial 30-day waiting period,
either the Antitrust Division or the Federal Trade Commission requests
additional information or material from us concerning our offer, the waiting
period will be extended and will expire at 11:59 P.M., New York City time, on
the thirtieth calendar day after the date of substantial compliance by Northrop
Grumman with that request. If the thirtieth day falls on a weekend or holiday,
the waiting period will expire on the next business day. Only one extension of
the waiting period pursuant to a request for additional information is
authorized by the Hart-Scott-Rodino Act. After that time, the waiting period
may be extended only by court order or with our consent. In practice, complying
with a request for additional information or material can take a significant
amount of time. In addition, if the Antitrust Division or the Federal Trade
Commission raises substantive issues in connection with a proposed transaction,
the parties frequently engage in negotiations with the relevant governmental
agency concerning possible means of addressing those issues and may agree to
delay completion of the transaction while those negotiations continue.
Rights Plan Condition
We must be satisfied, in our reasonable judgment, that the Newport News
stockholder protection rights agreement does not apply to our offer and the
merger. This condition would be satisfied if the board of directors of Newport
News redeems the Newport News rights or amends the Newport News rights
agreement so that the Newport News rights would not be triggered by our offer
and the merger, or if a court of competent jurisdiction invalidates the Newport
News rights agreement.
Northrop Grumman-Newport News Merger Agreement Condition
This condition would be satisfied if Newport News enters into a definitive
merger agreement with us to provide for our acquisition of Newport News.
Certain Other Conditions to Our Offer
Notwithstanding any other provision of our offer, we shall not be required
to accept for exchange or exchange any Newport News shares, may postpone the
acceptance for exchange of or exchange for tendered Newport News shares, and
may, in our sole discretion, terminate or amend our offer as to any Newport
News shares not then exchanged if:
. at the expiration date, any of the minimum tender condition, the rights
plan condition, the Northrop Grumman-Newport News merger agreement
condition, the regulatory approval condition or any of the other
conditions to our offer set forth in clauses (a)-(f) below has not been
satisfied or, in the case of any condition other than the regulatory
approvals condition or the other conditions to our offer set forth in
clauses (b) or (c) below, waived; or
50
. on or after the date of this prospectus and at or prior to the time of
exchange of any Newport News shares (whether or not any Newport News
shares have theretofore been accepted for exchange or exchanged pursuant
to our offer), and subject to the applicable rules and regulations of
the SEC (including Rule 14e-1(c) under the Exchange Act relating to our
obligation to exchange or return tendered Newport News shares promptly
after the termination or withdrawal of our offer) the regulatory
approvals condition is not satisfied.
51
The other conditions to our offer are as follows:
(a) the shares of our common stock to be issued to Newport News
stockholders in our offer and the merger have been authorized for
listing on the New York Stock Exchange, subject to official notice of
issuance;
(b) the registration statement shall have become effective under the
Securities Act, and no stop order suspending the effectiveness of the
registration statement shall have been issued nor shall there have been
proceedings for that purpose initiated or threatened by the SEC and we
shall have received all necessary state securities law or "blue sky"
authorizations;
(c) no temporary restraining order, preliminary or permanent injunction or
other order or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the
completion of our offer or any of the other transactions contemplated
by this prospectus shall be in effect; no statute, rule, regulation,
order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any court, administrative agency or
commission or other governmental authority or instrumentality which
prohibits, restricts or makes illegal the completion of our offer;
(d) there shall not be pending or threatened any suit, action or proceeding
by any governmental entity (1) challenging our offer, seeking to
restrain or prohibit the completion of our offer or seeking to obtain
from Newport News or us any damages that are material in relation to
Newport News and its subsidiaries taken as a whole or Northrop Grumman
and its subsidiaries taken as a whole, (2) seeking to prohibit or limit
the ownership or operation by Newport News or us or any of our
subsidiaries of any material portion of the business or assets of
Newport News or us or any of our subsidiaries or to compel Newport News
or us or any of our subsidiaries to dispose of or hold separate any
material portion of the business or assets of Newport News or us or any
of our subsidiaries as a result of our offer, (3) seeking to prohibit
us from effectively controlling in any material respect the business or
operations of Newport News or (4) which otherwise is reasonably likely
to have a material adverse effect on us or Newport News;
(e) Newport News shall not have entered into or effectuated any other
agreement or transaction with any person or entity having the effect of
impairing Northrop Grumman's ability to acquire Newport News or
otherwise diminishing the expected economic value to Northrop Grumman
of the acquisition of Newport News; and
(f) the representations and warranties of Newport News in the Newport News-
General Dynamics merger agreement shall be true and correct as of the
expiration date as though made on and as of the expiration date (except
that representations and warranties that by their terms speak as of a
specific date shall be true and correct as of that date).
The conditions listed above are solely for our benefit and we may assert
them regardless of the circumstances giving rise to any of the conditions
(including any action or inaction by us). We may waive any of these conditions
in whole or in part (other than the antitrust condition and the conditions set
forth in clauses (b) and (c) above). The determination as to whether any
condition has been satisfied shall be in our reasonable judgment and will be
final and binding on all parties. The failure by us at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any right and each
right shall be deemed a continuing right which may be asserted at any time and
from time to time prior to the expiration of our offer (other than those
involving receipt of necessary government approvals).
Regulatory Approvals
Other than clearance under the antitrust laws applicable to our offer and
the merger which are described above under "--Conditions to Our Offer--
Antitrust Condition," the SEC declaring the effectiveness of the registration
statement of which this prospectus is a part and the filing of a certificate of
merger under the Delaware General Corporation Law with respect to the merger,
we do not believe that any additional material governmental filings are
required with respect to our offer and the merger.
52
Source and Amount of Funds
Our offer is not conditioned upon any financing arrangements. In addition to
the Northrop Grumman shares to be issued in connection with our offer, we
estimate that the total amount of funds required to purchase all of the
outstanding Newport News shares pursuant to our offer and the subsequent
Northrop Grumman-Newport News merger and to pay related fees and expenses will
be between approximately $912,000,000 and $1,103,000,000, depending upon the
actual number of Newport News shares outstanding. We expect to fund the cash
portion of our offer from working capital and currently available lines of
credit.
Our lines of credit are in the form of (a) a 364-day revolving credit
facility, dated as of March 30, 2001, among Northrop Grumman and Litton, as
borrowers, the lenders party thereto, The Chase Manhattan Bank and Credit
Suisse First Boston, as co-administrative agents, The Chase Manhattan Bank as
payment agent, Salomon Smith Barney Inc., as syndication agent, The Bank of
Nova Scotia and Deutsche Banc Alex. Brown, Inc., as co-documentation, agents
and JP Morgan and Credit Suisse First Boston, as joint lead arrangers and joint
bookrunners, with an aggregate maximum principal amount of $2,500,000,000,
subsequently reduced to $527,000,000, which is referred to as Exhibit 10.2 in
the registration statement of which this prospectus is a part and (b) a five-
year revolving credit facility, dated as of March 30, 2001, among Northrop
Systems, Northrop Grumman and Litton, as borrowers, the lenders party thereto,
The Chase Manhattan Bank and Credit Suisse First Boston, as co-administrative
agents, The Chase Manhattan Bank, as payment agent, Salomon Smith Barney Inc.,
as syndication agent, The Bank of Nova Scotia and Deutsche Banc Alex. Brown,
Inc., as co-documentation agents, and JP Morgan and Credit Suisse First Boston,
as joint lead arrangers and joint bookrunners, with an aggregate principal
amount of up to $2,500,000,000 which is referred to as Exhibit 10.3 in the
registration statement of which this prospectus is a part. Each of the
facilities is an unsecured senior credit facility and contains usual and
customary affirmative and negative covenants, including 32 customary financial
covenants. Interest rates for the loans will be adjusted LIBOR (which will at
all times include statutory reserves) or the adjusted base rate, at our
election, in each case plus spreads depending upon a schedule of certain
specified Standard & Poor's and Moody's Investor Services ratings of Northrop
Grumman. We may elect periods of one, two, three or six months for adjusted
LIBOR borrowings under the loans. At this time, we have not borrowed under
these facilities in connection with our offer. If our credit ratings remain the
same and we were to borrow under these facilities on, for example, June 20,
2001, then the interest rate under the 364-day facility would be LIBOR plus
1.075% and under the five-year facility it would be LIBOR plus 1.025%. We have
no current plans or arrangements to finance or repay the borrowings, if and
when we borrow under these facilities.
Certain Relationships with Newport News
Except as set forth in this proposal, neither we nor, to the best of our
knowledge, any of our directors, executive officers or other affiliates has any
contract, arrangement, understanding or relationship with any other person with
respect to any securities of Newport News, including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
the voting of any securities, joint ventures, loan or option arrangements, puts
or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies. Except as described in this prospectus, there have been
no contacts, negotiations or transactions since January 1, 1998, between us or,
to the best of our knowledge, any of our directors, executive officers or other
affiliates on the one hand, and Newport News or its affiliates, on the other
hand, concerning a merger, consolidation or acquisition, a tender offer or
other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of assets. Neither we, nor, to the best of our
knowledge, any of our directors, executive officers or other affiliates has
since January 1, 1998 had any transaction with Newport News or any of its
executive officers, directors or affiliates that would require disclosure under
the rules and regulations of the SEC applicable to our offer. As of the date of
this prospectus we beneficially own for our own account 100 shares of Newport
News common stock which we purchased on May 21, 2001 on the New York Stock
Exchange for $64.48 per share. No director of Northrop Grumman owns any shares
of Newport News common stock.
53
Fees and Expenses
Northrop Grumman has retained Salomon Smith Barney Inc. to act as the dealer
manager in connection with our offer and to provide various financial advisory
services to Northrop Grumman in connection with our offer and the merger.
Salomon Smith Barney will receive reasonable and customary compensation for
these services and will be reimbursed for out-of-pocket expenses, including
reasonable expenses of counsel and other advisors. We have agreed to indemnify
Salomon Smith Barney and related persons against various liabilities and
expenses in connection with its services as the dealer manager and financial
advisor, including various liabilities and expenses under the U.S. federal
securities laws. From time to time, Salomon Smith Barney and its affiliates may
actively trade the debt and equity securities of Northrop Grumman and Newport
News for their own account or for the accounts of customers and, accordingly,
may hold a long or short position in those securities. Salomon Smith Barney has
in the past performed various investment banking and financial advisory
services for us for which they have received customary compensation.
We have retained D. F. King & Co., Inc. as information agent in connection
with our offer. The information agent may contact holders of Newport News
shares by mail, telephone, telex, telegraph and personal interview and may
request brokers, dealers and other nominee stockholders to forward material
relating to our offer to beneficial owners of Newport News shares. We will pay
the information agent reasonable and customary compensation for these services
in addition to reimbursing the information agent for its reasonable out-of-
pocket expenses. We have agreed to indemnify the information agent against
various liabilities and expenses in connection with our offer, including
various liabilities under the U.S. federal securities laws.
In addition, we have retained Mellon Investor Services LLC as the exchange
agent. We will pay the exchange agent reasonable and customary compensation for
its services in connection with our offer, will reimburse the exchange agent
for its reasonable out-of-pocket expenses and will indemnify the exchange agent
against various liabilities and expenses, including various liabilities under
the U.S. federal securities laws.
We will not pay any fees or commissions to any broker, dealer or other
person for soliciting tenders of Newport News shares pursuant to our offer. We
will reimburse brokers, dealers, commercial banks and trust companies and other
nominees, upon request, for customary clerical and mailing expenses incurred by
them in forwarding offering materials to their customers.
Accounting Treatment
The acquisition of Newport News by Northrop Grumman would be accounted for
under the purchase method of accounting under U.S. generally accepted
accounting principles, which means that Newport News' results of operations
will be included with ours from the closing date and its consolidated assets
and liabilities will be recorded at their fair values at the same date.
Stock Exchange Listing
Our common stock is listed on the New York Stock Exchange. We will make an
application to list on the New York Stock Exchange the common stock that we
will issue pursuant to our offer and the merger.
54
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Northrop Grumman common stock is listed on the New York Stock Exchange and
the Pacific Stock Exchange under the symbol "NOC." Newport News common stock is
listed on the New York Stock Exchange under the symbol "NNS." The table below
sets forth, for the calendar quarters indicated, the high and low sales prices
per share reported on the New York Stock Exchange and the dividends declared on
Northrop Grumman common stock and on Newport News common stock.
Northrop Grumman
Common Stock Newport News Common Stock
----------------------- --------------------------
High Low Dividends High Low Dividends(a)
------ ------ --------- ------ ------ ------------
1999:
First Quarter............. $75.63 $56.63 $0.40 $34.00 $27.00 $0.04
Second Quarter............ 73.88 57.31 0.40 34.25 25.69 0.04
Third Quarter............. 75.94 59.56 0.40 32.94 29.75 0.04
Fourth Quarter............ 63.31 47.00 0.40 33.00 24.75 0.04
2000:
First Quarter............. 55.63 42.63 0.40 30.75 24.94 0.04
Second Quarter............ 81.38 51.19 0.40 37.75 27.38 0.04
Third Quarter............. 93.25 64.38 0.40 45.56 36.50 0.04
Fourth Quarter............ 93.88 74.00 0.40 57.69 41.88 0.04
2001:
First Quarter............. 99.09 79.13 0.40 57.75 45.19 0.04
Second Quarter (through
May 22, 2001)............ 97.06 85.20 0.40 65.68 47.94 0.04
- --------
(a) For comparability, quarterly dividend amounts for Newport News are based on
the Newport News quarterly financial statement periods instead of the
calendar quarterly periods.
On May 8, 2001, the last full trading day prior to the public announcement
of our offer and the merger, the last sale price per Northrop Grumman common
share on the New York Stock Exchange was $91.50 and the last sale price per
Newport News common share was $65.00. On May 22, 2001, the most recent
practicable date prior to the printing of this prospectus, the last sale price
per Northrop Grumman common share was $90.20 and the last sale price per
Newport News common share was $63.91.
We urge you to obtain current market quotations for Northrop Grumman and
Newport News common shares before making any decision regarding our offer.
55
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Combined Financial Data presented below is
derived from the historical consolidated financial statements of each of
Northrop Systems, Northrop Grumman, Litton and Newport News. The Unaudited Pro
Forma Condensed Combined Financial Data is prepared using the purchase method
of accounting, with Northrop Grumman treated as the acquiror and as if the
Newport News acquisition had been completed as of the beginning of the periods
presented for statements of operations purposes and on March 31, 2001 for
balance sheet purposes.
For a summary of the business combination, see "Our Offer" beginning on page
32 of this prospectus to purchase or exchange.
The Unaudited Pro Forma Condensed Combined Financial Data is based upon the
historical financial statements of Northrop Systems, Northrop Grumman, Litton
and Newport News adjusted to give effect to the Litton acquisition and the
Newport News acquisition. The pro forma adjustments are described in the
accompanying notes presented on the following pages. The pro forma statements
have been developed from (a) the audited consolidated financial statements of
Northrop Systems contained in its Annual Report on Form 10-K/A for the year
ended December 31, 2000 and the unaudited consolidated financial statements of
Northrop Grumman contained in its Quarterly Report on Form 10-Q for the three
months ended March 31, 2001, which are incorporated by reference in this
prospectus, (b) the audited consolidated financial statements of Litton
contained in its Annual Report on Form 10-K for the fiscal year ended July 31,
2000 and the unaudited consolidated financial statements of Litton contained in
its Quarterly Report on Form 10-Q for the period ended January 31, 2001, which
are incorporated by reference in this prospectus, and (c) the audited
consolidated financial statements of Newport News contained in its Annual
Report on Form 10-K for the year ended December 31, 2000 and the unaudited
consolidated financial statements of Newport News contained in its Quarterly
Report on Form 10-Q for the quarter ended March 18, 2001, which are
incorporated by reference in this prospectus. In addition, the audited
consolidated financial statements of Litton contained in its Annual Report on
Form 10-K for the fiscal year ended July 31, 2000 and the unaudited
consolidated financial statements of Litton contained in its Quarterly Report
on Form 10-Q for the period ended January 31, 2001 have been used to bring the
financial reporting periods of Litton to within 90 days of those of Northrop
Systems and Northrop Grumman.
The final determination and allocation of the purchase price paid for the
Litton and Newport News acquisitions may differ from the amounts assumed in
this Unaudited Pro Forma Condensed Combined Financial Information.
Under the purchase method of accounting, the purchase price will be
allocated to the underlying tangible and intangible assets and liabilities
acquired based on their respective fair market values, with the excess recorded
as goodwill. As of the date of this prospectus, Northrop Grumman has not
completed the valuation studies necessary to arrive at the required estimates
of the fair market value of the Litton assets acquired, the Newport News assets
to be acquired, the Litton liabilities assumed and the Newport News liabilities
to be assumed and the related allocations of purchase price, nor has it
identified the adjustments necessary, if any, to conform Litton or Newport News
data to Northrop Grumman's accounting policies. Accordingly, Northrop Grumman
has used the historical book values of the assets and liabilities of the Litton
and Newport News and has used the historical revenue recognition policies of
Litton and Newport News to prepare the Unaudited Pro Forma Condensed Combined
Financial Information set forth herein, with the excess of the purchase price
over the historical net assets of Litton and Newport News recorded as goodwill
and other purchased intangibles. Once Northrop Grumman has completed the
valuation studies necessary to finalize the required purchase price allocations
and identified any necessary conforming changes, such pro forma financial
statements will be subject to adjustment. Such adjustments will likely result
in changes to the pro forma statement of financial position to reflect the
final allocations of purchase price and the pro forma statements of income, and
there can be no assurance that such adjustments will not be material.
The Unaudited Pro Forma Condensed Combined Financial Data is provided for
illustrative purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial
56
position of Northrop Grumman would have been had our offer and the Litton and
Newport News acquisitions occurred on the dates assumed, nor is it necessarily
indicative of future consolidated results of operations or financial position.
The Unaudited Pro Forma Condensed Combined Financial Data does not include
the realization of cost savings from operating efficiencies, synergies or other
restructurings resulting from the Litton and Newport News acquisitions.
The Unaudited Pro Forma Condensed Combined Financial Data should be read in
conjunction with the separate historical consolidated financial statements and
accompanying notes of Northrop Systems, Northrop Grumman, Litton and Newport
News that are incorporated by reference in this prospectus.
57
Unaudited Pro Forma Condensed Combined
Statement of Financial Position
March 31, 2001
(in millions)
Pro Forma Pro Forma
Northrop ---------------------- Newport ----------------------
Grumman Litton Adjustments Combined News Adjustments Combined
-------- ------ ----------- -------- ------- ----------- --------
Assets
Current assets
Cash and cash
equivalents.......... $ 1,636 $ 74 $(1,500)(a) $ 210 $ 3 $ - $ 213
Accounts receivable... 1,493 794 2,287 109 2,396
Inventoried costs..... 749 784 1,533 358 1,891
Deferred income
taxes................ 22 372 394 91 485
Prepaid expenses and
other current
assets............... 66 33 99 18 117
------- ------ ------- ------- ------ ------ -------
Total current assets.. 3,966 2,057 (1,500) 4,523 579 - 5,102
------- ------ ------- ------- ------ ------ -------
Property, plant and
equipment.............. 2,370 1,860 4,230 1,603 5,833
Accumulated
depreciation........... (1,356) (990) (2,346) (923) (3,269)
------- ------ ------- ------- ------ ------ -------
1,014 870 - 1,884 680 - 2,564
------- ------ ------- ------- ------ ------ -------
Other assets
Goodwill and other
purchased
intangibles.......... 4,380 1,230 2,244 (a) 7,854 2,276 (f) 10,130
Prepaid retiree
benefits cost and
intangible pension
asset................ 1,469 1,469 1,469
Other assets.......... 356 751 1,107 230 1,337
------- ------ ------- ------- ------ ------ -------
6,205 1,981 2,244 10,430 230 2,276 12,936
------- ------ ------- ------- ------ ------ -------
$11,185 $4,908 $ 744 $16,837 $1,489 $2,276 $20,602
======= ====== ======= ======= ====== ====== =======
Liabilities and
Stockholders' Equity
Current liabilities
Notes payable and
current portion of
long term debt....... $ - $ 184 $ - $ 184 $ 29 $ - $ 213
Accounts payable...... 491 310 801 40 841
Accrued employees'
compensation......... 325 226 551 551
Advances on
contracts............ 468 204 672 672
Income taxes.......... 769 62 831 831
Other current
liabilities.......... 531 474 1,005 270 1,275
------- ------ ------- ------- ------ ------ -------
Total current
liabilities.......... 2,584 1,460 - 4,044 339 - 4,383
------- ------ ------- ------- ------ ------ -------
Long-term debt.......... 3,105 1,293 882 (a) 5,280 473 1,038 (f) 6,791
Accrued retiree
benefits............... 1,108 303 - 1,411 135 1,546
Deferred tax and other
long-term liabilities.. 381 241 622 283 - 905
Redeemable preferred
stock.................. - - 350 (a) 350 - - 350
Stockholders' equity....
Paid in capital....... 1,214 413 710 (a) 2,337 356 1,141 (f) 3,834
Retained earnings..... 2,817 1,254 (1,254)(a) 2,817 191 (191)(f) 2,817
Accumulated other
comprehensive loss... (24) (56) 56 (a) (24) (24)
Stock Employee
Compensation Trust... - - - (288) 288 (f) -
------- ------ ------- ------- ------ ------ -------
4,007 1,611 (488) 5,130 259 1,238 6,627
------- ------ ------- ------- ------ ------ -------
$11,185 $4,908 $ 744 $16,837 $1,489 $2,276 $20,602
======= ====== ======= ======= ====== ====== =======
58
Unaudited Pro Forma Condensed Combined
Statements of Income
Year Ended December 31, 2000
(in millions, except per share amounts)
Pro Forma Pro Forma
Northrop --------------------- Newport ---------------------
Grumman Litton Adjustments Combined News Adjustments Combined
-------- ------ ----------- -------- ------- ----------- --------
Sales and service
revenues............... $7,618 $5,626 $ - $13,244 $2,072 $ - $15,316
Cost of sales
Operating costs........ 5,446 4,669 83 (b) 10,198 1,612 58 (g) 11,868
Administrative and
general expenses...... 1,074 491 - 1,565 271 - 1,836
------ ------ ----- ------- ------ ----- -------
Operating margin........ 1,098 466 (83) 1,481 189 (58) 1,612
Interest expense........ (175) (105) (190)(c) (470) (53) (80)(h) (603)
Other, net.............. 52 16 68 4 - 72
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations before
income taxes........... 975 377 (273) 1,079 140 (138) 1,081
Federal and foreign
income taxes........... 350 151 (96)(d) 405 50 (48)(d) 407
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations............. $ 625 $ 226 $(177) $ 674 $ 90 $ (90) $ 674
------ ------ ----- ------- ------ ----- -------
Less, dividends paid to
preferred
stockholders........... (25)(e) (25) (25)
----- ------- -------
Income available to
common stockholders.... $(202) $ 649 $ 649
===== ======= =======
Average shares basic.... 70.58 83.58 100.22
Average shares diluted.. 70.88 84.00 100.64
Basic earnings per
share:
Continuing operations.. $ 8.86 $ 7.77 $ 6.48
Diluted earnings per
share:
Continuing operations.. $ 8.82 $ 7.73 $ 6.45
Period Ended March 31, 2001
(in millions, except per share amounts)
Pro Forma Pro Forma
Northrop --------------------- Newport ---------------------
Grumman Litton Adjustments Combined News Adjustments Combined
-------- ------ ----------- -------- ------- ----------- --------
Sales and service
revenues............... $1,986 $1,345 $ - $ 3,331 $ 485 $ - $ 3,816
Cost of sales
Operating costs........ 1,548 1,120 21(b) 2,689 365 15(g) 3,069
Administrative and
general expenses...... 248 121 - 369 71 - 440
------ ------ ----- ------- ------ ----- -------
Operating margin........ 190 104 (21) 273 49 (15) 307
Interest expense........ (47) (27) (46)(c) (120) (11) (18)(h) (149)
Other, net.............. 17 3 20 20
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations before
income taxes........... 160 80 (67) 173 38 (33) 178
Federal and foreign
income taxes........... 57 30 (23)(d) 64 14 (12)(d) 66
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations............. $ 103 $ 50 $ (44) $ 109 $ 24 $ (21) $ 112
------ ------ ----- ------- ------ ----- -------
Less, dividends paid to
preferred
stockholders........... (6)(e) (6) (6)
----- ------- -------
Income available to
common stockholders.... $ (50) $ 103 $ 106
===== ======= =======
Average shares basic.... 72.19 86.19 101.83
Average shares diluted.. 72.76 88.01 102.65
Basic earnings per
share:
Continuing operations.. $ 1.43 $ 1.21 $ 1.04
Diluted earnings per
share:
Continuing operations.. $ 1.42 $ 1.20 $ 1.03
59
Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
(a) Adjustments to (i) eliminate the equity of Litton, (ii) record issuance of
preferred and common stock, (iii) record new financing for the Litton
acquisition along with additional acquisition related costs and refinancing
of debt using the new credit facilities and (iv) record the excess of the
purchase price over the historical net assets as goodwill.
(b) Adjustment to amortize goodwill and other purchased intangible assets
arising out of the Litton acquisition over an estimated weighted average
life of 27 years on a straight line basis.
(c) Adjustments to record interest on new financing for the Litton acquisition
at an annual weighted average rate of 7.20 and 7.52 percent for the quarter
ended March 31, 2001 and the year ended December 31, 2000, plus the
amortization of debt issuance costs, respectively.
(d) Adjustment to record income tax effects on pre-tax pro forma adjustments,
using a statutory tax rate of thirty-five percent.
(e) Adjusted, pro rata, for dividends to preferred stockholders using $7 per
share dividend rate for equity issuance of 3,500,000 shares of preferred
stock.
(f) Adjustments to (i) eliminate the equity of Newport News, (ii) record
issuance of common stock, (iii) record new debt financing for the Newport
News acquisition along with additional acquisition related costs and (iv)
record the excess of the purchase price over the historical net assets as
goodwill.
(g) Adjustments to amortize goodwill and other purchased intangible assets
arising out of the Newport News acquisition over an estimated weighted
average life of 39 years on a straight line basis.
(h) Adjustment to record interest on new debt financing for the Newport News
acquisition at an annual average rate of 6.76 and 7.66 percent for the
quarter ended March 31, 2001 and the year ended December 31, 2000,
respectively.
60
DESCRIPTION OF NORTHROP GRUMMAN COMMON STOCK
The following description of the terms of the capital stock of Northrop
Grumman is not meant to be compete and is qualified by reference to Northrop
Grumman's certificate of incorporation, which is incorporated by reference. See
"Where You Can Find More Information" beginning on page 6.
We have authority to issue 400,000,000 shares of common stock, par value
$1.00 per share. As of May 21, 2001, 85,317,361 shares of common stock were
outstanding. Our common stock is listed on the New York Stock Exchange and on
the Pacific Stock Exchange.
Dividends. Dividends may be paid on the common stock and on any class or
series of stock entitled to participate with the common stock as to dividends,
but only when and as declared by our board of directors.
Voting Rights. Each holder of our common stock is entitled to one vote per
share on all matters submitted to a vote of stockholders and does not have
cumulative voting rights.
Liquidation. If we liquidate, holders of common stock are entitled to
receive all remaining assets available for distribution to stockholders after
satisfaction of our liabilities and the preferential rights of any preferred
stock that may be outstanding at that time. Our outstanding common shares are
fully paid and nonassessable. The holders of our common stock do not have any
preemptive, conversion or redemption rights. The registrar and transfer agent
for our common stock is EquiServe Trust Company.
Preferred Stock Purchase Rights. On January 31, 2001, our board of directors
declared a dividend distribution of one preferred share purchase right for each
outstanding share of common stock. Each right, when it becomes exercisable,
entitles the registered holder to purchase from us one one-thousandth of a
share of our Series A junior participating preferred stock, $1.00 par value per
share, at a price of $250.00 per one one-thousandth of a preferred share,
subject to adjustment. These rights attached to all certificates representing
our common shares outstanding on January 31, 2001, and attach to common shares
issued after that date until the distribution date described below. No
separable right certificates will be distributed. The rights will separate from
our common shares on the distribution date. Distribution date means the date
which is the earlier to occur of:
. a person or group of affiliated or associated persons having acquired
beneficial ownership of 15% or more of our outstanding common shares,
except pursuant to a permitted offer; and
. 10 days, or what later date as our board of directors may determine,
following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer, the completion of which would result
in a person or group acquiring 15% of our outstanding voting power.
We may redeem the rights at the option of our board of directors for $0.01
per right at any time prior to the earlier of the expiration of the rights or
on the date that a person or persons acquire 15% of our voting power. Our board
of directors may amend the rights at any time without stockholder approval. The
rights will expire by their terms on January 31, 2011.
61
COMPARISON OF RIGHTS OF HOLDERS OF
NORTHROP GRUMMAN SHARES AND NEWPORT NEWS SHARES
Upon completion of our offer and the Northrop Grumman-Newport News merger,
stockholders of Newport News will become stockholders of Northrop Grumman,
rather than stockholders of Newport News. As Northrop Grumman stockholders, the
rights of former Newport News stockholders will be governed by Northrop
Grumman's charter and bylaws, which differ in material respects from Newport
News' charter and bylaws. Delaware is the jurisdiction of incorporation of
Northrop Grumman and Newport News and as such stockholders will continue to be
governed by the Delaware General Corporation Law.
The following is a comparison of:
. the current rights of Newport News stockholders under the Delaware
General Corporation Law and the Newport News charter and bylaws; and
. the rights Newport News stockholders would have as Northrop Grumman
stockholders under the Delaware General Corporation Law and the Northrop
Grumman charter and bylaws upon the completion of our offer and the
merger.
The following summary is not intended to be complete and is qualified in its
entirety by reference to the Delaware General Corporation Law, the Newport News
charter and bylaws, and the Northrop Grumman charter and bylaws, as
appropriate. Copies of the Newport News charter and bylaws and the Northrop
Grumman charter and bylaws are incorporated by reference herein and will be
sent to Newport News stockholders, upon request. See "Where You Can Find More
Information" beginning on page 6.
Northrop Grumman Newport News
- --------------------------------------------------------------------------------
Board of Directors
- --------------------------------------------------------------------------------
Classified Boards
- --------------------------------------------------------------------------------
The Newport News charter provides
Delaware law permits a certificate that the board of directors is to be
of incorporation to provide that a divided into three classes of
board of directors be divided into directors, each as nearly equal in
classes, with each class having a number as possible, with each
term of office longer than one year director elected for a term expiring
but no longer than three years. at the third succeeding annual
meeting of stockholders after his or
her election.
The Northrop Grumman charter
provides that the board of directors
is to be divided into three classes
of directors, each as nearly equal
in number as possible, with each
director elected for a term expiring
at the third succeeding annual
meeting of stockholders after his or
her election.
Removal of Directors
- --------------------------------------------------------------------------------
The Northrop Grumman charter The Newport News charter and bylaws
provides that directors may be are silent as to removal of
removed only for cause and only by directors. As such Delaware law
the affirmative vote of the holders governs and provides for removal of
of not less than 80% of the voting directors only for cause by a vote
power of all outstanding shares of of the holders of a majority of the
capital stock of Northrop Grumman then outstanding shares entitled to
having general voting power entitled vote.
to vote in connection with the
election of a director, regardless
of class and voting together as a
single voting class; provided,
however, that where the removal is
62
Northrop Grumman Newport News
- --------------------------------------------------------------------------------
approved by a majority of Continuing
Directors (as defined in the
Northrop Grumman charter), the
affirmative vote of a majority of
the voting power of all outstanding
shares of Voting Stock entitled to
vote in connection with the election
of that director, regardless of
class and voting together as a
single voting class, is required for
approval of removal.
Filling of Board Vacancies
- --------------------------------------------------------------------------------
In accordance with the Delaware The Newport News' charter provides
General Corporation Law, under the that any vacancy on the Board that
Northrop Grumman charter vacancies results in an increase in the number
and newly created directorships may of directors may be filled by a
be filled solely by a majority of majority of the Board then in
the directors then in office or a office, provided that a quorum is
sole remaining director (even though present. Any other vacancy occurring
less than a quorum). However, the in the Board may be filled by a
Delaware General Corporation Law majority of the directors then in
also provides that if the directors office, even if less than a quorum
then in office constitute less than or by a sole remaining director.
a majority of the corporation's
board of directors, then, upon
application by stockholders
representing at least 10% of
outstanding shares entitled to vote
for those directors, the Court of
Chancery may order a stockholder
election of director to be held.
Size of Board
- --------------------------------------------------------------------------------
The Northrop Grumman bylaws provide The Newport News charter and bylaws,
that the number of directors shall provide that the number of directors
be fixed from time to time by shall consist of not less than 3 nor
resolution of the Board of Directors more than 16 directors, with the
but shall not be less than 3. As of exact number of directors to be
May 16, 2001, the board shall determined from time to time by the
consist of 11 directors until Board of Directors pursuant to a
changed as provided in the bylaws. resolution adopted by the
affirmative vote of a majority of
the entire Board of Directors.
Quorum
- --------------------------------------------------------------------------------
The Northrop Grumman bylaws provide A majority of the directors then in
for a quorum of a majority of the office (but not less than one-third
Board of Directors, except that when of the total number of directors
the Board of Directors consists of constituting the entire Board) shall
one director, then the one director constitute a quorum.
shall constitute a quorum.
- --------------------------------------------------------------------------------
Stockholders Meetings
- --------------------------------------------------------------------------------
Annual Meeting
- --------------------------------------------------------------------------------
Held between May 1 and July 1 of
each year on such on date as fixed
by Board of Directors. Held on date fixed by Board of
Directors.
63
Northrop Grumman Newport News
- --------------------------------------------------------------------------------
Calling a Special Meeting
- --------------------------------------------------------------------------------
Under the Northrop Grumman charter Subject to the rights of the holders
and bylaws, special stockholder of any series of preferred stock to
meetings may be called at any time elect directors under specified
by a majority of the Board of circumstances, special meetings
Directors, the Chairman of the Board shall be called by the Board on the
of Directors or by the President and date the Board designates.
Chief Executive Officer.
Quorum Requirements
- --------------------------------------------------------------------------------
The presence in person or by proxy The presence in person or by proxy
of the holders of a majority of the of the holders of a majority of the
shares entitled to vote at the shares entitled to vote at the
meeting constitute a quorum for that meeting constitute a quorum for that
meeting, except as otherwise meeting, except as otherwise
provided by the Delaware General provided by the Delaware General
Corporation Law. Corporation Law.
Certain Voting Requirements
- --------------------------------------------------------------------------------
Under the Northrop Grumman bylaws Under the Newport News bylaws
(except as otherwise provided by the (except as otherwise provided by
Northrop Grumman charter or by law, the bylaws or the charter), the
applicable law), action by Northrop vote of a majority of any quorum is
Grumman stockholders generally is sufficient to elect directors and to
taken by the affirmative vote, at a pass any resolution within the power
meeting at which a quorum is of the holders of all the
present, of a majority of the outstanding shares.
outstanding shares entitled to vote
on that action on (including certain
extraordinary actions, including
mergers, consolidations and
amendments to the Northrop Grumman
charter). However, the Northrop
Grumman charter requires the
affirmative vote of the holders of
not less than 80% of outstanding
shares of voting stock to approve an
amendment of certain articles in the
charter. The charter also requires a
supermajority (80%) stockholder vote
to approve a Business Combination
(as defined in the Northrop Grumman
charter) involving specific related
persons.
Stockholder Action by Written Consent
- --------------------------------------------------------------------------------
Under the Northrop Grumman charter Under the Newport News bylaws, any
and bylaws, any action required or person seeking to have stockholders
permitted to be taken by authorize or take corporate action
stockholders must be effected at a by written consent without a meeting
duly called annual meeting or at a must request to the Secretary that a
special meeting of stockholders, record date be fixed for such
unless any action requiring or purchase. Consents must be signed by
permitting stockholder approval is a sufficient number of stockholders
approved by a majority of the to take that action and delivered to
continuing directors, in which case Newport News.
that action may be authorized or
taken by the written consent of the
holders of outstanding shares of
voting stock (as defined in the
Northrop Grumman charter) having not
less than the minimum voting power
that would
64
Northrop Grumman Newport News
- --------------------------------------------------------------------------------
be necessary to authorize or take
such action at a meeting of
stockholders at which all shares
entitled to vote thereon were
present and voted provided all other
requirements of applicable law and
the charter have been satisfied.
Advance Notice for Stockholder Nomination and Other Business
- --------------------------------------------------------------------------------
The Northrop Grumman bylaws provide To be properly brought before the
that with respect to any stockholder meeting, business must be either (a)
meeting, nominations of persons for specified in the notice of meeting
election to the board and the (or any supplement thereto) given by
proposal of business to be or at the direction of the Board,
considered by stockholders may be (b) otherwise properly brought
made only (a) by or at the direction before the meeting by or at the
of the Board of Directors, (b) by a direction of the Board, or (c)
stockholder of record who is otherwise properly brought before
entitled to vote and who has the meeting by a stockholder
complied with the advance notice entitled to vote at that meeting. In
procedures set forth in the bylaws, addition to any other applicable
or (c) pursuant to Northrop requirements, for business to be
Grumman's notice with respect to properly brought before the annual
that meeting. meeting by a stockholder, the
stockholder must have given timely
notice in writing to the Secretary
of Newport News. To be timely, a
stockholder's notice shall be
delivered to the secretary at the
principal executive offices of
Newport News not later than the
close of business on the seventieth
day nor earlier than the close of
business on the ninetieth day prior
to the first anniversary of the
preceding year's annual meeting.
- --------------------------------------------------------------------------------
Amendments to Organizational Documents
- --------------------------------------------------------------------------------
Certificate of Incorporation
- --------------------------------------------------------------------------------
Under the Delaware General Subject to the charter and
Corporation Law, the affirmative applicable law, the company reserves
vote of the holders of a majority of the right to amend, alter, change or
the outstanding shares entitled to repeal any provision contained in
vote is required to amend the the charter.
Northrop Grumman charter. In
addition, amendments that make The same Delaware law provisions
changes relating to the capital regarding amendments to the
stock by increasing or decreasing certificate of incorporation
the par value or the aggregate applicable to Northrop Grumman are
number of authorized shares of a also applicable to Newport News.
class or otherwise adversely
affecting the rights of that class,
must be approved by the majority
vote of each class of stock
affected, unless, in the case of an
increase in the number of shares,
the certificate of incorporation
takes away that right, and provided
that, if the amendment affects some
series, then only those series have
such vote. The Northrop Grumman
charter provides that specified
articles may be adopted, repealed,
rescinded, altered or amended only
by the affirmative vote of the
holders of not less than 80% of the
voting power of all outstanding
shares of voting stock, regardless
of class and voting
65
Northrop Grumman Newport News
- --------------------------------------------------------------------------------
together as a single voting class,
and where that action is proposed by
an interested stockholder (as
defined in the Northrop Grumman
charter) or an associate or
affiliate (each as defined in the
Northrop Grumman charter) of an
interested stockholder, by the
majority of the voting power of all
of the outstanding shares of voting
stock, voting together as a single
class, other than shares held by the
interested person; provided,
however, that where the action is
approved by a majority of the
continuing directors (as defined in
the Northrop Grumman charter), the
affirmative vote of a majority of
the voting power of all outstanding
shares of voting stock, regardless
of class and voting together as a
single voting class shall be
required for approval of that
action.
Bylaws
- --------------------------------------------------------------------------------
Under the Northrop Grumman charter The Board has the power to make,
and the bylaws, the bylaws may be alter, amend or repeal any and all
adopted, repealed, rescinded, of the bylaws, but any bylaws so
altered or amended by the made, altered or repealed by the
stockholders, but only by the Board may be amended, altered or
affirmative vote of the holders of repealed by the stockholders.
not less than 80% of the voting
power of all outstanding shares of
voting stock, regardless of class
and voting together as a single
voting class and, where such action
is proposed by an interested
stockholder or by any associate or
affiliate of an interested
stockholder, by a majority of the
voting power of all outstanding
shares or voting stock, regardless
of class and voting together as a
single class, other than the shares
held by such interested
stockholders; provided, however,
that where such action is approved
by a majority of the continuing
directors, the affirmative vote of
the holders of a majority of the
voting power of all outstanding
shares of voting stock, regardless
of class and voting together as a
single voting class shall be
required for approval of that
action.
- --------------------------------------------------------------------------------
Capitalization
- --------------------------------------------------------------------------------
Authorized Stock
- --------------------------------------------------------------------------------
Common stock: 400 million shares; Common stock: 70 million shares;
preferred stock: 10 million shares. preferred stock: 10 million shares
Preferred Stock
- --------------------------------------------------------------------------------
The Board of Directors is authorized The Board of Directors is authorized
to issue preferred stock from time to issue preferred stock from time
to time in one or more series, with to time in one or more series, with
terms to be fixed by the Board of terms to be fixed by the Board of
Directors. Directors.
66
Northrop Grumman Newport News
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Rights Plans
- --------------------------------------------------------------------------------
Northrop Grumman entered into a Newport News entered into a Rights
Rights Agreement, dated January 31, Agreement, dated June 10, 1998,
2001, between Northrop Grumman and between Newport News and First
EquiServe Trust Company, N.A., as Chicago Trust Company of New York,
amended. as amended.
- --------------------------------------------------------------------------------
Business Combinations
- --------------------------------------------------------------------------------
Under the Delaware General The Newport News charter and bylaws
Corporation Law, a majority of the are silent as to business
outstanding shares is needed to combinations.
adopt a plan of merger or
consolidation.
The Delaware General Corporation Law The same Delaware law provisions
prohibits a Delaware corporation regarding business combinations
which has a class of stock which is applicable to Northrop Grumman are
listed on a national stock exchange also applicable to Newport News.
or which has 2,000 or more
stockholders of record from engaging
in business combination with an
interested stockholder (generally,
the beneficial owner of 15% or more
of the corporation's outstanding
voting stock) for three years
following the time the stockholder
became an interested stockholder,
unless, prior to that time, the
corporation's board of directors
approved either the business
combination or the transaction that
resulted in the stockholder becoming
an interested stockholder, or if at
least two-thirds of the outstanding
shares not owned by that interested
stockholder approve the business
combination, or if, upon becoming an
interested stockholder, that
stockholder owned at least 85% of
the outstanding shares (excluding
those held by officers, directors
and some employee stock plans.)
The full text of Section 203 of the
Delaware General Corporation Law has
been annexed as Schedule B to this
prospectus and is incorporated in
this prospectus by reference.
In addition to the Delaware General
Corporation Law requirements, the
Northrop Grumman charter provides
that, subject to various exceptions,
any business combination between
Northrop Grumman or any subsidiary
and an interested stockholder (as
defined in the Northrop Grumman
Charter) must be approved by the
holders of at least 80% of the
voting power of all outstanding
voting stock, regardless of class
and voting together as a single
voting class and a majority of the
voting power of all outstanding
shares of voting stock, other than
the shares held by any interested
stockholder which is a party to such
business combination or by any
affiliate or associates of such
interested stockholder, regardless
of class and voting together as a
single voting class.
67
NEWPORT NEWS INFORMATION
While we have included in this prospectus information concerning Newport
News that is known to us based on publicly available information (primarily
filings by Newport News with the SEC), we are not affiliated with Newport News
and Newport News has not permitted us to have access to their books and
records. Therefore, non-public information concerning Newport News was not
available to us for the purpose of preparing this prospectus. Although we have
no knowledge that would indicate that statements relating to Newport News
contained or incorporated by reference in this prospectus are inaccurate or
incomplete, we were not involved in the preparation of those statements and
cannot verify them.
Pursuant to Rule 409 under the Securities Act and Rule 12b-21 under the
Exchange Act, we are requesting that Newport News provide us with information
required for complete disclosure regarding the businesses, operations,
financial condition and management of Newport News. We will amend or supplement
this prospectus to provide any and all information we receive from Newport
News, if we receive the information before our offer expires and we consider it
to be material, reliable and appropriate. In addition, pursuant to Rule 439
under the Securities Act, we are requesting that Newport News' independent
accountants, Arthur Andersen LLP, provide us with the consent required for us
to incorporate by reference into this prospectus the Arthur Andersen audit
report included in Newport News' Annual Report on Form 10-K for the year ended
December 31, 2000. If we receive this consent, we will promptly file it as an
exhibit to our registration statement of which this prospectus forms a part.
68
FORWARD-LOOKING STATEMENTS
Some of the information included in this prospectus and in the documents
incorporated by reference are forward-looking statements within the meaning of
the securities laws. These include statements and assumptions with respect to
expected future revenues, margins, program performance, earnings and cash
flows, acquisitions of new contracts, the outcome of competitions for new
programs, the outcome of contingencies including litigation and environmental
remediation, the effect of completed and planned acquisitions and divestitures
of businesses or business assets, the anticipated costs of capital investments,
and anticipated industry trends. Actual results and trends may differ
materially from the information, statements and assumptions as described, and
actual results could be materially less than planned.
Important factors that could cause actual results to differ materially from
those suggested by the forward-looking statements include:
. our dependence on sales to the United States Government;
. our successful performance of internal plans;
. government customers' budgetary restraints;
. customer changes in short-range and long-range plans;
. domestic and international competition in both the defense and
commercial areas;
. product performance;
. continued development and acceptance of new products;
. performance issues with key suppliers and subcontractors;
. government import and export policies;
. termination of government contracts, which may include termination for
the convenience of the government;
. the outcome of political and legal processes;
. legal, financial and governmental risks related to international
transactions and global needs for military and commercial aircraft,
electronic systems and support, information technologies and ships; and
. other economic, political and technological risks and uncertainties.
See also "Risk Factors" beginning on page 20, and the risk factors disclosed
in our Annual Report on Form 10-K/A, for the fiscal year ended December 31,
2000 and our Quarterly Report on Form 10-Q, for the period ended March 31,
2001, which are incorporated herein by reference. Readers are cautioned not to
put undue reliance on forward-looking statements. Northrop Grumman disclaims
any intent or obligation to update these forward-looking statements, whether as
a result of new information, future events or otherwise.
69
LEGAL MATTERS
The legality of Northrop Grumman common stock offered by this prospectus
will be passed upon by John H. Mullan, Corporate Vice President and Secretary
of Northrop Grumman. Mr. Mullan is paid a salary by Northrop Grumman, is a
participant in various employee benefit plans offered to employees of Northrop
Grumman generally and owns and has options to purchase shares of Northrop
Grumman common stock.
Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), New York, New York, acted as counsel to Northrop
Grumman in connection with the preparation of the registration statement of
which this prospectus is a part.
EXPERTS
The consolidated financial statements and related financial statement
schedule incorporated in this prospectus by reference from Northrop Systems'
Annual Report on Form 10-K/A for the year ended December 31, 2000 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
With respect to the unaudited interim financial information of Northrop
Grumman for the period ended March 31, 2001 and Northrop Systems for the period
ended March 31, 2000 which is incorporated herein by reference, Deloitte &
Touche LLP have applied limited procedures in accordance with professional
standards for a review of such information. However, as stated in their report
included in Northrop Grumman's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001 and incorporated by reference herein, they did not audit
and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section 11
of the Securities Act of 1933 for their report on the unaudited interim
financial information because such report is not a "report" or a "part" of the
registration statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Act.
The consolidated financial statements incorporated in this prospectus by
reference from Litton's Annual Report on Form 10-K for the year ended July 31,
2000 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
70
ANNEX A
DIRECTORS AND EXECUTIVE OFFICERS OF
NORTHROP GRUMMAN
The name, age, business address, present principal occupation or employment
and five-year employment history of each of the directors and executive
officers of Northrop Grumman are set forth below. Unless otherwise indicated,
each position set forth opposite an individual's name refers to employment with
Northrop Grumman and each individual has held that position for at least the
last five years. Each director and executive officer listed below is a citizen
of the United States of America. Unless otherwise indicated below, the business
address of each person is c/o Northrop Grumman, 1840 Century Park East, Los
Angeles, California 90067.
Directors (Including Executive Officers Who Are Directors)
Present Principal Occupation or
Name and Business Address Age Employment; Five Year Employment History
------------------------- --- ----------------------------------------
John T. Chain, Jr. 66 Director of Northrop Grumman since 1991.
General, United States Air Force (Ret.) and
Chairman of the Board, Thomas Group, Inc.,
a management consulting company. General
Chain has been Chairman of Thomas Group,
Inc. since May 1998 and has been a member
of the Board of Directors of Thomas Group
since May 1995. He has also served as the
President of Quarterback Equity Partners,
Inc. since December 1996. He served as
Special Assistant to the Chairman of
Burlington Northern Santa Fe Corporation
from November 1995 to March 1996, and as an
Executive Vice President of Burlington
Northern from 1991 to November 1995. During
his military career, General Chain's
commands included military assistant to the
Secretary of the Air Force, Director of
Politico-Military Affairs, Department of
State and Chief of Staff of Supreme
Headquarters Allied Powers Europe. After
serving as Commander in Chief, Strategic
Air Command, he retired from the Air Force
in February 1991. General Chain serves as a
director of R.J. Reynolds, Inc. and Kemper
Insurance Company.
Lewis W. Coleman 59 Director of Northrop Grumman since 2001.
President, Gordon and Betty Moore
Foundation. Mr. Coleman became President of
the Gordon and Betty Moore Foundation in
January 2001. In December 2000, he resigned
as Chairman of Banc of America Securities
LLC, a subsidiary of Bank of America
Corporation, after having served in that
position since joining Banc of America
Securities, LLC in December 1995. Prior to
that, he spent ten years at BankAmerica
Corporation where he held various positions
including Chief Financial Officer, head of
World Banking Group and head of Capital
Markets. Previous to that he spent thirteen
years with Wells Fargo & Co. in a variety
of wholesale and retail banking positions.
He is also on the Board of Directors of
Chiron Corporation.
Vic Fazio
58 Director of Northrop Grumman since 2000.
Senior Partner, Clark & Weinstock, a
consulting firm. Mr. Fazio served as a
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Member of Congress for 20 years
representing California's third
congressional district. During that time he
served as a member of the Armed Services,
Budget and Ethics Committees and was a
member of the House Appropriations
Committee where he served as Subcommittee
Chair or ranking member for 18 years. Mr.
Fazio was a member of the elected
Democratic Leadership in the House from
1991-1998 including four years as Chair of
the Democratic Caucus, the third ranking
position in the party. From 1975 to 1978
Mr. Fazio served in the California Assembly
and was a member of the staff of the
California Assembly Speaker from 1971 to
1975. Upon leaving Congress in early 1999,
he became a Senior Partner at Clark &
Weinstock, a strategic communications
consulting firm. He is a member of numerous
boards including The California Institute,
Coro National Board of Governors, which he
chairs, the U.S. Capitol Historical
Society, the Board of the U.S. Capitol
Visitors Center and the Board of Visitors,
The University of California at Davis
Medical School.
Phillip Frost 64 Director of Northrop Grumman since 1996.
Chairman of the Board of Directors and
Chief Executive Officer of IVAX
Corporation, a pharmaceutical company. Dr.
Frost has served as Chairman of the Board
of Directors and Chief Executive Officer of
IVAX Corporation since 1987 and served as
President from 1991 to 1995. Dr. Frost was
Chairman of the Department of Dermatology
at Mt. Sinai Medical Center of Greater
Miami, Miami Beach, Florida from 1972 to
1990 and was Chairman of the Board of
Directors of Key Pharmaceuticals, Inc. from
1972 to 1986. He is Chairman of Whitman
Education Group and Vice Chairman of
Continucare Corporation. He is also Vice
Chairman of the Board of Trustees of the
University of Miami and is a member of the
Board of Governors of the American Stock
Exchange.
Charles R. Larson 64 Director of Northrop Grumman since 2000.
Admiral, United States Navy (Ret.). Admiral
Larson is recognized as the first Naval
officer to be selected as a White House
Fellow. He also served as Naval aide to the
President. He served as superintendent of
the U.S. Naval Academy from 1983 to 1986
and in 1991 he became senior military
commander in the Pacific. He returned to
U.S. Naval Academy in 1994, where he served
as superintendent until 1998. Currently,
Admiral Larson is Chairman of the Board of
the U.S. Naval Academy Foundation, Vice
Chairman of the Board of Regents of the
University System of Maryland and serves on
the board of directors of such
organizations as Constellation Energy
Group, Inc., Edge Technologies, Inc., Fluor
Global Services, the Atlantic Council,
Military.com and the National Academy of
Sciences' Committee on International
Security and Arms Control. In addition, he
is a member of the
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Council on Foreign Relations and is a
senior fellow of The CNA Corporation.
Robert A. Lutz 69 Director of Northrop Grumman since 1997.
Chairman and Chief Executive Officer, Exide
Corporation, a battery manufacturing
company. Mr. Lutz has served as Chairman
and Chief Executive Officer of Exide
Corporation since December 1998. He also
served as President of Exide Corporation
from December 1998 through May 2000.
Previously he had joined Chrysler
Corporation in 1986 as Executive Vice
President of Chrysler Motors Corporation
and was elected a director of Chrysler
Corporation that same year. He was elected
President in 1991 and Vice Chairman in
1996. He retired from Chrysler Corporation
in July 1998. Prior to joining Chrysler
Corporation, Mr. Lutz held senior positions
with Ford Motor Company, General Motors
Corporation Europe and Bavarian Motor
Werke. He is an executive director of the
National Association of Manufacturers and a
member of the National Advisory Council of
the University of Michigan School of
Engineering, the Board of Trustees of the
U.S. Marine Corps University Foundation and
the Advisory Board of the University of
California-Berkeley, Haas School of
Business. Mr. Lutz is also a director of
ASCOM Holdings, A.G. and Silicon Graphics,
Inc.
Aulana L. Peters 59 Director of Northrop Grumman since 1992.
Ms. Peters is a retired partner of the law
firm of Gibson, Dunn & Crutcher where she
was a partner from 1988 to December 2000.
Effective January 1, 2001 she was elected
to the Public Oversight Board of the AICPA.
From 1984 to 1988 she served as
Commissioner of the Securities and Exchange
Commission. Ms. Peters is a director of
Callaway Golf Company, Minnesota Mining and
Manufacturing Company, and Merrill Lynch &
Co., Inc. She is also a member of the Board
of Directors of Community Television for
Southern California (KCET). Ms. Peters
served as a member of the Financial
Accounting Standards Board Steering
Committee for its Financial Reporting
Project and as a member of the Public
Oversight Board's Panel on Audit
Effectiveness.
Kent Kresa 63 Director of Northrop Grumman since 1987.
Chairman, President and Chief Executive
Officer. Mr. Kresa was elected President
and Chief Operating Officer of the company
in 1987. He was named Chief Executive
Officer in 1989 and Chairman of the Board
in 1990. Mr. Kresa is a member of the
National Academy of Engineering and is a
past Chairman of the Board of Governors of
the Aerospace Industries Association.
John Brooks Slaughter
67 Director of Northrop Grumman since 1993.
President and Chief Executive Officer, The
National Action Council for Minorities in
Engineering, Inc. Dr. Slaughter held
electronics
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engineering positions with General Dynamics
Convair and the U.S. Navy Electronics
Laboratory. In 1975, he became Director of
the Applied Physics Laboratory of the
University of Washington. In 1977, he was
appointed Assistant Director for
Astronomics, Atmospherics, Earth and Ocean
Sciences at the National Science
Foundation. From 1979 to 1980, he served as
Academic Vice President and Provost of
Washington State University. In 1980, he
returned to the National Science Foundation
as Director and served in that capacity
until 1982 when he became Chancellor of the
University of Maryland, College Park. From
1988 to July 1999, Dr. Slaughter was
President of Occidental College in Los
Angeles and in August 1999, he assumed the
position of Melbo Professor of Leadership
in Education at the University of Southern
California. In June 2000, Dr. Slaughter was
named President and Chief Executive Officer
of The National Action Council for
Minorities in Engineering, Inc. He is a
member of the National Academy of
Engineering, a fellow of the American
Academy of Arts and Sciences and serves as
a director of Solutia, Inc. and
International Business Machines
Corporation.
Ronald D. Sugar 52 Director of Northrop Grumman since 2001.
President and Chief Executive Officer,
Litton Industries, Inc., a subsidiary of
Northrop Grumman Corporation, and Corporate
Vice President, Northrop Grumman. Dr. Sugar
was elected President and Chief Executive
Officer of Litton Industries, Inc. when it
became a subsidiary of Northrop Grumman on
April 3, 2001, and was also elected as
Corporate Vice President and a member of
the Board of Directors of Northrop Grumman
at that time. He joined Litton Industries
as President and Chief Operating Officer in
June 2000 and was elected to the Board of
Directors of Litton Industries in September
2000. Dr. Sugar served as President and
Chief Operating Officer of TRW Aerospace &
Informations System and as a Member of the
Chief Executive Office of TRW, Inc. from
1998 to 2000. He joined TRW in 1981 and
served as Executive Vice President and
Chief Financial Officer from 1994 to 1996
and Executive Vice President and General
Manager of the TRW Automotive Electronics
Group from 1996 to 1998. He is also a
member of the National Security
Telecommunications Advisory Committee, the
Conference Board Council of Operating
Executives and the Board of Governors of
the Aerospace Industries Association and is
a Trustee of the National Defense
Industrial Association.
Executive Officers Who Are Not Directors (as of March 2001)
Present Principal Occupation or
Name and Business Address Age Employment; Five Year Employment History
------------------------- ------- ----------------------------------------
Herbert W. Anderson 61 Corporate Vice President, President and
Chief Executive Officer of Logicon, Inc.
since 1998. Prior t o this, Mr. Anderson
was Corporate Vice President and General
Manager of Data Systems and Services
Division.
A-4
Ralph D. Crosby, Jr. 53 Corporate Vice President and President,
Integrated Systems and Aerostructures
Sector of Northrop Grumman since 1998.
Prior to this, Mr. Crosby was Corporate
Vice President and General Manager,
Commercial Aircraft Division. Prior to
September 1996, he was Corporate Vice
President and Deputy General Manager,
Commercial Aircraft Division. Prior to
March 1996, he was Corporate Vice President
and Deputy General Manager, Military
Aircraft Systems Division. Prior to January
1996, he was Corporate Vice President and
General Manager of B-2 Division.
J. Michael Hateley 54 Corporate Vice President and Chief Human
Resources and Administrative Officer of
Northrop Grumman since 2000. Prior to
January 1999, Mr. Hateley was Vice
President, Human Resources, Security and
Administration Military Aircraft Systems
Division. Prior to 1996, he was Vice
President, Human Resources, Security and
Administration, B-2 Division.
Robert W. Helm 49 Corporate Vice President, Government
Relations of Northrop Grumman since 1994.
John H. Mullan 59 Corporate Vice President and Secretary of
Northrop Grumman since 1999. Prior to this,
Mr. Mullan was Acting Secretary. Prior to
May 1998, he was Senior Corporate Counsel.
Albert F. Myers 55 Corporate Vice President and Treasurer of
Northrop Grumman since 1994.
James G. Roche 61 Corporate Vice President and President,
Electronic Sensors and Systems Sector of
Northrop Grumman since 1998.
Richard B. Waugh, Jr. 57 Corporate Vice President and Chief
Financial Officer of Northrop Grumman since
1993.
Roseanne P. O'Brien 57 Ms. O'Brien has been Corporate Vice
President, Communications of Northrop
Grumman since August 2000. Prior to this,
Ms. O'Brien was Vice President,
Communications since January 1999. Ms.
O'Brien was Senior Consultant to Alleghany
Teledyne, Inc. from 1996 to 1999, and Vice
President, Corporate Relations for
Teledyne, Inc. from 1993 through 1995.
W. Burks Terry 50 Mr. Terry has been Corporate Vice President
and General Counsel of Northrop Grumman
since August 2000. Prior to this, Mr. Terry
became Vice President, Deputy General
Counsel and Sector Counsel in October 1998
and prior to October, 1998 he was Vice
President and Assistant General Counsel.
Robert B. Spiker 47 Mr. Spiker has been Corporate Vice
President and Controller of Northrop
Grumman since December 2000. Prior to this,
Mr. Spiker was Vice President, Finance and
Controller, Electronic Sensors and Systems
Sector. Prior to 1999, he was Business
Manager for C3&I Naval Systems.
A-5
ANNEX B
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW BUSINESS COMBINATIONS WITH
INTERESTED STOCKHOLDERS
(a) Notwithstanding any other provisions of this chapter, a corporation
shall not engage in any business combination with any interested stockholder
for a period of 3 years following the time such stockholder became an
interested stockholder, unless:
(1) prior to such time the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder, or
(2) upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (i) by persons who are directors and also
officers and (ii) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or
(3) at or subsequent to such time the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
(b) The restrictions contained in this section shall not apply if:
(1) the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by this section;
(2) the corporation, by action of its board of directors, adopts an
amendment to its bylaws within 90 days of the effective date of this section,
expressly electing not to be governed by this section, which amendment shall
not be further amended by the board of directors;
(3) the corporation, by action of its stockholders, adopts an amendment to
its certificate of incorporation or bylaws expressly electing not to be
governed by this section, provided that, in addition to any other vote required
by law, such amendment to the certificate of incorporation or bylaws must be
approved by the affirmative vote of a majority of the shares entitled to vote.
An amendment adopted pursuant to this paragraph shall be effective immediately
in the case of a corporation that both (i) has never had a class of voting
stock that falls within any of the three categories set out in subsection
(b)(4) hereof, and (ii) has not elected by a provision in its original
certificate of incorporation or any amendment thereto to be governed by this
section. In all other cases, an amendment adopted pursuant to this paragraph
shall not be effective until 12 months after the adoption of such amendment and
shall not apply to any business combination between such corporation and any
person who became an interested stockholder of such corporation on or prior to
such adoption. A bylaw amendment adopted pursuant to this paragraph shall not
be further amended by the board of directors;
(4) the corporation does not have a class of voting stock that is (i) listed
on a national securities exchange, (ii) authorized for quotation on the NASDAQ
Stock Market or (iii) held of record by more than 2,000 stockholders, unless
any of the foregoing results from action taken, directly or indirectly, by an
interested stockholder or from a transaction in which a person becomes an
interested stockholder;
(5) a stockholder becomes an interested stockholder inadvertently and (i) as
soon as practicable divests itself of ownership of sufficient shares so that
the stockholder ceases to be an interested stockholder and (ii) would not, at
any time within the 3 year period immediately prior to a business combination
between the corporation and such stockholder, have been an interested
stockholder but for the inadvertent acquisition of ownership;
(6) the business combination is proposed prior to the consummation or
abandonment of and subsequent to the earlier of the public announcement or the
notice required hereunder of a proposed transaction which
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(i) constitutes one of the transactions described in the second sentence of
this paragraph; (ii) is with or by a person who either was not an interested
stockholder during the previous 3 years or who became an interested stockholder
with the approval of the corporation's board of directors or during the period
described in paragraph (7) of this subsection (b); and (iii) is approved or not
opposed by a majority of the members of the board of directors then in office
(but not less than 1) who were directors prior to any person becoming an
interested stockholder during the previous 3 years or were recommended for
election or elected to succeed such directors by a majority of such directors.
The proposed transactions referred to in the preceding sentence are limited to
(x) a merger or consolidation of the corporation (except for a merger in
respect of which, pursuant to section 251 (f) of the chapter, no vote of the
stockholders of the corporation is required); (y) a sale, lease, exchange,
mortgage, pledge, transfer or other disposition (in one transaction or a series
of transactions), whether as part of a dissolution or otherwise, of assets of
the corporation or of any direct or indirect majority-owned subsidiary of the
corporation (other than to any direct or indirect wholly-owned subsidiary or to
the corporation) having an aggregate market value equal to 50% or more of
either that aggregate market value of all of the assets of the corporation
determined on a consolidated basis or the aggregate market value of all the
outstanding stock of the corporation; or (z) a proposed tender or exchange
offer for 50% or more of the outstanding voting stock of the corporation. The
corporation shall give not less than 20 days notice to all interested
stockholders prior to the consummation of any of the transactions described in
clauses (x) or (y) of the second sentence of this paragraph; or
(7) The business combination is with an interested stockholder who became an
interested stockholder at a time when the restrictions contained in this
section did not apply by reason of any paragraphs (1) through (4) of this
subsection (b), provided, however, that this paragraph (7) shall not apply if,
at the time such interested stockholder became an interested stockholder, the
corporation's certificate of incorporation contained a provision authorized by
the last sentence of this subsection (b).
Notwithstanding paragraphs (1), (2), (3) and (4) of this subsection, a
corporation may elect by a provision of its original certificate of
incorporation or any amendment thereto to be governed by this section; provided
that any such amendment to the certificate of incorporation shall not apply to
restrict a business combination between the corporation and an interested
stockholder of the corporation if the interested stockholder became such prior
to the effective date of the amendment.
(c) As used in this section only, the term;
(1) "affiliate" means a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, another person.
(2) "associate," when used to indicate a relationship with any person, means
(i) any corporation, partnership, unincorporated association or other entity of
which such person is a director, officer or partner or is, directly or
indirectly, the owner of 20% or more of any class of voting stock, (ii) any
trust or other estate in which such person has at least a 20% beneficial
interest or as to which such person serves as trustee or in a similar fiduciary
capacity, and (iii) any relative or spouse of such person, or any relative of
such spouse, who has the same residence as such person.
(3) "business combination," when used in reference to any corporation and
any interested stockholder of such corporation, means:
(i) any merger or consolidation of the corporation or any direct or indirect
majority-owned subsidiary of the corporation with (A) the interested
stockholder, or (B) with any other corporation, partnership, unincorporated
association or other entity if the merger or consolidation is caused by the
interested stockholder and as a result of such merger or consolidation
subsection (a) of this section is not applicable to the surviving entity;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions), except
proportionately as a stockholder of such corporation, to or with the interested
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stockholder, whether as part of a dissolution or otherwise, of assets of the
corporation or of any direct or indirect majority-owned subsidiary of the
corporation which assets have an aggregate market value equal to 10% or more of
either the aggregate market value of all the assets of the corporation
determined on a consolidated basis or the aggregate market value of all the
outstanding stock of the corporation;
(iii) any transaction which results in the issuance or transfer by the
corporation or by any direct or indirect majority-owned subsidiary of the
corporation of any stock of the corporation or of such subsidiary to the
interested stockholder, except (A) pursuant to the exercise, exchange or
conversion of securities exercisable for, exchangeable for or convertible into
stock of such corporation or any such subsidiary which securities were
outstanding prior to the time that the interested stockholder became such, (B)
pursuant to a merger under Section 251(g) of this title; (C) pursuant to a
dividend or distribution paid or made, or the exercise, exchange or conversion
of securities exercisable for, exchangeable for or convertible into stock of
such corporation or any such subsidiary which security is distributed, pro rata
to all holders of a class or series of stock of such corporation subsequent to
the time the interested stockholder became such, (D) pursuant to an exchange
offer by the corporation to purchase stock made on the same terms to all
holders of said stock, or (E) any issuance or transfer of stock by the
corporation, provided however, that in no case under (C)-(E) above shall there
be an increase in the interested stockholder's proportionate share of the stock
of any class or series of the corporation or of the voting stock of the
corporation;
(iv) any transaction involving the corporation or any direct or indirect
majority-owned subsidiary of the corporation which has the effect, directly or
indirectly, of increasing the proportionate share of the stock of any class or
series, or securities convertible into the stock of any class or series, of the
corporation or of any such subsidiary which is owned by the interested
stockholder, except as a result of immaterial changes due to fractional share
adjustments or as a result of any purchase or redemption of any shares of stock
not caused, directly or indirectly, by the interested stockholder; or
(v) any receipt by the interested stockholder of the benefit, directly or
indirectly (except proportionately as a stockholder of such corporation) of any
loans, advances, guarantees, pledges, or other financial benefits (other than
those expressly permitted in subparagraphs (i)-(iv) above) provided by or
through the corporation or any direct or indirect majority owned subsidiary.
(4) "control," including the term "controlling," "controlled by" and "under
common control with," means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting stock, by contract, or
otherwise. A person who is the owner of 20% or more of the outstanding voting
stock of any corporation, partnership, unincorporated association or other
entity shall be presumed to have control of such entity, in the absence of
proof by a preponderance of the evidence to the contrary. Notwithstanding the
foregoing, a presumption of control shall not apply where such person holds
voting stock, in good faith and not for the purpose of circumventing this
section, as an agent, bank, broker, nominee, custodian or trustee for one or
more owners who do not individually or as a group have control of such entity.
(5) "interested stockholder" means any person (other than the corporation
and any direct or indirect majority-owned subsidiary of the corporation) that
(i) is the owner of 15% or more of the outstanding voting stock of the
corporation, or (ii) is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the 3-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder; and
the affiliates and associates of such person; provided, however, that the term
"interested stockholder" shall not include (x) any person who (A) owned shares
in excess of the 15% limitation set forth herein as of, or acquired such shares
pursuant to a tender offer commenced prior to, December 23, 1987, or pursuant
to an exchange offer announced prior to the aforesaid date and commenced within
90 days thereafter and either (I) continued to own shares in excess of such 15%
limitation or would have but for action by the corporation or (II) is an
affiliate or associate of the corporation and so continued (or so would have
continued but for action by the corporation) to be the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the 3-year
B-3
period immediately prior to the date on which it is sought to be determined
whether such a person is an interested stockholder or (B) acquired said shares
from a person described in (A) above by gift, inheritance or in a transaction
in which no consideration was exchanged; or (y) any person whose ownership of
shares in excess of the 15% limitation set forth herein in the result of
action taken solely by the corporation provided that such person shall be an
interested stockholder if thereafter such person acquires additional shares of
voting stock of the corporation, except as a result of further corporate
action not caused, directly or indirectly, by such person. For the purpose of
determining whether a person is an interested stockholder, the voting stock of
the corporation deemed to be outstanding shall include stock deemed to be
owned by the person through application of paragraph (8) of this subsection
but shall not include any other unissued stock of such corporation which may
be issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(6) "person" means any individual, corporation, partnership, unincorporated
association or other entity.
(7) "Stock" means, with respect to any corporation, capital stock and, with
respect to any other entity, any equity interest.
(8) "Voting stock" means, with respect to any corporation, stock of any
class or series entitled to vote generally in the election of directors and,
with respect to any entity that is not a corporation, any equity interest
entitled to vote generally in the election of the governing body of such
entity.
(9) "owner" including the terms "own" and "owned" when used with respect to
any stock means a person that individually or with or through any of its
affiliates or associates:
(i) beneficially owns such stock, directly or indirectly; or
(ii) has (A) the right to acquire such stock (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding, or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise; provided, however,
that a person shall not be deemed the owner of stock tendered pursuant to a
tender or exchange offer made by such person or any of such person's
affiliates or associates until such tendered stock is accepted for purchase or
exchange; or (B) the right to vote such stock pursuant to any agreement,
arrangement or understanding; provided, however, that a person shall not be
deemed the owner of any stock because of such person's right to vote such
stock if the agreement, arrangement or understanding to vote such stock arises
solely from a revocable proxy or consent given in response to a proxy or
consent solicitation made to 10 or more persons; or
(iii) has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable proxy or
consent as described in item (B) of clause (ii) of this paragraph), or
disposing of such stock with any other person that beneficially owns, or whose
affiliates or associates beneficially own, directly or indirectly, such stock.
(d) No provision of a certificate of incorporation or bylaw shall require,
for any vote of stockholders required by this section a greater vote of
stockholders than that specified in this section.
(e) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all matters with respect to this section. (Last amended by
Ch. 79, L. '95, eff. 7-1-95.)
B-4
The letter of election and transmittal, certificates for Northrop Grumman
shares and any other required documents should be sent or delivered by each
Newport News stockholder or his or her broker, dealer, commercial bank, trust
company or other nominee to the exchange agent at one of its addresses set
forth below.
The Exchange Agent for our offer is:
MELLON INVESTOR SERVICES LLC
By Mail: By Overnight Delivery: By Hand Delivery:
Mellon Investor Services LLC Mellon Investor Services LLC Mellon Investor Services LLC
Reorganization Department Reorganization Department Reorganization Department
PO Box 3301 85 Challenger Road 120 Broadway
South Hackensack, NJ 07606 Mail Stop--Reorg 13th Floor
Ridgefield Park, NJ 07660 New York, NY 10271
By Facsimile Transmission:
(for Eligible Institutions
only)
Fax: (201) 296-4293
Confirm by Telephone:
(201) 296-4860
Any questions or requests for assistance or additional copies of the
prospectus, the letter of election and transmittal and the notice of guaranteed
delivery and related offer materials may be directed to the information agent
at its telephone numbers and location listed below. You may also contact your
local broker, commercial bank, trust company or nominee for assistance
concerning our offer.
The Information Agent for our offer is:
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 269-5550
All Others Call Toll Free: (800) 758-5378
The Dealer Manager for our offer is:
Salomon Smith Barney
388 Greenwich Street
New York, New York 10013
(888) 328-4596
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation-a "derivative action"), if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceedings, had no reasonable cause to believe their
conduct was unlawful.
A similar standard is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement
of such action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's certificate of
incorporation, bylaws, disinterested director vote, stockholder vote, agreement
or otherwise.
As permitted by Section 145 of the Delaware General Corporation Law, Article
EIGHTEENTH of Northrop Grumman's restated certificate of incorporation, as
amended, provides:
"A director of the Corporation shall not be personally liable to the
Corporation or to its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the directors'
duty of loyalty to the Corporation or to its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derives any improper personal benefit. If, after approval of this
Article by the stockholders of the Corporation, the General Corporation Law of
the State of Delaware is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent permitted
by the General Corporation Law of the State of Delaware, as so amended. Any
repeal or modification of this Article by the stockholders of the Corporation
as provided in Article SEVENTEENTH hereof shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification."
Northrop Grumman has purchased insurance on behalf of any person who is or
was a director, officer, employee or agent of Northrop Grumman, or is or was
serving at the request of Northrop Grumman as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not
Northrop Grumman would have the power to indemnify him against such liability
under the provisions of Northrop Grumman's restated certificate of
incorporation, as amended.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
2.1 Amended and Restated Agreement and Plan of Merger dated as of January
23, 2001, among Systems, Litton, Northrop Grumman and LII Acquisition
Corp., filed as exhibit 2.2 to Form S-4 Registration Statement No.
333-54800 filed with the SEC on February 1, 2001 and incorporated
herein by reference.
3.1 Amended and Restated Certificate of Incorporation of Northrop Grumman
Corporation, filed as exhibit 3.1 to Registration Statement No. 333-
54800 filed with the SEC on February 1, 2001 and incorporated herein
by this reference.
3.2 Certificate of Amendment of Certificate of Incorporation of Northrop
Grumman Corporation filed as exhibit 3.2 to Form 10-Q filed with the
SEC on May 10, 2001 and incorporated herein by this reference.
3.3 Restated Bylaws of Northrop Grumman Corporation, filed as exhibit 3.2
to Form 10-K filed with the SEC on March 27, 2001 and incorporated
herein by reference.
4.1 Rights Agreement dated as of January 31, 2001 between Northrop Grumman
Corporation and EquiServe Trust Company, N.A. filed as exhibit 4.3 to
Form S-4 Registration Statement No. 333-54800 filed with the SEC on
March 27, 2001 and incorporated herein by this reference.
4.2 Indenture dated as of April 13, 1998 between Litton and The Bank of
New York, Trustee, under which Litton's 6.05% senior notes due 2003
and 6.75% senior debentures due 2018 were issued, filed as Exhibit 4.1
to Litton's April 30, 1998 Quarterly Report on Form 10-Q, and
incorporated herein by reference.
4.3 Supplemental Indenture with respect to the Indenture dated April 13,
1998, dated as of April 3, 2001, among Litton, Northrop Grumman
Corporation, Systems and The Bank of New York, as trustee filed as
exhibit 4.5 to Form 10-Q filed with the SEC on May 10, 2001 and
incorporated herein by this reference.
4.4 Indenture dated as of December 15, 1991 between Litton and The Bank of
New York, Trustee, under which Litton's 7.75% and 6.98% debentures due
2026 and 2036 were issued and specimens of such debentures, filed as
Exhibit 4.1 of Litton's April 30, 1996 Quarterly Report on Form 10-Q,
and incorporated herein by reference.
4.7 Supplemental Indenture with respect to the Indenture dated December
15, 1991, dated as of April 3, 2001, among Litton, Northrop Grumman
Corporation, Systems and The Bank of New York, as trustee filed as
exhibit 4.7 to Form 10-Q filed with the SEC on May 10, 2001 and
incorporated herein by this reference.
4.8 Form of Exchange Security for Litton's $400,000,000 8% senior notes
due 2009, filed as Exhibit 4.3 to Litton's April 30, 2000 Quarterly
Report on Form 10-Q, and incorporated herein by reference.
5.1 Form of Opinion of John H. Mullan regarding the validity of the
securities being registered.
8.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson regarding certain
tax matters.
10.1 Employment Agreement with Dr. Ronald D. Sugar, filed as exhibit
99(e)(7) to the Solicitation/Recommendation Statement on Schedule 14D-
9 filed with the SEC by Litton on January 5, 2001 and incorporated
herein by reference.
10.2 Form of $2,500,000,000 364-Day Revolving Credit Agreement among
Northrop Grumman Corporation, Systems, Litton, the Lenders party
thereto, The Chase Manhattan Bank and Credit Suisse First Boston, as
Co-Administrative Agents, Salomon Smith Barney Inc., as Syndication
Agent, and The Bank of Nova Scotia and Deutsche Banc Alex. Brown, Inc.
as Co-Documentation Agents, filed as Exhibit 10.6 to Amendment No. 2
to Form S-4 Registration Statement No. 333-54800 filed with the SEC on
March 27, 2001 and incorporated herein by reference.
II-2
10.3 Form of $2,500,000,000 Five-Year Revolving Credit Agreement among
Northrop Grumman, Systems, Litton, the Lenders party thereto, The Chase
Manhattan Bank and Credit Suisse First Boston, as Co-Administrative
Agents, Salomon Smith Barney Inc., as Syndication Agent, and The Bank
of Nova Scotia and Deutsche Banc Alex. Brown, Inc. as Co-Documentation
Agents, filed as Exhibit 10.7 to Amendment No. 2 to Form S-4
Registration Statement No. 333-54800 filed with the SEC on March 27,
2001 and incorporated herein by reference.
10.4 Letter Agreement dated January 31, 2001 between Systems and Dr. Ronald
D. Sugar, filed as exhibit 99(e)(16) to Amendment No. 3 to
Solicitation/Recommendation Statement on Schedule 14D-9 filed with the
SEC by Litton on February 1, 2001 and incorporated herein by reference.
10.5 Form of Officers Certificate establishing the terms of Systems' 7 1/8%
Notes due 2011 and 7 3/4% Debentures due 2031, filed as Exhibit 10.9 to
Form 8-K filed by Northrop Grumman on April 17, 2001 and incorporated
herein by reference.
10.6 Form of Guarantee by Northrop Grumman of Litton Indenture Indebtedness,
filed as Exhibit 10.10 to Form 8-K filed by Northrop Grumman
Corporation on April 17, 2001 and incorporated herein by reference.
10.7 Form of Guarantee by Northrop Grumman of Systems Indenture
Indebtedness, filed as Exhibit 10.11 to Form 8-K filed by Northrop
Grumman Corporation on April 17, 2001 and incorporated herein by
reference.
10.8 Form of Guarantee by Systems of Litton Indenture Indebtedness, filed as
Exhibit 10.12 to Form 8-K filed by Northrop Grumman Corporation on
April 17, 2001 and incorporated herein by reference.
10.9 Form of Guarantee by Litton of Systems Indenture Indebtedness, filed as
Exhibit 10.13 to Form 8-K filed by Northrop Grumman Corporation on
April 17, 2001 and incorporated herein by reference.
10.10 1973 Incentive Compensation Plan as amended December 16, 1998
(incorporated by reference to Form 10-K filed March 23, 1999)
10.11 1973 Performance Achievement Plan (incorporated by reference to Form 8-
B filed June 21, 1985)
10.12 Northrop Grumman Corporation Supplemental Plan 2 (incorporated by
reference to Form 10-K filed February 22, 1996) and amended as of June
19, 1996 (incorporated by reference to Form 10-K filed March 30, 1998)
10.13 Northrop Grumman Corporation ERISA Supplemental Plan I (incorporated by
reference to Form 10-K filed February 28, 1994)
10.14 Retirement Plan for Independent Outside Directors as amended April 24,
1998 (incorporated by reference to Form 10-K filed March 23, 1999)
10.15 1987 Long-Term Incentive Plan, as amended (incorporated by reference to
Form SE filed March 30, 1989)
10.16 Executive Life Insurance Policy (incorporated by reference to Form 10-K
filed February 22, 1996)
10.17 Executive Accidental Death, Dismemberment and Plegia Insurance Policy
(incorporated by reference to Form 10-K filed February 22, 1996)
10.18 Executive Long-Term Disability Insurance Policy (incorporated by
reference to Form 10-K filed February 22, 1996)
10.19 Key Executive Medical Plan Benefit Matrix (incorporated by reference to
Form 10-K filed February 22, 1996)
10.20 Executive Dental Insurance Policy Group Numbers 5134 and 5135
(incorporated by reference to Form 10-K filed February 22, 1996)
10.21 Group Excess Liability Policy (incorporated by reference to Form 10-K
filed February 22, 1996)
10.22 Northrop Grumman 1993 Long-Term Incentive Stock Plan, as amended and
restated (incorporated by reference to Form S-8 Registration Statement
filed November 25, 1998)
II-3
10.23 Northrop Corporation 1993 Stock Plan for Non-Employee Directors
(incorporated by reference to Northrop Corporation 1993 Proxy Statement
filed March 30, 1993), amended as of September 21, 1994 (incorporated
by reference to Form 10-K filed March 21, 1995)
10.24 Northrop Grumman Corporation 1995 Stock Option Plan for Non-Employee
Directors (incorporated by reference to 1995 Proxy Statement filed
March 30, 1995)
10.25 Form of Northrop Grumman Corporation March 2000 Special Agreement
(effective March 1, 2000) (incorporated by reference to Form 10-Q filed
November 4, 1999)
10.26 Executive Deferred Compensation Plan (effective December 29, 1994)
(incorporated by reference to Form 10-K filed February 25, 1997)
10.27 Northrop Grumman Corporation Non-Employee Directors Equity
Participation Plan, as amended March 15, 2000 (incorporated by
reference to Form 10-Q filed May 9, 2000)
10.28 CPC Supplemental Executive Retirement Program (incorporated by
reference to Form 10-K filed March 30, 1998)
10.29 Northrop Grumman Estate Enhancement Program, effective January 1, 2001
(incorporated by reference to Form 10-K filed on March 8, 2001)
10.30 Special Officer Retiree Medical Plan as amended December 19, 2000
(incorporated by reference to Form 10-K filed on March 8, 2001)
10.31 Northrop Grumman Corporation March 2000 Change-in-Control Severance
Plan (incorporated by reference to Form 10-Q filed November 4, 1999)
15.1 Letter from Independent Accountant regarding unaudited accounting
information.
21.1 Subsidiaries
23.1 Consent of Deloitte & Touche LLP (for Northrop Systems)
23.2 Consent of Deloitte & Touche LLP (for Litton Industries)
23.3 Consent of John H. Mullan (included in Exhibit 5.1)
23.4 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 8.1)
24.1 Power of Attorney (included on signature page)
99.1 Form of Letter of Election and Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Brokers, Dealers, etc.
99.4 Form of Letter to Clients
99.5 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
99.6 Press Release, dated May 9, 2001
99.7 Press Release, dated May 21, 2001
(b) None.
(c) None.
II-4
ITEM 22. UNDERTAKINGS.
(A) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(B) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(C)
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (a) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(D) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(E) The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not subject of and included in the
registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on this 14th day of June, 2001.
NORTHROP GRUMMAN CORPORATION
/s/ John H. Mullan
By: _________________________________
John H. Mullan
Corporate Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board, June 14, 2001
____________________________________ President and Chief
Kent Kresa Executive Officer and
Director (Principal
Executive Officer)
* Corporate Vice President and June 14, 2001
____________________________________ Chief Financial Officer
Richard B. Waugh, Jr. (Principal Financial
Officer)
* Corporate Vice President and June 14, 2001
____________________________________ Controller (Principal
Robert B. Spiker Accounting Officer)
* Director June 14, 2001
____________________________________
John T. Chain, Jr.
II-6
Signature Title Date
--------- ----- ----
* Director June 14, 2001
____________________________________
Lewis W. Coleman
* Director June 14, 2001
____________________________________
Vic Fazio
* Director June 14, 2001
____________________________________
Phillip Frost
* Director June 14, 2001
____________________________________
Charles R. Larson
* Director June 14, 2001
____________________________________
Robert A. Lutz
* Director June 14, 2001
____________________________________
Aulana L. Peters
* Director June 14, 2001
____________________________________
John Brooks Slaughter
* Director June 14, 2001
____________________________________
Ronald D. Sugar
/s/ John H. Mullan
*By:
-----------------------------
Name: John H. Mullan
Title: Attorney-in-fact
Date: June 14, 2001
II-7
