As filed with the Securities and Exchange Commission on November 20, 2001
Registration No. 333-61506
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 7
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)
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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)
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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 CORPORATION
Amended and Restated
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 November 29, 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.
On November 7, 2001, we and Purchaser Corp. I, our wholly owned subsidiary,
entered into an Agreement and Plan of Merger with Newport News Shipbuilding
Inc., a Delaware corporation, to acquire all of the outstanding shares of
Newport News' common stock. The Newport News' board of directors unanimously
approved the merger agreement, determined that the merger agreement and the
transactions contemplated thereby are fair to, and in the best interests of,
Newport News stockholders and recommended that Newport News stockholders accept
the offer and tender their shares pursuant to the offer. Through Purchaser
Corp. I we are offering, 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., including the associated Series A participating
cumulative preferred stock purchase rights issued pursuant to the Newport News
rights agreement, that is validly tendered and not withdrawn. 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 number of shares and the amount of cash to be received with respect to
each share of Newport News common stock in our offer will be determined by
dividing $67.50 by the average of the closing prices for a share of our common
stock on the New York Stock Exchange over the 5-day trading period ending on
the trading day immediately preceding the second full trading day before the
expiration of our offer. However, in no event will the exchange ratio be more
than 0.84375 ($67.50/$80.00) or less than 0.675 ($67.50/$100.00). The average
trading price cannot be determined with certainty at this time. If completed,
our offer will be followed by a merger in which any remaining holders of
Newport News common stock will have the same election right as provided in our
offer with respect to the amount and forms of consideration remaining after our
offer, subject to the proration procedures and other limitations of our offer.
On November 9, 2001, the closing price for our shares was $97.60.
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."
Northrop Grumman's 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 21 for a discussion of various factors
that you should consider about our offer.
We are not asking you for a proxy and you are not requested 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.
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The Dealer Manager for Our Offer Is
Salomon Smith Barney
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The date of this prospectus is November 20, 2001
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE PROPOSED ACQUISITION...................... 1
WHERE YOU CAN FIND MORE INFORMATION....................................... 6
SUMMARY................................................................... 8
RISK FACTORS.............................................................. 21
The Anticipated Benefits of the Acquisition May Not Be Realized and as a
Result the Price of Northrop Grumman Shares May Decline................. 21
Exchange Ratio of Our Offer Could Work to Your Disadvantage.............. 21
You May Not Receive All Consideration in the Form You Have Elected....... 21
The Receipt of Northrop Grumman Shares in Connection with Our Offer May
Be Taxable to You....................................................... 21
Contemplated Equity Offering; 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................................................................... 22
The Trading Price of Northrop Grumman Common Stock May Be Affected by
Factors Different from Those Affecting the Price of Newport News Common
Stock................................................................... 22
Failure to Complete the Merger Could Negatively Impact Newport News'
Stock Price and Future Business and Operations.......................... 22
Our Indebtedness Following Our Offer Will Be Higher Than Our Existing
Indebtedness............................................................ 23
Successful Integration of the Northrop Grumman and Newport News Business
Is Not Assured.......................................................... 23
We May Be Unable to Retain Personnel Who Are Key to Northrop Grumman's
and Newport News' Business.............................................. 23
Risks Related to the Business of Northrop Grumman and Newport News....... 23
INFORMATION ABOUT THE COMPANIES........................................... 24
Northrop Grumman Corporation............................................. 24
Newport News............................................................. 25
REASONS FOR OUR OFFER..................................................... 26
RECOMMENDATION OF NEWPORT NEWS' BOARD OF DIRECTORS........................ 27
FINANCIAL FORECASTS....................................................... 28
BACKGROUND OF OUR OFFER................................................... 29
Background............................................................... 29
THE MERGER AGREEMENT...................................................... 32
Our Offer................................................................ 32
Stockholder Mailings..................................................... 32
The Merger............................................................... 33
Effective Time of the Merger............................................. 33
Certificate of Incorporation; Bylaws; Directors and Officers............. 33
Conversion of Shares..................................................... 33
Treatment of Dissenting Shares........................................... 33
Treatment of Stock Options, Performance Shares and Restricted Stock...... 33
Representations and Warranties........................................... 34
Covenants................................................................ 35
Other Potential Acquirers................................................ 37
Directors and Officers Indemnification and Insurance..................... 38
Stockholders Meeting..................................................... 38
Designation of Directors................................................. 38
Employee Benefit Matters................................................. 39
Conditions to the Merger................................................. 39
Termination Events....................................................... 39
Termination Fee.......................................................... 40
Amendment................................................................ 41
i
Page
OUR OFFER................................................................ 42
Consideration to Be Paid in Our Offer................................... 42
Consideration to Be Paid in the Merger.................................. 45
Timing of Our Offer..................................................... 46
Extension............................................................... 46
Exchange of Newport News Shares; Delivery of Northrop Grumman Common
Stock and Cash......................................................... 47
Cash Instead of Fractional Shares of Northrop Grumman Common Stock...... 48
Withdrawal Rights....................................................... 48
Procedure for Tendering................................................. 49
Guaranteed Delivery..................................................... 51
Material U.S. Federal Income Tax Consequences of Our Offer and the
Merger................................................................. 52
Effect of Our Offer on Market for Newport News Shares; Registration
Under the Exchange Act................................................. 57
Purpose of Our Offer; the Merger; Appraisal Rights...................... 58
Plans for Newport News After the Merger................................. 59
Conditions to Our Offer................................................. 59
Regulatory Approvals.................................................... 61
Source and Amount of Funds.............................................. 61
Certain Relationships with Newport News................................. 62
Fees and Expenses....................................................... 63
Accounting Treatment.................................................... 64
Stock Exchange Listing.................................................. 64
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION.............. 65
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.............. 66
DESCRIPTION OF NORTHROP GRUMMAN COMMON STOCK............................. 72
COMPARISON OF RIGHTS OF HOLDERS OF NORTHROP GRUMMAN SHARES AND NEWPORT
NEWS SHARES............................................................. 73
FORWARD-LOOKING STATEMENTS............................................... 79
LEGAL MATTERS............................................................ 80
EXPERTS.................................................................. 80
Annex A -- DIRECTORS AND EXECUTIVE OFFICERS OF NORTHROP GRUMMAN.......... A-1
Annex B -- SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW --
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS............ B-1
Annex C -- AGREEMENT AND PLAN OF MERGER AMONG NORTHROP GRUMMAN
CORPORATION, PURCHASER CORP. I AND NEWPORT NEWS SHIPBUILDING
INC., DATED AS OF NOVEMBER 7, 2001.............................. C-1
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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 November 21, 2001 (five business days before the
scheduled expiration date of our offer).
ii
QUESTIONS AND ANSWERS ABOUT THE PROPOSED ACQUISITION
Q: What are Northrop Grumman and Newport News proposing?
A: Northrop Grumman proposes to acquire all the outstanding shares of Newport
News common stock. We have entered into a merger agreement with Newport
News pursuant to which we are offering, through Purchaser Corp. I, our
wholly owned subsidiary, to exchange shares of our common stock or cash, or
a combination of both, for each outstanding share of Newport News common
stock. After the offer is completed, subject to approval by the
stockholders of Newport News if necessary, Newport News will merge with
Purchaser Corp. I. As a result of our offer and the merger, Newport News
will become a wholly owned subsidiary of Northrop Grumman.
Q: Does Newport News support your offer and the merger?
A: Yes. Newport News' board of directors has determined that the merger
agreement and the transactions contemplated thereby, including our offer
and the merger, taken together, are advisable and fair to, and in the best
interests of, Newport News stockholders and unanimously recommends that
Newport News stockholders accept our offer and tender their shares in our
offer. Newport News' board of directors has approved the merger agreement
and the transactions contemplated thereby. Information about the
recommendation of Newport News' board of directors is more fully described
in Newport News' amended Solicitation/Recommendation Statement on Schedule
14D-9/A, which is being mailed to Newport News stockholders together with
this prospectus.
Q: What will I receive in exchange for my shares?
A: 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 42.
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
5-day trading period ending on the trading day immediately preceding the
second full trading day before our offer expires (the "Northrop Grumman
Stock Value"). However, in no event will the exchange ratio be more than
0.84375 ($67.50/$80.00) or less than 0.675 ($67.50/$100.00). We will issue a
press release before 9:00 A.M., New York City time, on the second full
trading day before our offer expires, announcing the exchange ratio and the
Northrop Grumman Stock Value.
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.
We will pay $892,026,990 in cash for Newport News shares in our offer and
the merger (the "Base Cash Amount"), which amount will be (1) decreased by
up to $195,000,000 to the extent indebtedness is repaid to Newport News with
Newport News shares, as contemplated in the merger agreement, (2) subject to
the adjustments discussed below, (3) increased by $67.50 for each additional
outstanding Newport News share
1
due to option exercises, and (4) increased for fractional shares (the
"Adjusted Cash Amount"). The adjustments to the Base Cash Amount referred to
in point (2) above are as follows:
If the Northrop Grumman Stock Value is less than $90.00 but equal to or
greater than $80.00, 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.
If the Northrop Grumman Stock Value is less than $80.00, we will increase
the aggregate amount of cash available for our offer and the merger by
$166,368,850.
If the Northrop Grumman Stock Value is greater than $90.00 but less than or
equal to $100.00, 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 $100.00, we will reduce
the aggregate amount of cash available for our offer and the merger by
$166,368,850.
The amount of cash available in our offer (the "Offer Cash Amount") will
equal the Adjusted Cash Amount multiplied by the percentage of outstanding
Newport News shares tendered in our offer.
Because of the manner in which the exchange ratio is calculated, Newport
News 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 Newport News share of value (based on the
Northrop Grumman Stock Value) if the Northrop Grumman Stock Value is between
$80.00 and $100.00, will receive less than $67.50 per Newport News share of
value if the Northrop Grumman Stock Value is less than $80.00 and will
receive more than $67.50 per Newport News share of value if the Northrop
Grumman Stock Value is more than $100.00.
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 Northrop Grumman Stock 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 issue a press release announcing the
exchange ratio and file the press release with the SEC. We will issue the
press release before 9:00 A.M., New York City time, on the second full
trading day before our offer closes, announcing the final exchange ratio and
the average closing price of the Northrop Grumman shares over the 5-day
trading period ending on the trading day immediately preceding the second
full trading day before the expiration of our offer. Based on the scheduled
expiration of our offer at 12:00 Midnight on November 29, 2001, November 20,
2001 would be the first day and November 27, 2001 would be the last day of
the 5-day trading period and we would issue our press release before 9:00
a.m. on November 28, 2001. For more information, see "Our Offer--
Consideration to Be Paid."
The following is a table showing the hypothetical Northrop Grumman Stock Value
along with the respective exchange ratios.
Hypothetical Northrop Grumman Stock Value
$75.00 $80.00 $85.00 $90.00 $95.00 $100.00 $105.00
Exchange Ratio .84375 .84375 .791176 .75 .7105263 .675 .675
2
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
. 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: What happens if I do not tender my Newport News shares in your offer?
A: Assuming that we completed our offer and have accepted the shares tendered
in our offer, under the terms of the merger agreement, we will exchange a
combination of cash and newly issued Northrop Grumman common stock for all
Newport News shares outstanding at the time we complete the merger.
Each Newport News stockholder may make for the Newport News shares exchanged
by him or her pursuant to the merger, either an election for $67.50 in cash,
without interest, or for a number of shares of Northrop Grumman common stock
equal to the exchange ratio, subject, in each case, to the election and
proration procedures and limitations described below under "Our Offer--
Consideration to be Paid in Our Offer" on page 42. The exchange ratio for
the offer consideration and the merger consideration will be the same,
regardless of the Northrop Grumman stock price at the time of completion of
the merger.
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 after the expiration
date, unless we have previously accepted them pursuant to our offer. 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 48.
3
Q:How are you funding the cash portion of your offer?
A: As described more fully under "Our Offer--Source and Amount of Funds" on
page 61, we expect to fund the cash portion of our offer from working
capital and currently available lines of credit.
Q:How long will it take to complete your offer?
A: We hope to complete our offer in November 2001. We expect to complete the
merger without a stockholder vote shortly after we complete our offer if we
acquire 90% of the outstanding Newport News shares in our offer. If less
than 90% of the outstanding shares are tendered in our offer, then the
merger will require Newport News stockholder approval at a special meeting.
If a special meeting is required, the merger will not close until the first
quarter of 2002.
Q: Is Northrop Grumman's financial condition relevant to my decision to tender
my shares in your offer?
A: Yes. Since shares of Newport News common stock accepted in our offer may be
exchanged in part for shares of Northrop Grumman common stock, you should
consider our financial condition before you decide to tender shares in our
offer. In considering Northrop Grumman's financial condition, you should
review carefully the information in this prospectus and the documents
incorporated by reference in this prospectus because they contain detailed
business, financial and other information about 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 shares of Northrop Grumman stock to be issued in our offer and the
merger having been accepted for listing on the New York Stock Exchange;
and
. the registration statement of which this prospectus is a part having
been declared effective by the SEC and is not subject to any stop order.
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 that constitutes a "reorganization" for federal income tax
purposes. Our counsel, Fried, Frank, Harris, Shriver & Jacobson, has
provided an opinion to that effect, based on certain assumptions and
representations. At the time of the merger we will seek to have Fried,
Frank, Harris Shriver & Jacobson confirm its opinion based on the facts
existing at that time. If that opinion cannot be obtained, the merger will
be restructured as a merger of Purchaser Corp. I into Newport News. If the
merger is restructured, your exchange of Newport News shares for Northrop
Grumman shares and/or cash pursuant to our offer or the merger will be a
fully taxable transaction. For more information, see "Our Offer--Material
U.S. Federal Income Tax Consequences of Our Offer and the Merger" on page
52.
4
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.
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: Whom 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. 233 Broadway 500 West Madison Street
Room 1024 13th Floor Suite 1400
Washington, D.C. 20549 New York, New York 10279 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. 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 Reports on Form 10-Q for the period ended March 31, 2001, as
filed on May 10, 2001, for the period ended June 30, 2001, as filed on
August 9, 2001 and for the period ended September 30, 2001, as filed on
November 5, 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-3 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
October 10, 2001;
. Current Report on Form 8-K, as filed on April 17, 2001, and as amended
on Form 8-K/A, as filed on June 14, 2001; and
6
. Tender Offer Statement on Schedule TO, as filed on May 23, 2001, and as
amended on May 24, 2001, June 15, 2001, June 19, 2001, June 21, 2001,
July 6, 2001, July 20, 2001, August 3, 2001, August 10, 2001, August 17,
2001, August 21, 2001, August 31, 2001, September 14, 2001, September
21, 2001, September 28, 2001, October 5, 2001, October 9, 2001, October
9, 2001, October 12, 2001, and October 19, 2001, October 24, 2001,
October 26, 2001, and November 5, 2001, November 7, 2001, and November
8, 2001, and as it may be amended from time to time.
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;
. Quarterly Reports on Form 10-Q for the period ended March 18, 2001, as
filed on April 27, 2001, for the period ended June 17, 2001, as filed on
July 19, 2001 and for the period ended September 16, 2001 as filed on
October 25, 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;
and
. Current Reports on Form 8-K, as filed on April 25, 2001 and November 8,
2001.
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 November 21,
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 42)
Each Newport News stockholder will have the right 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" beginning on page 42.
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 5-day
trading period ending on the trading day immediately preceding the second full
trading day before our offer expires (the "Northrop Grumman Stock Value").
However, in no event will the exchange ratio be more than 0.84375
($67.50/$80.00) or less than 0.675 ($67.50/$100.00). We will issue a press
release before 9:00 A.M., New York City time, on the second full trading day
before our offer expires, announcing the exchange ratio and the Northrop
Grumman Stock Value. Based on the scheduled expiration of our offer at 12:00
Midnight on November 29, 2001, November 20, 2001 would be the first day and
November 27, 2001 would be the last day of the five trading day period and we
would issue our press release before 9:00 a.m. on November 28, 2001.
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 (the "Remaining Northrop Grumman Available Shares").
We will pay $892,026,990 in cash for Newport News shares in our offer and
the merger (the "Base Cash Amount"), which amount will be (1) decreased by up
to $195,000,000 to the extent indebtedness is repaid to Newport News with
Newport News shares, as contemplated in the merger agreement, (2) subject to
the adjustments discussed below, (3) increased by $67.50 for each additional
outstanding Newport News share due to option exercises, and (4) increased for
fractional shares (the "Adjusted Cash Amount"). The adjustments to the Base
Cash Amount referred to in point (2) above are as follows:
If the Northrop Grumman Stock Value is less than $90.00 but equal to or
greater than $80.00, 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.
8
If the Northrop Grumman Stock Value is less than $80.00, we will increase
the aggregate amount of cash available for our offer and the merger by
$166,368,850.
If the Northrop Grumman Stock Value is greater than $90.00 but less than or
equal to $100.00, 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 $100.00, we will reduce
the aggregate amount of cash available for our offer and the merger by
$166,368,850.
The amount of cash available in our offer (the "Offer Cash Amount") will
equal the Adjusted Cash Amount multiplied by the percentage of outstanding
Newport News shares tendered in our offer.
Because of the manner in which the exchange ratio is calculated, Newport
News 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 Newport News share of value (based on the
Northrop Grumman Stock Value) if the Northrop Grumman Stock Value is between
$80.00 and $100.00, will receive less than $67.50 per Newport News share of
value if the Northrop Grumman Stock Value is less than $80.00 and will receive
more than $67.50 per Newport News share of value if the Northrop Grumman Stock
Value is more than $100.00.
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 Northrop Grumman Stock 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 Purchaser Corp. I, a wholly owned subsidiary of Northrop Grumman.
Each share of Newport News common stock that has not been exchanged or accepted
for exchange in our offer would have the right in the merger to make the same
elections as in our offer, to the extent of (a) the amount of Adjusted Cash
Amount minus the amount of cash paid in our offer and (b) the Northrop Grumman
Available Shares remaining after completion of our offer, subject to the
proration procedures and other limitations of our offer. The exchange ratio for
our offer consideration and the merger consideration will be the same,
regardless of the Northrop Grumman stock price at the time of completion of the
merger.
See "Our Offer" on page 42.
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 52)
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
9
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 that constitutes a
"reorganization" for federal income tax purposes. Our counsel, Fried, Frank,
Harris, Shriver & Jacobson, has provided an opinion to that effect, based on
certain assumptions and representations. At the time of the merger we will seek
to have Fried, Frank, Harris Shriver & Jacobson confirm its opinion based on
the facts existing at that time. If that opinion cannot be obtained, the merger
will be restructured as a merger of Purchaser Corp. I into Newport News. If the
merger is restructured, your exchange of Newport News shares for Northrop
Grumman shares and/or cash pursuant to our offer or the merger will be a fully
taxable transaction. For more information, see "Our Offer--Material U.S.
Federal Income Tax Consequences of Our Offer and the Merger" on page 52.
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.
Information about the Companies (page 24)
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. As a
prime contractor, principal subcontractor, partner or preferred supplier, we
participate in many high-priority defense and commercial technology programs in
the United States and abroad. Northrop Grumman is a holding company formed in
connection with the acquisition of Litton Industries Inc. in April 2001.
Northrop Grumman is aligned into five business sectors: Integrated Systems,
Electronic Systems, Information Technology, Ship Systems and Component
Technologies.
Based on the closing price of Northrop Grumman common stock on November 9,
2001 our market capitalization was approximately $8.4 billion.
Purchaser Corp. I
c/o Northrop Grumman Corporation
1840 Century Park East
Los Angeles, California 90067
(310) 553-6262
Purchaser Corp. I is a wholly owned subsidiary of Northrop Grumman.
Purchaser Corp. I was organized on October 11, 2001 for the purpose of
acquiring the Newport News shares tendered in response to our offer and merging
with Newport News in the merger. It has not carried on any activities other
than in connection with the transactions contemplated by the merger agreement.
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 November 9, 2001, Newport News' market capitalization was
approximately $2.4 billion.
10
Reasons for Our Offer (page 26)
We believe that our proposed offer and the merger represent a compelling
opportunity to enhance value for both Newport News and Northrop Grumman
stockholders. We believe that 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.
Achieving these objectives depends on successfully integrating companies
that have previously operated independently and on the other uncertainties
described in this prospectus under "Risk Factors" on page 21.
Newport News' Recommendation (page 27)
Newport News' board of directors has determined by unanimous vote that the
merger agreement and transactions contemplated by the merger agreement,
including the offer and merger, taken together are advisable and fair to and in
the best interests of Newport News stockholders, and recommends that Newport
News stockholders accept our offer and tender their shares into our offer.
Newport News' board of directors has determined by unanimous vote to approve
the merger agreement. Information about the recommendation of Newport News'
board of directors is more fully set forth in Newport News' amended
Solicitation/Recommendation Statement on Schedule 14D-9/A, which is being
mailed to Newport News stockholders together with this prospectus. See "Where
You Can Find More Information" beginning on page 6.
Comparative Market Price Information
(page 19)
Northrop Grumman common stock trades on the New York Stock Exchange and on
the Pacific 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 November 9, 2001, the last practicable trading
day prior to the date of this prospectus.
Northrop
Grumman
Common Newport News
Stock Common Stock
-------- ------------
May 8, 2001............................... $91.50 $65.00
November 9, 2001.......................... $97.60 $67.95
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 65)
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 September 30, 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
11
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 42)
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
. 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 42.
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 shares of Northrop Grumman stock to be issued in our offer and the
merger having been accepted for listing on the New York Stock Exchange;
and
. the registration statement of which this prospectus is a part having
been declared effective by the SEC and is not subject to any stop order.
These conditions and other conditions to our offer are discussed in this
prospectus under "Our Offer--Conditions to Our Offer" on page 59.
Our Offer Is Currently Scheduled to Expire on November 29, 2001
Our offer is scheduled to expire at 12:00 midnight, New York City time, on
November 29, 2001. The term "expiration date" means 12:00 midnight, New York
City time, on November 29, 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. Such 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.
12
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 after the expiration date, unless
we previously accepted them pursuant to our offer.
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 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 May
Exist in Connection with the Merger) (page 58)
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 may have the right
under the Delaware General Corporation Law to 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
64)
Northrop Grumman will account for the merger as a purchase for financial
reporting purposes.
Forward-Looking Statements May Prove Inaccurate (page 79)
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,
13
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 nine months ended
September 30, 2000 and for Northrop Grumman for the nine months ended September
30, 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 nine months ended September 30, 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 nine months ended
September 30, 2001 and 2000 have been derived from unaudited consolidated
financial statements and notes thereto of Northrop Systems and Northrop
Grumman. The selected historical financial data for each of the years in the
five-year period ending December 31, 2000 do not give effect to the Litton
acquisition or the resulting debt. The historical operating data for the nine
months ended September 30, 2001 include six months of Litton's operating
results subsequent to the acquisition on April 3, 2001.
The operating results for the nine months ended September 30, 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 were obtained from
the Unaudited Pro Forma Condensed Combined Financial Statements beginning on
page 66. The pro forma financial statements are 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 71. The
pro forma financial 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 nine months ended September 30, 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 September 16, 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 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 Data.
The acquisition of Litton, which is valued at approximately $5.2 billion,
including the assumption of Litton's net debt of $1.3 billion, is accounted for
using the purchase method of accounting. Under the purchase method of
accounting, the purchase price is allocated to the underlying tangible and
intangible assets acquired
15
and liabilities assumed based on their respective fair market values, with the
excess recorded as goodwill. The Unaudited Pro Forma Condensed Combined
Financial Data reflects preliminary estimates of the fair market value of the
Litton assets acquired and liabilities assumed and the related allocations of
purchase price, and preliminary estimates of adjustments necessary to conform
Litton data to Northrop Grumman's accounting policies. The Unaudited Pro Forma
Condensed Combined Financial Data do not include the recognition of liabilities
associated with certain potential restructuring activities. Northrop Grumman is
currently reviewing the preliminary estimates of the fair market value of the
Litton assets acquired and liabilities assumed, including valuations associated
with certain contracts and preliminary valuation study results for intangible
assets, property, plant and equipment, and retiree benefits assets and
liabilities. Northrop Grumman also is evaluating several possible restructuring
activities of Litton operations. The final determination of the fair market
value of assets acquired and liabilities assumed and final allocation of the
purchase price may differ from the amounts assumed in the Unaudited Pro Forma
Condensed Combined Financial Data. Adjustments to the purchase price
allocations are expected to be finalized by December 31, 2001, and will be
reflected in future Northrop Grumman filings. There can be no assurance that
such adjustments will not be material.
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 Newport News assets to be acquired 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 Newport News
data to Northrop Grumman's accounting policies. Accordingly, Northrop Grumman
has used the historical book values of the assets and liabilities of Newport
News and has used the historical revenue recognition policies of Newport News
to prepare the Unaudited Pro Forma Condensed Combined Financial Statements on
page 66, with the excess of the purchase price over the historical net assets
of 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 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, except
for preliminary estimates of costs to consolidate the Litton and Northrop
Grumman Corporate offices.
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 Statements on page 66.
16
Northrop Northrop
Grumman/ Grumman/
Litton/Newport Northrop Litton/Newport
News Grumman News Northrop Grumman
Historical
Pro Forma Data Pro Forma Historical Data
-------------- -------------- -------------- ----------------------------------
Nine Months Ended
September 30, 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.............. $12,220 $ 9,254 $5,389 $15,255 $7,618 $7,616 $7,367 $7,798 $7,667
Income from continuing
operations, net of
tax................... 334 296 481 695 625 474 193 318 330
Basic earnings per
share, from continuing
operations............ 3.10 3.53 6.86 6.69 8.86 6.84 2.82 4.76 5.27
Diluted earnings per
share, from continuing
operations............ 3.08 3.50 6.84 6.66 8.82 6.80 2.78 4.67 5.18
Cash dividends per
common share.......... 1.20 1.20 1.20 1.60 1.60 1.60 1.60 1.60 1.60
Balance Sheet Data:
Total assets........... $20,962 $17,214 $9,354 N/A $9,622 $9,285 $9,536 $9,677 $9,645
Total long-term
obligations........... 9,270 7,636 3,111 N/A 3,015 3,564 4,319 4,339 4,694
Redeemable preferred
stock................. 350 350 -- N/A -- -- -- -- --
17
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 nine months ended September 16, 2001 and September 17, 2000. The
operating results for the nine months ended September 16, 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 September 16, 2001 and September 17, 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.
Nine Months Ended Year Ended December 31,
------------------------------------- -----------------------------------
September 16, 2001 September 17, 2000 2000 1999 1998 1997 1996
(in millions, except per share data)
Operating Data:
Revenues.............. $1,639 $1,494 $2,072 $1,863 $1,862 $1,707 $1,870
Net earnings (loss)... 72 66 90 97 66 (48) 55
Net earnings (loss)
per common share,
basic................ 2.43 2.12 2.91 2.83 1.91 (1.39) 1.60
Net earnings (loss)
per common share,
diluted.............. 2.29 2.03 2.77 2.72 1.85 (1.39) 1.60
Cash dividends
declared per
share (a)............ .12 .12 .16 .16 .16 .16 N/A
Balance Sheet Data:
Total assets.......... $1,638 $1,506 $1,476 $1,512 $1,600 $1,515 $1,535
Long-term
obligations.......... 432 508 498 525 591 548 596
--------
(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.
18
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. Any fluctuation in the Northrop
Grumman common stock price within the range from $80.00 to $100.00 will not
have a material impact on our pro forma combined or equivalent pro forma
combined per share data. 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.
Nine Months Year
Ended Ended
September 30, 2001 December 31, 2000
------------------ -----------------
Northrop Grumman and Northrop Systems --
Historical
Historical per common share:
Income per basic share................. $ 3.53 $ 8.86
Income per diluted share............... 3.50 8.82
Dividends declared-Common.............. 1.20 1.60
Dividends declared-Preferred........... 3.44 --
Book value per share................... 61.57 54.38
Litton -- Historical
Historical per common share:
Income per basic share................. N/A $ 4.95
Income per diluted share............... N/A 4.90
Dividends declared-Common.............. N/A --
Dividends declared-Preferred........... N/A 2.00
Book value per share................... N/A 35.24
Newport News -- Historical*
Historical per common share:
Income per basic share................. $ 2.43 $ 2.91
Income per diluted share............... 2.29 2.77
Dividends declared-Common.............. 0.12 0.16
Dividends declared-Preferred........... -- --
Book value per share................... 10.29 8.69
Unaudited Pro Forma Combined
Unaudited pro forma per share of
Northrop Grumman common shares:
Income per basic share................. $ 3.10 $ 6.69
Income per diluted share............... 3.08 6.66
Dividends declared-Common.............. 1.20 1.60
Dividends declared-Preferred........... 5.25 7.00
Book value per share................... 66.19 N/A
Unaudited Pro Forma Newport News
Equivalents*
Unaudited pro forma per share of Newport
News common shares:
Income per basic share................. $ 2.33 $ 5.02
Income per diluted share............... 2.31 5.00
Dividends declared-Common.............. 0.90 1.20
Dividends declared-Preferred........... 3.94 5.25
Book value per share................... 49.64 N/A
--------
* Nine month data for Newport News is for the nine month period ended September
16, 2001.
19
Comparative Market Data (See page 65)
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 November 9,
2001. May 8, 2001 was the last trading day before the announcement of our
intention to make an offer for Newport News shares and November 9, 2001 was the
last practicable trading day prior to 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 65.
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
November 9, 2001........ $98.50 $97.30 $97.60 $68.00 $67.62 $67.95 $73.88 $72.98 $73.20
20
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 $80.00.
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
Fried, Frank, Harris, Shriver & Jacobson has provided an opinion, based on
certain assumptions and representations, that our offer and the merger will be
treated as a single integrated transaction that constitutes a reorganization
for federal income tax purposes. However, certain of the assumptions, including
in particular an
21
assumption regarding the value of Northrop Grumman common shares at the time of
the transaction, cannot be definitively confirmed prior to completion of our
offer and the merger. If our offer and the merger are not treated as a single
integrated transaction that constitutes a reorganization for federal income tax
purposes, the exchange of Newport News shares for Northrop Grumman common stock
pursuant to our offer will be fully taxable to you for U.S. federal income tax
purposes.
At the time of the merger we will seek to have Fried, Frank, Harris, Shriver
& Jacobson confirm its opinion based on the facts existing at that time. If
that opinion cannot be obtained, the merger will be restructured as a merger of
Purchaser Corp. I into Newport News. If the merger is restructured, or is not
completed for any reason, or if our offer and the merger otherwise are not
treated as a single integrated transaction that constitutes a reorganization
for federal income tax purposes, your exchange of Newport News shares for
Northrop Grumman shares and/or cash pursuant to our offer will be a fully
taxable transaction for U.S. federal income tax purposes.
For more information, see "Our Offer--Material U.S. Federal Income Tax
Consequences of Our Offer and the Merger--Tax Consequences if Our Offer and the
Merger Are Not Treated as a Reorganization" on page 56.
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.
Contemplated Equity Offering; 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
On November 6, 2001, we announced that we are planning to a pursue a public
offering of our common stock and debt convertible into common stock. In our
announcement, we stated that we expect the proceeds of that offering to be
approximately $1.2 billion. The sale of these securities in the public market
could have the effect of depressing the market price of our common stock. As of
September 30, 2001, Northrop Grumman had 85,671,983 shares of common stock
outstanding and also had reserved 6,876,252 shares of common stock for issuance
in connection with the exercise of outstanding options to purchase 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, some 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.
22
Our Indebtedness Following Our Offer Will Be Higher Than Our Existing
Indebtedness
The indebtedness of Northrop Grumman as of September 30, 2001 was
approximately $5.319 billion. Northrop Grumman's pro forma indebtedness as of
September 30, 2001 giving effect to our offer and the merger (as described in
"Selected Historical and Unaudited Pro Forma Combined Financial Data") is
approximately $6.714 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.
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 79.
23
INFORMATION ABOUT THE COMPANIES
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 shipbuilding and systems. As a prime
contractor, principal subcontractor, partner or preferred supplier, we
participate in many high-priority defense and commercial technology programs in
the United States and abroad. Northrop Grumman is a holding company formed in
connection with the acquisition of Litton Industries, Inc. in April 2001.
Northrop Grumman Corporation is aligned into five business sectors as
follows:
Integrated Systems. This sector includes the design, development and
production of airborne early warning, electronic warfare and surveillance and
battlefield management systems. Integrated Systems 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. Integrated Systems also has
a principal role in producing the U.S. Navy's F/A18 Hornet strike fighter.
Electronic Systems. 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. This sector
also provides tactical military radars and country-wide air defense systems,
plus airborne electronic countermeasures systems intended to jam enemy aircraft
and weapons systems. The sector includes the advanced electronics businesses,
which design, develop and manufacture inertial navigation, guidance and
control, IFF (identification friend or foe), and marine electronic systems, and
provide electronic warfare systems and integrated avionics systems and
shipboard information and communication systems. The U.S. Government is a
significant customer.
Information Technology. This sector includes the design, development,
operation and support of computer systems for scientific and management
information. Information Technology 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. Information Technology provides base operations support for NASA's
Kennedy Space Center, Cape Canaveral Air Station and Patrick Air Force Base,
among others. In addition, Information Technology provides information
technology services to commercial customers and to the other Northrop Grumman
sectors. Information Technology includes the information systems businesses,
which design, develop, integrate and support computer-based information systems
and provide information technology and services primarily for government
customers.
Ship Systems. This sector is engaged in the building of large multimission
non-nuclear surface ships for the U.S. Navy as well as for other government and
commercial customers worldwide and is a provider of overhaul, repair,
modernization, ship design and engineering services. The U.S. Government is a
significant customer.
Component Technologies. This sector includes international suppliers of
complex backplanes, connectors, laser crystals, solder materials, specialty
products and other electronic components used primarily in the
telecommunications, industrial and computer markets.
The principal executive offices of Northrop Grumman, Northrop Systems and
Litton are located at 1840 Century Park East, Los Angeles, California 90067 and
their 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.
24
Newport News
Newport News is the largest non-government-owned shipyard in the U.S., 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 nuclear powered 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
aircraft carrier refuelings and overhauls have generated the majority of
Newport News' revenues in recent years. 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.
25
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;
. the acquisition would provide 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;
. we believe the combination of Northrop Grumman and Newport News will
strengthen our position in the defense industry marketplace. Acquisition
of Newport News' nuclear-powered aircraft carrier and submarine
capabilities would broaden Northrop Grumman's base, enabling it to
respond to the U.S. Government's demand by providing products
complimentary to Northrop Grumman's existing businesses; and
. Newport News' strength in the design, construction, repair, maintenance,
overhaul and refueling of nuclear-powered aircraft carriers and
submarines should provide an opportunity for us to expand our presence
into those markets.
Achieving these objectives depends on successfully integrating companies
that have previously operated independently and on other uncertainties
described under "Risk Factors" on page 21.
26
RECOMMENDATION OF NEWPORT NEWS' BOARD OF DIRECTORS
Newport News' board of directors has determined by unanimous vote that the
merger agreement and transactions contemplated by the merger agreement,
including our offer and the merger, taken together, are advisable and fair to
and in the best interests of Newport News stockholders, and recommends that
Newport News stockholders accept our offer and tender their shares into our
offer. Newport News' board of directors has determined by unanimous vote to
approve the merger agreement.
Information about the recommendation of Newport News' board of directors is
more fully described in Newport News' amended Solicitation/Recommendation
Statement on Schedule 14D-9/A, which is being mailed to Newport News
stockholders together with this prospectus. The amended
Solicitation/Recommendation Statement of Newport News on Schedule 14D-9
includes the opinion of Credit Suisse First Boston Corporation to the Newport
News board of directors as to the fairness, from a financial point of view, of
the aggregate consideration to be received in the offer and the merger by
holders of Newport News common stock other than Northrop Grumman and its
affiliates. You should read this opinion carefully in its entirety for a
description of the assumptions made, procedures followed, matters considered
and limitations on the review undertaken by Credit Suisse First Boston in
rendering its opinion. The opinion of Credit Suisse First Boston is addressed
to the Newport News board of directors, relates only to the fairness, from a
financial point of view, of the aggregate consideration to be received in the
offer and the merger by the holders of Newport News common stock, other than
Northrop Grumman and its affiliates, and does not constitute a recommendation
to any stockholder as to whether or not any stockholder should tender shares of
Newport News common stock in the offer, the form of consideration to be
selected by any stockholder in the offer and the merger or how any stockholder
should vote on the merger or act as to any other matter relating to the offer
or the merger.
27
FINANCIAL FORECASTS
During the course of discussions between representatives of Newport News and
our representatives prior to entering into the merger agreement, Newport News
provided us with certain projected financial data. Newport News has advised us
that these projections reflect numerous assumptions made by management of
Newport News, including assumptions with respect to the profitability of ship
construction, refueling and maintenance contracts with the U.S. Navy, the award
of new contracts by the Navy and the terms thereof, the markets for Newport
News' other products and services, the level of repurchases by Newport News of
its outstanding shares, the favorable resolution of pending contract disputes
with Newport News' customers, expected dividends from a venture in which
Newport News has an equity interest and favorable changes in working capital.
The projections also embodied assumptions regarding general business, economic,
market and financial conditions and other matters, including effective tax
rates consistent with historical levels for Newport News and interest rates and
the anticipated amount of borrowings by Newport News. Some of the projections
also included certain non-recurring earnings, principally from the assumed sale
in the future of certain assets which would result in one-time non-recurring
gains.
The projections provided by Newport News, excluding non-recurring items,
forecast revenues increasing from $2.23 billion in 2001 to $2.76 billion in
2005, operating income increasing from $232 million in 2001 to $295 million in
2005, earnings before interest, taxes, depreciation and amortization increasing
from $286 million in 2001 to $345 million in 2005, and net income increasing
from $110 million in 2001 to $171 million in 2005.
The projections are forward-looking statements that are subject to
significant uncertainties and contingencies and based on assumptions, many of
which are beyond Newport News' control and none of which were subject to
approval by us. See "Forward-Looking Statements" on page 79. In addition, they
do not necessarily represent the assumed performance by Newport News if it is
acquired by us. Accordingly, there can be no assurance that the assumptions
made in preparing the projections will prove accurate. It is expected that
there will be differences between actual and projected results, and actual
results may be materially greater or less than those contained in the
projections.
In addition, these projections were not prepared in accordance with
generally accepted accounting principles, and neither our nor Newport News'
independent accountants have examined, compiled, or performed any procedures
with respect to, any of these projections or expressed any conclusion or
provided any other form of assurance with respect to these projections and
accordingly assume no responsibility for these projections, and disclaim any
association with these projections. These projections were prepared with a
limited degree of precision, and were not prepared with a view to public
disclosure or compliance with the published guidelines of the SEC or the
guidelines established by the American Institute of Certified Public
Accountants regarding projections, which would require a more complete
presentation of data than as shown above.
The inclusion of projections in this prospectus should not be regarded as an
indication that Northrop Grumman nor any of their respective affiliates or
representatives considered or considers the projections to be an accurate
prediction of future events, and the projections should not be relied upon as
such. None of these persons assumes any responsibility for the reasonableness,
completeness, accuracy or reliability of such projections. None of Northrop
Grumman, Newport News or any of their respective affiliates or representatives
has made or makes any representation to any person regarding the ultimate
performance of Newport News compared to the information contained in the
projections, and none of these persons intends to update or otherwise revise
the projections to reflect circumstances existing after the date when made or
to reflect the occurrence of future events even in the event that any or all of
the assumptions underlying the projections are shown to be in error. However,
updated information will be provided to the extent required by the federal
securities laws.
28
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 was 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.
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, Northrop Grumman 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, Northrop Grumman commenced its offer.
On May 25, 2001, Northrop Grumman and General Dynamics received a request
from the Department of Justice for additional information under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 with respect to each company's
proposed acquisition of Newport News.
29
On June 5, 2001, Newport News' board of directors met and determined that it
was unable to take a position with respect to the Northrop Grumman offer until
Newport News further investigated the position of the U.S. government. Newport
News' board of directors also unanimously reaffirmed its recommendation of the
General Dynamics offer and advised Newport News stockholders to tender their
shares as part of the General Dynamics offer.
On June 15, 2001, Mr. Kresa sent a letter to Mr. Fricks, stating that
Northrop Grumman was disappointed to learn that Newport News' board of
directors decided not to take a position with regard to Northrop Grumman's
offer. Mr. Kresa requested access to the same information that Newport News
provided General Dynamics during the governmental review process. Mr. Kresa
reiterated his belief that there were substantial antitrust issues facing the
General Dynamics merger. This letter was filed as Exhibit (a)(5)(E) to our
amended Schedule TO, filed with the SEC on June 15, 2001. See "Where You Can
Find More Information" beginning on page 5.
On June 18, 2001, Northrop Grumman received a request from the Department of
Justice for additional information under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 regarding its proposed acquisition of Newport News.
General Dynamics and Northrop Grumman announced, on August 9, 2001 and on
August 10, 2001, respectively, that they had entered into an agreement with the
Department of Defense and the Department of Justice providing that both General
Dynamics and Northrop Grumman comply with a Department of Justice request not
to issue their intent to consummate its proposed acquisition of Newport News
before August 20, 2001. The agreement provided that the Department of Justice
and the Department of Defense would inform General Dynamics and Northrop
Grumman of their enforcement intentions regarding the proposed transactions
after receiving notification of General Dynamics' or Northrop Grumman's intent
to close their proposed acquisition of Newport News.
On October 4, 2001, Mr. Kresa sent a letter to Mr. Fricks, reaffirming
Northrop Grumman's view that its proposal was a superior proposal to that of
General Dynamics. In addition, Mr. Kresa expressed a willingness to have
Northrop Grumman enter into a confidentiality agreement in order to facilitate
discussions with Newport News. The letter was filed as Exhibit (a)(5)(T) to our
amended Schedule TO filed with the SEC on October 9, 2001.
On October 4, 2001, Newport News issued a press release announcing that its
board of directors would meet on Friday, October 5, 2001 to review the General
Dynamics and the Northrop Grumman offers in light of the increase of the
Northrop Grumman stock price.
On October 5, 2001, Mr. Fricks called Mr. Kresa to invite Northrop Grumman
to visit the Newport News offices and begin due diligence as soon as possible.
On October 5, 2001, Newport News announced that its board of directors had
determined that discussions with Northrop Grumman could result in Northrop
Grumman making an offer to acquire Newport News that was superior to General
Dynamics' existing offer and determined to initiate discussions with Northrop
Grumman concerning a possible acquisition of Newport News. Newport News's board
of directors also reaffirmed its recommendation of the General Dynamics offer.
On October 5, 2001, Cravath, Swaine & Moore, outside legal counsel to
Newport News, sent a draft merger agreement to Fried, Frank, Harris, Shriver &
Jacobson, outside legal counsel to Northrop Grumman.
On October 6, 2001, Northrop Grumman and Newport News entered into a
confidentiality agreement concerning the exchange of information between the
two companies during discussions concerning Northrop Grumman's proposed
acquisition of Newport News.
30
On October 23, 2001, the Department of Defense announced that it had
completed its review of the proposals by General Dynamics and Northrop Grumman
to acquire Newport News. The announcement stated that the Department of Defense
had concluded that the proposal by General Dynamics would eliminate competition
for nuclear submarines, resulting in a monopoly and would harm competition for
surface combatants and for the development of emerging technologies for both
nuclear submarines and surface ships. The announcement also stated that the
Department of Defense had also determined that while the benefits and savings
offered by each transaction were comparable, the Northrop Grumman transaction
had the additional benefit of preserving competition. Also on October 23, 2001,
the Department of Justice announced that it had filed an antitrust lawsuit to
block General Dynamics' proposed acquisition of Newport News.
On October 24, 2001, Mr. Kresa called Mr. Fricks to assure him that Northrop
Grumman remained committed to moving forward with a Newport News transaction,
subject to completion of due diligence and negotiation of a mutually
satisfactory merger agreement.
On October 25, 2001, Northrop Grumman issued a press release extending the
offer and stating that it had not completed its due diligence regarding Newport
News nor the negotiation of a possible merger agreement and that it may modify
its offer and reserved the right to do so.
On October 26, 2001, General Dynamics and Newport News announced that they
had terminated their merger agreement.
Between October 26, 2001 and November 7, 2001, Northrop Grumman completed
its due diligence review and Northrop Grumman and Newport News negotiated the
terms of a proposed merger agreement.
On November 5, 2001, the Northrop Grumman board of directors unanimously
approved the transaction and authorized proceeding with the completion of the
transaction.
On November 6, 2001, Newport News announced that it had received a revised
proposal from Northrop Grumman in which the "collar" used in determining the
amount of Northrop Grumman common stock and cash to be received by Newport News
stockholders would be adjusted so that Newport News stockholders would receive
a value of $67.50 per share if the market value of Northrop Grumman common
stock does not exceed $100.00 per share and is not less than $80.00 per share.
On November 7, 2001, the Newport News board of directors unanimously
approved the proposed transaction, determined it to be fair to and in the best
interests of the stockholders of Newport News, and agreed to recommend it to
its stockholders.
On November 7, 2001, the merger agreement was executed by Northrop Grumman,
Purchaser Corp. I and Newport News.
On November 8, 2001, Northrop Grumman and Newport News issued a joint press
release announcing the transaction.
During the pendency of our offer, Northrop Grumman and Purchaser Corp. I
intend to have ongoing contacts with Newport News and its directors, officers
and stockholders.
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THE MERGER AGREEMENT
The following is a summary of the merger agreement. This summary does not
purport to be a complete description of the terms and conditions of the merger
agreement and is qualified in its entirety by reference to the merger
agreement, a copy of which is filed as an exhibit to Northrop Grumman's
Amendment No. 24 to Schedule TO, filed on November 8, 2001 and incorporated in
this prospectus by reference and is attached to this prospectus as Annex C. We
urge you to read it carefully.
Our Offer
The merger agreement provides that we amend our offer to provide that:
. we pay the consideration described in "Our Offer--Consideration to Be
Paid in Our Offer" on page 42,
. to designate Purchaser Corp. I, a wholly owned subsidiary of Northrop
Grumman, as the offeror, and
. to set November 29, 2001 as the initial expiration date of our offer.
Pursuant to the merger agreement, we are obligated to cause Purchaser Corp.
I to accept for payment and pay for all Newport News common shares validly
tendered and not withdrawn as soon as practicable after the expiration date of
our offer (as extended from time to time in accordance with the provisions of
the merger agreement). This obligation is subject to various conditions,
including satisfaction of the minimum tender condition and the other offer
conditions set forth in Annex I to the merger agreement and summarized in this
prospectus under "Our Offer--Conditions to Our Offer" on page 59.
Purchaser Corp. I has the right, subject to the terms of the merger
agreement, to extend our offer from time to time for one or more additional
periods of not more than 10 business days (5 business days if only one or more
of the minimum tender condition, the Form S-4 being declared effective by the
SEC or the shares of Northrop Grumman common stock to be issued have been
approved for listing on the New York Stock Exchange remain to be satisfied)
. if immediately before the expiration date, any of the conditions to our
offer have not been satisfied or, to the extent permitted, waived until
the conditions are satisfied or waived, or
. for any period required by any rule, regulation, interpretation or
position of the SEC applicable to our offer or any period required by
applicable law.
If Purchaser Corp. I elects to extend the expiration date of our offer when the
only condition of our offer that is not satisfied is the minimum tender
condition, to the extent requested by Newport News, Purchaser Corp. I and
Northrop Grumman will be deemed to have waived all the offer conditions other
than the minimum tender condition and certain other conditions which are
summarized in this prospectus under "Our Offer--Conditions to Our Offer" on
page 59.
Additionally, if at the expiration date conditions to our offer have been
satisfied or waived and the minimum tender condition has been met, Purchaser
Corp. I may accept for payment all Newport News common stock validly tendered
and not withdrawn and provide for a "subsequent offering period" (as provided
in Rule 14d-11 under the Exchange Act) of up to 20 business days beyond the
date of acceptance for payment in order to acquire over 90% of the Newport News
common stock then outstanding. Pursuant to the merger agreement, Purchaser
Corp. I is obligated to extend our offer in certain circumstances if conditions
to our offer have not been satisfied or waived, but could reasonably be
expected to be satisfied.
Stockholder Mailings
Newport News is obligated under the terms of the merger agreement to cause
its transfer agent to provide us with stockholder lists, mailing labels,
security position listings and any available listing or computerized records
containing the names and addresses of registered holders of the Newport News
common stock and to provide any additional information and assistance as we may
reasonably request for the purpose of communicating the offer to the record and
beneficial owners of the Newport News common stock.
32
The Merger
The merger agreement provides that following the completion of our offer and
subject to the conditions set forth in the merger agreement, Newport News will
be merged with and into Purchaser Corp. I. Following the merger, Purchaser
Corp. I will continue as the surviving corporation and the separate corporate
existence of Newport News will cease. However, in the event that a tax opinion
of Northrop Grumman's legal counsel is not delivered, as provided for in the
merger agreement, on the closing date of the merger, then at the effective time
of the merger Purchaser Corp. I will be merged with and into Newport News in
accordance with Delaware law. In that case, following the merger, Newport News
will continue as the surviving corporation and the separate corporate existence
of Purchaser Corp. I will cease.
Effective Time of the Merger
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware or at a later date as
agreed by Northrop Grumman, Purchaser Corp. I and Newport News.
Certificate of Incorporation; Bylaws; Directors and Officers
The merger agreement provides that at the effective time of the merger and
without any further action on the part of Newport News or Purchaser Corp. I,
the certificate of incorporation and bylaws attached as Annex IV to the merger
agreement will be the certificate of incorporation and bylaws of the surviving
corporation. The merger agreement also provides that the directors of Purchaser
Corp. I and the officers of Newport News, immediately prior to the effective
time, will be the initial directors and officers of the surviving corporation,
each to hold office in accordance with the applicable provisions of the
certificate of incorporation and bylaws of the Purchaser Corp. I, until their
successors are duly elected or appointed and qualified.
Conversion of Shares
The merger agreement provides that each share of Newport News common stock
issued and outstanding immediately prior to the effective time of the merger,
other than Newport News common stock owned by Newport News, Purchaser Corp. I
or Northrop Grumman and Newport News common stock for which appraisal rights
have been exercised in accordance with Delaware law, will be converted pursuant
to the merger into the right to receive, upon the surrender of the certificate
formerly representing the share of Newport News common stock, the consideration
described in Annex III to the merger agreement, and as described in this
prospectus under "Our Offer--Consideration to Be Paid in Our Offer" on page 42.
The merger agreement further provides that, immediately prior to the effective
time of the merger, all Newport News common stock owned by Newport News,
Purchaser Corp. I or Northrop Grumman will be canceled and will cease to exist.
Treatment of Dissenting Shares
The merger agreement provides that shares of Newport News common stock
outstanding immediately prior to the effective time of the merger that are held
by persons who have complied in all respects with the provisions of Section 262
of the Delaware General Corporation Law will not be converted into the right to
receive the merger consideration but instead the holders of those dissenting
shares will be entitled to payment of the fair value of such dissenting shares
in accordance with the provisions of Section 262 of the Delaware General
Corporation Law. The merger agreement further provides, however, that
dissenting shares held by any person who waives, withdraws, fails to perfect or
otherwise loses the right to payment of the fair value of the shares pursuant
to Section 262 of the Delaware General Corporation Law will be treated as if
those shares had been converted into the right to receive the merger
consideration as of the effective time of the merger.
Treatment of Stock Options, Performance Shares and Restricted Stock
Pursuant to the merger agreement, Newport News is required to cancel each
outstanding and unexercised option to purchase shares of Newport News common
stock granted under any stock option plan, program, agreement or arrangement of
Newport News or any of its subsidiaries (not including Newport News' Deferred
Compensation Plan or Deferred Compensation Plan for Nonemployee Directors)
which is outstanding and unexercised immediately prior to completion of our
offer. In consideration of the cancellation, the holder of
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each option is entitled to receive a payment in cash from Newport News in an
amount equal to the product of (x) the excess, if any, of the per share value
of the offer consideration over the exercise price per share of Newport News
common stock subject to the option and (y) the number of shares of Newport News
common stock.
Pursuant to the merger agreement, Newport News is required to cancel each
right of any kind, whether vested or unvested, contingent or accrued, to
receive shares of Newport News common stock or benefits measured by the value
of a number of shares of Newport News common stock which is outstanding
immediately prior to completion of our offer. In consideration of the
cancellation, the holders of each stock-based award is entitled to receive a
payment in cash from Newport News in an amount equal to the product of (x) the
per share value of the offer consideration and (y) the number of shares of
Newport News common stock subject to the stock-based award, provided however
that holders who have elected to defer payment to a deferred compensation plan
are credited with a fully vested amount of cash equal to the payment.
Pursuant to the merger agreement, each award of any kind, whether vested or
unvested, consisting of shares of Newport News common stock issued under a
stock plan, which is outstanding immediately prior to completion of our offer,
which is then not vested, will fully vest and each holder is allowed to tender
the Newport News stock-based award pursuant to our offer on a guaranteed
delivery of shares basis with all of the same rights and limitations as any
other tendering shareholder.
Any cash payments required to be made pursuant to the above are to be made
by Newport News as promptly as practicable following completion of our offer.
No additional stock options, stock-based awards and Newport News stock-based
awards or other equity-based awards or rights to acquire Newport News common
stock is permitted to be granted after the signing of the merger agreement.
Representations and Warranties
The merger agreement contains representations and warranties by Newport
News, Northrop Grumman and Purchaser Corp. I. Each of Newport News and Northrop
Grumman made representations and warranties as to:
. corporate organization;
. authorization to consummate the merger and the related transactions;
. compliance with applicable laws and required filings and consents;
. capitalization;
. filings and reports with the SEC;
. no undisclosed liabilities;
. absence of material adverse effects;
. litigation;
. contract matters;
. tax matters;
. employee benefit matters;
. environmental matters;
. title to property and assets;
. intellectual property matters;
34
. labor matters; and
. payments, if any, required to be made to brokers and agents on account
of the merger.
In addition, Newport News made representations and warranties as to:
. the inapplicability of the Newport News Rights Agreement to the merger
agreement, offer and merger, the expiration of the Newport News rights
upon completion of our offer, and the applicability of the Newport News
Rights Agreement to any acquisition by General Dynamics of more than 15%
of the Newport News common shares;
. the inapplicability of Section 203 of Delaware General Corporation Law
("business combinations");
. the termination of the General Dynamics--Newport News merger agreement
and all rights, claims and obligations under the agreement, including
the termination fee; and
. compliance regarding nuclear related activities.
Also, Northrop Grumman made representations and warranties as to:
. adequate cash resources;
. capital ownership in Newport News;
. information for the Schedule TO and 14D-9, the Form S-4 and Proxy
Statement; and
. delivery of initial tax opinion.
Covenants
The merger agreement contains covenants by Newport News and Northrop
Grumman, including the following mutual covenants:
. to use best efforts to complete and make effective the transactions
contemplated by the merger agreement;
. to give all required notices to third parties and governmental entities
and use its best efforts to obtain all third party, legal and
governmental consents and approvals required in connection with the
transactions contemplated by the merger agreement;
. to provide one another with notice of any material developments
affecting the ability of the parties to complete the transactions
contemplated by the 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 merger agreement;
. to use reasonable best efforts to cause our offer and merger to qualify
as a reorganization under Section 368 of the Internal Revenue Code; and
. to use reasonable efforts to cause each parties' independent accountants
to deliver their respective comfort letters and consents.
The merger agreement contains covenants by Newport News that it and each of
its subsidiaries will conduct its operations in accordance with its ordinary
course of business, consistent with past practice and, subject to specified
exceptions, will not, and will not cause or permit any of its subsidiaries to:
. amend its certificate of incorporation or bylaws;
. authorize or effect any stock split or combination or reclassification
of shares of its capital stock;
35
. declare or pay any dividend or distribution with respect to its capital
stock (other than the regular quarterly dividend of $0.04 per share of
Newport News common stock and dividends payable by a subsidiary of
Newport News to Newport News or another subsidiary);
. issue or authorize the issuance of any shares of its capital stock or
any other securities exercisable or exchangeable for or convertible into
shares of its capital stock, or repurchase, redeem or otherwise acquire
for value any shares of its capital stock or any other securities
exercisable or exchangeable for or convertible into shares of its
capital stock subject to certain exceptions;
. in the case of Newport News, merge or consolidate with any entity;
. sell, lease or otherwise dispose of any of its capital assets that are
material, individually or in the aggregate, to Newport News and its
subsidiaries taken as a whole;
. in the case of Newport News only, liquidate, dissolve or effect any
recapitalization or reorganization in any form;
. acquire any interest in any business (whether by purchase of assets,
purchase of stock, merger or otherwise) or enter into any joint venture
except for any interests in any business or joint venture which does not
involve an investment by Newport News in excess of $5 million;
. create, incur, assume or suffer to exist any indebtedness for borrowed
money (including capital lease obligations), subject to certain
exceptions;
. create, incur, assume or suffer to exist any lien affecting any of its
material assets or properties;
. except as required by GAAP, change any of the accounting principles or
practices used by it;
. enter into any affiliate transactions;
. make any material tax election or settle or compromise any material tax
liability, except in the ordinary course of business;
. settle or compromise any material pending or threatened suit, action or
proceeding; or
. take any action that would cause the indebtedness that the SECT owes
Newport News to be less than $195,000,000, other than a reduction of
indebtedness necessary for the SECT to deliver shares of Newport News
common stock to satisfy option exercises in the ordinary course of
business.
Additionally, the merger agreement requires Newport News to provide Northrop
Grumman and its representatives with reasonable access at reasonable times to
the premises, properties, books, records, contracts and documents of or
pertaining to Newport News and its subsidiaries and to deliver affiliate
agreements to Northrop Grumman.
The merger agreement also contains covenants by Northrop Grumman that it
will cause itself and each of its subsidiaries to conduct its operations in
accordance with its ordinary course of business, consistent with past practice
and will not, and, subject to specified exceptions, will not cause or permit
any of its subsidiaries to:
. amend its certificate of incorporation or bylaws;
. authorize or effect any stock split or combination or reclassification
of shares of its capital stock;
. declare or pay any dividend or distribution with respect to its capital
stock (other than the regular quarterly dividend of $0.40 per share of
Northrop Grumman common stock, dividends payable pursuant to the terms
of the Series B Preferred stock and dividends payable by a subsidiary of
Northrop Grumman to Northrop Grumman or another subsidiary);
36
. issue or authorize the issuance of any shares of its capital stock or
any other securities exercisable or exchangeable for or convertible into
shares of its capital stock, or repurchase, redeem or otherwise acquire
for value any shares of its capital stock or any other securities
exercisable or exchangeable for or convertible into shares of its
capital stock; provided, however, that, Northrop Grumman may issue, and
take any and all actions in connection with such issuance or the
preparation for the issuance, shares of Northrop Grumman common stock
and debt convertible into Northrop Grumman common stock registered on
the date of the merger agreement pursuant to Northrop Grumman's
registration statement on Form S-3 pursuant to a fixed price,
underwritten public offering so long as such offering does not price,
and no underwriting agreement or other agreement (other than agreements
that may be necessary to close such previously priced offering) relating
to our offer or sale of such shares is entered into by Northrop Grumman,
during the period beginning on the first trading day of the five-day
trading period ending on the trading day immediately preceding the
second full trading day of the expiration of our offer and ending on the
fourth trading day after the consummation of our offer; or
. in the case of Northrop Grumman or Purchaser Corp. I, merge or
consolidate with any entity, liquidate, dissolve or effect any
capitalization or reorganization.
Also, the merger agreement requires Northrop Grumman and Newport News to use
reasonable efforts to obtain from Northrop Grumman's legal counsel on the
closing date, an opinion to the effect that (i) the offer and the merger will
qualify for U.S. federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code and (ii) Northrop
Grumman, Purchaser Corp. I and Newport News will each be a party to a
reorganization within the meaning of Section 368(b) of the Internal Revenue
Code.
Other Potential Acquirers
The 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." However, prior to the completion of
our offer, Newport News and its representatives may participate in discussions
and negotiations with, and furnish information to, a party submitting an offer
or proposal not solicited by Newport News and that does not otherwise result
from a breach of the merger agreement if the Newport News board of directors
believes in good faith after consultation with outside counsel that the
fiduciary obligations of Newport News board of directors requires them to
engage in discussions. However, the Newport News board of directors cannot
enter into any discussions with General Dynamics or its affiliates regarding a
Company Takeover Proposal.
For purposes of the 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.
Pursuant to the terms of the merger agreement, Newport News must, promptly
upon its receipt of any Company Takeover Proposal, provide Northrop Grumman
with the material terms and conditions of the Company Takeover Proposal,
including the identity of the acquiring party. Newport News must also keep
Northrop Grumman informed of the status and content of any discussions or
negotiations involving any Company Takeover Proposal.
Newport News is prohibited under the terms of the 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 that party
enters into a written confidentiality agreement containing provisions
substantially similar to those contained in the confidentiality agreement dated
October 5, 2001 between Newport News and Northrop Grumman.
37
Newport News is prohibited under the terms of the merger agreement from
withdrawing or modifying, in a manner adverse to Northrop Grumman or Purchaser
Corp. I, the recommendation of the Newport News board of directors of the
merger agreement or from approving or recommending a Company Takeover Proposal,
unless a withdrawal or modification is in the good faith judgment of the
Newport News board of directors after consultation with its outside counsel,
required by its fiduciary duties or the initial tax opinion of Northrop
Grumman's counsel is withdrawn, or an event has occurred that is inconsistent
with any factual assumptions upon which the initial tax opinion is based and
such event would result in the initial tax opinion being withdrawn, or Newport
News requests that legal counsel to Northrop Grumman reaffirm the initial tax
opinion and the legal counsel fails to do so on the fifth day prior to the
completion of the offer.
Directors and Officers Indemnification and Insurance
The merger agreement requires Northrop Grumman to cause Purchaser Corp. I as
the surviving corporation to indemnify, defend and hold harmless the present
and former directors and executive officers of Newport News and its
subsidiaries from and against all losses, claims, damages and expenses
(including reasonable attorneys' fees and expenses) arising out of or relating
to actions or omissions, or alleged actions or omissions, occurring at or prior
to the completion of the merger to the fullest extent permitted by law. The
merger agreement also provides that for a period of six years after the date of
the completion of the merger, Northrop Grumman will cause to be maintained in
effect the policies of directors' and officers' liability insurance currently
maintained by Newport News with respect to claims arising from or relating to
actions or omissions, or alleged actions or omissions, occurring on or prior to
that date. Northrop Grumman may at its discretion substitute for such policies
currently maintained by Newport News directors and officers liability insurance
policies with reputable and financially sound carriers providing for no less
favorable coverage. After the merger, Northrop Grumman will indemnify the
directors and officers of Newport News with respect to matters relating to the
merger agreement.
Stockholders Meeting
The merger agreement provides that to the extent necessary to complete the
merger, Newport News is required to convene and hold a meeting of its
stockholders for the purpose of approving and adopting the merger agreement and
the transactions contemplated by the merger agreement and to file with the SEC
and mail to Newport News' stockholders a proxy statement and related materials
with respect to the stockholder meeting. Subject to fiduciary duties' of
Newport News' board of directors and the provisions of the merger agreement,
Newport News' board of directors is required to recommend in the proxy
statement that the holders of the Newport News common stock vote in favor of
adopting the merger agreement, and Newport News is required to use its
reasonable efforts to solicit that approval. At the stockholder meeting, we are
required to cause Purchaser Corp. I to vote all Newport News common stock then
owned by it in favor of the adoption of the merger agreement. In the event,
however, that Purchaser Corp. I owns at least 90% of the outstanding Newport
News common stock following expiration of our offer, the merger agreement
provides that appropriate action will be taken to cause the merger to become
effective as soon as practicable without a meeting of Newport News'
stockholders in accordance with Section 253 of the Delaware General Corporation
Law.
Designation of Directors
The merger agreement provides that, promptly upon acquiring a majority of
the outstanding Newport News common stock pursuant to our offer, and so long as
we directly or indirectly own a majority of the outstanding Newport News common
stock, we will be entitled, upon written request to Newport News, to designate
the number of directors, rounded up to the next whole number, on the Newport
News board of directors so that the percentage of our designees on the Newport
News board of directors will equal the percentage of the outstanding Newport
News common stock owned by us and our subsidiaries. Newport News is obligated
upon that request promptly to use its reasonable efforts to cause Northrop
Grumman's designees to be elected.
38
Employee Benefit Matters
For not less than two years following the completion of our offer, Northrop
Grumman will provide to current and former employees of Newport News and its
subsidiaries comparable compensation and employee benefits that are in the
aggregate not less favorable then the compensation and employee benefits
provided to them prior to the completion of our offer, excluding, however,
stock-based plans and equity-based compensation arrangements. Northrop Grumman
and its subsidiaries (including Purchaser Corp. I) will credit the Newport News
employees with all years of service for which they received credit under any
comparable Newport News plan, except to the extent that such service credits
would result in a duplication of benefits, and, under medical plans, will waive
pre-existing condition limitations and provide credit for co-payments and
deductibles incurred prior to the effective time. Newport News has also agreed
to terminate its Employee Stock Purchase and Accumulation Plan at the effective
time of the merger.
As soon as practicable following the date of the merger agreement, Newport
News will file a registration statement on Form S-3 with the SEC relating to
the shares of Newport News held by the Newport News' Amended and Restated Stock
Employee Compensation Trust Agreement (the "SECT") and use its reasonable best
efforts to cause the Form S-3 to be declared effective. If the Form S-3 has
been declared effective prior to the completion of our offer, Newport News will
cause the SECT to deliver shares of Newport News common stock to Newport News
to repay the indebtedness owed by the SECT to Newport News and, to the extent
we request, sell any remaining shares held by the SECT in a public offering. If
the Form S-3 is not declared effective prior to completion of our offer, prior
to the completion of our offer, Newport News will cause the SECT to deliver
shares of Newport News common stock to Newport News to repay the indebtedness
owed by the SECT to Newport News. All remaining shares in the SECT will be
subject to the provisions of the SECT and the provisions of the merger
agreement applicable to all other outstanding shares of Newport News common
stock. In accordance with the terms of the SECT, cash held by the SECT will be
distributed to fund benefit obligations of Newport News.
Conditions to the Merger
Under the merger agreement, the respective obligations of Northrop Grumman,
Purchaser Corp. I and Newport News to complete the merger are subject to the
satisfaction of the conditions that (1) the merger agreement has been adopted
by the requisite vote of Newport News' stockholders, (2) completion of our
offer has occurred and (3) no party is subject to any order or injunction of a
court of competent jurisdiction which prohibits the merger.
Termination Events
The merger agreement may be terminated and our offer and the merger may be
abandoned at any time prior to the effective time of the merger
(notwithstanding any approval by the stockholders of Newport News):
. by mutual written consent of Northrop Grumman, Purchaser Corp. I and
Newport News;
. by either Northrop Grumman or Newport News if completion of the offer
has not occurred on or before January 31, 2002 unless such failure is
the result of a material breach of the merger agreement by the party
desiring to terminate the merger agreement, provided, however, unless
that date is extended by Newport News to April 30, 2002 if any condition
set forth in Annex I of the merger agreement is not satisfied, which are
set forth in this prospectus under "Our Offer--Conditions to Our Offer"
on page 59 (or waived by Purchaser Corp. I), other than the conditions
that there not exist a material adverse change to Newport News'
business, that Newport News' representations and warranties be true and
correct and Newport News shall have complied with its covenants;
. by either Northrop Grumman or Newport News if any court of competent
jurisdiction in the United States issues a final order, decree or ruling
or takes any other final action permanently enjoining, restraining or
otherwise prohibiting our offer or the merger;
39
. by either Northrop Grumman or Newport News if the approval of Newport
News's stockholders is not obtained, if such stockholder approval is
necessary unless the failure to obtain the stockholder approval is the
result of a material breach by the party seeking to terminate the
agreement;
. by Northrop Grumman prior to the completion of our offer if Newport News
breaches or fails to perform in any material respect any of its
representations, warranties or covenants contained in the merger
agreement, which breach or failure to perform would give rise to the
failure of a condition of the merger agreement that cannot be or has not
been cured within 30 days after Newport News was given written notice of
such breach;
. by Northrop Grumman prior to the completion of our 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 merger agreement, with respect to any Company Takeover
Proposal other than our offer or the merger; (B) amends, conditions,
qualifies, withdraws, modifies or contradicts, or resolves or agrees to
do any of the foregoing, in a manner adverse to Northrop Grumman or
Purchaser Corp. I, its approval or recommendation of our offer, the
merger and the merger agreement unless the reason for the action is that
the initial tax opinion of Northrop Grumman's legal counsel is withdrawn
or Northrop Grumman notifies Newport News that an event has occurred
which results in the initial tax opinion having to be withdrawn or
Newport News requests that Northrop Grumman's legal counsel reaffirm the
initial tax opinion and they fail to do so on the fifth day before
completion of the offer; or (C) solicits, approves or recommends, or
resolves or agrees to, any Company Takeover Proposal other than the
offer or the merger; or
. by Newport News prior to the completion of our offer if Northrop Grumman
breaches or fails to perform in any material respect any of its
representations, warranties or covenants contained in the merger
agreement, which breach or failure to perform would give rise to failure
of a condition set forth above in "--Conditions to the Merger" that
cannot be or has not been cured within 30 days after Northrop Grumman
was given written notice of such breach.
Termination Fee
The merger agreement provides that Newport News will be obligated to pay
Northrop Grumman a termination fee equal to $50 million if:
. Northrop Grumman terminates the merger agreement because Newport News
breaches its Other Potential Acquirers covenant;
. in the event that (A) after the date of the merger agreement, a Company
Takeover Proposal is publicly announced or any person publicly announces
an intention to make a Company Takeover Proposal, (B) the completion of
our offer has not occurred prior to January 31, 2002, (C) on January 31,
2002, the only condition to our offer that shall not have been satisfied
shall be the minimum tender condition, (D) the merger agreement is
thereafter terminated by either Northrop Grumman or Newport News because
January 31, 2002 has passed and (E) within 12 months after such
termination, Newport News or any of its significant subsidiaries enters
into an agreement with respect to, or completes the Company Takeover
Proposal; or
. in the event (A) there is a publicly announced Company Takeover
Proposal, (B) Newport News thereafter breaches one of its covenants in
the merger agreement, (C) Northrop Grumman thereafter terminates the
merger agreement because of the breach and (D) within 12 months after
such termination, Newport News or any of its significant subsidiaries
enters into an agreement with respect to, or completes the Company
Takeover Proposal.
40
Amendment
Except as otherwise expressly provided for in the merger agreement, the
merger agreement may be amended by the execution and delivery of a written
instrument by or on behalf of Northrop Grumman, Purchaser Corp. I and Newport
News at any time before or after approval by Newport News' stockholders,
provided that after approval by Newport News' stockholders, no amendment to the
merger agreement will be made without approval of Newport News' stockholders to
the extent such approval is required under the Delaware General Corporation
Law.
41
OUR OFFER
Consideration to Be Paid in Our Offer
Under the terms of our offer, we will exchange a combination of cash and
newly issued Northrop Grumman common stock for Newport News shares validly
tendered in 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 5-day
trading period ending on the second full trading day before our offer expires
(the "Northrop Grumman Stock Value"). However, in no event will the exchange
ratio be more than 0.84375 ($67.50/$80.00) or less than 0.675 ($67.50/$100.00).
We will issue a press release before 9:00 A.M., New York City time, on the
second full trading day before our offer expires, announcing the exchange ratio
and the Northrop Grumman Stock Value. Based on the scheduled expiration of our
offer at 12:00 Midnight on November 29, 2001, November 20, 2001 would be the
first day and November 27, 2001 would be the last day of the 5-day trading
period and we would issue our press release before 9:00 a.m. on November 28,
2001.
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 (the "Offer Shares") 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 (the "Remaining Northrop
Grumman Available Shares").
We will pay $892,026,990 in cash for Newport News shares in our offer and
the merger (the "Base Cash Amount"), which amount will be (1) decreased by up
to $195,000,000 to the extent indebtedness is repaid to Newport News with
Newport News shares, as contemplated in the merger agreement, (2) subject to
the adjustments discussed below, (3) increased by $67.50 for each additional
outstanding Newport News share due to option exercises, and (4) increased for
fractional shares (the "Adjusted Cash Amount"). The adjustments to the Base
Cash Amount referred to in point (2) above are as follows:
If the Northrop Grumman Stock Value is less than $90.00 but equal to or
greater than $80.00, 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.
If the Northrop Grumman Stock Value is less than $80.00, we will increase
the aggregate amount of cash available for our offer and the merger by
$166,368,850.
If the Northrop Grumman Stock Value is greater than $90.00 but less than or
equal to $100.00, 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 $100.00, we will reduce
the aggregate amount of cash available for our offer and the merger by
$166,368,850.
The amount of cash available in our offer (the "Offer Cash Amount") will
equal the Adjusted Cash Amount multiplied by the percentage of outstanding
Newport News shares tendered in our offer.
Because of the manner in which the exchange ratio is calculated, holders of
Newport News shares 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 Newport News share of value (based on the
Northrop
42
Grumman Stock Value) if the Northrop Grumman Stock Value is between $80.00 and
$100.00, will receive less than $67.50 per Newport News share of value if the
Northrop Grumman Stock Value is less than $80.00 and will receive more than
$67.50 per Newport News share of value if the Northrop Grumman Stock Value is
more than $100.00.
Consequences of Over- and Under-Election. If Newport News stockholders elect
to receive pursuant to our offer cash in excess of the Offer Cash 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 will equal the Offer Cash 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, shares of Northrop Grumman common
stock in lieu of the cash the Newport News stockholder would have otherwise
received. The number of shares of Northrop Grumman common stock 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 pursuant to our offer shares
of Northrop Grumman common stock in excess of the Offer Shares, the number of
shares of Northrop Grumman common stock 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 in the offer will equal the Offer Shares. 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 Offer Cash Amount and valid share elections for fewer than all the
Offer 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 35,397,728 Newport News shares are
outstanding (but without considering the effects of the possible retirement of
certain Newport News indebtedness for Newport News shares as contemplated by the
merger agreement), 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 $80.00 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 $3,801.45 in cash and
33.89 Northrop Grumman shares for a total value of $6,750.00
(i.e., $67.50 per tendered share); and
43
. 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).
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
67.14 Northrop Grumman shares and $908.59 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 $100.00
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 $3,465.73 in cash and
35.70 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
67.14 Northrop Grumman shares and $572.87 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 $100.00
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 $102.00, then:
. each Newport News stockholder tendering 100 shares and electing to
receive cash for those shares would receive $2,928.59 in cash and
38.21 Northrop Grumman shares for a total value of $6,826.43
(i.e., $68.26 per tendered share); and
. each Newport News stockholder tendering 100 shares and electing to
receive Northrop Grumman stock for those shares would receive
67.50 Northrop Grumman shares valued at $6,885.00 (i.e., $68.85
per tendered share).
44
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 $102.00, 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
67.14 Northrop Grumman shares and $35.73 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 $80.00
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 $78.00, then:
. each Newport News stockholder tendering 100 shares and electing to
receive cash for those shares would receive $4,271.44 in cash and
30.98 Northrop Grumman shares for a total value of $6,688.04
(i.e., $66.88 per tendered share); and
. each Newport News stockholder tendering 100 shares and electing to
receive Northrop Grumman stock for those shares would receive
84.38 Northrop Grumman shares with a total value of $6,581.25
(i.e., $65.81 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 $78.00, 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
67.14 Northrop Grumman shares and $1,378.59 in cash for a total
value of $6,615.71 (i.e., $66.16 per tendered share).
Consideration to Be Paid in the Merger
Under the terms of the merger agreement, we will exchange a combination of
cash and newly issued Northrop Grumman common stock for all Newport News shares
outstanding at the time we complete the merger.
Each Newport News stockholder may make for the Newport News shares exchanged
by him or her pursuant to the merger, either an election for $67.50 in cash,
without interest, or for a number of shares of Northrop Grumman common stock
equal to the exchange ratio, subject, in each case, to the election and
proration procedures and limitations described above. The exchange ratio for
the offer consideration and the merger consideration will be the same,
regardless of the Northrop Grumman stock price at the time of completion of the
merger.
Pursuant to the merger, we will (a) issue the Remaining Northrop Grumman
Available Shares and (b) distribute cash in an amount equal to (1) the Adjusted
Cash Amount minus (2) the amount of cash paid in our offer, subject to increase
for fractional shares.
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
45
completion of our offer, to seek to have Newport News merge with Purchaser
Corp. I. The purpose of the merger would be to acquire all Newport News shares
not tendered or exchanged in our offer.
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 September 30,
2001, giving effect to our offer and the proposed Northrop Grumman-Newport News
merger, Newport News would contribute approximately 17.9% 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.
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.
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.
Timing of Our Offer
Our offer is scheduled to expire at 12:00 Midnight, New York City time on
November 29, 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 November 29,
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.
Extension
We reserve the right, subject to the merger agreement, to extend the
expiration date of our offer from time to time for one or more additional
periods of not more than 10 business days (5 business days if the only
conditions to be satisfied are one or more of the following: (1) the minimum
condition, (2) the declared effectiveness of the Form S-4 or (3) the approval
for listing on the NYSE of the Northrop Grumman shares to be issued in our
offer). A longer period may be approved by Newport News. If any of the
conditions to our offer are not satisfied or waived on any expiration date of
our offer, we are required to extend our offer, if the conditions could
reasonably be expected to be satisfied, from time to time, until the conditions
are satisfied or waived; however, we are not required to extend our offer
beyond January 31, 2002 unless the Company requires that we extend our offer to
April 30, 2002. During any extension, all Newport News shares previously
tendered and not withdrawn will remain subject to our offer and subject to your
right to withdraw
46
your Newport News shares. You should read the discussion under the caption "--
Withdrawal Rights" on page 48 for more details.
We are required to accept for payment and pay for, as promptly as
practicable after the expiration of our offer and in accordance with Rule 14e-
1(c) of the SEC (or as required by Rule 14d-11 under the Exchange Act), all
Newport News shares validly tendered and not withdrawn pursuant to our offer.
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.
Without the consent of Newport News, we (subject to applicable law) have the
right to provide for a subsequent offering period (as contemplated by Rule 14d-
11 under the Exchange Act) for up to 20 business days after the acceptance of
Newport News shares pursuant to our offer, of the shares then tendered and not
withdrawn, if, at the scheduled or extended expiration date of our offer,
conditions to our offer have been satisfied or waived and the minimum condition
has been satisfied, but the shares of Newport News tendered and not withdrawn
constitutes less than 90% of the outstanding Newport News shares.
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.
47
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.
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 the amount of the fractional share interest in a
share of our common stock to which a tendering stockholder would otherwise be
entitled to multiplied by the Northrop Grumman Share Value.
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 of our offer. 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.
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.
48
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
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
49
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.
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
50
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 BEN,
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) or in the case of tenders made with respect to
restricted stock, you make your tender through Newport News;
. 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 other Newport News shares and other securities issued or
issuable in respect of the Newport News shares on or after November 29, 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
51
determine are not in proper form or the acceptance of or exchange for which
may, in the opinion of our counsel, be unlawful. Subject to the terms of the
merger agreement, 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 the merger
agreement without the waiver or modification of any of those terms or
conditions; and
. 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.
General Considerations--Tax Opinion--Direction of the Merger.
Under the merger agreement, the merger will be effected by merging Newport
News with and into Purchaser Corp. I, with Purchaser Corp. I surviving. Fried,
Frank, Harris, Shriver & Jacobson has provided an opinion, based on certain
assumptions and representations of Northrop Grumman and Newport News that if
the merger is effected in this manner, our offer and the merger will be treated
for federal income tax purposes as a single integrated transaction that
constitutes a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code. Under the terms of the merger agreement, Northrop
Grumman and Newport News will seek to have Fried, Frank, Harris, Shriver &
Jacobson confirm its opinion at the time of the merger, based on the actual
facts existing at the time.
52
In the event the confirming opinion referred to above cannot be obtained,
the merger will be restructured as a merger of Purchaser Corp. I into Newport
News. If the merger is restructured, our offer and the merger will not qualify
as a reorganization and the exchange of Newport News shares for Northrop
Grumman shares and/or cash pursuant to our offer or merger will be a fully
taxable transaction to the Newport News stockholders. See "Tax Consequences if
Our Offer and the Merger Are Not Treated as a Reorganization" below.
The principal assumptions underlying the opinion of Fried, Frank, Harris,
Shriver & Jacobson are that:
. Representations, in all material respects the same as those provided by
Northrop Grumman, Purchaser Corp. I and Newport News at the time of the
initial opinion can and will be provided at the time of the merger based
on the actual facts existing at that time.
. Our offer, the merger and related transactions will take place in
accordance with all of the terms and conditions of our offer and the
merger agreement without the waiver or modification of any of those
terms or conditions.
. 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 to satisfy the
continuity of shareholder interest requirement of Treas. Reg. 1.368-
1(e). The initial opinion assumes that at least a 45% level of
continuity would be achieved. For this purpose, consideration paid in
our offer or the merger to Newport News or its Stock Employee
Compensation Trust would not be taken into account. In addition,
consideration paid in our offer for any Newport News common stock issued
after the date of the merger agreement pursuant to the exercise of stock
options, for "restricted stock" or for Newport News common stock held at
the date of the merger agreement by the Stock Employee Compensation
Trust that is sold to third parties in accordance with the merger
agreement before our offer closes, will or will not be taken into
account, depending on which treatment produces the lowest level of
continuity. For purposes of determining continuity, the value of
Northrop Grumman stock issued in our offer will be the lesser of the
value of such stock on the date our offer closes or the date the merger
occurs.
Tax Consequences of Our Offer and the Merger if They Are Treated as a
Reorganization
Assuming our offer and the merger are treated together as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, the
material federal income tax consequences to Newport News and Newport News
stockholders of our offer and the merger are as set forth below. For a
discussion of the tax consequences if our offer and the merger are not treated
as a reorganization See "Tax Consequences if Our Offer and the Merger Are Not
Treated as a Reorganization" below.
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
53
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 stockholders 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 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
54
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.
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.
55
Tax Consequences if Our Offer and the Merger Are Not Treated as a
Reorganization.
Consequences to the Newport News Stockholders
If our offer and the merger are not treated as a reorganization, because of
a restructuring of the merger or otherwise, a sale or exchange of Newport News
common stock pursuant to our offer or the merger 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 or the merger. Accordingly, a Newport News stockholder 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, in the case of
shares exchanged in the offer, and one year as of the closing of the merger, in
the case of shares exchanged in the merger. In that case, the basis of any
Northrop Grumman stock received in our offer will be the fair market value of
such stock at the time our offer closes, in the case of shares exchanged in our
offer, and the fair market value of such stock the time the merger closes, in
the case of shares exchanged in the merger. The holding period of any Northrop
Grumman stock received in or offer or the merger, will begin on the day after
the offer closes, in the case of Northrop Grumman stock received in the offer
and on the date after the merger closes in the case of Northrop Grumman stock
received in the merger.
Consequences to Northrop Grumman and Newport News
If our offer and the merger fail to qualify as a reorganization because the
merger is restructured, neither Northrop Grumman nor Newport News will
recognize gain or loss as a result of our offer and the merger. If the merger
fails to qualify as a reorganization for some other reason, Newport News could,
under some circumstances, be required to recognize gain equal to the excess of
the fair market value of its assets over their tax basis.
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 49.
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;
56
. 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 November 1, 2001 35,397,728
Newport News common shares outstanding, held by approximately 32,000 holders of
record as of March 1, 2001.
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.
57
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 and into Purchaser Corp. I, a wholly owned
subsidiary of Northrop Grumman. The purpose of the merger is to acquire all
Newport News shares not tendered and exchanged pursuant to our offer. In the
merger, each holder of Newport News shares (except for Newport News shares held
in Newport News' treasury and Newport News shares that we or Purchaser Corp. I
owns for our own account) not exchanged or accepted for exchange in our offer
would have the right to make the same elections as in our offer, to the extent
those forms of consideration are remaining after completion of our offer and
subject to proration procedures. The exchange ratio for the offer consideration
and the merger consideration will be the same, regardless of the Northrop
Grumman stock price at the time of completion of the merger. 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.
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 may have the right under the Delaware General Corporation Law to
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
58
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 or the same as 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 of
Purchaser Corp. I 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 enough shares of Newport
News common stock so that, after completion of our offer, we will own a
majority of the total number of outstanding Newport News 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).
Registration Statement Effectiveness Condition
The registration statement of which this prospectus is a part must have been
declared effective by the SEC and is not subject to any stop order.
NYSE Listing Condition
The shares of Northrop Grumman stock to be issued in the offer and merger
shall have been accepted for listing on the New York Stock Exchange.
Certain Other Conditions to Our Offer
Notwithstanding any other provision of our offer, we shall not be required
to accept for payment or, subject to any applicable rules and regulations of
the SEC, including Rule 14e-l(c) promulgated under the Exchange Act (relating
to the our obligations to pay for or return tendered shares of Newport News
common
59
stock promptly after termination or withdrawal of our offer), pay for any
shares of Newport News common stock tendered pursuant to our offer, and may,
subject to the merger agreement, terminate or amend the offer in accordance
with the merger agreement; if:
. there shall have been any action taken, or suit or proceeding threatened
or commenced, or any statute, rule, regulation, legislation, judgment,
order or injunction promulgated, entered, enforced, enacted, issued or
deemed applicable to the offer or the merger, in each case by any
domestic or foreign federal or state governmental regulatory or
administrative agency or authority or court or legislative body or
commission which is reasonably likely to have the effect of (1)
prohibiting, or imposing any material limitations, on our ownership or
operation (or that of any of our subsidiaries) of all or a material
portion of Newport News' and its subsidiaries' businesses or assets as a
whole, or compelling us or our subsidiaries to dispose of or hold
separate any material portion of our shares of Newport News common stock
or of the business or assets of Newport News or its subsidiaries or
Northrop Grumman and its subsidiaries, in each case taken as a whole,
other than limitations generally affecting the industries in which
Newport News and Northrop Grumman and their respective subsidiaries
conduct their business, (2) prohibiting, or making illegal, completion
of our offer or completion of the merger or the other transactions
contemplated by the merger agreement, or (3) imposing material
limitations on our ability or our subsidiaries' ability effectively to
exercise full rights of ownership of all or a substantial number of the
shares of the Newport News common stock including, without limitation,
the right to vote the shares of the Newport News common stock purchased
by us on all matters properly presented to Newport News' shareholders on
an equal basis with all other holders of such shares and the right to
hold, transfer or dispose of such shares;
. since the date of the merger agreement, except as disclosed in the
disclosure schedule to the merger agreement and the Newport News'
filings with the SEC filed prior to the date of the merger agreement,
there shall have occurred any state of facts, change, development,
effect, event, condition or occurrence that individually or in the
aggregate has had or is reasonably likely to have a material adverse
effect on Newport News;
. (1) the representations of Newport News contained in the merger
agreement shall not be true and correct with the same effect as if made
at and as of the expiration date of the Offer or if such representations
speak as of an earlier date, as of such earlier date, except, in either
such case to the extent that the breach thereof would not have a
material adverse effect on Newport News, or (2) Newport News shall have
failed to comply in material respects with its covenants and agreements
contained in the merger agreement;
. the merger agreement shall have been terminated in accordance with its
terms; or
. there shall have occurred a Distribution Date (as defined in the Newport
News Rights Agreement) and the offer price shall not have been adjusted
as contemplated by the merger agreement;
which, in any such case, and regardless of the circumstances giving rise to any
such condition, make it inadvisable, in the reasonable discretion of Northrop
Grumman, to proceed with such acceptance for payment or payment; or
. since the date of the merger agreement, except as disclosed in the
disclosure schedule to the merger agreement and our filings with the SEC
filed prior to the date of the merger agreement, there shall have
occurred any state of facts change, development, effect, event,
condition or occurrence that individually or in the aggregate has had or
is reasonably likely to have a material adverse effect on us;
. (1) our representations contained in the merger agreement shall not be
true and correct with the same effect as if made at and as of the
expiration date of our offer or if those representations speak as of an
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earlier date, as of that earlier date, except, in either such case to
the extent that the breach thereof would not have a material adverse
effect on us, or (2) we shall have failed to comply in material respects
with our covenants and agreements contained in the merger agreement; or
. a Distribution Date (as defined in the Northrop Grumman Rights
Agreement) has occurred and the necessary adjustments to the offer
consideration have not been made.
Subject to the provisions of the merger agreement, 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). Subject to the provisions of the merger agreement and, in
some cases, to the consent of Newport News, we may waive any of these
conditions in whole or in part (other than the Minimum Condition, the
registration statement effectiveness condition and the NYSE listing
condition). The determination as to whether any condition has been satisfied
shall be in the reasonable judgment of Northrop Grumman and Newport News 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.
Regulatory Approvals
Other than the SEC's 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.
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 $800,000,000 and $900,000,000, 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 Investors Service's ratings of
Northrop Grumman.
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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 prospectus, 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.
Confidentiality Agreement
Northrop Grumman and Newport News entered into a confidentiality agreement
dated October 5, 2001 pursuant to which Northrop Grumman and Newport News
agreed not to disclose the other's confidential information or to use the
other's confidential information other than for the purpose of evaluating a
possible transaction between Northrop Grumman and Newport News. This summary is
qualified in its entirety by reference to the confidentiality agreement, which
was filed with the SEC as Exhibit (e)(1) on our amended Schedule TO, dated
October 9, 2001, and incorporated in this prospectus by reference.
Employment Agreements
We have entered into a retention bonus agreement with Thomas C.
Schievelbein, Executive Vice President and Chief Operating Officer of Newport
News, for a two-year period beginning at the completion of our offer. The
retention bonus agreement will become effective upon completion of our offer
and will replace his current employment agreement at that time. During each
year of the two-year period, we will pay him at least $435,000 in base salary
and a bonus of at least $400,000. We will also grant him stock options to
purchase 15,000 shares of our common stock with a four-year vesting schedule
and 8,000 shares of restricted stock with a three-year performance period.
Immediately following the completion of our offer, Mr. Schievelbein will
continue to participate in the same employee benefit and executive perquisite
programs in which he participates immediately prior to the consummation of our
offer (excluding stock or equity based benefit programs). At times selected by
Northrop Grumman, Mr. Schievelbein will be transferred from his current
benefits and perquisites to the benefit plans and executive perquisites
applicable to similarly situated elected officers of Northrop Grumman;
provided, that Mr. Schievelbein will receive a minimum of four weeks vacation
per calendar year. We will also pay him retention bonus payments of $2,787,500
no later than January 31, 2003 and $1,087,500 thirty days following the second
anniversary of the completion of our offer, so long as he has remained
continuously employed with us through such dates. Mr. Schievelbein will also
receive each of the
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retention bonus payments if we terminate his employment other than for cause,
or if he terminates his employment following certain adverse job-related
actions by us (for example, a reduction in his compensation or relocation to
which he does not consent), or if he dies or becomes permanently disabled. If
his termination is for any other reason, he will forfeit any unpaid benefits
under the retention bonus agreement. We will also provide Mr. Schievelbein with
an enhanced supplemental retirement benefit by adding three years to both his
years of service and years of participation under the plan and five years to
his age under the plan.
By entering into the retention bonus agreement, Mr. Schievelbein waived his
right to terminate his employment during the two-year period following the
completion of our offer and receive severance pay under Newport News' Change in
Control Severance Benefit Plan for Key Employees; provided, however, that
Northrop Grumman acknowledges and agrees that a termination of employment by
Mr. Schievelbein following certain adverse job-related actions by us shall be
deemed for purposes of the Change in Control Severance Plan to be a termination
of employment due to a "constructive termination"; provided, further, that in
such event the severance benefits that he would be entitled to receive under
the Change in Control Severance Plan will be offset (other than any required
continuation of welfare benefits) by any cash payments or benefit credits
provided to him pursuant to the bonus retention agreement.
The bonus retention agreement does not affect Mr. Schievelbein's right to
terminate employment following the expiration of the term of the agreement and
claim a "constructive termination" based on events that occur while the bonus
retention agreement is effective. However, Mr. Schievelbein acknowledges and
agrees that in the event of such a termination of employment, the only benefits
to which he shall be entitled under the severance benefit provisions of the
Change in Control Severance Plan are (1) the continuation of certain welfare
benefit plans and (2) payment of otherwise forfeited deferred compensation
amounts, in each case to the extent such benefit has not previously been paid.
Except as modified by the bonus retention agreement, Mr. Schievelbein will
continue to retain all of his rights under the Change in Control Severance Plan
(including, without limitation, rights relating to the gross-up payment for any
so-called "golden parachute" excise taxes and related taxes). In addition, any
cash payments and benefit credits provided to him pursuant to the bonus
retention agreement, when paid, will reduce the severance benefits payable to
Mr. Schievelbein under that plan.
This summary of the terms of the retention bonus agreement with Mr.
Schievelbein is qualified in its entirety by the reference to the complete text
of the retention bonus agreement, a copy of which is filed as an exhibit to the
registration statement of which this prospectus forms a part.
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
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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's wholly owned
subsidiary, Purchaser Corp. I., 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.
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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Northrop Grumman common stock is listed on the New York Stock Exchange and
the Pacific 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............ 97.06 76.41 0.40 65.69 47.94 0.04
Third Quarter............. 104.50 76.41 0.40 67.50 60.94 0.04
Fourth Quarter (through
November 9, 2001)........ 110.56 95.48 -- 73.84 66.34 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 November 7, 2001, the last full
trading day before the announcement of the merger agreement, the last sale
price per Northrop Grumman common share on the New York Stock Exchange was
$96.08 and the last sale price per Newport News common share was $67.05. On
November 9, 2001, the last practicable trading day prior to the date of this
prospectus, the last sale price per Northrop Grumman common share was $97.60
and the last sale price per Newport News common share was $67.95.
We urge you to obtain current market quotations for Northrop Grumman and
Newport News common shares before making any decision regarding our offer.
65
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Financial Statements presented
below are 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 Statements are 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 September
30, 2001 for balance sheet purposes.
For a summary of the business combination, see "Our Offer" beginning on page
42 of this prospectus to purchase or exchange.
The Unaudited Pro Forma Condensed Combined Financial Statements are 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 financial
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 nine months ended September 30, 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 September 16, 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
these Unaudited Pro Forma Condensed Combined Financial Statements.
The acquisition of Litton, which is valued at approximately $5.2 billion,
including the assumption of Litton's net debt of $1.3 billion, is accounted for
using the purchase method of accounting. Under the purchase method of
accounting, the purchase price is allocated to the underlying tangible and
intangible assets acquired and liabilities assumed based on their respective
fair market values, with the excess recorded as goodwill. The Unaudited Pro
Forma Condensed Combined Financial Statements reflect preliminary estimates of
the fair market value of the Litton assets acquired and liabilities assumed and
the related allocations of purchase price, and preliminary estimates of
adjustments necessary to conform Litton data to Northrop Grumman's accounting
policies. The Unaudited Pro Forma Condensed Combined Financial Statements do
not include the recognition of liabilities associated with certain potential
restructuring activities. Northrop Grumman is currently reviewing the
preliminary estimates of the fair market value of the Litton assets acquired
and liabilities assumed, including valuations associated with certain contracts
and preliminary valuation study results for intangible assets, property, plant
and equipment, and retiree benefits assets and liabilities. Northrop Grumman
also is evaluating several possible restructuring activities of Litton
operations. The final determination of the fair market value of assets acquired
and liabilities assumed and final allocation of the purchase price may differ
from the amounts assumed in these Unaudited Pro Forma Condensed Combined
Financial Statements. Adjustments to the purchase price allocations are
expected to be finalized by December 31, 2001, and will be reflected in future
Northrop Grumman filings. There can be no assurance that such adjustments will
not be material.
66
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 Newport News assets to be acquired 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 Newport News
data to Northrop Grumman's accounting policies. Accordingly, Northrop Grumman
has used the historical book values of the assets and liabilities of Newport
News and has used the historical revenue recognition policies of Newport News
to prepare the Unaudited Pro Forma Condensed Combined Financial Statements set
forth herein, with the excess of the purchase price over the historical net
assets of 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 Statements are provided
for illustrative purposes only and do 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 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 Statements do not
include the realization of cost savings from operating efficiencies, synergies
or other restructurings resulting from the Litton and Newport News
acquisitions, except for preliminary estimates of costs to consolidate the
Litton and Northrop Grumman corporate offices.
The Unaudited Pro Forma Condensed Combined Financial Statements 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.
67
Unaudited Pro Forma Condensed Combined
Statement of Financial Position
September 30, 2001
($ in millions)
Pro Forma
Northrop Newport ----------------------
Grumman News Adjustments Combined
-------- ------- ----------- --------
Assets:
Current assets
Cash and cash equivalents............ $ 310 $ 66 $ -- $ 376
Accounts receivable.................. 2,297 131 -- 2,428
Inventoried costs.................... 1,222 409 -- 1,631
Deferred income taxes................ 35 110 -- 145
Prepaid expenses and other current
assets.............................. 140 19 -- 159
-------- ------ ------ -------
Total current assets................. 4,004 735 -- 4,739
-------- ------ ------ -------
Property, plant and equipment.......... 3,297 1,616 -- 4,913
Accumulated depreciation............... (1,211) (950) -- (2,161)
-------- ------ ------ -------
Property, plant and equipment, net..... 2,086 666 -- 2,752
-------- ------ ------ -------
Other assets
Goodwill and other purchased
intangibles, net.................... 7,956 -- 2,110 (a) 10,066
Prepaid retiree benefits cost and
intangible pension asset............ 2,773 -- -- 2,773
Other assets......................... 395 237 -- 632
-------- ------ ------ -------
11,124 237 2,110 13,471
-------- ------ ------ -------
$ 17,214 $1,638 $2,110 $20,962
======== ====== ====== =======
Liabilities and Shareholders' Equity:
Current liabilities
Notes payable and current portion of
long term debt........................ $ 134 $ 46 $ -- $ 180
Accounts payable..................... 757 87 -- 844
Accrued employees' compensation...... 629 -- -- 629
Advances on contracts................ 837 -- -- 837
Income taxes......................... 373 -- -- 373
Other current liabilities............ 1,223 484 -- 1,707
-------- ------ ------ -------
Total current liabilities............ 3,953 617 -- 4,570
-------- ------ ------ -------
Long-term debt 5,185 432 917 (a) 6,534
Accrued retiree benefits............... 1,478 -- -- 1,478
Deferred tax and other long-term
liabilities........................... 973 285 -- 1,258
Redeemable preferred stock............. 350 -- -- 350
Shareholders' equity
Paid in capital and unearned
compensation........................ 2,366 452 1,045 (a) 3,863
Retained earnings.................... 2,928 236 (236)(a) 2,928
Accumulated other comprehensive
loss................................ (19) -- -- (19)
Stock Employee Compensation Trust.... -- (384) 384 (a) --
-------- ------ ------ -------
5,275 304 1,193 6,772
-------- ------ ------ -------
$ 17,214 $1,638 $2,110 $20,962
======== ====== ====== =======
68
Unaudited Pro Forma Condensed Combined
Statement of Income
Year Ended December 31, 2000
($ in millions, except per share)
Pro Forma Pro Forma
Northrop --------------------------- Newport ------------------------
Grumman Litton Adjustments Combined News Adjustment Combined
-------- ------ ----------- -------- ------- ---------- --------
Sales and service
revenues............... $7,618 $5,626 $ (61)(b) $13,183 $2,072 $ -- $15,255
Cost of sales
Operating costs....... 5,446 4,669 88 (b)(c)(d) 10,203 1,870 (251)(h)(j) 11,822
Administrative and
general expenses..... 1,074 491 -- 1,565 -- 271 (j) 1,836
------ ------ ----- ------- ------ ----- -------
Operating margin........ 1,098 466 (149) 1,415 202 (20) 1,597
Interest expense........ (175) (105) (191)(e) (471) (53) (31)(i) (555)
Other, net.............. 52 16 -- 68 4 -- 72
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations before
income taxes........... 975 377 (340) 1,012 153 (51) 1,114
Federal and foreign
income taxes........... 350 151 (119)(f) 382 63 (26)(f)(i) 419
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations............. $ 625 $ 226 $(221) $ 630 $ 90 $ (25) $ 695
====== ====== ===== ======= ====== ===== =======
Less, dividends paid to
preferred
shareholders........... -- -- (25)(g) (25) -- -- (25)
------ ------ ----- ------- ------ ----- -------
Income available to
common shareholders.... $ 625 $ 226 $(246) $ 605 $ 90 $ (25) $ 670
====== ====== ===== ======= ====== ===== =======
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 $ 7.24 $ 6.69
Diluted earnings per
share:
Continuing
operations........... $ 8.82 $ 7.20 ** $ 6.66 **
--------
** Calculated by dividing income available to common shareholders by average
shares diluted, which is calculated assuming preferred shares are not
converted to common shares, resulting in the most dilutive effect.
69
Unaudited Pro Forma Condensed Combined
Statement of Income
Nine Months Ended September 30, 2001
($ in millions, except per share)
Pro Forma Pro Forma
Northrop --------------------------- Newport ------------------------
Grumman Litton Adjustments Combined News Adjustment Combined
-------- ------ ----------- -------- ------- ---------- --------
Sales and service revenues $9,254 $1,345 $ (18)(b) $10,581 $1,639 $ -- $12,220
Cost of sales
Operating costs......... 7,656 1,120 19 (b)(c)(d) 8,795 1,481 (140)(h)(j) 10,136
Administrative and
general expenses....... 908 121 -- 1,029 -- 153 (j) 1,182
------ ------ ----- ------- ------ ----- -------
Operating margin.......... 690 104 (37) 757 158 (13) 902
Interest expense.......... (269) (27) (64)(e) (360) (37) (23)(i) (420)
Other, net................ 64 3 -- 67 (1) -- 66
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations before income
taxes.................... 485 80 (101) 464 120 (36) 548
Federal and foreign income
taxes.................... 189 30 (35)(f) 184 48 (18)(f)(j) 214
------ ------ ----- ------- ------ ----- -------
Income from continuing
operations............... $ 296 $ 50 $ (66) $ 280 $ 72 $ (18) $ 334
====== ====== ===== ======= ====== ===== =======
Less, dividends paid to
preferred shareholders... (12) -- (6)(g) (18) -- -- (18)
------ ------ ----- ------- ------ ----- -------
Income available to common
shareholders............. $ 284 $ 50 $ (72) $ 262 $ 72 $ (18) $ 316
====== ====== ===== ======= ====== ===== =======
Average shares basic...... 80.34 85.32 101.96
Average shares diluted.... 81.03 86.11 102.75
Basic earnings per share:
Continuing operations... $ 3.53 $ 3.07 $ 3.10
Diluted earnings per
share:
Continuing operations... $ 3.50 $ 3.04 ** $ 3.08 **
--------
** Calculated by dividing income available to common shareholders by average
shares diluted, which is calculated assuming preferred shares are not
converted to common shares, resulting in the most dilutive effect.
70
Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)
(a) Adjustments to (i) eliminate the equity of Newport News (ii) record
issuance of common stock, (iii) record debt financing for the Newport News
acquisition along with additional acquisition related costs, and
(iv) record goodwill and other purchased intangibles.
The amount of the purchase price allocated to goodwill was calculated based
on the following assumptions:
(i) The Northrop Grumman common stock price is $90.00 at the
completion of our offer and merger;
(ii) The exchange ratio is .75; and
(iii) All of the 16,636,885 Northrop Grumman Available Shares will be
issued in our offer and merger.
Any fluctuation in the Northrop Grumman common stock price within the range
from $80.00 to $100.00 will not have a material impact on our pro forma
calculation of goodwill. In the event that our common stock price is
greater than $100.00 at the completion of our offer and merger, the
goodwill balance will increase by $15.0 million for each $1.00 incremental
increase in excess of $100.00.
(b) Adjustment to eliminate intercompany sales and cost of sales transactions
between Northrop Grumman and Litton.
(c) Adjustment to amortize the preliminary estimate of goodwill and other
purchased intangible assets arising out of the acquisition of Litton over
an estimated weighted average life of 26 years on a straight line basis.
(d) Adjustment to record preliminary depreciation of property, plant and
equipment and amortization of capitalized software arising out of the
acquisition of Litton.
(e) Adjustment to record interest expense and the amortization of debt
issuance costs on new financing for the acquisition of Litton at a
weighted average rate of 6.8 and 7.5 percent for the nine months ended
September 30, 2001 and the year ended December 31, 2000, respectively.
(f) Adjustment to record income tax effects on pre-tax pro forma adjustments,
using a statutory tax rate of thirty-five percent.
(g) Adjusted, pro rata, for dividends to preferred shareholders using $7 per
share dividend rate for redeemable preferred stock issued in the
acquisition of Litton.
(h) Adjustment to amortize purchased intangible assets arising out of the
Newport News acquisition over an estimated life of 30 years on a straight
line basis.
(i) Adjustment to record interest on new debt financing for the Newport News
acquisition at the current rate of 3.4 percent as of October 26, 2001.
(j) Adjustment to conform Newport News data to classifications utilized by
Northrop Grumman.
71
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 October 26, 2001, 85,793,930 shares of common stock were
outstanding. Our common stock is listed on the New York Stock Exchange and on
the Pacific 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 for the election of directors.
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.
Owner Rights. Our outstanding common shares are fully paid and
nonassessable. The holders of our common stock do not have any preemptive,
conversion or redemption rights.
Registrar and Transfer Agent. The registrar and transfer agent for our
common stock is EquiServe Trust Company.
Preferred Share Purchase Rights. We have adopted a rights plan pursuant to
which a preferred share purchase right is attached to each share of our common
stock that is or becomes outstanding prior to October 31, 2008. The rights
become exercisable 10 days after the public announcement that any person or
group has (1) acquired 15% or more of the outstanding shares of our common
stock, or (2) initiated a tender offer for shares of our common stock, which,
if completed, would result in any person or group acquiring 15% or more of the
outstanding shares of our common stock. Once exercisable, each right will
entitle the holder to purchase one one-thousandth of a share of our Series A
junior participating preferred stock, par value $1.00 per share, at a price of
$250.00 per one one-thousandth of a share, subject to adjustment.
Alternatively, under some circumstances involving an acquisition of 15% or more
of our common stock outstanding, each right will entitle its holder to
purchase, at a fifty percent discount, a number of shares of our common stock
having a market value of two times the exercise price of the right. We may (1)
exchange the rights at an exchange ratio of one share of our common stock per
right, and (2) redeem the rights, at a price of $0.01 per right, at any time
prior to an acquisition of 15% or more of the outstanding shares of our common
stock by any person or group.
Some Important Charter and Statutory Provisions. Our certificate of
incorporation provides for the division of our board of directors into three
classes of directors, each serving staggered, three year terms. Our certificate
of incorporation further provides generally that any alteration, amendment or
repeal of the sections of our certificate of incorporation dealing with the
following subjects requires the approval of the holders of at least 80% of our
outstanding voting power, unless the action is approved by a majority of our
board of directors:
. the election and classification of the board of directors;
. liability of directors; and
. the vote requirements for amendments to our certificate of incorporation.
If any of these changes to our certificate of incorporation are approved by our
board of directors, the approval of a majority of our outstanding voting power
is required to make these changes effective.
These provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of our company.
72
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
73
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 of
Northrop Grumman charter vacancies directors that results in an
and newly created directorships may increase in the number of directors
be filled solely by a majority of may be filled by a majority of the
the directors then in office or a board of directors then in office,
sole remaining director (even though provided that a quorum is present.
less than a quorum). However, the Any other vacancy occurring in the
Delaware General Corporation Law board of directors may be filled by
also provides that if the directors a majority of the directors then in
then in office constitute less than office, even if less than a quorum,
a majority of the corporation's or by a sole remaining director.
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
November 8, 2001, the board of determined from time to time by the
directors shall consist of 10 board of directors pursuant to a
directors until changed as provided resolution adopted by the
in the bylaws. 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 of
one director, then the one director directors) shall constitute a
shall constitute a quorum. 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.
74
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 of
of directors or by the President and directors on the date the board of
Chief Executive Officer. directors designates.
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
75
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 of directors (or any supplement thereto) given by
and the proposal of business to be or at the direction of the board of
considered by stockholders may be directors, (b) otherwise properly
made only (a) by or at the direction brought before the meeting by or at
of the board of directors, (b) by a the direction of the board of
stockholder of record who is directors, or (c) otherwise properly
entitled to vote and who has brought before the meeting by a
complied with the advance notice stockholder entitled to vote at that
procedures set forth in the bylaws, meeting. In addition to any other
or (c) pursuant to Northrop applicable requirements, for
Grumman's notice with respect to business to be properly brought
that meeting. before the annual 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
Corporation Law, the affirmative Subject to the charter and
vote of the holders of a majority of applicable law, the company reserves
the outstanding shares entitled to the right to amend, alter, change or
vote is required to amend the repeal any provision contained in
Northrop Grumman charter. In the charter.
addition, amendments that make
changes relating to the capital The same Delaware law provisions
stock by increasing or decreasing regarding amendments to the
the par value or the aggregate certificate of incorporation
number of authorized shares of a applicable to Northrop Grumman are
class or otherwise adversely also applicable to Newport News.
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
76
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 of directors has the power
and the bylaws, the bylaws may be to make, alter, amend or repeal any
adopted, repealed, rescinded, and all of the bylaws, but any
altered or amended by the bylaws so made, altered or repealed
stockholders, but only by the by the board of directors may be
affirmative vote of the holders of amended, altered or repealed by the
not less than 80% of the voting stockholders.
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.
77
Northrop Grumman Newport News
--------------------------------------------------------------------------------
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 EquiServe
EquiServe Trust Company, N.A., as Trust Company, N.A. (formerly known
amended. as First Chicago Trust Company of
New York), 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 at a meeting of
stockholders, 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.
78
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;
. our maintaining satisfactory relations with labor unions that represent
certain of our employees;
. 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 21, 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 Reports on Form 10-Q, for the periods ended March 31,
2001, June 30, 2001 and September 30, 2001, which are incorporated herein by
reference. For additional factors that might affect the forward-looking
statements with respect to Newport News, see Newport News' Annual Report on
Form 10-K, for the fiscal year ended December 31, 2000 and Newport News'
Quarterly Reports on Form 10-Q, for the periods ended March 18, 2001, June 17,
2001 and September 16, 2001, which are incorporated in this prospectus by
reference. See "Where You Can Find More Information" beginning on page 6.
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.
79
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.
Certain other legal matters in connection with our offer and the merger will
be passed upon for Northrop Grumman and Purchaser Corp. I by Fried, Frank,
Harris, Shriver, & Jacobson (a partnership including professional
corporations), New York, New York, and for Newport News by Cravath, Swaine &
Moore, New York, New York.
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 Corporation for the periods ended March 31, 2001, June 30, 2001 and
September 30, 2001 and of Northrop Grumman Systems Corporation (formerly
Northrop Grumman Corporation) for the periods ended March 31, 2000, June 30,
2000 and September 30, 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 reports
included in Northrop Grumman's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2001, June 30, 2001 and September 30, 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.
The audited financial statements of Newport News Shipbuilding, Inc.
incorporated by reference in this prospectus and elsewhere in the registration
statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
giving said reports.
80
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)
Name and Business Address Age Present Principal Occupation or
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 59 Director of Northrop Grumman since 2000.
Senior Partner, Clark & Weinstock, a
consulting firm. Mr. Fazio served as a
A-1
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 of directors 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.
Kent Kresa 63 Director of Northrop Grumman since 1987.
Chairman 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 of directors
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.
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,
A-2
where he served as superintendent until
1998. Currently, Admiral Larson is Chairman
of the board of directors 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 Council on
Foreign Relations and is a senior fellow of
The CNA Corporation.
Jay H. Nussbaum 57 Director of Northrop Grumman since 2001.
Executive Vice President of Oracle Service
Industries, a subsidiary of Oracle
Corporation. Oracle Service Industries
serves the U.S. government, education,
health care, communications, utilities and
financial services industries. Mr. Nussbaum
joined Oracle in 1992 as the Senior Vice
President and General Manager of what was
then Oracle Federal. He came to Oracle
after a successful 24-year career with
Xerox Corporation, where his last position
was President, Integrated Systems
Operations. Mr. Nussbaum received his
bachelor's degree in Business from the
University of Maryland. He is a member of
the University's Chancellor's Advisory
Board and was Alumnus of the Year in 1989.
Mr. Nussbaum also serves on the board of
directors of KPMG Consulting and the Armed
Forces Communications and Electronics
Association (AFCEA) and is active in
several other business and charitable
organizations in the Washington area.
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.
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 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
A-3
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.
53 Director of Northrop Grumman since 2001.
Ronald D. Sugar Named President and Chief Operating Officer
of Northrop Grumman in September 2001. He
previously served as President and Chief
Executive Officer of Litton Industries,
Inc., a subsidiary of Northrop Grumman
Corporation, and Corporate Vice President
of 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 October 2001)
Present Principal Occupation or
Name and Business Address Age Employment; Five Year Employment History
------------------------- ------- ----------------------------------------
Herbert W. Anderson 62 Corporate Vice President, President and
Chief Executive Officer of Northrop
Grumman Information Technology. In 1988,
he was named President and Chief
Executive Officer of Logicon, Inc., a
subsidiary of Northrop Grumman. Prior to
this, Mr. Anderson was Corporate Vice
President and General Manager of Data
Systems and Services Division.
A-4
Frank G. Brandenberg 55 Corporate Vice President and President of
Northrop Grumman's Component Technologies
sector. Mr. Brandenberg joined Litton
Industries, in 1999 from EA Industries
Inc., where he was President and Chief
Executive Officer. From 1987 through 1997,
Mr. Brandenberg held various senior
management positions with UNISYS Corp.,
including President of the client/server
systems business unit and Deputy President
of its computer systems group.
Ralph D. Crosby, Jr. 54 Corporate Vice President and President,
Northrop Grumman Integrated Systems 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.
Philip A. Dur 57 Corporate Vice President and President,
Northrop Grumman Ship Systems since October
1, 2001. Prior to this, he was Vice
President, Program Operations for the
Company's Electronic Sensors & Systems
Section from November, 2000 and prior to
that, he had been Vice President,
International Development that Sector.
Prior to this and subsequent to his
retirement on September 30, 1995 from the
U.S. Navy with the Rank of Rear Admiral,
Mr. Dur was Vice President, Operations
Development at Tenneco Inc. until February
1996, when he became Executive Vice
President of Tenneco's Walker-Gillete
European Division, a position that he held
until July, 1997 when he became Vice
President of Tenneco's Automotive Division.
J. Michael Hateley 55 Corporate Vice President and Chief Human
Resources and Administrative Officer for
Northrop Grumman Corporation since December
1999. Prior to this election, he had served
as vice president of personnel for the
corporation since January 1999. Mr. Hateley
joined the company in 1976 and has held
vice president positions in human resources
at the company's Electronics Division, at
the Aircraft Division, at the B-2 Division
and at the Military Aircraft Systems
Division.
Robert W. Helm 50 Corporate Vice President, Government
Relations of Northrop Grumman since 1993.
Robert P. Iorizzo 60 Corporate Vice President and President of
Northrop Grumman's Electronic Systems
sector. Prior to this, he served as Vice
President and General Manager of the
sector's Command, Control, Communications,
Intelligence and Naval Systems (C/3/I&N)
business area since 1997. Prior to this, he
was General Manager of the Space Division
of Westinghouse Electric Corporation.
A-5
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.
Roseanne P. O'Brien 57 Corporate Vice President, Communications of
Northrop Grumman since August 2000. Prior
to this, Ms. O'Brien was Vice President,
Communications. Ms. O'Brien was Senior
Consultant to Alleghany Teledyne, Inc. from
1996 to 1999.
W. Burks Terry 50 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.
Richard B. Waugh, Jr. 58 Corporate Vice President and Chief
Financial Officer of Northrop Grumman since
1993.
Sandra J. Wright 46 Corporate Vice President and Controller
since 2001. Prior to this, she was the
Corporate Vice President and Controller for
Litton Industries in 2000. Ms. Wright was
Vice President and Controller of Aerojet, a
Gencorp Company from 1999 to 2000 and
Director of Financial Planning of Aerojet
prior to that.
A-6
DIRECTORS AND EXECUTIVE OFFICERS
OF PURCHASER CORP. I
The name, age, business address, present principal occupation or employment
and five-year employment history of each of the directors and executive
officers of Purchaser Corp. I are set forth below. 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)
Name and Present Principal Occupation
Business or Employment; Five-Year
Address Age Office(s) Employment History
-------- --- -------------------------- ------------------------------
Albert F. Myers 55 Director Corporate Vice President and
Treasurer of Northrop Grumman
since 1994.
W. Burks Terry 50 President; Director 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.
John H. Mullan 59 Vice President and Corporate Vice President and
Secretary; Director Secretary of Northrop Grumman
since 1999. Prior to this, Mr.
Mullan was Acting Secretary.
Prior to May 1998, he was
Senior Corporate Counsel.
A-7
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
B-1
(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
B-2
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
ANNEX C
AGREEMENT AND PLAN OF MERGER
AMONG
NORTHROP GRUMMAN CORPORATION,
PURCHASER CORP. I
AND
NEWPORT NEWS SHIPBUILDING INC.
TABLE OF CONTENTS
Description Page
----------- ----
ARTICLE 1 THE OFFER
Section 1.1 The Offer.................................................. C-1
Section 1.2 Company Action............................................. C-3
Section 1.3 Directors.................................................. C-4
Section 1.4 Merger Without Meeting of Stockholders..................... C-5
ARTICLE 2 THE MERGER
Section 2.1 The Merger................................................. C-5
Section 2.2 The Closing................................................ C-5
Section 2.3 Effective Time............................................. C-6
Section 2.4 Effects of the Merger...................................... C-6
Section 2.5 Certificate of Incorporation and Bylaws.................... C-6
Section 2.6 Directors.................................................. C-6
Section 2.7 Officers................................................... C-6
Section 2.8 Conversion of Company Common Stock......................... C-6
Section 2.9 Stock Options; Equity-Based Awards......................... C-7
Section 2.10 Conversion of the Purchaser Common Stock................... C-8
Section 2.11 Restructuring of the Merger................................ C-8
ARTICLE 3 PAYMENT
Section 3.1 Surrender of Certificates.................................. C-8
Section 3.2 Exchange Agent; Certificate Surrender Procedures........... C-9
Section 3.3 Transfer Books............................................. C-9
Section 3.4 Termination of Exchange Fund............................... C-9
Section 3.5 Appraisal Rights........................................... C-9
Section 3.6 Lost Certificates.......................................... C-10
Section 3.7 No Rights as Stockholder................................... C-10
Section 3.8 Withholding................................................ C-10
Section 3.9 Escheat.................................................... C-10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization............................................... C-11
Section 4.2 Authorization of Transaction; Enforceability............... C-11
Section 4.3 Noncontravention; Consents................................. C-11
Section 4.4 Capitalization............................................. C-12
Section 4.5 Company Reports; Proxy Statement........................... C-13
Section 4.6 No Undisclosed Liabilities................................. C-13
Section 4.7 Absence of Material Adverse Effect and Certain Events...... C-14
Section 4.8 Litigation and Legal Compliance............................ C-14
Section 4.9 Contract Matters........................................... C-14
Section 4.10 Tax Matters................................................ C-16
Section 4.11 Employee Benefit Matters................................... C-17
Section 4.12 Environmental Matters...................................... C-19
Section 4.13 Title...................................................... C-20
Section 4.14 Intellectual Property Matters.............................. C-20
Section 4.15 Labor Matters.............................................. C-21
Section 4.16 Rights Agreement........................................... C-21
Section 4.17 State Takeover Laws........................................ C-21
Section 4.18 Brokers' Fees.............................................. C-21
C-i
TABLE OF CONTENTS--(Continued)
Description Page
----------- ----
Section 4.19 Termination of General Dynamics Merger Agreement.......... C-21
Section 4.20 Nuclear Risks............................................. C-21
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE PURCHASER
Section 5.1 Organization.............................................. C-22
Section 5.2 Authorization of Transaction; Enforceability.............. C-22
Section 5.3 Noncontravention; Consents................................ C-23
Section 5.4 Capitalization............................................ C-23
Section 5.5 Parent Reports............................................ C-24
Section 5.6 No Undisclosed Liabilities................................ C-24
Section 5.7 Absence of Material Adverse Effect and Certain Events..... C-24
Section 5.8 Litigation and Legal Compliance........................... C-25
Section 5.9 Contract Matters.......................................... C-25
Section 5.10 Tax Matters............................................... C-26
Section 5.11 Employee Benefit Matters.................................. C-27
Section 5.12 Environmental Matters..................................... C-29
Section 5.13 Title..................................................... C-29
Section 5.14 Intellectual Property Matters............................. C-29
Section 5.15 Labor Matters............................................. C-29
Section 5.16 Brokers' Fees............................................. C-30
Section 5.17 Adequate Cash Resources................................... C-30
Section 5.18 No Capital Ownership in the Company....................... C-30
Information for the Schedules TO and 14D-9, the Form S-4
Section 5.19 and Proxy Statement....................................... C-30
ARTICLE 6 COVENANTS
Section 6.1 General................................................... C-30
Section 6.2 Notices and Consents...................................... C-31
Section 6.3 Interim Conduct of the Company............................ C-31
Section 6.4 Preservation of Organization.............................. C-32
Section 6.5 Access.................................................... C-32
Section 6.6 Notice of Developments.................................... C-33
Section 6.7 Other Potential Acquirers................................. C-33
Company Stockholder Meeting, Preparation of Proxy
Section 6.8 Statement................................................. C-34
Section 6.9 Indemnification........................................... C-34
Section 6.10 Public Announcements...................................... C-36
Section 6.11 Actions Regarding Antitakeover Statutes................... C-36
Section 6.12 Defense of Orders and Injunctions......................... C-36
Section 6.13 Employee Benefit Matters.................................. C-36
Section 6.14 Adjustment to Offer Consideration......................... C-37
Section 6.15 Interim Conduct of the Parent............................. C-38
Section 6.16 Tax Treatment; Tax Opinion................................ C-38
Section 6.17 No Company Rights Agreement Amendment..................... C-39
Section 6.18 Affiliate Letter.......................................... C-39
Section 6.19 Letters of Accountants.................................... C-39
ARTICLE 7 CONDITIONS TO THE CONSUMMATION OF THE MERGER
Section 7.1 Conditions to the Obligations of Each Party............... C-40
Section 7.2 Frustration of Closing Conditions......................... C-40
C-ii
TABLE OF CONTENTS--(Continued)
Description Page
----------- ----
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination................................................. C-40
Section 8.2 Effect of Termination....................................... C-41
Section 8.3 Termination Fee............................................. C-41
ARTICLE 9 MISCELLANEOUS
Section 9.1 Nonsurvival of Representations.............................. C-42
Section 9.2 Remedies.................................................... C-42
Section 9.3 Successors and Assigns...................................... C-42
Section 9.4 Amendment................................................... C-42
Section 9.5 Extension and Waiver........................................ C-42
Section 9.6 Severability................................................ C-43
Section 9.7 Counterparts................................................ C-43
Section 9.8 Descriptive Headings........................................ C-43
Section 9.9 Notices..................................................... C-43
Section 9.10 No Third Party Beneficiaries................................ C-44
Section 9.11 Entire Agreement............................................ C-44
Section 9.12 Construction................................................ C-44
Section 9.13 Submission to Jurisdiction.................................. C-44
Section 9.14 Governing Law............................................... C-44
ANNEX I CERTAIN CONDITIONS OF THE OFFER......................... C-A-I-1
ANNEX II OFFER CONSIDERATION..................................... C-A-II-1
ANNEX III MERGER CONSIDERATION.................................... C-A-III-1
ANNEX IV CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION............................................ C-A-IV-1
ANNEX V AFFILIATE AGREEMENT..................................... C-A-V-1
C-iii
TABLE OF DEFINED TERMS
Affiliate Agreement Section 6.18
Certificate Section 3.1
Certificate of Merger Section 2.3
Closing Section 2.2
Closing Date Section 2.2
Code Section 4.11(a)(i)
Company Preamble
Company Applicable Period Section 6.7(a)
Company Board Recitals
Company Common Stock Recitals
Company Disclosure Letter Article 4
Company Government Contract Section 4.9(b)
Company Government Sub-Contract Section 4.9(b)
Company Material Adverse Effect Section 4.1
Company Plans Section 4.11(a)
Company Rights Section 4.4(a)
Company Rights Agreement Section 4.4(a)
Company SEC Documents Section 4.5(a)
Company Stock-Based Award Section 2.9(a)(iii)
Company Stockholder Approval Section 6.8(d)
Company Stockholder Meeting Section 6.8(a)
Company Takeover Proposal Section 6.7(d)
Confidentiality Agreement Section 6.5
Consummation of the Offer Section 1.4
CSFB Opinion Section 4.2
Deemed Per Share Offer Consideration Section 2.9(b)
Delaware Act Section 1.4
Dissenting Stockholders Section 2.8(b)
Effective Time Section 2.3
Employees Section 6.13(a)
Employee Pension Benefit Plan Section 4.11(a)
Employee Welfare Benefit Plan Section 4.11(a)
Environmental Law Section 4.12(b)
ERISA Section 4.11(a)
ESPAP Section 6.13(e)
Exchange Act Section 1.1(b)
Exchange Agent Section 3.1
Exchange Fund Section 3.2(a)
Existing Offer Recitals
Existing Schedule 14D-9 Section 1.2(c)
Form S-4 Section 1.1(e)
Form S-3 Section 6.13(f)
General Dynamics Section 4.16(b)
General Dynamics Merger Agreement Section 4.19
GAAP Section 4.5(b)
Governmental Entities Section 6.1
Hazardous Materials Section 4.12(c)
Indemnified Losses Section 6.9(a)
Indemnified Parties Section 6.9(a)
Independent Directors Section 1.3(a)
C-iv
TABLE OF DEFINED TERMS--(Continued)
Initial Expiration Date Section 1.1(a)
Initial Tax Opinion Section 5.10(g)
Intellectual Property Section 4.14(b)
Joint Press Release Section 1.1(d)
Laws Section 1.2(a)
Lien Section 4.3
Merger Section 2.1
Merger Consideration Section 2.8(b)
Minimum Condition Section 1.1(a)
Multiemployer Plan Section 4.11(a)(vi)
OFCCP Section 4.15
Offer Recitals
Offer Documents Section 1.1(e)
Offer to Exchange Recitals
Outside Date Section 8.1(b)(i)
Parent Preamble
Parent Board Section 5.2
Parent Common Stock Recitals
Parent Disclosure Letter Article 5
Parent Form S-3 Section 6.14(c)
Parent Government Contract Section 5.9(b)
Parent Government Sub-Contract Section 5.9(b)
Parent Material Adverse Effect Section 5.1
Parent Plans Section 5.11(a)
Parent Rights Section 5.4(a)
Parent Rights Agreement Section 5.4(a)
Parent Securities Section 5.4(a)
Parent SEC Documents Section 5.5(a)
Permitted Liens Section 4.13
Proxy Statement Section 6.8(b)
Purchaser Preamble
Qualified Person Section 1.3(a)
Schedule 14D-9 Section 1.2(c)
Schedule 14D-9 Amendment Section 1.2(c)
Schedule TO Section 1.1(e)
SEC Section 1.1(b)
SECT Section 2.8(a)
SECT Shares Section 6.13(f)
SECT Share Value Section 6.13(f)
Securities Act Section 4.5(a)
Share Issuance Section 5.2
Significant Company Subsidiary Section 4.1
Significant Parent Subsidiaries Section 5.1
Stock Plans Section 2.9(a)(i)
Stock Option Section 2.9(a)(i)
Subsidiary Section 2.8(c)
Surviving Corporation Section 2.1
Synthetic Stock-Based Award Section 2.9(a)(ii)
Taxes Section 4.10(a)
Tax Returns Section 4.10(a)
Termination Fee Section 8.3(a)
C-v
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 7, 2001 among Northrop
Grumman Corporation, a Delaware corporation (the "Parent"), Purchaser Corp. I,
a Delaware corporation and a wholly-owned subsidiary of the Parent (the
"Purchaser"), and Newport News Shipbuilding Inc., a Delaware corporation (the
"Company").
WHEREAS the Parent has outstanding an offer (the "Existing Offer", and, as
amended from time to time in accordance with this Agreement, the "Offer") to
purchase all the outstanding shares of common stock, par value $0.01 per share,
of the Company (the "Company Common Stock"), including the associated Company
Rights (as defined in Section 4.4(a)), on the terms and subject to the
conditions set forth in the offer to exchange dated May 23, 2001 (the "Offer to
Exchange"), and in the related letter of transmittal;
WHEREAS the board of directors of the Company (the "Company Board") has
approved the acquisition of the Company by the Parent and resolved and agreed
to recommend that holders of Company Common Stock tender their shares of
Company Common Stock pursuant to the Offer;
WHEREAS, in furtherance of such transaction, the respective Boards of
Directors of the Parent, the Purchaser and the Company have approved the merger
of the Purchaser with the Company on the terms and subject to the conditions
set forth in this Agreement, whereby each issued share of Company Common Stock
not owned directly by the Parent, the Purchaser or the Company (other than
shares of Company Common Stock held by Dissenting Stockholders (as defined in
Section 2.8(b)) shall be converted into the right to receive shares of common
stock, par value $1.00 per share, of the Parent (the "Parent Common Stock") or
cash or a combination thereof in accordance with this Agreement; and
WHEREAS the Parent, the Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and for other good and valuable consideration, the value, receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
THE OFFER
Section 1.1 The Offer.
(a) As promptly as practicable following execution of this Agreement, the
Parent shall amend the Existing Offer: (i) to provide that the consideration to
be paid per share of Company Common Stock pursuant to the Offer will be as
calculated in accordance with Annex II hereto (the "Offer Consideration"); (ii)
to designate the Purchaser as the offeror and to set November 29, 2001 (the
"Initial Expiration Date"), as the expiration date for the Offer; and (iii)
otherwise to reflect the terms and conditions of this Agreement. For purposes
of this Agreement, the term "business day" shall mean any day, other than
Saturday, Sunday or a federal holiday, and shall consist of the time period
from 12:01 a.m. through 12:00 midnight Eastern time. The obligation of the
Purchaser to accept for payment and pay for shares of Company Common Stock
(including the related Company Rights) tendered pursuant to the Offer shall be
subject only to the condition that there shall be validly tendered (other than
by guaranteed delivery where actual delivery has not occurred) in accordance
with the terms of the Offer, prior to the expiration date of the Offer and not
withdrawn, a number of shares of Company Common Stock that, together with the
shares of Company Common Stock then owned by the Parent and/or the Purchaser,
represents at least a majority of the shares of Company Common Stock
outstanding on a fully diluted basis (after giving effect to the conversion or
exercise of all outstanding options, warrants and
C-1
other rights to acquire, and securities exercisable or convertible into,
Company Common Stock, whether or not exercised or converted at the time of
determination, other than potential dilution attributable to the Company
Rights) (the "Minimum Condition") and to the satisfaction or waiver by the
Purchaser as permitted hereunder of the other conditions set forth in Annex I
hereto. Without limiting the foregoing, effective upon Consummation of the
Offer (as defined in Section 1.4), the holder of such Company Common Stock
(including the related Company Rights) will sell and assign to the Purchaser
all right, title and interest in and to all of the shares of Company Common
Stock tendered (including, but not limited to, such holder's right to any and
all dividends and distributions with a record date before, and a payment date
after, the scheduled or extended expiration date).
(b) The Purchaser expressly reserves the right, subject to compliance with
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to waive
any of the conditions to the Offer and to make any change in the terms of or
conditions to the Offer; provided that (i) neither the Minimum Condition nor
any condition set forth in clause (c) of Annex I may be waived or changed
without the prior written consent of the Company, (ii) no change may be made
that reduces any of the Adjusted Cash Amount, the Base Cash Amount or the
Parent Available Shares or amends the Exchange Ratio, each as defined in Annex
II hereto, and (iii) and no change may be made that decreases the number of
shares of Company Common Stock sought in the Offer, adds additional conditions
to the Offer, modifies any of the conditions to the Offer in a manner adverse
to holders of Company Common Stock, makes any other change in the terms of the
Offer that is in any manner adverse to the holders of the Company Common Stock
or (except as provided in the next sentence and in Section 1.1(c)) changes the
expiration date of the Offer, without the prior written consent of the Company.
Without the consent of the Company, the Purchaser shall have the right to
extend the expiration date of the Offer from time to time for one or more
additional periods of not more than 10 business days (5 business days if only
one or more of the Minimum Condition, the condition set forth in clause (c)(i)
of Annex I hereto or the condition set forth in clause (c)(ii) of Annex I
hereto remain to be satisfied) (or such longer period as may be approved by the
Company), (i) if, immediately before the scheduled or extended expiration date
of the Offer, any of the conditions to the Offer shall not have been satisfied
or, to the extent permitted, waived, until such conditions are satisfied or
waived or (ii) for any period required by any rule, regulation, interpretation
or position of the Securities and Exchange Commission or the staff thereof (the
"SEC") applicable to the Offer or any period required by applicable law. If the
Purchaser elects to extend the expiration date pursuant to the immediately
preceding sentence when the only Offer Condition that is not satisfied (or
waived by the Purchaser) is the Minimum Condition, to the extent requested in
writing by the Company (which request must be delivered on or before the
expiration date), the Purchaser and the Parent shall be deemed to have
irrevocably waived all of the Offer Conditions other than the Minimum Condition
and the conditions set forth in clause (c) of Annex I. In addition, if, at the
scheduled or extended expiration date of the Offer, conditions to the Offer
have been satisfied or waived and the Minimum Condition has been satisfied but
Company Common Stock tendered and not withdrawn pursuant to the Offer
constitutes less than 90 percent of the outstanding Company Common Stock,
without the consent of the Company, the Purchaser shall (subject to applicable
law) have the right to provide for a "subsequent offering period" (as
contemplated by Rule 14d-11 under the Exchange Act) for up to 20 business days
after the Purchaser's acceptance for payment of the shares of Company Common
Stock then tendered and not withdrawn pursuant to the Offer.
(c) If any of the conditions to the Offer are not satisfied or waived on any
scheduled or extended expiration date of the Offer, the Purchaser shall, and
the Parent shall cause the Purchaser to, extend the Offer, if such condition or
conditions could reasonably be expected to be satisfied, from time to time
until such conditions are satisfied or waived; provided, that the Purchaser
shall not be required to extend the Offer beyond the Outside Date. Subject to
the foregoing and upon the terms and subject to the conditions of the Offer,
the Purchaser shall, and the Parent shall cause it to, accept for payment and
pay for, as promptly as practicable after the expiration of the Offer and in
accordance with Rule 14e-1(c) of the SEC (or as required by Rule 14d-11 under
the Exchange Act), all shares of Company Common Stock validly tendered and not
withdrawn pursuant to the Offer.
(d) No later than the first business day following execution of this
Agreement and subject to the conditions of this Agreement, the Parent shall
issue a joint press release with the Company (the "Joint Press Release")
regarding this Agreement and shall file with the SEC the Joint Press Release.
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(e) As promptly as practicable after the date of this Agreement, the Parent
and the Purchaser shall amend the Tender Offer Statement on Schedule TO, as
previously amended prior to the date hereof, and the registration statement on
Form S-4 (No. 333-61056), as previously amended prior to the date hereof, with
respect to the Existing Offer that were originally filed on May 23, 2001, and
file such amendments with the SEC. Such amendments shall contain an amendment
of the Offer to Exchange and a revised form of the letter of transmittal (which
letter of transmittal will be in a form reasonably satisfactory to the Company)
to set forth the terms of the Offer. The Tender Offer Statement on Schedule TO
and the Registration Statement on Form S-4, as so amended and as otherwise
amended and supplemented from time to time after the date hereof are referred
to as the "Schedule TO" and the "Form S-4", respectively. The Parent and the
Purchaser shall use their reasonable best efforts to cause the Form S-4 to be
declared effective by the SEC as promptly as practicable. The Schedule TO, the
Form S-4 and the documents included therein pursuant to which the Offer is
being made, together with any supplements or amendments thereto, are referred
to as the "Offer Documents". The Parent and the Purchaser will take all steps
necessary to cause the Offer Documents to be disseminated to holders of shares
of Company Common Stock to the extent required by applicable federal securities
law. The Parent, the Purchaser and the Company will promptly correct any
information provided by it for use in the Offer Documents if and to the extent
that such information shall have become false or misleading in any material
respect. The Parent and the Purchaser will take all steps necessary to cause
the Schedule TO and the Form S-4 as so corrected to be filed with the SEC and
the Offer Documents as so corrected to be disseminated to holders of shares of
Company Common Stock, in each case as and to the extent required by applicable
federal securities law, including applicable SEC rules and regulations
thereunder. The Company and its counsel shall be given a reasonable opportunity
to review and comment on all amendments or supplements to the Schedule TO, the
Form S-4 and the Offer Documents prior to their being filed with the SEC or
disseminated to the holders of shares of Company Common Stock. The Purchaser
and the Parent also agree to provide the Company and its counsel in writing
with any comments the Purchaser, the Parent or their counsel may receive from
the SEC or its staff with respect to the Schedule TO, the Form S-4 or the Offer
Documents promptly after the receipt of such comments and shall consult with
and provide the Company and its counsel a reasonable opportunity to review and
comment on the response of the Purchaser to such comments prior to responding.
(f) For purposes of all dividends or other distributions declared on Parent
Common Stock with a record date following the Consummation of the Offer (as
defined in Section 1.4), each holder of shares of Company Common Stock validly
tendered pursuant to the Offer shall be deemed to be the holder of all shares
of Parent Common Stock issuable to such holder as Offer Consideration effective
at the Consummation of the Offer.
Section 1.2 Company Action.
(a) The Company hereby approves of and consents to the Offer. The Company
has been advised that all of its directors and executive officers who own
shares of Company Common Stock intend to tender their shares of Company Common
Stock pursuant to the Offer so long as such action would not result in
liability under Section 16(b) of the Exchange Act. In connection with the
Offer, the Company will, or will cause its transfer agent to, promptly furnish
the Parent with a list of its stockholders, mailing labels and any available
listing or computer file containing the names and addresses of all record
holders of shares of Company Common Stock and lists in the Company's possession
or control of securities positions of shares of Company Common Stock held in
stock depositories, in each case as of a recent date, and will provide to the
Parent such additional information (including updated lists of stockholders,
mailing labels and lists of securities positions) and such other assistance as
the Parent may reasonably request in connection with the Offer. Subject to the
requirements of applicable statutes, laws (including common law), ordinances,
rules or regulations (collectively, "Laws"), and, except for such steps as are
necessary to disseminate the Schedule TO and the Offer Documents and any other
documents necessary to consummate the Offer and the transactions contemplated
by this Agreement, the Parent and the Purchaser shall hold in confidence the
information contained in any such labels, listings and files, shall use such
information only in connection with the Offer and the Merger, and, if this
Agreement shall be terminated, shall, upon request, deliver to the Company all
copies of such information then in their possession.
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(b) No later than the first business day following execution of this
Agreement, and subject to the conditions of this Agreement, the Company will
issue the Joint Press Release with the Parent and shall file with the SEC the
Joint Press Release.
(c) On the date the amendment to the Schedule TO is filed with the SEC
pursuant to Section 1.1(e), the Company will file with the SEC an amendment
(the "Schedule 14D-9 Amendment") to its Solicitation/ Recommendation Statement
on Schedule 14D-9 originally filed on June 6, 2001 with respect to the Offer
(such Schedule 14D-9, as amended from time to time on or prior to the date
hereof, the "Existing Schedule 14D-9"), and will mail the Schedule 14D-9
Amendment to the holders of Company Common Stock. The Existing Schedule 14D-9,
as amended by the Schedule 14D-9 Amendment and as amended and supplemented from
time to time after the date hereof is referred to as the "Schedule 14D-9". Each
of the Company, the Parent and the Purchaser will promptly correct any
information provided by it for use in the Schedule 14D-9 if and to the extent
that such information shall have become false or misleading in any material
respect, and the Company will take all steps necessary to amend or supplement
the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or
supplemented to be filed with the SEC and to be disseminated to holders of
shares of Company Common Stock, in each case as and to the extent required by
applicable federal securities law. The Parent and its counsel shall be given a
reasonable opportunity to review and comment on all amendments and supplements
to the Schedule 14D-9 prior to its being filed with the SEC or disseminated to
holders of Company Common Stock. The Company also agrees to provide the Parent
and its counsel in writing with any comments the Company or its counsel may
receive from the SEC with respect to the Schedule 14D-9 promptly after the
receipt of such comments and shall consult with and provide the Parent and its
counsel a reasonable opportunity to review and comment on the response of the
Company to such comments prior to responding.
Section 1.3 Directors.
(a) Promptly upon the Consummation of the Offer, and as long as the Parent
directly or indirectly owns, not less than a majority of the issued and
outstanding shares of Company Common Stock on a fully diluted basis by the
Parent or any of its direct or indirect Subsidiaries pursuant to the Offer, the
Parent shall be entitled to designate for appointment or election to the then
existing Company Board, upon written notice to the Company, such number of
directors, rounded up to the next whole number, on the Company Board such that
the percentage of its designees on the Company Board shall equal the percentage
of the outstanding shares of Company Common Stock owned of record by the Parent
and its direct or indirect Subsidiaries. In furtherance thereof, the Company
shall, upon request of the Purchaser, use its reasonable efforts promptly to
cause the Parent's designees (and any replacement designees in the event that
any designee shall no longer be on the Company Board) to be so elected to the
Company Board, and in furtherance thereof, to the extent necessary, increase
the size of the Company Board or use its reasonable efforts to obtain the
resignation of such number of its current directors as is necessary to give
effect to the foregoing provision. At such time, the Company shall also, upon
the request of the Purchaser, use its reasonable efforts to cause the Persons
designated by the Parent to constitute at least the same percentage (rounded up
to the next whole number) as is on the Company Board of (i) each committee of
the Company Board, (ii) each board of directors (or similar body) of each
Subsidiary of the Company and (iii) each committee (or similar body) of each
such board. Notwithstanding the foregoing, until the Effective Time, the
Company Board shall have at least two directors who are directors of the
Company on the date of this Agreement and who are not officers of the Company
or any of its Subsidiaries (the "Independent Directors"); provided, however,
that (x) notwithstanding the foregoing, in no event shall the requirement to
have at least two Independent Directors result in the Parent's designees
constituting less than a majority of the Company Board unless the Parent shall
have failed to designate a sufficient number of Persons to constitute at least
a majority and (y) if the number of Independent Directors shall be reduced
below two for any reason whatsoever (or if immediately following Consummation
of the Offer there are not at least two then-existing directors of the Company
who (1) are Qualified Persons (as defined below) and (2) are willing to serve
as Independent Directors), then the number of Independent Directors required
hereunder shall be one, unless the remaining Independent Director is able to
identify a person, who is not an officer or Affiliate of the
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Company, the Parent or any of their respective Subsidiaries (any such person
being referred to herein as a "Qualified Person"), willing to serve as an
Independent Director, in which case such remaining Independent Director shall
be entitled to designate any such Qualified Person or Persons to fill such
vacancy, and such designated Qualified Person shall be deemed to be an
Independent Director for purposes of this Agreement, or if no Independent
Directors then remain, the other Directors shall be required to designate two
Qualified Persons to fill such vacancies, and such persons shall be deemed to
be Independent Directors for purposes of this Agreement.
(b) The Company shall promptly take all actions required pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to
fulfill its obligations under Section 1.3(a), including mailing to stockholders
the information required by such Section 14(f) and Rule 14f-1 (which the
Company shall mail together with the Schedule 14D-9 if it receives from the
Parent and the Purchaser the information below on a basis timely to permit such
mailing) as is necessary to fulfill the Company's obligations under Section
1.3(a). The Company's obligations to appoint the Parent's designees to the
Company Board shall be subject to compliance with Section 14(f) of the Exchange
Act and Rule 14f-1 promulgated thereunder. The Parent or the Purchaser shall
supply the Company in writing any information with respect to either of them
and their nominees, officers, directors and Affiliates required by such Section
14(f) and Rule 14f-1 as is necessary in connection with the appointment of any
of the Parent's designees under Section 1.3(a). The provisions of Section
1.3(a) are in addition to and shall not limit any rights that the Purchaser,
the Parent or any of their Affiliates may have as a holder or beneficial owner
of shares of Company Common Stock as a matter of law with respect to the
election of directors or otherwise.
(c) Following the election or appointment of the Parent's designees pursuant
to Section 1.3(a), the approval by affirmative vote or written consent of all
of the Independent Directors then in office (or, if there shall be only one
Independent Director then in office, the Independent Director) shall be
required to authorize (and such authorization shall constitute the
authorization of the Company Board and no other action on the part of the
Company, including any action by any committee thereof or any other director of
the Company, shall, unless otherwise required by law, be required or permitted
to authorize) (i) any amendment or termination of this Agreement by the
Company, (ii) any extension of time for performance of any obligation or action
hereunder by the Parent or the Purchaser or (iii) any waiver or exercise of any
of the Company's rights under this Agreement.
Section 1.4 Merger Without Meeting of Stockholders. If following first
acceptance for payment of shares of Company Common Stock by the Purchaser
pursuant to the Offer (the "Consummation of the Offer") (or any subsequent
offering period), the Purchaser owns at least 90 percent of the outstanding
shares of Company Common Stock, each of the parties hereto shall take all
necessary and appropriate action to cause the Merger to become effective as
soon as practicable after such acquisition, without the Company Stockholder
Meeting, in accordance with Section 253 of the Delaware General Corporation Law
(the "Delaware Act").
ARTICLE 2
THE MERGER
Section 2.1 The Merger. Subject to Section 2.11, upon the terms and subject
to the conditions set forth in this Agreement, at the Effective Time (as
defined in Section 2.3) the Company will be merged (the "Merger") with and into
the Purchaser in accordance with the provisions of the Delaware Act. Following
the Merger, the Purchaser will continue as the surviving corporation (the
"Surviving Corporation") and the separate corporate existence of the Company
will cease.
Section 2.2 The Closing. Upon the terms and subject to the conditions set
forth in this Agreement, the consummation of the Merger and the other
transactions contemplated by this Agreement (the "Closing") will
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take place at the offices of Fried, Frank, Harris, Shriver & Jacobson, One New
York Plaza, New York, New York 10004, at 10:00 a.m., local time, no later than
the third business day following the satisfaction or waiver, to the extent
permitted by applicable Laws, of the conditions set forth in Article 7 (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the satisfaction or, where permitted, waiver of those
conditions), or at such other date, time or place as the Parent and the Company
may agree. The date upon which the Closing occurs is referred to in this
Agreement as the "Closing Date."
Section 2.3 Effective Time. Upon the terms and subject to the conditions of
this Agreement, on the date of the Closing (or on such other date as the Parent
and the Company may agree), the Parent, the Purchaser and the Company shall
file with the Secretary of State of the State of Delaware a certificate of
merger (or certificate of ownership and merger, as the case may be) (the
"Certificate of Merger") executed and acknowledged in accordance with Section
251 (or Section 253, as the case may be) of the Delaware Act, and shall make
all other filings or recordings required under the Delaware Act. The Merger
(whether effected pursuant to Section 251 or Section 253 of the Delaware Act)
shall become effective on the later of the date on which the Certificate of
Merger has been duly filed with the Secretary of State of the State of Delaware
or such time as is agreed upon by the parties and specified in the Certificate
of Merger, and such time is hereinafter referred to as the "Effective Time."
Section 2.4 Effects of the Merger. From and after the Effective Time, the
Merger shall have the effects set forth in this Agreement and Section 259 of
the Delaware Act. Without limiting the generality of the foregoing, as of the
Effective Time, all properties, rights, privileges, powers and franchises of
the Company and the Purchaser will vest in the Surviving Corporation and all
debts, liabilities and duties of the Company and the Purchaser will become
debts, liabilities and duties of the Surviving Corporation.
Section 2.5 Certificate of Incorporation and Bylaws. At the Effective Time,
the certificate of incorporation and bylaws attached as Annex IV hereto will be
the certificate of incorporation and bylaws of the Surviving Corporation, until
amended by the Surviving Corporation pursuant to the Delaware Act and subject
to the provisions of Section 6.9(e).
Section 2.6 Directors. The directors of the Purchaser at the Effective Time
will be the initial directors of the Surviving Corporation and will hold office
from the Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the certificate of
incorporation and bylaws of the Surviving Corporation or as otherwise provided
by law.
Section 2.7 Officers. The officers of the Company at the Effective Time will
be the initial officers of the Surviving Corporation and will hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the certificate of
incorporation and bylaws of the Surviving Corporation or as otherwise provided
by law.
Section 2.8 Conversion of Company Common Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of Company Common Stock or any shares of capital stock of the Purchaser:
(a) All shares of Company Common Stock that are owned by the Company, the
Purchaser or the Parent immediately prior to the Effective Time shall be
cancelled and shall cease to exist and no consideration shall be delivered in
exchange therefor; provided that shares of Company Common Stock held
beneficially or of record by any Stock Plan (as defined in Section 2.9(a)(i))
or Company Plan (as defined in Section 4.11(a)) or in accordance with the
provisions of the Company's Amended and Restated Stock Employee Compensation
Trust Agreement dated as of August 1, 2000 among the Company and Wachovia Bank,
N.A. (the "SECT") shall not be deemed to be held by the Company regardless of
whether the Company has, directly or indirectly, the power to vote or control
the disposition of such shares.
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(b) Each share of Company Common Stock (other than shares to be cancelled in
accordance with Section 2.8(a) and any shares that are held by stockholders
exercising appraisal rights pursuant to Section 262 of the Delaware Act
("Dissenting Stockholders")) issued and outstanding immediately prior to the
Effective Time, including any shares of Company Common Stock held beneficially
or of record by any Stock Plan or Company Plan or in accordance with the
provisions of the SECT, shall be converted into the right to receive the
consideration described in Annex III hereto, payable to the holder thereof,
without interest (the "Merger Consideration"), upon surrender of the
Certificate (as defined in Section 3.1) formerly representing such share in the
manner provided in Section 3.2. All such shares, when so converted, shall no
longer be outstanding and shall automatically be cancelled and shall cease to
exist, and each holder of a Certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive the
Merger Consideration therefor upon the surrender of such Certificate in
accordance with Section 3.2, without interest.
(c) The term "Subsidiary" as used in this Agreement means any corporation,
partnership, limited liability company or other business entity 50 percent or
more of the outstanding voting equity securities of which are owned, directly
or indirectly, by the Company or the Parent, as applicable.
Section 2.9 Stock Options; Equity-Based Awards.
(a) As soon as practicable following the date of this Agreement, the Company
Board (or, if appropriate, any committee administering the Stock Plans) shall
adopt such resolutions or take such other actions (if any) as may be required
to effect the following:
(i) Each option to purchase shares of Company Common Stock (a "Stock
Option") granted under any stock option plan, program, agreement or
arrangement of the Company or any of its Subsidiaries (collectively, the
"Stock Plans"; for the avoidance of doubt, the term "Stock Plan" does not
include the Company's Deferred Compensation Plan or Deferred Compensation
Plan for Nonemployee Directors (collectively, the "Deferred Compensation
Plans")) which is outstanding and unexercised immediately prior to the
acceptance for payment of shares of Company Common Stock pursuant to the
Offer, whether vested or unvested, shall be adjusted to provide that each
such Stock Option shall be then cancelled, and, in consideration of such
cancellation, the holder of each such Stock Option shall become entitled to
receive a payment in cash from the Company in an amount equal to the
product of (x) the excess, if any, of the Deemed Per Share Offer
Consideration over the exercise price per share of Company Common Stock
subject to such Stock Option and (y) the number of shares of Company Common
Stock subject to such Stock Option. This Section 2.9(a)(i) will not apply
to the ESPAP (as defined in Section 6.13(e)) and the rights thereunder,
which shall be terminated in the manner set forth in Section 6.13(e).
(ii) Each right of any kind, whether vested or unvested, contingent or
accrued, to receive shares of Company Common Stock or benefits measured by
the value of a number of shares of Company Common Stock (including
performance share awards), except for Stock Options (each, a "Synthetic
Stock-Based Award"), which is outstanding immediately prior to the
acceptance for payment of shares of Company Common Stock pursuant to the
Offer, shall be adjusted to provide that each such Synthetic Stock-Based
Award shall be then cancelled, and, in consideration of such cancellation,
the holder of each such Synthetic Stock-Based Award shall become entitled
to receive a payment in cash from the Company in an amount equal to the
product of (x) the Deemed Per Share Offer Consideration and (y) the number
of shares of Company Common Stock subject to such Synthetic Stock-Based
Award (assuming the maximum level of possible payout, if applicable);
provided, however, that no such payment shall be made to such holder with
respect to any Synthetic Stock-Based Award in respect of which the holder
thereof has elected to defer payment to a deferred compensation account
under the Deferred Compensation Plans, and, in lieu thereof, such account
shall be credited with a fully vested amount of cash equal to such payment.
(iii) Each award of any kind, whether vested or unvested, consisting of
shares of Company Common Stock issued under the Stock Plans (including,
without limitation, restricted stock) (each, a "Company Stock-Based Award")
outstanding immediately prior to the acceptance for payment of shares of
Company
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Common Stock pursuant to the Offer which is not then vested shall be
adjusted to provide that each such Company Stock-Based Award shall then
fully vest and each holder thereof shall be permitted to tender such
Company-Stock Based Award pursuant to the Offer on a guaranteed delivery of
shares basis and to make all elections available to holders of Company
Common Stock tendered pursuant to the Offer and shall be subject to the
same proration limitations as are holders of Company Common Stock tendered
pursuant to the Offer. Upon acceptance of the Offer, the holder of each
Company Stock-Based Award shall be entitled to receive, pursuant to the
Offer, in cash and/or Parent Common Stock, as applicable, the product of
the Offer Consideration and the number of shares of Company Common Stock
subject to such Company Stock-Based Award.
(iv) Any cash payments required to be made pursuant to Section 2.9(a)(i)
or 2.9(a)(ii) are to be made (subject to applicable withholding and payroll
taxes) by the Company as promptly as practicable following the Consummation
of the Offer. The Purchaser and the Company shall cooperate to determine
the amount of any withholding and payroll taxes payable by the holders of
Company Stock-Based Awards in connection with the transactions contemplated
by Sections 2.9(a)(iii), and the Purchaser shall withhold such amounts and
shall remit such withholdings to the Company for the payment of such taxes.
(b) For purposes of this Agreement, "Deemed Per Share Offer Consideration"
shall mean the amount, expressed in U.S. dollars, determined by dividing (i)
the sum of (A) the product of (x) the Parent Stock Value (as defined in Annex
II hereto) and (y) the total number of shares of Parent Common Stock issued in
the Offer and (B) the total cash amount paid in the Offer, by (ii) the total
number of shares of Company Common Stock accepted for payment pursuant to the
Offer.
(c) Except to the extent permitted by Section 6.3, no additional Stock
Options, Synthetic Stock-Based Awards, Company Stock-Based Awards or other
equity-based awards or other rights to acquire Company Common Stock shall be
granted pursuant to the Stock Plans or otherwise after the date of this
Agreement.
(d) The Company Board, or the applicable committee thereof, will grant all
approvals and take all other actions required pursuant to Rules 16b-3 under the
Exchange Act to cause the disposition pursuant to this Agreement of Company
Common Stock, Synthetic Stock-Based Awards and Stock Options to be exempt from
the provisions of Section 16(b) of the Exchange Act, if any such exemption is
available.
Section 2.10 Conversion of the Purchaser Common Stock. Each share of the
common stock, par value $0.01 per share, of the Purchaser issued and
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into one share of the Common Stock, par value $0.01 per share, of the Surviving
Corporation.
Section 2.11 Restructuring of the Merger. Notwithstanding Section 2.1, in
the event that the opinion of Fried, Frank, Harris, Shriver & Jacobson referred
to in Section 6.16(b) is not obtained as described therein, then upon the terms
and subject to the conditions set forth in this Agreement at the Effective Time
the Purchaser will be merged with and into the Company in accordance with the
provisions of the Delaware Act. Following such merger, the Company will
continue as the surviving corporation and the separate corporate existence of
the Purchaser will cease. In such event, the term the "Merger" shall be deemed
to refer to such merger and the term the "Surviving Corporation" shall be
deemed to refer to such surviving corporation, in each case for all purposes
hereunder.
ARTICLE 3
PAYMENT
Section 3.1 Surrender of Certificates. From and after the Effective Time,
each holder of a certificate that immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (a "Certificate") will
be entitled to receive in exchange therefor, upon surrender thereof to an
exchange agent (the "Exchange Agent") to be designated by the Parent prior to
the Effective Time with approval of the
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Company, which approval shall not be unreasonably withheld, the Merger
Consideration in accordance with the provisions of Article 2 and this Article
3. No interest will be payable on the Merger Consideration to be paid to any
holder of a Certificate irrespective of the time at which such Certificate is
surrendered for exchange.
Section 3.2 Exchange Agent; Certificate Surrender Procedures.
(a) As soon as reasonably practicable following the Effective Time, the
Parent will deposit, or cause to be deposited, with the Exchange Agent, (i)
certificates representing shares of Parent Common Stock and (ii) an amount in
cash, sufficient to provide all shares of Parent Common Stock and funds
necessary for the Exchange Agent to make payment of the Merger Consideration
pursuant to Section 2.8 (the "Exchange Fund"). Pending payment of such cash to
the holders of Certificates for shares of Company Common Stock, such cash will
be held and may be invested by the Exchange Agent as the Parent directs (so
long as such directions do not impair the rights of holders of Company Common
Stock) in the direct obligations of the United States, obligations for which
the full faith and credit of the United States is pledged to provide for the
payment of principal and interest or commercial paper rated of the highest
quality by Moody's Investors Services, Inc. or Standard & Poor's Corporation.
Any net profit resulting from, or interest or income produced by, such
investments will be payable to the Surviving Corporation or the Parent, as the
Parent directs. The Parent will promptly replace any monies lost through any
investment made pursuant to this Section 3.2(a).
(b) As soon as reasonably practicable after the Effective Time, the Parent
will instruct the Exchange Agent to mail to each record holder of a Certificate
(i) a letter of transmittal (which will specify that delivery will be effected,
and risk of loss and title to such Certificates will pass, only upon delivery
of the Certificate to the Exchange Agent, will contain provisions to allow
stockholders to exercise their election rights if the last sentence of Section
5(g) of Annex III hereto is applicable, will be in such form and have such
other provisions as the Parent will reasonably specify and will be in a form
reasonably satisfactory to the Company) and (ii) instructions for use in
effecting the surrender of Certificates for the Merger Consideration.
Commencing immediately after the Effective Time, upon the surrender to the
Exchange Agent of such Certificate or Certificates, together with a duly
executed and completed letter of transmittal and all other documents and other
materials required by the Exchange Agent to be delivered in connection
therewith, the holder will be entitled to receive the Merger Consideration in
accordance with the provisions of Section 2.8.
Section 3.3 Transfer Books. The stock transfer books of the Company will be
closed at the Effective Time and no transfer of any shares of Company Common
Stock outstanding immediately prior to the Effective Time will thereafter be
recorded on any of the stock transfer books. In the event of a transfer of
ownership of any Company Common Stock prior to the Effective Time that is not
registered in the stock transfer records of the Company at the Effective Time,
the Merger Consideration will be paid to the transferee in accordance with the
provisions of Section 3.2(b) only if the Certificate is surrendered as provided
in Section 3.2 and accompanied by all documents required to evidence and effect
such transfer and by evidence of payment of any applicable stock transfer
taxes.
Section 3.4 Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed one hundred eighty (180) days after the Effective
Time will be delivered to the Parent upon demand, and each holder of Company
Common Stock who has not theretofore surrendered Certificates in accordance
with the provisions of this Article 3 will thereafter look only to the Parent
for satisfaction of such holder's claims for the Merger Consideration.
Section 3.5 Appraisal Rights. Notwithstanding anything in this Agreement to
the contrary, if any Dissenting Stockholder is entitled to appraisal rights
under Section 262 of the Delaware Act and shall demand to be paid the fair cash
value of such holder's shares of Company Common Stock, as provided in Section
262 of the Delaware Act, such shares shall not be converted into or be
exchangeable for the right to receive the Merger Consideration except as
provided in this Section 3.5, and the Company shall give the Parent notice of
any demand for appraisal rights under Section 262 of the Delaware Act received
by the Company, and the Parent shall have the right to participate in all
negotiations and proceedings with respect to any such demands.
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Neither the Company nor the Surviving Corporation shall, except with the prior
written consent of the Parent, voluntarily make any payment with respect to, or
settle or offer to settle, any such demand for payment. If any Dissenting
Stockholder shall fail to perfect or shall have effectively withdrawn or lost
the right to an appraisal under Section 262 of the Delaware Act, the shares of
Company Common Stock held by such Dissenting Stockholder shall thereupon be
treated as though such shares had been converted into the right to receive the
Merger Consideration at the Effective Time pursuant to Section 2.8.
Section 3.6 Lost Certificates. If any Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Parent, the posting by such person of a bond in such reasonable amount as the
Parent may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will deliver in exchange
for such lost, stolen or destroyed Certificate the Merger Consideration
pursuant to Section 2.8.
Section 3.7 No Rights as Stockholder.
(a) From and after the Effective Time, the holders of Certificates will
cease to have any rights as a stockholder of the Surviving Corporation except
as otherwise provided in this Agreement or by applicable law, and the Parent
will be entitled to treat each Certificate that has not yet been surrendered
for exchange solely as evidence of the right to receive the Merger
Consideration in accordance with the provisions of Article 2 hereof and this
Article 3, provided, however, that each holder of a Certificate that has become
entitled to any declared and unpaid dividend will continue to be entitled to
such dividend following the Effective Time, and the Surviving Corporation will
pay such dividend to such holder in the amount and on the date specified
therefor by the Company Board at the time of declaration thereof.
(b) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Parent Common Stock
shall be paid in respect of any Company Common Stock formerly represented by a
Certificate until such Certificate is surrendered for exchange as provided
herein. Following surrender of any such Certificate, there shall be paid to the
holder of the certificates representing whole Parent Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole Parent Common
Stock and not paid, less the amount of any withholding taxes which may be
required thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole Parent Common Stock, less the amount of any withholding
taxes which may be required thereon.
Section 3.8 Withholding. The Parent will be entitled to deduct and withhold
from the Merger Consideration otherwise payable to any former holder of Company
Common Stock all amounts relating to federal and state income and payroll taxes
required by law to be deducted or withheld therefrom.
Section 3.9 Escheat. Neither the Parent, the Purchaser nor the Company will
be liable to any former holder of Company Common Stock for any portion of the
Merger Consideration delivered to any public official pursuant to any
applicable abandoned property, escheat or similar law. In the event any
Certificate has not been surrendered for the Merger Consideration prior to the
sixth anniversary of the Closing Date, or prior to such earlier date as of
which such Certificate or the Merger Consideration payable upon the surrender
thereof would otherwise escheat to or become the property of any governmental
entity, then the Merger Consideration otherwise payable upon the surrender of
such Certificate will, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all rights, interests
and adverse claims of any person.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and the Purchaser that
except as disclosed in the reports, schedules, forms, statements and other
documents filed by the Company with the SEC since December 31, 1999, and
publicly available prior to the date of this Agreement or as disclosed in the
letter dated as of the date of this Agreement from the Company to the Parent
(the "Company Disclosure Letter"):
Section 4.1 Organization. The Company and each of its Subsidiaries is (a) a
corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation, (b) has all requisite power and authority to
own, lease and operate its properties and to carry on its business as presently
being conducted, and (c) is in good standing under the laws of the jurisdiction
of its incorporation and is duly qualified to conduct business as a foreign
corporation in each other jurisdiction where such qualification is required,
except, in the case of clauses (a) (as it relates to the Subsidiaries), (b) and
(c) above, where such failure, individually or in the aggregate, is not
reasonably likely to have a material adverse effect on the business, financial
condition, operations or results of operations of the Company and its
Subsidiaries taken as a whole (other than changes or effects relating to the
economy in general, the securities markets in general or the shipbuilding or
defense industries in general and not specifically relating to the Company) or
the ability of the Company to consummate the Merger and to perform its
obligations under this Agreement (a "Company Material Adverse Effect"). The
Company has delivered to the Parent correct and complete copies of its
certificate of incorporation and bylaws, as presently in effect, and, upon
request, will make available to the Parent after the date of this Agreement
correct and complete copies of the charters and bylaws, as presently in effect,
of each of its "significant subsidiaries", as such term is defined in
Regulation S-X of the Exchange Act (the "Significant Company Subsidiaries").
Section 4.2 Authorization of Transaction; Enforceability. The Company has
full corporate power and authority and has taken all requisite corporate action
to enable it to execute and deliver this Agreement, to consummate the Merger
and the other transactions contemplated hereby and to perform its obligations
hereunder, other than obtaining the Company Stockholder Approval (as defined in
Section 6.8(d)), if necessary, and the filing of the Certificate of Merger. The
Company Board, at a meeting thereof duly called and held, has (i) unanimously
determined that this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, taken together, are advisable and fair to
and in the best interests of the Company and its stockholders; (ii) unanimously
approved this Agreement and the transactions contemplated hereby, including the
Offer and the Merger, in all respects; and (iii) unanimously resolved to
recommend that the stockholders of the Company accept the Offer, tender their
shares of Company Common Stock thereunder to the Purchaser and adopt this
Agreement. In addition, the Company consents to the inclusion of such
recommendation and approval in the Offer Documents. In connection with its
adoption of the foregoing resolutions, the Company Board received the opinion
(the "CSFB Opinion") of Credit Suisse First Boston Corporation, financial
advisor to the Company Board, to the effect that, as of the date of such
opinion, the Offer Consideration and the Merger Consideration are fair to the
holders of shares of Company Common Stock (other than the Parent and its
affiliates), from a financial point of view. The Company will deliver to the
Parent a correct and complete copy of such CSFB Opinion, promptly following
receipt thereof. Assuming due execution and authorization by the Parent and the
Purchaser, this Agreement constitutes the valid and legally binding obligation
of the Company, enforceable against the Company in accordance with its terms
and conditions, except as enforceability may be limited by applicable
bankruptcy, insolvency or other similar Laws affecting the enforcement of
creditors' rights generally and by general principals of equity relating to
enforceability.
Section 4.3 Noncontravention; Consents. Except for (a) filings and approvals
necessary to comply with the applicable requirements of the Exchange Act and
the "blue sky" laws and regulations of various states, (b) the filing of the
Certificate of Merger pursuant to the Delaware Act and any applicable documents
with the relevant authorities of other jurisdictions in which the Company or
any of its Subsidiaries is qualified to do
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business and (c) any filings required under the rules and regulations of the
New York Stock Exchange, neither the execution and delivery of this Agreement
by the Company, nor the consummation by the Company of the transactions
contemplated hereby, will constitute a violation of, be in conflict with,
constitute or create (with or without notice or lapse of time or both) a
default under, give rise to any right of termination, cancellation, amendment
or acceleration with respect to, or result in the creation or imposition of any
lien, encumbrance, security interest or other claim (a "Lien") upon any
property of the Company or any of its Subsidiaries pursuant to (i) the
certificate of incorporation or bylaws of the Company or any of its
Subsidiaries, (ii) any law, rule, regulation, permit, order, writ, injunction,
judgment or decree to which the Company or any of its Subsidiaries is subject
or (iii) any agreement or commitment to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
subject, except, in the case of clauses (ii) and (iii) above, for such matters
which, individually or in the aggregate, are not reasonably likely to have a
Company Material Adverse Effect and for such matters arising as a result of the
Company not being the Surviving Corporation in the Merger.
Section 4.4 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of the
Company consists of 70 million shares of Company Common Stock, par value $0.01
per share, and 10 million shares of Preferred Stock, par value $0.01 per share,
of which 400,000 shares have been designated as Series A Participating
Cumulative Preferred Stock, par value $0.01 per share, none of which shares of
preferred stock have been issued. As of the close of business on November 1,
2001, (i) 35,397,728 shares of Company Common Stock were issued and
outstanding, (ii) 31,176 shares of Company Common Stock were subject to
restricted stock grants, (iii) 2,239 shares were held by the Company as
treasury shares, (iv) 22,090,000 shares were reserved for issuance pursuant to
the Stock Plans, and (v) 400,000 shares of Company Series A Participating
Cumulative Preferred Stock were reserved for issuance in connection with the
rights (the "Company Rights") issued pursuant to the Rights Agreement dated as
of June 10, 1998 (as amended from time to time) (the "Company Rights
Agreement") between the Company and First Chicago Trust Company of New York, as
Rights Agent. All of the issued and outstanding shares of capital stock of the
Company have been duly authorized and are validly issued, fully paid and
nonassessable.
(b) Other than (i) Stock Options to acquire an aggregate of not more than
2,359,496 shares of Company Common Stock granted by the Company to current and
former directors, officers, employees and advisors of the Company and its
Subsidiaries, and (ii) the Company Rights, as of the date of this Agreement,
there are no outstanding or authorized options, warrants, subscription rights,
conversion rights, exchange rights or other contracts or commitments that could
require the Company or any Significant Company Subsidiary to issue, sell or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding stock appreciation, phantom stock, profit participation, dividend
equivalent rights or similar rights with respect to the Company or any
Significant Company Subsidiary. The Company Disclosure Letter sets forth the
aggregate number of outstanding Stock Options and the aggregate number of
Company Stock-Based Awards and the average weighted exercise price of the Stock
Options and the average weighted base price of the Company Stock-Based Awards.
(c) As of November 1, 2001, the trust under the SECT is the owner of
5,797,553 shares of Company Common Stock.
(d) Neither the Company nor any Significant Company Subsidiary is a party to
any voting trust, proxy or other agreement or understanding with respect to the
voting of any capital stock of the Company or any Significant Company
Subsidiary.
(e) Prior to the date of this Agreement, the Company Board has not declared
any dividend or distribution with respect to the Company Common Stock the
record or payment date for which is on or after the date of this Agreement.
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(f) All of the outstanding shares of the capital stock of each of the
Company's Subsidiaries have been validly issued, are fully paid and
nonassessable and as of the date of this Agreement are owned by the Company or
one of its Subsidiaries, free and clear of any Lien other than Permitted Liens,
except where the failure to be validly issued, fully paid or nonassessable is
not reasonably likely to have a Company Material Adverse Effect. Except for its
Subsidiaries, as of the date of this Agreement, the Company does not control
directly or indirectly or have any direct or indirect equity participation in
any corporation, partnership, limited liability company, joint venture or other
entity.
(g) The number of shares of Company Common Stock required to be validly
tendered to satisfy the Minimum Condition, calculated as of November 1, 2001,
is 18,878,613.
Section 4.5 Company Reports; Proxy Statement.
(a) The Company has since December 31, 1999 filed all reports, forms,
statements and other documents (collectively, together with all financial
statements included or incorporated by reference therein, the "Company SEC
Documents") required to be filed by the Company with the SEC pursuant to the
provisions of the Securities Act of 1933 (as amended, the "Securities Act"), or
Section 12(b), 12(g) or 15(d) of the Exchange Act. Each of the Company SEC
Documents, as of its filing date, complied in all material respects with the
applicable requirements of the Securities Act and the Exchange Act. None of the
Company SEC Documents, as of their respective filing dates, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. No Subsidiary of the Company is required to file any reports,
forms, statements or other documents pursuant to the Securities Act or Section
12(b), 12(g) or 15(d) of the Exchange Act.
(b) Each of the consolidated financial statements (including related notes)
included in the Company SEC Documents presented fairly in all material respects
the consolidated financial condition, cash flows and results of operations of
the Company and its Subsidiaries for the respective periods or as of the
respective dates set forth therein. Each of the financial statements (including
related notes) included in the Company SEC Documents has been prepared in
accordance with United States generally accepted accounting principles
("GAAP"), consistently applied during the periods involved, except
(i) as noted therein, (ii) to the extent required by changes in GAAP or
(iii) in the case of unaudited interim financial statements, normal
recurring year-end audit adjustments and as permitted by Form 10-Q of the
SEC.
(c) The Schedule 14D-9 and the Proxy Statement to be filed by the Company
pursuant to this Agreement will comply in all material respects with the
applicable requirements of the Exchange Act and will not, at the time the
Schedule 14D-9 or the definitive Proxy Statement is filed with the SEC, as the
case may be, and mailed to the stockholders of the Company, contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. No
representation or warranty is made herein by the Company with respect to any
information, if any, supplied by the Parent or the Purchaser for inclusion in
the Schedule 14D-9 or the Proxy Statement. The information regarding the
Company to be provided to the Parent and the Purchaser for inclusion in the
Form S-4 and the Schedule TO will not, at the time such information is
provided, contain any untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Section 4.6 No Undisclosed Liabilities. The Company and its Subsidiaries
have no liabilities or obligations (whether absolute or contingent, liquidated
or unliquidated, or due or to become due) except for (a) liabilities and
obligations referenced (whether by value or otherwise) or reflected in the
Company SEC
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Documents, (b) liabilities and obligations incurred in the ordinary course of
business, consistent with past practice, since June 30, 2001, and (c) other
liabilities and obligations which, individually or in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect.
Section 4.7 Absence of Material Adverse Effect and Certain Events. Since
June 30, 2001 to the date of this Agreement, (i) there has not been a Company
Material Adverse Effect nor has there occurred any event, change, effect or
development which, individually or in the aggregate, is reasonably likely to
have a Company Material Adverse Effect; (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock, or
property) with respect to any capital stock of the Company or any purchase,
redemption or other acquisition for value by the Company of any capital stock
except in the ordinary course of business, consistent with past practice; (iii)
any split, combination or reclassification of any capital stock of the Company
or any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of the
Company; (iv) (A) any granting by the Company or any Subsidiary of the Company
to any director or executive officer of the Company or any Subsidiary of the
Company of any increase in compensation, except in the ordinary course of
business consistent with prior practice or as was required under employment
agreements in effect as of June 30, 2001, (B) any granting by the Company or
any Subsidiary of the Company to any such director or executive officer of any
increase in severance or termination pay, except as was required under any
employment, severance or termination agreements in effect as of June 30, 2001,
or (C) any entry by the Company or any Subsidiary of the Company into any
employment, severance or termination agreement with any such director or
executive officer; (v) any change in accounting methods, principles or
practices by the Company or any Subsidiary of the Company materially affecting
the consolidated assets, liabilities or results of operations of the Company,
except insofar as may have been required by a change in GAAP or by Law; or (vi)
any material elections with respect to Taxes by the Company or any Subsidiary
of the Company (other than those elections reflected on Tax Returns filed as of
the date hereof) or settlement or compromise by the Company or any Subsidiary
of the Company of any material Tax Liability or refund.
Section 4.8 Litigation and Legal Compliance.
(a) As of the date of this Agreement, the Company Disclosure Letter sets
forth each instance in which the Company or any of its Subsidiaries is (i)
subject to any material unsatisfied judgment order, decree, stipulation,
injunction or charge or (ii) a party to or, to the Company's knowledge,
threatened to be made a party to any material charge, complaint, action, suit,
proceeding or hearing of or in any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction, except for
judgments, orders, decrees, stipulations, injunctions, charges, complaints,
actions, suits, proceedings and hearings which, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect.
As of the date of this Agreement, there are no judicial or administrative
actions or proceedings pending or, to the Company's knowledge, threatened that
question the validity of this Agreement or any action taken or to be taken by
the Company in connection with this Agreement, which, if adversely determined,
are reasonably likely to have a Company Material Adverse Effect.
(b) Except for instances of noncompliance which, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect,
and except for Taxes and Environmental Laws, which are the subject of Section
4.10 and Section 4.12, respectively, the Company and its Subsidiaries are in
compliance with each law, rule, regulation, permit, order, writ, injunction,
judgment or decree to which the Company or any of its Subsidiaries is subject.
Section 4.9 Contract Matters.
(a) Neither the Company nor any of its Subsidiaries is in default or
violation of (and no event has occurred which with notice or the lapse of time
or both would constitute a default or violation of) any term, condition or
provision of any note, mortgage, indenture, loan agreement, other evidence of
indebtedness, guarantee, license, lease, agreement or other contract,
instrument or contractual obligation to which the Company or any of its
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Subsidiaries is a party or by which any of their respective assets is bound,
except for any such default or violation which, individually or in the
aggregate, is not reasonably likely to have a Company Material Adverse Effect.
(b) With respect to each contract, agreement, bid or proposal between the
Company or any of its Subsidiaries and any domestic or foreign government or
governmental agency, including any facilities contract for the use of
government-owned facilities (a "Company Government Contract"), and each
contract, agreement, bid or proposal that is a subcontract between the Company
or any of its Subsidiaries and a third party relating to a contract between
such third party and any domestic or foreign government or governmental agency
(a "Company Government Subcontract"), (i) the Company and each of its
Subsidiaries have complied with all terms and conditions of such Company
Government Contract or Company Government Subcontract, including all clauses,
provisions and requirements incorporated expressly by reference therein, (ii)
the Company and each of its Subsidiaries have complied with all requirements of
all laws, rules, regulations or agreements pertaining to such Company
Government Contract or Company Government Subcontract, including where
applicable the Cost Accounting Standards disclosure statement of the Company or
such Subsidiary, (iii) as of the date of this Agreement, neither the United
States government nor any prime contractor, subcontractor or other person or
entity has notified the Company or any of its Subsidiaries, in writing or
orally, that the Company or any of its Subsidiaries has breached or violated
any law, rule, regulation, certification, representation, clause, provision or
requirement pertaining to such Company Government Contract or Company
Government Subcontract, (iv) neither the Company nor any of its Subsidiaries
has received any notice of termination for convenience, notice of termination
for default, cure notice or show cause notice pertaining to such Company
Government Contract or Company Government Subcontract, (v) as of the date of
this Agreement, other than in the ordinary course of business, no cost incurred
by the Company or any of its Subsidiaries pertaining to such Company Government
Contract or Company Government Subcontract has been questioned or challenged,
is the subject of any audit or investigation or has been disallowed by any
government or governmental agency, and (vi) as of the date of this Agreement,
no payments due to the Company or any of its Subsidiaries pertaining to such
Company Government Contract or Company Government Subcontract has been withheld
or set off, nor has any claim been made to withhold or set off money, and the
Company and its Subsidiaries are entitled to all progress payments received to
date with respect thereto, except in each such case for any such failure,
noncompliance, breach, violation, termination, cost, investigation,
disallowance or payment which, individually or in the aggregate, is not
reasonably likely to have a Company Material Adverse Effect.
(c) To the Company's knowledge, neither the Company nor any of its
Subsidiaries, any of the respective directors, officers, employees, consultants
or agents of the Company or any of its Subsidiaries is or since January 1, 2000
has been under administrative, civil or criminal investigation, indictment or
information by any government or governmental agency or any audit or in
investigation by the Company or any of its Subsidiaries with respect to any
alleged act or omission arising under or relating to any Company Government
Contract or Company Government Subcontract except for any investigation,
indictment, information or audit relating to matters which, individually or in
the aggregate, are not reasonably likely to have a Company Material Adverse
Effect.
(d) There exist (i) no material outstanding claims against the Company or
any of its Subsidiaries, either by any government or governmental agency or by
any prime contractor, subcontractor, vendor or other person or entity, arising
under or relating to any Company Government Contract or Company Government
Subcontract, and (ii) no disputes between the Company or any of its
Subsidiaries and the United States government under the Contract Disputes Act
or any other federal statute or between the Company or any of its Subsidiaries
and any prime contractor, subcontractor or vendor arising under or relating to
any Company Government Contract or Company Government Subcontract, except for
any such claim or dispute which, individually or in the aggregate, is not
reasonably likely to have a Company Material Adverse Effect. Neither the
Company nor any of its Subsidiaries has (i) any interest in any pending or
potential material claim against any government or governmental agency or (ii)
any interest in any pending claim against any prime contractor, subcontractor
or
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vendor arising under or relating to any Company Government Contract or Company
Government Subcontract, which, if adversely determined against the Company,
individually or in the aggregate, is reasonably likely to have a Company
Material Adverse Effect.
(e) Since January 1, 2000, neither the Company nor any of its Subsidiaries
has been debarred or suspended from participation in the award of contracts
with the United States government or any other government or governmental
agency (excluding for this purpose ineligibility to bid on certain contracts
due to generally applicable bidding requirements). To the Company's knowledge,
there exists no facts or circumstances that would warrant the institution of
suspension or debarment proceedings or the finding of nonresponsibility or
ineligibility on the part of the Company, any of its Subsidiaries or any of
their respective directors, officers or employees. No payment has been made by
or on behalf of the Company or any of its Subsidiaries in connection with any
Company Government Contract or Company Government Subcontract in violation of
applicable procurement laws, rules and regulations or in violation of, or
requiring disclosure pursuant to, the Foreign Corrupt Practices Act, as
amended, except for any such violation or failure to disclose which,
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect.
Section 4.10 Tax Matters.
(a) For each taxable period beginning on or after January 1, 1997, the
Company and each of its Subsidiaries have timely filed all required returns,
declarations, reports, claims for refund or information returns and statements,
including any schedule or attachment thereto (collectively "Tax Returns"),
relating to any federal, state, local or foreign net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties or other tax, fee, assessment or charge, including any interest, penalty
or addition thereto and including any liability for the taxes of any other
person or entity under Treasury Regulation Section 1.1502-6 (or any similar
state, local or foreign law, rule or regulation), and any liability in respect
of any tax as a transferee or successor, by law, contract or otherwise
(collectively "Taxes"), and all such Tax Returns are accurate and complete in
all respects, except to the extent any such failure to file or any such
inaccuracy in any filed Tax Return, individually or in the aggregate, is not
reasonably likely to have a Company Material Adverse Effect. All Taxes owed by
the Company or any of its Subsidiaries (whether or not shown on any Tax Return)
have been paid or adequately reserved for in accordance with generally accepted
accounting principles in the financial statements of the Company, except to the
extent any such failure to pay or reserve, individually or in the aggregate, is
not reasonably likely to have a Company Material Adverse Effect.
(b) No deficiency with respect to Taxes has been proposed, asserted or
assessed against the Company or any of its Subsidiaries and no requests for
waivers of the time to assess any such Taxes are pending, except (i) requests
for waivers for income Taxes for periods referred to in Section 4.10(c) (or
subsequent periods) or (ii) to the extent any such deficiency or request for
waiver, individually or in the aggregate, is not reasonably likely to have a
Company Material Adverse Effect.
(c) The Company Disclosure Letter sets forth the periods, as of the date of
this Agreement, of the federal income Tax Returns of the Company and its
Subsidiaries being examined by the Internal Revenue Service.
(d) Except for Liens for current Taxes not yet due and payable or which are
being contested in good faith, there is no Lien affecting any of the assets or
properties of the Company or any of its Subsidiaries that arose in connection
with any failure or alleged failure to pay any Tax, except for Liens which,
individually or in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect.
(e) Neither the Company nor any of its Subsidiaries is a party to any Tax
allocation or Tax sharing agreement with any person other than the Company or
any of its Subsidiaries other than the agreement dated as of December 11, 1996
between the Company, Tenneco Inc., New Tenneco Inc. and El Paso Natural Gas
Company.
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(f) Neither the Company nor any of its Subsidiaries has constituted either a
"distributing corporation" or a "controlled corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (i) in
the two years prior to the date of this Agreement or (ii) in a distribution
which could otherwise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of the Code) in conjunction
with the Offer or the Merger.
(g) Neither the Company nor any of its Subsidiaries has taken or agreed to
take any action or knows of any fact, agreement, plan or other circumstance
that is reasonably likely to prevent the Offer and the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code.
Section 4.11 Employee Benefit Matters.
(a) The Company has made available to the Parent each plan, program,
agreement or arrangement constituting a material employee welfare benefit plan
(an "Employee Welfare Benefit Plan") as defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974 (as amended, "ERISA"), or a material
employee pension benefit plan (an "Employee Pension Benefit Plan") as defined
in Section 3(2) of ERISA, and each other material employee benefit plan,
agreement, program or arrangement or employment practice maintained by the
Company or any of its Subsidiaries with respect to any of its current or former
employees or to which the Company or any of the Company Subsidiaries
contributes or is required to contribute with respect to any of its current or
former employees (collectively, the "Company Plans"). With respect to each
Company Plan:
(i) such Company Plan (and each related trust, insurance contract or
fund) has been administered in a manner consistent in all respects with its
written terms and complies in form and operation with the applicable
requirements of ERISA and the Internal Revenue Code of 1986, as amended
(the "Code"), and other applicable laws, except for failures of
administration or compliance which, individually or in the aggregate, are
not reasonably likely to have a Company Material Adverse Effect;
(ii) all required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-1's and Summary Plan Descriptions)
have been filed or distributed appropriately with respect to such Company
Plan, except for failures of filing or distribution which, individually or
in the aggregate, are not reasonably likely to have a Company Material
Adverse Effect;
(iii) the requirements of Part 6 of Subtitle B of Title I of ERISA and
Section 4980B of the Code have been met with respect to each such Company
Plan which is an Employee Welfare Benefit Plan, except for failures which,
individually or in the aggregate, are not reasonably likely to have a
Company Material Adverse Effect;
(iv) all material contributions, premiums or other payments (including
all employer contributions and employee salary reduction contributions)
that are required to be made under the terms of any Company Plan have been
timely made or have been reflected on the financial statements contained in
the Company's most recent Form 10-K or Form 10-Q included in the Company
SEC Documents except for failures which, individually or in the aggregate,
are not reasonably likely to have a Company Material Adverse Effect;
(v) each such Company Plan which is an Employee Pension Benefit Plan
(other than a plan that is exempt from the requirements of Parts 2, 3 and 4
of Title I of ERISA) intended to be a "qualified plan" under Section 401(a)
of the Code has received a favorable determination letter from the Internal
Revenue Service, and no event has occurred which could reasonably be
expected to cause the loss, revocation or denial of any such favorable
determination letter except where the lack of a favorable determination
letter is not reasonably likely to have a Company Material Adverse Effect;
(vi) the Company has made available and will continue to make available
to the Parent, upon its request, correct and complete copies of the plan
documents and most recent summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most
recent
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Form 5500 Annual Report, the most recent actuarial report, the most recent
audited financial statements, and all related trust agreements, insurance
contracts and other funding agreements that implement such Company Plan
(but excluding the failure to make available any such document which is not
material). The valuation summaries provided by the Company to the Parent
reasonably represent the assets and liabilities attributable to each
Company Plan which is an Employee Pension Benefit Plan (other than any
"multiemployer plan" as defined in Section 3(37) of ERISA ("Multiemployer
Plan")) or an Employee Welfare Benefit Plan providing retiree medical or
life benefits calculated in accordance with the Company's past practices,
but excluding any failure which, individually or in the aggregate, is not
reasonably likely to have a Company Material Adverse Effect;
(vii) no Company Plan which is an Employee Pension Benefit Plan has been
amended in any manner which would require the posting of security under
Section 401(a)(29) of the Code or Section 307 of ERISA, except any such
action which, individually or in the aggregate, is not reasonably likely to
have a Company Material Adverse Effect; and
(viii) neither the Company nor any of its Subsidiaries has communicated
to any employee (excluding internal memoranda to management) any plan or
commitment, whether or not legally binding, to create any additional
material employee benefit plan or to materially modify or change any
Company Plan affecting any employee or terminated employee of the Company
or any of its Subsidiaries, except any such action which, individually or
in the aggregate, is not reasonably likely to have a Company Material
Adverse Effect.
(b) With respect to each Employee Welfare Benefit Plan or Employee Pension
Benefit Plan that the Company or any of its Subsidiaries maintains or ever has
maintained, or to which any of them contributes, ever has contributed or ever
has been required to contribute:
(i) no such Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been completely or partially terminated (other than any
termination which, individually or in the aggregate, is not reasonably
likely to have a Company Material Adverse Effect), no reportable event (as
defined in Section 4043 of ERISA) for which the 30-day reporting
requirement has not been waived, as to which notices would be required to
be filed with the Pension Benefit Guaranty Corporation, has occurred but
has not yet been so reported (but excluding any failure to report which,
individually or in the aggregate, is not reasonably likely to have a
Company Material Adverse Effect), and no proceeding by the Pension Benefit
Guaranty Corporation to terminate such Employee Pension Benefit Plan (other
than any Multiemployer Plan) has been instituted;
(ii) there have been no non-exempt prohibited transactions (as defined
in Section 406 of ERISA and Section 4975 of the Code) with respect to such
plan, no fiduciary has any liability for breach of fiduciary duty or any
other failure to act or comply in connection with the administration or
investment of the assets of such plan, and no action, suit, proceeding,
hearing or, to the Company's knowledge, investigation with respect to the
administration or the investment of the assets of such plan (other than
routine claims for benefits) is pending or, to the Company's knowledge,
threatened, but excluding, from each of the foregoing, events or
circumstances which, individually or in the aggregate, are not reasonably
likely to have a Company Material Adverse Effect; and
(iii) other than routine claims for benefits, none of the Company or any
of its Subsidiaries or related entities has incurred, and the Company has
no reason to expect that the Company or any of its Subsidiaries or related
entities will incur, any liability under Subtitle C or D Title IV of ERISA
or under the Code with respect to any Company Plan that is an Employee
Pension Benefit Plan, other than liabilities which, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse
Effect.
(c) Neither the Company nor any of its Subsidiaries presently contributes
to, nor, since January 1, 1997, have they been obligated to contribute to, a
Multiemployer Plan, other than obligations which, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse Effect.
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(d) Other than pursuant to a Company Plan, neither the Company nor any of
its Subsidiaries has any obligation to provide medical, health, life insurance
or other welfare benefits for current or future retired or terminated
employees, their spouses or their dependents (other than in accordance with
Section 4980B of the Code), other than obligations which, individually or in
the aggregate, are not reasonably likely to have a Company Material Adverse
Effect.
(e) Except as set forth in Section 4.11(e) of the Company Disclosure Letter,
no Company Plan contains any provision that would prohibit the transactions
contemplated by this Agreement, would give rise to any severance, termination
or other payments as a result of the transactions contemplated by this
Agreement (alone or together with the occurrence of any other event), or would
cause any payment, acceleration or increase in benefits provided by any Company
Plan as a result of the transactions contemplated by this Agreement (alone or
together with the occurrence of any other event), but excluding any benefit
acceleration or increase which would not have a Company Material Adverse
Effect.
(f) As of the date hereof, the amount of indebtedness that the SECT owes the
Company is not less than $195,000,000.
Section 4.12 Environmental Matters.
(a) Except for matters which, individually or in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect: (i) the Company
and its Subsidiaries are, and, to the Company's knowledge, since January 1,
1999 have been in compliance in all respects with all Environmental Laws (as
defined in Section 4.12(b)) in connection with the ownership, use, maintenance
and operation of their owned, operated or leased real property or otherwise in
connection with their operations, (ii) neither the Company nor any of its
Subsidiaries has any liability, whether contingent or otherwise, under, or for
any violations of, any Environmental Law, (iii) no written notices of any
violation or alleged violation of, non-compliance or alleged noncompliance with
or any liability under, any Environmental Law have been received by the Company
or any of its Subsidiaries since January 1, 1999 that are currently outstanding
and unresolved as of the date of this Agreement, and, to the Company's
knowledge, there are no other outstanding notices that are unresolved for which
the Company or any of its Subsidiaries have responsibility, (iv) there are no
administrative, civil or criminal writs, injunctions, decrees, orders or
judgments outstanding or any administrative, civil or criminal actions, suits,
claims, proceedings or, to the Company's knowledge, investigations pending or,
to the Company's knowledge, threatened, relating to compliance with or
liability under any Environmental Law affecting the Company or any of its
Subsidiaries, (v) the Company and its Subsidiaries possess valid environmental
permits required by any Environmental Law in connection with the ownership,
use, maintenance and operation of their respective owned, operated and leased
real property, and (vi) to the knowledge of the Company, no material changes to
or alterations of the practices or operations of the Company or any of its
Subsidiaries as presently conducted are anticipated to be required in the
future in order to permit the Company and its Subsidiaries to continue to
comply in all material respects with all applicable Environmental Laws. The
Company Disclosure Letter sets forth the amount reserved as of December 31,
2000 by the Company for compliance with all Environmental Laws.
(b) The term "Environmental Law" as used in this Agreement means any
applicable and binding law, rule, regulation, permit, order, writ, injunction,
judgment or decree with respect to the protection or preservation of the
environment or the promotion of worker health and safety, including any such
law, rule, regulation, permit, order, writ, injunction, judgment or decree
relating to Hazardous Materials (as defined in Section 4.12(c)). Without
limiting the generality of the foregoing, the term will encompass each of the
following statutes and the regulations promulgated thereunder, each as amended
(i) the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, (ii) the Solid Waste Disposal Act, (iii) the Hazardous Materials
Transportation Act, (iv) the Toxic Substances Control Act, (v) the Clean Water
Act, (vi) the Clean Air Act, (vii) the Safe Drinking Water Act, (viii) the
National Environmental Policy Act of 1969, (ix) the Superfund Amendments and
Reauthorization Act of 1986, (x) Title III of the Superfund Amendments and
Reauthorization Act, (xi) the Federal Insecticide, Fungicide and Rodenticide
Act and (xii) the provisions of
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the Occupational Safety and Health Act of 1970 relating to the handling of and
exposure to Hazardous Materials.
(c) The term "Hazardous Materials" as used in this Agreement means each and
every compound, chemical mixture, contaminant, pollutant, material, waste or
other substance (i) that is defined or has been identified as hazardous or
toxic under any Environmental Law or (ii) the spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, storing, escaping,
leaching, dumping, discarding, burying, abandoning or disposing into the
environment of which is prohibited or regulated under any Environmental Law.
Without limiting the generality of the foregoing, the term will include (i)
"hazardous substances" as defined in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, and regulations promulgated
thereunder, each as amended, (ii) "extremely hazardous substance" as defined in
the Superfund Amendments and Reauthorization Act of 1986, or Title III of the
Superfund Amendments and Reauthorization Act and regulations promulgated
thereunder, each as amended, (iii) "hazardous waste" as defined in the Solid
Waste Disposal Act and regulations promulgated thereunder, each as amended,
(iv) "hazardous materials" as defined in the Hazardous Materials Transportation
Act and the regulations promulgated thereunder, each as amended, (v) "chemical
substance or mixture" as defined in the Toxic Substances Control Act and
regulations promulgated thereunder, each as amended, (vi) petroleum and
petroleum products and byproducts and (vii) asbestos.
Section 4.13 Title. The Company and its Subsidiaries have good and, in the
case of real property, marketable title to all the properties and assets
purported to be owned by them, free and clear of all Liens except (a) Liens for
current Taxes or assessments not delinquent, (b) builder, mechanic,
warehousemen, materialmen, contractor, workmen, repairmen, carrier or other
similar Liens arising and continuing in the ordinary course of business for
obligations that are not delinquent, (c) the rights, if any, of vendors having
possession of tooling of the Company and its Subsidiaries, (d) liens arising
from the receipt by the Company and its Subsidiaries of progress payments by
the United States government, (e) Liens securing rental payments under capital
lease arrangements and (f) other Liens which, individually or in the aggregate,
are not reasonably likely to have a Company Material Adverse Effect
(collectively, "Permitted Liens").
Section 4.14 Intellectual Property Matters.
(a) The Company and its Subsidiaries own or have the right to use pursuant
to valid license, sublicense, agreement or permission all items of Intellectual
Property necessary for their operations as presently conducted and as presently
proposed to be conducted, except where the failure to have such rights,
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect. Neither the Company nor any of its Subsidiaries has
received any charge, complaint, claim, demand or notice alleging any
interference, infringement, misappropriation or violation of the Intellectual
Property rights of any third party, except for any charges, complaints, claims,
demands or notices relating to matters which, individually or in the aggregate,
are not reasonably likely to have a Company Material Adverse Effect. Since
January 1, 2000, to the Company's knowledge, no third party has interfered
with, infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property rights of the Company or any of its Subsidiaries, except
for misappropriations and violations which, individually or in the aggregate,
are not reasonably likely to have a Company Material Adverse Effect.
(b) The term "Intellectual Property" as used in this Agreement means,
collectively, patents, patent disclosures, trademarks, service marks, logos,
trade names, copyrights and mask works, and all registrations, applications,
reissuances, continuations, continuations-in-part, revisions, extensions,
reexaminations and associated good will with respect to each of the foregoing,
computer software (including source and object codes), computer programs,
computer data bases and related documentation and materials, data,
documentation, trade secrets, confidential business information (including
ideas, formulas, compositions, inventions, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, designs, plans, proposals and technical data, financial, marketing
and business data and pricing and cost information) and all other intellectual
property rights (in whatever form or medium).
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Section 4.15 Labor Matters. As of the date of this Agreement, there are no
controversies pending or, to the Company's knowledge, threatened between the
Company or any of its Subsidiaries and any of their current or former employees
or any labor or other collective bargaining unit representing any such employee
that are reasonably likely to have a Company Material Adverse Effect or are
reasonably likely to result in a material labor strike, dispute, slow-down or
work stoppage. As of the date of this Agreement, the Company is not aware of
any organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of the Company or any of its
Subsidiaries. As of the date of this Agreement, there are no current U.S.
Department of Labor, Office of Federal Contract Compliance Programs ("OFCCP")
or Equal Employment Opportunity Commission audits, except for any audits
relating to matters which, individually or in the aggregate, are not reasonably
likely to have a Company Material Adverse Effect. To the knowledge of the
Company, as of the date of this Agreement, there are no OFCCP conciliation
agreements in effect.
Section 4.16 Rights Agreement.
(a) The Company has taken all requisite action under the Company Rights
Agreement to cause the provisions of the Company Rights Agreement not to be
applicable to this Agreement, the Offer, the Merger or the other transactions
contemplated hereby and to provide for the expiration of the Company Rights
upon the Consummation of the Offer.
(b) The Company Rights Agreement applies to any acquisition by General
Dynamics Corporation ("General Dynamics") of Beneficial Ownership of more than
15% of the Common Shares (each as defined in the Company Rights Agreement).
Section 4.17 State Takeover Laws. The Company Board has approved the Offer,
the Merger and this Agreement and, assuming the accuracy of the Parent's and
the Purchaser's representations in Section 5.18, such approval is sufficient to
render inapplicable to the Offer, the Merger, this Agreement and the other
transactions contemplated hereby the restrictions on "business combinations"
set forth in Section 203 of the Delaware Act. To the Company's knowledge, no
other "fair price," "moratorium," "control share," "business combination,"
"affiliate transaction," or other anti-takeover statute or similar statute or
regulation of any state is applicable to the Offer, the Merger, this Agreement
and the other transactions contemplated hereby.
Section 4.18 Brokers' Fees. Except for the fees and expenses payable by the
Company to Credit Suisse First Boston, neither the Company nor any of its
Subsidiaries has any liability or obligation to pay any fees or commissions to
any financial advisor, broker, finder or agent with respect to the transactions
contemplated by this Agreement. The Company has delivered to the Parent a
correct and complete copy of the engagement letter between the Company and
Credit Suisse First Boston relating to the transactions contemplated by this
Agreement, which letter describes the fees payable to Credit Suisse First
Boston in connection with this Agreement.
Section 4.19 Termination of General Dynamics Merger Agreement. The Agreement
and Plan of Merger dated as of April 24, 2001 (the "General Dynamics Merger
Agreement") among General Dynamics, Grail Acquisition Corporation and the
Company has been validly terminated pursuant to Section 8.1(a) of the General
Dynamics Merger Agreement and, except as provided in Section 8.3(b) thereof, is
of no further force and effect and the parties thereto have no rights, claims
or obligations thereunder. Neither such termination nor the execution, delivery
or performance of this Agreement has or will provide General Dynamics with any
right or claim that any Termination Fee (as defined in the General Dynamics
Merger Agreement) is payable to General Dynamics.
Section 4.20 Nuclear Risks. To the knowledge of the Company, all Company
Government Contracts and all Company Government Subcontracts that require or
have required the Company or any of its Subsidiaries (when each such Subsidiary
was directly or indirectly a Subsidiary of the Company and not before) to
perform work involving nuclear risks (i) have at all times been performed in
compliance with applicable statutes and regulations and no such performance has
been or is in violation of any applicable statute
C-21
or regulation, except for such failures to comply as would not reasonably be
expected to result in a Company Material Adverse Effect, and (ii)(A) have
contained or contain contractual indemnification by the U.S. Government under
the authority of Public Law 85-804 or 10 U.S.C. Section 2354 or the Price-
Anderson Act, as implemented by Executive Order and regulation, and (B) such
indemnities are in full force and effect.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE PURCHASER
The Parent and the Purchaser represent and warrant, jointly and severally,
to the Company that except as disclosed in the reports, schedules, forms,
statements and other documents filed by the Parent with the SEC since December
31, 1999, and publicly available prior to the date of this Agreement or as
disclosed in the letter dated as of the date of this Agreement from the Parent
to the Company (the "Parent Disclosure Letter"):
Section 5.1 Organization. Each of the Purchaser, the Parent and each of the
Parent's Subsidiaries is (a) a corporation duly organized and validly existing
under the laws of the jurisdiction of its incorporation, (b) has all requisite
power and authority to own, lease and operate its properties and to carry on
its business as presently being conducted, and (c) is in good standing under
the laws of the jurisdiction of its incorporation and is duly qualified to
conduct business as a foreign corporation in each other jurisdiction where such
qualification is required, except, in the case of clauses (a) (as it relates to
the Subsidiaries), (b) and (c) above, where such failure, individually or in
the aggregate, is not reasonably likely to have a material adverse effect on
the business, financial condition, operations or results of operations of the
Parent and its Subsidiaries taken as a whole (other than changes or effects
relating to the economy in general, the securities markets in general or the
shipbuilding, defense or other industries in which the Parent operates in
general and not specifically relating to the Parent) or the ability of the
Parent to consummate the Merger and to perform its obligations under this
Agreement (a "Parent Material Adverse Effect"). The Parent has delivered to the
Company correct and complete copies of the certificates of incorporation and
bylaws, as presently in effect, of the Parent and the Purchaser and, upon
request, will make available to the Company after the date of this Agreement
correct and complete copies of the charters and bylaws, as presently in effect,
of each of the Parent's "significant subsidiaries", as such term is defined in
Regulation S-X of the Exchange Act (the "Significant Parent Subsidiaries"). All
of the outstanding shares of the capital stock of the Purchaser have been
validly issued, are fully paid and nonassessable and are owned by the Parent
free and clear of any Lien. The Purchaser has been organized solely for the
purpose of engaging in the Merger and the other transactions contemplated by
this Agreement and has not engaged in any business other than contemplated by
this Agreement.
Section 5.2 Authorization of Transaction; Enforceability. Each of the Parent
and the Purchaser has full corporate power and authority and has taken all
requisite corporate action to enable it to execute and deliver this Agreement,
to consummate the Offer, the Merger and the other transactions contemplated
hereby and to perform its obligations hereunder and, in the case of the Parent,
to issue shares of Parent Common Stock as part of the Offer Consideration and
the Merger Consideration (the "Share Issuance"). The Parent has, simultaneously
with the execution and delivery hereof, executed a written consent in lieu of a
special meeting of the sole stockholder of the Purchaser in accordance with
Section 228 of the Delaware Act adopting and approving this Agreement. No vote
of any class or series of the Parent's capital stock is necessary to approve
and adopt this Agreement, the Offer, the Merger, the Share Issuance or the
other transactions contemplated hereby. Each of the Board of Directors of the
Parent (the "Parent Board") and the Board of Directors of the Purchaser, has
duly adopted resolutions by the requisite majority vote approving and declaring
advisable this Agreement, the Offer, the Merger, the Share Issuance and the
other transactions contemplated hereby and determining that the Agreement, the
Offer, the Merger, the Share Issuance and the other transactions contemplated
hereby are in the best interests of the Parent and its stockholders and of the
Purchaser and its sole stockholder, as the case may be. The foregoing
resolutions of each such Board of Directors have not been modified,
supplemented or rescinded and remain in full force and effect as of the date of
this Agreement. This Agreement constitutes the valid and legally binding
obligation of each of the Parent and the Purchaser, enforceable against the
Parent and the Purchaser in accordance with its terms and conditions.
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Section 5.3 Noncontravention; Consents. Except for (a) filings and approvals
necessary to comply with the applicable requirements of the Exchange Act and
the "blue sky" laws and regulations of various states, (b) the filing of the
Certificate of Merger under the Delaware Act and (c) any filings required under
the rules and regulations of the New York Stock Exchange, neither the execution
and delivery of this Agreement by the Parent or the Purchaser, nor the
consummation by the Parent or the Purchaser of the transactions contemplated
hereby, will constitute a violation of, be in conflict with, constitute or
create (with or without notice or lapse of time or both) a default under, give
rise to any right of termination, cancellation, amendment or acceleration with
respect to, or result in the creation or imposition or any Lien upon any
property of the Parent or the Purchaser, or result in the breach of (i) the
certificate of incorporation or bylaws of the Parent or the Purchaser, (ii) any
law, rule, regulation, permit, order, writ, injunction, judgment or decree to
which the Parent, the Purchaser, any of the Parent's Subsidiaries or any of
their respective properties is bound or is subject or (iii) any agreement or
commitment to which the Parent, the Purchaser or any of the Parent's
Subsidiaries is a party or by which the Parent, the Purchaser or any of the
Parent's Subsidiaries is subject, except, in the case of clauses (ii) and (iii)
above, for such matters which, individually or in the aggregate, are not
reasonably likely to have a Parent Material Adverse Effect. The Parent has
received all requisite approvals from the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and all requisite
waiting periods thereunder have expired, in each case with respect to the
Offer, the Merger and the other transactions contemplated hereby.
Section 5.4 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of the
Parent consists of 400,000,000 shares of Parent Common Stock, of which, as of
September 30, 2001, 85,671,983 shares of Parent Common Stock were issued and
outstanding (each together with a right to purchase preferred stock of the
Parent (the "Parent Rights") issued pursuant to the Rights Agreement between
the Parent and Chase Mellon Shareholder Services, L.L.C., dated as of September
23, 1998 (the "Parent Rights Agreement")), and 10,000,000 shares of preferred
stock, $1.00 par value per share, of which 3,500,000 shares of Series B
preferred stock ("Series B Preferred Stock") are outstanding. All of the
outstanding shares of Parent Common Stock have been validly issued and are
fully paid, nonassessable and free of preemptive rights. As of September 30,
2001, (i) 6,876,252 shares of Parent Common Stock were reserved for issuance
and issuable upon or otherwise deliverable in connection with the exercise of
outstanding options and (ii) there were 179,570 shares of Parent Common Stock
subject to Parent restricted stock rights and up to 2,171,394 shares of Parent
Common Stock issuable under Parent restricted performance stock rights
outstanding. Between September 30, 2001 and the date hereof, no shares of the
Parent's capital stock have been issued other than pursuant to stock options
already in existence on such date and except for grants of stock options,
restricted stock rights and restricted performance stock rights to employees,
officers and directors in the ordinary course of business consistent with past
practice. Between September 30, 2001 and the date hereof, no stock options have
been granted. Except as set forth above and except for the Parent Rights, as of
the date hereof, there are not outstanding (i) any shares of capital stock or
other voting securities of the Parent, (ii) any securities of the Parent or its
Subsidiaries convertible into or exchangeable for shares of capital stock, or
voting securities of the Parent, (iii) any options or other rights to acquire
from the Parent or its Subsidiaries or any obligations of the Parent or its
Subsidiaries to issue any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Parent and (iv) except for Parent's Non-Employee Directors Equity Participation
Plan, any equity equivalent interests in the ownership or earnings of the
Parent of its Subsidiaries or other similar rights (collectively "Parent
Securities"). As of the date hereof, there are no outstanding obligations of
the Parent or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any Parent Securities.
(b) The Parent Common Stock and the Parent Rights constitute the only
classes of equity securities of Parent or its Subsidiaries registered or
required to be registered under the Exchange Act.
(c) Other than (i) options to acquire an aggregate of not more than
6,871,257 shares of Parent Common Stock granted by the Parent to current and
former directors, officers, employees and advisors of the Parent and
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its Subsidiaries, and (ii) the Parent Rights, as of the date of this Agreement,
there are no outstanding or authorized options, warrants, subscription rights,
conversion rights, exchange rights or other contracts or commitments that could
require the Parent or any of the Significant Parent Subsidiaries to issue, sell
or otherwise cause to become outstanding any of its capital stock. There are no
outstanding stock appreciation, phantom stock, profit participation, dividend
equivalent rights or similar rights with respect to the Parent or any of the
Significant Parent Subsidiaries.
(d) Neither the Parent nor any of the Significant Parent Subsidiaries is a
party to any voting trust, proxy or other agreement or understanding with
respect to the voting of any capital stock of the Parent or any of the
Significant Parent Subsidiaries.
(e) All of the outstanding shares of the capital stock of each of the
Parent's Subsidiaries have been validly issued, are fully paid and
nonassessable and as of the date of this Agreement are owned by the Parent or
one of its Subsidiaries, free and clear of any Lien other than Permitted Liens,
except where the failure to be validly issued, fully paid or nonassessable is
not reasonably likely to have a Parent Material Adverse Effect. Except for its
Subsidiaries, as of the date of this Agreement, the Parent does not control
directly or indirectly or have any direct or indirect equity participation in
any corporation, partnership, limited liability company, joint venture or other
entity.
Section 5.5 Parent Reports
(a) The Parent has since December 31, 1999 filed all reports, forms,
statements and other documents (collectively, together with all financial
statements included or incorporated by reference therein, the "Parent SEC
Documents") required to be filed by the Parent with the SEC pursuant to the
provisions of the Securities Act or Section 12(b), 12(g) or 15(d) of the
Exchange Act. Each of the Parent SEC Documents, as of its filing date, complied
in all material respects with the applicable requirements of the Securities Act
and the Exchange Act. None of the Parent SEC Documents, as of their respective
filing dates, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. No Subsidiary of the Parent is required to file any
reports, forms, statements or other documents pursuant to the Securities Act or
Section 12(b), 12(g) or 15(d) of the Exchange Act other than for supplemental
consolidating statements contained in financial notes to the Parent SEC
Documents with respect to Litton Industries, Inc. for the year 2001 only.
(b) Each of the consolidated financial statements (including related notes)
included in the Parent SEC Documents presented fairly in all material respects
the consolidated financial condition, cash flows and results of operations of
the Parent and its Subsidiaries for the respective periods or as of the
respective dates set forth therein. Each of the financial statements (including
related notes) included in the Parent SEC Documents has been prepared in
accordance with GAAP, consistently applied during the periods involved, except
(i) as noted therein, (ii) to the extent required by changes in GAAP or (iii)
in the case of unaudited interim financial statements, normal recurring year-
end audit adjustments and as permitted by Form 10-Q of the SEC.
Section 5.6 No Undisclosed Liabilities. The Parent and its Subsidiaries have
no liabilities or obligations (whether absolute or contingent, liquidated or
unliquidated, or due or to become due) except for (a) liabilities and
obligations referenced (whether by value or otherwise) or reflected in the
Parent SEC Documents, (b) liabilities and obligations incurred in the ordinary
course of business, consistent with past practice, since June 30, 2001, and (c)
other liabilities and obligations which, individually or in the aggregate, are
not reasonably likely to have a Parent Material Adverse Effect.
Section 5.7 Absence of Material Adverse Effect and Certain Events. Since
June 30, 2001 to the date of this Agreement, (i) there has not been a Parent
Material Adverse Effect nor has there occurred any event, change, effect or
development which, individually or in the aggregate, is reasonably likely to
have a Parent Material Adverse Effect; (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock, or
property) with respect to any capital stock of the Parent or any purchase,
redemption
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or other acquisition for value by the Parent of any of its capital stock except
in the ordinary course of business, consistent with past practice; (iii) any
split, combination or reclassification of any capital stock of the Parent or
any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of the
Parent; or (iv) any change in accounting methods, principles or practices by
the Parent or any Subsidiary of the Parent materially affecting the
consolidated assets, liabilities or results of operations of the Parent, except
insofar as may have been required by a change in GAAP or by Law.
Section 5.8 Litigation and Legal Compliance.
(a) As of the date of this Agreement, the Parent Disclosure Letter sets
forth each instance in which the Parent or any of its Subsidiaries is (i)
subject to any material unsatisfied judgment order, decree, stipulation,
injunction or charge or (ii) a party to or, to the Parent's knowledge,
threatened to be made a party to any material charge, complaint, action, suit,
proceeding or hearing of or in any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction, except for
judgments, orders, decrees, stipulations, injunctions, charges, complaints,
actions, suits, proceedings and hearings which, individually or in the
aggregate, are not reasonably likely to have a Parent Material Adverse Effect.
As of the date of this Agreement, there are no judicial or administrative
actions or proceedings pending or, to the Parent's knowledge, threatened that
question the validity of this Agreement or any action taken or to be taken by
the Parent in connection with this Agreement, which, if adversely determined,
are reasonably likely to have a Parent Material Adverse Effect.
(b) Except for instances of noncompliance which, individually or in the
aggregate, are not reasonably likely to have a Parent Material Adverse Effect,
and except for Taxes and Environmental Laws, which are the subject of Section
5.10 and Section 5.12, respectively, the Parent and its Subsidiaries are in
compliance with each law, rule, regulation, permit, order, writ, injunction,
judgment or decree to which the Parent or any of its Subsidiaries is subject.
Section 5.9 Contract Matters.
(a) Neither the Parent nor any of its Subsidiaries is in default or
violation of (and no event has occurred which with notice or the lapse of time
or both would constitute a default or violation of) any term, condition or
provision of any note, mortgage, indenture, loan agreement, other evidence of
indebtedness, guarantee, license, lease, agreement or other contract,
instrument or contractual obligation to which the Parent or any of its
Subsidiaries is a party or by which any of their respective assets is bound,
except for any such default or violation which, individually or in the
aggregate, is not reasonably likely to have a Parent Material Adverse Effect.
(b) With respect to each contract, agreement, bid or proposal between the
Parent or any of its Subsidiaries and any domestic or foreign government or
governmental agency, including any facilities contract for the use of
government-owned facilities (a "Parent Government Contract"), and each
contract, agreement, bid or proposal that is a subcontract between the Parent
or any of its Subsidiaries and a third party relating to a contract between
such third party and any domestic or foreign government or governmental agency
(a "Parent Government Subcontract"), (i) the Parent and each of its
Subsidiaries have complied with all terms and conditions of such Parent
Government Contract or Parent Government Subcontract, including all clauses,
provisions and requirements incorporated expressly by reference therein, (ii)
the Parent and each of its Subsidiaries have complied with all requirements of
all laws, rules, regulations or agreements pertaining to such Parent Government
Contract or Parent Government Subcontract, including where applicable the Cost
Accounting Standards disclosure statement of the Parent or such Subsidiary,
(iii) as of the date of this Agreement, neither the United States government
nor any prime contractor, subcontractor or other person or entity has notified
the Parent or any of its Subsidiaries, in writing or orally, that the Parent or
any of its Subsidiaries has breached or violated any law, rule, regulation,
certification, representation, clause, provision or requirement pertaining to
such Parent Government Contract or Parent Government Subcontract, (iv) neither
the Parent nor any of its Subsidiaries has received any notice of termination
for convenience, notice of termination
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for default, cure notice or show cause notice pertaining to such Parent
Government Contract or Parent Government Subcontract, (v) as of the date of
this Agreement, other than in the ordinary course of business, no cost incurred
by the Parent or any of its Subsidiaries pertaining to such Parent Government
Contract or Parent Government Subcontract has been questioned or challenged, is
the subject of any audit or investigation or has been disallowed by any
government or governmental agency, and (vi) as of the date of this Agreement,
no payments due to the Parent or any of its Subsidiaries pertaining to such
Parent Government Contract or Parent Government Subcontract has been withheld
or set off, nor has any claim been made to withhold or set off money, and the
Parent and its Subsidiaries are entitled to all progress payments received to
date with respect thereto, except in each such case for any such failure,
noncompliance, breach, violation, termination, cost, investigation,
disallowance or payment which, individually or in the aggregate, is not
reasonably likely to have a Parent Material Adverse Effect.
(c) To the Parent's knowledge, neither the Parent nor any of its
Subsidiaries, any of the respective directors, officers, employees, consultants
or agents of the Parent or any of its Subsidiaries is or since January 1, 2000
has been under administrative, civil or criminal investigation, indictment or
information by any government or governmental agency or any audit or in
investigation by the Parent or any of its Subsidiaries with respect to any
alleged act or omission arising under or relating to any Parent Government
Contract or Parent Government Subcontract except for any investigation,
indictment, information or audit relating to matters which, individually or in
the aggregate, are not reasonably likely to have a Parent Material Adverse
Effect.
(d) There exist (i) no material outstanding claims against the Parent or any
of its Subsidiaries, either by any government or governmental agency or by any
prime contractor, subcontractor, vendor or other person or entity, arising
under or relating to any Parent Government Contract or Parent Government
Subcontract, and (ii) no disputes between the Parent or any of its Subsidiaries
and the United States government under the Contract Disputes Act or any other
federal statute or between the Parent or any of its Subsidiaries and any prime
contractor, subcontractor or vendor arising under or relating to any Parent
Government Contract or Parent Government Subcontract, except for any such claim
or dispute which, individually or in the aggregate, is not reasonably likely to
have a Parent Material Adverse Effect. Neither the Parent nor any of its
Subsidiaries has (i) any interest in any pending or potential material claim
against any government or governmental agency or (ii) any interest in any
pending claim against any prime contractor, subcontractor or vendor arising
under or relating to any Parent Government Contract or Parent Government
Subcontract, which, if adversely determined against the Parent, individually or
in the aggregate, is reasonably likely to have a Parent Material Adverse
Effect.
(e) Since January 1, 2000, neither the Parent nor any of its Subsidiaries
has been debarred or suspended from participation in the award of contracts
with the United States government or any other government or governmental
agency (excluding for this purpose ineligibility to bid on certain contracts
due to generally applicable bidding requirements). To the Parent's knowledge,
there exists no facts or circumstances that would warrant the institution of
suspension or debarment proceedings or the finding of nonresponsibility or
ineligibility on the part of the Parent, any of its Subsidiaries or any of
their respective directors, officers or employees. No payment has been made by
or on behalf of the Parent or any of its Subsidiaries in connection with any
Parent Government Contract or Parent Government Subcontract in violation of
applicable procurement laws, rules and regulations or in violation of, or
requiring disclosure pursuant to, the Foreign Corrupt Practices Act, as
amended, except for any such violation or failure to disclose which,
individually or in the aggregate, is not reasonably likely to have a Parent
Material Adverse Effect.
Section 5.10 Tax Matters.
(a) For each taxable period beginning on or after January 1, 1997, the
Parent and each of its Subsidiaries have timely filed all Tax Returns relating
to any Taxes, and all such Tax Returns are accurate and complete in all
respects, except to the extent any such failure to file or any such inaccuracy
in any filed Tax Return, individually or in the aggregate, is not reasonably
likely to have a Parent Material Adverse Effect. All Taxes
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owed by the Parent or any of its Subsidiaries (whether or not shown on any Tax
Return) have been paid or adequately reserved for in accordance with generally
accepted accounting principles in the financial statements of the Parent,
except to the extent any such failure to pay or reserve, individually or in the
aggregate, is not reasonably likely to have a Parent Material Adverse Effect.
(b) No deficiency with respect to Taxes has been proposed, asserted or
assessed against the Parent or any of its Subsidiaries and no requests for
waivers of the time to assess any such Taxes are pending, except (i) requests
for waivers for income Taxes for periods referred to in Section 5.10(c) (or
subsequent periods) or (ii) to the extent any such deficiency or request for
waiver, individually or in the aggregate, is not reasonably likely to have a
Parent Material Adverse Effect.
(c) The Parent Disclosure Letter sets forth the periods, as of the date of
this Agreement, of the federal income Tax Returns of the Parent and its
Subsidiaries being examined by the Internal Revenue Service.
(d) Except for Liens for current Taxes not yet due and payable or which are
being contested in good faith, there is no Lien affecting any of the assets or
properties of the Parent or any of its Subsidiaries that arose in connection
with any failure or alleged failure to pay any Tax, except for Liens which,
individually or in the aggregate, are not reasonably likely to have a Parent
Material Adverse Effect.
(e) Neither Parent nor any of its Subsidiaries has constituted either a
"distributing corporation" or a "controlled corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (i) in
the two years prior to the date of this Agreement or (ii) in a distribution
which could otherwise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of the Code) in conjunction
with the Offer or the Merger.
(f) Neither the Parent nor any of its Subsidiaries has taken or agreed to
take any action or knows of any fact, agreement, plan or other circumstance
that is reasonably likely to prevent the Offer and the Merger from qualifying
as a reorganization within the meaning of Section 368(a) of the Code.
(g) The Parent has delivered to the Company an opinion (the "Initial Tax
Opinion") from Fried, Frank, Harris, Shriver & Jacobson, counsel to Parent,
dated the date hereof and based on the assumptions set forth therein and
certain representations provided by the Parent and the Company, to the effect
that (i) the Offer and the Merger will qualify for U.S. federal income tax
purposes as a "reorganization" within the meaning of Section 368(a) of the Code
and (ii) the Parent, the Purchaser and the Company will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
Section 5.11 Employee Benefit Matters. (a) The Parent has made available to
the Company each Employee Welfare Benefit Plan or Employee Pension Benefit
Plan, and each other material employee benefit plan, agreement, program or
arrangement or employment practice maintained by the Parent or any of its
Subsidiaries with respect to any of its current or former employees or to which
the Parent or any of its Subsidiaries contributes or is required to contribute
with respect to any of its current or former employees (collectively, the
"Parent Plans"). With respect to each Parent Plan:
(i) such Parent Plan (and each related trust, insurance contract or
fund) has been administered in a manner consistent in all respects with its
written terms and complies in form and operation with the applicable
requirements of ERISA and the Code and other applicable laws, except for
failures of administration or compliance which, individually or in the
aggregate, are not reasonably likely to have a Parent Material Adverse
Effect;
(ii) all material contributions, premiums or other payments (including
all employer contributions and employee salary reduction contributions)
that are required to be made under the terms of any Parent Plan have been
timely made or have been reflected on the financial statements contained in
the Parent's most recent Form 10-K or Form 10-Q included in the Parent SEC
Documents except for failures which, individually or in the aggregate, are
not reasonably likely to have a Parent Material Adverse Effect;
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(iii) each such Parent Plan which is an Employee Pension Benefit Plan
(other than a plan that is exempt from the requirements of Parts 2, 3 and 4
of Title I of ERISA) intended to be a "qualified plan" under Section 401(a)
of the Code has received a favorable determination letter from the Internal
Revenue Service (or has time remaining to file for a timely determination
letter under the remedial amendment provisions of Section 401(b) of the
Code), and no event has occurred which could reasonably be expected to
cause the loss, revocation or denial of any such favorable determination
letter except where the lack of a favorable determination letter is not
reasonably likely to have a Parent Material Adverse Effect;
(iv) the Parent has made available and will, through the Effective Time,
continue to make available to the Company, upon its request, correct and
complete copies of the plan documents and most recent summary plan
descriptions, the most recent determination letter received from the
Internal Revenue Service, the most recent Form 5500 Annual Report, the most
recent actuarial report, the most recent audited financial statements, and
all related trust agreements, insurance contracts and other funding
agreements that implement such Parent Plan (but excluding the failure to
make available any such document which is not material). The valuation
summaries provided by the Parent to the Company reasonably represent the
assets and liabilities attributable to each Parent Plan which is an
Employee Pension Benefit Plan (other than any Multiemployer Plan) or an
Employee Welfare Benefit Plan providing retiree medical or life benefits
calculated in accordance with the Parent's past practices, but excluding
any failure which, individually or in the aggregate, is not reasonably
likely to have a Parent Material Adverse Effect;
(v) no Parent Plan which is an Employee Pension Benefit Plan has been
amended in any manner which would require the posting of security under
Section 401(a)(29) of the Code or Section 307 of ERISA, except any such
action which, individually or in the aggregate, is not reasonably likely to
have a Parent Material Adverse Effect; and
(vi) neither the Parent nor any of its Subsidiaries has communicated to
any employee (excluding internal memoranda to management) any plan or
commitment, whether or not legally binding, to create any additional
material employee benefit plan or to materially modify or change any Parent
Plan affecting any employee or terminated employee of the Parent or any of
its Subsidiaries, except any such action which, individually or in the
aggregate, is not reasonably likely to have a Parent Material Adverse
Effect.
(b) With respect to each Employee Welfare Benefit Plan or Employee Pension
Benefit Plan that the Parent or any of its Subsidiaries maintains or ever has
maintained, or to which any of them contributes, ever has contributed or ever
has been required to contribute:
(i) there have been no non-exempt prohibited transactions (as defined in
Section 406 of ERISA and Section 4975 of the Code) with respect to such
plan, no fiduciary has any liability for breach of fiduciary duty or any
other failure to act or comply in connection with the administration or
investment of the assets of such plan, and no action, suit, proceeding,
hearing or, to the Parent's knowledge, investigation with respect to the
administration or the investment of the assets of such plan (other than
routine claims for benefits) is pending or, to the Parent's knowledge,
threatened, but excluding, from each of the foregoing, events or
circumstances which, individually or in the aggregate, are not reasonably
likely to have a Parent Material Adverse Effect; and
(ii) other than routine claims for benefits, none of the Parent or any
of its Subsidiaries or related entities has incurred, and the Parent has no
reason to expect that the Parent or any of its Subsidiaries or related
entities will incur, any liability under Title IV of ERISA or under the
Code with respect to any Parent Plan that is an Employee Pension Benefit
Plan, other than liabilities which, individually or in the aggregate, are
not reasonably likely to have a Parent Material Adverse Effect.
(c) Neither the Parent nor any of its Subsidiaries presently contributes to,
nor have they been obligated to contribute to, a Multiemployer Plan, other than
obligations which, individually or in the aggregate, are not reasonably likely
to have a Parent Material Adverse Effect.
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Section 5.12 Environmental Matters. Except for matters which, individually
or in the aggregate, are not reasonably likely to have a Parent Material
Adverse Effect: (i) the Parent and its Subsidiaries are, and, to the Parent's
knowledge, since January 1, 1999 have been in compliance in all respects with
all Environmental Laws in connection with the ownership, use, maintenance and
operation of their owned, operated or leased real property or otherwise in
connection with their operations, (ii) neither the Parent nor any of its
Subsidiaries has any liability, whether contingent or otherwise, under, or for
any violations of, any Environmental Law, (iii) no written notices of any
violation or alleged violation of, non-compliance or alleged noncompliance with
or any liability under, any Environmental Law have been received by the Parent
or any of its Subsidiaries since January 1, 1999 that are currently outstanding
and unresolved as of the date of this Agreement, and, to the Parent's
knowledge, there are no other outstanding notices that are unresolved for which
the Parent or any of its Subsidiaries have responsibility, (iv) there are no
administrative, civil or criminal writs, injunctions, decrees, orders or
judgments outstanding or any administrative, civil or criminal actions, suits,
claims, proceedings or, to the Parent's knowledge, investigations pending or,
to the Parent's knowledge, threatened, relating to compliance with or liability
under any Environmental Law affecting the Parent or any of its Subsidiaries,
(v) the Parent and its Subsidiaries possess valid environmental permits
required by any Environmental Law in connection with the ownership, use,
maintenance and operation of their respective owned, operated and leased real
property, and (vi) to the knowledge of the Parent, no material changes to or
alterations of the practices or operations of the Parent or any of its
Subsidiaries as presently conducted are anticipated to be required in the
future in order to permit the Parent and its Subsidiaries to continue to comply
in all material respects with all applicable Environmental Laws.
Section 5.13 Title. The Parent and its Subsidiaries have good and, in the
case of real property, marketable title to all the properties and assets
purported to be owned by them, free and clear of all Liens except (a) Liens for
current Taxes or assessments not delinquent, (b) builder, mechanic,
warehousemen, materialmen, contractor, workmen, repairmen, carrier or other
similar Liens arising and continuing in the ordinary course of business for
obligations that are not delinquent, (c) the rights, if any, of vendors having
possession of tooling of the Parent and its Subsidiaries, (d) liens arising
from the receipt by the Parent and its Subsidiaries of progress payments by the
United States government, (e) Liens securing rental payments under capital
lease arrangements and (f) other Liens which, individually or in the aggregate,
are not reasonably likely to have a Parent Material Adverse Effect.
Section 5.14 Intellectual Property Matters. The Parent and its Subsidiaries
own or have the right to use pursuant to valid license, sublicense, agreement
or permission all items of Intellectual Property necessary for their operations
as presently conducted and as presently proposed to be conducted, except where
the failure to have such rights, individually or in the aggregate, is not
reasonably likely to have a Parent Material Adverse Effect. Neither the Parent
nor any of its Subsidiaries has received any charge, complaint, claim, demand
or notice alleging any interference, infringement, misappropriation or
violation of the Intellectual Property rights of any third party, except for
any charges, complaints, claims, demands or notices relating to matters which,
individually or in the aggregate, are not reasonably likely to have a Parent
Material Adverse Effect. Since January 1, 2000, to the Parent's knowledge, no
third party has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property rights of the Parent or any
of its Subsidiaries, except for misappropriations and violations which,
individually or in the aggregate, are not reasonably likely to have a Parent
Material Adverse Effect.
Section 5.15 Labor Matters. As of the date of this Agreement, there are no
controversies pending or, to the Parent's knowledge, threatened between the
Parent or any of its Subsidiaries and any of their current or former employees
or any labor or other collective bargaining unit representing any such employee
that are reasonably likely to have a Parent Material Adverse Effect or are
reasonably likely to result in a material labor strike, dispute, slow-down or
work stoppage. As of the date of this Agreement, the Parent is not aware of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Parent or any of its Subsidiaries,
except for efforts that, individually or in the aggregate, are not reasonably
likely to have a Parent Material Adverse Effect. As of the date of this
Agreement, there are no
C-29
current U.S. Department of Labor, OFCCP or Equal Employment Opportunity
Commission audits, except for any audits relating to matters which,
individually or in the aggregate, are not reasonably likely to have a Parent
Material Adverse Effect. To the knowledge of the Parent, as of the date of this
Agreement, there are no material OFCCP conciliation agreements in effect.
Section 5.16 Brokers' Fees. Except for the fees and expenses payable by the
Parent to Salomon Smith Barney Inc., neither the Parent nor any of its
Subsidiaries has any liability or obligation to pay any fees or commissions to
any financial advisor, broker, finder or agent with respect to the transactions
contemplated by this Agreement.
Section 5.17 Adequate Cash Resources. The Parent has adequate resources for
obtaining and providing the aggregate Merger Consideration and the Offer
Consideration, to the extent required to be paid in cash, in the amount and at
the time required under this Agreement.
Section 5.18 No Capital Ownership in the Company. Neither the Parent nor any
of its Subsidiaries owns any shares of Company Common Stock.
Section 5.19 Information for the Schedules TO and 14D-9, the Form S-4 and
Proxy Statement. The Form S-4 (i) complies and will comply in all material
respects with the applicable requirements of the Securities Act and (ii) does
not and will not contain any untrue statement of material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Schedule TO complies and will comply in all material
respects with the applicable requirements of the Exchange Act and does not and
will not contain any untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No representation or warranty is made herein by the Parent with
respect to any information supplied by the Company for inclusion in the Form S-
4 or the Schedule TO. The information regarding the Parent and the Purchaser to
be provided by the Parent to the Company for inclusion in the Schedule 14D-9
and the Proxy Statement will not, at the time such information is so provided,
contain any untrue statement of material fact or omit to state any material
fact required to be stated therein or necessary in order to the make the
statements therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE 6
COVENANTS
Section 6.1 General. Subject to Sections 6.7 and 6.12, each of the parties
will use its respective best efforts to take all action and to do all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from any federal, state, local or foreign
government or any administrative agency or commission or other governmental
authority (collectively, "Governmental Entities") and the making of all
necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) using best efforts in the defense of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the Offer, the Merger or the
other transactions contemplated by this Agreement, including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (iv) the execution and delivery of
any additional instruments necessary to consummate the Offer, the Merger or the
other transactions contemplated by this Agreement and to fully carry out the
purposes of this Agreement. Each party will consult with counsel for the other
parties as to, and will permit such counsel to participate in, any litigation
referred to in clause (iii) above.
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Section 6.2 Notices and Consents. Without limiting the generality of Section
6.1, each of the parties will give all notices to third parties and
governmental entities and will use its respective best efforts to obtain all
third party and governmental consents and approvals that are required in
connection with the transactions contemplated by this Agreement. The foregoing
sentence and Section 6.1 will not require the Parent to enter into any
agreement, consent decree or other commitment requiring the Parent or any of
its Subsidiaries (i) to dispose of or hold separate any material portion of its
shares of Company Common Stock or of the business or assets of the Company and
its Subsidiaries, or the Parent and its Subsidiaries, in each case taken as a
whole, or (ii) to take any other action which would materially impair the
benefits or advantages which the Parent reasonably expects to be realized from
the Offer, the Merger and the other transactions contemplated hereby.
Section 6.3 Interim Conduct of the Company. Except as expressly contemplated
by this Agreement, as set forth in the Company Disclosure Letter, as required
by law or by the terms of any contract in effect on the date of this Agreement
or as the Parent may approve, which approval will not be unreasonably withheld
or delayed, from and after the date of this Agreement through the Closing Date,
the Company will, and will cause each of its Subsidiaries to, conduct its
operations in accordance with its ordinary course of business, consistent with
past practice, and in accordance with such covenant will not, and will not
cause or permit any of its Subsidiaries to:
(a) amend its certificate of incorporation or bylaws or file any certificate
of designation or similar instrument with respect to any shares of its
authorized but unissued capital stock in any manner adverse to the Parent, the
Purchaser or the Company;
(b) authorize or effect any stock split or combination or reclassification
of shares of its capital stock;
(c) declare or pay any dividend or distribution with respect to its capital
stock (other than the regular quarterly dividend of $0.04 per share of Company
Common Stock and dividends payable by a Subsidiary of the Company to the
Company or another Subsidiary), issue or authorize the issuance of any shares
of its capital stock (other than in connection with the exercise of currently
outstanding Company Stock Options or Company Stock-Based Awards or pursuant to
the ESPAP or pursuant to the exercise of Company Rights) or any other
securities exercisable or exchangeable for or convertible into shares of its
capital stock, or repurchase, redeem or otherwise acquire for value any shares
of its capital stock or any other securities exercisable or exchangeable for or
convertible into shares of its capital stock (other than the redemption of the
Company Rights in accordance with the provisions of this Agreement);
(d) in the case of the Company, merge or consolidate with any entity;
(e) sell, lease or otherwise dispose of any of its capital assets that are
material, individually or in the aggregate, to the Company and its Subsidiaries
taken as a whole, including any shares of the capital stock of any Significant
Company Subsidiary, other than sales, leases or other dispositions of
machinery, equipment, tools, vehicles and other operating assets no longer
required in its operations made in the ordinary course of business, consistent
with past practice;
(f) in the case of the Company only, liquidate, dissolve or effect any
recapitalization or reorganization in any form;
(g) acquire any interest in any business (whether by purchase of assets,
purchase of stock, merger or otherwise) or enter into any joint venture except
for any interests in any business or joint venture which does not involve an
investment by the Company in excess of $5 million;
(h) create, incur, assume or suffer to exist any indebtedness for borrowed
money (including capital lease obligations), other than (i) indebtedness
existing as of the date of this Agreement, (ii) borrowings under existing
credit lines in the ordinary course of business, consistent with past practice,
(iii) indebtedness that can be prepaid at any time without premium or penalty
and (iv) intercompany indebtedness among the Company and its Subsidiaries
arising in the ordinary course of business, consistent with past practice;
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(i) create, incur, assume or suffer to exist any Lien (other than Permitted
Liens) affecting any of its material assets or properties;
(j) except as required by GAAP, change any of the accounting principles or
practices used by it or revalue in any material respect any of its assets or
properties, other than write-downs of inventory or accounts receivable in the
ordinary course of business, consistent with past practice;
(k) except in the ordinary course of business consistent with past practice
and except as required under the terms of any collective bargaining agreement
in effect as of the date of this Agreement or as required by applicable law,
grant any general or uniform increase in the rates of pay of its employees or
grant any increase in the benefits under any bonus or employee benefit plan or
other arrangement, contract or commitment;
(l) except in the ordinary course of business consistent with past practice
and except for any increase required under the terms of any collective
bargaining agreement or consulting, executive or employment agreement in effect
on the date of this Agreement or as required by applicable law, increase the
compensation payable or to become payable to officers and salaried employees or
increase any bonus, insurance, pension or other benefit plan, payment or
arrangement made to, for or with any such officers or salaried employees;
(m) enter into any contract or commitment or engage in any transaction with
any affiliated person or entity (other than the Company or its Subsidiaries) or
enter into any contract or commitment or engage in any transaction with any
unaffiliated person or entity which, to the Company's knowledge, is reasonably
likely to have a Company Material Adverse Effect;
(n) make any material Tax election or settle or compromise any material Tax
liability, except in the ordinary course of business;
(o) settle or compromise any material pending or threatened suit, action or
proceeding except to the extent any such settlement or compromise is not
reasonably likely to have a Company Material Adverse Effect;
(p) take any action, other than as expressly contemplated by Section
6.13(f), that would cause the indebtedness that the SECT owes the Company to be
less than $195,000,000, other than a reduction of indebtedness required under
the SECT to create Released Collateral (as defined in the SECT) necessary for
the SECT to deliver SECT Shares to satisfy option exercises in the ordinary
course of business consistent with past practice; or
(q) commit to do any of the foregoing.
Section 6.4 Preservation of Organization. Subject to compliance with the
provisions of Section 6.3, the Company will, and will cause each its
Subsidiaries to, use its reasonable efforts to preserve its business
organization intact in all material respects, use its reasonable efforts to
keep available to the Company and its Subsidiaries, the present officers and
employees of the Company and its Subsidiaries as a group and use its reasonable
efforts to preserve the present relationships of the Company and its
Subsidiaries with suppliers and customers and others having business relations
with the Company and its Subsidiaries.
Section 6.5 Access. The Company will, and will cause each of its
Subsidiaries and representatives to, afford the Parent and its representatives
reasonable access, upon reasonable notice at reasonable times to all premises,
properties, books, records, contracts and documents of or pertaining to the
Company and its Subsidiaries. Parent will, and will cause each of its
Subsidiaries and representatives to, afford the Company and its
representatives, reasonable access, upon reasonable notice at reasonable times
to all personnel and information of the Parent reasonably requested by the
Company. Notwithstanding the foregoing, neither party will be required to
provide access or to disclose information (i) where such access or disclosure
would contravene any law or contract or would result in the waiver of any legal
privilege or work-product protection, or (ii) to the extent that counsel for
such party advises that such information should not be disclosed in order to
ensure compliance with any applicable antitrust laws. Any information disclosed
pursuant to Section 6.5 will be
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subject to the provisions of the Confidentiality Agreement, dated October 5,
2001, between the Company and the Parent (the "Confidentiality Agreement").
Section 6.6 Notice of Developments. Each party will give prompt written
notice to the other party of any event which has had or is reasonably likely to
have a Company Material Adverse Effect or a Parent Material Adverse Effect, as
the case may be. Each party will give prompt written notice to the other of any
material development which would give rise to a failure of a condition set
forth in Annex I. No such written notice of such a material development will be
deemed to have amended any of the disclosures set forth in the Company
Disclosure Letter or the Parent Disclosure Letter, to have qualified the
representations and warranties contained herein or to have cured any
misrepresentation or breach of warranty that otherwise might have existed
hereunder by reason of such material development.
Section 6.7 Other Potential Acquirers.
(a) After the date hereof, the Company shall not, nor shall it permit any
Company Subsidiary to, nor shall it authorize or knowingly permit any officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any Company Subsidiary to, (i) directly or
indirectly solicit, initiate or encourage the submission of, any Company
Takeover Proposal (as defined in Section 6.7(d)), (ii) enter into any agreement
with respect to any Company Takeover Proposal (except a confidentiality
agreement in accordance with this Section 6.7(a)) or (iii) directly or
indirectly participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, 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; provided,
however, that prior to Consummation of the Offer (the "Company Applicable
Period"), the Company and its Representatives may, in response to a proposal or
offer that was not solicited by the Company and that did not otherwise result
from a breach or deemed breach of this Section 6.7(a), and subject to
compliance with Section 6.7(b), (A) furnish information with respect to the
Company to the person making such a proposal or offer pursuant to a customary
confidentiality agreement the terms of which shall be no less favorable to the
Company than the terms of the Confidentiality Agreement and (B) participate in
discussions or negotiations with such person regarding such proposal or offer,
if the Company Board determines in good faith after consultation with outside
counsel that the fiduciary obligations of the Company Board require such
action; provided, further, that, notwithstanding the provisions of this
Section 6.7(a), the Company's rights under this Section 6.7(a) shall not apply
to offers or proposals by General Dynamics or any of its affiliates. Without
limiting the foregoing, it is agreed that any violation of the restrictions set
forth in the preceding sentence by any executive officer of the Company or any
Company Subsidiary or any affiliate, director or investment banker, attorney or
other advisor or representative of the Company or any Company Subsidiary, shall
be deemed to be a breach of this Section 6.7(a) by the Company.
(b) The Company promptly shall advise the Parent orally and in writing of
any Company Takeover Proposal or any inquiry with respect to or that could
reasonably be expected to lead to any Company Takeover Proposal, the identity
of the person making any such Company Takeover Proposal or inquiry and the
material terms of any such Company Takeover Proposal or inquiry. The Company
shall keep the Parent informed of the status of any such Company Takeover
Proposal or inquiry (including any change to the material terms thereof).
(c) Neither the Company nor the Company Board nor any committee thereof
shall withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to the Parent or the Purchaser, the recommendation of the
Company Board of this Agreement or the Merger, or approve or recommend, or
propose publicly to approve or recommend, a Company Takeover Proposal (other
than the Offer and the Merger), unless (i) a withdrawal or modification of such
recommendation is, in the good faith judgment of the Company Board after
consultation with its outside counsel, required by its fiduciary duties, (ii)
the Initial Tax Opinion is withdrawn or the Parent notifies the Company that an
event has occurred that is inconsistent with any of the factual assumptions
upon which the Initial Tax Opinion is based and such event would result in the
Initial Tax Opinion having to be withdrawn or (iii) the Company requests that
counsel to the Parent reaffirm the
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Initial Tax Opinion and counsel to the Parent fails to do so on the fifth day
prior to the Consummation of the Offer. Nothing contained in this Section 6.7
shall prohibit the Company from taking and disclosing to its stockholders a
position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or
from making any required disclosure to the Company's stockholders if, in the
good faith judgment of the Company Board, after consultation with outside
counsel, failure so to disclose would be inconsistent with its obligations
under applicable law.
(d) For purposes of this Agreement, "Company Takeover Proposal" means any
proposal or offer for a merger, consolidation, dissolution, liquidation,
recapitalization or other business combination involving the Company or any
Significant Company Subsidiary, any proposal or offer for the issuance by the
Company 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, the Company or any
Company Subsidiary.
Section 6.8 Company Stockholder Meeting, Preparation of Proxy
Statement. Subject to Section 1.4, as promptly as practicable following
Consummation of the Offer, if required by applicable law in order to consummate
the Merger, the Company, acting through the Company Board, shall, in accordance
with applicable law:
(a) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "Company Stockholder Meeting") for the purpose of considering
and taking action upon the adoption of this Agreement;
(b) prepare and file with the SEC a preliminary proxy or information
statement in accordance with the Exchange Act relating to the Merger and this
Agreement and use its reasonable efforts to obtain and furnish the information
required to be included by the Exchange Act and the SEC in the Proxy Statement
(as hereinafter defined) and, after consultation with the Parent, to respond
promptly to any comments made by the SEC with respect to the preliminary proxy
or information statement and cause a definitive proxy or information statement,
including any amendment or supplement thereto (the "Proxy Statement"), to be
mailed to its stockholders, provided that no amendment or supplement to the
Proxy Statement will be made by the Company without consultation with the
Parent and its counsel;
(c) subject to the Company Board's fiduciary duties under Delaware law, the
provisions of this Agreement and the requirement that the Initial Tax Opinion
not be withdrawn, include in the Proxy Statement the recommendation of the
Company Board that stockholders of the Company vote in favor of adoption of
this Agreement; and
(d) use reasonable efforts to solicit from its stockholders proxies, and to
take all other action necessary and advisable, to secure the vote of
stockholders required by applicable law and the Company's certificate of
incorporation or bylaws to obtain the approval for this Agreement and the
Merger (the "Company Stockholder Approval"). In the event a Company Stockholder
Meeting is required under the Delaware Act in order to consummate the Merger,
the Parent will provide the Company with the information concerning the Parent
and the Purchaser required to be included in the Proxy Statement and will vote
or cause to be voted all shares of Company Common Stock held by the Parent or
its Subsidiaries in favor of the adoption and approval of this Agreement and
the transactions contemplated hereby.
Section 6.9 Indemnification.
(a) From and after the Closing Date, the Parent will cause the Surviving
Corporation to indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the Effective Time, an officer or director of the
Company or any of its present or former Subsidiaries or corporate parents
(collectively, the "Indemnified Parties") from and against all losses, claims,
damages and expenses (including reasonable attorney's fees and expenses)
("Indemnified Losses") arising out of or relating to actions or omissions, or
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alleged actions or omissions, occurring at or prior to the Effective Time to
the fullest extent permitted from time to time by the Delaware Act or any other
applicable laws as presently or hereafter in effect. Furthermore, from and
after the Closing Date, the Parent shall indemnify, defend and hold harmless
the directors and officers of the Company from all Indemnified Losses arising
out of, or pertaining to, actions or omissions with respect to this Agreement
and the transactions contemplated hereby.
(b) Any determination required to be made with respect to whether any
Indemnified Party may be entitled to indemnification will, if requested by such
Indemnified Party, be made by independent legal counsel selected by the
Indemnified Party and reasonably satisfactory to the Surviving Corporation.
(c) For a period of six years after the Closing Date, the Parent will cause
to be maintained in effect the policies of directors and officers liability
insurance and fiduciary liability insurance currently maintained by the Company
with respect to claims arising from or relating to actions or omissions, or
alleged actions or omissions, occurring on or prior to the Closing Date. The
Parent may at its discretion substitute for such policies currently maintained
by the Company directors and officers liability insurance and fiduciary
liability insurance policies with reputable and financially sound carriers
providing for no less favorable coverage. Notwithstanding the provisions of
this Section 6.9(c), the Parent will not be obligated to make annual premium
payments with respect to such policies of insurance to the extent such premiums
exceed 300 percent of the annual premiums paid by the Company as of the date of
this Agreement. If the annual premium costs necessary to maintain such
insurance coverage exceed the foregoing amount, the Parent will maintain the
most advantageous policies of directors and officers liability insurance and
fiduciary liability insurance obtainable for an annual premium equal to the
foregoing amount.
(d) To the fullest extent permitted from time to time under the law of the
State of Delaware, the Parent will cause the Surviving Corporation to pay on an
as-incurred basis the reasonable fees and expenses of each Indemnified Party
(including reasonable fees and expenses of counsel) in advance of the final
disposition of any action, suit, proceeding or investigation that is the
subject of the right to indemnification, subject to reimbursement in the event
such Indemnified Party is not entitled to indemnification.
(e) The provisions set forth in Article Sixth of the Restated Certificate of
Incorporation of the Company and in Section 14 of Article IV of the By-Laws of
the Company, as in effect as of the date hereof, will apply to each director or
officer, as applicable, of the Company with respect to matters occurring on or
prior to the Effective Time. The foregoing will not be deemed to restrict the
right of the Surviving Corporation to modify the provisions of its certificate
of incorporation or by-laws with respect to events or occurrences after the
Closing Date but such modifications shall not adversely affect the rights of
the directors hereunder. The Parent shall cause the Surviving Corporation to
honor the provisions of this Section 6.9(e).
(f) In the event of any action, suit, investigation or proceeding, the
Indemnified Party will be entitled to control the defense thereof with counsel
of its own choosing reasonably acceptable to the Parent, and the Parent and the
Surviving Corporation will cooperate in the defense thereof, provided that
neither the Parent nor the Surviving Corporation will be liable for the fees of
more than one counsel for all Indemnified Parties, other than local counsel,
unless the use of a single counsel would make it impracticable or unethical for
all Indemnified Parties to be represented by a single counsel, and provided
further that neither the Parent nor the Surviving Corporation will be liable
for any settlement effected without its written consent (which consent will not
be reasonably withheld or delayed).
(g) The rights of each Indemnified Party hereunder will be in addition to
any other rights such Indemnified Party may have under the certificate of
incorporation or bylaws of the Surviving Corporation or any of its
Subsidiaries, under the Delaware Act or otherwise. Notwithstanding anything to
the contrary contained in this Agreement or otherwise, the provisions of this
Section 6.9 will survive the consummation of the Merger.
(h) Nothing in this Section 6.9 will diminish any right or entitlements
available to any director or officer of the Company under the Company's
certificate of incorporation and by-laws as in effect as of the date of this
Agreement.
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(i) The provisions of this Section 6.9 are intended for the benefit of and
will be enforceable by each Indemnified Party and his or her heirs, executors
and legal representatives.
Section 6.10 Public Announcements. The initial press release announcing the
transactions contemplated by this Agreement will be a Joint Press Release.
Thereafter, the Parent and the Company will consult with one another before
issuing any press releases or otherwise making any public announcements with
respect to the transactions contemplated by this Agreement and, except as may
be required by applicable law or by the rules and regulations of the New York
Stock Exchange, will not issue any such press release or make any such
announcement prior to such consultation.
Section 6.11 Actions Regarding Antitakeover Statutes. If any fair price,
moratorium, control share acquisition or other form of antitakeover statute,
rule or regulation is or becomes applicable to the transactions contemplated by
this Agreement, the Company Board and the Parent Board will grant such
approvals and take such other actions as may be required so that the
transactions contemplated hereby may be consummated as promptly as practicable
on the terms and conditions set forth in this Agreement.
Section 6.12 Defense of Orders and Injunctions. In the event either party
becomes subject to any order or injunction of a court of competent jurisdiction
which prohibits the consummation of the transactions contemplated by this
Agreement, each party will use its best efforts to overturn or lift such order
or injunction. The foregoing will not be deemed to require the Parent to enter
into any agreement, consent decree or other commitment requiring the Parent or
any of its Subsidiaries (i) to dispose of or hold separate any material portion
of its shares of Company Common Stock or of the business or assets of the
Company and its Subsidiaries, or the Parent and its Subsidiaries, in each case
taken as a whole or (ii) to take any action which would materially impair the
benefits or advantages which the Parent reasonably expects to be realized from
the Offer, the Merger and the other transactions contemplated hereby.
Section 6.13 Employee Benefit Matters.
(a) For a period beginning immediately following the Consummation of the
Offer and ending not less than two years following the Effective Time, Parent
shall provide, or shall cause to be provided, to current and former employees
of the Company and its Subsidiaries (the "Employees") compensation and employee
benefits that are, in the aggregate, not less favorable than the compensation
and employee benefits provided to the Employees immediately prior to the
Consummation of the Offer, excluding, however, stock-based plans and equity-
based compensation arrangements. The foregoing shall not be construed to
prevent (i) the amendment or termination of any particular Company Plans to the
extent permitted by, and in accordance with, its terms as in effect immediately
prior to the Consummation of the Offer, or (ii) the termination of employment
or the change in the compensation or employee benefits of any individual
Employee.
(b) The Parent Corporation will honor and will cause the Purchaser to honor,
in accordance with their respective terms, the obligations, as of the
Consummation of the Offer, under the Company Plans, including any rights or
benefits arising as a result of the transactions contemplated by this Agreement
(either alone or in combination with any other event). The Parent and the
Company acknowledge and agree that the Consummation of the Offer and the
transactions contemplated by this Agreement constitute a "change in control"
for all purposes under the Company Plans.
(c) For all purposes under the employee benefit plans of the Parent and its
Subsidiaries (including the Surviving Corporation) providing benefits to any
Employees after the Effective Time, each Employee will be credited with his or
her years of service with the Company and its Subsidiaries (and any predecessor
entities thereof) before the Effective Time, to the same extent as such
Employee was entitled, before the Effective Time, to credit for such service
under any similar Company Plan; provided, however, that Employees shall not be
entitled to any credit for benefit accrual purposes under any defined benefit
pension plan in which they commence participation after the Effective Time in
the absence of a transfer of assets and liabilities from any applicable prior
defined benefit pension plan or to the extent that it would result in a
duplication of benefits for
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the same period of service. Following the Effective Time, the Parent will, or
will cause its Subsidiaries to, (i) waive any pre-existing condition limitation
under any Employee Welfare Benefit Plan maintained by the Parent or any of its
Subsidiaries in which Employees and their eligible dependents participate
except to the extent that such pre-existing condition limitation would have
been applicable under the comparable Company Employee Welfare Benefit plans
immediately prior to the Effective Time), and (ii) provide each Employee with
credit for any co-payments and deductibles incurred prior to the Effective Time
(or such earlier or later transition date to new Employee Welfare Benefits
Plans) for the calendar year in which the Effective Time (or such earlier or
later transition date) occurs, in satisfying any applicable deductible or out-
of-pocket requirements under any welfare plans that the Employees participate
in after the Effective Time.
(d) Nothing contained herein will create any rights in any third party,
including without limitation, any right to employment or right to any
particular benefit.
(e) As soon as practicable following the date of this Agreement, the Company
Board (or, if appropriate, any committee administering the Employee Stock
Purchase and Accumulation Plan (the "ESPAP")) shall adopt such resolutions or
take such other actions (if any) as may be required to provide that (i) with
respect to the offering period under the ESPAP under way immediately prior to
the Effective Time, the scheduled exercise date shall be accelerated, and all
unexercised rights granted in respect of such offering period shall be
exercised not later than immediately prior to the Effective Time, (ii) all
holding periods with respect to shares of Company Common Stock under the ESPAP
shall be waived immediately prior to the Consummation of the Offer so as to
permit the holders thereof to accept the Offer, and (iii) the ESPAP shall
terminate at the Effective Time.
(f) The Company will (i) file a registration statement on Form S-3 (the
"Form S-3") with the SEC relating to the shares of Company Common Stock held by
the SECT (the "SECT Shares") not later than the business day following the date
that the amendment to the Form S-4 is filed with the SEC in accordance with
Section 1.1(e) and (ii) thereafter use its reasonable best efforts to cause the
Form S-3 to be declared effective by the SEC as promptly as practicable, and in
any event prior to the Consummation of the Offer. If the Form S-3 has been
declared effective by the SEC prior to the Consummation of the Offer, prior to
the Consummation of the Offer the Company will cause the SECT to (A) deliver
shares of Company Common Stock (valued at the SECT Share Value) to the Company
to repay all the indebtedness owed by the SECT to the Company (and retire all
such shares of Company Common Stock so delivered) and (B) sell the remaining
SECT Shares in a public offering, in the case of clause (B), as and to the
extent requested by the Parent. If the Form S-3 is not declared effective by
the SEC prior to the Consummation of the Offer, prior to the Consummation of
the Offer the Company will cause the SECT to deliver shares of Company Common
Stock (valued at the SECT Share Value) to the Company to repay the indebtedness
owed by the SECT to the Company (and retire all such shares of Company Common
Stock so delivered). Any SECT Shares remaining in the SECT after such
indebtedness has been satisfied and any such public offering has been completed
will be subject to (1) the provisions of this Agreement applicable to all other
outstanding shares of Company Common Stock and (2) the provisions of the SECT.
"SECT Share Value" shall mean the amount, expressed in U.S. dollars, determined
by dividing (i) the sum of (A) the product of (x) the Parent Stock Value and
(y) the number of Parent Available Shares and (B) the Adjusted Cash Amount,
without taking into account clause (iv) of the definition thereof (each as
defined in Annex II hereto) by (ii) the aggregate number of shares of Company
Common Stock outstanding immediately prior to the time that the SECT Shares are
delivered to the Company. Following the Consummation of the Offer, the Company
and Purchaser agree to direct the Trustee to apply the cash in the SECT as set
forth in Section 6.13(f) of the Company Disclosure Letter.
Section 6.14 Adjustment to Offer Consideration. In the event there shall
occur a Distribution Date (as defined in the Company Rights Agreement or the
Parent Rights Agreement), at any time during the period from the date of this
Agreement to the Consummation of the Offer, the Company and the Parent shall
mutually agree to make such adjustment to the Offer Consideration so as to
preserve the economic benefits that the Company and the Parent reasonably
expected on the date of this Agreement to receive as a result of the
Consummation of the Offer and the Merger and the other transactions
contemplated by this Agreement.
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Section 6.15 Interim Conduct of the Parent. Except as expressly contemplated
by this Agreement, as set forth in the Parent Disclosure Letter, as required by
law or by the terms of any contract in effect on the date of this Agreement or
as the Company may approve, which approval will not be unreasonably withheld or
delayed, from and after the date of this Agreement through the Consummation of
the Offer, the Parent will, and will cause each of its Subsidiaries to, conduct
its operations in accordance with its ordinary course of business, consistent
with past practice, and in accordance with such covenant will not, and will not
cause or permit any of its Subsidiaries to:
(a) amend its certificate of incorporation or bylaws or file any certificate
of designation or similar instrument with respect to any shares of its
authorized but unissued capital stock in any manner adverse to the Parent, the
Purchaser or the Company;
(b) authorize or effect any stock split or combination or reclassification
of shares of its capital stock;
(c) declare or pay any dividend or distribution with respect to its capital
stock (other than the regular quarterly dividend of $0.40 per share of Parent
Common Stock, dividends payable pursuant to the terms of the Series B Preferred
Stock and dividends payable by a Subsidiary of the Parent to the Parent or
another Subsidiary), issue or authorize the issuance of any shares of its
capital stock (other than in connection with the exercise of currently
outstanding options to purchase Parent Common Stock or pursuant to the exercise
of Parent Rights) or any other securities exercisable or exchangeable for or
convertible into shares of its capital stock, or repurchase, redeem or
otherwise acquire for value any shares of its capital stock or any other
securities exercisable or exchangeable for or convertible into shares of its
capital stock; provided, however, that, notwithstanding the provisions of this
Section 6.15, the Parent may issue, and take any and all actions in connection
with such issuance or the preparation therefor, shares of Parent Common Stock
and debt convertible into Parent Common Stock registered on the date of this
Agreement pursuant to the Parent's registration statement on Form S-3 (No. 333-
71290) (the "Parent Form S-3") pursuant to a fixed price, underwritten public
offering so long as such offering does not price, and no underwriting agreement
or other agreement (other than agreements that may be necessary to close such
previously priced offering) relating to the offer or sale of such shares is
entered into by the Parent, during the period beginning on the first trading
day of the Valuation Period (as defined in Annex II hereto) and ending on the
fourth trading day after the Consummation of the Offer;
(d) in the case of the Parent or the Purchaser, merge or consolidate with
any entity;
(e) in the case of the Parent and the Purchaser only, liquidate, dissolve or
effect any recapitalization or reorganization in any form; or
(f) commit to do any of the foregoing.
Section 6.16 Tax Treatment; Tax Opinion.
(a) Each of the Parent and the Company will use reasonable efforts to cause
the Offer and the Merger to qualify as a reorganization within the meaning of
Section 368(a) of the Code and will not take actions, cause actions to be
taken, or fail to take actions that could reasonably be expected to prevent (i)
the Offer and the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code or (ii) the Parent and the Company from obtaining
the opinion of counsel referred to in Section 6.16(b).
(b) Each of the Parent and the Company will use reasonable efforts to obtain
from Fried, Frank, Harris, Shriver & Jacobson, counsel to the Parent, on the
Closing Date, an opinion dated as of the Closing Date and based on the certain
representations provided by the Parent and the Company and to the effect that
(i) the Offer and the Merger will qualify for U.S. federal income tax purposes
as a "reorganization" within the meaning of Section 368(a) of the Code and (ii)
the Parent, the Purchaser and the Company will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
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(c) The Parent will promptly notify the Company in the event that the
Initial Tax Opinion is withdrawn for any reason. On the fifth day prior to the
Consummation of the Offer, Parent will notify the Company if any event has
occurred that is inconsistent with any of the factual assumptions upon which
the Initial Tax Opinion is based and such event would result in the Initial Tax
Opinion having to be withdrawn.
Section 6.17 No Company Rights Agreement Amendment. Prior to the earlier of
the termination of this Agreement or the Effective Time, the Company and the
Company Board will not amend or modify or take any other action with regard to
the Company Rights Agreement in any manner or take another action so as to
(i) render the Company Rights Agreement inapplicable to any transaction(s)
other than the Offer, the Merger and other transactions contemplated by this
Agreement, or (ii) permit any person or group (other than the Parent, the
Purchaser or any of their affiliates) who would otherwise be an Acquiring
Person (as such term is defined in the Company Rights Agreement) not to be an
Acquiring Person, or (iii) provide that a Distribution Date (as such term is
defined in the Company Rights Agreement) or similar event does not occur as
promptly as practicable by reason of the execution of any agreement or
transaction other than this Agreement and the Offer, the Merger and the
agreements and transactions contemplated hereby and thereby, or (iv) except as
specifically contemplated by this Agreement, otherwise affect the rights of
holders of Rights (as such term is defined in the Company Rights Agreement).
Section 6.18 Affiliate Letter. The Company will, as promptly as reasonably
practicable, deliver to the Parent a list setting forth the names and addresses
of all persons who may be, as of the date that the Company Stockholder Meeting
is held (if such Company Stockholder Meeting is required to be held),
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company will use its best efforts to cause each person who is identified as
an affiliate on such list to execute a written agreement (an "Affiliate
Agreement") attached hereto as Annex V prior to the Closing. Each Affiliate
Agreement will be in full force and effect as of the Effective Time. Parent
will be entitled to place appropriate legends on the certificates evidencing
any Parent Common Stock to be received as Merger Consideration by any such
affiliate, and to issue appropriate stock transfer instructions to the transfer
agent for the Parent Common Stock, consistent with the terms of the Affiliate
Agreement.
Section 6.19 Letters of Accountants. (a) The Company and the Parent shall
use their respective reasonable efforts to cause to be delivered to the Parent
comfort letters of the Company's and the Parent's independent accountants,
respectively, dated prior to the Consummation of the Offer (and reasonably
satisfactory in form and substance to the Parent), that is customary in scope
and substance for comfort letters delivered by independent public accountants
in connection with registration statements similar to the Form S-4.
(b) The Company shall use its reasonable best efforts to cause to be
delivered to the Parent a consent letter of the Company's independent
accountants as soon as practicable following the date that the amendment to the
Form S-4 is filed with the SEC in accordance with Section 1.1(e) to allow the
Parent to include the Company's financial statements in the Parent Form S-3.
(c) The Parent shall use its reasonable best efforts to cause to be
delivered to the Company a consent letter of the Parent's independent
accountants as soon as practicable following the date that the amendment to the
Form S-4 is filed with the SEC in accordance with Section 1.1(e) to allow the
Company to include the Parent's financial statements in the Form S-3.
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ARTICLE 7
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Section 7.1 Conditions to the Obligations of Each Party. The respective
obligation of each party to effect the Merger is subject to the satisfaction at
or prior to the Closing Date of each of the following conditions:
(a) this Agreement shall have been approved and adopted by the requisite
vote of the stockholders of the Company, if required by applicable law, in
order to consummate the Merger; and
(b) Consummation of the Offer shall have occurred; and
(c) no party will be subject to any order or injunction of a court of
competent jurisdiction or other legal restraint which prohibits the
consummation of the Merger.
Section 7.2 Frustration of Closing Conditions. None of the Company, the
Parent or the Purchaser may rely on the failure of any condition set forth in
Section 7.1, to be satisfied if such party's breach of this Agreement has been
a principal reason that such condition has not been satisfied.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after receipt of the Company
Stockholder Approval, if necessary:
(a) by mutual written consent of the Parent, the Purchaser and the Company;
(b) by either the Parent or the Company:
(i) if Consummation of the Offer does not occur on or before January 31,
2002 (the "Outside Date"), unless such failure is the result of a material
breach of this Agreement by the party seeking to terminate this Agreement;
provided, however, that unless the Merger Agreement is terminated in
accordance with its terms, the Company may extend such date to April 30,
2002, if at the initial Outside Date any condition to the Offer set forth
in Annex I is not satisfied (or waived by the Purchaser, if applicable)
other than the condition set forth in clause (b)(ii) or (b)(iii) of Annex
I;
(ii) if any court of competent jurisdiction in the United States issues
a final order, decree or ruling or takes any other final action permanently
enjoining, restraining or otherwise prohibiting the Offer or the Merger and
such order, decree, ruling or other action shall have become final and
nonappealable, unless such order, decree, ruling or other action is the
result of a material breach of this Agreement by the party seeking to
terminate this Agreement; or
(iii) if, upon a vote at a duly held meeting to obtain the Company
Stockholder Approval, if necessary, the Company Stockholder Approval is not
obtained, unless such failure to obtain the Company Stockholder Approval is
the result of a material breach of this Agreement by the party seeking to
terminate this Agreement;
(c) by the Parent prior to the Consummation of the Offer:
(i) if the Company breaches or fails to perform in any material respect
any of its representations, warranties or covenants contained in this
Agreement, which breach or failure to perform (A) would give rise to the
failure of a condition set forth in Annex I, and (B) cannot be or has not
been cured within 30 days after the giving of written notice to the Company
of such breach; or
C-40
(ii) if (A) the Company, or the Company Board, as the case maybe, shall
have (1) after the date hereof, entered into any agreement, other than a
confidentiality agreement permitted under Section 6.7(a), with respect to
any Company Takeover Proposal other than the Offer or the Merger, (2)
amended, conditioned, qualified, withdrawn, modified or contradicted, or
resolved to do any of the foregoing, in a manner adverse to the Parent or
the Purchaser, its approval and recommendation of the Offer, the Merger and
this Agreement for any reason other than as provided in Section 6.7(c)(ii)
or 6.7(c)(iii) (regardless of whether such action was permitted under the
other provisions of this Agreement), (3) solicited, approved or recommended
any Company Takeover Proposal other than the Offer or the Merger, or (4)
violated Section 6.7, or (B) the Company or the Company Board, or any
committee thereof, shall have resolved or agreed, in writing or otherwise,
to do any of the foregoing; provided, however, that any disclosure by the
Company to its stockholders of information that in its good faith judgment,
after consultation with outside counsel, is required by Law shall not be
deemed to constitute any of the actions referred to in the foregoing
clauses (A)(2) and A(3) so long as such disclosure does not change the
Company Board's approval or recommendation of the Offer, the Merger or the
Agreement;
(d) by the Company prior to the Consummation of the Offer if theParent
breaches or fails to perform in any material respect any of its
representations, warranties or covenants contained in this Agreement, which
breach or failure to perform (A) would give rise to the failure of a condition
set forth in Section 7.1(a) or 7.1(b), and (B) cannot be or has not been cured
within 30 days after the giving of written notice to the Parent of such breach.
Section 8.2 Effect of Termination. In the event of termination of this
Agreement by either the Company or the Parent as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of the Parent, the Purchaser or the Company, (except
for any liability of any party then in willful material breach of any covenant
or agreement); provided that the provisions of this Section 8.2 and Section 8.3
of this Agreement will continue in full force and effect notwithstanding such
termination and abandonment.
Section 8.3 Termination Fee.
(a) The Company shall pay to the Parent a fee of $50,000,000 (the
"Termination Fee") if:
(i) the Parent terminates this Agreement pursuant to Section 8.1(c)(ii),
which payment shall be payable on the date this Agreement is terminated;
(ii) in the event (A) after the date of this Agreement, a
CompanyTakeover Proposal shall have been publicly announced or any person
has publicly announced an intention (whether or not conditional and whether
or not withdrawn) to make a Company Takeover Proposal, (B) the Consummation
of the Offer shall not have occurred prior to the Outside Date, (C) on the
Outside Date, the only condition to the Offer that shall not have been
satisfied shall be the Minimum Condition, (D) the Agreement is thereafter
terminated by either the Parent or the Company pursuant to Section
8.1(b)(i) and (E) within 12 months after such termination, the Company or
any Significant Company Subsidiary enters into an agreement with respect
to, or consummates, such Company Takeover Proposal; or
(iii) in the event (A) there is a publicly announced CompanyTakeover
Proposal, (B) the Company thereafter breaches one of its covenants in this
Agreement, (C) the Parent thereafter terminates this Agreement under
Section 8.1(c)(i) by reason of such breach, and (D) within 12 months after
such termination, the Company or any of its Significant Subsidiaries enters
into an agreement with respect to, or consummates, such Company Takeover
Proposal;
provided that with respect to clauses (ii) or (iii) no fee shall be payable by
the Company until and unless the agreement is entered into or the Company
Takeover Proposal is actually consummated within the 12 months following such
termination and shall be payable on the earlier of (y) the date the agreement
is entered
C-41
into or (z) the Company Takeover Proposal is consummated. Any fee due under
this Section 8.3 shall be paid to the Parent by certified check or wire
transfer of same-day funds on the date payable under this Section 8.3.
(b) Except as specifically provided in this Section 8.3, each party will
bear its own expenses incurred in connection with the transactions contemplated
by this Agreement, whether or not such transactions are consummated.
(c) The Company acknowledges that the agreements regarding the payment of
fees contained in this Section 8.3 are an integral part of the transactions
contemplated by this Agreement and that, in the absence of such agreements, the
Parent and the Purchaser would not have entered into this Agreement. The
Company accordingly agrees that in the event the Company fails to pay the
Termination Fee promptly, the Company will in addition to the payment of such
amount also pay to the Parent all of the reasonable costs and expenses
(including reasonable attorneys' fees and expenses) incurred by the Parent in
the enforcement of its rights under this Section 8.3, together with interest on
such amount at a rate of 11 percent per annum from the date upon which such
payment was due, to and including the date of payment. Provided that the
Company was not in breach of any of the provisions of this Agreement, payment
of the Termination Fee will constitute full and complete satisfaction, and will
constitute the Parent's sole and exclusive remedy for any loss, liability,
damage or claim arising out of or in connection with any such termination of
this Agreement or the facts and circumstances resulting in or related to this
Agreement.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Nonsurvival of Representations. The representations and
warranties contained in this Agreement will not survive the Merger or the
termination of this Agreement.
Section 9.2 Remedies. The parties agree that irreparable damage would
occurin the event that the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
will be entitled to specific performance of the terms of this Agreement,
without posting a bond or other security, this being in addition to any other
remedy to which they are entitled at law or in equity.
Section 9.3 Successors and Assigns. No party hereto may assign or
delegateany of such party's rights or obligations under or in connection with
this Agreement without the written consent of the other parties hereto. Except
as otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto or thereto will
be binding upon and enforceable against the respective successors and assigns
of such party and will be enforceable by and will inure to the benefit of the
respective successors and permitted assigns of such party.
Section 9.4 Amendment. This Agreement may be amended by the execution
anddelivery of an written instrument by or on behalf of the Parent, the
Purchaser and the Company at any time before or after the Company Stockholder
Approval, provided that after the date of the Company Stockholder Approval, no
amendment to this Agreement will be made without the approval of stockholders
of the Company to the extent such approval is required under the Delaware Act.
Section 9.5 Extension and Waiver. At any time prior to the Effective
Time,the parties may extend the time for performance of or, subject to
applicable law, waive compliance with any of the covenants or agreements of the
other parties to this Agreement and may waive any breach of the representations
or warranties of such other parties. No agreement extending or waiving any
provision of this Agreement will be valid or binding unless it is in writing
and is executed and delivered by or on behalf of the party against which it is
sought to be enforced.
C-42
Section 9.6 Severability. Whenever possible, each provision of thisAgreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
Section 9.7 Counterparts. This Agreement may be executed simultaneously
intwo or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will constitute
one and the same Agreement.
Section 9.8 Descriptive Headings. The descriptive headings of thisAgreement
are inserted for convenience only and do not constitute a part of this
Agreement.
Section 9.9 Notices. All notices, demands or other communications to begiven
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally to the
recipient or when sent to the recipient by telecopy (receipt confirmed), one
business day after the date when sent to the recipient by reputable express
courier service (charges prepaid) or three business days after the date when
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
will be sent to the Parent and the Company at the addresses indicated below:
If to the Parent Northrop Grumman Corporation
Corporation 1840 Century Park East
Los Angeles, California 90067
Attention: John H. Mullan, Esq.
Corporate Vice President and Secretary
Facsimile No.: (310) 553-2076
With a copy (which will
not constitute notice) Fried, Frank, Harris, Shriver & Jacobson
to: One New York Plaza
New York, New York 10004
Attention: Stephen Fraidin, Esq.
Facsimile No.: (212) 859-4000
If to the Company: Newport News Shipbuilding Inc.
4101 Washington Avenue
Newport News, Virginia 23607-2770
Attention: Stephen B. Clarkson, Esq.
Vice President, General Counsel & Secretary
Facsimile No.: (757) 688-1408
With a copy (which will
not constitute notice) Cravath, Swaine & Moore
to: Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-7475
Attention: Richard Hall
Facsimile No.: (212) 474-3700
or to such other address or to the attention of such other party as the
recipient party has specified by prior written notice to the sending party.
C-43
Section 9.10 No Third Party Beneficiaries. This Agreement will not conferany
rights or remedies upon any person or entity other than the Parent, the
Purchaser and the Company and their respective successors and permitted
assigns, except for the provisions of Article 2 and Article 3 and except that
the respective beneficiaries as of the Closing Date of the provisions of
Section 6.9 will, for all purposes, be third party beneficiaries of the
covenants and agreements contained therein and, accordingly, will be treated as
a party to this Agreement for purposes of the rights and remedies relating to
enforcement of such covenants and agreements and will be entitled to enforce
any such rights and exercise any such remedies directly against the Parent and
the Surviving Corporation.
Section 9.11 Entire Agreement. This Agreement (including theConfidentiality
Agreement, the Company Disclosure Letter, the Parent Disclosure Letter and the
other documents referred to herein) constitutes the entire agreement among the
parties and supersedes any prior understandings, agreements or representations
by or among the parties, written or oral, that may have related in any way to
the subject matter hereof.
Section 9.12 Construction. The language used in this Agreement will bedeemed
to be the language chosen by the parties to express their mutual intent and no
rule of strict construction will be applied against any party. The use of the
word "including" in this Agreement means "including without limitation" and is
intended by the parties to be by way of example rather than limitation. As used
in this Agreement, the qualification "to the Company's knowledge" and clauses
of similar effect will mean the actual knowledge by any executive officer of
the Company or of its Subsidiaries of the existence or absence of facts which
would contradict a particular representation and warranty of the Company.
Section 9.13 Submission to Jurisdiction. Each of the parties to
thisAgreement submits to the jurisdiction of any state or federal court sitting
in the State of Delaware, in any action or proceeding arising out of or
relating to this Agreement, agrees that all claims in respect of the action or
proceeding may be heard and determined in any such court, and agrees not to
bring any action or proceeding arising out of or relating to this Agreement in
any other court. Each of the parties to this Agreement waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought
and waives any bond, surety or other security that might be required of any
other party with respect thereto.
Section 9.14 Governing Law. ALL QUESTIONS CONCERNING THE
CONSTRUCTION,VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE SCHEDULES
HERETO WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF DELAWARE.
* * * * *
C-44
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first written above.
NORTHROP GRUMMAN CORPORATION
By /s/ Albert Myers
___________________________________
PURCHASER CORP. I
By /s/ W. Burks Terry
___________________________________
NEWPORT NEWS SHIPBUILDING INC.
By /s/ William P. Fricks
___________________________________
C-45
ANNEX I
CERTAIN CONDITIONS OF THE OFFER
The capitalized terms used in this Annex I which are not defined herein
shall have the meanings set forth in the Agreement to which this Annex I is
attached, except that the term the "Merger Agreement" shall be deemed to refer
to the Agreement to which this Annex I is attached.
Notwithstanding any other provision of the Offer, the Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-l(c) promulgated under the Exchange
Act (relating to the Purchaser's obligations to pay for or return tendered
shares of Company Common Stock promptly after termination or withdrawal of the
Offer), pay for any shares of Company Common Stock tendered pursuant to the
Offer, and may (subject to Section 1.1 of the Merger Agreement) terminate or
amend the Offer in accordance with the Merger Agreement; if:
(a) immediately prior to any scheduled or extended expiration date of
the Offer the Minimum Condition shall not have been satisfied;
(b) any of the following conditions exists as of the expiration date of
the Offer:
(i) there shall have been any action taken, or suit or proceeding
threatened or commenced, or any statute, rule, regulation, legislation,
judgment, order or injunction promulgated, entered, enforced, enacted,
issued or deemed applicable to the Offer or the Merger, in each case by
any domestic or foreign federal or state governmental regulatory or
administrative agency or authority or court or legislative body or
commission which is reasonably likely to have the effect of (1)
prohibiting, or imposing any material limitations, on Parent's or the
Purchaser's ownership or operation (or that of any of their respective
Subsidiaries) of all or a material portion of the Company's and its
Subsidiaries' businesses or assets as a whole, or compelling the Parent
or the Purchaser or their respective Subsidiaries to dispose of or hold
separate any material portion of its shares of Company Common Stock or
of the business or assets of the Company and its Subsidiaries or the
Parent and its Subsidiaries, in each case taken as a whole, other than
limitations generally affecting the industries in which the Company and
the Parent and their respective Subsidiaries conduct their business,
(2) prohibiting, or making illegal, Consummation of the Offer or
consummation of the Merger or the other transactions contemplated by
the Merger Agreement, or (3) imposing material limitations on the
ability of the Purchaser or the Parent or any of their Subsidiaries
effectively to exercise full rights of ownership of all or a
substantial number of the shares of the Company Common Stock including,
without limitation, the right to vote the shares of the Company Common
Stock purchased by it on all matters properly presented to the
Company's shareholders on an equal basis with all other holders of such
shares and the right to hold, transfer or dispose of such shares;
(ii) since the date of the Merger Agreement, except as disclosed in
the Company Disclosure Letter and the Company SEC Documents filed prior
to the date of the Merger Agreement, there shall have occurred any
state of facts change, development, effect, event, condition or
occurrence that individually or in the aggregate has had or is
reasonably likely to have a Company Material Adverse Effect;
(iii) (1) the representations of the Company contained in the Merger
Agreement shall not be true and correct with the same effect as if made
at and as of the expiration date of the Offer or if such
representations speak as of an earlier date, as of such earlier date,
except, in either such case to the extent that the breach thereof would
not have a Company Material Adverse Effect (it being agreed that the
failure to be true and correct of any representation of the Company
that is qualified by "Company Material Adverse Effect" shall constitute
a failure of this condition), or (2) the Company shall have failed to
comply in material respects with its covenants and agreements contained
in the Merger Agreement;
C-A-I-1
(iv) the Merger Agreement shall have been terminated in accordance
with its terms; or
(v) there shall have occurred a Distribution Date (as defined in the
Company Rights Agreement) and any necessary adjustment to the Offer
Consideration under Section 6.14 of the Merger Agreement has not been
made as contemplated by the Merger Agreement;
which, in any such case, and regardless of the circumstances giving rise to
any such condition, make it inadvisable, in the sole and absolute
discretion of the Parent and the Purchaser, to proceed with such acceptance
for payment or payment; or
(c) any of the following conditions exists as of the expiration date of
the Offer:
(i) the Form S-4 has not been declared effective by the SEC or is
subject to any stop order;
(ii) the shares of Parent Common Stock to be issued pursuant to the
Share Issuance have not been approved for listing on the NYSE;
(iii) since the date of the Merger Agreement, except as disclosed in
the Parent Disclosure Letter and the Parent SEC Documents filed prior
to the date of the Merger Agreement, there shall have occurred any
state of facts change, development, effect, event, condition or
occurrence that individually or in the aggregate has had or is
reasonably likely to have a Parent Material Adverse Effect;
(iv) (1) the representations of the Parent contained in the Merger
Agreement shall not be true and correct with the same effect as if made
at and as of the expiration date of the Offer or if such
representations speak as of an earlier date, as of such earlier date,
except, in either such case to the extent that the breach thereof would
not have a Parent Material Adverse Effect (it being agreed that the
failure to be true and correct of any representation of the Parent that
is qualified by "Parent Material Adverse Effect" shall constitute a
failure of this condition), or (2) the Parent shall have failed to
comply in material respects with its covenants and agreements contained
in the Merger Agreement; or
(v) there shall have occurred a Distribution Date (as defined in the
Parent Rights Agreement) and any necessary adjustment to the Offer
Consideration under Section 6.14 of the Merger Agreement has not been
made as contemplated by the Merger Agreement.
Subject to the provisions of the Merger Agreement (including, without
limitation, Section 1.1(b)(i)), the foregoing conditions are for the sole
benefit of the Parent and the Purchaser and may be asserted by the Purchaser
or, subject to the terms of the Merger Agreement, may be waived, by the Parent
or the Purchaser, in whole or in part at any time and from time to time in the
sole discretion of the Parent or the Purchaser. The failure by the Parent or
the Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an
ongoing right which may, subject to Section 1.1 of the Merger Agreement, be
asserted at any time and from time to time.
C-A-I-2
ANNEX II
OFFER CONSIDERATION
SECTION 1. Definitions. For purposes of this Annex II:
"Adjusted Cash Amount" means (i) the Base Cash Amount plus or minus (ii) any
adjustment provided for in Section 5 plus (iii) the product of (A) $67.50 and
(B) the number of shares of Company Common Stock issued after November 1, 2001,
and prior to the Consummation of the Offer upon the exercise of Stock Options
minus (iv) the amount of the SECT indebtedness repaid with SECT Shares as
contemplated by Section 6.13(f).
"Base Cash Amount" means $892,026,990.
"Exchange Ratio" means $67.50 divided by the Parent Stock Value; provided,
however, that in no event will the Exchange Ratio be greater than 0.84375
($67.50/$80.00) or less than 0.675 ($67.50/$100.00).
"Offer Cash Amount" means the product of (i) the Adjusted Cash Amount and
(ii) the Offer Ratio.
"Offer Ratio" means the ratio of (i) the number of shares of Company Common
Stock validly tendered pursuant to the Offer and not withdrawn to (ii) the
total number of outstanding shares of Company Common Stock on a fully diluted
basis, not taking into account Stock Options cancelled in accordance with
Section 2.9(a)(i).
"Offer Shares" means the product of (i) the Parent Available Shares and (ii)
the Offer Ratio.
"Parent Available Shares" means 16,636,885 shares of Parent Common Stock.
"Parent Stock Value" means the average of the closing sale prices for a
share of Parent Common Stock on the New York Stock Exchange as reported in The
Wall Street Journal over the Valuation Period.
"Valuation Period" means the 5-day trading period ending on the trading day
immediately preceding the second full trading day before the expiration of the
Offer.
SECTION 2. Determination of Exchange Ratio. Parent shall calculate the
Exchange Ratio and the Parent Stock Value and such calculations shall be
conclusive absent manifest error. Parent will issue a press release before 9:00
A.M., New York City time, on the last full trading day before the date of the
expiration of the Offer, announcing the Exchange Ratio and the Parent Stock
Value.
SECTION 3. Election Right. Each holder of shares of Company Common Stock may
elect to receive, for those shares of Company Common Stock tendered in the
Offer, either (i) $67.50 in cash, without interest, per share of Company Common
Stock (a "Cash Election"), or (ii) a number of shares of newly-issued Parent
Common Stock equal to the product of (x) the number of shares of Company Common
Stock tendered by such holder for Parent Common Stock in the Offer and (y) the
Exchange Ratio (a "Share Election"), subject, in each case, to the election and
proration procedures and limitations described in Sections 5 and 6.
SECTION 4. Parent Available Shares. The Parent will issue not more than the
Offer Shares in the Offer.
SECTION 5. Limitation on Cash Consideration. (a) Subject to paragraphs (b),
(c), (d) and (e) of this Section 5, the Parent will not pay more in cash for
the shares of Company Common Stock acquired in the Offer than the Offer Cash
Amount, subject to increase for fractional shares.
(b) If the Parent Stock Value is less than $90.00 but equal to or greater
than $80.00, the Adjusted Cash Amount will increase by the product of (a) the
excess of $90.00 over the Parent Stock Value and (b) the number of Parent
Available Shares.
(c) If the Parent Stock Value is less than $80.00, the Adjusted Cash Amount
will increase by $166,368,850.
C-A-II-1
(d) If the Parent Stock Value is greater than $90.00 but less than or equal
to $100.00, the Adjusted Cash Amount will be reduced by the product of (a) the
excess of the Parent Stock Value over $90.00 and (b) the number of Parent
Available Shares.
(e) If the Parent Stock Value is greater than $100.00, the Adjusted Cash
Amount will be reduced by $166,368,850.
SECTION 6. Proration Procedures. (a) If the aggregate amount of cash that
the holders of Company Common Stock elect to receive in the Offer exceeds the
Offer Cash Amount, the amount of cash that holders of Company Common Stock will
receive for each share of Company Common Stock for which a Cash Election was
made will be reduced pro rata (a "Cash Reduction") so that the total amount of
cash that the Parent pays in the Offer does not exceed the Offer Cash Amount.
(b) If any shares of Company Common Stock are subject to a Cash Reduction,
the Parent will issue, in respect of each share of Company Common Stock subject
to a Cash Reduction, shares of Parent Common Stock in lieu of the cash that the
holders of Company Common Stock would have otherwise received in the Offer. The
number of shares of Parent Common Stock that the Parent will issue for each
share of Company Common Stock subject to a Cash Reduction will be calculated by
multiplying the Exchange Ratio by the percentage reduction in the cash
consideration paid in respect of each share of Company Common Stock subject to
a Cash Reduction in the Offer.
(c) If holders of Company Common Stock elect to receive shares of Parent
Common Stock in excess of the number of Offer Shares, the number of shares of
Parent Common Stock that holders of Company Common Stock will receive for each
share of Company Common Stock for which a Share Election was made will be
reduced pro rata (a "Share Reduction") so that the total number of shares of
Parent Common Stock issued in the Offer will equal the number of Offer Shares.
(d) If any shares of Company Common Stock are subject to a Share Reduction,
the Parent will pay, in respect of each share of Company Common Stock subject
to a Share Reduction, cash in lieu of the shares of Parent Common Stock that
the holder of Company Common Stock would have otherwise received in the Offer.
The amount of cash to be paid for each share of Company Common Stock subject to
a Share Reduction will be calculated by multiplying $67.50 by the percentage
reduction in shares of Parent Common Stock issued in respect of each share of
Company Common Stock subject to a Share Reduction in the Offer.
(e) In the case of an over-election for either cash or shares of Parent
Common Stock in the Offer, those holders of Company Common Stock who tender
their shares but fail to make a valid election with respect to their shares of
Company Common Stock will receive the under-elected form of consideration for
such shares of Company Common Stock.
(f) If all holders of tendered Company Common Stock together make valid cash
elections for less than the Offer Cash Amount and valid share elections for
fewer than the Offer Shares, all the remaining Offer Cash Amount and Offer
Shares that will be paid and issued in the Offer will be allocated pro rata
among the holders of non-electing tendered shares of Company Common Stock.
SECTION 7. No Fractional Shares. (a) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the conversion of
Company Common Stock in the Offer, and such fractional share interests shall
not entitle the owner thereof to vote or to any rights of a holder of Parent
Common Stock. For purposes of this Annex II, all fractional shares to which a
single record holder would be entitled shall be aggregated.
(b) In lieu of any such fractional shares, each holder of Company Common
Stock who would otherwise be entitled to such fractional shares shall be
entitled to an amount in cash, without interest, rounded to the nearest cent,
equal to the product of (A) the amount of the fractional share interest in a
share of Parent Common Stock to which such holder is entitled under this Annex
II (or would be entitled but for this Section 7) and (B) the Parent Stock
Value.
C-A-II-2
ANNEX III
MERGER CONSIDERATION
SECTION 1. Definitions. Capitalized terms used but not otherwise defined in
this Annex III have the meanings ascribed to such terms in Annex II. For
purposes of this Annex III:
"Remaining Cash Amount" means (i) the Adjusted Cash Amount minus (ii) the
amount of cash paid in respect of shares of Company Common Stock in the Offer.
"Remaining Parent Available Shares" means the Parent Available Shares less
the number of shares of Parent Common Stock issued in respect of Company Common
Stock in the Offer.
SECTION 2. Election Right. Each holder of shares of Company Common Stock may
make for each share of Company Common Stock exchanged pursuant to the Merger,
either (i) a Cash Election or (ii) a Share Election, subject, in each case, to
the election and proration procedures and limitations described in Sections 4
and 5.
SECTION 3. Remaining Parent Available Shares. The Parent will issue not more
than the Remaining Parent Available Shares pursuant to the Merger in respect of
shares of Company Common Stock to be exchanged pursuant to the Merger.
SECTION 4. Remaining Cash Amount. The Parent will distribute the Remaining
Cash Amount pursuant to the Merger in respect of shares of Company Common Stock
to be exchanged pursuant to the Merger. The Parent will not pay more in cash
for the shares of Company Common Stock to be exchanged pursuant to the Merger
than the Remaining Cash Amount, subject to increase for fractional shares.
SECTION 5. Proration Procedures. (a) If the aggregate amount of cash that
the holders of Company Common Stock elect to receive pursuant to the Merger
exceeds the Remaining Cash Amount, the amount of cash that holders of Company
Common Stock will receive for each share of Company Common Stock for which a
Cash Election was made will be reduced pro rata (a "Cash Reduction") so that
the total amount of cash that the Parent pays in respect of Company Common
Stock pursuant to the Merger does not exceed the Remaining Cash Amount.
(b) If any shares of Company Common Stock are subject to a Cash Reduction,
the Parent will issue, in respect of each share of Company Common Stock subject
to a Cash Reduction, shares of Parent Common Stock in lieu of the cash that the
holders of Company Common Stock would have otherwise received pursuant to the
Merger. The number of shares of Parent Common Stock that the Parent will issue
for each share of Company Common Stock subject to a Cash Reduction will be
calculated by multiplying the Exchange Ratio by the percentage reduction in the
cash consideration paid in respect of each share of Company Common Stock
subject to a Cash Reduction pursuant to the Merger.
(c) If holders of Company Common Stock elect to receive shares of Parent
Common Stock in excess of the number of Remaining Parent Available Shares, the
number of shares of Parent Common Stock that holders of Company Common Stock
will receive for each share of Company Common Stock for which a Share Election
was made will be reduced pro rata (a "Share Reduction") so that the total
number of shares of Parent Common Stock issued pursuant to the Merger will
equal the number of Remaining Parent Available Shares.
(d) If any shares of Company Common Stock are subject to a Share Reduction,
the Parent will pay, in respect of each share of Company Common Stock subject
to a Share Reduction, cash in lieu of the shares of Parent Common Stock that
the holder of Company Common Stock would have otherwise received pursuant to
the Merger. The amount of cash to be paid for each share of Company Common
Stock subject to a Share Reduction will be calculated by multiplying $67.50 by
the percentage reduction in shares of Parent Common Stock issued in respect of
each share of Company Common Stock subject to a Share Reduction pursuant to the
Merger.
C-A-III-1
(e) In the case of an over-election for either cash or shares of Parent
Common Stock pursuant to the Merger, those holders of Company Common Stock who
fail to make a valid election with respect to their shares of Company Common
Stock will receive the under-elected form of consideration for such shares of
Company Common Stock.
(f) If all holders of Company Common Stock together make valid cash
elections for less than the Remaining Cash Amount and valid share elections for
fewer than the Remaining Parent Available Shares pursuant to the Merger, all of
the remaining cash and shares of Parent Common Stock that will be paid and
issued pursuant to the Merger will be allocated pro rata among the holders of
non-electing shares of Company Common Stock.
(g) If the Merger is consummated following a Company Stockholder Meeting,
each holder of Company Common Stock who fails to make an election by the date
of the Company Stockholder Meeting shall be deemed to have made no election. If
the Merger is consummated without a Company Stockholder Meeting, each holder of
Company Common Stock who fails to make an election within 30 days of the
mailing of the Letter of Transmittal shall be deemed to have made no election.
SECTION 6. No Fractional Shares. (a) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the conversion of
Company Common Stock pursuant to the Merger, and such fractional share
interests shall not entitle the owner thereof to vote or to any rights of a
holder of Parent Common Stock. For purposes of this Annex III, all fractional
shares to which a single record holder would be entitled shall be aggregated.
(b) In lieu of any such fractional shares, each holder of Company Common
Stock who would otherwise be entitled to such fractional shares shall be
entitled to an amount in cash, without interest, rounded to the nearest cent,
equal to the product of (A) the amount of the fractional share interest in a
share of Parent Common Stock to which such holder is entitled under this Annex
III (or would be entitled but for this Section 6) and (B) the Parent Stock
Value.
C-A-III-2
ANNEX IV
CERTIFICATE OF INCORPORATION AND
BYLAWS OF THE SURVIVING CORPORATION
[RESTATED]/1/ CERTIFICATE OF INCORPORATION
OF
SURVIVING CORPORATION
FIRST: The name of the corporation is Newport News Shipbuilding Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of stock which the
corporation shall be authorized to issue is 2,000 shares, divided into 1,000
shares of Common Stock, par value $.01 per share (herein called "Common
Stock"), and 1,000 shares of Preferred Stock, par value $.01 per share (herein
called "Preferred Stock").
B. The Board of Directors of the corporation (the "Board of Directors") is
hereby expressly authorized, by resolution or resolutions thereof, to provide,
out of the unissued shares of Preferred Stock, for series of Preferred Stock
and, with respect to each such series, to fix the number of shares constituting
such series and the designation of such series, the voting powers (if any) of
the shares of such series, and the preferences and relative, participating,
optional or other special rights, if any, and any qualifications, limitations
or restrictions thereof, of the shares of such series. The powers, preferences
and relative, participating, optional and other special rights of each series
of Preferred Stock, and the qualifications, limitations or restrictions
thereof, if any, may differ from those of any and all other series at any time
outstanding.
C. Except as may otherwise be provided in this Certificate of Incorporation
(including any certificate filed with the Secretary of State of the State of
Delaware establishing the terms of a series of Preferred Stock in accordance
with Section B of this Article FOURTH) or by applicable law, each holder of
Common Stock, as such, shall be entitled to one vote for each share of Common
Stock held of record by such holder on all matters on which stockholders
generally are entitled to vote, and no holder of any series of Preferred Stock,
as such, shall be entitled to any voting powers in respect thereof.
D. Subject to applicable law and the rights, if any, of the holders of any
outstanding series of Preferred Stock, dividends may be declared and paid on
the Common Stock at such times and in such amounts as the Board of Directors in
its discretion shall determine.
E. Upon the dissolution, liquidation or winding up of the corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock, the holders of the Common Stock shall be entitled to receive
the assets of the corporation available for distribution to its stockholders
ratably in proportion to the number of shares held by them.
F. The corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the corporation
shall have notice thereof, except as expressly provided by applicable law.
--------
/1 /Include bracketed text if the Merger is restructured in accordance with
Section 2.11 and the Company is the Surviving Corporation.
C-A-IV-1
FIFTH: A. The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors. A director shall hold office
until the next annual meeting of stockholders and until his successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any vacancy on the Board
of Directors that results from an increase in the number of directors may be
filled by a majority of the Board of Directors then in office, provided that a
quorum is present, and any other vacancy occurring in the Board of Directors
may be filled by a majority of the directors then in office, even if less than
a quorum, or by a sole remaining director.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a class or
series, to elect directors, the election, removal, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
FIFTH unless expressly provided by such terms.
B. The Board of Directors shall be authorized to adopt, make, amend, alter,
change, add to or repeal the By-Laws of the corporation, subject to the power
of the stockholders to amend, alter, change, add to or repeal the By-Laws made
by the Board of Directors.
C. Unless and except to the extent that the By-Laws of the corporation shall
so require, the election of directors of the corporation need not be by written
ballot.
SIXTH: A director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the corporation hereunder in respect of
any act or omission occurring prior to the time of such amendment, modification
or repeal.
SEVENTH: Subject to the provisions of this Certificate of Incorporation and
applicable law, the corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and any other provisions authorized by the laws
of the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed herein or by applicable law, and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate
of Incorporation in its present form or as hereafter amended are granted
subject to the right reserved in this Article SEVENTH.
EIGHTH/2/: The incorporator of the Company is [ ], whose mailing address is
[ ].
--------
/2 /Article EIGHTH will be removed if the Merger is restructured in accordance
with Section 2.11 and the Company is the Surviving Corporation.
C-A-IV-2
BY-LAWS
OF
SURVIVING CORPORATION
ARTICLE I
Stockholder Meetings
SECTION 1. Place of Stockholder Meetings. All meetings of the stockholders
of the corporation shall be held at such place or places, within or without the
State of Delaware, as may from time to time be fixed by the Board of Directors
of the corporation (the "Board"), or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
SECTION 2. Annual Meeting. The Annual Meeting of Stockholders shall be held
on such date and at such time as may be fixed by the Board and stated in the
notice thereof, for the purpose of electing directors and for the transaction
of only such other business as is properly brought before the meeting in
accordance with these By-Laws.
SECTION 3. Special Meetings. Subject to the rights of the holders of any
series of preferred stock, par value $.01 per share, of the corporation (the
"Preferred Stock") to elect additional directors under specified circumstances,
special meetings of the stockholders shall be called by the Board. Special
meetings shall be held at such date and at such time as the Board may
designate.
SECTION 4. Notice of Meetings. Written notice of each meeting of
stockholders, stating the place, date and hour of the meeting, and the purpose
or purposes thereof, shall be mailed not less than ten nor more than sixty days
before the date of such meeting to each stockholder entitled to vote thereat.
SECTION 5. Quorum. Unless otherwise provided by statute, the holders of
shares of stock entitled to cast a majority of votes at a meeting, present
either in person or by proxy, shall constitute a quorum at such meeting. The
Secretary of the corporation or in his absence an Assistant Secretary or an
appointee of the presiding officer of the meeting, shall act as the Secretary
of the meeting.
SECTION 6. Voting. Except as otherwise provided by law or the Certificate of
Incorporation, each stockholder entitled to vote at any meeting shall be
entitled to one vote, in person, by written proxy or by proxy transmitted or
authorized for transmission by any electronic means, including, but not limited
to, telegram, cablegram, telephone and internet, for each share held of record
on the record date fixed by the Board for determining the stockholders entitled
to vote at such meeting. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, the vote of a majority of any quorum shall
be sufficient to elect directors and to pass any resolution within the power of
the holders of all the outstanding shares. Elections of directors need not be
by written ballot; provided, however, that by resolution duly adopted, a vote
by written ballot may be required.
SECTION 7. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power.
A stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument revoking the proxy or
by delivering a proxy in accordance with applicable law bearing a later date to
the Secretary of the corporation. In order to be exercised at a meeting of
stockholders, proxies shall be delivered to the Secretary of the corporation or
his representative at or before the time of such meeting.
SECTION 8. Inspectors. At each meeting of the stockholders the polls shall
be opened and closed; the proxies and ballots shall be received and be taken in
charge, and all questions touching the qualification of voters and the validity
of proxies and the acceptance or rejection of votes shall be decided by three
Inspectors,
C-A-IV-3
two of whom shall have power to make a decision. Such Inspectors shall be
appointed by the Board before the meeting, or in default thereof by the
presiding officer at the meeting, and shall be sworn to the faithful
performance of their duties. If any of the Inspectors previously appointed
shall fail to attend or refuse or be unable to serve, substitutes shall be
appointed by the presiding officer.
SECTION 9. Conduct of Meetings. The date and time of the opening and the
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced at the meeting by the chairman of the meeting. The
Board may adopt by resolution such rules and regulations for the conduct of the
meeting of stockholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations as adopted by the Board, the
chairman of any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts as, in
the judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; (iii) limitations on attendance at or participation in
the meeting to stockholders of record of the corporation, their duly authorized
and constituted proxies or such other persons as the chairman of the meeting
shall determine; (iv) restrictions on entry to the meeting after the time fixed
for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board or the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure.
ARTICLE II
Board of Directors
SECTION 1. Number; Method of Election; Terms of Office and
Qualification. The business and affairs of the corporation shall be managed
under the direction of the Board. The number of directors which shall
constitute the entire Board shall be determined from time to time by resolution
adopted by a majority of the entire Board.
Any director may resign his office at any time by delivering his resignation
in writing to the corporation, and the acceptance of such resignation unless
required by the terms thereof shall not be necessary to make such resignation
effective.
SECTION 2. Meetings. The Board may hold its meetings and have an office in
such place or places within or without the State of Delaware as the Board by
resolution from time to time may determine.
The Board may in its discretion provide for regular or stated meetings of
the Board. Notice of regular or stated meetings need not be given. Special
meetings of the Board shall be held whenever called by direction of the Chief
Executive Officer, the President or any two of the directors.
Notice of any special meeting shall be given by the Secretary to each
director either by mail or by telegram, facsimile, telephone or other
electronic communication or transmission. If mailed, such notice shall be
deemed adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least three days before such
meeting. If by telegram, such notice shall be deemed adequately delivered when
the telegram is delivered to the telegraph corporation at least twenty-four
hours before such meeting. If by facsimile, telephone or other electronic
communication or transmission, such notice shall be transmitted at least
twenty-four hours before such meeting. Unless otherwise indicated in the notice
thereof, any and all business may be transacted at a special meeting.
Except as otherwise provided by applicable law, at any meeting at which
every director shall be present, even though without notice, any business may
be transacted. No notice of any adjourned meeting need be given.
C-A-IV-4
The Board shall meet immediately after election, following the Annual
Meeting of Stockholders, for the purpose of organizing, for the election of
corporate officers as hereinafter specified, and for the transaction of any
other business which may come before it. No notice of such meeting shall be
necessary.
SECTION 3. Quorum. Except as otherwise expressly required by these By-Laws
or by statute, a majority of the directors then in office (but not less than
one-third of the total number of directors constituting the entire Board) shall
be present at any meeting of the Board in order to constitute a quorum for the
transaction of business at such meeting, and the vote of a majority of the
directors present at any such meeting at which quorum is present shall be
necessary for the passage of any resolution or for an act to be the act of the
Board. In the absence of a quorum, a majority of the directors present may
adjourn such meeting from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given.
ARTICLE III
Committees of the Board
SECTION 1. Committees. The Board may establish by resolution any committee
of the Board (a "Committee"). Any Committee shall be comprised of such persons
and shall possess such authority as shall be set forth in such resolution.
SECTION 2. Procedures. (a) Each Committee shall fix its own rules of
procedure and shall meet where and as provided by such rules. Unless otherwise
stated in these By-Laws, a majority of a Committee shall constitute a quorum.
(b) In the absence or disqualification of a member of any Committee, the
members of such Committee present at any meeting, and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member.
ARTICLE IV
Officers
SECTION 1. General Provisions. The corporate officers of the corporation
shall consist of the following: a Chairman and/or a President, one of whom
shall be designated Chief Executive Officer and each of whom shall be chosen
from the Board; one or more Vice Chairman, Executive Vice Presidents, Senior
Vice Presidents, Vice Presidents and Assistant Vice Presidents; a General
Counsel, a Secretary, one or more Assistant Secretaries, a Treasurer, one or
more Assistant Treasurers, a Controller, and such other officers as the Board
may from time to time designate. Insofar as permitted by statute, the same
person may hold two or more offices. All officers chosen by the Board shall
each have such powers and duties as generally pertain to their respective
offices, subject to the specific provisions of this Article IV.
The Chairman and/or President, each Vice Chairman, Executive Vice President,
Senior Vice President and Vice President, the Secretary and the Treasurer shall
be elected by the Board. Each such officer shall hold office until his
successor is elected or appointed and qualified or until his earlier death,
resignation or removal.
Any officer may be removed, with or without cause, at any time by the Board.
A vacancy in any office may be filled for the unexpired portion of the term
in the same manner as provided in these By-Laws for election or appointment to
such office.
SECTION 2. Powers and Duties of the Chief Executive Officer. The Chief
Executive Officer shall have general charge and management of the affairs,
property and business of the corporation, subject to the Board
C-A-IV-5
and the provisions of these By-Laws. The Chief Executive Officer or in his
absence such other individual as the Board may select, shall preside at all
meetings of the stockholders. He shall also preside at meetings of the Board
and in his absence the Board shall appoint one of their number to preside.
The Chief Executive Officer shall perform all duties assigned to him in
these By-Laws and such other duties as may from time to time be assigned to him
by the Board. He shall have the power to appoint and remove, with or without
cause, such officers, other than those elected by the Board as provided for in
these By-Laws, as in his judgment may be necessary or proper for the
transaction of the business of the corporation, and shall determine their
duties, all subject to ratification by the Board.
SECTION 3. Powers and Duties of The Chairman. The Chairman shall perform
such duties as may from time to time be assigned to him by the Board or the
Chief Executive Officer.
SECTION 4. Powers and Duties of the Vice Chairman. Each Vice Chairman shall
perform such duties as may from time to time be assigned to him by the Board or
the Chief Executive Officer.
SECTION 5. Powers and Duties of the President. The President shall perform
such duties as may from time to time be assigned to him by the Board or the
Chief Executive Officer.
SECTION 6. Powers and Duties of the Executive Vice President. Each Executive
Vice President shall perform such duties as may from time to time be assigned
to him by the Board or the Chief Executive Officer.
SECTION 7. Powers and Duties of the Senior Vice President. Each Senior Vice
President shall perform such duties as may from time to time be assigned to him
by the Board or the Chief Executive Officer.
SECTION 8. Powers and Duties of Each Vice President and Assistant Vice
President. Each Vice President and Assistant Vice President shall perform such
duties as may from time to time be assigned to him by the Board, the Chief
Executive Officer or an Executive Vice President.
SECTION 9. Powers and Duties of the General Counsel. The General Counsel
shall have general supervision and control of all of the corporation's legal
business. He shall perform such other duties as may be assigned to him by the
Board or the Chief Executive Officer.
SECTION 10. Powers and Duties of the Secretary and Assistant Secretary. The
Secretary or an Assistant Secretary shall record the proceedings of all
meetings of the Board and the stockholders, in books kept for that purpose. The
Secretary shall be the custodian of the corporate seal, and he or an Assistant
Secretary shall affix the same to and countersign papers requiring such acts;
and he and the Assistant Secretaries shall perform such other duties as may be
required by the Board or the Chief Executive Officer.
SECTION 11. Powers and Duties of the Treasurer and Assistant Treasurer. The
Treasurer and Assistant Treasurers shall have care and custody of all funds of
the corporation and disburse and administer the same under the direction of the
Board or the Chief Executive Officer and shall perform such other duties as the
Board or the Chief Executive Officer shall assign to them.
SECTION 12. Powers and Duties of the Controller. The Controller shall
maintain adequate records of all assets, liabilities and transactions of the
corporation and see that audits thereof are currently and regularly made; and
he shall perform such other duties as may be required by the Board or the Chief
Executive Officer.
SECTION 13. Salaries and Appointments. The salaries of corporate officers
shall be fixed by the Board, except that the fixing of salaries below certain
levels, determinable from time to time by the Board, may in the discretion of
the Board be delegated to the Chief Executive Officer, subject to the approval
of the Board.
SECTION 14. Indemnification of Directors and Officers. (a) The corporation
shall indemnify and hold harmless, to the fullest extent permitted by
applicable law as it presently exists or may hereafter be amended, any person
(an "Indemnitee") who was or is made or is threatened to be made a party or is
otherwise involved
C-A-IV-6
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including appeals (a "proceeding"), by reason of the fact that
he, or a person for whom he is the legal representative, is or was a director
or officer of the corporation or, while a director or officer of the
corporation, is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust, enterprise or nonprofit entity, including service with respect
to employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such Indemnitee.
Notwithstanding the preceding sentence, except as otherwise provided in
paragraph (3) of this Section 14, the corporation shall be required to
indemnify an Indemnitee in connection with a proceeding (or part thereof)
commenced by such Indemnitee only if the commencement of such proceeding (or
part thereof) by the Indemnitee was authorized by the Board.
(b) The corporation shall pay the expenses (including attorneys' fees)
incurred by an Indemnitee in defending any proceeding in advance of its final
disposition, provided, however, that, to the extent required by law, such
payment of expenses in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Indemnitee to repay all
amounts advanced if it should be ultimately determined that the Indemnitee is
not entitled to be indemnified under this Section 14 or otherwise.
(c) If a claim for indemnification or payment of expenses under this Section
14 is not paid in full within thirty days after a written claim therefor by the
Indemnitee has been received by the corporation, the Indemnitee may file suit
to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In
any such action the corporation shall have the burden of proving that the
Indemnitee is not entitled to the requested indemnification or payment of
expenses under applicable law.
(d) The rights conferred on any Indemnitee by this Section 14 shall not be
exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation, these
By-Laws, agreement, vote of stockholders or disinterested directors or
otherwise.
(e) The corporation's obligation, if any, to indemnify or to advance
expenses to any Indemnitee who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such
Indemnitee may collect as indemnification or advancement of expenses from such
other corporation, partnership, joint venture, trust, enterprise or nonprofit
enterprise.
(f) Any repeal or modification of the foregoing provisions of this Section
14 shall not adversely affect any right or protection hereunder of any
Indemnitee in respect of any act or omission occurring prior to the time of
such repeal or modification.
(g) This Section 14 shall not limit the right of the corporation, to the
extent and in the manner permitted by law, to indemnify and to advance expenses
to persons other than Indemnitees when and as authorized by appropriate
corporate action.
ARTICLE V
Capital Stock
SECTION 1. Certificates of Stock. Certificates of stock certifying the
number of shares owned shall be issued to each stockholder in such form not
inconsistent with the Certificate of Incorporation as shall be approved by the
Board. Such certificates of stock shall be numbered and registered in the order
in which they are issued and shall be signed by the Chairman, the President or
a Vice President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary. Any and all the signatures on the
certificates may be a facsimile.
C-A-IV-7
SECTION 2. Transfers of Shares. Transfers of shares shall be made only upon
the books of the corporation by the holder, in person, or by power of attorney
duly executed and filed with the Secretary of the corporation, and on the
surrender of the certificate or certificates of such shares, properly assigned.
The corporation may, if and whenever the Board shall so determine, maintain one
or more offices or agencies, each in charge of an agent designated by the
Board, where the shares of the capital stock of the corporation shall be
transferred and/or registered. The Board may also make such additional rules
and regulations as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of the capital stock of the
corporation.
SECTION 3. Lost, Stolen or Destroyed Certificates. The corporation may issue
a new certificate of capital stock of the corporation in place of any
certificate theretofore issued by the corporation, alleged to have been lost,
stolen or destroyed, and the corporation may, but shall not be obligated to,
require the owner of the alleged lost, stolen or destroyed certificate, or his
legal representatives, to give the corporation a bond sufficient to indemnify
it against any claim that may be made against it on account of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate, as the officers of the corporation may, in their discretion,
require.
ARTICLE VI
Miscellaneous
SECTION 1. Dividends and Reserves. Dividends upon the capital stock of the
corporation may be declared as permitted by law by the Board at any regular or
special meeting. Before payment of any dividend or making any distribution of
profits, there may be set aside out of the surplus or net profits of the
corporation such sum or sums as the Board, from time to time, in its absolute
discretion, think proper as a reserve fund to meet contingencies, or for such
other purposes as the Board shall think conducive to the interests of the
corporation, and any reserve so established may be abolished and restored to
the surplus account by like action of the Board.
SECTION 2. Seal. The seal of the corporation shall bear the corporate name
of the corporation, the year of its incorporation and the words "Corporate
Seal, Delaware".
SECTION 3. Waiver. Whenever any notice whatever is required to be given by
statute or under the provisions of the Certificate of Incorporation or these
By-Laws, a waiver thereof in writing signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be
deemed equivalent thereto. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the stockholders or the Board, as
the case may be, need be specified in any waiver of notice of such meeting.
SECTION 4. Fiscal Year. The fiscal year of the corporation shall begin with
January first and end with December thirty-first.
SECTION 5. Contracts. Except as otherwise required by law, the Certificate
of Incorporation or these By-Laws, any contracts or other instruments may be
executed and delivered in the name and on the behalf of the corporation by such
officer or officers of the corporation as the Board may from time to time
direct. Such authority may be general or confined to specific instances as the
Board may determine. The Chairman of the Board, the President or any Vice
President may execute bonds, contracts, deeds, leases and other instruments to
be made or executed for or on behalf of the corporation. Subject to any
restrictions imposed by the Board, the Chairman of the Board, the President or
any Vice President of the corporation may delegate contractual powers to others
under his jurisdiction, it being understood, however, that any such delegation
of power shall not relieve such officer of responsibility with respect to the
exercise of such delegated power.
SECTION 6. Proxies. Unless otherwise provided by resolution adopted by the
Board, the Chairman of the Board, the President or any Vice President may from
time to time appoint an attorney or attorneys or agent
or agents of the corporation, in the name and on behalf of the corporation, to
cast the votes which the
C-A-IV-8
corporation may be entitled to cast as the holder of stock or other securities
in any other corporation or other entity, any of whose stock or other
securities may be held by the corporation, at meetings of the holders of the
stock or other securities of such other corporation or other entity, or to
consent in writing, in the name of the corporation as such holder, to any
action by such other corporation or other entity, and may instruct the person
or persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed in the name and on behalf of
the corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the
premises.
SECTION 7. Amendments. The Board from time to time shall have the power to
make, alter, amend or repeal any and all of these By-Laws, but any By-Laws so
made, altered or repealed by the Board may be amended, altered or repealed by
the stockholders.
C-A-IV-9
ANNEX V
AFFILIATE AGREEMENT
Form of Affiliate Agreement
Dear Sirs:
The undersigned refers to the Agreement and Plan of Merger (the "Merger
Agreement") dated as of November 7, 2001, among Northrop Grumman Corporation, a
Delaware corporation (the "Parent"), Purchaser Corp. I, a Delaware corporation
and a wholly-owned subsidiary of the Parent (the "Purchaser"), and Newport News
Shipbuilding Inc., a Delaware corporation (the "Company"). Capitalized terms
used but not defined in this letter have the meanings given to such terms in
the Merger Agreement.
The undersigned, a holder of shares of Company Common Stock, is entitled to
receive in connection with the Merger shares of Parent Common Stock. The
undersigned acknowledges that the undersigned may be deemed, as of the date of
the Company Stockholder Meeting, an "affiliate" of the Company within the
meaning of Rule 145 ("Rule 145") promulgated under the Securities Act, although
nothing contained herein should be construed as an admission of such fact.
If in fact the undersigned were an affiliate under the Act as of the date of
the Company Stockholder Meeting, the undersigned's ability to sell, assign or
transfer the Parent Common Stock received by the undersigned in exchange for
any shares of Company Common Stock pursuant to the Merger may be restricted
unless such transaction is registered under the Act or an exemption from such
registration is available. The undersigned (i) understands that such exemptions
are limited and (ii) has obtained advice of counsel as to the nature and
conditions of such exemptions, including information with respect to the
applicability to the sale of such securities of Rules 144 and 145(d)
promulgated under the Securities Act.
The undersigned hereby represents to and covenants with Parent that the
undersigned will not sell, assign or transfer any of the Parent Common Stock
received by the undersigned in exchange for shares of Company Common Stock
pursuant to the Merger except (i) pursuant to an effective registration
statement under the Securities Act, (ii) in a transaction that meets the
requirements of Rule 145 or (iii) in a transaction that, in the opinion of
independent counsel reasonably satisfactory to Parent (the reasonable fees of
which counsel will be paid by Parent) or as described in a "no-action" or
interpretive letter from the Staff of the SEC, is not required to be registered
under the Securities Act. The undersigned will not be required to comply with
the foregoing covenant if it is not an affiliate of the Company as of the date
of the Company Stockholder Meeting.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Parent Common
Stock and (ii) the receipt by Parent of this letter is an inducement and a
condition to Parent's obligations to consummate the Merger.
Very truly yours,
Dated:
C-A-V-1
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 102(b)(7) 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.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
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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.
8.2 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.
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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).
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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).
10.32 Retention Bonus Agreement between Northrop Grumman Corporation and
Thomas C. Schievelbein, dated November 7, 2001.
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).
23.5 Consent of Arthur Andersen LLP (for Newport News).
*24.1 Power of Attorney.
**24.2 Power of Attorney for Sandra J. Wright.
**24.3 Power of Attorney for Jay H. Nussbaum.
*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 filed pursuant to Rule 425 under the
Securities Act of 1933, with the SEC on May 9, 2001 and incorporated
herein by reference.
99.7 Press Release, dated May 21, 2001 filed pursuant to Rule 425 under
the Securities Act of 1933 with the SEC on May 21, 2001 and
incorporated herein by reference.
99.8 Form of Letter of Election and Transmittal.
99.9 Form of Notice of Guaranteed Delivery.
99.10 Form of Letter to Brokers, Dealers, etc.
99.11 Form of Letter to Clients.
99.12 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(b) None.
(c) None.
--------
* Previously filed as an exhibit to Northrop Grumman Corporation's Form S-4
(file no. 333-61506) dated May 23, 2001.
** Previously filed as an exhibit to Northrop Grumman Corporation's Amendment
No. 4 to Form S-4 (file no. 333-61506) dated November 6, 2001.
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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.
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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 20th day of November, 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 and November 20, 2001
____________________________________ Chief Executive Officer and
Kent Kresa Director (Principal
Executive Officer)
* President, Chief Operating November 20, 2001
____________________________________ Officer and Director
Ronald D. Sugar
* Corporate Vice President and November 20, 2001
____________________________________ Chief Financial Officer
Richard B. Waugh, Jr. (Principal Financial
Officer)
* Corporate Vice President and November 20, 2001
____________________________________ Controller (Principal
Sandra J. Wright Accounting Officer)
* Director November 20, 2001
____________________________________
John T. Chain, Jr.
* Director November 20, 2001
____________________________________
Lewis W. Coleman
* Director November 20, 2001
____________________________________
Vic Fazio
* Director November 20, 2001
____________________________________
Phillip Frost
* Director November 20, 2001
____________________________________
Charles R. Larson
II-6
Signature Title Date
--------- ----- ----
* Director November 20, 2001
____________________________________
Jay H. Nussbaum
* Director November 20, 2001
____________________________________
Aulana L. Peters
* Director November 20, 2001
____________________________________
John Brooks Slaughter
*By: /s/ John H. Mullan
-----------------------------
Name: John H. Mullan
Title: Attorney-in-fact
Date: November 20, 2001
II-7