<SUBMISSION>
<ACCESSION-NUMBER>0000898430-01-001047
<TYPE>S-4/A
<PUBLIC-DOCUMENT-COUNT>7
<FILING-DATE>20010327
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>NNG INC
<CIK>0001133421
<ASSIGNED-SIC>3812
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>S-4/A
<ACT>33
<FILE-NUMBER>333-54800
<FILM-NUMBER>1580956
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1840 CENTURY PK E
<STREET2>C/O NORTHROP GRUMMAN CORP
<CITY>LOS ANGELES
<STATE>CA
<ZIP>90067
<PHONE>3105536262
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1840 CENTURY PARK EAST
<STREET2>C/O NORTHROP GRUMMAN CORP
<CITY>LOS ANGELES
<STATE>CA
<ZIP>90067
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>S-4/A
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM S-4 AMENDMENT #2
<TEXT>

<PAGE>


  As filed with the Securities and Exchange Commission on March 27, 2001
                                                     Registration No. 333-54800
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                               ---------------

                             AMENDMENT NO. 2
                                      TO
                                   FORM S-4
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933

                               ---------------

                                   NNG, INC.
            (Exact name of registrant as specified in its charter)

<TABLE>
 <S>                               <C>                             <C>
            Delaware                            3812                         95-4840775
 (State or other jurisdiction of    (Primary Standard Industrial          (I.R.S. Employee
 incorporation or organization)      Classification Code Number)       Identification Number)
</TABLE>

                               ---------------

                                   NNG, Inc.
                            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)

                                W. Burks Terry
                 Corporate Vice President and General Counsel
                                   NNG, Inc.
                            1840 Century Park East
                         Los Angeles, California 90067
                                (310) 553-6262
(Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                               ---------------

                                  Copies To:

                                Andrew E. Bogen
                          Gibson, Dunn & Crutcher LLP
                            333 South Grand Avenue
                      Los Angeles, California 90071-3197
                                (213) 229-7000

   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 consummation of the offer to purchase or exchange 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. [_]

   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, as amended, or until this
registration statement shall become effective on such date as the commission,
acting pursuant to said Section 8(a), may determine.

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>


   This Amendment No. 2 to this Registration Statement on Form S-4 contains
amendments to and supplements certain information contained in the offer to
purchase or exchange filed by NNG, Inc. on February 1, 2001 and amended on
March 5, 2001, including the following:

  .  the section entitled "The Offer--Source and Amount of Funds" on page 32
     has been amended to delete the reference to the 364-day term credit
     facility with an aggregate principal amount of $1,000,000,000 and
     supplemented by adding a new paragraph at the end of that section
     describing a recent debt offering by Northrop Grumman, the proceeds of
     which will be used to fund the acquisition of a portion of the shares of
     Litton preferred stock and Litton common stock in the offer;

  .  the section entitled "Additional Information" on page 83 has been
     amended to reflect additional filings made by Northrop Grumman and
     Litton with the Securities and Exchange Commission since February 1,
     2001 and to delete references to certain filings that have been
     superseded by these later filings;

  .  the pro forma financial information included in this offer to purchase
     or exchange has been updated to reflect pro forma information through
     December 31, 2000, as opposed to through September 30, 2000 for Northrop
     Grumman and through October 31, 2000 for Litton, as previously presented
     in the offer to purchase or exchange filed by NNG, Inc. on February 1,
     2001 and amended March 5, 2001;

  .  market price information for Northrop Grumman common stock, Litton
     common stock and Litton preferred stock has been updated to March 26,
     2001; and

  .  information as to the expiration date of the offer has been updated.

<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this offer to purchase or exchange may change.   +
+NNG may not sell these securities until the registration statement filed with +
+the Securities and Exchange Commission is effective. This offer to purchase   +
+or exchange is not an offer to sell these securities and NNG is not           +
+soliciting an offer to buy these securities in any state where the offer or   +
+sale is not permitted.                                                        +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                         Offer to Purchase or Exchange
                     Each Outstanding Share of Common Stock
                       (together with associated rights)
                                       of
                            LITTON INDUSTRIES, INC.
                                      for
   any of the following, at the election of tendering holders of common stock
            $80.00 net per share, in cash, not subject to proration
                                       or
      $80.25 in market value (determined as described below) of shares of
                  NNG, Inc. Common Stock, subject to proration
                                       or
    0.80 shares of NNG, Inc. Series B Preferred Stock, subject to proration
                                      and
        Each Outstanding Share of Series B $2 Cumulative Preferred Stock
                                       of
                            LITTON INDUSTRIES, INC.
                                      for
            $35.00 net per share, in cash, not subject to proration
                                       by
                      NNG, INC., a wholly-owned subsidiary
                                       of
                          NORTHROP GRUMMAN CORPORATION

  NNG, Inc. (the initials stand for "New Northrop Grumman") is a newly-
organized corporation which will become the parent holding company for Northrop
Grumman Corporation immediately prior to the purchase of Litton shares in the
offer. At such time, NNG, Inc. will change its name to "Northrop Grumman
Corporation" and the present Northrop Grumman Corporation will change its name
to "Northrop Grumman Systems Corporation."

  The offer and withdrawal rights will expire at 12:00 Midnight, New York City
time, on Thursday, March 29, 2001 unless extended. Shares of Litton common
stock and Litton preferred stock tendered pursuant to the offer may be
withdrawn at any time prior to the expiration of the offer and, unless
previously accepted for purchase or exchange pursuant to the offer, may also be
withdrawn at any time after Tuesday, March 6, 2001.

  The offer is made pursuant to an Amended and Restated Agreement and Plan of
Merger, dated as of January 23, 2001 (referred to as the "amended merger
agreement"), among Northrop Grumman Corporation, Litton Industries, Inc., NNG,
Inc. and LII Acquisition Corp. The board of directors of Litton has approved
and deemed advisable the amended merger agreement, the offer and the merger of
LII Acquisition with and into Litton (referred to as the "Litton merger"),
determined that the offer is fair to, and in the best interests of, holders of
Litton common stock and recommends that holders of Litton common stock accept
the offer and tender their Litton common stock pursuant to the offer. The
Litton board of directors makes no recommendation with respect to the tender of
the Litton preferred stock.

  The number of shares of NNG common stock to be exchanged for each share of
Litton common stock for which a tendering holder elects to receive NNG common
stock will be determined by dividing $80.25 by the average of the closing
prices of Northrop Grumman common stock on the New York Stock Exchange ("NYSE")
for the five consecutive trading days ending prior to the open of the second
full trading day before the expiration of the offer.

  There is no limit on the number of shares of Litton common stock or Litton
preferred stock that may be exchanged for cash in the offer and consequently
the cash consideration offered will not be subject to proration. Subject to
NNG's option (described below) to substitute cash for shares of NNG common
stock in certain circumstances, the maximum number of shares of NNG common
stock that will be issued in the offer is 13,000,000 (referred to as the
"maximum common stock consideration"), and the maximum number of shares of NNG
preferred stock that will be issued in the offer is 3,500,000 (referred to as
the "maximum preferred stock consideration"). Therefore, elections to receive
NNG common stock and NNG preferred stock will be subject to proration if
holders of Litton common stock request in the aggregate more than the maximum
amount of such consideration available. Holders of Litton preferred stock may
exchange their Litton preferred stock only for cash.

  The offer is subject to the conditions listed under "The Offer--Conditions of
the Offer," including, that there be validly tendered and not withdrawn prior
to the expiration of the offer a total of at least 25,646,399 shares of Litton
common stock and Litton preferred stock (referred to as the "minimum tender
condition"). After the consummation of the offer, NNG common stock will trade
on the NYSE under the symbol "NOC." NNG will seek to list the NNG preferred
stock on the NYSE if there are enough holders to satisfy NYSE listing
requirements. The Litton common stock and the Litton preferred stock currently
trade on the NYSE and the Pacific Exchange under the symbols "LIT" and "LIT.B,"
respectively.

  See "Important Considerations Concerning Elections to Receive NNG Stock"
beginning on page 11 for a discussion of certain factors that holders of Litton
common stock should consider in connection with the offer.

                                  ----------

  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 offer to purchase or exchange. Any representation
to the contrary is a criminal offense.

     The date of this offer to purchase or exchange is March 27, 2001
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
SUMMARY..................................................................   1
The Amended Merger Agreement.............................................   1
The Companies............................................................   1
The Northrop Reorganization..............................................   2
The Litton Merger........................................................   3
Choices Available to Litton Stockholders.................................   3
Elections and Proration..................................................   4
NNG Option to Reduce the Maximum Common Stock Consideration..............   5
The NNG Preferred Stock..................................................   5
Conditions to the Offer..................................................   7
Litton's Support of the Offer and the Litton Merger......................   7
Fairness Opinion.........................................................   8
Agreement With Litton's Largest Stockholder..............................   8
Litton Stockholder Approval of the Litton Merger.........................   8
Appraisal Rights.........................................................   8
Tendering Litton Shares..................................................   8
Tax Consequences of the Receipt of Cash, NNG Common Stock and NNG
 Preferred Stock.........................................................   9
Extension of the Offer Period............................................   9
Delay; Termination; Waiver; Amendment....................................  10
Withdrawal Rights........................................................  10
Reasons for the Proposed Transactions....................................  10
Accounting Treatment.....................................................  10
Material Differences in Rights of Stockholders...........................  10
Questions About the Offer and the Litton Merger..........................  10

IMPORTANT CONSIDERATIONS CONCERNING ELECTIONS TO RECEIVE NNG STOCK.......  11

SELECTED CONSOLIDATED FINANCIAL DATA.....................................  13

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LITTON................  15

COMPARATIVE PER SHARE INFORMATION........................................  16

MARKET PRICES AND DIVIDENDS..............................................  18

THE OFFER................................................................  20
Exchange of Litton Shares; Exchange Ratio................................  20
Elections by Tendering Stockholders......................................  20
Pro Rata Reduction of Elections for NNG Stock............................  21
Reduction in Number of Shares of NNG Common Stock........................  21
Illustrative Table of NNG Common Stock Exchange Ratios at Specified
 Average Closing Prices..................................................  22
More Information About NNG Common Stock Exchange Ratio...................  22
Stockholder Rights Plans.................................................  22
Stockholders List........................................................  23
Extension; Termination; Amendment........................................  23
Purchase and Exchange of Litton Stock; Delivery of NNG Stock.............  23
Cash Instead of Fractional Shares of NNG Stock...........................  24
Transfer Charges.........................................................  24
Interest.................................................................  25
Withdrawal Rights........................................................  25
Procedures for Tendering.................................................  25
Purpose of the Offer; The Litton Merger..................................  28
Conditions of the Offer..................................................  29
</TABLE>

                                       i
<PAGE>

                         TABLE OF CONTENTS--(Continued)

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Regulatory Approvals.....................................................   30
Reduced Liquidity; Possible Delisting....................................   31
Status as "Margin Securities"............................................   32
Registration Under The Exchange Act......................................   32
Source and Amount of Funds...............................................   32
Relationships with Litton................................................   33
Fees and Expenses........................................................   33

BACKGROUND OF THE AMENDED MERGER AGREEMENT...............................   35
Certain Pojections.......................................................   36
Reasons for the Offer and the Litton Merger..............................   37

MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................................   39
Treatment of Holders of Litton Common Stock Who Tender Their Stock in the
 Offer...................................................................   40
Treatment of Holders of Litton Preferred Stock Who Tender Their Litton
 Preferred Stock in the Offer............................................   41
Reporting Requirements...................................................   42

THE AMENDED MERGER AGREEMENT.............................................   43
The Northrop Reorganization..............................................   43
The Litton Merger........................................................   44
Conditions to the Completion of the Litton Merger........................   44
Effective Time of the Litton Merger......................................   44
Additional Effects of the Litton Merger and the Northrop Reorganization..   44
The Litton Board.........................................................   45
Litton Stock Options.....................................................   46
Representations and Warranties...........................................   46
Conduct of Business of Litton Prior to the Litton Merger.................   49
Conduct of Business of Northrop Grumman and NNG Prior to the Litton
 Merger..................................................................   50
Other Potential Acquirers................................................   50
Litton Stockholders Meeting..............................................   52
Access to Information and Confidentiality................................   52
Confidentiality..........................................................   53
Additional Agreements....................................................   53
Antitrust Approvals......................................................   53
Directors' and Officers' Liability Insurance and Indemnification.........   55
Employee Matters.........................................................   55
Additional Covenants.....................................................   56
Termination Events.......................................................   56
Termination Fee; Expenses................................................   57

OTHER AGREEMENTS.........................................................   59
The Stockholder's Agreement..............................................   59
The Registration Rights Agreement........................................   61
Change of Control Severance Agreements...................................   62
Confidentiality Agreement................................................   63

RATIO OF COMBINED EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS......   64

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION.............   65

DESCRIPTION OF NNG CAPITAL STOCK.........................................   70
Authorized Capital Stock.................................................   70
Common Stock.............................................................   70
</TABLE>

                                       ii
<PAGE>

                         TABLE OF CONTENTS--(Continued)

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Series B Preferred Stock...................................................  71
Transfer and Dividend Paying Agent and Registrar...........................  74

COMPARISON OF STOCKHOLDERS' RIGHTS.........................................  74

SUMMARY OF CERTAIN STATUTORY PROVISIONS....................................  79
Appraisal Rights...........................................................  79
Certain Business Combinations..............................................  82

ADDITIONAL INFORMATION.....................................................  83

FORWARD-LOOKING STATEMENTS.................................................  85

LEGAL MATTERS..............................................................  86

EXPERTS....................................................................  86

ANNEX A DIRECTORS AND EXECUTIVE OFFICERS................................... A-1
ANNEX B SECTION 262. APPRAISAL RIGHTS...................................... B-1
</TABLE>

                                      iii
<PAGE>


   This offer to purchase or exchange incorporates by reference important
business and financial information about Northrop Grumman and Litton. That
information is available without charge to Litton stockholders upon request.
For information regarding Northrop Grumman, Litton stockholders must address
their requests to: Investor Relations, Northrop Grumman Corporation, 1840
Century Park East, Los Angeles, California 90067 (310) 201-3423. For
information regarding Litton, Litton stockholders must address their request
to: Investor Relations, Litton Industries, Inc., 21240 Burbank Boulevard,
Woodland Hills, California 91367 (818) 598-2026.

                                    SUMMARY

   The following summary highlights selected information from this offer to
purchase or exchange. This summary may not contain all of the information that
is important to Litton stockholders. To better understand the offer and the
other proposed transactions, Litton stockholders should read this entire
document carefully, as well as the additional documents to which this offer to
purchase or exchange refers. See "Additional Information" on page 83.

The Amended Merger Agreement

   Northrop Grumman and Litton entered into an Agreement and Plan of Merger on
December 21, 2000 which provided for the original offer to purchase all of the
outstanding Litton common stock for $80.00 in cash per share and all of the
outstanding Litton preferred stock for $35.00 in cash per share by a subsidiary
of Northrop Grumman. The original offer commenced on January 5, 2001. On
January 23, 2001, the original Agreement and Plan of Merger was amended and
restated to provide that the original offer be amended to become an offer by
NNG to exchange NNG common stock and NNG preferred stock for a portion of the
Litton common stock on a tax-free basis, in addition to the cash consideration
in the original offer. NNG is making the offer pursuant to the amended merger
agreement.

The Companies

   Northrop Grumman Corporation. Northrop Grumman is a Delaware corporation
with its principal executive offices located at 1840 Century Park East, Los
Angeles, California 90067. Its telephone number is (310) 553-6262. Northrop
Grumman is an advanced technology company operating in the Integrated Systems
Sector, or "ISS", Electronic Systems and Sensor Sector, or "ES3" and
Information Technology, or "Logicon" segments of the broadly defined aerospace
and defense industry. The ISS segment includes the design, development and
manufacture of aircraft and aircraft subassemblies. The ES3 segment includes
the design, development, manufacturing and integration of electronic systems
and components for military and commercial use. Logicon, Northrop Grumman's
information technology segment, includes the design, development, operation and
support of computer systems for scientific and management information.

   Litton Industries, Inc. Litton is a Delaware corporation with its principal
executive offices located at 21240 Burbank Boulevard, Woodland Hills,
California 91367. Its telephone number is (818) 598-5000. According to Litton's
Annual Report on Form 10-K for the fiscal year ended July 31, 2000, Litton
designs, builds and overhauls surface ships for government and commercial
customers worldwide and is a provider of defense and commercial electronics
technology, components and materials for customers worldwide. In addition,
Litton is a prime contractor to the U.S. government for information technology
and provides specialized information technology services to commercial
customers in local and foreign jurisdictions.

   Litton's businesses are divided into four business segments: Advanced
Electronics, Information Systems, Ship Systems, and Electronic Components and
Materials. The Advanced Electronics group is a major supplier and integrator of
electronic systems and related services to the U.S. and international military
and commercial

                                       1
<PAGE>

markets. The Information Systems group designs, develops, integrates and
supports computer-based information systems and provides information technology
and services primarily for government customers. The Ship Systems group builds
non-nuclear ships for the U.S. Navy and designs, builds and overhauls surface
ships for government and commercial customers worldwide. The Electronic
Components and Materials group designs, manufactures and produces a broad range
of high-tech materials and products integral to the telecommunications and
computer markets including complex many-layered backplanes and assemblies,
specialty brushless motors, slip rings, high density electronic and fiber optic
connectors, cylindrical connectors, microelectronic attachment materials
including solder spheres, precision wires and pastes, laser crystals, gallium
arsenide substrates and microwave components for primarily commercial markets
worldwide.

   NNG, Inc. NNG is a newly-formed Delaware corporation that is wholly-owned by
Northrop Grumman. Its principal executive offices are located at 1840 Century
Park East, Los Angeles, California 90067 and its telephone number is (310) 553-
6262. NNG was incorporated on January 16, 2001 in preparation for the offer and
the Northrop reorganization described below and has not conducted any business
activities to date. As a result of the Northrop reorganization and after the
consummation of the offer, Northrop Grumman and Litton will become subsidiaries
of NNG. Accordingly, the business of NNG will consist of the business currently
conducted by Litton and Northrop Grumman.

The Northrop Reorganization

   Immediately prior to NNG purchasing Litton common stock and Litton preferred
stock in the offer, Northrop Grumman will be reorganized. Currently, NNG has
two wholly-owned subsidiaries, NGC Acquisition Corp. and LII Acquisition Corp.,
as illustrated below:

                             [GRAPHIC APPEARS HERE]

NGC Acquisition Corp. and LII Acquisition Corp. are newly-formed corporations
which were organized for the purpose of the transactions described herein.

                                       2
<PAGE>


   In the Northrop reorganization, immediately prior to the purchase of Litton
common stock and Litton preferred stock in the offer, NGC Acquisition will
merge with and into Northrop Grumman. As a result, Northrop Grumman will become
a wholly-owned subsidiary of NNG. NNG will change its name to "Northrop Grumman
Corporation," and Northrop Grumman will be renamed "Northrop Grumman Systems
Corporation." All of Northrop Grumman's capital stock will be converted into
capital stock of NNG. The outstanding shares of Northrop Grumman common stock
will automatically be deemed to be outstanding shares of NNG common stock with
no exchange of certificates and the NNG common stock will have the same rights,
preferences and privileges as the Northrop Grumman common stock. The NNG common
stock will be publicly traded and listed on the NYSE. The following chart
illustrates the resulting corporate structure:

                             [GRAPHIC APPEARS HERE]

The Litton Merger

   Following NNG's purchase of Litton common stock and Litton preferred stock
in the offer, LII Acquisition will merge with and into Litton. At the effective
time of the Litton merger, each outstanding share of Litton common stock,
except for shares held by dissenting Litton stockholders, NNG, Litton or their
subsidiaries, will be converted into the right to receive $80.00 in cash, and
each outstanding share of Litton preferred stock will remain outstanding
without any change.

Choices Available to Litton Stockholders

   Holders of Litton common stock who desire to tender their shares in the
offer may select one of the following forms of payment for each of their shares
of Litton common stock:

  .  $80.00 cash;

  .  $80.25 in market value (as described below) of NNG common stock, subject
     to proration; and

  .  0.80 of a share of NNG preferred stock, subject to proration.

   The number of shares of NNG common stock to be issued in exchange for each
share of Litton common stock will be determined by dividing $80.25 by the
average of the closing prices for Northrop Grumman common stock on the NYSE for
the five consecutive trading days ending prior to the open of the second full
trading day before expiration of the offer. The final exchange ratio will be
set prior to 9:00 a.m. New York City time on the second full trading day before
the expiration of the offer. For example, if the offer expired at Midnight,
New York City time, on a Friday, the final exchange ratio would be set prior to
9:00 a.m. New York City time on the immediately preceding Thursday. No
fractional shares of NNG common stock or NNG preferred stock will be issued.
Cash will be delivered in lieu of fractional shares of NNG common stock or NNG
preferred stock.

   Holders of Litton preferred stock who desire to tender their shares in the
offer will receive $35.00 in cash for each share.

                                       3
<PAGE>


   The exchange ratios for the consideration to be offered in exchange for
shares of Litton common stock and Litton preferred stock in the offer were
determined through arm's-length negotiations between Litton and Northrop
Grumman. Merrill Lynch & Co. acted as Litton's financial advisor and Salomon
Smith Barney Inc. acted as Northrop Grumman's financial advisor in these
negotiations.

   For more information on the NNG common stock exchange ratio, see "The
Offer" beginning on page 20.

Elections and Proration

 Elections by Tendering Stockholders

   There is no limit on the number of shares of Litton common stock or Litton
preferred stock that may be exchanged for cash in the offer. There is a limit
on the number of shares of NNG common stock and the number of shares of NNG
preferred stock that may be issued in exchange for Litton common stock in the
offer. The maximum number of shares of NNG common stock that will be issued in
the offer is 13,000,000, and the maximum number of shares of NNG preferred
stock that will be issued in the offer is 3,500,000. It is possible that the
maximum common stock consideration could be reduced, as described under
"Reduction in Number of Shares of NNG Common Stock" below. Elections for the
NNG common stock and the NNG preferred stock will be subject to pro rata
reduction if Litton stockholders request more than the maximum common stock
consideration or the maximum preferred stock consideration, as the case may
be.

   In addition to deciding whether to receive cash, NNG common stock or NNG
preferred stock, or a combination of this consideration, tendering Litton
common stockholders who elect to receive NNG common stock or NNG preferred
stock must choose among the available alternatives described below for the
treatment of any shares of Litton common stock not exchanged by reason of
proration for the class of NNG stock they have elected to receive:

   Alternative A. A tendering Litton common stockholder may make an
Alternative A election with respect to Litton common stock which is tendered
for either NNG common stock or NNG preferred stock. If the total number of NNG
common stock elections (including the deemed elections referred to in the next
sentence) exceeds the NNG common stock available, the Alternative A elections
will first be reduced, pro rata, to the extent necessary so that the total
number of shares of NNG common stock required for common stock elections does
not exceed the maximum common stock consideration. If the tendering
stockholder elects to receive NNG preferred stock, any shares subject to the
Alternative A election which are not exchanged for NNG preferred stock by
reason of proration will be deemed subject to an Alternative A common stock
election.

   The stockholder's agreement among Northrop Grumman, NNG and Unitrin
provides, in substance, that Unitrin and certain of its subsidiaries will
accept NNG common stock in exchange for all of their shares of Litton common
stock which are not exchanged for NNG preferred stock in the offer. However,
Unitrin and its subsidiaries agreed to accept NNG common stock only to the
extent that other Litton stockholders do not elect to receive the available
NNG common stock. Pursuant to the stockholder's agreement, Unitrin will
specify Alternative A for all of the Litton common stock tendered by it. While
Alternative A may be selected by any holder of Litton common stock, it is
expected that Litton stockholders other than Unitrin will likely find it in
their interests to select either:

  . Alternative B, if they wish to maximize the NNG common stock received in
    the offer; or

  . Alternative C, if they wish to receive only NNG preferred stock or cash.

The stockholder's agreement is described below under "Other Agreements--The
Stockholder's Agreement".

   Alternative B. A tendering Litton common stockholder may make an
Alternative B election with respect to Litton common stock which is tendered
for either NNG common stock or NNG preferred stock. In the event

                                       4
<PAGE>

that proration of elections to receive of NNG common stock is still required
after the elimination of shares in accordance with Alternative A elections,
holders of shares of Litton common stock who elect Alternative B will have
their elections to receive NNG common stock reduced pro rata based on the
number of shares covered thereby. If the tendering Litton common stockholder
elects to receive NNG preferred stock, any shares subject to the Alternative B
election which are not exchanged for NNG preferred stock by reason of proration
will be deemed subject to an Alternative B common stock election.

   Alternative C. An Alternative C election is only available for those Litton
common stockholders who elect to receive NNG preferred stock in exchange for
tendered Litton shares. Any such shares which are not exchanged for NNG
preferred stock by reason of proration will be exchanged for $80.00 in cash per
share.

   If no election among the three alternatives described above is made in
connection with a tender of Litton common stock in exchange for NNG common
stock or NNG preferred stock, the tendering stockholder will be deemed to have
elected Alternative B.

 Pro Rata Reduction of Elections for NNG Stock

   If holders tendering Litton common stock elect to receive more than the
maximum common stock consideration or the maximum preferred stock
consideration, elections will be subject to pro rata reduction as described
below.

   Elections to receive NNG preferred stock will be reduced, pro rata in
accordance with the numbers of shares covered thereby, until all of the shares
subject to the elections remaining can be exchanged for NNG preferred stock.
Shares of Litton common stock which are not so exchanged by reason of proration
will be exchanged for:

  .  $80.00 per share in cash, if Alternative C is selected by the tendering
     stockholder; or

  .  NNG common stock (subject to further proration, if required) in all
     other cases.

   Elections to receive NNG common stock will also be subject to pro rata
reduction, in accordance with the numbers of shares covered thereby, until all
the shares subject to the elections remaining can be exchanged for the maximum
common stock consideration. As described above, shares subject to Alternative A
elections will be reduced before any shares subject to Alternative B elections.
Shares of Litton common stock which are not so exchanged for NNG common stock
by reason of proration will be exchanged for $80.00 in cash per share.

NNG Option to Reduce the Maximum Common Stock Consideration

   If the average of the closing prices for Northrop Grumman common stock on
the NYSE for any five consecutive trading days ending not later than two full
trading days before expiration of the offer is less than $75.00, NNG may
irrevocably elect to substitute cash for all or a portion of the NNG common
stock at the rate of $80.00 per share of Litton common stock. In such event,
NNG promptly will publicly announce the amount of cash to be substituted for
NNG common stock and the amount of the new maximum common stock consideration
and the offer will be extended, if necessary, in accordance with the applicable
rules of the SEC to allow Litton stockholders to consider the information.

The NNG Preferred Stock

   The NNG preferred stock will have the following principal terms:

  .  Conversion Right. Subject to approval by the stockholders (the
     "Stockholder Approval") of Northrop Grumman (if prior to the purchase of
     Litton shares in the offer) or by the stockholders of NNG (if
     thereafter) of the issuance of the shares of NNG common stock into which
     the NNG preferred stock is

                                       5
<PAGE>

   convertible, shares of NNG preferred stock will be convertible into shares
   of NNG common stock at a conversion price equal to 127% of the average of
   the closing prices for Northrop Grumman common stock on the NYSE for the
   five consecutive trading days ending prior to the open of the second full
   trading day before expiration of the offer (including the date the offer
   expires). The initial conversion price is subject to adjustment under
   certain circumstances, as described in "Description of NNG Capital Stock-
   Series B Preferred Stock."

  .  Dividend Rate. Holders of shares of NNG preferred stock will be entitled
     to cumulative cash dividends, payable quarterly in April, July, October
     and January of each year. If the NNG preferred stock is issued prior to
     the 2001 annual meeting of stockholders of Northrop Grumman (currently
     scheduled for May 16, 2001), the initial dividend rate per share will be
     $7.00 per year. Commencing after the dividend payment date in October
     2001, the dividend rate per share will be $7.00 per year if the
     Stockholder Approval has been obtained or $9.00 per year if it has not
     been obtained. If the NNG preferred stock is issued after the 2001
     Northrop Grumman annual meeting, the initial dividend rate per share
     will be $7.00 per year if the Stockholder Approval has been obtained and
     $9.00 per year if it has not been obtained. If the dividend rate per
     share is set at $9.00 per year, it will be reduced from $9.00 to $7.00
     per year after the Stockholder Approval is obtained.

  .  Redemption.

     .  Mandatory Redemption For Cash After Twenty Years. Each share of NNG
        preferred stock will be subject to mandatory redemption for cash,
        in an amount equal to the liquidation value of $100.00 per share of
        NNG preferred stock plus accrued but unpaid dividends, whether or
        not declared, to the mandatory redemption date. The mandatory
        redemption date will be 20 years and one day from the date of
        issuance. In the event that Stockholder Approval has not occurred
        by the mandatory redemption date, the amount payable for each share
        of NNG preferred stock will be the greater of (a) the liquidation
        value of $100.00 per share of NNG preferred stock plus accrued but
        unpaid dividends to the redemption date, whether or not declared,
        and (b) the current market price on the redemption date of the
        number of shares of NNG common stock which would be issued upon
        conversion of a share of NNG preferred stock into NNG common stock
        on the redemption date pursuant to the provision for conversion.

     .  Optional Redemption For Common Stock After Seven Years. NNG has the
        option to redeem all but not less than all of the shares of NNG
        preferred stock at any time after seven years from the initial
        issuance date for a number of shares of NNG common stock equal to
        the liquidation value of $100.00 per share plus accrued but unpaid
        dividends, whether or not declared, to the redemption date, divided
        by the current market price of a share of NNG common stock on the
        redemption date. In the event that Stockholder Approval has not
        occurred by the redemption date, the number to be divided in the
        above calculation will be the greater of the amount described above
        and the current market price on the redemption date of the number
        of shares of NNG common stock which would be issued upon conversion
        of a share of NNG preferred stock into NNG common stock on the
        redemption date pursuant to the provision for conversion.

  .  Liquidation. In any liquidation of NNG, each share of NNG preferred
     stock will be entitled to a liquidation preference of $100.00 plus
     accrued but unpaid dividends, whether or not declared, before any
     distribution may be made on the NNG common stock or any other class or
     series of NNG stock which is junior to the NNG preferred stock. In any
     liquidation of NNG, no distribution may be made on any NNG stock ranking
     on a parity with the NNG preferred stock, unless the holders of NNG
     preferred stock participate ratably in the distribution along with the
     holders of any NNG stock that ranks on a parity with the NNG preferred
     stock. In the event the Stockholder Approval has not occurred at the
     time of liquidation, the amount payable on liquidation will be the
     greater of the amount described above and the amount that would be
     distributed if such share of NNG preferred stock had been converted into
     NNG common stock pursuant to the provision for conversion.

                                       6
<PAGE>


  .  Change of Control. For a period of not less than 20 business days
     following any merger, consolidation, sale of all or substantially all of
     NNG's assets, liquidation or recapitalization of the NNG common stock in
     which more than one-third of the previously outstanding NNG common stock
     is changed into or exchanged for cash, property or securities other than
     capital stock of NNG or another corporation, holders of shares of NNG
     preferred stock may exchange any and all such shares for shares of NNG
     common stock. Each share of NNG preferred stock so exchanged shall be
     exchanged for that number of shares of NNG common stock determined by
     dividing the liquidation value of $100.00 per share plus accrued and
     unpaid dividends as of the exchange date by the current market price of
     a share of NNG common stock. In the event the Stockholder Approval has
     not occurred by the exchange date, the number to be divided in the above
     calculation will be the greater of the amount described above and the
     current market price on the exchange date of the number of shares of NNG
     common stock which would be issued if such shares of NNG preferred stock
     were converted into NNG common stock on the exchange date pursuant to
     the provision for conversion.

  .  Voting Rights. Holders of shares of NNG preferred stock generally will
     have no voting rights, except that approval of the holders of two-thirds
     of the NNG preferred stock will be required for certain actions that
     would adversely affect the rights of such holders. If NNG fails to pay
     or declare and set aside funds for six or more quarterly dividends
     (whether or not consecutive), the holders of shares of NNG preferred
     stock will have the right to elect two directors of NNG.

   See "Description of NNG Capital Stock--Series B Preferred Stock--Voting
Rights" on page 72 for a more detailed description of the voting and other
rights and preferences of the NNG preferred stock.

Conditions to the Offer

   The offer is subject to conditions, including, but not limited to:

  .  the satisfaction of the minimum tender condition;

  .  the expiration or termination of any applicable waiting periods under
     the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
     (referred to in this offer to purchase or exchange as the "HSR Act") or
     under Council Regulation (EEC) No. 4064/89 of the Council of the
     European Union;

  .  the Registration Statement on Form S-4 filed with the Securities and
     Exchange Commission to register the issuance of the NNG common stock and
     NNG preferred stock (of which this offer to purchase or exchange is a
     part) in the offer will have become effective and not be the subject of
     any stop order or proceeding seeking a stop order; and

  .  the shares of NNG common stock to be issued in the offer will have been
     approved for listing on the NYSE.

   These conditions and the other conditions to the offer are discussed in
greater detail in "The Offer--Conditions of the Offer" beginning on page 29.

Litton's Support of the Offer and the Litton Merger

   Litton's board of directors has determined that the offer is fair to, and in
the best interests of, holders of Litton common stock, and recommends that
holders of Litton common stock accept the offer and tender their shares of
Litton common stock in the offer. Litton's board of directors makes no
recommendation regarding whether holders of Litton preferred stock should
accept the offer and tender their shares of Litton preferred stock in the
offer. Litton's board of directors has approved and declared advisable the
amended merger agreement and the Litton merger. Information about the
recommendation of Litton's board is more fully set forth in Litton's Amended
Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed
to Litton stockholders together with this offer to purchase or exchange.

                                       7
<PAGE>


Fairness Opinion

   Litton has received an opinion from Merrill Lynch & Co., dated January 23,
2001, substantially to the effect that, as of January 23, 2001, the aggregate
consideration to be received by holders of Litton common stock other than
Northrop Grumman and its affiliates pursuant to the offer and the Litton merger
is fair from a financial point of view to the holders of Litton common stock.
The opinion is attached as an annex to Litton's Schedule 14D-9.

Agreement With Litton's Largest Stockholder

   Unitrin and certain of its subsidiaries, who collectively owned
approximately 27.8% of the outstanding shares of Litton common stock as of
January 23, 2001, have agreed to tender all of their shares of Litton common
stock in the offer and elect to receive no fewer than 3,000,000 shares of NNG
preferred stock and, as to the remainder, NNG common stock pursuant to the
stockholder's agreement described in greater detail in "Other Agreements--The
Stockholder's Agreement" on page 59.

Litton Stockholder Approval of the Litton Merger

   The Litton merger will require the affirmative vote of at least a majority
of the shares of Litton common stock and Litton preferred stock outstanding on
the record date for the meeting to approve the Litton merger, unless 90% or
more of the outstanding shares of Litton common stock and 90% or more of the
outstanding shares of Litton preferred stock are acquired in the offer, in
which case the Litton merger can be accomplished without a meeting or vote of
the Litton stockholders. If the minimum tender condition is satisfied and NNG
purchases the tendered Litton common stock and Litton preferred stock, approval
of the merger by Litton stockholders will be assured because NNG will own over
50% of the outstanding voting stock of Litton.

Appraisal Rights

   There are no appraisal rights available in connection with the offer. After
the offer and subject to Delaware state law, appraisal rights will be available
to holders of Litton common stock, and may be available (depending on
circumstances at the time) to holders of Litton preferred stock who do not vote
in favor of the Litton merger. See "Summary of Certain Statutory Provisions--
Appraisal Rights" beginning on page 79.

Tendering Litton Shares

   To tender Litton shares, Litton stockholders should do the following:

  .  If the Litton shares are held in the stockholder's own name, the
     stockholder should complete and sign the enclosed letter of transmittal
     and return it with the Litton share certificates to EquiServe Trust
     Company, the depositary for the offer, at the applicable address on the
     back cover of this offer to purchase or exchange.

  .  If the Litton shares are held in uncertificated form in the
     stockholder's name, the stockholder should complete and sign the
     enclosed letter of transmittal and return it to EquiServe Trust Company
     at the applicable address printed on the back cover of this offer to
     purchase or exchange.

  .  If the Litton shares are held in "street name" through a broker, the
     stockholder will need to ask its broker to tender its Litton shares.

   For more information on the timing of the offer, extensions of the offer
period and Litton stockholders' rights to withdraw previously tendered Litton
shares from the offer, see "The Offer" beginning on page 20, or call the
information agent, Georgeson Shareholder Communications Inc., toll-free at
(800) 223-2064.

                                       8
<PAGE>


   Litton Stockholders Who Already Tendered Their Shares

   Litton stockholders who have already tendered shares of Litton common stock
in the original offer need take no action if they still wish to receive $80.00
in cash per share. If any such holder wishes to elect to receive consideration
other than cash, such holder must submit a new letter of transmittal (or
agent's message, if applicable), properly completed to indicate such election,
and clearly identifying the shares previously tendered.

   Litton stockholders who have already tendered shares of Litton preferred
stock need take no action if they still wish to tender such shares for $35.00
in cash per share.

   Shares previously tendered will not be returned unless withdrawn as
described herein or upon expiration of the offer if not accepted for payment
or exchange. For information concerning the status of previously tendered
Litton shares, please call the information agent, Georgeson Shareholder
Communications, Inc., toll free at (800) 223-2064.

Tax Consequences of the Receipt of Cash, NNG Common Stock and NNG Preferred
Stock

   If the offer and the Litton merger are consummated as contemplated, for
federal income tax purposes:

  .  Litton stockholders who receive only cash for their Litton common stock
     or Litton preferred stock will recognize any gain or loss;

  .  Litton stockholders who receive solely NNG common stock or NNG preferred
     stock for their Litton common stock will recognize neither gain nor
     loss; and

  .  Litton stockholders who receive a combination of cash, NNG common stock
     and NNG preferred stock for their Litton common stock will not recognize
     any loss and will recognize any gain in an amount not to exceed the cash
     received.

   The federal income tax consequences of the offer and the Litton merger will
also depend on each Litton stockholder's particular circumstances. For a more
detailed discussion of the potential federal income tax consequences, see
"Material Federal Income Tax Consequences" beginning on page 39. Litton
stockholders also should consult their tax advisors and other financial
advisors for a full understanding of these and other tax consequences.

Extension of the Offer Period

   The offer is currently scheduled to expire at Midnight, New York City time,
on Thursday, March 29, 2001.

   The amended merger agreement provides that NNG may, without Litton's
consent:

  .  from time to time extend the offer for successive periods of up to five
     business days until each of the conditions to the offer have been
     satisfied or waived; or

  .  extend the offer for any period required by any rule, regulation,
     interpretation or position of the SEC.

   If the offer is extended for any reason, NNG will promptly publicly
announce the extension no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date. During any
extension of the offer, all Litton common stock and Litton preferred stock
previously tendered and not withdrawn will remain subject to the offer,
subject to the holder's right to withdraw. See "The Offer--Withdrawal Rights"
beginning on page 25 and "The Amended Merger Agreement" beginning on page 43
for more details.

                                       9
<PAGE>


Delay; Termination; Waiver; Amendment

   Subject to the SEC's rules and regulations and the terms of the amended
merger agreement, NNG also reserves the right, in its sole discretion, at any
time or from time to time:

  .  to delay acceptance for payment or exchange of any shares of Litton
     common stock or Litton preferred stock pursuant to the offer if any of
     the conditions of the offer have not been satisfied; and

  .  to waive any condition (other than the minimum tender condition)

by giving oral or written notice of the delay, termination or amendment to the
depositary and by making a public announcement as promptly as practicable after
the delay, termination or amendment. Subject to applicable law (including Rules
14d-4(d) and 14d-6(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which require that any material change in the information
published, sent or given to stockholders in connection with the offer be
promptly sent to stockholders in a manner reasonably designed to inform
stockholders of such change) and without limiting the manner in which NNG may
choose to make any public announcement, NNG assumes no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
making a release to the Dow Jones News Service.

Withdrawal Rights

   Tenders of shares of Litton common stock and Litton preferred stock in the
offer may be withdrawn at any time prior to the expiration of the offer and at
any time after Tuesday, March 6, 2001, unless NNG previously has accepted the
shares for payment.

Reasons for the Proposed Transactions

   NNG and Northrop Grumman are proposing the offer and the Litton merger
because they believe that the offer and the Litton merger will significantly
benefit Northrop Grumman's stockholders and customers. Northrop Grumman
believes that the offer and the Litton merger will provide access to new
product areas, increase diversification into new markets, increase market
presence and opportunities and increase operating efficiencies. See "Background
of the Amended Merger Agreement--Reasons for the Offer and the Litton Merger"
beginning on page 37.

Accounting Treatment

   NNG will account for the Litton merger as a "purchase" transaction for
accounting and financial reporting purposes, in accordance with United States
generally accepted accounting principles. Accordingly, NNG will make a
determination of the fair value of Litton's assets and liabilities and allocate
the purchase price on its books to the acquired assets.

Material Differences in Rights of Stockholders

   The governing documents of NNG and Litton vary, and to that extent, holders
of Litton common stock will have different rights as NNG stockholders. The
differences are described in more detail under "Comparison of Stockholders'
Rights" beginning on page 74.

Questions About the Offer and the Litton Merger

   If you have any questions about the offer or the Litton merger, please call
our information agent, Georgeson Shareholder Communications Inc., toll-free at
(800) 223-2064.

                                       10
<PAGE>

      IMPORTANT CONSIDERATIONS CONCERNING ELECTIONS TO RECEIVE NNG STOCK

   In deciding whether to tender shares of Litton stock pursuant to the offer,
Litton stockholders should read this offer to purchase or exchange and the
accompanying Schedule 14D-9 of Litton carefully. Litton common stockholders
also should carefully consider the following factors before electing to
receive NNG stock in the offer.

   Elections to Receive NNG Stock are Subject to Pro Rata Reduction Because of
   the Limited Numbers of Shares Available

   Only 13,000,000 shares of NNG common stock and 3,500,000 shares of NNG
preferred stock are available for exchange in the offer. The maximum common
stock consideration could be reduced as described below under "--The Amount of
NNG Common Stock Offered in Exchange for Litton Common Stock is Subject to
Possible Reduction." If Litton common stockholders elect to receive more than
the available number of shares of either class of NNG stock, their elections
will be subject to pro rata reduction. Several alternative elections are
available to Litton common stockholders for treatment of any shares of Litton
common stock not exchanged by reason of proration for the class of NNG stock
they have elected to receive. Litton common stockholders who are considering
such elections should carefully consider the information provided herein under
"The Offer--Possible Pro Rata Reductions of Elections for NNG Stock."

   The Trading Market for NNG Preferred Stock May Be Limited

   The total number of NNG preferred shares to be issued in the offer is
limited to 3,500,000, with each share having a liquidation preference of
$100.00. As the result, the total initial liquidation value of the issue will
be no more than $350,000,000, and the liquidity of those shares may be
limited. Of course, the actual market value of the NNG preferred stock may be
more or less than $100.00 per share depending on circumstances over time.

   Resales of NNG Common Stock Following the Offer May Adversely Affect the
   Market Value of Such Shares

   The issuance of 13,000,000 new shares of NNG common stock in the offer
could lead to a significant redistribution of the new shares following their
initial issuance. Resales of a large number of the new NNG shares could
adversely affect the market price for NNG common stock.

   The Exchange Ratio for NNG Common Stock in the Offer, and the Conversion
   Price for the NNG Preferred Stock, Will Not be Known Until Two Full Trading
   Days Prior to Expiration of the Offer

   The exact number of NNG common shares to be exchanged for each Litton
common share will be determined by dividing $80.25 by the average of the
closing prices for Northrop Grumman common stock on the NYSE for the five
consecutive trading days ending prior to the open of the second full trading
day before expiration of the offer (including the date the offer expires).
Accordingly, Litton stockholders will not be able to know the NNG common stock
exchange ratio until immediately prior to the open of the last two trading
days during which the offer is open. Further, the exchange ratio which results
may not reflect the actual market price for NNG common stock following
completion of the offer.

   The conversion price for NNG preferred stock will be 127% of the average of
the closing prices of the Northrop Grumman common stock used to set the NNG
common stock exchange ratio. Accordingly, the conversion price for NNG
preferred stock will also not be known until two full trading days prior to
the expiration of the offer.

   The Amount of NNG Common Stock Offered in Exchange for Litton Common Stock
   is Subject to Possible Reduction

   If the average of the closing prices for Northrop Grumman common stock on
the NYSE for any five consecutive trading days ending not later than two full
trading days before expiration of the offer is less than

                                      11
<PAGE>

$75.00, NNG will have the irrevocable option to reduce the number of shares of
NNG common stock available for exchange in the offer and substitute cash at
the rate of $80.00 per share of Litton common stock. If this should occur, a
public announcement of the fact will be made and the offer will be extended,
if necessary, in accordance with the applicable rules of the SEC to allow
Litton stockholders to consider the information.

   Convertibility of the NNG Preferred Stock is Subject to a Vote of Northrop
   Grumman Stockholders Which Will Not Occur Until the 2001 Meeting of
   Northrop Grumman Stockholders

   The issuance of NNG common stock upon conversion of the NNG preferred stock
is conditioned upon the approval of stockholders of Northrop Grumman (if such
vote occurs prior to the issuance of shares in the offer) or NNG (if the vote
occurs thereafter). The matter will be voted on at the 2001 annual meeting of
stockholders, currently scheduled for May 16, 2001, which is expected to be
after expiration of the offer. As the result, Litton stockholders who elect to
receive NNG preferred stock must recognize that such shares may not be
convertible into common stock. See "Description of NNG Capital Stock--Series B
Preferred Stock."

   The Indebtedness of NNG Following the Offer Will be Much Higher Than the
   Existing Indebtedness of Northrop Grumman

   The indebtedness of Northrop Grumman as of December 31, 2000 was
approximately $1.615 billion. NNG's pro forma indebtedness as of December 31,
2000 giving effect to the offer and the Litton merger and assuming the Minimum
Equity Issuance (as described in "Selected Consolidated Financial Data"
below), is approximately $5.961 billion. As a result of the increase in debt,
demands on the cash resources of Northrop Grumman will increase after the
Litton merger, which could have important effects on the investment in NNG's
common stock and NNG's preferred 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 Litton Businesses is not
   Assured

   Integrating and coordinating the operations and personnel of Northrop
Grumman and Litton 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. The integration of
the companies may not result in the benefits expected by the companies. The
difficulties, costs and delays that could be encountered may include:

  .  unanticipated 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;

  .  inability to obtain necessary consents of third parties;

  .  unanticipated costs in termination or relocation of facilities and
     operations, and

  .  the effect of complying with any government imposed organizational
     conflict-of-interest rules.

   Risks Relating to the Businesses of Northrop Grumman and Litton

   Results of operation of NNG will be subject to numerous risks affecting the
businesses of Northrop Grumman and Litton, many of which are beyond the
companies' control. Many of these risks are identified under "Forward-Looking
Statements" on page 85

                                      12
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

   The following is a summary of selected historical consolidated financial
data of Northrop Grumman for each of the years in the five-year period ended
December 31, 2000 and selected unaudited pro forma combined financial data of
Northrop Grumman and Litton for the year ended December 31, 2000. Litton
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 and Litton contained in such reports.

   The historical consolidated financial data of Northrop Grumman for each of
the years in the three year period ended December 31, 2000 are derived from the
audited financial statements of Northrop Grumman contained in its Annual Report
on Form 10-K as filed on March 1, 2001 and subsequently amended on March 2,
2001, and March 8, 2001. The historical consolidated financial data for the
fiscal year ended December 31, 1997 are derived from the audited financial
statements contained in its Current Report on Form 8-K as filed on August 8,
2000, which is incorporated by reference in this offer to purchase or exchange.
The historical consolidated financial data for the fiscal year ended December
31, 1996 are derived from the audited financial statements of Northrop Grumman.

   The selected unaudited pro forma combined financial data of Northrop Grumman
and Litton were derived from Northrop Grumman's audited consolidated financial
statements for the year ended December 31, 2000, and Litton's audited
consolidated financial statements for the fiscal year ended July 31, 2000. In
addition, the unaudited financial statements of Litton contained in Litton's
Quarterly Reports on Form 10-Q for the periods ended January 31, 2001 and 2000
have been used to bring the financial reporting periods of Litton to within
31 days of those of Northrop Grumman.

   The selected unaudited pro forma combined financial data give effect to the
offer and the Litton merger as if they had occurred on the dates referenced
under "Unaudited Pro Forma Condensed Combined Financial Information" beginning
on page 65. The selected unaudited pro forma combined financial data do not
include the realization of any cost savings from operating efficiencies,
synergies or other restructurings resulting from the offer and the Litton
merger. Two pro forma transaction scenarios are presented: Minimum Equity
Issuance and Maximum Equity Issuance. The Minimum Equity Issuance scenario is
based upon the assumption that Unitrin tenders its shares of Litton common
stock for NNG stock as described in "Other Agreements--The Stockholder's
Agreement," beginning on page 59 and all other stockholders tender their shares
for cash. The Maximum Equity Issuance scenario is based upon the assumption
that the maximum number of shares of NNG common stock (i.e. 13,000,000) and
maximum number of shares of NNG preferred stock (i.e. 3,500,000) are issued,
with the remainder of the consideration in the offer paid in cash. The selected
unaudited pro forma combined financial data do not purport to represent what
NNG's results of operations or financial position actually would have been if
the transactions referred to therein had been consummated on the date or for
the periods indicated or what such results will be for any future date or any
future period. Litton stockholders should read this summary together with
"Unaudited Pro Forma Condensed Combined Financial Information" beginning on
page 65 and the accompanying notes.

                                       13
<PAGE>

                          NORTHROP GRUMMAN CORPORATION

      SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
                      (In millions, except per share data)


<TABLE>
<CAPTION>
                             Pro Forma
                         ------------------
                         Minimum   Maximum
                          Equity    Equity
                         Issuance  Issuance            Historical Data
                         --------  --------  ----------------------------------------
                            Year ended
                           December 31,            Year ended December 31,
                         ------------------  ----------------------------------------
                           2000      2000     2000     1999    1998    1997    1996
                         --------  --------  -------  ------  ------  ------  -------
<S>                      <C>       <C>       <C>      <C>     <C>     <C>     <C>
Operating data:
  Net sales............. $13,244   $13,244   $ 7,618  $7,616  $7,367  $7,798  $ 7,667
  Operating margin......   1,482     1,482     1,098     954     752     741      752
  Interest expense
   (net)................    (474)     (438)     (146)   (206)   (221)   (240)    (261)
  Income from continuing
   operations before
   accounting changes...     653       676       625     474     193     318      330
  Diluted earnings per
   share from continuing
   operations before
   accounting change.... $  7.83   $  7.59   $  8.82  $ 6.80  $ 2.78  $ 4.67  $  5.18
Balance sheet data:
  Total assets.......... $16,811   $16,812   $ 9,622  $9,285  $9,536  $9,667  $ 9,645
  Net working capital...     435       435      (162)    329     666     221      106
  Total debt............   5,969     5,491     1,615   2,225   2,831   2,791    3,378
  Shareholders' equity..   4,634     5,063     3,919   3,257   2,850   2,623    2,282
Other data:
  Net cash from
   operations...........     N/A       N/A   $ 1,010  $1,207  $  244  $  730  $   743
  Funded order backlog..     N/A       N/A    10,106   8,499   8,415   9,700   10,451
  Depreciation and
   amortization.........     648       648       381     352     360     381      342
  Earnings before
   interest, taxes,
   depreciation and
   amortization
   (EBITDA)(a)..........   2,169     2,169     1,502   1,305     890   1,133    1,081
</TABLE>
--------
(a) EBITDA was calculated by adding back net interest expense and depreciation
    and amortization expense to income from continuing operations before taxes
    and accounting change. Since all companies do not calculate EBITDA or
    similarly titled financial measures in the same manner, disclosures by
    other companies may not be comparable with EBITDA as defined herein. EBITDA
    is a financial measure used by analysts to value companies. Therefore,
    Northrop Grumman's management believes that the presentation of EBITDA
    provides relevant information to investors. EBITDA should not be construed
    as an alternative to operating income or cash flows from operating
    activities as determined in accordance with United States generally
    accepted accounting principles ("GAAP") or as a measure of liquidity.
    Amounts reflected as EBITDA are not necessarily available for discretionary
    use as a result of restrictions imposed by applicable law upon the payment
    of dividends or distributions, among other things.

                                       14
<PAGE>

           SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LITTON

   The following is a summary of selected consolidated financial data of Litton
for each of the fiscal years in the five-year period ended July 31, 2000 and
the six-month periods ended January 31, 2001 and January 31, 2000. The
operating results for the six months ended January 31, 2001 are not necessarily
indicative of results for the full fiscal year ending July 31, 2001. This
information is derived from 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 from 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 offer to purchase
or exchange, and is qualified in its entirety by such documents. See
"Additional Information" on page 83. You should read this summary together with
the financial statements to which we refer and their accompanying notes and in
conjunction with management's discussion and analysis of operations and
financial conditions of Litton contained in such reports.

                 LITTON INDUSTRIES, INC. AND SUBSIDIARIES

                SELECTED CONSOLIDATED FINANCIAL INFORMATION

                   (In millions, except per share data)

<TABLE>
<CAPTION>
                              6 Months
                          Ended January 31,         Year Ended July 31,
                          -----------------  ----------------------------------
                            2001     2000     2000   1999   1998   1997   1996
                          -------- --------  ------ ------ ------ ------ ------
<S>                       <C>      <C>       <C>    <C>    <C>    <C>    <C>
Operating data:
  Sales and service
   revenues.............. $  2,758 $  2,720  $5,588 $4,828 $4,400 $4,176 $3,612
  Total segment operating
   profit................      245      238     562    339    410    370    320
  Income before
   accounting change ....       95       90     221    121    181    162    151
  Diluted earnings per
   share before
   accounting change..... $   2.03 $   1.93  $ 4.80 $ 2.58 $ 3.82 $ 3.40 $ 3.15

Balance sheet data:
  Total assets........... $  4,908 $  4,967  $4,836 $4,260 $4,114 $3,545 $3,454
  Net working capital....      597      321     500    295    164    163    107
  Total debt.............    1,477    1,690   1,399  1,033  1,046    680    787
  Total stockholders'
   investment............    1,611    1,385   1,496  1,300  1,187  1,039    917

Other data:
  Net cash from
   operations............ $     20 $    (16) $  250 $  244 $  228 $  223 $   70
  Depreciation and
   amortization..........       92       96     190    161    148    138    114
  Earnings before
   interest, taxes,
   depreciation and
   amortization
   (EBITDA)(a)...........      304      302     683    441    502    452    381
</TABLE>
--------

(a) EBITDA was calculated by adding back net interest expense and depreciation
    and amortization expense to income before taxes and accounting change.
    Since all companies do not calculate EBITDA or similarly titled financial
    measures in the same manner, disclosure by other companies may not be
    comparable with EBITDA as defined herein. EBITDA is a financial measure
    used by analysts to value companies. Therefore, Northrop Grumman's
    management believes that the presentation of EBITDA provides relevant
    information to investors. EBITDA should not be construed as an alternative
    to operating income or cash flows from operating activities as determined
    in accordance with GAAP or as a measure of liquidity. Amounts reflected as
    EBITDA are not necessarily available for discretionary use as a result of
    restrictions imposed by applicable law upon the payment of dividends or
    distributions, among other things.

                                       15
<PAGE>

                       COMPARATIVE PER SHARE INFORMATION

   The following table summarizes unaudited per share information for Northrop
Grumman and Litton on a 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 Grumman and Litton,
the unaudited interim consolidated financial statements of Northrop Grumman and
Litton, and the unaudited pro forma condensed combined financial information
included elsewhere or incorporated by reference in this offer to purchase or
exchange. 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 the offer, the Litton merger and the
Northrop reorganization had been consummated 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 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. Litton's
equivalent pro forma combined per share amounts are calculated by multiplying
Northrop Grumman's pro forma combined per share amounts by 0.9121, the
percentage of a share of NNG common stock that would be exchanged for each
share of Litton common stock in the offer, based upon the average of the
closing prices for Northrop Grumman common stock on the NYSE for the five
consecutive trading days ending on March 21, 2001 ($87.986).

<TABLE>
<CAPTION>
                                                                     Year ended
                                                                    December 31,
                                                                        2000
                                                                    ------------
<S>                                                                 <C>
NORTHROP GRUMMAN

Historical per common share data:
  Basic earnings per share.........................................    $ 8.86
  Diluted earnings per share.......................................      8.82
  Book value per common share......................................     55.29
  Dividends declared--Common.......................................      1.60
  Dividends declared--Preferred....................................       --

Pro Forma combined per common share data:

 Minimum Equity Issued
  Basic earnings per share.........................................    $ 7.95
  Diluted earnings per share.......................................      7.83
  Book value per common share......................................     57.95
  Dividends declared--Common                                             1.60(a)
  Dividends declared--Preferred....................................      9.00

 Maximum Equity Issued
  Basic earnings per share.........................................    $ 7.71
  Diluted earnings per share.......................................      7.59
  Book value per common share......................................     59.68
  Dividends declared--Common.......................................      1.60(a)
  Dividends declared--Preferred....................................      9.00
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                     Year ended
                                                                    December 31,
                                                                        2000
                                                                    ------------
<S>                                                                 <C>
LITTON

Historical per common share data:
  Basic earnings per share.........................................    $ 4.95
  Diluted earnings per share.......................................      4.90
  Book value per common share......................................     35.01
  Dividends declared--Common.......................................       --
  Dividends declared--Preferred....................................      2.00

Equivalent Pro Forma combined per common share data:

 Minimum Equity Issued
  Basic earnings per share.........................................    $ 7.25
  Diluted earnings per share.......................................      7.14
  Book value per common share......................................     52.85
  Dividends declared--Common.......................................      1.46
  Dividends declared--Preferred....................................      8.21

 Maximum Equity Issued
  Basic earnings per share.........................................    $ 7.03
  Diluted earnings per share.......................................      6.92
  Book value per common share......................................     54.43
  Dividends declared--Common.......................................      1.09
  Dividends declared--Preferred....................................      8.21
</TABLE>
--------

(a) Pro forma dividends declared per common share assumes consistent rate
    maintained for additional shares issued in the offer and actual shares.

                                       17
<PAGE>

                          MARKET PRICES AND DIVIDENDS

   Northrop Grumman common shares currently are listed and principally traded
on the NYSE and the Pacific Exchange under the symbol "NOC." After the
consummation of the offer, the NNG common stock will trade on the NYSE under
the symbol "NOC," and NNG will seek to list the NNG preferred stock on the NYSE
if there are enough holders to satisfy the NYSE minimum listing requirements.
The Litton common stock and the Litton preferred stock are listed and
principally traded on the NYSE under the symbols, "LIT" and "LIT.B"
respectively.

   The last reported sale price for Northrop Grumman common stock on March 26,
2001 was $86.50 and the last reported sale prices for Litton common stock and
Litton preferred stock on March 26, 2001 were $79.85 and $34.89 respectively.

   The following table sets forth, for the calendar quarters ended on the dates
indicated, the high and low last reported sale prices per share of Northrop
Grumman common stock, Litton common stock and preferred stock, in each case as
reported on the NYSE Composite Transaction Tape. The following tables also set
forth the cash dividends declared per share of Northrop Grumman common stock,
Litton common stock and preferred stock for the corresponding periods.

<TABLE>
<CAPTION>
                                    Northrop Grumman
                                      Common Stock        Litton Common Stock
                                ------------------------ ----------------------
                                 High     Low   Dividend  High   Low   Dividend
                                ------- ------- -------- ------ ------ --------
<S>                             <C>     <C>     <C>      <C>    <C>    <C>
1998
  March 31, 1998............... $139.00 $103.50  $0.40   $62.88 $55.88    --
  June 30, 1998................  109.69   99.00   0.40    63.44  56.06    --
  September 30, 1998...........  108.00   59.63   0.40    61.81  47.56    --
  December 31, 1998............   83.19   69.50   0.40    67.19  56.44    --

1999
  March 31, 1999...............   73.25   57.00   0.40    64.50  51.63    --
  June 30, 1999................   73.31   57.75   0.40    73.88  54.94    --
  September 30, 1999...........   75.69   59.94   0.40    72.44  54.75    --
  December 31, 1999............   62.31   49.00   0.40    55.50  42.50    --

2000
  March 31, 2000...............   55.19   43.56   0.40    50.81  27.94    --
  June 30, 2000................   80.25   52.44   0.40    45.69  38.81    --
  September 30, 2000...........   91.81   65.63   0.40    58.47  41.00    --
  December 31, 2000............   92.50   74.13   0.40    79.88  44.00    --

2001
  Quarter through March 26,
   2001........................   97.54   79.81   0.40    79.85  78.69    --
</TABLE>

                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                          Litton Preferred Stock
                                                          ----------------------
                                                           High   Low   Dividend
                                                          ------ ------ --------
<S>                                                       <C>    <C>    <C>
1998
  March 31, 1998......................................... $35.50 $32.00  $0.50
  June 30, 1998..........................................  33.75  30.00  $0.50
  September 30, 1998.....................................  33.25  30.00  $0.50
  December 31, 1998......................................  33.25  29.00  $0.50

1999
  March 31, 1999.........................................  33.50  30.00  $0.50
  June 30, 1999..........................................  32.50  28.75  $0.50
  September 30, 1999.....................................  31.50  27.50  $0.50
  December 31, 1999......................................  30.00  25.25  $0.50

2000
  March 31, 2000.........................................  26.75  24.75  $0.50
  June 30, 2000..........................................  26.50  23.50  $0.50
  September 30, 2000.....................................  25.50  23.00  $0.50
  December 31, 2000......................................  35.00  23.25  $0.50

2001
  Quarter through March 26, 2001.........................  35.50  34.00    --
</TABLE>

                                       19
<PAGE>

                                   THE OFFER

Exchange of Litton Shares; Exchange Ratio

   Litton stockholders who tender shares of Litton common stock in the offer
may elect to receive any of the following in exchange for each share of Litton
common stock:

  . $80.00 in cash;

  . $80.25 in market value of shares of NNG common stock, determined by
    dividing $80.25 by the average of the closing prices for Northrop Grumman
    common stock on the NYSE for the five consecutive trading days ending on
    the second trading day before expiration of the offer; or

  . 0.80 of a share of NNG preferred stock.

   Litton stockholders who tender shares of Litton preferred stock in the offer
will receive $35.00 in cash in exchange for each share of Litton preferred
stock. Holders of Litton preferred stock cannot exchange their Litton preferred
stock for NNG common stock or NNG preferred stock, only cash.

   Each form of consideration paid in the offer will be paid net of any
required withholding of taxes and without the payment of interest.

   The exchange ratios for the consideration to be offered in exchange for
shares of Litton common stock and Litton preferred stock in the offer were
determined through arm's-length negotiations between Litton and Northrop
Grumman. Merrill Lynch & Co. acted as Litton's financial advisor and Salomon
Smith Barney Inc. acted as Northrop Grumman's financial advisor in these
negotiations.

Elections by Tendering Stockholders

   There is no limit on the number of shares of Litton common stock or Litton
preferred stock that may be exchanged for cash in the offer. There is a limit
on the number of shares of NNG common stock and the number of shares of NNG
preferred stock that may be issued in exchange for Litton common stock in the
offer. The maximum number of shares of NNG common stock that will be issued in
the offer is 13,000,000, and the maximum number of shares of NNG preferred
stock that will be issued in the offer is 3,500,000. It is possible that the
maximum common stock consideration could be reduced. Elections for the NNG
common stock and the NNG preferred stock will be subject to pro rata reduction
if Litton common stockholders request more than the maximum common stock
consideration or the maximum preferred stock consideration, as the case may be.

   In addition to deciding whether to receive cash, NNG common stock or NNG
preferred stock, or a combination of this consideration, tendering stockholders
who elect to receive NNG common stock or NNG preferred stock must choose among
the available alternatives described below for the treatment of any shares of
Litton common stock not exchanged, by reason of proration, for the class of NNG
stock they have elected to receive:

   Alternative A. A tendering Litton stockholder may make an Alternative A
election with respect to Litton common stock which is tendered for either NNG
common stock or NNG preferred stock. If the total number of NNG common stock
elections (including the deemed elections referred to in the next sentence)
exceeds the NNG common stock available, the Alternative A elections will first
be reduced, pro rata, to the extent necessary so that the total number of
shares of NNG common stock required for common stock elections does not exceed
the maximum common stock consideration. If the tendering stockholder elects to
receive NNG preferred stock, any shares subject to the Alternative A election
which are not exchanged for NNG preferred stock by reason of proration will be
deemed subject to an Alternative A common stock election.

   The stockholder's agreement provides, in substance, that Unitrin and certain
of its subsidiaries will accept NNG common stock in exchange for all of their
shares of Litton common stock which are not exchanged for NNG preferred stock
in the offer. However, Unitrin and its subsidiaries agreed to accept NNG common
stock only to the extent that other Litton stockholders do not elect to receive
the available NNG common stock. Pursuant to the stockholder's agreement,
Unitrin will specify Alternative A for all of the Litton common stock

                                       20
<PAGE>

tendered by it. While Alternative A may be selected by any holder of Litton
common stock, it is expected that Litton stockholders other than Unitrin will
likely find it in their interests to select either:

  . Alternative B, if they wish to maximize the NNG common stock received in
    the offer (for any shares not exchanged, by reason of proration, for NNG
    preferred stock, or otherwise); or

  . Alternative C, if they wish to receive only NNG preferred stock or cash.

   The stockholder's agreement is described below under "Other Agreements--The
Stockholder's Agreement."

   Alternative B. A tendering Litton stockholder may make an Alternative B
election with respect to Litton common stock which is tendered for either NNG
common stock or NNG preferred stock. In the event that proration of elections
to receive shares of NNG common stock is still required after the elimination
of shares in accordance with Alternative A elections, holders of shares of
Litton common stock who elect Alternative B will have their elections to
receive NNG common stock reduced pro rata based on the number of shares covered
thereby. If the tendering stockholder elects to receive NNG preferred stock,
any shares subject to the Alternative B election which are not exchanged for
NNG preferred stock by reason of proration will be deemed subject to an
Alternative B common stock election.

   Alternative C. An Alternative C election is only available for those Litton
common stockholders who elect to receive NNG preferred stock in exchange for
tendered Litton shares. Any such shares which are not exchanged for NNG
preferred stock by reason of proration will be exchanged for $80.00 in cash per
share.

   If no election among the three alternatives described above is made in
connection with a tender of Litton common stock in exchange for NNG common or
preferred stock, the tendering stockholder will be deemed to have elected
Alternative B.

Pro Rata Reduction of Elections for NNG Stock

   If holders tendering Litton common stock elect to receive more than the
maximum common stock consideration or the maximum preferred stock
consideration, elections will be subject to pro rata reduction as described
below.

   Elections to receive NNG preferred stock will be reduced, pro rata in
accordance with the numbers of shares covered thereby, until all of the shares
subject to the elections remaining can be exchanged for NNG preferred stock.
Shares of Litton common stock which are not so exchanged by reason of proration
will be exchanged for:

  . $80.00 per share in cash, if Alternative C is selected by the tendering
    stockholder; or

  . NNG common stock (subject to further proration, if required) in all other
    cases.

   Elections to receive NNG common stock will also be subject to pro rata
reduction, in accordance with the numbers of shares covered thereby, until all
the shares subject to the elections remaining can be exchanged for the maximum
common stock consideration. As described above, shares subject to Alternative A
elections will be reduced before any shares subject to Alternative B elections.
Shares of Litton common stock which are not so exchanged for NNG common stock
by reason of proration will be exchanged for $80.00 in cash per share.

Reduction in Number of Shares of NNG Common Stock

   Pursuant to the amended merger agreement, if the average of the closing
prices for Northrop Grumman common stock on the NYSE is less than $75.00 for
any five consecutive trading days ending not later than two full trading days
before expiration of the offer, NNG will have the option to irrevocably elect
to reduce the number of shares of NNG common stock available for exchange in
the offer and substitute cash at the rate of $80.00 per share of Litton common
stock. If this should occur, NNG will promptly publicly announce the

                                       21
<PAGE>

amount of cash to be substituted and the new maximum common stock consideration
and will extend the offer, if necessary, in accordance with the applicable
rules of the SEC to allow Litton stockholders to consider the information.

Illustrative Table of NNG Common Stock Exchange Ratios at Specified Average
Closing Prices

   The following table illustrates the number of shares of NNG common stock
that would be issued for one share of Litton common stock at each of the
average Northrop Grumman trading prices presented in the table.

<TABLE>
<CAPTION>
                           Average Closing
                              Prices of
                           Northrop Grumman                     NNG Common Stock
                             Common Stock                        Exchange Ratio
                           ----------------                     ----------------
       <S>                                                      <C>
             $70.00...........................................       1.1464
             $75.00...........................................       1.0700
             $80.00...........................................       1.0031
             $85.00...........................................        .9441
             $90.00...........................................        .8917
</TABLE>

   The values of Northrop Grumman common stock used in the table above are for
purposes of illustration only. The average closing prices used in calculating
the NNG common stock exchange ratio may be higher or lower than these numbers,
depending on what the average of the closing prices of Northrop Grumman common
stock on the NYSE actually is for the five consecutive trading days ending two
full trading days before expiration of the offer.

More Information about NNG Common Stock Exchange Ratio

   The exchange ratios for the consideration to be offered in exchange for
shares of Litton common stock and Litton preferred stock in the offer were
determined through arm's-length negotiations between Litton and Northrop
Grumman. Merrill Lynch & Co. acted as Litton's financial advisor and Salomon
Smith Barney Inc. acted as Northrop Grumman's financial advisor in these
negotiations.

   NNG will notify Litton stockholders by issuing a press release announcing
the final NNG common stock exchange ratio and filing the press release with the
SEC. Litton stockholders may also call the information agent, Georgeson
Shareholder Communications Inc., at any time toll-free at (800) 223-2064 to
request information about the NNG common stock exchange ratio, including the
average trading price of shares of Northrop Grumman common stock used to
calculate the number of shares of NNG common stock issuable per share of Litton
common stock in the offer.

Stockholder Rights Plans

   The offer to acquire Litton common stock is also an offer to acquire the
associated preferred stock purchase rights issued pursuant to the rights
agreement dated as of August 17, 1994 between Litton and The Bank of New York
as amended as of December 21, 2000 and January 23, 2001. All references to
Litton common stock include the associated rights to purchase preferred stock.
Under no circumstances will additional consideration be paid for those rights.

   The shares of NNG common stock to be issued in the offer include the
associated NNG preferred stock purchase rights pursuant to the rights agreement
between NNG and ChaseMellon Shareholder Services to be entered into prior
expiration of the offer. The NNG rights agreement will be on the same terms and
conditions as Northrop Grumman's current rights agreement dated as of September
23, 1998 between Northrop Grumman and ChaseMellon Shareholder Services.
However, provisions will be added to permit the acquisition by Unitrin of NNG
common stock (and NNG common stock issuable upon conversion of the NNG
preferred stock) as contemplated by the offer and the stockholder's agreement
described under "Other Agreements--The Stockholder's Agreement" on page 59. All
references to shares of NNG common stock in this offer to purchase or exchange
are also references to the associated NNG preferred stock purchase rights.

                                       22
<PAGE>

Stockholders List

   NNG has relied on Litton's stockholders list and security position listings
to communicate with Litton stockholders and to distribute the offer. NNG will
send this offer to purchase or exchange, related letter of transmittal and
other relevant materials to Litton stockholders and to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the
names of whose nominees, appear on Litton's stockholders list or, if
applicable, who are listed as participants in a clearing agency's security
position listing.

Extension; Termination; Amendment

   The offer is currently scheduled to expire at Midnight, New York City time,
on Thursday, March 29, 2001.

   Subject to the terms of the amended merger agreement, NNG may extend the
period of time during which the offer remains open without Litton's consent by
giving oral or written notice of such extension to the depositary. If the
offer is extended for any reason, NNG will make an announcement to that effect
no later than 9:00 a.m., New York City time, on the next business day after
the previously scheduled expiration date. The amended merger agreement,
subject to certain exceptions, allows NNG to extend the offer for successive
periods of up to five business days until all conditions have been satisfied
or waived. Northrop Grumman has agreed to cause NNG to extend the offer for
the shortest time periods which it reasonably believes are necessary until the
consummation of the offer if the conditions of the offer have not been
satisfied or waived. During any such extension, all shares of Litton stock
previously tendered and not withdrawn will remain subject to the offer,
subject to each tendering stockholder's right to withdraw its Litton common
stock or Litton preferred stock. Litton stockholders should read the
discussion under the caption "The Offer--Withdrawal Rights" beginning on page
25 for more details about withdrawal rights.

   Subject to the SEC's applicable rules and regulations and subject to the
terms of the amended merger agreement, NNG also reserves the right, in its
sole discretion, at any time or from time to time to waive any condition
(other than the minimum tender condition) or otherwise amend the offer by
giving oral or written notice of such delay or amendment to the depositary and
by making a public announcement. NNG will follow any amendment or delay as
promptly as practicable with a public announcement. 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
stockholders in connection with the offer be promptly sent to stockholders in
a manner reasonably designed to inform stockholders of such change) and
without limiting the manner in which NNG may choose to make any public
announcement, NNG assumes no obligation to publish, advertise or otherwise
communicate any such public announcement other than by making a release to the
Dow Jones News Service.

   Subject to the terms of the amended merger agreement, if NNG makes a
material change in the terms of the offer or the information concerning the
offer (including any election to substitute cash for NNG common stock), or if
NNG waives a material condition of the offer, NNG will extend the offer to the
extent required under the Exchange Act. If, prior to the expiration date, NNG
changes the consideration offered for Litton shares, that change will apply to
all holders whose Litton common stock or Litton preferred stock are accepted
for purchase or exchange pursuant to the offer. If at the time notice of that
change is first published, sent or given to Litton stockholders, the offer is
scheduled to expire at any time earlier than the tenth business day from and
including the date that such notice is first published, sent or given, NNG
will extend the offer in accordance with the applicable rules of the SEC to
allow Litton stockholders to consider the information. For purposes of the
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.

Purchase and Exchange of Litton Stock; Delivery of NNG Stock

   Upon the terms and subject to the conditions of the offer, including the
terms and conditions of any extension or amendment of the offer, NNG will
accept, and will purchase or exchange, shares of Litton common stock (in
accordance with the elections of tendering Litton stockholders) or Litton
preferred stock

                                      23
<PAGE>

validly tendered and not properly withdrawn as promptly as practicable after
the expiration date. In addition, subject to applicable rules of the SEC and
the terms of the amended merger agreement, NNG expressly reserves the right to
delay acceptance of Litton stock in order to comply with any applicable law. In
all cases, purchases and exchanges of Litton stock tendered and accepted for
exchange will be made only after timely receipt by the depositary of:

  . certificates for the shares of Litton common stock or Litton preferred
    stock tendered (if such certificates were ever issued) or a confirmation
    of a book-entry transfer of those shares of Litton common stock or Litton
    preferred stock in the depositary's account at The Depository Trust
    Company, referred to as the "DTC";

  . a properly completed and duly executed letter of transmittal (or a
    facsimile of that document) or agent's message if applicable; and

  . any other required documents.

   For purposes of the offer, NNG will be deemed to have accepted for purchase
and exchange shares of Litton stock tendered when NNG notifies the depositary
of its acceptance of those shares. The depositary will deliver cash, NNG common
stock and NNG preferred stock in exchange for Litton stock pursuant to the
offer. The depositary will act as agent for tendering stockholders for the
purpose of receiving cash and shares of NNG stock (including cash to be paid
instead of fractional shares) from NNG and transmitting such cash and NNG stock
to tendering Litton stockholders. NNG will not pay interest on any amount
payable in the offer or the Litton merger, regardless of any delay in making
payment.

   If NNG does not accept any Litton stock tendered in the offer for any
reason, or if stock certificates are submitted for more shares of Litton stock
than are tendered, NNG will return certificates for such tendered or untendered
Litton stock, as the case may be, without expense to the tendering stockholder
or, in the case of Litton stock tendered by book-entry transfer into the
depositary's account at DTC pursuant to the procedures set forth below under
the discussion entitled "The Offer--Procedures for Tendering," those shares of
Litton stock will be credited to an account maintained within DTC, as soon as
practicable following expiration or termination of the offer.

   If NNG increases the consideration offered to Litton stockholders in the
offer prior to the expiration date, such increased consideration will be given
to all stockholders whose Litton shares are tendered pursuant to the offer,
whether or not such Litton shares were tendered or accepted for exchange prior
to such increase in consideration.

Cash Instead of Fractional Shares of NNG Stock

   NNG will not issue certificates representing fractional shares of NNG stock
pursuant to the offer. Instead, each tendering stockholder who would otherwise
be entitled to a fractional share of NNG stock will receive cash in an amount
equal to such fraction (expressed as a decimal and rounded to the nearest 0.01
of a share) multiplied by (i) the average of the closing prices for Northrop
Grumman common stock on the NYSE for the five consecutive trading days ending
on the second trading day before expiration of the offer, in the case of NNG
common stock, or (ii) $100.00 in the case of NNG preferred stock, in each case
minus any required withholding of taxes and without payment of interest.

Transfer Charges

   Litton stockholders who tender Litton common stock or Litton preferred stock
in the offer, will not be obligated to pay any charges or expenses of the
depositary. Except as set forth in the instructions to the letter of
transmittal, transfer taxes on tenders will be paid by NNG or on NNG's behalf.
Record owners of Litton common stock or Litton preferred stock who tender
shares in the offer will not have to pay brokerage fees or incur similar
expenses. Holders who own Litton common stock or Litton preferred stock through
a broker or

                                       24
<PAGE>

other nominee, and whose broker or other nominee exchanges such Litton stock on
the holder's behalf, may be subject to a charge from the broker or nominee for
doing so. Litton stockholders should consult their broker or nominee to
determine whether any charges will apply.

Interest

   NNG will not pay interest on any amount payable in the offer or the Litton
merger, regardless of any delay in making payment.

Withdrawal Rights

   All tenders of Litton stock in the offer are irrevocable, except that Litton
stock previously tendered may be withdrawn at any time prior to expiration of
the offer, and, unless previously accepted for purchase or exchange pursuant to
the offer, may also be withdrawn at any time after Tuesday, March 6, 2001.

   For a withdrawal to be effective, the depositary must receive a written,
telegraphic, telex or facsimile transmission notice of withdrawal at one of its
addresses set forth on the back cover of this offer to purchase or exchange,
and such notice must include the tendering stockholder's name, the number of
shares of Litton common stock or Litton preferred stock to be withdrawn and the
name of the registered holder, if it is different from that of the person who
tendered the shares of Litton stock being withdrawn.

   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. The financial institution must be a
participant in the Securities Transfer Agents Medallion Program, the NYSE
Medallion Signature Program or the Stock Exchange Medallion Program, any of
which is an "eligible institution," unless the Litton shares have been tendered
for the account of any eligible institution. If Litton shares have been
tendered pursuant to the procedures for book-entry transfer discussed under the
caption entitled "Procedures for Tendering," any notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawn Litton shares and must otherwise comply with DTC's procedures. If
certificates have been delivered or otherwise identified to the depositary, the
name of the registered holder and the serial numbers of the particular
certificates evidencing the shares of Litton stock being withdrawn must also be
furnished to the depositary, prior to the physical release of such
certificates. NNG will decide all questions as to the form and validity
(including time of receipt) of any notice of withdrawal, in NNG's sole
discretion, and NNG's decision will be final and binding. Neither NNG, the
depositary, the information agent nor any other person has 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 such notification. Any shares
of Litton stock properly withdrawn will be deemed not to have been validly
tendered for purposes of the offer. However, a Litton stockholder may retender
withdrawn shares of Litton stock by following one of the procedures discussed
in the section entitled "The Offer--Procedures for Tendering" below at any time
prior to expiration of the offer.

   If a holder withdraws any shares of Litton common stock, such holder
automatically withdraws the associated rights to purchase preferred stock. A
holder may not withdraw the rights to purchase preferred stock unless the
associated shares of Litton common stock are also withdrawn.

Procedures for Tendering

   To validly tender Litton shares pursuant to the offer, before expiration of
the offer, a Litton stockholder must transmit a properly completed and duly
executed letter of transmittal (or manually executed facsimile of that
document), along with any required signature guarantees, an agent's message in
connection with a book-entry transfer, and any other required documents to the
depositary at one of its addresses set forth on the back cover of this offer to
purchase or exchange, and certificates for Litton stock being tendered must be
received by the depositary at such address. Shares of Litton stock held in
book-entry form must be tendered pursuant to the procedures for book-entry
exchange set forth below and a confirmation of receipt of such tender (we refer
to

                                       25
<PAGE>

this confirmation below as a "book-entry confirmation") must be received by the
depository. In the alternative, Litton stockholders may comply with the
guaranteed delivery procedures set forth below.

   The term "agent's message" means a message, transmitted by DTC to the
depositary and forming a part of a book-entry confirmation, which states that
DTC has received an express acknowledgment from the participant exchanging the
Litton shares which are the subject of such book-entry confirmation, that the
participant has received and agrees to be bound by the terms of the letter of
transmittal and that NNG may enforce that agreement against such participant.

   The depositary will establish accounts with respect to the Litton stock at
DTC for the offer within two business days after the date of this offer to
purchase or exchange, and any financial institution that is a participant in
DTC may make book-entry delivery of Litton stock by causing DTC to transfer
such stock into the depositary's account in accordance with DTC's procedure for
such transfer. However, although delivery of Litton stock may be effected
through book-entry at DTC, the letter of transmittal (or facsimile thereof),
with any required signature guarantees, or an agent's message in connection
with a book-entry transfer, and any other required documents, must be
transmitted to the depositary at the applicable address set forth on the back
cover of this offer to purchase or exchange prior to the expiration date, or
the guaranteed delivery procedures described below must be followed.

   Signatures on all letters of transmittal must be guaranteed by an eligible
institution, except in cases in which Litton stock is tendered either by a
registered holder of Litton stock who has not completed either the box entitled
"Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the letter of transmittal or for the account of an eligible
institution.

   If the certificates for Litton stock are registered in the name of a person
other than the person who signs the letter of transmittal, or if certificates
for untendered Litton shares 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 of the
registered owner appears on the certificates, with the signature(s) on the
certificates or stock powers guaranteed in the manner described above.

   The method of delivery of Litton share certificates and all other required
documents, including delivery through DTC, is at the tendering stockholder's
option and risk, and delivery will be deemed made only when actually received
by the depositary. If delivery is by mail, NNG recommends registered mail with
return receipt requested, properly insured. In all cases, holders must allow
sufficient time to ensure timely delivery.

   To prevent backup federal income tax withholding with respect to any cash
received in the offer, the depositary must be provided with the tendering
stockholder's correct taxpayer identification number and certification whether
the tendering stockholder is subject to backup withholding of federal income
tax by means of the substitute Form W-9 included in the letter of transmittal.
Some stockholders (including, among others, all corporations and some foreign
individuals) are not subject to backup withholding and reporting requirements.
In order for a foreign individual to qualify as an exempt recipient, the
stockholder must submit a Form W-8, signed under penalties of perjury,
attesting to that person's exempt status.

   A stockholder who wishes to tender shares of Litton stock in the offer and
whose stock certificates are not immediately available or who cannot deliver
the certificates and all other required documents to the depositary prior to
the expiration date or cannot complete the procedure for book-entry transfer on
a timely basis, may nevertheless tender Litton common stock and Litton
preferred stock, so long as all of the following conditions are satisfied:

  (a) tender is made by or through an eligible institution;

                                       26
<PAGE>

  (b) a properly completed and duly executed notice of guaranteed delivery,
      substantially in the form made available by NNG, is received by the
      depositary as provided below on or prior to the expiration date; and

  (c) the certificates for all shares of Litton common stock or Litton
      preferred stock to be tendered (or a confirmation of a book-entry
      transfer of such securities into the depositary's account at DTC as
      described above), in proper form for transfer, together with a properly
      completed and duly executed letter of transmittal (or facsimile
      thereof), 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 transmittal are received by the depositary
      within three NYSE trading days after the date the notice of guaranteed
      delivery is executed.

   The notice of guaranteed delivery may be delivered to the depositary by hand
or transmitted by telegram, telex, facsimile transmission or mail. A guarantee
by an eligible institution in the form set forth in that notice must be
provided.

   In all cases, NNG will exchange shares of Litton common stock or Litton
preferred stock tendered and accepted for exchange only after timely receipt by
the depositary of certificates for such shares (or timely confirmation of a
book-entry transfer of such securities into the depositary's account at DTC as
described above), properly completed and duly executed letter(s) of transmittal
(or facsimile(s) thereof), or an agent's message in connection with a book-
entry transfer, and any other required documents. Accordingly, holders may be
paid at different times depending upon when the depositary actually receives
the certificates for their Litton common stock or Litton preferred stock or
confirmations of book-entry transfers of those shares.

   If a holder's shares of Litton common stock or Litton preferred stock were
never issued in certificated form, the holder must follow all of the
requirements for tendering shares other than the requirement to deliver the
share certificates for the tendered shares. A holder who has lost a share
certificate, must contact the Bank of New York, the transfer agent for the
Litton stock, at (800) 432-0140 and receive a replacement certificate in order
to tender the Litton shares represented by the lost share certificate.
Receiving a replacement certificate may take time, so Litton stockholders who
have lost their share certificate and want to tender Litton shares in the offer
should contact the transfer agent to request a replacement certificate as soon
as possible.

   By executing a letter of transmittal as set forth above, a tendering Litton
stockholder irrevocably appoints NNG's designees as the holder's attorneys-in-
fact and proxies, each with full power of substitution, to the full extent of
the holder's rights with respect to the Litton common stock or Litton preferred
stock tendered in the offer and any other Litton common stock or Litton
preferred stock and other securities issued or issuable in respect of the
Litton common stock or Litton preferred stock on or after February 1, 2001.
That appointment is effective, and voting rights will be affected, when and
only to the extent that NNG deposits with the depositary cash, the shares of
NNG common stock and NNG preferred stock for the Litton common stock tendered.
All such proxies shall be considered coupled with an interest and are not
revocable. Upon the effectiveness of such appointment, all prior proxies of the
tendering stockholder will be revoked, and any subsequent proxies will not be
deemed effective. NNG's designees will be empowered, among other things, to
exercise all of the tendering stockholder's voting and other rights as they, in
their sole discretion, deem proper at any annual, special or adjourned meeting
of Litton's stockholders or otherwise. NNG reserves the right to require that,
in order for shares of Litton common stock and Litton preferred stock to be
deemed validly tendered, NNG must be able to exercise full voting rights to the
extent permitted under applicable law with respect to such shares immediately
upon acceptance of such shares for purchase or exchange.

   NNG will determine questions as to the validity, form, eligibility,
including time of receipt, and acceptance for exchange of any tender of Litton
common stock or Litton preferred stock, in its sole discretion, and NNG's
determination shall be final and binding. NNG reserves the absolute right to
reject any tenders of Litton common stock or Litton preferred stock that NNG
determines are not in proper form or the acceptance for exchange of or exchange
for which may, in the opinion of NNG's counsel, be unlawful. NNG also reserves
the

                                       27
<PAGE>

absolute right to waive any of the conditions of the offer (other than the
minimum tender condition) or any defect or irregularity in the tender of any
shares of Litton common stock or Litton preferred stock. No tender of Litton
common stock or Litton preferred stock will be deemed to have been validly made
until all defects and irregularities have been cured or waived. Neither NNG,
the depositary, the information agent nor any other person is under any duty to
give notification of any defects or irregularities in the tender of any Litton
common stock or Litton preferred stock or will incur any liability for failing
to give any such notification. NNG's interpretation of the terms and conditions
of the offer, including the letter of transmittal and instructions thereto will
be final and binding.

   The tender of shares of Litton stock pursuant to any of the procedures
described above will constitute a binding agreement between NNG and the
tendering stockholder upon the terms and subject to the conditions of the
offer.

Purpose of the Offer; The Litton Merger

   NNG is making the offer in order to acquire control of, and ultimately the
entire common equity interest in, Litton. The offer is the first step in NNG's
acquisition of Litton, and is intended to facilitate the acquisition of all
Litton shares. Litton stockholders do not have appraisal rights in connection
with the offer. As soon as practicable after consummation of the offer, NNG
intends to merge LII Acquisition, its wholly-owned subsidiary, with and into
Litton. The purpose of the Litton merger is to acquire all shares of Litton
common stock not exchanged in the offer. At the effective time of the Litton
merger, each share of Litton common stock, except for Litton common stock held
by Litton, NNG or their subsidiaries, will be converted into the right to
receive the same amount of cash as is paid per share of Litton common stock in
the offer, subject to appraisal rights that may be available to Litton
stockholders under Delaware law and minus any required withholding of taxes and
without interest. Each share of Litton preferred stock not tendered or accepted
for payment in the offer will remain outstanding, without change, as a share of
Series B $2 Cumulative Preferred Stock of Litton, the corporation surviving the
Litton merger.

   If two-thirds or more of the shares of Litton preferred stock are tendered
for purchase in the offer and NNG acquires such percentage of the Litton
preferred stock, NNG will have sufficient voting power to amend the terms of
the Litton preferred stock in accordance with the provisions set forth in
Litton's Restated Certificate of Incorporation. If, after the offer, there are
less than 300 registered holders of Litton preferred stock remaining, NNG
currently anticipates that it will deregister and delist the Litton preferred
stock from the NYSE, Northrop Grumman and NNG do not intend to redeem any
shares of Litton preferred stock that are not tendered and accepted by NNG for
purchase in the offer. However, following the Litton merger, NNG may seek to
acquire the shares of Litton preferred stock that remain outstanding for cash
at a price or prices not exceeding $35.00 per share through open market
transactions, an amendment to the Certificate of Incorporation of Litton, a
subsequent merger or otherwise.

  See "Summary of Certain Statutory Provisions--Appraisal Rights" for
 information concerning appraisal rights in the Litton merger.

   Rule 13e-3 of the General Rules and Regulations under the Exchange Act would
require, among other things, that some financial information concerning Litton,
and some information relating to the fairness of the Litton merger and the
consideration offered to Litton stockholders, be filed with the SEC and
disclosed to Litton stockholders prior to consummation. Rule 13e-3 will not
apply to the Litton merger if it occurs within one year after the consummation
of the offer.

   NNG reserves the right to acquire additional Litton stock through open
market purchases, privately negotiated transactions, a tender offer or exchange
offer, or otherwise following the consummation or termination of the offer,
upon such terms and at such prices as NNG decides, which may be more or less
favorable than those of the offer. NNG and its affiliates also reserve the
right to dispose of any or all shares of Litton stock acquired pursuant to the
offer or otherwise, upon such terms and at such prices as NNG determines.

                                       28
<PAGE>

   Upon consummation of the offer, NNG intends to take appropriate actions to
optimize and rationalize the combined entities' assets, operations, management,
personnel, general and administrative functions and corporate structure. Other
than the Litton merger, NNG currently does not have any plans or proposals that
would result in an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, or sale of a material amount of assets,
involving Litton or any of its subsidiaries, or any material changes in
Litton's corporate structure or business.

   Upon the purchase of Litton common stock in the offer, NNG may also elect or
seek the election of nominees of its choice to Litton's board of directors.
Pursuant to the amended merger agreement, until the merger is completed, Litton
has agreed to use its best efforts to ensure that at least three members of
Litton's board of directors as of January 23, 2001 remain members of Litton's
board of directors. See "The Amended Merger Agreement--The Litton Board."

Conditions of the Offer

   Notwithstanding any other provisions of the offer relating to NNG's
obligation to accept for payment or exchange any tendered Litton common stock
or Litton preferred stock and subject to the terms and conditions of the
amended merger agreement and any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act, NNG shall not be required to
accept for payment or exchange or pay for or exchange any shares of Litton
stock, if:

  (i)   fewer than 25,646,399 shares of Litton common stock and Litton
        preferred stock, which represent a majority of the total outstanding
        common stock and preferred stock on a fully diluted basis, have been
        tendered pursuant to the offer by the expiration of the offer and not
        withdrawn;

  (ii)  any applicable waiting period under the HSR Act or Regulation (EEC)
        No. 4064/89 of the Council of the European Union shall not have
        expired or been terminated prior to the expiration of the offer;

  (iii) the registration statement relating to the offer shall not have
        become effective under the Securities Act of 1933, as amended (the
        "Securities Act"), or shall be the subject of any stop order or
        proceeding seeking a stop order;

  (iv)  the shares of NNG common stock to be issued in the offer shall not
        have been approved for listing on the NYSE, subject to official
        notice of issuance; or

at any time on or after the date of the amended merger agreement and prior to
the expiration of the offer, any of the following conditions shall have
occurred and continued to exist:

     (a) there shall have been any statute, rule, regulation, judgment, order
  or injunction enacted or entered and which shall remain in effect by any
  state or U.S. government or governmental authority or by any state, U.S. or
  European Union court or any agency or authority of the European Union,
  other than the routine application to the offer, the Northrop
  reorganization and the Litton merger or other subsequent business
  combination of waiting periods under the HSR Act or Regulation (EEC) No.
  4064/89 of the Council of the European Union, that has the effect of (i)
  making the acceptance for payment of, or the payment for, some or all of
  the Litton shares illegal or otherwise prohibiting consummation of the
  offer, (ii) imposing limitations on the ability of NNG or Northrop Grumman
  to acquire or hold or to exercise effectively all rights of ownership of
  the Litton shares, or to control effectively the business, assets or
  operations of Northrop Grumman, Litton and their subsidiaries, of such
  magnitude as would have a material adverse effect on the business, assets,
  long-term earning capacity or financial condition of Northrop Grumman,
  Litton and their subsidiaries, taken as a whole;

     (b) a Company Material Adverse Effect, as defined in the amended merger
  agreement, shall have occurred and continued to exist;

     (c) there shall have occurred and continued to exist (i) any general
  suspension of trading in, or limitation on prices for, securities on the
  NYSE (excluding any coordinated trading halt triggered solely as

                                       29
<PAGE>

  a result of a specified decrease in a market index and suspensions or
  limitations resulting from physical damage to or interference with such
  exchange not related to market conditions), (ii) the declaration of a
  banking moratorium or any suspension of payments in respect of banks in the
  United States (whether or not mandatory), (iii) the commencement of a war,
  armed hostilities or other international or national calamity directly or
  indirectly involving the United States and having a Company Material
  Adverse Effect, (iv) any material limitation (whether or not mandatory) by
  any U.S. governmental authority or agency on the extension of credit by
  banks or other financial institutions, (v) from December 21, 2000 through
  the date of termination or expiration of the offer, a decline of at least
  27.5% in the Standard & Poor's 500 Index or (vi) in the case of any of the
  situations described in clauses (i) through (v) inclusive, existing at the
  date of the commencement of the offer, a material acceleration or worsening
  thereof; or

     (d) the amended merger agreement shall have been terminated in
  accordance with its terms; or

     (e) (i) the representations of Litton contained in the amended merger
  agreement shall not be true and correct at and as of consummation of the
  offer with the same effect as if made at and as of such date 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, or (ii) Litton shall have failed to
  comply with its covenants and agreements contained in the amended merger
  agreement in all material respects; or

     (f) prior to the purchase of Litton shares pursuant to the offer, the
  Litton board of directors shall have withdrawn or modified (including by
  amendment of the Schedule 14D-9) in a manner adverse to NNG its approval or
  recommendation of the offer, the merger agreement or the Litton merger or
  shall have recommended another offer, or shall have adopted any resolution
  to effect any of the foregoing.

Regulatory Approvals

   Under the HSR Act and the rules that have been promulgated thereunder by the
Federal Trade Commission (the "FTC"), certain acquisition transactions may not
be consummated unless certain information has been furnished to the Antitrust
Division and the FTC and certain waiting period requirements have been
satisfied. The purchase of Litton common stock and Litton preferred stock
pursuant to the offer is subject to such requirements.

   Pursuant to the requirements of the HSR Act, Northrop Grumman first filed a
Notification and Report Form with respect to the offer and Litton merger with
the Antitrust Division and the FTC on January 4, 2001. This filing was
voluntarily withdrawn on January 16, 2001 with the result that the statutory
waiting period requirement of 30 days applicable to the exchange offer began
again when the filing was resubmitted on January 31, 2001. The filing was again
voluntarily withdrawn on February 27, 2001, with the result that the statutory
waiting period requirement of 30 days applicable to the exchange offer began
again when the filing was resubmitted on that same day, February 27, 2001. The
waiting period applicable to the purchase of Litton common stock and Litton
preferred stock pursuant to the offer is scheduled to expire at 11:59 p.m., New
York City time, thirty days after such filing. However, prior to such time, the
Antitrust Division or the FTC may extend the waiting period by requesting
additional information or documentary material relevant to the offer from
Northrop Grumman. If such a request is made, the waiting period will be
extended until 11:59 p.m., New York City time, on the thirtieth day after
substantial compliance by Northrop Grumman with such request, (or the next
business day, if such date falls on a weekend or holiday). Thereafter, such
waiting period can be extended only by court order.

   Any extension of the waiting period will not give rise to any withdrawal
rights not otherwise provided for by applicable law. See "The Offer--Withdrawal
Rights" beginning on page 25. If NNG's purchase of Litton common stock or
Litton preferred stock is delayed pursuant to a request by the Antitrust
Division or the FTC for additional information or documentary material pursuant
to the HSR Act, the offer will be extended in certain circumstances. See "The
Amended Merger Agreement--Conditions to the Completion of the Litton Merger."

   The Antitrust Division and the FTC scrutinize the legality under the
antitrust laws of transactions such as the purchase of Litton common stock and
Litton preferred stock by NNG pursuant to the offer. At any time before or
after the consummation of any such transactions, the Antitrust Division or the
FTC could take such action under the

                                       30
<PAGE>

antitrust laws of the United States as it deems necessary or desirable in the
public interest, including seeking to enjoin the purchase of Litton common
stock and/or Litton preferred stock pursuant to the offer or seeking
divestiture of the Litton common stock and/or Litton preferred stock so
acquired or divestiture of substantial assets of Northrop Grumman or Litton.
Private parties (including individual states) may also bring legal actions
under the antitrust laws of the United States. NNG does not believe that the
consummation of the offer will result in a violation of any applicable
antitrust laws. However, there can be no assurance that a challenge to the
offer on antitrust grounds will not be made, or if such a challenge is made,
what the result will be, including conditions with respect to litigation and
certain governmental actions. See "The Amended Merger Agreement--Conditions to
the Completion of the Litton Merger." See "The Amended Merger Agreement--
Termination Events" for certain termination rights.

   The parties conduct business in a number of foreign countries. Under the
laws of certain foreign nations and multinational authorities, such as the
European Commission (under Council Regulation (EEC) 4064/89, or "ECMR"), the
transaction may not be completed or control may not be exercised unless certain
filings are made with these nations' antitrust regulatory authorities or
multinational antitrust authorities and these antitrust authorities approve or
clear closing of the transaction. Other foreign nations and multinational
authorities have voluntary and/or post-merger notification systems. On February
22, 2001, the necessary filings were made with the European Commission. On
March 23, 2001, the European Commission approved the transaction. The parties
have filed or intend to file shortly all other non-United States pre-merger
notifications that they believe are required. Should any other approval or
action be required, the parties currently contemplate that such approval or
action would be sought. Although the parties believe that they will obtain all
other material required regulatory approvals in a timely manner, it is not
certain that all other such approvals will be received in a timely manner or at
all or that foreign or multinational antitrust authorities will not impose
unfavorable conditions for granting the required approvals.

Reduced Liquidity; Possible Delisting

   The tender of Litton common stock and Litton preferred stock pursuant to the
offer will reduce the number of holders of Litton common stock and Litton
preferred stock and the number of shares of Litton common stock and Litton
preferred stock that might otherwise trade publicly and could adversely affect
the liquidity and market value of the remaining shares of Litton common stock
and Litton preferred stock held by the public. Litton common stock and Litton
preferred stock currently are listed and principally traded on the NYSE.
Depending on the number of shares of Litton common and Litton preferred stock
acquired in the offer, following consummation of the offer, Litton common stock
or Litton preferred stock may no longer meet the requirements of the NYSE for
continued listing. For example, published guidelines of the NYSE indicate that
the NYSE would consider delisting the outstanding Litton common stock and
Litton preferred stock if, among other things:

  . the number of publicly held shares of Litton common stock or Litton
    preferred stock (exclusive of holdings of officers, directors and members
    of their immediate families and other concentrated holdings of 10% or
    more) should fall below 600,000;

  . the number of record holders of 100 or more shares of Litton common stock
    or Litton preferred stock should fall below 1,200; or

  . the aggregate market value of publicly held shares of Litton common stock
    or Litton preferred stock should fall below $5,000,000.

   According to Litton, as of November 30, 2000, there were approximately
45,518,647 shares of Litton common stock (excluding 2,734,083 shares of common
stock held in Litton's treasury) and 410,643 shares of Litton preferred stock
outstanding.

   If the NYSE were to delist the Litton common stock or Litton preferred
stock, including after the exchange of Litton stock in the offer but prior to
the Litton merger, the market for Litton common stock or

                                       31
<PAGE>

Litton preferred stock could be adversely affected. It is possible that
Litton's shares would be traded on other securities exchanges or in the over-
the-counter market, and that price quotations would be reported by such
exchanges, or through NASDAQ or by other sources. However, the extent of the
public market for Litton common stock and Litton preferred stock and the
availability of such quotations would depend upon the number of holders and/or
the aggregate market value of the Litton common stock or Litton preferred stock
remaining at such time, the interest in maintaining a market in the Litton
common stock or Litton preferred stock on the part of securities firms, the
possible termination of registration of Litton stock under the Exchange Act, as
described below, and other factors.

Status as "Margin Securities"

   The Litton common stock and Litton preferred stock 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 with such
stock as collateral. Depending on the factors similar to those described above
with respect to listing and market quotations, following consummation of the
offer, Litton common stock and Litton preferred stock stock may no longer
constitute "margin securities" for the purposes of the Federal Reserve Board's
margin regulations, in which event Litton common stock and Litton preferred
stock would be ineligible as collateral for margin loans made by brokers.

Registration Under The Exchange Act

   Litton common stock and Litton preferred stock are currently registered
under the Exchange Act. Litton 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 Litton common
stock or Litton preferred stock, as the case may be. Termination of
registration of the Litton stock under the Exchange Act would reduce the
information that Litton must furnish to its stockholders and to the SEC and
would make certain provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b), 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, and the requirements of Rule 13e-3 (described above) no longer
applicable with respect to Litton stock that is no longer registered.
Furthermore, the ability of "affiliates" of Litton and persons holding
"restricted securities" of Litton to dispose of such securities pursuant to
Rule 144 under the Securities Act may be impaired or eliminated. In addition,
if registration of the shares under the Exchange Act were terminated, they
would no longer be eligible for NYSE listing or for continued inclusion on the
Federal Reserve Board's list of "margin securities."

Source and Amount of Funds

   The offer is not conditioned upon any financing arrangements. NNG estimates
that the total amount of funds required to purchase all of the outstanding
Litton stock pursuant to the offer and the Litton merger and to pay related
fees and expenses will be between approximately $2.3 billion and $2.9 billion,
depending upon the actual number of shares of NNG common stock and NNG
preferred stock issued in the offer. NNG expects to obtain the funds necessary
to consummate the offer and the Litton merger from Northrop Grumman. Northrop
Grumman has received a commitment letter from Credit Suisse First Boston, The
Chase Manhattan Bank and JP Morgan providing for the structure, arrangement and
syndication of senior unsecured loans of up to $6,000,000,000, the initial
proceeds of which will be used solely to acquire Litton common stock and
preferred stock in the offer and the Litton merger, to retire and refinance
certain outstanding debt of Litton and to pay any related expenses. The
proceeds of subsequent borrowings under the loans will be used for general
corporate purposes of NNG, Northrop Grumman and Litton. The loans will be
pursuant to documents in the form of the 364-day revolving credit facility with
an aggregate maximum principal amount of $2,500,000,000 attached as Exhibit
10.6 to the registration statement of which this offer to purchase or exchange
is a part and the five-year revolving credit facility with an aggregate
principal amount of up to $2,500,000,000 attached as Exhibit 10.7 to the
registration statement of which this offer to purchase or exchange is a part.
Each of the facilities is an unsecured senior credit facility and contains
usual and customary affirmative and negative covenants, including

                                       32
<PAGE>


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 the election of Northrop Grumman, in each case plus spreads depending
upon a schedule of certain specified Standard & Poor's and Moody's Investor
Services ratings of Northrop Grumman. Northrop Grumman may elect periods of
one, two, three or six months for adjusted LIBOR borrowings under the loans.

   It is expected that the loan documents will be executed on or before the
expiration of the offer.

   In addition, in February 2001, Northrop Grumman issued $1,500,000,000 of
indebtedness to qualified institutional buyers in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended, consisting of $750,000,000 of 7 1/8% Notes due 2011 and $750,000,000
of 7 3/4% Debentures due 2031. Northrop Grumman intends to use the proceeds of
the issuance of this indebtedness to acquire shares of Litton common stock and
Litton preferred stock pursuant to the offer and the Litton merger and to pay
expenses relating to those transactions, among other things. The 7 1/8% Notes
due 2011 were issued at an issue price of 99.715% of face value and the 7 3/4%
Debentures due 2031 were issued at an issue price of 99.051% of face value,
plus, in each case, accrued interest from February 27, 2001. Upon completion of
the Northrop reorganization and the Litton merger, the Notes and Debentures
will represent senior unsecured obligations of Northrop Grumman, NNG and the
corporation surviving the Litton merger. The Notes and Debentures may be
redeemed in whole or in part at any time at Northrop Grumman's option at a
redemption price equal to the principal amount of the securities being redeemed
plus accrued and unpaid interest to the redemption date plus a make whole
amount, if applicable. The senior debt indenture pursuant to which Northrop
Grumman issued the 7 1/8% Notes due 2011 and 7 3/4% Debentures due 2031
contains customary covenants and restrictions relating to, among other things,
limitations on liens, sale and leaseback arrangements and funded debt of
subsidiaries.

Relationships with Litton

   Except as set forth in this offer to purchase or exchange, neither NNG nor
Northrop Grumman nor, to the best of its knowledge, any of NNG's or Northrop
Grumman's directors or executive officers, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of Litton, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, finder's fees, joint ventures, loan or option arrangements, puts or
calls, guarantees of loans, guarantees against loss, guarantees of profits,
division of profits or loss or the giving or withholding of proxies.

   Except as described in this offer to purchase or exchange, neither NNG nor
Northrop Grumman nor, to the best of its knowledge, any of NNG's or Northrop
Grumman's directors or executive officers, has had any business relationship or
transaction with Litton or any of its executive officers, directors or
affiliates that is required to be reported under the rules and regulation of
the SEC applicable to the offer. Except as described in this offer to purchase
or exchange, there have been no contracts, negotiations or transactions between
NNG and Northrop Grumman or to the best of its knowledge any of NNG's or
Northrop Grumman's directors or executive officers, on the one hand, and Litton
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.

   In the normal course of their business, Northrop Grumman and Litton are
parties to transactions and agreements. During the two years ended October 31,
2000, no such transaction had an aggregate value in excess of 1% of Litton's
consolidated revenues.

Fees and Expenses

   NNG has retained Georgeson Shareholder Communications Inc. to act as the
information agent in connection with the offer. The information agent may
contact holders of Litton stock by mail, telephone, telex, telegraph and
personal interviews and may request brokers, dealers and other nominee
stockholders to forward

                                       33
<PAGE>

the offer materials to beneficial owners of Litton stock. The information agent
will be paid a customary fee for such services, plus reimbursement of out-of-
pocket expenses, and NNG will indemnify the information agent against certain
liabilities and expenses in connection with the offer, including liabilities
under federal securities laws.

   Salomon Smith Barney Inc. is acting as the dealer manager in connection with
the offer and as financial advisor to NNG and Northrop Grumman in connection
with the offer and the Litton merger, for which services Salomon Smith Barney
Inc. will receive reasonable and customary compensation. Northrop Grumman has
agreed to reimburse Salomon Smith Barney Inc. for reasonable fees and expenses
incurred in performing its services, including reasonable fees and expenses of
its legal counsel and to indemnify Salomon Smith Barney Inc. and certain
related parties against certain liabilities, including liabilities under the
federal securities laws, arising out of its engagement. In the ordinary course
of business, Salomon Smith Barney Inc. and its affiliates may actively trade or
hold the securities of Northrop Grumman, Litton and their respective affiliates
for Salomon Smith Barney's and its affiliates' own account or for the account
of customers and, accordingly, may at any time hold a long or short position in
such securities.

   NNG will not pay any fees or commissions to any broker, dealer or other
persons (other than the information agent and the dealer manager) for
soliciting tenders of Litton stock pursuant to the offer. Brokers, dealers,
commercial banks and trust companies will, upon request, be reimbursed by NNG
for customary mailing and handling expenses incurred by them in forwarding
offering materials to their customers.

   Merrill Lynch & Co. provided certain financial advisory services to Litton
in connection with the offer and the Litton merger, including providing an
opinion dated January 23, 2001 substantially to the effect that, as of such
date, the aggregate consideration to be received by holders of Litton common
stock, other than Northrop Grumman and its affiliates, pursuant to the amended
merger agreement is fair from a financial point of view to the holders of
Litton common stock. The opinion is attached as an exhibit to Litton's Schedule
14D-9, which is being mailed to the stockholders of Litton with this offer to
purchase or exchange.

                                       34
<PAGE>

                   BACKGROUND OF THE AMENDED MERGER AGREEMENT

   In May 2000, Kent Kresa, Chairman and Chief Executive Officer of Northrop
Grumman, and Michael Brown, Chairman and Chief Executive Officer of Litton,
agreed that a small group of directors, officers and senior employees from the
two companies would have discussions looking into the possibility of a
strategic transaction. A confidentiality letter agreement was signed, dated
June 23, 2000 (the "confidentiality agreement"), by which each company agreed
to maintain the confidentiality of non-public information which might be
received from the other and also agreed that no disclosure would be made
concerning the discussions between the parties. From that time to the present a
number of meetings and conversations have taken place between representatives
of the two companies.

   In mid-September 2000, Mr. Kresa contacted Mr. Brown to advise him that
Northrop Grumman would have an interest in acquiring Litton in a transaction in
which the holders of Litton common stock would receive a combination of cash
and stock having a value equivalent, on a per share basis, to 0.70 of a share
of Northrop Grumman common stock. Subsequent to the conversation, a
representative of Northrop Grumman was advised that Litton did not wish to
pursue the proposal.

   On October 20, 2000, Litton publicly announced its intention to explore the
sale of its Advanced Electronics group. Later the same day, Mr. Kresa spoke
with Mr. Brown and wrote to him reiterating Northrop Grumman's interest in an
acquisition of Litton in a transaction involving cash and stock valued at 0.70
of a share of Northrop Grumman common stock, for each share of Litton common
stock. Mr. Kresa pointed out that the sale of the Advanced Electronics group
would be inconsistent with Northrop Grumman's plans for the combined company
and would diminish Northrop Grumman's interest in the combination. In response,
Mr. Brown advised Mr. Kresa that the transaction value proposed by Northrop
Grumman was not sufficient for Litton's board of directors to support such a
transaction.

   On November 2, 2000, Mr. Kresa again wrote to Mr. Brown increasing the value
of Northrop Grumman's proposal so that holders of Litton common stock would
receive a combination of cash and Northrop Grumman common stock having a value
equivalent, on a per share basis, to 0.75 of a share of Northrop Grumman common
stock and offering the potential for some additional value to be delivered to
the holders of Litton common stock through a contingent value mechanism.

   Following a meeting of the Litton board of directors on November 3, 2000,
Mr. Brown again advised Mr. Kresa that the value proposed by Northrop Grumman
was considered insufficient by the Litton board of directors. On November 29,
2000, Mr. Kresa wrote to Mr. Brown to specifically propose two alternatives for
a potential transaction. The first proposed alternative would provide Litton's
stockholders with a combination of cash and stock valued at 0.75 of a share of
Northrop Grumman common stock plus a contingent value instrument which would
provide the Northrop Grumman's stockholders with 75% of the net after-tax
recovery in Northrop Grumman's pending litigation with Honeywell, Inc. as well
as certain other litigation, and between 40% and 60% of the net after-tax value
of the Electronic Components and Materials business segment achieved within the
five-year period following closing. The second alternative proposed was for an
acquisition for cash at $72.00 per share of Litton common stock.

   Following further discussions and negotiations and the exchange of
additional non-public information between the parties, the board of directors
of Northrop Grumman met on December 20, 2000 and unanimously approved the
merger agreement. The Litton board of directors met on December 21, 2000 and
also approved the merger agreement and determined unanimously that the
transactions contemplated thereby, including the offer and the Litton merger,
were fair to, and in the best interests of, the holders of Litton common stock.

   On December 21, 2000, the merger agreement was executed by Northrop Grumman,
LII Acquisition and Litton, and Northrop Grumman and Litton issued a joint
press release announcing the transaction. On January 5, 2001, LII Acquisition
commenced an offer to purchase all of the Litton common stock and Litton
preferred stock for cash.

                                       35
<PAGE>

   Following execution of the merger agreement on December 21, 2000
representatives of Litton and Northrop Grumman had a number of conversations
with representatives of Litton's largest stockholder, Unitrin. In those
conversations, Unitrin expressed its strong desire that the proposed
transactions be modified to provide a means for the exchange of Litton common
stock for stock of Northrop Grumman, or an affiliated company, on a tax-
deferred basis. On January 16, 2001, Northrop Grumman and Litton announced that
they were considering a possible amendment of the proposed transaction to
provide the means for a tax-free exchange of Litton common stock for capital
stock of Northrop Grumman following completion of the then-pending all cash
tender offer for Litton common stock at $80.00 per share in cash.

   In the course of discussions among Litton, Northrop Grumman and Unitrin,
Litton advised of its willingness to consider alternative structures for the
transaction, provided that: (i) no stockholder who wanted cash would be
required to accept securities in the transaction; (ii) the restructured
transaction would be at least as certain to be completed as the original
transaction; (iii) it would not materially delay the time at which Litton
stockholders who wanted to sell their shares for cash would be paid; and (iv)
all holders of Litton common stock would be treated equally. The parties
considered a number of alternative possible structures for attaining the
desired objectives and finally determined that the amended merger agreement
accomplished their mutual objectives. The amended merger agreement, dated as of
January 23, 2001 was executed and delivered on January 24, 2001. At the same
time, Northrop Grumman and Unitrin executed and delivered a stockholder's
agreement, dated as of January 23, 2001. On January 24, 2001, Unitrin stated,
in a filing with the SEC, that it had agreed to tender its shares of Litton
common stock in the offer pursuant to the terms of the amended merger
agreement.

   Certain Projections

   Prior to entering into the amended merger agreement, Litton provided to
Northrop Grumman certain information which was not publicly available,
including a variety of projected financial data based on various differing
assumptions for future fiscal years. Litton has advised that it does not
publicly disclose projections, and the projections furnished to Northrop
Grumman were not prepared with a view to public disclosure. Northrop Grumman
analyzed the information in the projections, certain publicly available
information and additional information obtained in Northrop Grumman's due
diligence review of Litton, along with Northrop Grumman's own estimates of
potential cost savings and benefits in evaluating the offer and the Litton
merger.

   Litton does not as a matter of course make public projections as to future
sales, earnings or other results. However, the management of Litton has
prepared the prospective financial information set forth below to assist
Northrop Grumman's management in assessing Litton's future financial
performance. The accompanying prospective financial information was not
prepared with a view toward public disclosure or with a view toward complying
with the guidelines established by the American Institute of Certified Public
Accountants with respect to prospective financial information. This information
is not fact and should not be relied upon as being necessarily indicative of
future results, and Litton stockholders are cautioned not to place undue
reliance on the prospective financial information.

   Neither Litton's nor Northrop Grumman's independent auditors, nor any other
independent accountants, have compiled, examined or performed any procedures
with respect to the prospective financial information contained herein, nor
have they expressed any opinion or any other form of assurance on such
information or its achievability, and assume no responsibility for, and
disclaim any association with, the prospective financial information.

   The projections provided to Northrop Grumman by Litton included, among other
things, the following forecasts of Litton's revenues, net income (excluding
pension income) and earnings per share (excluding pension income), respectively
(in millions, except per share data): $5,850.0, $151.9 and $3.31 in 2001;
$6,473.0, $186.4 and $4.06 in 2002; $6,827.0, $220.8 and $4.81 in 2003;
$7,183.0, $248.4 and $5.41 in 2004; and $7,436.0, $278.7, and $6.07 in 2005.
Including pension income, the projected net income and earnings per share were,
respectively (in millions, except per share data): $220.5 and $4.80 in 2001;
$254.9 and $5.55 in 2002; $289.4 and $6.30 in 2003; $317.0 and $6.90 in 2004;
and $347.3 and $7.56 in 2005.

                                       36
<PAGE>

   Other projections provided to Northrop Grumman by Litton indicated the
potential for increased profitability based upon more aggressive assumptions.
Based upon the more aggressive assumptions, these projections indicated
revenues and net income (including pension income), respectively (in millions),
of: $6,019.0 and $228.0 in 2001; $6,740.0 and $300.0 in 2002; $7,329.0 and
$414.0 in 2003; $7,920.0 and $490.0 in 2004; and $8,426.0 and $548.0 in 2005.
Litton has advised Northrop Grumman that these projections do not give effect
to customary processes of adjustment by senior management of projections
provided by operating/divisional management.

   The projections are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those statements and should be read with caution. The projections are
subjective in many respects and thus susceptible to interpretations and
periodic revisions based on actual experience and recent developments. While
presented with numerical specificity, the projections were not prepared by
Litton in the ordinary course and are based upon a variety of estimates and
hypothetical assumptions made by management of Litton with respect to, among
other things, industry performance, general economic, market, interest rate and
financial conditions, sales, cost of goods sold, operating and other revenues
and expenses, capital expenditures and working capital of Litton, and other
matters which may not be realized and are inherently subject to significant
business, economic and competitive uncertainties and contingencies, all of
which are difficult to predict and many of which are beyond Litton's control.
Litton's operations are subject to various additional risks and uncertainties
resulting from its position as a supplier, either directly or as subcontractor
or team member, to the United States government and its agencies as well as to
foreign governments and agencies; actual outcomes are dependent upon factors,
including, without limitation, Litton's 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; acquisition or
termination of government contracts; the outcome of political and legal
processes; legal, financial, and governmental risks related to international
transactions and global needs for military aircraft, military and civilian
electronic systems and support and information technology. Accordingly, there
can be no assurance that the assumptions made in preparing the projections will
prove accurate, and actual results may be materially greater or less than those
contained in the projections. In addition, the projections do not take into
account any of the transactions contemplated by the amended merger agreement,
including the offer and the Litton merger. These events may cause actual
results to differ materially from the projections.

   For these reasons, as well as the bases and assumptions on which the
projections were compiled by Litton, the inclusion of such projections herein
should not be regarded as an indication that Litton, Northrop Grumman, NNG or
any of their respective affiliates or representatives considers such
information to be an accurate prediction of future events, and the projections
should not be relied on as such. No party nor any of their respective
affiliates or representatives has made, or makes, any representation to any
person regarding the information contained in the projections and none of them
intends to update or otherwise revise the projections to reflect circumstances
existing after the date when made or to reflect the occurrences of future
events even in the event that any or all of the assumptions are shown to be in
error.

Reasons for the Offer and the Litton Merger

   Northrop Grumman believes that the proposed acquisition of Litton by means
of the offer and the Litton merger will produce the following benefits:

  . Access to New Product Areas. Litton's proprietary technology and products
    will provide NNG with technology and products to complement Northrop
    Grumman's existing technology and products.

  . Increased Diversification into New Markets. The combination of Northrop
    Grumman and Litton under NNG provides the affiliated entities with the
    opportunity for diversification into new markets and access to new
    customers.

                                       37
<PAGE>

  . Increased Market Presence and Opportunities. The combination of Northrop
    Grumman and Litton under NNG provides the affiliated entities with
    increased market presence and opportunities for growth that could allow
    them to be better able to respond to the needs of customers, the
    increased competitiveness of the marketplace and opportunities that
    changes in the market for their respective products might bring.

  . Product Mix. The complementary nature of Northrop Grumman's and Litton's
    products and services will benefit clients of both companies.

  . Operating Efficiencies. The combination of Northrop Grumman and Litton
    under NNG provides the opportunity for potential economies of scale and
    cost savings.

   The reasons for the Litton board's recommendation are set forth in Litton's
Solicitation/Recommendation Statement on Schedule 14D-9 which is being mailed
to Litton stockholders together with this offer to purchase or exchange.

                                       38
<PAGE>

                    MATERIAL FEDERAL INCOME TAX CONSEQUENCES

   The following is a summary of the material federal income tax consequences
that will apply to the following Litton stockholders:

  . holders of Litton common stock who tender their shares for cash, NNG
    common stock or NNG preferred stock (or a combination thereof) pursuant
    to the offer;

  . holders of Litton preferred stock who tender their shares for cash
    pursuant to the offer; and

  . holders of Litton common stock who receive cash in the Litton merger.

   The following discussion does not address any aspect of state, local or
foreign taxation. It also does not address all aspects of federal income
taxation that may be important to particular taxpayers in light of their
personal investment circumstances or to taxpayers subject to special treatment
under the federal income tax laws including:

  . life insurance companies;

  . foreign persons;

  . banks or other financial institutions;

  . tax-exempt entities;

  . dealers in securities;

  . employee benefit plans;

  . persons that hold such shares as part of a straddle, a hedge against
    currency risk or as a constructive sale or conversion transaction; and

  . persons who acquired their Litton common stock or Litton preferred stock
    pursuant to the exercise of employee stock options or otherwise as
    compensation.

   This summary is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), applicable Treasury Regulations thereunder,
judicial decisions, and current administrative rulings. No rulings have been or
will be requested from the Internal Revenue Service with respect to any of the
matters discussed herein, and the opinion of counsel described below is not
binding on the Internal Revenue Service. Neither the delivery of the opinion of
counsel described below, nor the delivery of any other tax opinion, is a
condition to closing the offer or the Litton merger. There can be no assurance
that future legislation, regulations, administrative rulings or court decisions
will not adversely affect the accuracy of the statements contained in this
summary.

   It is the opinion of Gibson, Dunn & Crutcher LLP, counsel for Northrop
Grumman, and Ivins, Phillips & Barker Chartered, special tax counsel to
Northrop Grumman, that the exchange of Litton common stock for NNG common
stock, NNG preferred stock and cash will be treated together with the Northrop
reorganization and the Litton merger as a transaction governed by Section
351(a) or Section 351(b) of the Code and that this discussion accurately sets
forth the material federal income tax consequences of the transaction. Such
opinions are based upon, among other things, a representation letter and other
information provided by Northrop Grumman to counsel.

   The discussion below also reflects the opinion of Gibson, Dunn & Crutcher
LLP and Ivins, Phillips & Barker Chartered that the NNG preferred stock will
not be "nonqualified preferred stock." Under Section 351(g) of the Code,
enacted in 1997, "nonqualified preferred stock" is treated as taxable "boot" in
a Section 351 transaction. Since this provision is recent and since
implementing regulations have not yet been promulgated, the Internal Revenue
Service could take a position contrary to that expressed in the opinions of
counsel. In such an event, holders of Litton common stock who receive NNG
preferred stock would be taxed as though they had received cash equal to the
fair market value of the NNG preferred stock. The discussion below is based on
the conclusion that the NNG preferred stock will not be nonqualified preferred
stock.

                                       39
<PAGE>

Treatment of Holders of Litton Common Stock Who Tender Their Stock in the
Offer

   The discussion below assumes that all holders of Litton common stock hold
their stock as capital assets.

  Exchange of Litton Common Stock Solely for Cash

   A holder of Litton common stock who receives solely cash in exchange for
Litton common stock pursuant to the offer will recognize capital gain or loss
equal to the difference between the tax basis of the Litton common stock
surrendered and the amount of cash received therefore. That capital gain or
loss will constitute long-term capital gain or loss if the Litton common stock
has been held by the holder for more than one year on the date of closing of
the offer. Gain or loss must be calculated separately for each block of Litton
common stock (i.e., shares of stock acquired at the same time in a single
transaction).

  Exchange of Litton Common Stock Solely for NNG Common Stock and/or NNG
 Preferred Stock

   Except as discussed below under "--Cash in Lieu of Fractional Shares," a
holder of Litton common stock who receives solely NNG common stock or NNG
preferred stock, or some of each, in exchange for Litton common stock pursuant
to the offer will not recognize gain or loss upon such exchange.

   The aggregate tax basis of the NNG common stock and NNG preferred stock
received by the holder will be equal to the aggregate tax basis of the Litton
common stock surrendered (excluding any portion of the holder's basis
allocated to fractional shares). If a holder receives both NNG common stock
and NNG preferred stock, the holder's basis in his shares of Litton common
stock will be allocated to the shares of each class of stock received in
proportion to the fair market value of each class.

   The holding period of the NNG common stock and NNG preferred stock will
include the holding period of the Litton common stock surrendered.

   A holder of Litton common stock who is considering making an election to
receive NNG common stock or NNG preferred stock in the exchange should note
that there can be no assurance that such holder will receive only NNG common
stock or NNG preferred stock (because of the possibility of proration). Such
stockholders may receive some cash. Accordingly, there can be no assurance
that a holder who makes such an election will recognize no taxable gain upon
such holder's exchange of Litton common stock.

  Exchange of Litton Common Stock for a Combination of Cash and NNG Common
 Stock or NNG Preferred Stock or Some of Each

   Except as discussed below under "--Cash in Lieu of Fractional Shares," a
holder of Litton common stock who receives a combination of cash and either
NNG common stock, NNG preferred stock, or some of each, in exchange for Litton
common stock (by reason of the elections made by the holder or by the
application of the proration procedures) will not recognize any loss realized
in the transaction but will recognize some capital gain, if any gain is
realized. The amount of capital gain recognized will be calculated separately
for each block of Litton common stock surrendered, in an amount equal to the
lesser of

  . the amount of gain realized in respect of the block (i.e., the excess of
    (a) the sum of the amount of cash and the fair market value of NNG common
    stock and NNG preferred stock received that is allocable to the block
    over (b) the tax basis of the block); and

  . the amount of cash received that is allocable to the block.

   For this purpose, all of the cash, NNG common stock and NNG preferred stock
received by a holder will be allocated in proportion to fair market values
among the blocks of Litton common stock surrendered by such holder.

   Any capital gain will constitute long-term capital gain if the block of
Litton common stock has been held for more than one year on the date of
closing of the offer.

                                      40
<PAGE>

   The aggregate tax basis of the NNG common stock and NNG preferred stock
received in exchange for a block of Litton common stock will be equal to the
tax basis of the surrendered block of Litton common stock, decreased by the
amount of cash received in respect of the block and increased by the amount of
gain recognized in respect of the block. If a holder receives both NNG common
stock and NNG preferred stock, the holder's basis will be allocated to the
shares of each class of stock received in proportion to the fair market value
of each class.

   The holding period of the NNG common stock and NNG preferred stock will
include the holding period of the block of Litton common stock surrendered.

  Federal Income Tax Considerations in Making an Election

   A holder of Litton common stock who elects to receive cash pursuant to the
offer will not be subject to any proration. However, holders who elect to
receive NNG common stock or NNG preferred stock pursuant to the offer might
receive cash as a result of the proration procedures. Thus, the actual federal
income tax consequences to each Litton shareholder electing to receive NNG
common stock or NNG preferred stock will not be ascertainable at the time the
election is made because the extent to which the proration procedures will
apply to those elections will not be known.

  Cash in Lieu of Fractional Shares

   A holder of Litton common stock who receives cash in lieu of fractional
shares of NNG common stock or NNG preferred stock will be treated as having
received such fractional shares at the closing of the offer and then as having
exchanged such fractional shares for cash in a redemption by NNG. Any gain or
loss attributable to fractional shares generally will be capital gain or loss.
The amount of such gain or loss will be equal to the difference between the
ratable portion of the tax basis of the Litton common stock surrendered in the
exchange that is allocated to such fractional shares and the cash received in
lieu thereof. Any such capital gain or loss will constitute long-term capital
gain or loss if the Litton common stock surrendered has been held by the
holder for more than one year on the date of closing of the offer.

Treatment of Holders of Litton Preferred Stock Who Tender Their Litton
Preferred Stock in the Offer

   The following discussion assumes that all holders of Litton preferred stock
hold their stock as capital assets. A holder of Litton preferred stock who
participates in the offer will receive solely cash for the Litton preferred
stock tendered.

  Holders of Litton Preferred Stock Who Hold No Litton Common Stock

   A holder of Litton preferred stock who does not hold any Litton common
stock and who participates in the offer will recognize capital gain or loss
equal to the difference between the tax basis of the Litton preferred stock
surrendered and the amount of cash received in the exchange. Such capital gain
or loss will constitute long-term capital gain or loss if the Litton preferred
stock has been held by the holder for more than one year on the date of
closing of the offer. Gain or loss must be calculated separately for each
block of Litton preferred stock (i.e., shares acquired at the same time in a
single transaction).

  Holders of Litton Preferred Stock Who Also Hold Litton Common Stock That is
 Tendered in the Offer

   A holder of Litton preferred stock who also holds Litton common stock and
who participates in the offer will be taxed according to the rules described
above for holders of Litton common stock who tender their stock in the offer.
The cash received for any Litton preferred stock will be treated the same as
cash received for Litton common stock.

                                      41
<PAGE>

Treatment of Holders of Litton Common Stock in the Litton Merger

   The following discussion assumes that all holders of Litton common stock
hold their stock as capital assets. Holders of Litton common stock who do not
tender their stock pursuant to the offer will receive solely cash for their
Litton common stock in the Litton merger.

  Holders of Litton Common Stock Who Tender No Stock in the Offer

   A holder of Litton common stock who does not tender any stock in the offer
will receive cash in the Litton merger. Such a holder will recognize capital
gain or loss equal to the difference between the tax basis of the Litton common
stock surrendered in the Litton merger and the amount of cash received
therefore. Such capital gain or loss will constitute long-term capital gain if
the Litton common stock has been held by the holder for more than one year at
the effective time of the merger. Gain or loss must be calculated separately
for each block of Litton common stock (i.e., shares acquired at the same time
in a single transaction).

  Holders of Litton Common Stock Who Tender Litton Common Stock in the Offer

   A holder of Litton common stock who tenders some (but not all) of that
common stock in the offer will receive cash in the Litton merger for any Litton
common stock that is not tendered in the offer. Such a holder will be taxed
according to the rules described above for holders of Litton common stock who
tender all their stock in the offer. The cash received in the Litton merger
will be treated the same as cash received for Litton common stock tendered in
the offer (except that the holding period for stock surrendered in the Litton
merger will end on the merger effective date rather than the closing date of
the offer).

Reporting Requirements

   Each holder of Litton common stock that receives NNG common stock or NNG
preferred stock pursuant to the offer will be required to retain records and
file with such holder's federal income tax return a statement setting forth
certain facts relating to the Litton merger. The statement and such records
must include, among other things, the adjusted tax basis and number of shares
of Litton common stock which you transfer pursuant to the offer and the number
of shares and fair market value of the NNG common stock and NNG preferred stock
received.

   This federal income tax discussion is for general information only and may
not apply to all holders of Litton common stock and Litton preferred stock.
Litton stockholders are urged to consult their own tax advisors as to the
specific tax consequences of the offer and the Litton merger.

                                       42
<PAGE>

                          THE AMENDED MERGER AGREEMENT

   The amended merger agreement is filed as an exhibit to the registration
statement of which this offer to purchase or exchange is a part and is
incorporated by reference herein. The following summary describes the material
terms of the amended merger agreement. However, the legal rights and
obligations of the parties are governed by the specific language of the amended
merger agreement, and not this summary.

   The amended merger agreement sets forth the principal terms of the offer,
including:

  . the consideration offered;

  . the exchange ratio for exchanging Litton common stock for NNG common
    stock and NNG preferred stock;

  . terms and conditions of the NNG preferred stock;

  . the elections available to tendering stockholders;

  . the procedures for pro rata reduction of elections to receive NNG stock
    if required because of the limited amounts of NNG common stock and NNG
    preferred stock available; and

  . the conditions to the offer.

   The amended merger agreement prohibits NNG from taking any of the following
actions without the prior written consent of Litton:

  . any decrease in the amount of cash or stock consideration offered per
    share of Litton common or preferred stock;

  . any change in the form of consideration payable in the offer;

  . any decrease in the number of shares of common or preferred sought in the
    offer, except as disclosed under "The Offer--Possible Reduction in Number
    of Shares of NNG Common Stock";

  . the imposition of additional conditions in the offer;

  . an amendment of the offer in a manner adverse to the holders of Litton
    common or preferred stock;

  . any reduction in the time in which the offer will remain open; or

  . any waiver of the minimum tender condition.

The Northrop Reorganization

   Immediately prior to the acceptance for purchase and exchange of Litton
common and Litton preferred stock in the offer, a wholly-owned subsidiary of
NNG will merge with and into Northrop Grumman, in order that Northrop Grumman
will become a wholly-owned subsidiary of NNG. That merger is referred to as the
"Northrop reorganization."

   In the Northrop reorganization, all of the outstanding shares of capital
stock of Northrop Grumman will become the same number of shares of the same
class of capital stock of NNG. Outstanding options to acquire common stock of
Northrop Grumman will become options to acquire common stock of NNG. The
certificate of incorporation and bylaws of NNG will be identical, in all
material respects, to the certificate of incorporation and bylaws of Northrop
Grumman, and NNG will adopt a stockholder rights plan which is identical, in
all material respects, to the stockholder rights plan of Northrop Grumman. The
directors and officers of Northrop Grumman will constitute the board of
directors and officers of NNG.

   Upon completion of the Northrop reorganization, the name of NNG will be
changed to "Northrop Grumman Corporation" and the name of the present Northrop
Grumman Corporation will be changed to "Northrop Grumman Systems Corporation."

                                       43
<PAGE>

   The common stock of Northrop Grumman following the Northrop reorganization
(i.e. the NNG common stock) will be listed for trading on the NYSE, and
certificates representing shares of Northrop Grumman common stock will continue
to represent shares of common stock of Northrop Grumman Corporation.

   No vote of the stockholders of Northrop Grumman is required for the Northrop
reorganization.

The Litton Merger

   At the effective time of the Litton merger, LII Acquisition will merge with
and into Litton. Litton will survive the Litton merger as a wholly-owned
subsidiary of NNG.

Conditions to the Completion of the Litton Merger

   The Litton merger is subject to the satisfaction or waiver of the following
conditions:

  . if required by Delaware law, the Litton stockholders must have approved
    and adopted the amended merger agreement;

  . no statute, rule, regulation, executive order, decree, ruling or
    injunction must have been enacted, entered, promulgated, or enforced by
    any U.S. court or U.S. or European Union governmental entity prohibiting,
    restraining or enjoining consummation of the Litton merger;

  . the expiration or termination of the applicable waiting period under the
    HSR Act, approval of the Litton merger by the Commission of the European
    Union under Regulation (EEC) No. 4064/89 of the Council of the European
    Union; and

  . NNG must have purchased Litton common stock in the offer.

Effective Time of the Litton Merger

   The Litton merger will become effective upon the filing of a certificate of
merger with the Delaware Secretary of State or such later time as is mutually
agreed by Northrop Grumman and Litton and is permissible in accordance with the
Delaware General Corporation Law (referred to as "DGCL"). The filing of the
certificate of merger will take place as soon as practicable after the closing
of the Litton merger.

Additional Effects of the Litton Merger and the Northrop Reorganization

   Upon completion of the Litton merger:

  . each share of common stock held as treasury stock by Litton or its
    subsidiaries or owned by NNG or its subsidiaries will be canceled without
    payment;

  . each outstanding share of capital stock of LII Acquisition will be
    converted into one share of common stock of Litton, as the surviving
    corporation;

  . each issued and outstanding share of Litton common stock will be
    converted into the right to receive the highest amount of cash equal to
    the per share amount of cash received by holders of Litton common stock
    who tendered their shares for cash in the offer;

  . each issued and outstanding share of Litton preferred stock, other than
    shares of Litton preferred stock held by NNG, will remain outstanding,
    without any change, as a share of preferred stock of Litton as the
    surviving corporation;

  . each outstanding share of Litton preferred stock held by NNG will be
    canceled;

  . the directors of LII Acquisition will become the directors of Litton as
    the corporation surviving the Litton merger;

                                       44
<PAGE>

  . the officers of Litton at the effective time of the Litton merger will
    become the officers of Litton as the corporation surviving the merger;

  . the certificate of incorporation of Litton, as in effect immediately
    prior to the effective time of the Litton merger, will be amended as of
    the effective time of the Litton merger to provide that Litton will be
    authorized to issue 3,000,000 shares of common stock, par value $1.00 per
    share, 600,000 shares of preferred stock, par value $5.00 per share, and
    1,000 shares of preference stock, par value, $2.50 per share, and, as so
    amended, such certificate of incorporation will be the certificate of
    incorporation of Litton as the corporation surviving the Litton merger;
    and

  . the bylaws of Litton at the effective time of the Litton merger will
    become the bylaws of Litton as the corporation surviving the Litton
    merger.

   Upon completion of the Northrop reorganization:

  . the directors and officers of Northrop Grumman prior to the Northrop
    reorganization will be the directors and officers of both Northrop
    Grumman and NNG after the Northrop reorganization;

  . the certificate of incorporation of Northrop Grumman, as in effect
    immediately prior to the effective time of the Northrop reorganization,
    will be amended as of the effective time of the reorganization to change
    Northrop Grumman's name to "Northrop Grumman Systems Corporation" and to
    specify that any act or transaction by or involving Northrop Grumman that
    requires the approval of the stockholders of Northrop Grumman will also
    require the approval of the stockholders of NNG and, as so amended, such
    certificate of incorporation will be the certificate of incorporation of
    Northrop Grumman as the corporation surviving the reorganization;

  . the bylaws of Northrop Grumman at the effective time of the
    reorganization will become the bylaws of Northrop Grumman as the
    corporation surviving the Northrop reorganization; and

  . the certificate of incorporation and bylaws of NNG immediately following
    the effective time of the Northrop reorganization will contain provisions
    identical to the certificate of incorporation and bylaws of Northrop
    Grumman immediately prior to the effective time of the Northrop
    reorganization, except that the name of NNG will be changed to "Northrop
    Grumman Corporation."

The Litton Board

   Upon the purchase of Litton common stock in the offer, NNG will be entitled
to designate a number of Litton directors, constituting at least a majority of
the Litton board, equal to the product of the number of Litton directors and
the percentage that the number of shares of Litton common stock then held by
NNG bears to the total number of outstanding Litton shares. Until the effective
time of the Litton merger, Litton has agreed to use its best efforts to ensure
that at least three members of Litton's board of directors as of January 23,
2001 remain members of Litton's board of directors. The amended merger
agreement provides that, before the effective time of the Litton merger, if NNG
designees are elected to the Litton board, the affirmative vote of a majority
of the continuing Litton directors will be required to:

  . amend or terminate the amended merger agreement;

  . waive any of Litton's rights under the amended merger agreement;

  . extend the time for performance of Northrop Grumman's, NNG's or LII
    Acquisition's obligations under the amended merger agreement; or

  . approve any other action by Litton adversely affecting the rights of
    Litton's stockholders, other than Northrop Grumman, NNG or LII
    Acquisition, with respect to the transactions contemplated by the amended
    merger agreement.

                                       45
<PAGE>

Litton Stock Options

   The amended merger agreement provides that each outstanding option to
purchase shares of Litton common stock that is vested at the effective time of
the Litton merger will be converted into the right to receive a cash payment
equal to the difference between the exercise price per share of Litton common
stock subject to the option and $80.00.

   At the effective time of the Litton merger, each of up to 1,244,523
outstanding options to purchase shares of Litton common stock that is unvested
will become an option to purchase shares of NNG common stock. Any unvested
options in excess of 1,244,523 will be converted pro rata into the right to
receive a cash payment equal to the difference between the exercise price per
share of Litton common stock subject to the option and $80.00 and subject to
compliance with Section 424 of the Code.

   NNG may provide holders of vested options and holders of unvested options
whose options would be converted into cash, the opportunity to elect, prior to
the Litton merger, to convert their options into options to acquire NNG common
stock on a pro rata basis. If NNG provides these optionholders with the
election, conversion will be allowed only to the extent a vote of Northrop
Grumman's or NNG's stockholders would not be required pursuant to applicable
law or the rules of any national securities exchange.

   At the effective time of the Litton merger each outstanding share of
restricted stock will vest and holders of shares of restricted stock will have
the right to receive a cash payment equal to $80.00 per share or any greater
cash amount paid per share of Litton common stock in the offer.

   For more information on the treatment of Litton stock options in connection
with the offer and the Litton merger, please refer to Item 4 of Litton's
Amended Solicitation/Recommendation Statement on Schedule 14D-9 which is being
mailed to Litton stockholders together with this offer to purchase or exchange.

Representations and Warranties

   The amended merger agreement contains customary representations and
warranties relating to, among other things:

  . corporate organization and similar corporate matters of Northrop Grumman,
    Litton, NNG and LII Acquisition;

  . authorization, execution, delivery and enforceability of the amended
    merger agreement and approval and recommendation of the board of
    directors of each of Northrop Grumman, Litton, NNG, LII Acquisition and
    NGC Acquisition with respect to the amended merger agreement and the
    transactions contemplated thereby;

  . due authorization, execution, delivery, performance and enforceability
    of, and required consents, approvals and authorizations of governmental
    authorities relating to, the amended merger agreement and related matters
    pertaining to each of the parties to the amended merger agreement;

  . the capital structure of each of Northrop Grumman, NNG and Litton;

  . amendment of Litton's rights plan so that none of Northrop Grumman, NNG
    or LII Acquisition will be deemed an acquiring person;

  . no current default of Northrop Grumman, Litton or their subsidiaries
    under governing documents, agreements and applicable laws;

  . proper filing of all SEC reports by Litton since October 1, 1997 and by
    Northrop Grumman since December 31, 1997 and the accuracy of information
    contained in such documents;

  . non-contravention of governing documents and agreements of and laws
    applicable to each of Litton, Northrop Grumman, NNG, LII Acquisition and
    NGC Acquisition as a result of the transactions contemplated by the
    amended merger agreement;

                                       46
<PAGE>

  . financial statements included in documents filed by Northrop Grumman and
    Litton with the SEC, the accuracy of the information in such financial
    statements, compliance with applicable accounting standards and
    requirements in such financial statements;

  . resolutions of the board of directors of Litton recommending that the
    stockholders of Litton approve and adopt the amended merger agreement;

  . the accuracy of information supplied by each of Northrop Grumman, Litton,
    NNG, LII Acquisition and NGC Acquisition in connection with this offer to
    purchase or exchange and the registration statement of which it is a
    part;

  . the absence of pending or threatened material litigation of each of
    Northrop Grumman and Litton;

  . the absence of material events, changes or effects concerning Litton or
    its subsidiaries since July 31, 2000 through the date of the amended
    merger agreement;

  . the absence of material events, changes or effects concerning Northrop
    Grumman or its subsidiaries since September 30, 2000 through the date of
    the amended merger agreement;

  . compliance with applicable laws and required permits, licenses,
    variances, exemptions, orders and approvals of all governmental entities
    by Litton and Northrop Grumman and their respective subsidiaries;

  . receipt of a written opinion of Litton's financial advisor that the
    aggregate consideration to be received by holders of Litton common stock
    other than Northrop Grumman and its affiliates in connection with the
    offer and the Litton merger is fair from a financial point of view to
    holders of Litton common stock;

  . absence of brokers' or finders' fees and expenses to be paid by Northrop
    Grumman, Litton and LII Acquisition;

  . subsidiaries of Litton;

  . timely filing of tax returns and payment of taxes by Litton and the
    absence of any penalties or tax sharing agreements or indemnity
    agreements;

  . timely filing of tax returns by Northrop Grumman and the absence of any
    action by Northrop Grumman, NNG, NGC Acquisition or LII Acquisition that
    would prevent the offer and the Litton merger, taken together, from
    qualifying as a tax exempt exchange under Section 351 of the Code;

  . material employee benefit plans of Litton;

  . employment agreements with executive officers of Litton;

  . the Employee Retirement Income Security Act of 1974 for Litton and
    Northrop Grumman;

  . any acceleration of benefits under any plan of Litton as a result of the
    Litton merger;

  . the absence of pending or threatened material controversies between
    Litton or any of its subsidiaries and any of their respective employees;

  . software, intellectual property and infringement matters concerning
    Litton and Northrop Grumman;

  . the compliance by Litton and Northrop Grumman with all applicable
    federal, state, local and foreign environmental regulations, except where
    noncompliance would not have a material adverse effect on Litton or
    Northrop Grumman;

  . contracts and other commitments between Litton or Northrop Grumman on the
    one hand and the U.S. government or prime contractors to the U.S.
    government on the other hand;

                                       47
<PAGE>

  . the absence of any unlawful contributions, gifts or other unlawful uses
    of funds related to political activities or in violation of the Foreign
    Corrupt Practices Act of 1977, as amended, by Litton or its subsidiaries
    or Northrop Grumman or its subsidiaries;

  . confirmation by Litton that the affirmative vote of holders of a majority
    of Litton common stock, voting together as one class, is the only vote of
    stockholders necessary to approve and adopt the amended merger agreement;

  . the absence of actions or threats by Litton customers to cancel or
    terminate their relationship with Litton from July 31, 2000 to December
    21, 2000;

  . material ownership interests of Litton in any customer of Litton or any
    customer's subsidiaries;

  . the requirement that Northrop Grumman have sufficient funds or firm
    commitment letters for the payment of cash consideration and the
    performance of its obligations under the amended merger agreement at the
    time the conditions to the offer are satisfied or waived and at the
    effective time of the Litton merger;

  . requisite actions taken by NNG to reserve for issuance the NNG common
    stock and NNG preferred stock to be issued in the Litton merger;

  . the receipt by Litton of copies of Northrop Grumman's commitment letters
    which Northrop Grumman obtained to provide funds for the offer and the
    Litton merger;

  . the absence of any obligation or liability or other activity by NNG, LII
    Acquisition or NGC Acquisition except obligations incurred in connection
    with formation of each of NNG, LII Acquisition or NGC Acquisition or in
    connection with the amended merger agreement;

  . the absence of a vote of Northrop Grumman's stockholders to approve and
    adopt the amended merger agreement;

  . the absence of a vote of NNG's stockholders, other than Northrop Grumman
    to approve and adopt the amended merger agreement and the Litton merger
    or the Northrop reorganization;

  . the absence of a vote of Northrop Grumman's or NNG's stockholders
    pursuant to the rules of any national securities exchange;

  . the absence of actions by Northrop Grumman customers from July 31, 2000
    to December 21, 2000 canceling or terminating or threatening to cancel or
    terminate their relationship with Northrop Grumman or its subsidiaries;
    and

  . material ownership interests of Northrop Grumman in its customers or any
    subsidiaries of its customers.

   All representations and warranties of Northrop Grumman, Litton, NNG, LII
Acquisition and NGC Acquisition expire at the time the Litton merger becomes
effective or the amended merger agreement is terminated.

                                       48
<PAGE>

Conduct of Business of Litton Prior to the Litton Merger

   Litton has agreed that Litton and its subsidiaries will carry on their
respective businesses in the ordinary course in substantially the same manner
as conducted before the date of the amended merger agreement and, to the extent
consistent with such previous conduct, to preserve substantially intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers and others having significant business dealings with them. The
amended merger agreement further provides that, except as expressly provided in
the amended merger agreement or as set forth in the disclosure schedules
thereto, during the period from the execution and delivery of the amended
merger agreement to the effective time of the Litton merger, Litton will not,
without the prior written consent of Northrop Grumman and LII Acquisition, and
will not permit any of its subsidiaries to:

  . amend its governing documents;

  . issue or agree to issue any stock of any class or any other debt or
    equity equivalents, except for shares of Litton common stock (i) issued
    and sold under previously granted options, performance-based restricted
    stock or deferred stock units, (ii) issued and sold pursuant to rights
    previously granted or (iii) issued and sold by a subsidiary of Litton to
    any entity which is wholly-owned by Litton;

  . split, combine or reclassify any shares of capital stock, declare, set
    aside or pay any dividend or other distribution, or make any other
    actual, constructive or deemed distribution in respect of its capital
    stock, except dividend payments made on the Litton preferred stock and
    dividend or distribution payments made by a wholly-owned subsidiary of
    Litton to Litton or another wholly-owned subsidiary of Litton;

  . redeem or otherwise acquire any of its securities or any securities of
    any of its subsidiaries;

  . adopt a plan of complete or partial liquidation, dissolution, merger,
    consolidation, restructuring, recapitalitzation or other reorganization
    of Litton or any of its subsidiaries other than the Litton merger;

  . alter through merger, liquidation, reorganization, restructuring or any
    other fashion the corporate structure of ownership of any subsidiary,
    except as provided in the amended merger agreement;

  . (i) incur any debt except for borrowings under existing lines of credit
    or in the ordinary course of business; (ii) assume, guarantee, endorse or
    otherwise become liable or responsible for the obligations of any other
    person except in the ordinary course of business and for obligations of
    subsidiaries of Litton incurred in the ordinary course of business; (iii)
    make any loans, advances or capital contributions to or investments in
    any other person; (iv) pledge or otherwise encumber shares of capital
    stock of Litton or its subsidiaries except in connection with certain
    borrowings; or (v) mortgage or pledge any of its material assets,
    tangible or intangible, or create or suffer to exist any material lien
    thereupon;

  . enter into, adopt, amend or terminate any bonus, profit sharing,
    compensation, severance, termination, stock option, stock appreciation
    right, restricted stock, performance unit, stock equivalent, stock
    purchase agreement, pension, retirement, deferred compensation,
    employment, severance or other employee benefit agreement, trust, plan,
    fund or other arrangement for the benefit or welfare of any director,
    officer or employee in any manner or increase in any manner the
    compensation or fringe benefits of any director, officer or employee or
    pay any benefit not contemplated by any plan and arrangement in effect as
    of the date of the amended merger agreement, subject to certain
    exceptions;

  . acquire, sell, lease or dispose of any assets in any single transaction
    or series of related transactions having a fair market value in excess of
    $10,000,000 in the aggregate other than in connection with outsourcing
    agreements entered into with customers of Litton or its subsidiaries and
    in the ordinary course of business;

  . change any of the accounting principles or practices used by Litton,
    except as a result of a change in law or in generally accepted accounting
    principles other than immaterial changes;

  . revalue in any material respect any of Litton's assets other than in the
    ordinary course of business or as required by generally accepted
    accounting principles;

                                       49
<PAGE>

  . (i) acquire any corporation, partnership or other business organization
    by merger, consolidation or acquisition of stock or assets, other than in
    connection with outsourcing agreements entered into with customers of
    Litton or its subsidiaries; (ii) enter into any contract or agreement
    other than in the ordinary course of business consistent with past
    practice which would be material to Litton and its subsidiaries, taken as
    a whole; or (iii) authorize any new capital expenditure or expenditures
    which individually is in excess of $10,000,000 or capital expenditures in
    the aggregate are in excess of $210,000,000; provided that none of the
    foregoing shall limit any capital expenditure required pursuant to
    existing customer contracts or pursuant to Litton's existing capital
    expenditures budget;

  . make any material tax election or settle or compromise any income tax
    liability material to Litton and its subsidiaries, other than in the
    ordinary course of business;

  . settle or compromise any pending or threatened suit, action or claim
    relating to the offer and the Litton merger or which would have a
    material adverse effect on Litton;

  . commence any material research and/or development project or terminate
    any material research and/or development project that is ongoing, with
    certain exceptions;

  . amend the rights agreement between Litton and The Bank of New York dated
    as of August 17, 1994 and amended as of December 21, 2000 and January 23,
    2001 in any manner that would permit any person other than Northrop
    Grumman or its affiliates to acquire more than 15% of the Litton common
    stock, or redeem the rights; or

  . take or agree to take any of the foregoing actions.

Conduct of Business of Northrop Grumman and NNG Prior to the Litton Merger

   The amended merger agreement contains restrictions on Northrop Grumman's,
its subsidiaries' and NNG's conduct of their respective businesses pending the
effective time of the Litton merger or the termination of the amended merger
agreement. These restrictions are designed to prevent major changes in Northrop
Grumman and NNG until the Litton merger takes place, except to the extent
Litton consents to the changes. In general, Northrop Grumman and NNG have
agreed that neither Northrop Grumman nor its subsidiaries nor NNG will:

  . acquire or agree to acquire any entity if such transaction would prevent
    or materially delay the consummation of the offer, the Litton merger or
    the Northrop reorganization, other than the purchase of assets from
    suppliers, clients or vendors in the ordinary course of business;

  . amend their governing documents if such amendment would have a material
    adverse impact on the consummation of the offer, the Litton merger or the
    Northrop reorganization;

  . take any action that would prevent the offer, the Litton merger and the
    Northrop reorganization, taken together, from qualifying as an exchange
    described in Section 351 of the Code;

  . split, combine or reclassify any shares of its capital stock, declare,
    set aside or pay any dividend or other distribution, make any other
    actual, constructive or deemed distribution in respect of its capital
    stock or otherwise make any payments to stockholders, except for the
    payment of ordinary cash dividends in respect of the Northrop Grumman
    common stock;

  . adopt a plan of complete or partial liquidation or dissolution of
    Northrop Grumman or any of its material subsidiaries; or

  . take or agree to take any of the foregoing actions.

Other Potential Acquirers

   The amended merger agreement prohibits Litton and its subsidiaries,
officers, directors, employees, representatives and agents from providing non-
public information to, or having discussions or negotiations

                                       50
<PAGE>

with, anyone other than Northrop Grumman, NNG or LII Acquisition with respect
to a potential third party acquisition of Litton, unless:

  . Litton's board of directors receives an unsolicited proposal from a third
    party. In this case Litton or its representatives may make such inquiries
    or conduct such discussions as the Litton board of directors, based on
    the advice of its legal counsel, may deem necessary to inform itself for
    the purpose of exercising its fiduciary duties; or

  . Litton's board of directors receives an unsolicited proposal from a third
    party that Litton's board of directors by a majority vote decides in good
    faith, after consultation with its financial advisor, is reasonably
    likely to be a "superior proposal" (as defined below). In this case
    Litton and its representatives may conduct such additional discussions or
    provide such information as Litton's board of directors shall decide, if
    the third party enters into a confidentiality agreement with terms
    similar to the confidentiality agreement between Litton and Northrop
    Grumman and a majority of Litton's board of directors decides in good
    faith, based on the advice of its legal counsel, that its actions are
    necessary to comply with Litton's board of directors' fiduciary duties.

   The amended merger agreement does not prohibit Litton's board of directors
from taking and disclosing to Litton's stockholders a position contemplated by
Rules 14d-9 and 14e-2 under the Exchange Act with regard to any tender offer.

   Litton's board of directors has agreed not to withdraw, change or modify its
recommendation of the offer and the Litton merger or approve or recommend any
third party acquisition, or cause Litton to enter into any agreement for a
third party acquisition, unless a majority of Litton's board of directors
decides in good faith, after consultation with and based upon the advice of its
legal counsel, that it is required to do so in order to comply with its
fiduciary duties, in which case the Litton board of directors may withdraw its
recommendation of the offer and the Litton merger and approve or recommend a
superior proposal if:

  . Litton has provided written notice to Northrop Grumman specifying the
    material terms, conditions and identity of the person making the superior
    proposal; and

  . Northrop Grumman has not made an equally favorable proposal within five
    business days of Northrop Grumman's receiving notice of a superior
    proposal.

   However, Litton may not enter into an agreement with respect to a superior
proposal until the amended merger agreement is terminated and Litton has paid
Northrop Grumman a termination fee in the amount of $110,000,000 as liquidated
damages simultaneously with such termination. See "--The Amended Merger
Agreement--Termination Fee; Expenses" on page 57.

   The amended merger agreement defines a "third party acquisition" to mean any
of the following:

  . the acquisition of Litton by merger or otherwise by a party other than
    Northrop Grumman, LII Acquisition or any of their affiliates;

  . the acquisition of 20% of more of the assets of Litton and its
    subsidiaries taken as a whole by a party other than Northrop Grumman, LII
    Acquisition or any of their affiliates;

  . the acquisition of 20% or more of the outstanding Litton common stock by
    a party other than Northrop Grumman, LII Acquisition or any of their
    affiliates;

  . Litton's adoption of a plan of liquidation or the declaration or payment
    of an extraordinary dividend;

  . the repurchase of more than 20% of its outstanding common stock by Litton
    or any of subsidiaries; or

  . Litton's acquisition by merger, purchase of stock or assets, joint
    venture or otherwise of a direct or indirect ownership interest or
    investment in any business whose annual revenues, net income or assets is
    equal to or greater than 20% of the annual revenues, net income or assets
    of Litton.

                                       51
<PAGE>

   The amended merger agreement defines a "superior proposal" as any bona fide
proposal:

  . to acquire 50% or more of the common stock of Litton or substantially all
    the assets of Litton for cash and/or securities; and

  . that is determined by the Litton board of directors by a majority vote,
    based on the advice of its financial advisor, to be more favorable, from
    a financial point view, to Litton's stockholders than the Litton merger.

   Litton has agreed to promptly advise Northrop Grumman of any request for
information relating to a third party acquisition proposal or any inquiry
relating to or which could result in a third party acquisition proposal,
including the terms, conditions and the identity of the person submitting the
third party proposal. Litton has also agreed to inform Northrop Grumman of the
status and any developments regarding any third party acquisition proposal.

Litton Stockholders Meeting

   If required by applicable law to complete the Litton merger, the amended
merger agreement requires Litton as soon as practicable after consummation of
the offer to call a meeting of its stockholders to consider and vote upon the
adoption and approval of the amended merger agreement and to prepare and file
with the SEC a proxy statement. Under the amended merger agreement, at any such
meeting, Northrop Grumman, NNG and their subsidiaries have agreed to vote all
Litton shares acquired in the offer or otherwise beneficially owned by them in
favor of adoption of the amended merger agreement.

   Litton's board of directors may withdraw, modify or amend its recommendation
that Litton common stockholders accept the offer and that Litton stockholders
approve and adopt the amended merger agreement and the Litton merger if:

  . Litton receives a superior proposal; and

  . Litton's board of directors determines in its good faith judgment by a
    majority vote, based on the advice of its legal counsel, that it is
    required to recommend the superior proposal to comply with its fiduciary
    duties.

   Litton has also agreed to use all reasonable efforts to:

  . obtain and provide the information required to be included in the proxy
    statement;

  . respond promptly to any comments from the SEC concerning the proxy
    statement, after consultation with Northrop Grumman and NNG;

  . mail the proxy statement to Litton's stockholders as soon as possible
    after the expiration or termination of the offer; and

  . obtain the necessary approvals of Litton's stockholders of the amended
    merger agreement.

Access to Information and Confidentiality

   Litton has agreed to give Northrop Grumman and its representatives, and
Northrop Grumman and its representatives have agreed to:

  . give Litton reasonable access during normal business hours to all
    employees, plants, offices, warehouses and other facilities;

  . give Litton reasonable access during normal business hours to all books
    and records of itself and its subsidiaries;

  . to furnish the other party with financial and operating data and such
    other information concerning its business and properties and those of its
    subsidiaries as may be reasonably requested; and

  . to permit the other party to make inspections as may be reasonably
    required.

                                       52
<PAGE>

Confidentiality

   The amended merger agreement provides that Litton is not required to provide
certain confidential information. Litton and Northrop Grumman have entered into
a confidentiality agreement relating to all documents and information provided
to the other party in connection with the offer, the Litton merger and the
Northrop reorganization.

Additional Agreements

   Each of Litton, Northrop Grumman, NNG and LII Acquisition has agreed to:

  . use all reasonable best efforts to take, or cause to be taken, all
    reasonable actions necessary, proper or advisable to consummate and make
    effective as promptly as practicable the offer, Litton merger and the
    Northrop reorganization;

  . reasonably cooperate with the others in connection with actions necessary
    to consummate the offer, Litton merger and the Northrop reorganization;

  . use all reasonable efforts to obtain all necessary waivers, consents and
    approvals from other parties to material loan agreements, leases and
    other contracts;

  . use all reasonable efforts to obtain all consents, approvals and
    authorizations that are required to be obtained under any federal, state,
    local or foreign law or regulation;

  . use all reasonable efforts to lift or rescind any injunction or
    restraining order or other order adversely affecting the ability of the
    parties to consummate the offer, Litton merger and Northrop
    reorganization;

  . use all reasonable efforts to effect all necessary registrations and
    filings including, but not limited to, filings and submissions of
    information requested or required by any domestic or foreign government
    or governmental or multinational authority, including, the Antitrust
    Division of the Department of Justice, the Federal Trade Commission, any
    State Attorney General, or the European Commission (referred to
    collectively as "governmental antitrust authority");

  . use all reasonable efforts to fulfill all conditions to the amended
    merger agreement; and

  . use all reasonable efforts to prevent the entry, enactment or
    promulgation of a threatened or pending preliminary or permanent
    injunction or other order, decree or ruling or statute, rule, regulation
    or executive order that would adversely affect the ability of the parties
    to consummate the offer, the Litton merger and the Northrop
    reorganization.

   None of Northrop Grumman, NNG and LII Acquisition has to take any of the
above actions if such action would have a material adverse effect on the
business, assets, long-term earning capacity or financial condition of Northrop
Grumman, Litton or their respective subsidiaries, taken as a whole.

Antitrust Approvals

   Each of Litton, Northrop Grumman, NNG and LII Acquisition has agreed to:

  . use their best efforts to resolve any objections that may be asserted
    with respect to the offer, the Litton merger or the Northrop
    reorganization under any antitrust, competition or trade regulatory laws
    or regulations of any domestic or foreign government or governmental or
    multinational authority (collectively, the "antitrust laws");

  . use their best efforts to avoid the entry of, or to have vacated or
    terminated, any decree, order, or judgment that would restrain, prevent,
    or unreasonably delay the consummation of the offer, Litton merger,
    Northrop reorganization; and

                                       53
<PAGE>

  . take any and all steps necessary to avoid or eliminate any impediment,
    including the institution of proceedings, under any antitrust laws that
    may be asserted by any governmental antitrust authority with respect to
    the offer, the Litton merger, and the Northrop reorganization, including:

   . proposing, negotiating, committing to and effecting the sale,
     divestiture or disposition of such assets or businesses of Northrop
     Grumman or its subsidiaries, Litton or its subsidiaries; or

   . otherwise taking or committing to take any action that limits its
     freedom of action with respect to any of the businesses, product lines
     or assets of Northrop Grumman or its affiliates, Litton or its
     affiliates, as may be required in order to avoid the entry of, or to
     effect the dissolution of, any injunction, temporary restraining order,
     or other order in any suit or proceeding, which would otherwise have
     the effect of preventing or unreasonably delaying the consummation of
     the offer, the Litton merger or the Northrop reorganization.

   None of Northrop Grumman, NNG and LII Acquisition has to take any of the
above actions if the taking of such action would have a material adverse effect
on the business, assets, long-term earning capacity or financial condition of
Northrop Grumman and Litton and their respective subsidiaries, taken as a
whole.

   Each of Litton, Northrop Grumman, NNG and LII Acquisition also agreed to
keep the other parties apprised of the status of matters relating to the
completion of the offer, the Litton merger and the Northrop reorganization and
to reasonably cooperate in connection with obtaining the requisite approvals,
consents or orders of any governmental antitrust authority, including:

  . cooperating with the other parties in connection with filings under the
    HSR Act or any other antitrust laws;

  . providing copies of filings under the HSR Act or any other antitrust laws
    to the non-filing parties and their advisers prior to filing, other than
    documents containing confidential business information that will be
    shared only with outside counsel to the non-filing parties, and if
    requested, to accept all reasonable additions, deletions or changes
    suggested in connection with any such filing;

  . furnishing to each other all information required for any application or
    other filing to be made pursuant to the HSR Act or any other antitrust
    laws in connection with the offer, the Litton merger and the Northrop
    reorganization;

  . promptly notifying the other parties of any communications from or with
    any governmental antitrust authority with respect to the offer, the
    Litton merger or the Northrop reorganization;

  . permitting the other parties to review in advance and considering in good
    faith the views of the other parties in connection with any proposed
    communication with any governmental antitrust authority in connection
    with proceedings under or relating to the HSR Act or any other antitrust
    laws;

  . not agreeing to participate in any meeting or discussion with any
    governmental antitrust authority in connection with proceedings under or
    relating to the HSR Act or any other antitrust laws unless it consults
    with the other parties in advance, and, to the extent permitted by such
    governmental antitrust authority, gives the other parties the opportunity
    to attend and participate thereat; and

  . consulting and cooperating with the other parties in connection with any
    analyses, appearances, presentations, memoranda, briefs, arguments,
    opinions and proposals made or submitted by or on behalf of any party
    hereto in connection with proceedings under or relating to the HSR Act or
    any other antitrust laws.

   If any party or any of their respective affiliates receives a request for
additional information or documentary material from any governmental antitrust
authority with respect to the offer, the Litton merger or the Northrop
reorganization, such party will endeavor in good faith to make, or cause to be
made, as soon as practicable and after consultation with the other party, an
appropriate response in compliance with such request. Northrop Grumman, NNG and
LII Acquisition will advise Litton promptly in respect of any understandings,

                                       54
<PAGE>

undertakings or agreements which Northrop Grumman, NNG and LII Acquisition
propose to make or enter into with any governmental antitrust authority in
connection with the offer, the Litton merger or the Northrop reorganization.

Directors' and Officers' Liability Insurance and Indemnification

   The amended merger agreement provides that Northrop Grumman and Litton, as
the surviving corporation in the Litton merger, will jointly and severally
indemnify and hold harmless the current and former directors and officers of
Litton or any of its subsidiaries against:

  . all losses, claims, damages, costs, expenses, settlement payments or
    liabilities arising out of or in connection with any claim, demand,
    action, suit, proceeding or investigation based in whole or in part on or
    arising in whole or in part out of the fact that such person is or was an
    officer or director of Litton or any of its subsidiaries whether or not
    pertaining to any matter existing or occurring at or prior to the
    effective time of the Litton merger and whether or not asserted or
    claimed prior to or at or after the effective time of the Litton merger
    (collectively, "indemnified liabilities"); and

  . all indemnified liabilities based on or arising out of or pertaining to
    the amended merger agreement or the offer, the Litton merger or the
    Northrop reorganization, to the fullest extent required or permitted
    under applicable law or under the governing documents of Litton, as the
    surviving corporation of the Litton merger, provided, however, that the
    provisions of the governing documents of Litton, as the surviving
    corporation of the Litton merger relating to indemnification and
    exoneration from liability will be at least as favorable as the
    provisions of Litton's governing documents as of the date of the amended
    merger agreement.

   Furthermore, each of Litton, Northrop Grumman and NNG intend, to the extent
not prohibited by applicable law, that the indemnification described above will
apply to negligent acts or omissions by current and former directors and
officers of Litton or any of its subsidiaries.

   The amended merger agreement provides that Litton, as the surviving
corporation in the Litton merger, will maintain for six years after the Litton
merger directors' and officers' liability insurance on terms no less favorable
than Litton's current insurance policy, subject to a limitation on the amount
of the premium required to be paid for the insurance to 300% of the amount paid
as of December 21, 2000.

Employee Matters

   Except as otherwise provided in the amended merger agreement, NNG has agreed
to assume and honor in accordance with their terms all Litton employee plans
and all employment agreements disclosed to Northrop Grumman and all accrued
benefits vested thereunder. In addition, for a period of not less than two
years from the effective time of the Litton merger, NNG has agreed to provide
current and former employees of Litton and its subsidiaries ("Litton
employees"), for a period of not less than two years following the effective
time of the Litton merger, with employee benefits in the aggregate no less
favorable than those benefits provided to Litton employees immediately prior to
the effective time of the Litton merger. However, Northrop Grumman is not
prevented from terminating any employment agreement or employee plan in
accordance with its terms or reducing the employment or otherwise changing the
compensation or employee benefits of any individual Litton employee.

   Under any new employee benefit plan enacted by NNG, a Litton employee will
be credited with all years of services for which such Litton employee was
credited before the effective time of the Litton merger under similar Litton
employee plans, except to the extent such credit would result in a duplication
of benefits. Each Litton employee will be immediately eligible to participate
in any new employee benefit plans to the extent coverage under the new employee
benefit plan replaces coverage under a comparable Litton employee plan in which
such Litton employee participated immediately prior to the effective time of
the Litton merger. In

                                       55
<PAGE>

addition, NNG will assume and honor Litton's obligations to provide lifetime
benefits under Litton's Supplemental Medical Insurance Plan. Furthermore, NNG
has agreed not to demand repayment of the loans outstanding under Litton's
Incentive Loan Program before December 31, 2001.

   On or before January 31, 2001, Litton has agreed to provide Northrop Grumman
with copies of certain documents and information pertaining to employee plans,
employee agreements and arrangements.

Additional Covenants

   Each of Northrop Grumman, LII Acquisition and Litton has undertaken
additional covenants in the amended merger agreement. The following summarizes
the principal additional covenants.

   Each of Northrop Grumman, NNG, LII Acquisition and Litton has agreed to:

  . consult with each other before issuing press releases or public
    statements regarding the offer, Litton merger and Northrop
    reorganization.

   Northrop Grumman has agreed to:

  . cause NNG to issue a press release prior to the opening of trading on the
    second full trading day prior to the expiration of the offer announcing
    the exchange ratio for exchanging shares of Litton common stock for NNG
    common stock;

  . use reasonable best efforts to list the NNG common stock and NNG
    preferred stock to be issued in the offer on the NYSE; and

  . cause NNG to file an amended and restated certificate of incorporation
    and certificate of designations of the rights, preferences and privileges
    of the NNG preferred stock in the forms attached to the amended merger
    agreement with the Secretary of the State of Delaware.

   Northrop Grumman or NNG, as applicable, have agreed to:

  . use reasonable efforts to seek at its 2001 annual stockholder meeting
    stockholder approval for the issuance of shares of NNG common stock upon
    conversion of NNG preferred stock.

   Litton has agreed to:

  . provide Litton's quarterly unaudited balance sheet and related financial
    statements to Northrop Grumman within 25 business days after the end of
    each fiscal quarter.

Termination Events

   The amended merger agreement may be terminated at any time prior to the
purchase of Litton common stock in the offer:

  . by the mutual written consent of Northrop Grumman, LII Acquisition and
    Litton; or

  . by either Northrop Grumman and LII Acquisition or Litton if:

   . any court of competent jurisdiction or other U.S. or European Union
     governmental entity issues a non-appealable, final ruling prohibiting
     the offer, Litton merger or Northrop reorganization;

   . the offer is not completed by September 15, 2001; unless the party
     seeking to terminate the amended merger agreement is responsible for
     the delay due to that party's failure to fulfill its obligations under
     the amended merger agreement; or

  . by Northrop Grumman and LII Acquisition if:

   . Litton breaches any representation or warranty in the amended merger
     agreement or if any representation or warranty of Litton becomes untrue
     and such breach would have a material adverse effect on the business,
     assets, long-term earning capacity or financial condition of Litton and
     its subsidiaries and such breach is not capable of being rectified by
     September 15, 2001;

                                       56
<PAGE>

   . Litton breaches any covenants or agreements in the amended merger
     agreement that would have a material adverse effect on the business,
     assets, long-term earning capacity or financial condition of Litton and
     its subsidiaries or would materially adversely affect or materially
     delay the consummation of the offer, the Litton merger or the Northrop
     reorganization, and the breach has not been cured within twenty
     business days after Northrop Grumman or LII Acquisition gives Litton
     notice of such breach, so long as neither Northrop Grumman nor LII
     Acquisition has not breached any of its obligations under the amended
     merger agreement;

   . Litton's board of directors enters into, or recommends to its
     stockholders, a superior proposal;

   . Litton's board of directors withdraws, modifies or changes its approval
     or recommendation of the amended merger agreement, the offer, Litton
     merger or Northrop reorganization or adopts any resolution to such
     effect;

   . a third party acquisition occurs, except that, the definition of third
     party acquisition relating to the acquisition of Litton common stock
     will be deemed to occur only upon the acquisition by a third party of
     50% or more of the outstanding Litton common stock; or

  . by Litton if:

   . Northrop Grumman, NNG or LII Acquisition breaches any representation or
     warranty in the amended merger agreement or any representation or
     warranty becomes untrue and such breach would have a material adverse
     effect on the business, assets, long-term earning capacity or financial
     condition of Northrop Grumman or would materially adversely affect the
     consummation of the offer, Litton merger or the Northrop reorganization
     and is not cured within twenty business days after notice by Litton of
     such breach, so long as Litton has not breached any of its obligations
     under the amended merger agreement; or

   . Northrop Grumman, NNG or LII Acquisition breaches any of their
     respective covenants or agreements under the amended merger agreement
     and such breach would have a material adverse effect on the business,
     assets, long-term earning capacity or financial condition of Northrop
     Grumman or would materially adversely affect the consummation of the
     offer, Litton merger or the Northrop reorganization and is not cured
     within twenty business days after notice by Litton of such breach, so
     long as Litton has not breached any of its obligations under the
     amended merger agreement; or

   . Litton's board of directors receives a superior proposal and resolves
     to accept the superior proposal after providing Northrop Grumman an
     opportunity to make an equally favorable proposal, and paying Northrop
     Grumman $110,000,000 in liquidated damages.

   Termination of the amended merger agreement by the parties as described
above will void the agreement without any liability to Northrop Grumman, NNG,
LII Acquisition, or Litton or any of their affiliates, directors, officers or
stockholders, other than:

  . the liability for breach of the amended merger agreement;

  . the obligations of the parties to keep confidential all nonpublic
    information furnished in connection with the offer and Litton merger; and

  . the liquidated damages and expense provisions described immediately
    below.

Termination Fee; Expenses

   Litton has agreed to pay Northrop Grumman $110,000,000 as liquidated damages
within three business days after the termination of the amended merger
agreement, if the amended merger agreement is terminated:

  . By Northrop Grumman and LII Acquisition because Litton's board of
    directors enters into or recommends to its stockholders a superior
    proposal;

                                       57
<PAGE>

  . By Northrop Grumman and LII Acquisition because Litton's board of
    directors withdraws, modifies or changes its approval or recommendation
    of the amended merger agreement, the offer, Litton merger or Northrop
    reorganization or adopts any resolution to such effect;

  . By Northrop Grumman and LII Acquisition because a third party acquisition
    occurs, except that, the definition of third party acquisition relating
    to the acquisition of Litton common stock will be deemed to occur only
    upon the acquisition by a third party of 50% or more of the outstanding
    Litton common stock;

  . By Litton because Litton's board of directors receives a superior
    proposal and resolves to accept such superior proposal, except that,
    Litton must pay the $110,000,000 liquidated damages fee simultaneously
    with such termination;

  . By Northrop Grumman and LII Acquisition because Litton breaches its
    covenants or agreements contained in the amended merger agreement and
    such breaches would have a material adverse effect on the business,
    assets, long-term earnings capacity or financial condition of Litton and
    its subsidiaries, and within twelve months after termination of the
    amended merger agreement Litton enters into an agreement with respect to
    or consummates an acquisition by a third party:

   . with whom Litton had negotiations concerning a third party acquisition;

   . to whom Litton furnished information in connection with a third party
     acquisition;

   . who had submitted a proposal for a third party acquisition at the time
     of the breach, in each case after December 21, 2000 and prior to the
     termination of the amended merger agreement; or

  . By Northrop Grumman and LII Acquisition if the offer is not completed by
    September 15, 2001; as long as neither Northrop Grumman nor LII
    Acquisition is principally responsible for the delay due to its failure
    to fulfill its obligations under the amended merger agreement, and:

   . the minimum tender condition is not satisfied;

   . there is an outstanding publicly announced offer by a third party to
     consummate a third party acquisition;

   . no other condition of the offer is unsatisfied; and

   . within twelve months thereafter Litton enters into an agreement with
     respect to a third party acquisition or a third party acquisition
     occurs in either case involving the third party referred to above.

   Except for the liquidated damages described above, each party will pay its
own expenses in connection with the amended merger agreement.


                                       58
<PAGE>

                                OTHER AGREEMENTS

The Stockholder's Agreement

   The stockholder's agreement is filed as an exhibit to the registration
statement of which this offer to purchase or exchange is a part and is
incorporated by reference herein. The following summary describes the material
terms of the stockholder's agreement. However, the rights of the parties are
governed by its specific terms and provisions and not this summary.

   Effective as of January 23, 2001, Northrop Grumman, NNG and Unitrin, a
principal stockholder of Litton, entered into the stockholder's agreement
described below. Unitrin and its subsidiaries collectively hold an aggregate of
12,657,764 outstanding shares of Litton common stock, representing
approximately 27.8% of the outstanding Litton common stock as of January 23,
2001.

   Tender and Voting of Shares. Unitrin has agreed to:

  . tender all of the shares of Litton stock owned by it and its subsidiaries
    in the offer, and elect to receive (a) NNG preferred stock in the offer,
    with respect to at least 3,750,000 shares of Litton common stock it owns
    and (b) NNG common stock in exchange for the remainder of the shares it
    owns;

  . specify Alternative A in connection with its tender;

  . vote its shares of Litton stock at any meeting of the Litton
    stockholders:

   . in favor of the Litton merger and the amended merger agreement;

   . against any action which could reasonably be expected to impede,
     interfere with, delay, postpone or materially adversely affect the
     offer, Litton merger and Northrop reorganization or the consummation of
     these transactions; and

   . in favor of any other matter necessary for consummation of the offer,
     Litton merger and Northrop reorganization considered at a meeting of
     the Litton stockholders.

   In addition, Unitrin and its subsidiaries have agreed not to withdraw their
tenders or elections unless the stockholder's agreement is terminated.

   No Inconsistent Arrangements. Other than actions contemplated in the amended
merger agreement and the stockholder's agreement, Unitrin has agreed not do any
of the following:

  . transfer or consent to any transfer of the shares of Litton stock it owns
    or interest therein;

  . create or permit to exist any pledge, lien, security interest, mortgage,
    trust, charge, claim, equity, option, proxy, voting restriction, voting
    trust or agreement, understanding, arrangement, right of first refusal,
    limitation on disposition, adverse claim of ownership or encumbrance of
    any kind on the shares of Litton stock it owns;

  . enter into any contract, option or other agreement or understanding to
    any transfer of any of shares of Litton stock it owns or interest
    therein;

  . grant any proxy, power-of-attorney or other authorization in or with
    respect to its shares of Litton stock;

  . deposit its shares of Litton stock into a voting trust or enter into a
    voting agreement or arrangement with respect to its shares of Litton
    stock; or

  . take any other action that would in any way restrict, limit or interfere
    with the performance of its obligations under the stockholder's agreement
    or the amended merger agreement.

   Proxy. Unitrin and three of its subsidiaries which own Litton common stock
granted NNG and Northrop Grumman, or any nominee of NNG and Northrop Grumman,
an irrevocable proxy for all of the shares of Litton common stock Unitrin and
such subsidiaries own to vote on the matters and in the manner discussed above
at every Litton stockholders meeting.

                                       59
<PAGE>

   Stop Transfer. Unitrin cannot request that Litton register the transfer of
any shares of its Litton stock, unless the transfer is made in compliance with
the stockholder's agreement.

   No Solicitation. Unitrin and its subsidiaries have agreed not to or permit
any of their officers, directors, employees, agents or representatives to:

  . solicit or initiate, or encourage any inquiries regarding or the
    submission of, any proposal for a third party acquisition; or

  . enter into any agreement or proposal with respect to any proposal for a
    third party acquisition.

   Unitrin and its subsidiaries have agreed to cease any existing discussions,
activities or negotiations with any parties concerning a third party
acquisition. In addition, Unitrin has agreed to notify Northrop Grumman of the
existence of any proposal, discussion, negotiation or inquiry received by it,
and to provide Northrop Grumman with the terms of any proposal, discussion,
negotiation or inquiry which it may receive and the identity of the person
making such proposal or inquiry or engaging in such discussion or negotiation.

   The stockholder's agreement does not prevent Unitrin and its subsidiaries
from complying with their obligations under Section 13(d) of the Exchange Act.

   Representations And Warranties. The stockholder's agreement contains
customary representations and warranties of Unitrin, relating to, among other
things:

  . authorization, execution, delivery and performance of the stockholder's
    agreement, tendering of the shares of Litton stock, appointment of NNG
    and Northrop Grumman as proxy and consummation of the transactions
    contemplated by the stockholder's agreement;

  . enforceability of the stockholder's agreement;

  . no conflict with or violation of any applicable laws;

  . no breach of or default under any note, bond, mortgage, indenture,
    contract, agreement lease, license, permit, franchise or other
    instruments and applicable law;

  . no consents, approvals, authorizations or permits of, or the filing with
    or notification to any governmental or regulatory authority, domestic or
    foreign, are required, subject to limitation;

  . ownership of the shares of Litton stock; and

  . the shares of Litton stock being free and clear of any pledge, lien,
    security interest, mortgage, trust, charge, claim, equity, option, proxy,
    voting restriction, voting trust or agreement, understanding,
    arrangement, right of first refusal, limitation on disposition, adverse
    claim of ownership or encumbrance of any kind.

   The stockholder's agreement also contains customary representations and
warranties of NNG and Northrop Grumman, relating to, among other things:

  . organization, good standing and similar corporate matters;

  . authorization, execution, delivery and enforceability of the
    stockholder's agreement;

  . no conflict with or violation of any applicable law;

  . no breach of or default under any note, bond, mortgage, indenture,
    contract, agreement lease, license, permit, franchise or other
    instruments and applicable law; and

  . no consents, approvals, authorizations or permits of, or the filing with
    or notification to any governmental or regulatory authority, domestic or
    foreign, are required, subject to limitation.

                                       60
<PAGE>

   Termination. The stockholder's agreement provides that the stockholder's
agreement and the proxies granted under the stockholder's agreement will
terminate:

  . upon the mutual written consent of the parties;

  . automatically upon the termination of the amended merger agreement;

  . at the election of Unitrin after September 15, 2001; and

  . automatically upon the effective time of the Litton merger.

   The covenants and agreements of Unitrin and its subsidiaries and the proxies
will terminate at Unitrin's election if Northrop Grumman and NNG:

  . amend or provide any waiver of the amended merger agreement without
    Unitrin's prior written consent, if such amendment or waiver would:

   . change the amount or terms of the NNG common stock or the NNG preferred
     stock that Unitrin and its subsidiaries would receive in the offer, the
     Litton merger or upon conversion of the NNG preferred stock;

   . change the U.S. tax treatment to Unitrin or its subsidiaries or the
     offer and Litton merger;

   . materially adversely affect Unitrin's and its subsidiaries' interests;

   . take any actions having the effect of any of the foregoing; or

   . materially breach the stockholder's agreement.

The Registration Rights Agreement

   The registration rights agreement is filed as an exhibit to the registration
statement, of which this offer to purchase or exchange is a part, and is
incorporated by reference herein. The following summary describes the material
terms of the registration rights agreement. However, the rights of the parties
are governed by its specific terms and conditions and not this summary.

   Effective as of January 23, 2001, Northrop Grumman, NNG and Unitrin entered
into the registration rights agreement described below.

   Unitrin, its subsidiaries and affiliates and approved transferees may
request that NNG register all or a portion of its shares so long as the
aggregate offering to the public is at least $100,000,000. NNG is required to
file three registration statements in response to a demand for registration by
Unitrin and NNG is not required to file more than one registration statement in
any six month period. NNG may postpone the filing of any registration statement
for up to 75 days if NNG would be required to disclose nonpublic information
and NNG's board of directors determines that disclosure of such nonpublic
information would materially and adversely affect an existing or pending
material business, transaction or negotiation or otherwise materially and
adversely affect Northrop Grumman. NNG may exercise this right to postpone once
in any 12 month period.

   If NNG registers any securities for public sale, Unitrin will have the right
to include its shares in this registration. Unitrin's right, however, does not
apply to a registration statement relating to any of NNG's employee benefit
plans or to a corporate reorganization. If marketing reasons dictate, the
managing underwriter of any underwritten offering will have the right to limit
the number of shares registered by Unitrin and its subsidiaries and affiliates
to be included in the registration statement on a pro rata basis to the extent
required.

   NNG is not obligated to register securities pursuant to the registration
rights described above if, in the opinion of NNG's counsel, the sale or
disposition of all of Unitrin's registrable securities may be effected without
registering such registrable securities under the Securities Act, except with
respect to a demand registration pursuant to an underwritten public offering.

                                       61
<PAGE>

   Either NNG or Northrop Grumman will pay all expenses incurred in connection
with the filings described above. In addition, Unitrin may be required to agree
not to sell its shares of NNG stock during the 7 day period prior to, and
during the 90 day period beginning with, the effectiveness of such registration
statement.

Change of Control Severance Agreements

   Litton is party to change of control employment agreements with 53 of its
executives, including all its executive officers. The parties to the amended
merger agreement acknowledged and agreed that the consummation of the offer
will constitute a "change of control" under these agreements. Accordingly, upon
termination of employment by the executive officer for "good reason" or
"without cause" by Litton within three years following the change of control,
or, if the executive officer terminates employment for any reason during the
30-day period following the first anniversary of the change of control, the
executive officer will be entitled to three times the executive officer's base
salary and highest bonus award of any type, including, without limitation, any
annual or signing bonus paid during the last three full fiscal years,
continuation of welfare benefits for three years, three years of service credit
under Litton's pension plan and, if applicable, the Supplemental Executive
Retirement Plan, and provision of certain other benefits in accordance with
Litton's plans and practices. On December 21, 2000, the compensation and
selection committee of the Litton board of directors specified that the
following comprise these other benefits:

  . Incentive Loan Program:

   . use of a company automobile by the executive officer without cost, with
     a tax gross-up, for three years following termination;

   . executive financial planning for an additional year following
     termination;

   . Directors' and Officers' Liability Insurance for six years following
     termination;

   . continued participation in the Hyatt Legal Plan for three years
     following termination; and

   . educational assistance programs for three years following termination.

   In addition, the compensation and selection committee of the Litton board of
directors specified that the welfare plan benefits that continue under the
agreements during the three-year period following termination include:

   . the supplemental medical insurance plan for key executive employees;

   . the executive survivor benefit plan; and

   . the executive physical plan.

   Under the terms of the change of control employment agreements, Litton will
also pay any legal fees and expenses incurred by the executive officer in
connection with a dispute arising out of the subject matter of the agreement.
If any payment received under an executive officer's change of control
employment agreement or otherwise is subjected to the excise tax imposed under
Section 4999 of the Code, the executive officer is entitled to an additional
payment to restore the executive officer to the same after-tax position that
the executive officer would have been in if the excise tax had not been
imposed.

   On December 21, 2000, Dr. Sugar's change of control employment agreement,
dated June 21, 2000, was modified to clarify the intent of both parties that
Dr. Sugar's letter agreement, dated June 21, 2000, was not to be superseded by
his change of control employment agreement.

   It is estimated that the total maximum amount of cash severance payable to
each executive officer under these agreements, not including any excise tax
gross-up, would be: $6,188,052 for Mr. Brown, $5,000,000 for Dr. Sugar,
$3,084,869 for Mr. Steuert, $2,997,540 for Mr. St. Pe, $3,366,800 for Mr.
Halamandaris, and $16,128,160 for all remaining executive officers as a group.

                                       62
<PAGE>


   Employment Agreement between Northrop Grumman and Dr. Sugar. On December 21,
2000, Northrop Grumman entered into a letter agreement with Dr. Sugar pursuant
to which Dr. Sugar will serve as Corporate Vice President of Northrop Grumman,
President and Chief Executive Officer of Litton, and a member of the board of
directors of Northrop Grumman effective upon the closing date of the Litton
merger, provided that the Litton merger closes on or before December 31, 2001.
On January 31, 2001, Northrop Grumman and Dr. Sugar amended the letter
agreement to provide that Dr. Sugar would be named as an officer and director
of NNG. In general, under the terms of this letter agreement, Northrop Grumman
assumes Litton's obligations under Dr. Sugar's change of control employment
agreement and his letter agreement dated June 21, 2000. However, Dr. Sugar's
rights under those agreements are modified in two respects. First, Dr. Sugar
will not be entitled to severance benefits under those agreements if he
terminates his employment during the employment period commencing on the
closing date of the Litton merger and ending on the later of (i) the date six
months following the closing date or (ii) December 31, 2001, although he will
retain the right to receive severance benefits if he terminates his employment
after that employment period on the basis of an event that occurs during that
employment period that constitutes "good reason" under his change of control
employment agreement or a "constructive termination without cause" prior to
December 31, 2001 under the letter agreement dated June 21, 2000. Second,
during the 30-day period following such employment period, Dr. Sugar will have
the right to voluntarily terminate his employment for any reason and such
termination will be considered a termination for "good reason" under his change
of control employment agreement and a "constructive termination without cause"
prior to December 31, 2001 under the letter agreement dated June 21, 2000. The
letter agreement affirms that in the event of any such termination, Dr. Sugar
will be entitled to a total severance benefit under those agreements equal to
the greater of (i) $5,000,000 or (ii) three times the sum of his annual base
salary and highest bonus award during the last three full fiscal years. In
addition, the letter agreement will not affect Dr. Sugar's right to accelerated
vesting of stock options or restricted stock upon the consummation of the
offer. On January 31, 2001, this letter agreement was amended by a second
letter agreement to clarify that references to Northrop Grumman will mean,
after the effective time of the Litton merger, the corporation then called
Northrop Grumman Corporation and formerly known as NNG, Inc.

Confidentiality Agreement

   The confidentiality agreement described below is filed as an exhibit to the
Schedule TO filed by Northrop Grumman and LII Acquisition on January 5, 2001
and subsequently amended, and is incorporated herein by this reference. The
following summary describes the material terms of the agreement. However, the
rights of the parties are governed by its specific terms and provisions and not
this summary.

   On June 23, 2000, Northrop Grumman and Litton entered into a confidentiality
letter agreement dated as of the same date. The confidentiality agreement
contains customary provisions pursuant to which, among other matters, Northrop
Grumman and Litton have mutually agreed, subject to certain exceptions, to keep
confidential all non-public, confidential or proprietary information exchanged
between each other, including analyses, compilations, forecasts, studies,
notes, summaries, reports, analyses or other materials derived from the
information exchanged, and to use such confidential information solely for the
purpose of evaluating a possible transaction involving Northrop Grumman and
Litton, together with any of their subsidiaries or affiliates. Northrop Grumman
and Litton each agreed not to solicit certain members of the other's directors,
officers or employees with whom they have had dealings for employment for a
period of two years from June 23, 2000. Northrop Grumman and Litton also agreed
for the same period not to:

  . acquire more than one percent of any securities of the other party or any
    of its subsidiaries;

  . solicit proxies or consents with respect to the other party or any of its
    subsidiaries;

  . seek to advise, control or influence the management, board of directors
    or policies of the other party or any of its subsidiaries;

  . make any proposal or any public announcement relating to a tender or
    exchange offer for securities of the other party or any of its
    subsidiaries

  . enter into any discussions or understandings with any third party with
    respect to any of the foregoing; or

  . advise, assist or encourage any other person in connection with any of
    the foregoing.

                                       63
<PAGE>

      RATIO OF COMBINED EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS

   The following table sets forth the ratios of combined earnings to fixed
charges and preferred dividends of Northrop Grumman for the one year period
ended December 31, 2000 and pro forma combined ratios of Northrop Grumman and
Litton for the year ended December 31, 2000.

   The Pro Forma Ratios of Combined Earnings to Fixed Charges and Preferred
Dividends are based upon the historical financial statements of Northrop
Grumman and Litton adjusted to give effect to the business combination. Two pro
forma transaction scenarios are presented: Minimum Equity Issuance and Maximum
Equity Issuance. The Minimum Equity Issuance scenario is based upon the
assumption that Unitrin, Inc. tenders its shares of Litton common stock for NNG
stock as described in "Other Agreements--The Stockholder's Agreement" beginning
on page 59 of this offer to purchase or exchange and all other shareholders
tender their shares of Litton common stock for cash. The Maximum Equity
Issuance scenario is based upon the assumption that the maximum number of
shares of NNG common stock (i.e. 13,000,000) and the maximum number of shares
of NNG preferred stock (i.e. 3,500,000) are issued, with the remainder of the
purchase price paid in cash. The pro forma amounts have been developed from (a)
the audited consolidated financial statements of Northrop Grumman contained in
Northrop Grumman's Annual Report on Form 10-K as filed on March 1, 2001, and
subsequently amended on March 2, 2001, and March 8, 2001, which are
incorporated by reference in this offer to purchase or exchange, and (b) the
audited consolidated financial statements contained in Litton's Annual Report
on Form 10-K for the fiscal year ended July 31, 2000, which is incorporated by
reference in this offer to purchase or exchange. In addition, the audited
consolidated financial statements contained in Litton's Annual Report on Form
10-K for the fiscal year ended July 31, 1999 and the unaudited consolidated
financial statements of Litton contained in Litton's Quarterly Reports on Form
10-Q for the periods ended January 31, 2000 and 2001 have been used to bring
the financial reporting periods of Litton to within 31 days of those of
Northrop Grumman.

<TABLE>
<CAPTION>
                                           Pro Forma
                                        ---------------
                                          Year ended
                                         December 31,
                                             2000
                                        ---------------
                                                           Fiscal Year Ended
                                                              December 31,
                                        Minimum Maximum ------------------------
                                        Equity  Equity  2000 1999 1998 1997 1996
                                        ------- ------- ---- ---- ---- ---- ----
<S>                                     <C>     <C>     <C>  <C>  <C>  <C>  <C>
Fixed Charges Ratio: ..................  2.60    2.72   5.26 3.78 2.11 2.68 2.50
</TABLE>

   For purposes of computing the ratios of combined earnings to fixed charges
and preferred dividends, earnings represent earnings from continuing operations
before income taxes and fixed charges, and fixed charges consist of interest
expense, the portion of rental expense calculated to be representative of the
interest factor, and preferred stock dividend. The ratios of earnings to fixed
charges should be read in conjunction with the financial statements and other
financial data included or incorporated by reference in this offer to purchase
or exchange. See "Additional Information" on page 83.

                                       64
<PAGE>

          UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

   The Unaudited Pro Forma Condensed Combined Financial Information of Northrop
Grumman and Litton presented below is derived from the historical consolidated
financial statements of each of Northrop Grumman and Litton. The Unaudited Pro
Forma Condensed Combined Financial Information is prepared using the purchase
method of accounting, with Northrop Grumman treated as the acquiror and as if
the transactions had been completed as of the beginning of the periods
presented for statements of operations purposes and on December 31, 2000 for
balance sheet purposes.

   For a summary of the proposed business combination, see "The Offer"
beginning on page 20 of this offer to purchase or exchange.

   The Unaudited Pro Forma Condensed Combined Financial Information is based
upon the historical financial statements of Northrop Grumman and Litton
adjusted to give effect to the business combination. Two pro forma transaction
scenarios are presented: Minimum Equity Issuance and Maximum Equity Issuance.
The Minimum Equity Issuance scenario is based upon the assumption that Unitrin
tenders its shares for stock as described in "Other Agreements--The
Stockholder's Agreement" beginning on page 59 of this offer to purchase or
exchange and all other shareholders tender their shares for cash. The Maximum
Equity Issuance scenario is based upon the assumption that the maximum number
of shares of NNG common stock (i.e. 13,000,000) and the maximum number of
shares of NNG preferred stock (i.e. 3,500,000) are issued, with the remainder
of the purchase price paid in cash. The actual numbers of shares of NNG common
stock and NNG preferred stock issued will depend on the number of shares of
Litton common stock tendered for each, the alternatives selected by tendering
stockholders and the average of the closing prices of Northrop Grumman common
stock on the NYSE for the five consecutive trading days ending prior to the
open of the second full trading day before the expiration of the offer. The pro
forma adjustments for each transaction scenario are described in the
accompanying notes presented on the following pages. The pro forma statements
have been developed from (a) the audited consolidated financial statements of
Northrop Grumman contained in Northrop Grumman's Annual Report on Form 10-K/A
as filed on March 8, 2001, which are incorporated by reference in this offer to
purchase or exchange, and (b) the audited consolidated financial statements
contained in Litton's Annual Report on Form 10-K for the fiscal year ended July
31, 2000 which is incorporated by reference in this offer to purchase or
exchange. In addition, the unaudited consolidated financial statements of
Litton contained in Litton's Quarterly Reports on Form 10-Q for the periods
ended January 31, 2000 and 2001 have been used to bring the financial reporting
periods of Litton to within 31 days of those of Northrop Grumman.

   The final determination and allocation of the purchase price paid for the
acquisition of Litton may differ from the amounts assumed in this Unaudited Pro
Forma Condensed Combined Financial Information.

   Under the purchase method of accounting, the purchase price will be
allocated to the underlying tangible and intangible assets and liabilities
acquired based on their respective fair market values, with the excess recorded
as goodwill. As of the date of this filing, Northrop Grumman has not commenced
the valuation studies necessary to arrive at the required estimates of the fair
market value of the assets and liabilities to be acquired and the related
allocations of purchase price, nor has it identified the adjustments, if any,
necessary to conform Litton data to Northrop Grumman's accounting policies.
Accordingly, Northrop Grumman has used the historical book values of the assets
and liabilities of Litton and has used the historical revenue recognition
policies of Litton to prepare the unaudited pro forma financial statements set
forth herein, with the excess of the purchase price over the historical net
assets of Litton recorded as goodwill and other purchased intangibles. Once
Northrop Grumman has completed the valuation studies necessary to finalize the
required purchase price allocation and have 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 allocation of purchase price and the
pro forma statement of income, and there can be no assurance that such
adjustments will not be material.


                                       65
<PAGE>

   The Unaudited Pro Forma Condensed Combined Financial Information 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 NNG would have been had the offer and the Litton merger occurred on
the date assumed, nor is it necessarily indicative of future consolidated
results of operations or financial position.

   The Unaudited Pro Forma Condensed Combined Financial Information does not
include the realization of cost savings from operating efficiencies, synergies
or other restructurings resulting from the offer and the Litton merger.

   The Unaudited Pro Forma Condensed Combined Financial Information should be
read in conjunction with the separate historical consolidated financial
statements and accompanying notes of Northrop Grumman and Litton that are
incorporated by reference in this offer to purchase or exchange.

                                       66
<PAGE>


  UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL POSITION

                             December 31, 2000

                              ($ in millions)

<TABLE>
<CAPTION>
                                               Minimum Equity          Maximum Equity
                                                  Issuance                Issuance
                                            ----------------------- -----------------------
                          Northrop           Pro Forma    Pro Forma  Pro Forma    Pro Forma
                          Grumman   Litton  Adjustments   Combined  Adjustments   Combined
                          --------  ------  -----------   --------- -----------   ---------
<S>                       <C>       <C>     <C>           <C>       <C>           <C>
         ASSETS

Current assets
  Cash and cash
   equivalents..........  $   319   $   74    $  --        $   393    $  --        $   393
  Accounts receivable...    1,557      794                   2,351                   2,351
  Inventoried costs.....      585      784                   1,369                   1,369
  Deferred income
   taxes................       21      372                     393                     393
  Prepaid expenses......       44       33                      77                      77
                          -------   ------    ------       -------    ------       -------
    Total current
     assets.............    2,526    2,057       --          4,583       --          4,583
                          -------   ------    ------       -------    ------       -------
Property, plant and
 equipment..............    2,343    1,860                   4,203                   4,203
Accumulated
 depreciation...........   (1,328)    (990)                 (2,318)                 (2,318)
                          -------   ------    ------       -------    ------       -------
                            1,015      870       --          1,885       --          1,885
                          -------   ------    ------       -------    ------       -------
Other assets
  Goodwill and other
   purchased
   intangibles..........    4,432    1,230     2,218 (a)     7,880     2,219 (a)     7,881
  Prepaid retiree
   benefits cost and
   intangible pension
   asset................    1,390                            1,390                   1,390
  Other assets..........      259      751        63 (a)     1,073        63 (a)     1,073
                          -------   ------    ------       -------    ------       -------
                            6,081    1,981     2,281        10,343     2,282        10,344
                          -------   ------    ------       -------    ------       -------
                          $ 9,622   $4,908    $2,281       $16,811    $2,282       $16,812
                          =======   ======    ======       =======    ======       =======
    LIABILITIES AND
  SHAREHOLDERS' EQUITY
Current liabilities
  Notes payable and
   current portion of
   long term debt.......  $    10   $  184    $  --        $   194    $  --        $   194
  Accounts payable......      564      310                     874                     874
  Accrued employees'
   compensation.........      365      226                     591                     591
  Advances on
   contracts............      496      204                     700                     700
  Income taxes..........      767       62                     829                     829
  Other current
   liabilities..........      486      474                     960                     960
                          -------   ------    ------       -------    ------       -------
    Total current
     liabilities........    2,688    1,460       --          4,148       --          4,148
                          -------   ------    ------       -------    ------       -------
Long-term debt..........    1,605    1,293     2,877 (a)     5,775     2,399 (a)     5,297
Accrued retiree
 benefits...............    1,095      303                   1,398                   1,398
Deferred tax and other
 long-term liabilities..      315      241                     556                     556
Redeemable Preferred
 Stock..................      --       --        300           300       350           350
Shareholders' equity
  Paid in Capital.......    1,200      413       302 (a)     1,915       731 (a)     2,344
  Retained earnings.....    2,742    1,254    (1,254)(a)     2,742    (1,254)(a)     2,742
  Accumulated other
   comprehensive loss...      (23)     (56)       56 (a)       (23)       56 (a)       (23)
                          -------   ------    ------       -------    ------       -------
                            3,919    1,611      (896)        4,634      (467)        5,063
                          -------   ------    ------       -------    ------       -------
                          $ 9,622   $4,908    $2,281       $16,811    $2,282       $16,812
                          =======   ======    ======       =======    ======       =======
</TABLE>

                                       67
<PAGE>


           UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

                          Year Ended December 31, 2000
                     ($ in millions, except per share data)

<TABLE>
<CAPTION>
                                              Minimum Equity          Maximum Equity
                                                 Issuance                Issuance
                                           ----------------------- -----------------------
                          Northrop          Pro Forma    Pro Forma  Pro Forma    Pro Forma
                          Grumman  Litton  Adjustments   Combined  Adjustments   Combined
                          -------- ------  -----------   --------- -----------   ---------
<S>                       <C>      <C>     <C>           <C>       <C>           <C>
Sales and service
 revenues...............   $7,618  $5,626     $  --       $13,244     $  --       $13,244
Cost of sales
  Operating Costs.......    5,446   4,669        82  (b)   10,197        82  (b)   10,197
  Administrative and
   general expenses.....    1,074     491                   1,565                   1,565
                           ------  ------     -----       -------     -----       -------
Operating margin........    1,098     466       (82)        1,482       (82)        1,482
Interest expense........     (175)   (105)     (223) (c)     (503)     (187) (d)     (467)
Other, net..............       52      16                      68                      68
                           ------  ------     -----       -------     -----       -------
Income from continuing
 operations before
 income taxes...........      975     377      (305)        1,047      (269)        1,083
Federal and foreign
 income taxes...........      350     151      (107) (e)      394       (94) (e)      407
                           ------  ------     -----       -------     -----       -------
Income from continuing
 operations.............   $  625  $  226     $(198)      $   653     $(175)      $   676
                           ======  ======     =====       =======     =====       =======
Less, dividends paid to
 preferred
 shareholders...........                        (27) (f)      (27)      (32) (f)      (32)
Income available to
 common shareholders....                      $(225)      $   626     $(207)      $   644
                                              =====       =======     =====       =======

Average shares basic....    70.58                           78.70                   83.58
Average shares diluted..    70.88                           79.96                   84.83

Basic earnings per
 share:
  Continuing
   operations...........   $ 8.86                         $  7.95                 $  7.71

Diluted earnings per
 share:
  Continuing
   operations...........   $ 8.82                         $  7.83                 $  7.59
</TABLE>

                                       68
<PAGE>


        NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

                                (Unaudited)

(a) Adjustments to (i) eliminate the equity of Litton (ii) record issuance of
    preferred and common stock and (iii) record new financing for the
    acquisition of Litton along with additional acquisition related costs and
    refinancing of debt using the Revolving Credit Facility.

(b) Adjustment to amortize goodwill and other purchased intangible assets
    arising out of the acquisition of Litton over an estimated weighted average
    life of 27 years on a straight line basis.

(c) Adjustment to record interest on new financing for the acquisition of
    Litton: under the minimum equity issuance at a weighted average rate of
    7.55 percent for the year ended December 31, 2000, plus the amortization of
    debt issuance costs.

(d) Adjustment to record interest on new financing for the acquisition of
    Litton: under the maximum equity issuance at a weighted average rate of
    7.52 for the year ended December 31, 2000 plus the amortization of debt
    issuance costs.

(e) Adjustment to record income tax effects on pre-tax pro forma adjustments,
    using a statutory tax rate of thirty-five percent.

(f) Adjusted for dividends to preferred shareholders using $9 per share
    dividend rate for minimum equity issuance of 3,000,000 shares and the
    maximum equity issuance of 3,500,000 shares of preferred stock.

                                       69
<PAGE>

                        DESCRIPTION OF NNG CAPITAL STOCK

   The terms and conditions of the capital stock of NNG are determined by NNG's
restated certificate of incorporation, which is identical in all material
respects with the certificate of incorporation of Northrop Grumman, and which
is filed as an exhibit to the registration statement, of which this offer to
purchase or exchange a part. The rights preferences and privileges of the NNG
preferred stock are also governed by a certificate of designations, preferences
and rights, which is also filed as an exhibit to the abovementioned
registration statement. The following summary describes the material terms of
these documents. However the legal rights and obligations of stockholders are
governed by the specific language of the restated certificate of incorporation
and certificate of designations, preferences and right, not by this summary.

Authorized Capital Stock

   Under NNG's certificate of incorporation, immediately prior to consummation
of the offer, NNG will be authorized to issue (i) 200,000,000 shares of common
stock, par value $1.00 per share, and (ii) 10,000,000 shares of preferred
stock, par value $1.00 per share, of which 3,500,000 will be shares of Series B
Preferred Stock, par value $1.00 per share. As of January 31, 2001, 1,000 of
NNG's common stock and no shares of Series B Preferred Stock were issued and
outstanding. NNG's common stock will be listed on the NYSE under the symbol
"NOC." NNG will seek to list the NNG preferred stock on the NYSE if there are
enough holders to satisfy the minimum listing requirements.

   NNG's board of directors is authorized to provide for the issuance by NNG
from time to time of preferred stock in one or more classes or series and, as
to each class or series, to fix the designation or title, the dividend rate, if
any, the voting rights, if any, and the preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions.

Common Stock

 Full Payment and Nonassessability

   The outstanding shares of NNG's common stock are, and the shares of NNG's
common stock issued pursuant to the offer will be, duly authorized, validly
issued, fully paid and nonassessable when issued and delivered against payment
for the shares.

 Voting Rights

   Each holder of NNG's common stock is entitled to one vote for each share of
NNG common stock held of record on the applicable record date on all matters
submitted to a vote of stockholders. The NNG common stock does not have
cumulative voting rights.

 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 when and as
declared by NNG's board of directors.

 Liquidation

   If NNG is liquidated, holders of common stock are entitled to receive all
remaining assets available for distribution to stockholders after satisfaction
of NNG's liabilities and the preferential rights of any preferred stock that
may be outstanding at the time. The holders of NNG common stock do not have any
preemptive, conversion or redemption rights.

                                       70
<PAGE>

 Rights Plan

   For a description of the rights to acquire NNG preferred stock that are
attached to shares of our common stock, see "Comparison of Stockholders'
Rights--Rights Plan" on page 78.

Series B Preferred Stock

 Conversion

   The conversion rights of the NNG preferred stock are subject to stockholder
approval of the issuance of NNG common stock upon conversion of the NNG
preferred stock. No conversion rights may be exercised until
such stockholder approval is obtained. Northrop Grumman and NNG have agreed to
seek the necessary stockholder approval at the annual meeting of stockholders
in May 2001.

   Subject to stockholder approval, each share of NNG preferred stock will be
convertible, at any time, at the option of the holder into the right to receive
shares of NNG common stock, par value $1.00 per share. Initially, each share of
NNG preferred stock will be convertible into the right to receive the number of
shares of NNG common stock equal to the liquidation value of $100.00 per share
divided by 127% of the average closing price of Northrop Grumman common stock
for the five trading days ending two full trading days prior to expiration of
the offer.

   The conversion ratio is subject to adjustment in the event of certain
dividends and distributions; a reclassification; a merger, consolidation or
sale of substantially all of NNG's assets; liquidation or distribution and
certain other events.

   If any adjustment in the number of shares of common stock into which each
share of NNG preferred stock may be converted would result in an increase or
decrease of less than 1% in the number of shares of NNG common stock into which
each share of NNG preferred stock is then convertible, the amount of the
adjustment will be carried forward and the adjustment will be made at the time
of and together with any subsequent adjustment, which, together with any
amounts so carried forward, will aggregate at least 1% of the number of shares
of NNG common stock into which each share of NNG preferred stock is then
convertible.

 Liquidation

   In any liquidation of NNG, each share of the NNG preferred stock will be
entitled to a liquidation preference of $100.00 plus accrued but unpaid
dividends, whether or not declared, before any distribution may be made on the
NNG common stock or any other class or series of NNG stock which is junior to
the NNG preferred stock. In any liquidation of NNG, no distribution may be made
on any NNG stock ranking on a parity with the NNG preferred stock as to
dividends, redemption payments and rights upon liquidation dissolution or
winding up of NNG, unless the holders of NNG preferred stock participate
ratably in the distribution along with the holders of any NNG stock ranking on
a parity with the NNG preferred stock as to such matters. In the event
stockholder approval has not occurred, the amount payable in liquidation will
be the greater of the amount described above and the amount that would be
distributed if such share of NNG preferred stock had been converted into NNG
common stock pursuant to the provision for conversion.

 Reacquired Shares

   Any shares of NNG preferred stock converted, redeemed, purchased or
otherwise acquired by NNG will be retired and canceled. The reacquired shares
will become authorized but unissued shares of NNG preferred stock, which NNG
may reissue at a later date.


                                       71
<PAGE>

 Full Payment and Nonassessability

   The shares of NNG's Series B Preferred Stock (referred to as the "NNG
preferred stock") issued pursuant to the offer will be duly authorized, validly
issued, fully paid and nonassessable when issued and delivered against payment
for the shares.

 Rank

   The NNG preferred stock ranks with respect to payment of dividends,
redemption payments and rights upon liquidation, dissolution or winding up,
prior to the NNG common stock and any class or series of preferred stock which
by its terms ranks junior to the NNG preferred. The NNG preferred stock ranks
on parity with each other class or series of preferred stock.

 Voting Rights

   Holders of NNG preferred stock have no voting rights except in certain
specified circumstances described below or as required by applicable law. The
affirmative vote of the holders of two-thirds of the aggregate number of
outstanding shares of the NNG preferred stock is required for an amendment of
the NNG restated certificate of incorporation, merger or other action which
would:

  . authorize any class or series of stock ranking prior to the NNG preferred
    stock as to dividends, redemption payments or rights upon liquidation,
    dissolution or winding up;

  . adversely alter the preferences, special rights or powers given to the
    NNG preferred stock; or

  . cause or permit the purchase or redemption of less than all of the NNG
    preferred stock unless all dividends to which such shares are entitled
    have been declared and paid or provided for.

   If accrued dividends on the NNG preferred stock are not paid for six
quarterly dividend periods (whether or not consecutive), a majority of the
holders of the NNG preferred stock, voting separately as a class, will have the
right to elect two directors. If such holders exercise their right to elect two
directors to NNG's board, the size of NNG's board will be increased by two
members until the dividends in default are paid in full or payment is set
aside.

 Dividends

   Holders of NNG preferred stock will be entitled to cumulative cash
dividends, payable quarterly in April, July, October and January of each year.
If the NNG preferred stock is issued prior to the 2001 annual meeting of
stockholders of Northrop Grumman (scheduled for May 16, 2001), the initial
dividend rate per share will be $7.00 per year. Commencing after the dividend
payable in October 2001, the dividend rate per share will be $7.00 per year if
stockholder approval for the issuance of NNG common stock upon conversion of
the NNG preferred stock has been obtained or $9.00 per year if it has not been
obtained. The dividend rate per share will be reduced from $9.00 to $7.00 per
year after stockholder approval is obtained. If the NNG preferred stock is
issued after the Northrop Grumman 2001 annual meeting, the initial dividend
rate will be $7.00 per year if stockholder approval for the issuance of the NNG
common stock upon conversion has been obtained and $9.00 per year if
stockholder approval has not been obtained. If the dividend rate per share is
set at $9.00 per year, it will be reduced from $9.00 to $7.00 per year after
stockholder approval is obtained. Dividends are cumulative and payable in cash.

   If dividends are payable and have not been paid or set apart in full, the
deficiency must be fully paid or set apart for payment before:

  . distributions or dividends are paid on stock ranking junior to the NNG
    preferred stock; and

  . the redemption, repurchase or other acquisition for consideration of any
    NNG stock ranking junior to the NNG preferred stock.


                                       72
<PAGE>

 Redemption

  .  Mandatory Redemption For Cash After Twenty Years. NNG is required to
     redeem all of the shares of NNG preferred stock for cash twenty years
     and one day from the date of issuance of the NNG preferred stock. The
     redemption price per share is equal to the liquidation value of $100.00
     per share plus accrued but unpaid dividends, whether or not declared, to
     the mandatory redemption date. In the event that Stockholder Approval
     has not occurred by the mandatory redemption date, the amount payable
     for each share of NNG preferred stock will be the greater of (a) the
     liquidation value of $100.00 per share of NNG preferred stock plus
     accrued but unpaid dividends to the redemption date, whether or not
     declared, and (b) the current market price on the redemption date of the
     number of shares of NNG common stock which would be issued upon
     conversion of a share of NNG preferred stock into NNG common stock
     pursuant to the provision for conversion.

  .  Optional Redemption For Common Stock After Seven Years. NNG has the
     option to redeem shares of the NNG preferred stock in exchange for NNG
     common stock seven years from the date of the initial issuance of the
     NNG preferred. Upon redemption, holders of NNG preferred stock will
     receive the number of shares of NNG common stock equal to the
     liquidation value of $100.00 per share plus accrued but unpaid dividends
     to the redemption date divided by the current market price of the NNG
     common stock on the redemption date. In the event that stockholder
     approval has not occurred by the redemption date, the number to be
     divided in the above calculation will be the greater of the amount
     described above and the current market price on the redemption date of
     the number of shares of NNG common stock which would be issued if all
     shares of NNG preferred stock were converted on the redemption date into
     NNG common stock pursuant to the provision for conversion.

 Change in Control

   Upon a fundamental change in control, as defined below, of NNG, holders of
NNG preferred stock have the right, which may be exercised during the period of
20 business days following notice from NNG, to exchange their shares of NNG
preferred stock for NNG common stock. Each share of NNG preferred stock may be
exchanged in such circumstances for that number of shares of NNG common stock
determined by dividing the liquidation value of $100.00 per share, plus accrued
but unpaid dividends to such date by the current market value of the NNG common
stock on the exchange date. In the event stockholder approval has not been
obtained for the issuance of NNG common stock upon conversion of the NNG
preferred stock, the number to be divided in the above calculation will be the
greater of the amount described above or the current market price of the number
of shares of NNG common stock which would be issued if such share of NNG
preferred stock were converted into NNG common stock pursuant to the provision
for conversion.

   A "fundamental change in control" is defined as any merger, consolidation,
sale of all or substantially all of NNG's assets, liquidation or
recapitalization (other than solely a change in the par value of equity
securities) of the NNG common stock in which more than one-third of the
previously outstanding NNG common stock is exchanged for cash, property or
securities other than capital stock of NNG or another corporation.

   If the change in control occurred as a result of a transaction (excluding
certain dividends or distributions on, and reclassifications of, NNG common
stock) in which the previously outstanding NNG common stock is changed into or
exchanged for different securities of NNG or securities of another corporation
or interests in a noncorporate entity, the NNG common stock that would
otherwise have been issued to a holder of NNG preferred stock for each share of
NNG preferred stock will be deemed to instead be the kind and amount of
securities and property receivable upon completion of such transaction in
respect of the NNG common stock that would result in the fair market value of
such securities and property, measured as of the exchange date, being equal to
the liquidation value plus accrued and unpaid dividends. In the event that the
Stockholder Approval has not occurred, the fair market value of the securities
and property will instead be calculated to be equal to the greater of the
amount described above, and the fair market value of the securities and
property which would have been issued if such share of NNG preferred stock had
been converted into NNG common stock, if conversion were permitted.



                                       73
<PAGE>

Transfer and Dividend Paying Agent and Registrar

   EquiServe Trust Company is the transfer and dividend paying agent and
registrar for the NNG common stock.

                       COMPARISON OF STOCKHOLDERS' RIGHTS

   Upon completion of the offer, stockholders of Litton who request NNG stock
will become stockholders of NNG. As an NNG stockholder, the rights of former
Litton stockholders will be governed by NNG's restated certificate of
incorporation and NNG's bylaws, which differ in certain material respects from
Litton's restated certificate of incorporation and Litton's bylaws. Set forth
on the following pages is a summary comparison of certain material differences
between the rights of NNG's stockholders under the NNG restated certificate of
incorporation and the NNG bylaws and the rights of a Litton stockholder under
the current Litton restated certificate of incorporation and the current Litton
bylaws. Delaware is the jurisdiction of incorporation for both NNG and Litton.
Therefore, the rights of former Litton stockholders who become NNG stockholders
will continue to be governed by the DGCL.

   The restated certificate of incorporation and bylaws of NNG are filed as
exhibits to the registration statement of which this offer to purchase or
exchange is a part. The specific provisions of such documents, and not this
summary, determine the rights and obligations of the parties.

   Amendments to Certificate of Incorporation

   The affirmative vote of a majority of the outstanding shares entitled to
vote is required to amend NNG's restated certificate of incorporation. In
addition, amendments which make changes relating to the capital stock by
increasing or decreasing the par value or the aggregate number of authorized
shares of a class or otherwise adversely affect the rights of such 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 restated certificate of
incorporation takes away such right, and provided that, if the amendment
affects some but not all series, then only those affected series will have a
vote. NNG's restated certificate of incorporation provides that certain
articles may only be adopted, repealed, rescinded, altered or amended by the
affirmative vote of the holders of at least 80% of the voting power of all
outstanding shares of voting stock regardless of class and voting together as a
single voting class. However, if such action is proposed by an interested
stockholder, as defined in NNG's restated certificate of incorporation, or by
an associate or affiliate of an interested stockholder, the affirmative vote of
a majority of the voting power of all of the outstanding shares of voting stock
other than shares held by such interested person is required, voting together
as a single class; provided, however, that where such action is approved by a
majority of the continuing directors, 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 class shall be required for approval of such
action. In general, NNG's restated certificate of incorporation defines an
"interested stockholder" as a beneficial owner of 10% or more of the voting
power of all outstanding shares of voting stock.

   Under the DGCL, the affirmative vote of a majority of the outstanding shares
entitled to vote is required to amend Litton's restated certificate of
incorporation. In addition, the affirmative vote of the holders of at least
two-thirds of the aggregate number of shares of the affected class or series of
preferred stock outstanding are entitled to vote on any amendment of Litton's
restated certificate of incorporation that would:

  . create a new class of stock having rights or preferences with respect to
    payment of dividends or distribution of assets that are prior to the
    shares of such class of preferred stock;

  . alter or change the preferences, special rights or powers given to any
    class or series of preferred stock so as to adversely affect such class
    of stock; or

  . effect a purchase or redemption of less than all of the shares of
    preferred stock then outstanding unless the full dividends to which all
    shares of the preferred stock of all series then outstanding shall then
    be entitled shall have been paid or declared and a sum set aside
    sufficient for the payment thereof.

                                       74
<PAGE>

   Amendments to the NNG Bylaws and the Litton Restated Bylaws

   Under the NNG restated certificate of incorporation and the NNG bylaws, the
NNG bylaws may be adopted, repealed, rescinded, altered or amended by NNG
stockholders, but only by the affirmative vote of the holders of at least 80%
of the voting power of all outstanding shares of voting stock, regardless of
class and voting together as a single class. However, if an interested
stockholder or any associate or affiliate of an interested stockholder proposes
amending the NNG bylaws, then, approval by the holders of a majority of the
voting power of all outstanding shares or voting stock other than the shares
held by such interested stockholder is required, regardless of class and voting
together as a single class; provided, however, that where such action is
approved by a majority of the continuing directors, 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 class shall be required for
approval of such action.

   The Litton restated certificate of incorporation provides that the Litton
board of directors may make, alter, amend, change, add to, or repeal the Litton
restated bylaws. The Litton restated bylaws provide that they may be altered or
repealed and new bylaws may be adopted either:

  . at any annual or special meeting of stockholders by the affirmative vote
    of a majority of the issued and outstanding voting stock, if notice of
    the proposed alteration, repeal or adoption of the new provision(s) is
    contained in the notice of such special meeting; or

  . by the affirmative vote of a majority of the directors present at any
    regular meeting, or at any special meeting of the Litton board of
    directors, if notice of the proposed alteration, repeal or new
    provision(s) is contained in the notice of such special meeting.

   Vote Required for Merger and Other Business Combinations

   Under the DGCL, generally, the approval of a majority of the outstanding
shares is needed to adopt a plan of merger or consolidation. Section 203 of the
DGCL prohibits a Delaware corporation which has a class of stock which is
listed on a national securities exchange or which has 2,000 or more
stockholders of record from engaging in a 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 two-thirds of the outstanding shares not owned by such
interested stockholder approve the business combination, or if, upon becoming
an interested stockholder, such stockholder owned 85% of the outstanding shares
excluding those held by officers, directors and some employee stock plans.

   In addition to the DGCL requirements, NNG's restated certificate of
incorporation provides that, subject to some exceptions, any business
combination between NNG or any NNG subsidiary and an interested stockholder
must be approved by at least 80% of the voting power of all outstanding voting
stock, regardless of class and voting together as a single 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 associate of such interested stockholder,
regardless of class and voting together as a single class.

   The Litton restated certificate of incorporation and the Litton bylaws do
not contain any special voting requirements regarding a merger or other
business combination.

   Directors

   Classification of Board of Directors. A classified board is one with respect
to which a designated number of directors, but not necessarily all, are elected
on a rotating basis each year. Under the DGCL, classification of a board of
directors is permitted but not required, pursuant to which the directors can be
divided into as many

                                       75
<PAGE>

as three classes with staggered terms of office, with only one class of
directors standing for election each year. NNG's restated certificate of
incorporation provides that the NNG board of directors be divided into three
classes of directors as nearly equal in number as reasonably possible, with
staggered three-year terms. Each director will serve until his or her successor
is duly elected and qualified or until the director's death, resignation or
removal. See "Removal of Directors" below.

   Litton does not have a classified board of directors. Each Litton director
is elected each year at the annual meeting of stockholders. Each director
serves until a successor is duly elected and qualified, or until the director
resigns, or is otherwise removed.

   Removal of Directors. NNG's restated certificate of incorporation provides
that NNG directors may be removed only for cause and only by the affirmative
vote of the holders of at least 80% of all outstanding shares of capital stock
of NNG having general voting power entitled to vote in connection with the
election of such director, regardless of class and voting together as a single
voting class; provided, however, that if a proposal to remove a director is
approved by a majority of continuing directors, the affirmative vote of a
majority of all outstanding shares of voting stock entitled to vote in
connection with the election of such director, regardless of class and voting
together as a single voting class, is required for approval of such removal.

   Pursuant to Litton's bylaws, Litton directors may be removed, either with or
without cause, at any time by the affirmative vote of the holders of a majority
of all outstanding shares of voting stock entitled to vote at a special meeting
of the stockholders called for that purpose.

   Newly Created Directorships and Vacancies. Under NNG's restated certificate
of incorporation and NNG's bylaws, newly created directorships resulting from
death, resignation, disqualification, an increase effected by NNG's board of
directors, or any other cause, may be filled solely by the affirmative vote of
a majority of the directors then in office, although less than a quorum, or by
a sole remaining director. Each director so chosen to fill a vacancy will hold
office for the remainder of the full term of the class of directors in which
the vacancy occurred and until such director's successor shall have been
elected and qualified. No reduction of the authorized number of directors will
have the effect of removing any director prior to the expiration of his or her
term of office.

   Under the Litton restated bylaws, vacancies in the Litton board of directors
may be filled by the affirmative vote of a majority of the directors then in
office. Each director so chosen to fill a vacancy will hold office for the
remainder of the term and until a successor is duly chosen. However, Litton's
restated certificate of incorporation provides that the holders of preferred
stock, voting separately as class, will be entitled to elect two directors, if
and whenever accrued dividends on any series of preferred stock of Litton have
not been paid or declared and a sum sufficient for the payment thereof set
aside, in an amount equivalent to six quarterly dividends or three semiannual
dividends on all shares of such series of preferred stock at the time
outstanding.

   Size of Board. NNG's bylaws provide that the number of directors will be
fixed by resolution of the board of directors, but will not be less than three.

   The Litton restated bylaws provide that the number of directors shall be
fixed from time to time by resolution of the board of directors but shall not
be less than eight nor more than fourteen.

   Quorum of the Board. NNG's bylaws provide for a quorum of a majority of the
board of directors, except that when the board of directors consists of one
director, then that one director will constitute a quorum.

   Litton's restated bylaws provide for a quorum of a majority of the board of
directors. No more than a minority of the number of directors necessary to
constitute a quorum of the board of directors can be non-U.S. citizens.

                                       76
<PAGE>

   Stockholders

   Annual Meetings. NNG's bylaws provide that the annual meeting of
stockholders will be held between May 1 and July 1 of each year on a date and
time fixed by the board of directors.

   Litton's restated bylaws provide that the annual meeting of stockholders,
and all other meetings of the stockholders, will be held on a date fixed by
resolution of the board of directors.

   Special Meetings. Under NNG's restated certificate of incorporation and
NNG's bylaws, special stockholder meetings may be called at any time by a
majority of the board of directors, the Chairman of the board of directors or
by the President and Chief Executive Officer.

   Under Litton's restated bylaws, special stockholder meetings may be called
by resolution of the Litton board of directors or the Litton executive
committee or at any time by the written request of stockholders of record
owning at least 51% of the issued and outstanding voting shares of Litton
common stock.

   Quorum Requirements. Under both the NNG bylaws and the Litton restated
bylaws, the presence in person or by proxy of the holders of record of a
majority of the shares issued and outstanding and entitled to vote at the
meeting constitutes a quorum for that meeting, except as otherwise provided by
the DGCL.

   Certain Voting Requirements. Under the NNG bylaws, except as otherwise
provided by NNG's restated certificate of incorporation or by applicable law,
action by NNG stockholders generally is taken by the affirmative vote, at a
meeting at which a quorum is present, of a majority of the outstanding shares
entitled to vote thereon, including extraordinary actions, such as mergers,
consolidations and amendments to NNG's restated certificate of incorporation.
However, NNG's restated certificate of incorporation requires the affirmative
vote of at least 80% of the outstanding shares of voting stock to approve an
amendment of specified articles in the restated certificate of incorporation.
The restated certificate of incorporation also requires the affirmative vote of
(i) at least 80% of all outstanding shares entitled to vote and (ii) a majority
of all outstanding shares other than shares held by an interested stockholder
and its affiliates for the approval of:

  . certain business combinations (as defined in the restated certificate of
    incorporation) and other significant transactions involving the
    interested stockholder or its affiliate, and

  . the amendment of specified provisions of the restated certificate of
    incorporation if proposed by the interested stockholder. See "Description
    of NNG Capital Stock--Series B Preferred Stock--Voting Rights" beginning
    on page 72.

   Litton does not have any special voting provisions beyond those described
above for holders of Litton preferred stock.

   Stockholder Action by Written Consent. Under NNG's restated certificate of
incorporation and NNG's bylaws, any action required or permitted to be taken by
stockholders must be effected at a duly called annual meeting or at a special
meeting of stockholders, unless such action requiring or permitting stockholder
approval is approved by a majority of the continuing directors, in which case
such action may be authorized or taken by the written consent of the holders of
outstanding shares of voting stock having at least the minimum voting power
that would 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 NNG restated
certificate of incorporation have been satisfied.

   Under Litton's restated certificate of incorporation and Litton's restated
bylaws, stockholder actions may not be taken by written consent, in lieu of a
meeting.

   Stockholder Proposal Procedures. Under NNG's bylaws, for a matter to be
properly brought before an annual meeting by a stockholder, the stockholder
generally must have given timely notice thereof in writing to NNG's Secretary
not less than 45 days nor more than 75 days prior to the anniversary date of
the immediately

                                       77
<PAGE>

preceding annual meeting. A stockholder's notice must state as to each matter
the stockholder proposes to bring before the annual meeting: (a) a brief
description of the matter desired to be brought, the reasons for conducting
such business at the meeting, any material interest in such business of the
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made, or (b) if the stockholder is nominating an individual as a director (i)
information regarding the person whom the stockholder proposes to nominate as a
director; (ii) the name and address of the stockholder proposing such action;
(iii) the class and number of shares of NNG which are beneficially owned by the
stockholder; and (iv) whether the stockholder intends to deliver a proxy
statement and form of proxy to a sufficient number of holders of NNG's voting
shares to elect such nominee.

   Under Litton's restated bylaws, for a matter to be properly brought before
an annual meeting by a stockholder, the stockholder generally must have given
timely notice thereof in writing to Litton's Secretary not less than 90 days
nor more than 120 days prior to the anniversary date of the immediately
preceding annual meeting. Litton stockholders are subject to the same
stockholder notice requirements set forth above for NNG stockholders except
that a Litton stockholder is not subject to the requirement of disclosing his
or her intention to deliver a proxy statement and form of proxy.

   Rights Plan

   NNG has adopted a rights plan pursuant to which a preferred share purchase
right is attached to each share of NNG common stock that is or becomes
outstanding prior to October 31, 2008. The NNG rights become exercisable 10
days after the public announcement that any person or group has (i) acquired
15% or more of the outstanding shares of NNG common stock, or (ii) initiated a
tender offer for shares of NNG common stock, which, if consummated, would
result in any person or group acquiring 15% or more of the outstanding shares
of NNG common stock. Once exercisable, each NNG right will entitle the holder
to purchase one one-thousandth of a share of NNG 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 certain
circumstances involving an acquisition of 15% or more of the NNG common stock
outstanding, each NNG right will entitle its holder to purchase, at a fifty
percent discount, a number of shares of NNG common stock having a market value
of two times the exercise price of the NNG right. NNG may (i) exchange the NNG
rights at an exchange ratio of one share of NNG common stock per NNG right, and
(ii) redeem the NNG rights, at a price of $0.01 per NNG right, at any time
prior to an acquisition of 15% or more of the outstanding shares of NNG common
stock by any person or group.

   The NNG rights plan will contain provisions to permit the acquisition by
Unitrin of NNG common stock (and NNG common stock issuable upon conversion of
NNG preferred stock) as contemplated by the offer and the stockholder's
agreement. See "Other Agreements--The Stockholder's Agreement" on page 59.

   These rights have certain anti-takeover effects and cause substantial
dilution to a person or group that attempts to acquire control of the
corporation on terms not approved by the corporation's board of directors.

   Litton has adopted a rights plan pursuant to which a preferred share
purchase right is attached to each share of Litton common stock that is or
becomes outstanding prior to August 17, 2004. The terms upon which the Litton
rights become exercisable are identical to those for the NNG rights. Once
exercisable, each Litton right will entitle the holder to purchase one one-
thousandth of a share of Litton Series A participating preferred stock, par
value $5.00 per share, at a price of $150.00 per one one-thousandth of a share,
subject to adjustment. Under certain circumstances involving an acquisition of
15% or more of the Litton common stock outstanding, each Litton right will
entitle its holder to purchase, at a 50% discount, a number of shares of Litton
common stock having a market value of two times the exercise price of the
Litton right. Litton may (i) exchange the Litton rights at an exchange ratio of
one share of Litton common stock per Litton right, and (ii) redeem the Litton
rights, at a price of $0.01 per Litton right, at any time prior to an
acquisition of 15% or more of the outstanding shares of Litton common stock by
any person or group. Litton's board of directors has amended the Litton rights
plan so that none of Northrop Grumman, NNG or LII Acquisition will be deemed an
acquiring person.

                                       78
<PAGE>

                    SUMMARY OF CERTAIN STATUTORY PROVISIONS

Appraisal Rights

   No appraisal rights are available in connection with the offer.

   If NNG acquires at least 90% of the shares of Litton common stock and at
least 90% of the shares of Litton preferred stock pursuant to the offer, the
Litton merger may be consummated without a meeting or vote of the Litton
stockholders.

   If less than 90% of the shares of Litton preferred stock are acquired
pursuant to the offer and a stockholder vote is required to approve the Litton
merger, holders of Litton preferred stock may have appraisal rights in
connection with the Litton merger under certain circumstances. If the Litton
preferred stock is not listed on a national securities exchange or quoted on
the NASDAQ National Market System on the record date fixed to determine the
stockholders entitled to receive notice of and to vote on the Litton merger,
the Litton preferred stock will have appraisal rights pursuant to Section 262
of the DGCL ("Section 262").

   In addition, holders of Litton common stock at the effective time of the
Litton merger who do not wish to accept the same amount of cash consideration
in the Litton merger as was paid to holders of Litton common stock in the offer
will have the right to seek an appraisal and to be paid the "fair value" of
their shares of Litton common stock at the effective time of the Litton merger
(exclusive of any element of value arising from the accomplishment or
expectation of the merger) judicially determined and paid to it in cash,
provided that such holder complies with the provisions of such Section 262.

   The following is a brief summary of the statutory procedures to be followed
in order to dissent from the Litton merger and perfect appraisal rights under
Delaware law. This summary is not intended to be complete and is qualified in
its entirety by reference to Section 262, the text of which is set forth in
Annex B to this offer to purchase or exchange. Any Litton stockholder
considering demanding appraisal is advised to consult legal counsel.
Dissenters' rights, if any, will not be available unless and until the Litton
merger (or a similar business combination) is consummated.

   Litton stockholders of record who desire to exercise their appraisal rights
must fully satisfy all of the following conditions. A written demand for
appraisal of Litton common stock or Litton preferred stock must be delivered to
the Secretary of Litton (x) before the taking of the vote on the approval and
adoption of the amended merger agreement if the Litton merger is not being
effected without a vote of stockholders pursuant to Section 253 of the DGCL (a
"short-form merger"), but rather is being consummated following approval
thereof at a meeting of the Litton stockholders (a "long-form merger") or (y)
within twenty days after the date that Litton, as the corporation surviving the
Litton merger, mails to the Litton stockholders a notice (the "Notice of
Merger") to the effect that the Litton merger is effective and that appraisal
rights are available (and includes in such notice a copy of Section 262 and any
other information required thereby) if the Litton merger is being effected as a
short-form merger without a vote or meeting of the Litton stockholders. If the
Litton merger is effected as a long-form merger, this written demand for
appraisal must be in addition to and separate from any proxy or vote abstaining
from or against the approval and adoption of the amended merger agreement, and
neither voting against, abstaining from voting, nor failing to vote on the
amended merger agreement will constitute a demand for appraisal within the
meaning of Section 262. In the case of a long-form merger, any stockholder
seeking appraisal rights must hold the Litton common stock or Litton preferred
stock for which appraisal is sought on the date the demand is made and,
continuously hold such Litton common stock or Litton preferred stock through
the effective time of the Litton merger, and otherwise comply with the
provisions of Section 262.

   In the case of both a short-form merger and a long-form merger, a demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the stock certificates. If
shares of Litton common stock and Litton preferred stock are owned of record in
a fiduciary capacity, such as by a trustee, guardian or custodian, such demand
must be executed by the fiduciary. If shares

                                       79
<PAGE>

of Litton common stock or Litton preferred stock are owned of record by more
than one person, as in a joint tenancy or tenancy in common, such demand must
be executed by all joint owners. An authorized agent, including an agent for
two or more joint owners, may execute the demand for appraisal for a
stockholder of record; provided, however, the agent must identify the record
owner and expressly disclose the fact that, in exercising the demand, he is
acting as agent for the record owner.

   A record owner, such as a broker, who holds Litton common stock or Litton
preferred stock as a nominee for others, may exercise appraisal rights with
respect to the Litton common stock or Litton preferred stock held for all or
less than all beneficial owners of Litton common stock or Litton preferred
stock as to which the holder is the record owner. In such case the written
demand must set forth the number of Litton common stock or Litton preferred
stock covered by such demand. Where the number of shares of Litton common stock
or Litton preferred stock is not expressly stated, the demand will be presumed
to cover all shares of Litton common stock or Litton preferred stock
outstanding in the name of such record owner. Beneficial owners who are not
record owners and who intend to exercise appraisal rights should instruct the
record owner to comply strictly with the statutory requirements with respect to
the exercise of appraisal rights before the date of any meeting of stockholders
of the Company called to approve the Litton merger in the case of a long-form
merger and within twenty days following the mailing of the Notice of Merger in
the case of a short-form merger.

   Stockholders who elect to exercise appraisal rights must mail or deliver
their written demands to: Secretary, Litton Industries, Inc., 21240 Burbank
Boulevard, Woodland Hills, California 91367. The written demand for appraisal
should specify the stockholder's name and mailing address, the number of shares
of Litton common stock or Litton preferred stock covered by the demand and that
the stockholder is thereby demanding appraisal of such shares. In the case of a
long-form merger, Litton must, within ten days after the effective time of the
Litton merger, provide notice of the effective time of the Litton merger to all
stockholders who have complied with Section 262 and have not voted for approval
and adoption of the amended merger agreement.

   In the case of a long-form merger, stockholders electing to exercise their
appraisal rights under Section 262 must not vote for the approval and adoption
of the amended merger agreement or consent thereto in writing. Voting in favor
of the approval and adoption of the amended merger agreement, or delivering a
proxy in connection with the stockholders meeting called to approve the amended
merger agreement (unless the proxy votes against, or expressly abstains from
the vote on, the approval and adoption of the amended merger agreement), will
constitute a waiver of the stockholder's right of appraisal and will nullify
any written demand for appraisal submitted by the stockholder.

   Regardless of whether the Litton merger is effected as a long-form merger or
a short-form merger, within 120 days after the effective time of the Litton
merger, either Litton or any Litton stockholder who has complied with the
required conditions of Section 262 and who is otherwise entitled to appraisal
rights may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of the dissenting Litton
stockholders. If a petition for an appraisal is timely filed, after a hearing
on such petition, the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and thereafter will appraise the
Litton common stock and/or Litton preferred stock owned by such Litton
stockholders, determining the fair value of such Litton common stock and/or
Litton preferred stock exclusive of any element of value arising from the
accomplishment or expectation of the Litton merger, together with a fair rate
of interest to be paid, if any, upon the amount determined to be the fair
value. In determining fair value, the Delaware Court of Chancery is to take
into account all relevant factors. In Weinberger v. UOP, Inc., et al., the
Delaware Supreme Court discussed the factors that could be considered in
determining fair value in an appraisal proceeding, stating that "proof of value
by any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered and
that "[f]air price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that in
making this determination of fair value the court must consider "market value,
asset value, dividends, earnings prospects, the nature of the enterprise and
any other facts which were known or which could be ascertained as of the date
of merger which throw any light on future prospects of the merged

                                       80
<PAGE>

corporation." The Delaware Supreme Court has construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." However, the court noted that Section 262
provides that fair value is to be determined "exclusive of any element of value
arising from the accomplishment or expectation of the merger."

   Litton stockholders who in the future consider seeking appraisal should have
in mind that the fair value of their Litton common stock or Litton preferred
stock determined under Section 262 could be more than, the same as, or less
than the cash consideration paid for such Litton stock in the offer if they do
seek appraisal of their Litton common stock or Litton preferred stock, and that
opinions of investment banking firms as to fairness from a financial point of
view are not necessarily opinions as to fair value under Section 262. Moreover,
NNG intends to cause Litton, as the corporation surviving the Litton merger, to
argue in any appraisal proceeding that, for purposes thereof, the "fair value"
of the Litton common stock or Litton preferred stock, as the case may be, is
less than that paid in the offer. The cost of the appraisal proceeding may be
determined by the Delaware Court of Chancery and taxed upon the parties as the
Delaware Court of Chancery deems equitable in the circumstances. Upon
application of a dissenting stockholder, the Delaware Court of Chancery may
order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all Litton common stock and/or Litton
preferred stock entitled to appraisal. In the absence of such a determination
or assessment, each party bears its own expenses.

   Any Litton stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the effective time, of the Litton merger, be
entitled to vote for any purpose the Litton common stock and/or Litton
preferred stock subject to such demand or to receive payment of dividends or
other distributions on such Litton common stock or Litton preferred stock,
except for dividends or other distributions payable to stockholders of record
at a date prior to the effective time of the Litton merger.

   At any time within 60 days after the effective time of the Litton merger,
any former holder of Litton common stock or Litton preferred stock shall have
the right to withdraw his or her demand for appraisal and to accept the merger
consideration paid for such Litton stock in the offer. After this period, such
holder may withdraw his or her demand for appraisal only with the consent of
Litton, as the corporation surviving the Litton merger. If no petition for
appraisal is filed with the Delaware Court of Chancery within 120 days after
the effective time of the Litton merger, stockholders' rights to appraisal
shall cease and all stockholders shall be entitled to receive the cash
consideration paid for the same class or series of the offer. Inasmuch as
Litton has no obligation to file such a petition, and NNG has no present
intention to cause or permit Litton to do so, any stockholder who desires such
a petition to be filed is advised to file it on a timely basis. However, no
petition timely filed in the Delaware Court of Chancery demanding appraisal
shall be dismissed as to any stockholder without the approval of the Delaware
Court of Chancery, and such approval may be conditioned upon such terms as the
Delaware Court of Chancery deems just.

   Failure to take any required step in connection with the exercise of
appraisal rights may result in the termination or waiver of such rights.

   Appraisal rights cannot be exercised at this time. The information set forth
above is for informational purposes only with respect to alternatives available
to stockholders if the Litton merger is consummated. Stockholders who will be
entitled to appraisal rights in connection with the Litton merger will receive
additional information concerning appraisal rights and the procedures to be
followed in connection therewith before such stockholders have to take any
action relating thereto.

   Litton stockholders who sell or exchange Litton common stock or sell Litton
preferred stock in the offer will not be entitled to exercise appraisal rights
in connection with the offer but, rather, will receive the consideration paid
in the offer for such shares.

                                       81
<PAGE>

   The foregoing summary of the rights of objecting stockholders under the DGCL
does not purport to be a complete statement of the procedures to be followed by
Litton stockholders desiring to exercise any available dissenters' rights. The
foregoing summary is qualified in its entirety by reference to Section 262. The
preservation and exercise of dissenters' rights require strict adherence to the
applicable provisions of the DGCL. See Annex B attached to this offer to
purchase or exchange.

Certain Business Combinations

   Delaware law restricts the ability of certain persons to acquire control of
a Delaware corporation.

   Section 203 of the DGCL limits specified business combinations of Delaware
corporations with interested stockholders. Under the DGCL, if a person acquires
beneficial ownership of 15% or more of the stock of a Delaware corporation,
thereby becoming an interested stockholder, that person generally may not
engage in specified transactions with the corporation for a period of three
years following the time that such stockholder became an interested stockholder
unless:

  .  the corporation's board of directors approved the acquisition of stock
     or the transaction prior to the time that the person became an
     interested stockholder;

  .  upon consummation of the transaction in which the person became 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 voting stock owned by directors who are
     also officers and certain employee stock ownership plans; or

  .  at or subsequent to such time, the transaction is approved by the board
     of directors and at an annual or special meeting by the affirmative vote
     of 66 2/3% of the outstanding voting stock which is not owned by the
     interested stockholder.

   Litton has represented to Northrop Grumman, NNG and LII Acquisition in the
amended merger agreement that all actions necessary to ensure that Section 203
of the DGCL does not apply to NNG in connection with the offer, the Litton
merger and the other transactions contemplated by the amended merger agreement
and the stockholder's agreement have been taken.

                                       82
<PAGE>


                          ADDITIONAL INFORMATION

   Northrop Grumman and Litton file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy any
such report, statement or other information at the SEC's public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's public
reference rooms in New York, New York or Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from commercial document
retrieval services and at the SEC's Internet web site at www.sec.gov. NNG
filed a registration statement on Form S-4 with the SEC on February 1, 2001
and amended on March 5, 2001 to register the shares of NNG common stock and
NNG preferred stock to be issued in the offer. This offer to purchase or
exchange is a part of that registration statement. As allowed by SEC rules,
this offer to purchase or exchange does not contain all of the information you
can find in the registration statement or the exhibits to the registration
statement.

   Northrop Grumman and LII Acquisition have also filed with the SEC several
amendments to their statement on Schedule TO originally filed on January 5,
2001, as subsequently amended, pursuant to Rule 14d-3 under the Exchange Act
furnishing certain information about the offer. You may read and copy the
Schedule TO and any amendments to it at the SEC's public reference rooms
referred to above.

   The SEC allows NNG to "incorporate by reference" certain information into
this offer to purchase or exchange, which means that NNG 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 offer to purchase or exchange, except for any information
amended or superseded by information contained in this offer to purchase or
exchange. This offer to purchase or exchange incorporates by reference the
documents set forth below that Northrop Grumman or Litton have previously
filed with the SEC. These documents contain important information about
Northrop Grumman and Litton and their respective financial condition.

   Documents filed by Northrop Grumman and incorporated by reference are
available without charge upon request to: Investor Relations, Northrop Grumman
Corporation, 1840 Century Park East, Los Angeles, California 90067. Documents
filed by Litton and incorporated by reference are available without charge
upon request to: Investor Relations, Litton Industries, Inc., 21240 Burbank
Boulevard, Woodland Hills, California 91367.

   The following documents filed by Northrop Grumman with the SEC are hereby
incorporated by reference:

  .  Annual Report on Form 10-K/A for the fiscal year ended December 31,
     2000, filed with the SEC on March 8, 2000; and

  .  Proxy Statement for the Annual Meeting of Stockholders held on May 17,
     2000.

   The following documents filed by Litton with the SEC are hereby
incorporated by reference:

  .  Annual Report on Form 10-K for the fiscal year ended July 31, 2000,
     filed with the SEC on October 11, 2000;

  .  Proxy Statement for the Annual Meeting of Stockholders held on December
     8, 2000, filed with the SEC on October 20, 2000;

  .  Quarterly Report on Form 10-Q for the period ended January 31, 2001,
     filed with the SEC on March 6, 2001; and

  .  Form 8-A12B/A filed with the SEC on January 30, 2001, which amends and
     restates in their entirety Items 1 and 2 of Litton's registration
     statement on Form 8-A (File No. 001-03998), filed with the SEC on August
     24, 1994 as amended, in connection with the amendment to the terms of
     the Rights Agreement, dated as of August 17, 1994 between Litton and The
     Bank of New York.

                                      83
<PAGE>




   All documents filed by Northrop Grumman or Litton pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act from February 1, 2001 to the date that
Litton shares are accepted for exchange in the offer (or the date that the
offer is terminated) and, if later, until the earlier of the date of the
meeting of the Litton stockholders to approve the Litton merger and the date on
which the Litton merger is consummated shall also be deemed to be incorporated
in this offer to purchase or exchange by reference.

                                       84
<PAGE>


                           FORWARD-LOOKING STATEMENTS

   Certain of the information included in this offer to purchase or exchange
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:

  . Northrop Grumman and Litton depend on a limited number of customers. Both
    companies' businesses are heavily dependent on government contracts, many
    of which are only partially funded. The termination or failure to fund
    one or more of these contracts could have a negative impact on
    operations. Northrop Grumman and Litton are suppliers, either directly or
    as subcontractors or team members, to the U.S. Government and its
    agencies as well as foreign governments and agencies. These contracts are
    subject to each customer's political and budgetary constraints, changes
    in short-range and long-range plans, the timing of contract awards, the
    congressional budget authorization and appropriation processes, the
    government's ability to terminate contracts for convenience or for
    default, as well as other risks such as contractor debarment in the event
    of certain violations of legal and regulatory requirements.

  . Many of the companies' contracts are fixed price contracts. While firm,
    fixed price contracts allow the companies to benefit from cost savings,
    they also create exposure to the risk of cost overruns. If adjustments to
    the estimates used for calculating the contract price are required,
    losses may result. In addition, some contracts have provisions relating
    to cost controls and audit rights and failure to meet the terms specified
    in those contracts can have costly consequences.

  . Success or failure in winning new contracts or follow on orders for
    existing or future products may cause material fluctuations in future
    revenues and operating results. Failure to meet the terms and conditions
    specified in those contracts may have adverse consequences.

  . Operations are subject to external events which can adversely affect the
    ability of Northrop Grumman and Litton to meet contract obligations
    within anticipated cost and time parameters. Problems and delays in
    delivery may result from issues with respect to design technology,
    licensing and patent rights, labor or materials and components that
    prevent achievement of contract requirements. Delivery or performance
    issues with key suppliers and subcontractors, as well as other factors
    may arise. Changes in inventory requirements or other production cost
    increases may also have a negative impact on operating results.

  . The businesses of Northrop Grumman and Litton are dependent upon the
    companies' ability to anticipate changing needs for defense products,
    military and civilian electronic systems and support, and information
    technology. Failure to design new products which will respond to such
    requirements within customers' price limitations would adversely affect
    the companies' ability to compete.

  . In recent periods, Northrop Grumman has realized significant amounts of
    pension income. Future pension income is based upon market performance of
    pension assets, which may fluctuate with external economic conditions. As
    the result, the portion of earnings attributed to pension income could
    vary significantly.

  . Results of operations for Northrop Grumman and Litton require management
    to make estimates of cost to complete major contracts and other factors
    which materially affect reported earnings. Changes in such estimates and
    failures to achieve anticipated levels of performance can result in
    significant charges against earnings.

   See also "Important Considerations Concerning Elections to Receive NNG
Stock" beginning on page 11. Readers are cautioned not to put undue reliance on
forward-looking statements. NNG disclaims any intent or obligation to update
these forward-looking statements, whether as a result of new information,
future events or otherwise.

                                       85
<PAGE>

                                 LEGAL MATTERS

   The legality of NNG common stock and preferred stock offered by this offer
to purchase or exchange will be passed upon by John H. Mullan, Corporate Vice
President, Secretary and Associate General Counsel of NNG. 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.

                                    EXPERTS

   The consolidated financial statements and the related financial statement
schedule incorporated in this offer to purchase or exchange by reference from
Northrop Grumman Corporation's 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.

   The consolidated financial statements incorporated in this offer to purchase
or exchange by reference from Litton Industries, Inc.'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.

                                       86
<PAGE>

                                    ANNEX A

                        DIRECTORS AND EXECUTIVE OFFICERS

Directors And Executive Officers Of Northrop Grumman and NNG

   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 and NNG are set forth below. Unless otherwise
indicated, each occupation set forth opposite an individual's name refers to
employment with Northrop Grumman and each individual has held such
occupation(s) 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 Corporation at 1840 Century Park East, Los Angeles, California 90067.

                                   DIRECTORS
                (including executive officers who are directors)

<TABLE>
<CAPTION>
                                  Present Principal and Five Year Employment
 Name                     Age                      History
 ----                     ---     ------------------------------------------
 <C>                      <C> <S>
 Kent Kresa*.............  62 Kent Kresa is Chairman, President and Chief
                              Executive Officer of Northrop Grumman and Chief
                              Executive Officer of NNG. Before joining Northrop
                              Grumman, Mr. Kresa was associated with the
                              Lincoln Laboratory of M.I.T. and the Defense
                              Advanced Research Projects Agency of the
                              Department of Defense. In 1975, he joined
                              Northrop Grumman as Vice President and Manager of
                              Northrop Grumman's Research and Technology
                              Center. He became General Manager of the Ventura
                              Division in 1976, Group Vice President of the
                              Aircraft Group in 1982 and Senior Vice President
                              for Technology and Development in 1986. Mr. Kresa
                              was elected President and Chief Operating Officer
                              of Northrop Grumman in 1987. He was named Chief
                              Executive Officer in 1989 and Chairman of the
                              Board in 1990. Mr. Kresa is a member of the
                              National Academy of Engineering and is a past
                              Chairman of the Board of Governors of the
                              Aerospace Industries Association. He is also an
                              Honorary Fellow of the American Institute of
                              Aeronautics and Astronautics. He serves on the
                              Board of Directors of the W.M. Keck Foundation
                              and on the Board of Trustees of the California
                              Institute of Technology, and serves as a director
                              of Avery Dennison Corporation, the Los Angeles
                              World Affairs Council, the John Tracy Clinic and
                              Eclipse Aviation. He is also a Member of the
                              corporation, Draper Laboratories, Inc., and
                              serves on the Board of Governors of the
                              Performing Arts Center of Los Angeles. Mr. Kresa
                              became Chief Executive Officer of NNG in January
                              2001.
</TABLE>


                                      A-1
<PAGE>

<TABLE>
<CAPTION>
                                  Present Principal and Five Year Employment
 Name                     Age                      History
 ----                     ---     ------------------------------------------
 <C>                      <C> <S>
 Jack R. Borsting*.......  72 E. Morgan Stanley Professor of Business
                              Administration and Director of the Center for
                              Telecommunications Management, University of
                              Southern California. Dr. Jack R. Borsting was at
                              the Naval Postgraduate School in Monterey,
                              California from 1959 to 1980. During his tenure
                              at Monterey, he was professor of
                              Operations Research, Chairman of the Department
                              of Operations Research and Administration
                              Science, and Provost and Academic Dean. Dr.
                              Borsting was Assistant Secretary of Defense
                              (Comptroller)
                              from 1980 to 1983 and Dean of the School of
                              Business at the University of Miami from 1983 to
                              1988. From 1988 to 1994, he was the Robert R.
                              Dockson professor and Dean of the School of
                              Business Administration at the University of
                              Southern California, Los Angeles. He is past
                              president of both the Operations Research Society
                              of America and the Military Operations Research
                              Society. He is currently Chairman of the Board of
                              Trustees of the Orthopedic Hospital of Los
                              Angeles and serves as a director of Whitman
                              Education Group and TRO Learning, Inc. He is also
                              a trustee of the Rose Hills Foundation.

 John T. Chain, Jr.*.....  66 General, United States Air Force (Ret.) and
                              Chairman of the Board, Thomas Group, a management
                              consulting company. During his military career,
                              General John T. Chain held a number of Air Force
                              commands. In 1978, he became military assistant
                              to the Secretary of the Air Force. In 1984, he
                              became the Director of Politico-Military Affairs,
                              Department of State. General Chain has been Chief
                              of Staff of Supreme Headquarters Allied Powers
                              Europe, and Commander in Chief, Strategic Air
                              Command, the position from which he retired in
                              February 1991. In March 1991, he became Executive
                              Vice President for Burlington Northern Railroad,
                              serving in that capacity until February 1996. In
                              December 1996, he assumed the position of
                              President of Quarterdeck Equity Partners, Inc.
                              and in May 1998, he became Chairman of the Board
                              of Thomas Group, Inc. He is also a director of
                              R.J. Reynolds, Inc. and Kemper Insurance Company.
</TABLE>


                                      A-2
<PAGE>

<TABLE>
<CAPTION>
                                  Present Principal and Five Year Employment
 Name                     Age                      History
 ----                     ---     ------------------------------------------
 <C>                      <C> <S>
 Vic Fazio*..............  58 Senior Partner, Clark & Weinstock, a consulting
                              firm. Vic Fazio served as a Member of Congress
                              for twenty 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 eighteen
                              years. Mr. Fazio was a member of the elected
                              Democratic Leadership in the House from 1991-1998
                              including four years as Chair of the Democratic
                              Caucus, the third ranking position in the party.
                              From 1975 to 1978 Mr. Fazio served in the
                              California Assembly and was a member of the staff
                              of the California Assembly Speaker from 1971 to
                              1975. Upon leaving Congress in early 1999, he
                              became a Senior Partner at Clark & Weinstock, a
                              strategic communications consulting firm. He is a
                              member of numerous boards including The
                              California Institute, Coro National Board of
                              Governors, the U.S. Capitol Historical Society
                              and the Board of Visitors, The University of
                              California at Davis.

 Phillip Frost*..........  64 Chairman of the Board and Chief Executive
                              Officer, IVAX Corporation, a pharmaceutical
                              company. Dr. Phillip Frost has served as Chairman
                              of the Board of Directors and Chief Executive
                              Officer of IVAX Corporation since 1987. He was
                              Chairman of the Department of Dermatology at Mt.
                              Sinai Medical Center of Greater Miami, Miami
                              Beach, Florida from 1972 to 1990. Dr. Frost 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 the Board of Directors of Continucare
                              Corporation. He is also a Trustee of the Board of
                              the University of Miami and a member of the Board
                              of Governors of the American Stock Exchange.

 Charles R. Larson*......  64 Admiral, United States Navy (Ret.). Charles R.
                              Larson was superintendent of the U.S. Naval
                              Academy from 1983 to 1986. In 1991, he became
                              senior military commander in the Pacific. He
                              returned to the U.S. Naval Academy in 1994, where
                              he served as superintendent until 1998.
                              Currently, he is Chairman of the Board of the
                              U.S. Naval Academy Foundation, Vice Chairman of
                              the Board of Regents of the University System of
                              Maryland and serves on the board of directors of
                              such organizations as Constellation Energy Group,
                              Inc., the White House Fellows Foundation, 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. His
                              decorations include the Defense Distinguished
                              Service Medal, seven Navy Distinguished Service
                              Medals, three Legions of Merit, Bronze Star
                              Medal, Navy Commendation and the Navy Achievement
                              Medal.
</TABLE>


                                      A-3
<PAGE>

<TABLE>
<CAPTION>
                                  Present Principal and Five Year Employment
 Name                     Age                      History
 ----                     ---     ------------------------------------------
 <C>                      <C> <S>
 Robert A. Lutz*.........  69 Chairman and Chief Executive Officer, Exide
                              Corporation, a battery manufacturing company.
                              Robert A. Lutz has served as Chairman and Chief
                              Executive Officer of Exide Corporation since
                              December 1998. Previously, he had joined Chrysler
                              Corporation in 1986 as Executive Vice President
                              of Chrysler Motors Corporation and was elected a
                              director of Chrysler Corporation that same year.
                              He was elected President in 1991 and Vice
                              Chairman of Chrysler Corporation in 1996. He
                              retired from Chrysler Corporation in July 1998.
                              Prior to joining Chrysler Corporation, Mr. Lutz
                              held senior positions with Ford Motor Company,
                              General Motors Corporation Europe and Bavarian
                              Motor Werke. He is an executive director of the
                              National Association of Manufacturers and a
                              member of the National Advisory Council of the
                              University of Michigan School of Engineering, the
                              Board of Trustees of the U.S. Marine Corps
                              University Foundation and the Advisory Board of
                              the University of California-Berkeley, Haas
                              School of Business. Mr. Lutz is also a director
                              of ASCOM Holdings, A.G. and Silicon Graphics,
                              Inc.

 Aulana L. Peters*.......  59 Retired Partner, Gibson, Dunn & Crutcher. Aulana
                              L. Peters joined the law firm of Gibson, Dunn &
                              Crutcher in 1973. In 1980, she was named a
                              partner in the firm and continued in the practice
                              of law until 1984 when she accepted an
                              appointment as Commissioner of the SEC. In 1988,
                              after serving four years as a Commissioner, she
                              returned to Gibson, Dunn & Crutcher. Ms. Peters
                              retired from Gibson, Dunn & Crutcher in December
                              2000. 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") and of the Legal Advisory Board of the
                              National Association of Securities Dealers. Ms.
                              Peters is a member of the Financial Accounting
                              Standards Board Steering Committee for its
                              Financial Reporting Project and is a member of
                              the Public Oversight Board.

 John E. Robson*.........  70 Senior Advisor, Robertson Stephens, a Fleet
                              Boston Financial Company, investment bankers.
                              From 1989 to 1993, John E. Robson served as
                              Deputy Secretary of the United States Treasury.
                              He was Dean and Professor of Management at the
                              Emory University School of Business
                              Administration from 1986 to 1989 and President
                              and Chief Executive Officer and Executive Vice
                              President and Chief Operating Officer of G.D.
                              Searle & Co., a pharmaceutical company, from 1977
                              to 1986. Previously, he held government posts as
                              Chairman of the U.S. Civil Aeronautics Board,
                              regulator of the airline industry and Under
                              Secretary of the U.S. Department of
                              Transportation, and engaged in the private
                              practice of law as a partner of Sidley and
                              Austin. Mr. Robson is a director of Exide
                              Corporation, Monsanto Company and ProLogis Trust.
                              He is also a Distinguished Visiting Fellow of the
                              Hoover Institution at Stanford University, a
                              Visiting Fellow at the Heritage Foundation and a
                              director of the University of California San
                              Francisco Foundation.
</TABLE>


                                      A-4
<PAGE>

<TABLE>
<CAPTION>
                                  Present Principal and Five Year Employment
 Name                     Age                      History
 ----                     ---     ------------------------------------------
 <C>                      <C> <S>
 Richard M. Rosenberg*...  70 Chairman of the Board and Chief Executive Officer
                              (Ret.), BankAmerica Corporation and Bank of
                              America NT&SA. Richard M. Rosenberg was the
                              Chairman of the Board and Chief Executive Officer
                              of BankAmerica Corporation ("BAC") and Bank of
                              America ("BofA") from 1990 to 1996. He had served
                              as President since February 1990 and as Vice
                              Chairman of the Board and a director of BAC and
                              the BofA since 1987. Before joining BAC, Mr.
                              Rosenberg served as President and Chief Operating
                              Officer of Seafirst Corporation and Seattle-First
                              National Bank, which he joined in 1986. Mr.
                              Rosenberg is a retired Commander in the U.S. Navy
                              Reserve, a director of Airborne Express
                              Corporation, SBC Communications, Chronicle
                              Publishing, Pacific Life Insurance Company, and
                              Bank of America Corporation and a member of the
                              Board of Trustees of the California Institute of
                              Technology.

 John Brooks Slaughter*..  67 President and CEO of the National Action Council
                              for Minorities in Engineering, Inc. Dr. John
                              Brooks 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 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 CEO 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 Avery
                              Dennison Corporation, Solutia, Inc. and
                              International Business Machines Corporation.

 Richard J. Stegemeier*..  73 Chairman Emeritus of the Board of Directors,
                              Unocal Corporation, an integrated petroleum
                              company. Richard J. Stegemeier joined Union Oil
                              Company of California, principal operating
                              subsidiary of Unocal Corporation ("Unocal"), in
                              1951. He became President and Chief Operating
                              Officer of Unocal in 1985, and President and
                              Chief Executive Officer in 1988. In 1989 he was
                              elected Chairman of the Board of Unocal, the
                              position from which he retired in 1995.
                              Mr. Stegemeier is a member of the National
                              Academy of Engineering and a director of
                              Foundation Health Systems, Inc., Halliburton
                              Company, Sempra Energy and Montgomery Watson,
                              Inc.

 Lewis W. Coleman*.......  59 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. Mr. Coleman joined Banc of
                              America
</TABLE>


                                      A-5
<PAGE>

<TABLE>
<CAPTION>
                                  Present Principal and Five Year Employment
 Name                     Age                      History
 ----                     ---     ------------------------------------------
 <C>                      <C> <S>
                              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. He is also on the
                              Board of Directors of Chiron Corporation.

 Herbert W. Anderson.....  61 Mr. Anderson has been Corporate Vice President of
                              Northrop Grumman and President and Chief
                              Executive Officer, Logicon, Inc. since 1998. Mr.
                              Anderson also became Corporate Vice President of
                              NNG in January 2001. Prior to this, Mr. Anderson
                              was Corporate Vice President and General Manager,
                              Data Systems and Services Division.

 Ralph D. Crosby, Jr.....  53 Mr. Crosby has been Corporate Vice President of
                              Northrop Grumman and President, Integrated
                              Systems and Aerostructures Sector 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, B-2 Division.
                              Mr. Crosby also became Vice President of NNG in
                              January 2001.

 J. Michael Hateley......  54 Mr. Hateley has been Corporate Vice President and
                              Chief Human Resources Administrative Officer of
                              Northrop Grumman since 2000. Prior to January
                              1999, Mr. Hateley was Vice President, Human
                              Resources, Security and Administration Military
                              Aircraft Systems Division. Prior to 1996, he was
                              Vice President, Human Resources, Security and
                              Administration, B-2 Division. Mr. Hateley also
                              became Corporate Vice President and Chief Human
                              Resources Administrative Officer of NNG in
                              January 2001.

 Robert W. Helm..........  49 Mr. Helm has been Corporate Vice President,
                              Government Relations of Northrop Grumman since
                              1994. Mr. Helm also became Corporate Vice
                              President of NNG in January 2001.

 John H. Mullan..........  58 Mr. Mullan has been 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.
                              Mr. Mullan also became Corporate Vice President,
                              Secretary and Associate General Counsel of NNG in
                              January 2001.

 Albert F. Myers.........  55 Mr. Myers has been Corporate Vice President and
                              Treasurer of Northrop Grumman since 1994. Mr.
                              Myers also became Corporate Vice President and
                              Treasurer of NNG in January 2001.

 Rosanne P. O'Brien......  57 Ms. O'Brien has been Corporate Vice President,
                              Communications of Northrop Grumman since August
                              2000. Prior to this, Ms. O'Brien was Vice
                              President, Communications since January 1999.
                              Ms. O'Brien was Senior Consultant to Alleghany
                              Teledyne, Inc. from 1996 to 1999, and Vice
                              President, Corporate Relations for Teledyne, Inc.
                              from 1993 through 1995.
</TABLE>


                                      A-6
<PAGE>

<TABLE>
<CAPTION>
 Name                    Age Present Principal and Five Year Employment History
 ----                    --- --------------------------------------------------
 <C>                     <C> <S>
 James G. Roche.........  61 Mr. Roche has been Corporate Vice President of
                             Northrop Grumman and President, Electronic Sensors
                             and Systems Sector since 1998. Prior to this, Mr.
                             Roche was Corporate Vice President and General
                             Manager, Electronic Sensors and Systems Division.
                             Prior to 1996, he was Corporate Vice President and
                             Chief Advanced Development, Planning, and Public
                             Affairs Officer. Mr. Roche also became Corporate
                             Vice President of NNG in January 2001.

 W. Burks Terry.........  50 Mr. Terry has been Corporate Vice President and
                             General Counsel of Northrop Grumman since August
                             2000. Prior to this, Mr. Terry became Vice
                             President, Deputy General Counsel and Sector
                             Counsel in October 1998 and prior to October, 1998
                             he was Vice President and Assistant General
                             Counsel. Mr. Terry also became Corporate Vice
                             President and General Counsel of NNG in January
                             2001.

 Robert B. Spiker.......  47 Mr. Spiker has been Corporate Vice President and
                             Controller of
                             Northrop Grumman since December 2000. Prior to
                             this, Mr. Spiker was Vice President, Finance and
                             Controller, Electronic Sensors and Systems Sector.
                             Prior to 1999, he was Business Manager for C3&I
                             Naval Systems. Mr. Spiker also became Corporate
                             Vice President and Controller of NNG in January
                             2001.

 Richard B. Waugh, Jr...  57 Mr. Waugh has been Corporate Vice President and
                             Chief Financial Officer of Northrop Grumman since
                             1993. Mr. Waugh also became Corporate Vice
                             President and Chief Financial Officer of NNG in
                             January 2001.
</TABLE>
--------
*  Member of Northrop Grumman's board of directors and NNG's board of
   directors.

   None of the executive officers and directors of Northrop Grumman or LII
Acquisition currently is a director of, or holds any position with, Litton or
any of its subsidiaries. We believe that none of our directors, executive
officers, affiliates or associates beneficially owns any equity securities, or
rights to acquire any equity securities, of Litton. We believe no such person
has been involved in any transaction with Litton or any of Litton's directors,
executive officers, affiliates or associates which is required to be disclosed
pursuant to the rules and regulations of the SEC.

                                      A-7
<PAGE>

                                    ANNEX B

Section 262. Appraisal rights

   (a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.

   (b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:

     (1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of (S) 251 of this title.

     (2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to (S)(S) 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:

      a. Shares of stock of the corporation surviving or resulting from
         such merger or consolidation, or depository receipts in respect
         thereof;

      b.  Shares of stock of any other corporation, or depository receipts
          in respect thereof, which shares of stock (or depository
          receipts in respect thereof) or depository receipts at the
          effective date of the merger or consolidation will be either
          listed on a national securities exchange or designated as a
          national market system security on an interdealer quotation
          system by the National Association of Securities Dealers, Inc.
          or held of record by more than 2,000 holders;
      c. Cash in lieu of fractional shares or fractional depository
         receipts described in the foregoing subparagraphs paragraphs a.
         and b. of this paragraph; or

      d. Any combination of the shares of stock, depository receipts and
         cash in lieu of fractional shares or fractional depository
         receipts described in the foregoing subparagraphs a., b. and c.
         of this paragraph.

     (3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.

                                      B-1
<PAGE>

   (c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.

   (d) Appraisal rights shall be perfected as follows:

     (1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or

     (2) If the merger or consolidation was approved pursuant to (S) 228 or (S)
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such
notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record date
is fixed and the notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day on which the
notice is given.

                                      B-2
<PAGE>

   (e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.

   (f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.

   (g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.

   (h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.

   (i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of

                                      B-3
<PAGE>

uncertificated stock forthwith, and the case of holders of shares represented
by certificates upon the surrender to the corporation of the certificates
representing such stock. The Court's decree may be enforced as other decrees in
the Court of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.

   (j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

   (k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.

   (l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.

                                      B-4
<PAGE>

   The letter of transmittal, certificates of Litton common stock and preferred
stock and any other required documents should be sent or delivered by each
Litton stockholder or his or her broker, dealer, commercial bank, trust company
or other nominee to the depositary at one of its addresses set forth below.

                        The Depositary for the offer is:

                            EQUISERVE TRUST COMPANY

<TABLE>
<CAPTION>
          By Mail:                      By Hand Delivery:              By Overnight Delivery:
<S>                           <C>                                   <C>
  EQUISERVE TRUST COMPANY                EQUISERVE TRUST COMPANY       EQUISERVE TRUST COMPANY
       PO Box 842010          c/o Securities Transfer and Reporting      40 Campanelli Drive
   Boston, Massachusetts                 Services, Inc.               Braintree, Massachusetts
        002284-2010               100 William Street--Galleria                  02184
                                    New York, New York 10038
</TABLE>

                           By Facsimile Transmission:
                        (for Eligible Institutions only)
                              Fax: (781) 575-4826
                                       or
                                 (781) 575-4827

                             Confirm by Telephone:
                                 (781) 575-4816

   Any questions or requests for assistance or additional copies of the offer
to purchase or exchange, the letter of transmittal and the notice of guaranteed
delivery and related exchange offer materials may be directed to the
information agent at its telephone number and location listed below. You may
also contact your local broker, commercial bank, trust company or nominee for
assistance concerning the offer.

                    The Information Agent for the offer is:

              [LOGO OF GEORGESON SHAREHOLDER COMMUNICATIONS INC.]

                          17 State Street, 10th Floor
                               New York, New York

                Bankers and Brokers Call Collect: (212) 440-9800
                   All Others Call Toll Free: (800) 223-2064

                      The Dealer Manager for the offer is:

                              Salomon Smith Barney

                              388 Greenwich Street
                            New York, New York 10013
                                 (877) 319-4978

   Any questions or requests for assistance or additional copies of the offer
to purchase or exchange, the letter of transmittal and the notice of guaranteed
delivery and related exchange offer materials may be directed to the
information agent at its telephone number and location listed above. You may
also contact your local broker, commercial bank, trust company or nominee for
assistance concerning the offer.
<PAGE>

 PART II. INFORMATION NOT REQUIRED IN OFFER TO PURCHASE OR EXCHANGE/PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

   Section 145 of the DGCL provides that a corporation may indemnify directors
and officers as well as other employees and individuals against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation--a "derivative action"), if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceedings, had no reasonable cause to believe their conduct was unlawful.

   A similar standard is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement
of such action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's certificate of
incorporation, bylaws, disinterested director vote, stockholder vote, agreement
or otherwise.

   As permitted by Section 145 of the DGCL, Article EIGHTEENTH of NNG'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 director's
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 Seventeen hereof shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification."

   NNG plans to purchase insurance on behalf of any person who is or was a
director, officer, employee or agent of NNG, or is or was serving at the
request of NNG 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 NNG would have the power to
indemnify him against such liability under the provisions of NNG's restated
certificate of incorporation, as amended.

                                      II-1
<PAGE>

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

   (a) The following Exhibits are filed herewith unless otherwise indicated:

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Exhibits
 -------                         -----------------------
 <C>     <S>
  **2.1  Agreement and Plan of Merger dated as of December 21, 2000 among
          Northrop Grumman Corporation, Litton Industries, Inc. and LII
          Acquisition Corp., filed as exhibit (d)(1) to the Tender Offer
          Statement on Schedule TO (the "Schedule TO") filed with the SEC on
          January 5, 2001 and incorporated herein by reference.

  **2.2  Amended and Restated Agreement and Plan of Merger dated as of January
          23, 2001, among Northrop Grumman Corporation, Litton Industries,
          Inc., NNG, Inc. and LII Acquisition Corp.

  **3.1  Amended and Restated Certificate of Incorporation of NNG, Inc.

  **3.2  Restated Bylaws of NNG, Inc.

  **4.1  Registration Rights Agreement dated as of January 23, 2001 by and
          among Northrop Grumman Corporation, NNG, Inc. and Unitrin, Inc.,
          filed as exhibit (d)(6) to Amendment No. 4 to the Schedule TO filed
          with the SEC on January 31, 2001 and incorporated herein by
          reference.

  **4.2  Form of Certificate of Designations, Preferences and Rights of Series
          B Preferred Stock of Northrop Grumman Corporation.

    4.3  Rights Agreement dated as of January 31, 2001 between NNG, Inc. and
          EquiServe Trust Company, N.A.

  **5.1  Opinion of John H. Mullan as to the legality of the securities.

  **8.1  Opinion of Gibson, Dunn & Crutcher LLP regarding certain tax matters.

  **8.2  Opinion of Ivins, Phillips & Barker Chartered regarding certain tax
         matters.

 **10.1  Stockholder's Agreement dated as of January 23, 2001 among Northrop
          Grumman Corporation, NNG, Inc. and Unitrin, Inc., including form of
          Stockholder Subsidiary Proxy, filed as exhibit (d)(5) to Amendment
          No. 4 to the Schedule TO filed with the SEC on January 31, 2001 and
          incorporated herein by reference.

 **10.2  Employment Agreement with Dr. 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.

 **10.3  Form of Change of Control Employment Agreement of Litton Industries,
         Inc.

 **10.4  Confidentiality Agreement dated June 23, 2000, between Northrop
          Grumman Corporation and Litton Industries, Inc., filed as exhibit
          (d)(2) to the Schedule TO filed with the SEC on January 5, 2001 and
          incorporated herein by reference.

 **10.5  $6,000,000,000 Senior Credit Facilities Commitment Letter dated
          January 30, 2001, from Credit Suisse First Boston, The Chase
          Manhattan Bank and J.P. Morgan, filed as exhibit (b)(ii) to the
          Schedule TO filed with the SEC on February 1, 2001 and incorporated
          herein by reference.

   10.6  Form of $2,500,000,000 364-Day Revolving Credit Agreement among NNG,
          Inc., Northrop Grumman Corporation, Litton Industries, Inc., 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.

   10.7  Form of $2,500,000,000 Five-Year Revolving Credit Agreement among NNG,
          Inc., Northrop Grumman Corporation, Litton Industries, Inc., 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.

   10.8  Letter Agreement dated January 31, 2001 between Northrop Grumman
          Corporation and 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.
</TABLE>


                                      II-2
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
 Number                          Description of Exhibits
 -------                         -----------------------
 <C>     <S>
   12.1  Statement regarding computation of earnings to fixed charges ratio.

 **15.1  Letter from Independent Accountants Regarding Unaudited Interim
          Financial Information.

 **23.1  Consent of Deloitte & Touche LLP.

 **23.2  Consent of Deloitte & Touche LLP.

 **23.3  Consent of John H. Mullan (included in opinion filed as Exhibit 5.1).

 **23.4  Consent of Gibson, Dunn & Crutcher LLP (included in its opinion filed
         as Exhibit 8.1).

 **23.5  Consent of Ivins, Phillips & Barker Chartered (included in its opinion
         filed as Exhibit 8.2).

   23.6  Consent of Deloitte & Touche LLP.

   23.7  Consent of Deloitte & Touche LLP.

 **24.1  Power of Attorney for Northrop Grumman Corporation and NNG, Inc.

 **24.2  Power of Attorney for Kent Kresa.

 **24.3  Power of Attorney for Richard B. Waugh, Jr.

 **24.4  Power of Attorney for Jack R. Borsting.

 **24.5  Power of Attorney for John T. Chain, Jr.

 **24.6  Power of Attorney for Vic Fazio.

 **24.7  Power of Attorney for Phillip Frost.

 **24.8  Power of Attorney for Charles R. Larson.

 **24.9  Power of Attorney for Robert A. Lutz.

 **24.10 Power of Attorney for Aulana L. Peters.

 **24.11 Power of Attorney for John E. Robson.

 **24.12 Power of Attorney for Richard M. Rosenberg.

 **24.13 Power of Attorney for Richard J. Stegemeier.

 **24.14 Power of Attorney for John Brooks Slaughter.

 **99.1  Letter of Transmittal, Common Stock and Preferred Stock, each dated
         February 1, 2001, filed as exhibit (a)(1)(vi) Amendment No. 5 to the
         Schedule TO filed with the SEC on February 1, 2001 and incorporated
         herein by reference.

 **99.2  Notice of Guaranteed Delivery, Common Stock and Preferred Stock, each
         dated February 1, 2001, filed as exhibit (a)(1)(vii) to Amendment
         No. 5 to the Schedule TO filed with the SEC on February 1, 2001 and
         incorporated herein by reference.

 **99.3  Notice to Participants in the Litton Industries Employee Stock
         Purchase Plan prior to December 1, 1993, dated February 1, 2001 and
         filed as exhibit (a)(1)(viii) to Amendment No. 5 to the Schedule TO
         filed with the SEC on February 1, 2001 and incorporated by reference.

 **99.4  Notice to Participants in the Litton Industries Employee Stock
         Purchase Plan after November 1, 1994, dated January 5, 2001, filed as
         exhibit (a)(1)(ix) to Amendment No. 5 to the Schedule TO filed with
         the SEC on February 1, 2001 and incorporated by reference.

 **99.5  Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
         Other Nominees, dated February 1, 2001, filed as exhibit (a)(5)(x) to
         Amendment No. 5 to the Schedule TO filed with the SEC on February 1,
         2001 and incorporated herein by reference.

 **99.6  Letter to Clients, Common Stock and Preferred Stock, each dated
         February 1, 2001, filed as exhibit (a)(5)(xi) to Amendment No. 5 to
         the Schedule TO filed with the SEC on February 1, 2001 and
         incorporated herein by reference.

 **99.7  Guidelines for Certification of Taxpayer Identification Number on
         Substitute Form W-9, filed as exhibit (a)(1)(xii) to Amendment No. 5
         to the Schedule TO filed with the SEC on February 1, 2001 and
         incorporated by reference.
</TABLE>
--------
** previously filed

                                      II-3
<PAGE>

ITEM 22. UNDERTAKINGS.

   (a) The undersigned registrant hereby undertakes:

     (1) To file, during any period in which offers or sales are being made,
  a post-effective amendment to this registration statement:

       (i) To include any prospectus required by Section 10(a)(3) of the
    Securities Act of 1933;

       (ii) To reflect in the prospectus any facts or events arising after
    the effective date of the registration statement (or the most recent
    post-effective amendment thereof) which, individually or in the
    aggregate, represent a fundamental change in the information set forth
    in the registration statement. Notwithstanding the foregoing, any
    increase or decrease in volume of securities offered (if the total
    dollar value of securities offered would not exceed that which was
    registered) and any deviation from the low or high end of the estimated
    maximum offering range may be reflected in the form of prospectus filed
    with the Commission pursuant to Rule 424(b) if, in the aggregate, the
    changes in volume and price represent no more than a 20 percent change
    in the maximum aggregate offering price set forth in the "Calculation
    of Registration Fee" table in the effective registration statement;

       (iii) To include any material information with respect to the plan
    of distribution not previously disclosed in the registration statement
    or any material change to such information in the registration
    statement;

     (2) That, for the purpose 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; and

     (3) To remove from registration by means of a post-effective amendment
  any of the securities being registered which remain unsold at the
  termination of the offering.

   (b) 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.

   (c) 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 a 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.

   (d) 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.

   (e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the

                                      II-4
<PAGE>

registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

   (f) 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.

   (g) 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 the subject of and
included in the registration statement when it became effective.

                                      II-5
<PAGE>

                                   SIGNATURES

  Pursuant to the requirements of the Securities Act, 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 March 27, 2001.

                                          NNG, INC.

                                                     /s/ John H. Mullan
                                          By: _________________________________
                                             Name: John H. Mullan
                                             Title:  Corporate Vice President,
                                                     Secretary and Associate
                                                     General Counsel

                               POWER OF ATTORNEY

  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Richard B. Waugh, Jr., W. Burks Terry
and John H. Mullan with full power to act alone, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement and any subsequent registration
statement filed by the registrant pursuant to Rule 462(b) of the Securities
Act, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.

  Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.

<TABLE>
<CAPTION>
             Signature                           Title                  Date
             ---------                           -----                  ----

<S>                                  <C>                           <C>
                 *                   Chairman of the Board,        March 27, 2001
____________________________________  President and Chief
             Kent Kresa               Executive Officer and
                                      Director (Principal
                                      Executive Officer)

                *                    Corporate Vice President and  March 27, 2001
____________________________________  Chief Financial Officer
       Richard B. Waugh, Jr.          (Principal Financial
                                      Officer and Principal
                                      Accounting Officer)

                *                    Director                      March 27, 2001
____________________________________
          Jack R. Borsting

                *                    Director                      March 27, 2001
____________________________________
         John T. Chain, Jr.
</TABLE>

                                      II-6
<PAGE>

<TABLE>
<CAPTION>
             Signature                           Title                  Date
             ---------                           -----                  ----

<S>                                  <C>                           <C>
                                     Director
____________________________________
          Lewis W. Coleman

                 *                   Director                      March 27, 2001
____________________________________
             Vic Fazio

                 *                   Director                      March 27, 2001
____________________________________
           Phillip Frost

                 *                   Director                      March 27, 2001
____________________________________
         Charles R. Larson

                 *                   Director                      March 27, 2001
____________________________________
           Robert A. Lutz

                 *                   Director                      March 27, 2001
____________________________________
          Aulana L. Peters

                 *                   Director                      March 27, 2001
____________________________________
           John E. Robson

                 *                   Director                      March 27, 2001
____________________________________
        Richard M. Rosenberg

                 *                   Director                      March 27, 2001
____________________________________
       John Brooks Slaughter

                 *                   Director                      March 27, 2001
____________________________________
       Richard J. Stegemeier

      *By: /s/ John H. Mullan
____________________________________
          John H. Mullan,
          Attorney-in-fact
</TABLE>



                                      II-7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>RIGHTS AGREEMENT DATED AS OF JANUARY 31, 2001
<TEXT>

<PAGE>

                                                                     EXHIBIT 4.3

                   _________________________________________


                                   NNG, INC.

                                      and

                        EQUISERVE TRUST COMPANY, N. A.

                                 Rights Agent
                   _________________________________________

                               Rights Agreement
                   _________________________________________

                         Dated as of January 31, 2001
                   _________________________________________
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                              Page
                                                                                              ----
<S>                                                                                           <C>
Section 1.     Certain Definitions..........................................................    1
Section 2.     Appointment of Rights Agent..................................................    4
Section 3.     Issuance of Right Certificates...............................................    4
Section 4.     Form of Right Certificate....................................................    6
Section 5.     Countersignature and Registration............................................    7
Section 6.     Transfer, Split-Up, Combination and Exchange of Right Certificates;
               Mutilated, Destroyed, Lost or Stolen Right Certificate.......................    7
Section 7.     Exercise of Rights; Purchase Price; Expiration Date of Rights................    8
Section 8.     Cancellation and Destruction of Right Certificates...........................   10
Section 9.     Reservations and Availability of Preferred Shares............................   10
Section 10.    Preferred Shares Record Date.................................................   11
Section 11.    Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights..   12
Section 12.    Certificate of Adjusted Purchase Price or Number of Shares...................   18
Section 13.    Consolidation, Merger or Sale or Transfer of Assets or Earning Power.........   18
Section 14.    Fractional Rights and Fractional Shares......................................   21
Section 15.    Rights of Action.............................................................   22
Section 16.    Agreement of Right Holders...................................................   22
Section 17.    Right Certificate Holder Not Deemed a Stockholder............................   23
Section 18.    Concerning the Rights Agent..................................................   23
Section 19.    Merger or Consolidation or Change of Name of Rights Agent....................   24
Section 20.    Duties of Rights Agent.......................................................   24
Section 21.    Change of Rights Agent.......................................................   27
Section 22.    Issuance of New Rights Certificates..........................................   27
Section 23.    Redemption and Termination...................................................   28
Section 24.    Exchange.....................................................................   29
Section 25.    Notice of Certain Events.....................................................   30
Section 26.    Notices......................................................................   31
Section 27.    Supplements and Amendments...................................................   31
Section 28.    Determination and Actions by the Board of Directors, etc.....................   32
Section 29.    Successors...................................................................   32
Section 30.    Benefits of this Agreement...................................................   32
Section 31.    Severability.................................................................   32
Section 32.    Governing Law................................................................   32
Section 33.    Counterparts.................................................................   33
Section 34.    Descriptive Headings.........................................................   33
Signatures..................................................................................   34
</TABLE>

                                       i
<PAGE>

Exhibit A   -  Certificate of Designation, Preferences and Rights of Series A
               Junior Participating Preferred Stock of NNG, Inc.

Exhibit B   -  Form of Right Certificate

Exhibit C   -  Summary of Rights to Purchase Preferred Shares

                                       ii
<PAGE>

                      Defined Term Cross Reference Sheet
                      ----------------------------------

TERM                                                                    LOCATION
----                                                                    --------
Acquiring Person....................................................Section 1(a)
Act.................................................................Section 1(b)
Adjusted Number of Shares.....................................Section 11(a)(iii)
Adjusted Purchase Price.......................................Section 11(a)(iii)
Adjustment Shares..............................................Section 11(a)(ii)
Affiliate...........................................................Section 1(c)
Agreement................................................................Preface
Associate...........................................................Section 1(c)
Beneficial Owner....................................................Section 1(d)
Beneficially Own....................................................Section 1(d)
Business Day........................................................Section 1(e)
capital stock equivalent......................................Section 11(a)(iii)
Close of Business...................................................Section 1(f)
Common Shares.......................................................Section 1(g)
Corporation..............................................................Preface
current per share market price..................................Section 11(d)(i)
Distribution Date...................................................Section 3(a)
Documents.............................................................Section 18
equivalent preferred shares........................................Section 11(b)
Exchange Act........................................................Section 1(c)
Exchange Ratio.....................................................Section 24(a)
Final Expiration Date...............................................Section 7(a)
Interested Stockholder..............................................Section 1(j)
NASDAQ..........................................................Section 11(d)(i)
Permitted Offer.....................................................Section 1(k)
Person..............................................................Section 1(l)
Preferred Shares....................................................Section 1(m)
Principal Party....................................................Section 13(b)
Proration Factor..............................................Section 11(a)(iii)
Purchase Price......................................................Section 4(a)
Record Date..............................................................Preface
Redemption Date.....................................................Section 7(a)
Redemption Price................................................Section 23(a)(i)
Right....................................................................Preface
Right Certificate...................................................Section 3(a)
Rights Agent.............................................................Preface
Rights Agreement....................................................Section 3(c)
Section 11(a)(ii) Event.............................................Section 1(o)
Section 13 Event....................................................Section 1(p)
Security........................................................Section 11(d)(i)
Shares Acquisition Date.............................................Section 1(q)
Subsidiary..........................................................Section 1(r)
Summary of Rights...................................................Section 3(b)

                                      iii
<PAGE>

Trading Day.....................................................Section 11(d)(i)
Triggering Event....................................................Section 1(s)
voting securities..................................................Section (13)a

                                       iv
<PAGE>

                               RIGHTS AGREEMENT

     RIGHTS AGREEMENT, dated as of January 31, 2001 (the "Agreement"), between
                                                          ---------
NNG, Inc., a Delaware corporation (the "Corporation"), and EquiServe Trust
                                        -----------
Company, N. A., a national association (the "Rights Agent").
                                             ------------

     The Board of Directors of the Corporation has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
                                                   -----
(as hereinafter defined) of the Corporation outstanding at the close of business
on January 31, 2001 (the "Record Date"), each Right representing the right to
                          -----------
purchase one one-thousandth of a Preferred Share (as hereinafter defined), upon
the terms and subject to the conditions herein set forth, and has further
authorized and directed the issuance of one Right with respect to each Common
Share that shall become outstanding between the Record Date and the earliest of
the Distribution Date, the Redemption Date or the Final Expiration Date (as such
terms are hereinafter defined); provided, however, that Rights may be issued
                                -------- --------
with respect to Common Shares that shall become outstanding after the
Distribution Date and prior to the earlier of the Redemption Date and the Final
Expiration Date in accordance with the provisions of Section 22 of this
Agreement.

     Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:

     Section 1.  Certain Definitions.  For purposes of this Agreement, the
                 -------------------
following terms have the meanings indicated:

          (a)  "Acquiring Person" shall mean any Person who or which shall be
                 ----------------
the Beneficial Owner of 15% or more of the then outstanding Common Shares (other
than as a result of a Permitted Offer (as hereinafter defined)) or is such a
Beneficial Owner at any time after the date hereof, whether or not such person
continues to be the Beneficial Owner of 15% or more of the then outstanding
Common Shares.  Notwithstanding the foregoing, (A) the term "Acquiring Person"
shall not include (i) the Corporation, (ii) any Subsidiary of the Corporation,
(iii) any employee benefit plan of the Corporation or of any Subsidiary of the
Corporation, (iv) any Person or entity organized, appointed or established by
the Corporation for or pursuant to the terms of any such plan, (v) any Person
who or which becomes the Beneficial Owner of 15% or more of the then outstanding
Common Shares as a result of the acquisition of Common Shares directly from the
Corporation or (vi) Unitrin, Inc. or any of its Subsidiaries, considered
individually or together, ("Unitrin") in the circumstances set forth below, and
(B) no Person shall be deemed to be an "Acquiring Person" as a result of the
acquisition of Common Shares by the Corporation which, by reducing the number of
Common Shares outstanding, increases the proportional number of shares
beneficially owned by such Person.  Unitrin shall not be deemed an "Acquiring
Person" by reason of (A) the acquisition or ownership of Common Shares issued to
Unitrin in exchange for shares of Litton Industries, Inc. capital stock pursuant
to the Corporation's offer to purchase or exchange all of the outstanding
capital stock of Litton Industries, Inc. for cash or capital stock of the
Corporation; (B) the acquisition or ownership of Common Shares issued to Unitrin
pursuant to the terms and provisions of the Series B Preferred Stock of the
Corporation, provided that such Series B Preferred Stock was acquired by Unitrin
pursuant to the foregoing offer to purchase or exchange; (C) the acquisition or
ownership of
<PAGE>

Common Shares issued to Unitrin pursuant to any stock dividend, stock split or
other distribution made ratably to stockholders of the Corporation; (D) the
repurchase by the Corporation of its capital stock, by tender offer or
otherwise; or (E) any other action on the part of the Corporation. Any Person
who is not an "Acquiring Person" by reason of clause (A)(vi) or (B) of the
second sentence of this definition, or by reason of the preceding sentence,
shall become an "Acquiring Person" if such Person shall thereafter acquire
Beneficial ownership of a number of Voting Shares of the Company equal to 1% or
more of the Voting Shares of the Company then outstanding (other than pursuant
to any stock dividend, stock split or other distribution made ratably to
stockholders of the Corporation) and such Person shall Beneficially Own 15% or
more of then outstanding Common Shares. In addition, no Person shall be deemed
an "Acquiring Person" solely by reason of paragraph (iii) of the definition of
"Beneficial Owner" or if such Person has become such through inadvertence, if
and for so long as the Board of Directors shall have determined, by resolution,
that such Person has acted promptly to reduce its Beneficial Ownership of Common
Shares to less than 15% of the then outstanding Common Shares or if such Person
has entered into such other arrangements as the Board of Directors shall
determine to be adequate and satisfactory to protect the interests of the
Company and its stockholders.

          (b)  "Act" shall mean the Securities Act of 1933, as amended and as
                ---
in effect on the date of this Agreement.

          (c)  "Affiliate" and "Associate" shall have the respective meanings
                ---------       ---------
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended and in effect on the date of
this Agreement (the "Exchange Act").
                      ------------

          (d)  A Person shall be deemed the "Beneficial Owner" of and shall be
                                             ----------------
deemed to "Beneficially Own" any securities:
           ----------------

               (i)    which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;

               (ii)   which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (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, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the Beneficial
           --------  -------
Owner of, or to Beneficially Own, securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall not be
                              --------  -------
deemed the Beneficial Owner of, or to Beneficially Own, any security if the
agreement, arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to a public
proxy or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act and (2) is
not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or

                                       2
<PAGE>

               (iii)  which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person's Affiliates or Associates) has any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities) relating to the acquisition, holding, voting (except to
the extent contemplated by the proviso to Section l(d)(ii)(B)) or disposing of
any securities of the Corporation.

          Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Corporation, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.

          (e)  "Business Day" shall mean any day other than a Saturday, Sunday
                ------------
or U.S. federal holiday.

          (f)  "Close of Business" on any given date shall mean 5:00 P.M., New
                -----------------
York time, on such date; provided, however, that if such date is not a Business
                         --------  -------
Day it shall mean 5:00 P.M., New York time, on the next succeeding Business Day.

          (g)  "Common Shares" when used with reference to the Corporation
                -------------
shall mean the shares of Common Stock, par value $1.00 per share, of the
Corporation or, in the event of a subdivision, combination or consolidation with
respect to such shares of Common Stock, the shares of Common Stock resulting
from such subdivision, combination or consolidation. "Common Shares" when used
with reference to any Person other than the Corporation shall mean the capital
stock (or equity interest) with the greatest voting power of such other Person
or, if such other Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.

          (h)  "Distribution Date" shall have the meaning set forth in Section 3
                -----------------
hereof.

          (i)  "Final Expiration Date" shall have the meaning set forth in
                ---------------------
Section 7 hereof.

          (j)  "Interested Stockholder" shall mean any Acquiring Person or any
                ----------------------
Affiliate or Associate of an Acquiring Person or any other Person in which any
such Acquiring Person, Affiliate or Associate has an interest, or any other
Person acting directly or indirectly on behalf of or in concert with any such
Acquiring Person, Affiliate or Associate.

          (k)  "Permitted Offer" shall mean a tender or exchange offer which is
                ---------------
for all outstanding Common Shares at a price and on terms determined, prior to
the purchase of shares under such tender or exchange offer, by at least a
majority of the members of the Board of Directors who are not officers of the
Corporation and who are not Acquiring Persons or Persons who would become
Acquiring Persons as a result of the offer in question or Affiliates,
Associates, nominees or representatives of any such Person, to be adequate
(taking into account all factors that such Directors deem relevant including,
without limitation, prices that could reasonably be achieved if the Corporation
or its assets were sold on an orderly basis designed to

                                       3
<PAGE>

realize maximum value) and otherwise in the best interests of the Corporation
and its stockholders (other than the Person or any Affiliate or Associate
thereof on whose behalf the offer is being made) taking into account all factors
that such directors may deem relevant.

          (l)  "Person" shall mean any individual, firm, partnership,
                ------
corporation, limited liability company, trust, association, joint venture or
other entity, and shall include any successor (by merger or otherwise) of such
entity.

          (m)  "Preferred Shares" shall mean shares of Series A Junior
                ----------------
Participating Preferred Stock, par value $1.00 per share, of the Corporation
having the relative rights, preferences and limitations set forth in the
Certificate of Designation, Preferences and Rights attached to this Agreement as
Exhibit A.

          (n)  "Redemption Date" shall have the meaning set forth in Section 7
                ---------------
hereof.

          (o)  "Section 11(a)(ii) Event" shall mean any event described in
                -----------------------
Section 11(a)(ii) hereof.

          (p)  "Section 13 Event" shall mean any event described in clause
                ----------------
(x), (y) or (z) of Section 13(a) hereof.

          (q)  "Shares Acquisition Date" shall mean the first date of public
                -----------------------
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to the Exchange Act) by the Corporation or
an Acquiring Person that an Acquiring Person has become such; provided, however,
                                                              --------  -------
that, if such Person is determined not to have become an Acquiring Person
pursuant to Section 1(a) hereof, then no Shares Acquisition Date shall be deemed
to have occurred.

          (r)  "Subsidiary" of any Person shall mean any corporation or other
                ----------
Person of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.

          (s)  "Triggering Event" shall mean any Section 11(a)(ii) Event or any
                ----------------
Section 13 Event.

     Section 2.  Appointment of Rights Agent.  The Corporation hereby appoints
                 ---------------------------
the Rights Agent to act as agent for the Corporation in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment.  The Corporation may from time to time appoint such co-Rights
Agents as it may deem necessary or desirable, upon 10 days prior written notice
to the Rights Agent.  The Rights Agent shall have no duty to supervise, and
shall not be liable for, the acts or omissions of any such co-Rights Agent.

     Section 3.  Issuance of Right Certificates.
                 ------------------------------

          (a)  Until the earlier of (i) the Shares Acquisition Date or (ii) the
Close of Business on the tenth day (or such later date as may be determined by
action of the Corporation's Board of Directors) after the date of the
commencement by any Person (other than the Corporation, any Subsidiary of the
Corporation, any employee benefit plan of the Corporation or

                                       4
<PAGE>

of any Subsidiary of the Corporation or any Person or entity organized,
appointed or established by the Corporation for or pursuant to the terms of any
such plan) of, or of the first public announcement of the intention of any
Person (other than the Corporation, any Subsidiary of the Corporation, any
employee benefit plan of the Corporation or of any Subsidiary of the Corporation
or any Person or entity organized, appointed or established by the Corporation
for or pursuant to the terms of any such plan) to commence (which intention to
commence remains in effect for five Business Days after such announcement), a
tender or exchange offer the consummation of which would result in any Person
becoming an Acquiring Person (including, in the case of both (i) and (ii), any
such date which is after the date of this Agreement and prior to the issuance of
the Rights), the earlier of such dates being herein referred to as the
"Distribution Date," (x) the Rights will be evidenced (subject to the provisions
 -----------------
of Section 3(b) hereof) by the certificates for Common Shares registered in the
names of the holders thereof (which certificates shall also be deemed to be
Right Certificates) and not by separate Right Certificates, and (y) the right to
receive Right Certificates will be transferable only in connection with the
transfer of the underlying Common Shares (including a transfer to the
Corporation); provided, however, that if a tender or exchange offer is
              --------  -------
terminated prior to the occurrence of a Distribution Date, then no Distribution
Date shall occur as a result of such tender offer. As soon as practicable after
the Distribution Date, the Corporation will prepare and execute, the Rights
Agent will countersign, and the Corporation will send or cause to be sent by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Distribution Date, at the address of such holder
shown on the records of the Corporation, a Right Certificate, substantially in
the form of Exhibit B hereto (a "Right Certificate"), evidencing one Right for
                                 -----------------
each Common Share so held.  As of and after the Distribution Date, the Rights
will be evidenced solely by such Right Certificates.

          (b)  As promptly as practicable following the Record Date, the
Corporation will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form of Exhibit C hereto (the "Summary of
                                                            ----------
Rights"), by first-class, postage-prepaid mail, to each record holder of Common
------
Shares as of the Close of Business on the Record Date, at the address of such
holder shown on the records of the Corporation.  With respect to certificates
for Common Shares outstanding as of the Record Date, until the Distribution
Date, the Rights will be evidenced by such certificates registered in the names
of the holders thereof together with a copy of the Summary of Rights attached
thereto.  Until the Distribution Date (or the earlier of the Redemption Date or
the Final Expiration Date), the surrender for transfer of any certificate for
Common Shares outstanding on the Record Date, with or without a copy of the
Summary of Rights attached thereto, shall also constitute the transfer of the
Rights associated with such Common Shares.  As a result of the execution of this
Agreement on January 31, 2001, each share of Common Stock outstanding as of
January 31, 2001 shall, subject to the terms and conditions of this Agreement,
also represent one Right and shall, subject to the terms and conditions of this
Agreement, represent the right to purchase one one-thousandth of a share of
Preferred Stock.

          (c)  Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date,
shall be deemed also to be certificates for Rights, and shall bear the following
legend:

                                       5
<PAGE>

     This certificate also evidences and entitles the holder hereof to certain
     rights as set forth in a Rights Agreement between NNG, Inc. and EquiServe
     Trust Company, N. A., dated as of January 31, 2001 (the "Rights
                                                              ------
     Agreement"), the terms of which are hereby incorporated herein by reference
     and a copy of which is on file at the principal executive offices of NNG,
     Inc.  Under certain circumstances, as set forth in the Rights Agreement,
     such Rights will be evidenced by separate certificates and will no longer
     be evidenced by this certificate.  NNG, Inc. will mail to the holder of
     this certificate a copy of the Rights Agreement without charge after
     receipt of a written request therefor.  Under certain circumstances set
     forth in the Rights Agreement, Rights issued to, or held by, any Person who
     is, was or becomes an Acquiring Person or an Affiliate or Associate thereof
     (as defined in the Rights Agreement) and certain related persons, whether
     currently held by or on behalf of such Person or by any subsequent holder,
     may become null and void.

With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Corporation purchases or acquires any Common Shares after
the Record Date but prior to the Distribution Date, any Rights associated with
such Common Shares shall be deemed cancelled and retired so that the Corporation
shall not be entitled to exercise any Rights associated with the Common Shares
which are no longer outstanding.

     Section 4.  Form of Right Certificate.
                 -------------------------

          (a)  The Right Certificates (and the forms of election to purchase and
of assignment to be printed on the reverse thereof) shall be substantially in
the form set forth in Exhibit B hereto and may have such marks of identification
or designation and such legends, summaries or endorsements printed thereon as
the Corporation may deem appropriate (which do not affect the duties or
responsibilities of the Rights Agent) and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage.  Subject to the provisions of Section 11
and Section 22 hereof, the Right Certificates shall entitle the holders thereof
to purchase such number of one one-thousandths of a Preferred Share as shall be
set forth therein at the price per one one-thousandth of a Preferred Share set
forth therein (the "Purchase Price"), but the amount and type of securities
                    --------------
purchasable upon the exercise of each Right and the Purchase Price thereof shall
be subject to adjustment as provided herein.

          (b)  Any Right Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights which are null and void pursuant to Section
7(e) of this Agreement and any Right Certificate issued pursuant to Section 6 or
Section 11(i) hereof upon transfer, exchange, replacement or adjustment of any
other Right Certificate referred to in this sentence, shall contain (to the
extent feasible) the following legend:

     The Rights represented by this Right Certificate are or were Beneficially
     Owned by a Person who was or became an Acquiring Person or an Affiliate or
     Associate

                                       6
<PAGE>

     of an Acquiring Person (as such terms are defined in the Rights Agreement).
     Accordingly, this Right Certificate and the Rights represented hereby are
     null and void.

The provisions of Section 7(e) of this Rights Agreement shall be operative
whether or not the foregoing legend is contained on any such Right Certificate.
The Corporation shall notify the Rights Agent to the extent that this Section
4(b) applies.

     Section 5.  Countersignature and Registration.  The Right Certificates
                 ---------------------------------
shall be executed on behalf of the Corporation by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed thereto
the Corporation's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Corporation, either manually or by
facsimile signature.  The Right Certificates shall be countersigned by the
Rights Agent and shall not be valid for any purpose unless so countersigned.  In
case any officer of the Corporation who shall have signed any of the Right
Certificates shall cease to be such officer of the Corporation before
countersignature by the Rights Agent and issuance and delivery by the
Corporation, such Right Certificates may nevertheless be countersigned by the
Rights Agent and issued and delivered by the Corporation with the same force and
effect as though the person who signed such Right Certificates had not ceased to
be such officer of the Corporation; and any Right Certificate may be signed on
behalf of the Corporation by any Person who, at the actual date of the execution
of such Right Certificate, shall be a proper officer of the Corporation to sign
such Right Certificate, although at the date of the execution of this Rights
Agreement any such Person was not such an officer.

     Following the Distribution Date and receipt by the Rights Agent of a list
of record holders of Rights, the Rights Agent will keep or cause to be kept, at
its office designated pursuant to Section 26 hereof or offices designated as the
appropriate place for surrender of such Right Certificate or transfer, books for
registration and transfer of the Right Certificates issued hereunder.  Such
books shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the certificate number and the date of each of the Right
Certificates.

     Section 6.  Transfer, Split-Up, Combination and Exchange of Right
                 -----------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificate.  Subject
--------------------------------------------------------------------
to the provisions of Section 4(b), Section 7(e) and Section 14 hereof, at any
time after the Close of Business on the Distribution Date, and at or prior to
the Close of Business on the earlier of the Redemption Date or the Final
Expiration Date, any Right Certificate or Right Certificates may be transferred,
split up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like number of one
one-thousandths of a Preferred Share (or, following a Triggering Event, other
securities, as the case may be) as the Right Certificate or Right Certificates
surrendered then entitled such holder (or former holder, in the case of a
transfer) to purchase.  Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the office or offices of the Rights Agent designated for such
purpose.  Neither the Rights Agent nor the Corporation shall be obligated to
take any action

                                       7
<PAGE>

whatsoever with respect to the transfer of any such surrendered Right
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Right Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Corporation or the Rights Agent shall reasonably
request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e)
and Section 14 hereof, countersign and deliver to the Person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Corporation may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates. If the Corporation requires
the payment referred to in the immediately preceding sentence, then the Rights
Agent shall not be required to process any transaction until it receives notice
from the Corporation that the Corporation has received such payment.

     Upon receipt by the Corporation and the Rights Agent of evidence
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Corporation's request,
reimbursement to the Corporation and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Corporation will make and deliver a new
Right Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.

     Section 7.  Exercise of Rights; Purchase Price; Expiration Date of Rights.
                 -------------------------------------------------------------

          (a)  Subject to Section 7(e) hereof, the registered holder of any
Right Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date
upon surrender of the Right Certificate, with the form of election to purchase
and the certificate on the reverse side thereof duly executed, to the Rights
Agent at the office or offices of the Rights Agent designated for such purpose,
together with payment of the aggregate Purchase Price for the total number of
one one-thousandths of a Preferred Share (or other securities, as the case may
be) as to which such surrendered Rights are exercised, at or prior to the
earliest of (i) the Close of Business on October 31, 2008 (the "Final
                                                                -----
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
---------------
Section 23 hereof (the "Redemption Date"); (iii) the time at which the Rights
                        ---------------
are exchanged as provided in Section 24 hereof, or (iv) the consummation of a
transaction contemplated by Section 13(d) hereof.

          (b)  The Purchase Price for each one one-thousandth of a Preferred
Share pursuant to the exercise of a Right shall initially be $250.00, shall be
subject to adjustment from time to time as provided in the next sentence and in
Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph
(c) below.  Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Agreement and prior to the
Distribution Date, the Corporation shall (i) declare or pay any dividend on the
Common Shares payable in Common Shares or (ii) effect a subdivision, combination
or consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case, each Common

                                       8
<PAGE>

Share outstanding following such subdivision, combination or consolidation shall
continue to have one Right associated therewith and the Purchase Price following
any such event shall be proportionately adjusted to equal the result obtained by
multiplying the Purchase Price immediately prior to such event by a fraction,
the numerator of which shall be the total number of Common Shares outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of Common Shares outstanding immediately following the
occurrence of such event. The adjustment provided for in the preceding sentence
shall be made successively whenever such a dividend is declared or paid or such
a subdivision, combination or consolidation is effected.

          (c)  Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment of the Purchase Price for the Preferred Shares (or other
securities, as the case may be) to be purchased and an amount equal to any
applicable tax or governmental charge required to be paid by the holder of such
Right Certificate in accordance with Section 6 hereof by certified check,
cashier's check or money order payable to the order of the Corporation, the
Rights Agent shall thereupon promptly (i) (A) requisition from any transfer
agent of the Preferred Shares certificates for the number of Preferred Shares to
be purchased and the Corporation hereby irrevocably authorizes its transfer
agent to comply with all such requests, or (B) if the Corporation, in its sole
discretion, shall have elected to deposit the Preferred Shares issuable upon
exercise of the Rights hereunder into a depositary, requisition from the
depositary agent depositary receipts representing such number of one one-
thousandths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Corporation
will direct the depositary agent to comply with such requests, (ii) when
appropriate, requisition from the Corporation the amount of cash to be paid in
lieu of issuance of fractional shares in accordance with Section 14 hereof,
(iii) after receipt of such certificates or depositary receipts, cause the same
to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder, and (iv) when appropriate, after receipt thereof, deliver such cash to
or upon the order of the registered holder of such Right Certificate.  In the
event that the Corporation is obligated to issue other securities (including
Common Shares) of the Corporation pursuant to Section 11(a) hereof, the
Corporation will make all arrangements necessary so that such other securities
are available for distribution by the Rights Agent, if and when necessary to
comply with this Agreement.

          In addition, in the case of an exercise of the Rights by a holder
pursuant to Section 11(a)(ii), the Rights Agent shall return such Right
Certificate to the registered holder thereof after imprinting, stamping or
otherwise indicating thereon that the rights represented by such Right
Certificate no longer include the rights provided by Section 11(a)(ii) of the
Rights Agreement and if less than all the Rights represented by such Right
Certificate were so exercised, the Rights Agent shall indicate on the Right
Certificate the number of Rights represented thereby which continue to include
the rights provided by Section 11(a)(ii).

          (d)  In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 6 and

                                       9
<PAGE>

Section 14 hereof, or the Rights Agent shall place an appropriate notation on
the Right Certificate with respect to those Rights exercised.

          (e)  Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
Beneficially Owned by (i) an Acquiring Person or an Affiliate or Associate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee after the Acquiring Person
becomes such, or (iii) a transferee of an Acquiring Person (or of any Affiliate
or Associate thereof) who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from the Acquiring Person to holders
of equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has a continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Corporation has determined is part of an agreement, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise.  The
Corporation shall notify the Rights Agent when this Section 7(e) applies and
shall use all reasonable efforts to insure that the provisions of this Section
7(e) and Section 4(b) hereof are complied with, but neither the Company nor the
Rights Agent shall have any liability to any holder of Right Certificates or
other Person as a result of the Corporation's failure to make any determinations
with respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder.

          (f)  Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Corporation shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) properly completed and signed the certificate contained in the form of
election to purchase set forth on the reverse side of the Right Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial owner) or Affiliates or
Associates thereof as the Corporation or the Rights Agent shall reasonably
request.

     Section 8.  Cancellation and Destruction of Right Certificates.  All Right
                 --------------------------------------------------
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Corporation or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement.  The Corporation shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Right Certificate purchased or
acquired by the Corporation otherwise than upon the exercise thereof.  The
Rights Agent shall deliver all cancelled Right Certificates to the Corporation,
or shall, at the written request of the Corporation, destroy such cancelled
Right Certificates, and in such case shall deliver a certificate of destruction
thereof to the Corporation.

     Section 9.  Reservation and Availability of Preferred Shares.  The
                 ------------------------------------------------
Corporation covenants and agrees that at all times prior to the occurrence of a
Section 11(a)(ii) Event it will cause to be

                                       10
<PAGE>

reserved and kept available out of its authorized and unissued Preferred Shares,
or any authorized and issued Preferred Shares held in its treasury, the number
of Preferred Shares that will be sufficient to permit the exercise in full of
all outstanding Rights and, after the occurrence of a Section 11(a)(ii) Event,
shall, to the extent reasonably practicable, so reserve and keep available a
sufficient number of Common Shares (and/or other securities) which may be
required to permit the exercise in full of the Rights pursuant to this
Agreement.

     So long as the Preferred Shares (and, after the occurrence of a Section
11(a)(ii) Event, Common Shares or any other securities) issuable upon the
exercise of the Rights may be listed on any national securities exchange, the
Corporation shall use its best efforts to cause, from and after such time as the
Rights become exercisable, all shares reserved for such issuance to be listed on
such exchange upon official notice of issuance upon such exercise.

     The Corporation covenants and agrees that it will take all such action as
may be necessary to ensure that all Preferred Shares (or Common Shares and/or
other securities, as the case may be) delivered upon exercise of Rights shall,
at the time of delivery of the certificates for such shares or other securities
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and non-assessable shares or securities.

     The Corporation further covenants and agrees that it will pay when due and
payable any and all U.S. federal and state taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares (or Common Shares and/or other securities, as the case may
be) upon the exercise of Rights.  The Corporation shall not, however, be
required to pay any tax or other charge which may be payable in respect of any
transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares (or Common Shares and/or other securities, as the case may be) in a name
other than that of, the registered holder of the Right Certificate evidencing
Rights surrendered for exercise, or to issue or to deliver any certificates or
depositary receipts for Preferred Shares (or Common Shares and/or other
securities, as the case may be) upon the exercise of any Rights, until any such
tax or other charge shall have been paid (any such tax or other charge being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Corporation's reasonable satisfaction that
no such tax or other charge is due.

     The Corporation shall use its best efforts to (i) file, as soon as
practicable following the Shares Acquisition Date, a registration statement
under the Act, with respect to the securities purchasable upon exercise of the
Rights on an appropriate form, (ii) cause such registration statement to become
effective as soon as practicable after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act and the rules and regulations thereunder)
until the date of the expiration of the rights provided by Section 11(a)(ii).
The Corporation will also take such action as may be appropriate under the blue
sky laws of the various states.

     Section 10.  Preferred Shares Record Date.  Each Person in whose name any
                  ----------------------------
certificate for Preferred Shares (or Common Shares and/or other securities, as
the case may be) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Preferred Shares (or Common
Shares and/or other securities, as the case may be)

                                       11
<PAGE>

represented thereby on, and such certificate shall be dated, the date upon which
the Right Certificate evidencing such Rights was duly surrendered and payment of
the Purchase Price (and any applicable taxes and governmental charges) was made;
provided, however, that, if the date of such surrender and payment is a date
--------  -------
upon which the Preferred Shares (or Common Shares and/or other securities, as
the case may be) transfer books of the Corporation are closed, such person shall
be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares (or Common Shares and/or other securities, as the case may be)
transfer books of the Corporation are open.

     Section 11.  Adjustment of Purchase Price, Number and Kind of Shares or
                  ----------------------------------------------------------
Number of Rights.  The Purchase Price, the number and kind of shares covered by
----------------
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.

          (a)  (i)  In the event the Corporation shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Corporation is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Corporation
were open, such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
                  --------  -------
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Corporation issuable upon exercise of one
Right.  If an event occurs which would require an adjustment under both Section
11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii).

          (ii) In the event any Person, alone or together with its Affiliates
and Associates, shall become an Acquiring Person, then proper provision shall be
made so that each holder of a Right (except as provided below and in Section
7(e) hereof) shall, for a period of 60 days after the later of the occurrence of
any such event or the effective date of an appropriate registration statement
under the Act pursuant to Section 9 hereof, have a right to receive, upon
exercise thereof at a price equal to the then current Purchase Price, in
accordance with the terms of this Agreement, such number of Common Shares (or,
in the discretion of the Board of Directors, one one-thousandths of a Preferred
Share) as shall equal the result obtained by (x) multiplying the then current
Purchase Price by the then number of one one-thousandths of a Preferred Share
for which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, and dividing that product by (y) 50% of the then
current per share market price of the Corporation's Common Shares (determined
pursuant to Section 11(d) hereof)

                                       12
<PAGE>

on the date of such first occurrence (such number of shares being referred to as
the "Adjustment Shares"); provided, however, that if the transaction that would
     -----------------    --------  -------
otherwise give rise to the foregoing adjustment is also subject to the
provisions of Section 13 hereof, then only the provisions of Section 13 hereof
shall apply and no adjustment shall be made pursuant to this Section 11(a)(ii);

          (iii)  In the event that there shall not be sufficient treasury shares
or authorized but unissued (and unreserved) Common Shares to permit the exercise
in full of the Rights in accordance with the foregoing subparagraph (ii) and the
Rights become so exercisable (and the Board has determined to make the Rights
exercisable into fractions of a Preferred Share), notwithstanding any other
provision of this Agreement, to the extent necessary and permitted by applicable
law, each Right shall thereafter represent the right to receive, upon exercise
thereof at the then current Purchase Price in accordance with the terms of this
Agreement, (x) a number of (or fractions of) Common Shares (up to the maximum
number of Common Shares which may permissibly be issued) and (y) one-one
thousandth of a Preferred Share or a number of, or fractions of other equity
securities of the Corporation (or, in the discretion of the Board of Directors,
debt) which the Board of Directors of the Corporation has determined to have the
same aggregate current market value (determined pursuant to Section 11(d)(i) and
(ii) hereof, to the extent applicable,) as one Common Share (such number of, or
fractions of, Preferred Shares, debt, or other equity securities or debt of the
Corporation) being referred to as a "capital stock equivalent", equal in the
                                     ------------------------
aggregate to the number of Adjustment Shares; provided, however, if sufficient
                                              --------  -------
Common Shares and/or capital stock equivalents are unavailable, then the
Corporation shall, to the extent permitted by applicable law, take all such
action as may be necessary to authorize additional Common Shares or capital
stock equivalents for issuance upon exercise of the Rights, including the
calling of a meeting of stockholders; and provided, further, that if the
                                          --------  -------
Corporation is unable to cause sufficient Common Shares and/or capital stock
equivalents to be available for issuance upon exercise in full of the Rights,
then each Right shall thereafter represent the right to receive the Adjusted
Number of Shares upon exercise at the Adjusted Purchase Price (as such terms are
hereinafter defined).  As used herein, the term "Adjusted Number of Shares"
                                                 -------------------------
shall be equal to that number of (or fractions of) Common Shares (and/or capital
stock equivalents) equal to the product of (x) the number of Adjustment Shares
and (y) a fraction, the numerator of which is the number of Common Shares
(and/or capital stock equivalents) available for issuance upon exercise of the
Rights and the denominator of which is the aggregate number of Adjustment Shares
otherwise issuable upon exercise in full of all Rights (assuming there were a
sufficient number of Common Shares available) (such fraction being referred to
as the "Proration Factor").  The "Adjusted Purchase Price" shall mean the
        ----------------          -----------------------
product of the Purchase Price and the Proration Factor.  The Board of Directors
may, but shall not be required to, establish procedures to allocate the right to
receive Common Shares and capital stock equivalents upon exercise of the Rights
among holders of Rights.

          (b)  In case the Corporation shall fix a record date for the issuance
of rights (other than the Rights), options or warrants to all holders of
Preferred Shares entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Shares (or shares
having the same rights, privileges and preferences as the Preferred Shares
("equivalent preferred shares")) or securities convertible into Preferred Shares
  ---------------------------
or equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having

                                       13
<PAGE>

a conversion price per share, if a security convertible into Preferred Shares or
equivalent preferred shares) less than the then current per share market price
of the Preferred Shares (as determined pursuant to Section 11(d) hereof) on such
record date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of Preferred
Shares which the aggregate offering price of the total number of Preferred
Shares and/or equivalent preferred shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current per share market price, and the denominator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of additional Preferred Shares and/or equivalent preferred shares to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible); provided, however, that in no event
                                             --------  -------
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Corporation
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be determined in good faith by the Board of
Directors of the Corporation, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Preferred Shares owned by or held for the account
of the Corporation shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.

          (c)  In case the Corporation shall fix a record date for the making of
a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the then current per share market price (as
determined pursuant to Section 11(d) hereof) of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Corporation, whose determination shall be described in
a statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
current per share market price of the Preferred Shares; provided, however, that
                                                        --------  -------
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the
Corporation to be issued upon exercise of one Right.  Such adjustments shall be
made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase Price which would then be in effect if such record date had not
been fixed.

                                       14
<PAGE>

          (d)  (i)  For the purpose of any computation hereunder, the "current
                                                                       -------
per share market price" of any security (a "Security" for the purpose of this
----------------------                      --------
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to and not including
such date; provided, however, that in the event that the current per share
           --------  -------
market price of the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend or distribution on
such Security payable in shares of such Security or securities convertible into
such shares, or (B) any subdivision, combination or reclassification of such
Security and prior to the expiration of 30 Trading Days after and not including
the ex-dividend date for such dividend or distribution, or the record date for
such subdivision, combination or reclassification, then, and in each such case,
the current per share market price shall be appropriately adjusted to reflect
the current market price per share equivalent of such Security.  The closing
price for each day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal securities exchange on which the Security is listed or admitted to
trading or, if the Security is not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the
  ------
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors of the Corporation.  If on any
such date no such market maker is making a market in the Security, the fair
value of the Security on such date as determined in good faith by the Board of
Directors of the Corporation shall be used.  The term "Trading Day" shall mean
                                                       -----------
a day on which the principal national securities exchange on which the Security
is listed or admitted to trading is open for the transaction of business or, if
the Security is not listed or admitted to trading on any national securities
exchange, a Business Day.

               (ii)   For the purpose of any computation hereunder, the "current
per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by 1,000. If neither
the Common Shares nor the Preferred Shares are publicly held or so listed or
traded, "current per share market price" shall mean the fair value per share as
determined in good faith by the Board of Directors of the Corporation, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights.

          (e)  Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
                                                           --------  -------
that any adjustments which by reason of

                                       15
<PAGE>

this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.  All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one
one-thousandth of a Preferred Share or one ten-thousandth of any other share or
security, as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
the earlier of (i) three years from the date of the transaction which mandates
such adjustment or (ii) the Final Expiration Date.

          (f) If as a result of an adjustment made pursuant to Section 11(a)(ii)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock of the Corporation other
than Preferred Shares, thereafter the number of other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Shares contained in Section 11(a) through (c),
inclusive, and the provisions of Sections 7, 9, 10, 13 and 14 with respect to
the Preferred Shares shall apply on like terms to any such other shares.

          (g) All Rights originally issued by the Corporation subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.

          (h) Unless the Company shall have exercised its election so provided
in Section 11(i) hereof, upon adjustment of the Purchase Price as a result of
the calculations made in Sections 11(b) and 11(c) hereof, each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the Adjusted Purchase Price, that number of one one-
thousandths of a Preferred Share (calculated to the nearest one one-thousandth
of a Preferred Share) obtained by (i) multiplying (A) the number of Preferred
Shares covered by a Right immediately prior to this adjustment of the Purchase
Price by (B) the Purchase Price in effect immediately prior to such adjustment
of the Purchase Price and (ii) dividing the product so obtained by the Purchase
Price in effect immediately after such adjustment of the Purchase Price.

          (i) The Corporation may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any adjustment
in the number of one one-thousandths of a Preferred Share purchasable upon the
exercise of a Right.  Each of the Rights outstanding after such adjustment of
the number of Rights shall be exercisable for the number of one one-thousandths
of a Preferred Share for which a Right was exercisable immediately prior to such
adjustment.  Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one ten-
thousandth) obtained by dividing the Purchase Price in effect immediately prior
to adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price.  The Corporation shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made, a copy of which public announcement shall promptly be
delivered to the Rights Agent.  This record date may be the date on which the
Purchase Price is adjusted or any

                                       16
<PAGE>

day thereafter, but, if the Right Certificates have been issued, shall be at
least 10 days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Corporation shall, as promptly as
practicable, cause to be distributed to holders of record of Right Certificates
on such record date Right Certificates evidencing, subject to Section 14 hereof,
the additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Corporation, shall cause to be
distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Corporation, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.

          (j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-thousandths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.

          (k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the number of one one-
thousandths of a Preferred Share, Common Shares or other securities issuable
upon exercise of the Rights, the Corporation shall take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue such number of fully paid and non-
assessable one one-thousandths of a Preferred Share, Common Shares or other
securities at such adjusted Purchase Price.

          (l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Corporation may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
of the Preferred Shares, Common Shares or other securities of the Corporation,
if any, issuable upon such exercise over and above the Preferred Shares, Common
Shares or other securities of the Corporation, if any, issuable upon exercise on
the basis of the Purchase Price in effect prior to such adjustment; provided,
                                                                    --------
however, that the Corporation shall deliver to such holder a due bill or other
-------
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

          (m) Anything in this Section 11 to the contrary notwithstanding, the
Corporation shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any (i) consolidation or subdivision of the Preferred Shares, (ii)
issuance wholly for cash of Preferred Shares at less than the current market
price, (iii) issuance wholly for cash of Preferred Shares or securities which by
their terms are convertible into or exchangeable for Preferred Shares, (iv)
stock dividends or (v) issuance of rights, options or warrants referred to in
this Section 11, hereafter made by the Corporation to holders of its Preferred
Shares shall not be taxable to such stockholders.

                                       17
<PAGE>

          (n) The Corporation covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Corporation in a transaction which does not violate
Section 11(o) hereof), (ii) merge with or into any other Person (other than a
Subsidiary of the Corporation in a transaction which does not violate Section
11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Corporation and its Subsidiaries (taken as a whole) to any other Person or
Persons (other than the Corporation and/or any of its Subsidiaries in one or
more transactions each of which does not violate this Section 11(n)), if (x) at
the time of or immediately after such consolidation, merger, sale or transfer
there are any charter or by-law provisions or any rights, warrants or other
instruments or securities outstanding or agreements in effect or other actions
taken, which would materially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger or sale, the stockholders of the
Person who constitutes, or would constitute, the "Principal Party" for purposes
of Section 13(a) hereof shall have received a distribution of Rights previously
owned by such Person or any of its Affiliates and Associates.  The Corporation
shall not consummate any such consolidation, merger, sale or transfer unless
prior thereto the Corporation and such other Person shall have executed and
delivered to the Rights Agent a supplemental agreement evidencing compliance
with this Section 11(n).

          (o) The Corporation covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or Section 27 hereof, take
(or permit any Subsidiary to take) any action the purpose of which is to, or if
at the time such action is taken it is reasonably foreseeable that the effect of
such action is to, materially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights.

          (p) The exercise of Rights under Section 11(a)(ii) shall only result
in the loss of rights under Section 11(a)(ii) to the extent so exercised and
shall not otherwise affect the rights represented by the Rights under this
Rights Agreement, including the rights represented by Section 13.

     Section 12.  Certificate of Adjusted Purchase Price or Number of Shares.
                  ----------------------------------------------------------
Whenever an adjustment is made as provided in Sections 11 or 13 hereof, the
Corporation shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief reasonably detailed statement of the facts and
computations accounting for such adjustment, (b) file with the Rights Agent and
with each transfer agent for the Common Shares and the Preferred Shares a copy
of such certificate and (c) mail a brief summary thereof to each holder of a
Right Certificate in accordance with Section 25 hereof.  The Rights Agent shall
be fully protected in relying on any such certificate and on any adjustment
therein contained and shall have no duty with respect to and shall not be deemed
to have knowledge of such adjustment unless and until it shall have received
such certificate.

     Section 13.  Consolidation, Merger or Sale or Transfer of Assets or Earning
                  --------------------------------------------------------------
Power.
-----

          (a) In the event that, on or following the Shares Acquisition Date,
directly or indirectly, (x) the Corporation shall consolidate with, or merge
with and into, any Interested

                                       18
<PAGE>

Stockholder or, if in such merger or consolidation all holders of Common Stock
are not treated alike, any other Person, (y) the Corporation shall consolidate
with, or merge with, any Interested Stockholder or, if in such merger or
consolidation all holders of Common Stock are not treated alike, any other
Person, and the Corporation shall be the continuing or surviving corporation of
such consolidation or merger (other than, in a case of any transaction described
in (x) or (y), a merger or consolidation which would result in all of the
securities generally entitled to vote in the election of directors ("voting
                                                                     ------
securities") of the Corporation outstanding immediately prior thereto
----------
continuing to represent (either by remaining outstanding or by being converted
into securities of the surviving entity) all of the voting securities of the
Corporation or such surviving entity outstanding immediately after such merger
or consolidation and the holders of such securities not having changed as a
result of such merger or consolidation), or (z) the Corporation shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one transaction or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Corporation and its Subsidiaries (taken as a whole) to any Interested
Stockholder or Stockholders or, if in such transaction all holders of Common
Stock are not treated alike, any other Person (other than the Corporation or any
Subsidiary of the Corporation in one or more transactions each of which does not
violate Section 11(n) hereof), then, and in each such case (except as provided
in Section 13(d) hereof), proper provision shall be made so that (i) each holder
of a Right, except as provided in Section 7(e) hereof, shall thereafter have the
right to receive, upon the exercise thereof at a price equal to the then current
Purchase Price, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of freely tradable Common Shares of the Principal
Party (as hereinafter defined), not subject to any liens, encumbrances, rights
of first refusal or other adverse claims, as shall equal the result obtained by
(A) multiplying the then current Purchase Price by the number of one one-
thousandths of a Preferred Share for which a Right is then exercisable (without
taking into account any adjustment previously made pursuant to Section
11(a)(ii)) and dividing that product by (B) 50% of the then current per share
market price of the Common Shares of such Principal Party (determined pursuant
to Section 11(d) hereof) on the date of consummation of such Section 13 Event;
(ii) such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the
Corporation pursuant to this Agreement; (iii) the term "Corporation" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Section 13 Event; and (iv)
such Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of its Common Shares) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights.

          (b)  "Principal Party" shall mean:
                ---------------

               (i) in the case of any transaction described in clause (x) or (y)
of the first sentence of Section 13(a), the Person that is the issuer of any
securities into which Common Shares of the Corporation are converted in such
merger or consolidation, and if no securities are so issued, the Person that is
the other party to such merger or consolidation (including, if applicable, the
Corporation if it is the surviving corporation); and

                                       19
<PAGE>

               (ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a), the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions; provided, however, that in any of the foregoing
                             --------  -------
cases, (1) if the Common Shares of such Person are not at such time and have not
been continuously over the preceding 12-month period registered under Section 12
of the Exchange Act, and such Person is a direct or indirect Subsidiary of
another Person the Common Shares of which are and have been so registered,
"Principal Party" shall refer to such other Person; (2) in case such Person is a
Subsidiary, directly or indirectly, of more than one Person, the Common Shares
of two or more of which are and have been so registered, "Principal Party" shall
refer to whichever of such Persons is the issuer of the Common Shares having the
greatest aggregate market value; and (3) in case such Person is owned, directly
or indirectly, by a joint venture formed by two or more Persons that are not
owned, directly or indirectly, by the same Person, the rules set forth in (1)
and (2) above shall apply to each of the chains of ownership having an interest
in such joint venture as if such party were a "Subsidiary" of both or all of
such joint venturers and the Principal Parties in each such chain shall bear the
obligations set forth in this Section 13 in the same ratio as their direct or
indirect interests in such Person bear to the total of such interests.

          (c) The Corporation shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of its authorized Common Shares which have not been issued or reserved
for issuance to permit the exercise in full of the Rights in accordance with
this Section 13 and unless prior thereto the Corporation and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in paragraphs (a) and (b) of this
Section 13 and further providing that, as soon as practicable after the date of
any consolidation, merger, sale or transfer mentioned in paragraph (a) of this
Section 13, the Principal Party at its own expense shall:

              (i)   prepare and file a registration statement under the Act with
respect to the Rights and the securities purchasable upon exercise of the Rights
on an appropriate form, and will use its best efforts to cause such registration
statement to (A) become effective as soon as practicable after such filing and
(B) remain effective (with a prospectus at all times meeting the requirements of
the Act) until the Final Expiration Date;

              (ii)  use its best efforts to qualify or register the Rights and
the securities purchasable upon exercise of the Rights under the blue sky laws
of such jurisdictions as may be necessary or appropriate; and

              (iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 under the Exchange Act.

          The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.  The rights under this
Section 13 shall be in addition to the rights to exercise Rights and adjustments
under Section 11(a)(ii) and shall survive any exercise thereof.

                                       20
<PAGE>

          (d) Notwithstanding anything in this Agreement to the contrary, this
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) if:  (i) such transaction is consummated with a
Person or Persons who acquired Common Shares pursuant to a Permitted Offer (or a
wholly owned Subsidiary of any such Person or Persons); (ii) the price per
Common Share offered in such transaction is not less than the price per Common
Share paid to all holders of Common Shares whose shares were purchased pursuant
to such Permitted Offer; and (iii) the form of consideration offered in such
transaction is the same as the form of consideration paid pursuant to such
Permitted Offer.  Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.

     Section 14.  Fractional Rights and Fractional Shares.
                  ---------------------------------------

          (a) The Corporation shall not be required to issue fractions of Rights
or to distribute Right Certificates which evidence fractional Rights.  In lieu
of such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right.  For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable.  The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Corporation.  If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board of Directors of the Corporation shall be
used.

          (b) The Corporation shall not be required to issue fractions of
Preferred Shares (other than fractions which are one one-thousandth or integral
multiples of one one-thousandth of a Preferred Share) upon exercise of the
Rights or to distribute certificates which evidence fractional Preferred Shares
(other than fractions which are one one-thousandth or integral multiples of one
one-thousandth of a Preferred Share).  Fractions of Preferred Shares in integral
multiples of one one-thousandth of a Preferred Share may, at the election of the
Corporation, be evidenced by depositary receipts, pursuant to an appropriate
agreement between the Corporation and a depositary selected by it; provided,
                                                                   --------
that such agreement shall provide that the holders of such depositary receipts
shall have the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such depositary
receipts.  In lieu of fractional Preferred Shares that are not one one-
thousandth or integral

                                       21
<PAGE>

multiples of one one-thousandth of a Preferred Share, the Corporation shall pay
to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one Preferred Share. For the purposes of this Section
14(b), the current market value of a Preferred Share shall be the closing price
of a Preferred Share (as determined pursuant to Section 11(d)(ii) hereof) for
the Trading Day immediately prior to the date of such exercise.

          (c) Following the occurrence of one of the transactions or events
specified in Section 11 giving rise to the right to receive Common Shares,
capital stock equivalents (other than Preferred Shares) or other securities upon
the exercise of a Right, the Corporation shall not be required to issue
fractions of shares or units of such Common Shares, capital stock equivalents or
other securities upon exercise of the Rights or to distribute certificates which
evidence fractions of such Common Shares, capital stock equivalents or other
securities.  In lieu of fractional shares or units of such Common Shares,
capital stock equivalents or other securities, the Corporation may pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of a share or unit of such Common Shares, capital stock equivalents
or other securities.  For purposes of this Section 14(c), the current market
value shall be determined in the manner set forth in Section 11(d) hereof for
the Trading Day immediately prior to the date of such exercise and, if such
capital stock equivalent is not traded, each such capital stock equivalent shall
have the value of one one-thousandth of a Preferred Share.

          (d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional share upon
exercise of a Right (except as provided above).  The Rights Agent shall not be
deemed to have knowledge of, and shall have no duty in respect of, the issuance
of fractional Rights or fractional shares until it shall have received
instructions from the Corporation concerning the issuance of the fractional
Rights or fractional shares upon which instructions the Rights Agent may
conclusively rely.

     Section 15.  Rights of Action.  All rights of action in respect of this
                  ----------------
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Corporation to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement.  Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.

     Section 16.  Agreement of Right Holders.  Every holder of a Right, by
                  --------------------------
accepting the same, consents and agrees with the Corporation and the Rights
Agent and with every other holder of a Right that:

                                       22
<PAGE>

          (a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;

          (b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or offices of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer and with the
appropriate form fully executed;

          (c) subject to Section 7(f) hereof, the Corporation and the Rights
Agent may deem and treat the Person in whose name the Right Certificate (or,
prior to the Distribution Date, the associated Common Shares certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right Certificate
or the associated Common Shares certificate made by anyone other than the
Corporation or the Rights Agent) for all purposes whatsoever, and neither the
Corporation nor the Rights Agent, subject to the last sentence of Section 7(e)
hereof, shall be required to be affected by any notice to the contrary; and

          (d) notwithstanding anything in this Agreement to the contrary,
neither the Corporation nor the Rights Agent shall have any liability to any
holder of a Right or a beneficial interest in a Right or other Person as a
result of its inability to perform any of its obligations under this Agreement
by reason of any preliminary or permanent injunction or other order, judgment,
decree or ruling (whether interlocutory or final) issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Corporation must use its
                                --------  -------
best efforts to have any such order, decree, judgment, or ruling lifted or
otherwise overturned as soon as possible.

     Section 17.  Right Certificate Holder Not Deemed a Stockholder.  No holder,
                  -------------------------------------------------
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Corporation which may at any time be issuable on the exercise
of the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Corporation or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or other distributions or to exercise any preemptive or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions hereof.

     Section 18.  Concerning the Rights Agent.  The Corporation agrees to pay to
                  ---------------------------
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the preparation,
execution, delivery, amendment, administration and execution of this Agreement
and the exercise and performance of its duties hereunder.  The Corporation also
agrees to indemnify the Rights Agent for, and to hold it harmless against, any

                                       23
<PAGE>

loss, liability, damage, judgment, fine, penalty, claim, demand, settlement,
cost or expense, incurred without gross negligence, bad faith or willful
misconduct on the part of the Rights Agent, for any action taken, suffered or
omitted by the Rights Agent in connection with the acceptance and administration
of this Agreement, including without limitation the costs and expenses of
defending against any claim of liability in the premises.  The indemnity
provided for herein shall survive the expiration of the Rights and the
termination of this Agreement.

     The Rights Agent shall be authorized and protected and shall incur no
liability for, or in respect of, any action taken, suffered or omitted by it in
connection with, its acceptance and administration of this Agreement in reliance
upon any Right Certificate or certificate for Common Shares or for other
securities of the Corporation, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document (collectively, "Documents")
                                                                   ---------
believed by it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper Person or Persons.  The Rights Agent
shall not be deemed to have knowledge of, and shall have no duty in respect of,
any such Documents, until it receives notice or instructions in respect thereof.
In no case will the Rights Agent be liable for special, indirect, punitive,
incidental or consequential loss or damage of any kind whatsoever, even if the
Rights Agent has been advised of the likelihood of such loss or damage.

     Section 19.  Merger or Consolidation or Change of Name of Rights Agent.
                  ---------------------------------------------------------
Any Person into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any Person resulting from any
merger or consolidation to which the Rights Agent or any successor Rights Agent
shall be a party, or any Person succeeding to the stock transfer or all or
substantially all of the shareholder services business of the Rights Agent or
any successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto, provided that such Person would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof.  In case at the time such successor Rights Agent shall
succeed to the agency created by this Agreement, any of the Right Certificates
shall have been countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of a predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor or in
the name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.  In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.

     Section 20.  Duties of Rights Agent.  The Rights Agent undertakes only
                  ----------------------
those duties and obligations expressly imposed by this Agreement (and no implied
duties or obligations) upon the

                                       24
<PAGE>

following terms and conditions, by all of which the Corporation and the holders
of Right Certificates, by their acceptance thereof, shall be bound:

          (a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation), and the advice or opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent and the
Rights Agent shall incur no liability for or in respect of, any action taken,
suffered or omitted by it in good faith and in accordance with such opinion.

          (b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of an Acquiring Person and the
determination of the current market price of any Security) be proved or
established by the Corporation prior to taking, suffering or omitting any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Corporation and delivered to the Rights Agent; and such
certificate shall be full authorization and protection to the Rights Agent and
the Rights Agent shall incur no liability in respect of any action taken,
suffered or omitted in good faith by it under the provisions of this Agreement
in reliance upon such certificate.

          (c) The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.

          (d) The Rights Agent shall not be liable for or by reason of any
liability in respect of, of the statements of fact or recitals contained in this
Agreement or in the Right Certificates (except its countersignature on such
Right Certificates) or be required to verify the same, but all such statements
and recitals are and shall be deemed to have been made by the Corporation only.

          (e) The Rights Agent shall not be under any liability or
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Corporation of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming null and void
pursuant to Section 7(e) hereof) or any adjustment required under the provisions
of Section 11 or Section 13 hereof or responsible for the manner, method or
amount of any such adjustment or the ascertaining of the existence of facts that
would require any such adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after receipt of the certificate described in
Section 12 hereof); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares or Common Shares to be issued pursuant to this Agreement or any
Right Certificate or as to whether any Preferred Shares or Common Shares will,
when issued, be validly authorized and issued, fully paid and non-assessable.

                                       25
<PAGE>

          (f) The Corporation agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.

          (g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Treasurer or the Secretary of the Corporation, and to
apply to such officers for advice or instructions in connection with its duties,
and instructions shall be full authorization and protection to the Rights Agent
and the Rights Agent shall incur no liability for or in respect of any action
taken, suffered or omitted by it in good faith or lack of action in accordance
with instructions of any such officer or for any delay in acting while waiting
for those instructions.  Any application by the Rights Agent for written
instructions from the Corporation may, at the option of the Rights Agent, set
forth in writing any action proposed to be taken or omitted by the Rights Agent
under this Rights Agreement and the date on or after which such action shall be
taken or suffered or such omission shall be effective.  The Rights Agent shall
not be liable or responsible for any action taken or suffered by, or omission
of, the Rights Agent in accordance with a proposal included in any such
application on or after the date specified in such application (which date shall
not be less than five Business Days after the date any officer of the
Corporation actually receives such application, unless any such officer shall
have consented in writing to an earlier date) unless, prior to taking any such
action (or the effective date in the case of an omission), the Rights Agent
shall have received written instruction in response to such application
specifying the action to be taken, suffered or omitted.

          (h) The Rights Agent and any stockholder, affiliate, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Corporation or become pecuniarily interested in any
transaction in which the Corporation may be interested, or contract with or lend
money to the Corporation or otherwise act as fully and freely as though it were
not Rights Agent under this Agreement.  Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Corporation or for any other
Person or legal entity.

          (i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Corporation or any other Person resulting from any
such act, default, neglect or misconduct, absent gross negligence, bad faith or
willful misconduct in the selection and continued employment thereof.

          (j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
it believes that repayment of such funds or adequate indemnification against
such risk or liability is not reasonably assured to it.

          (k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to

                                       26
<PAGE>

purchase, as the case may be, has not been completed, the Rights Agent shall not
take any further action with respect to such requested exercise of transfer
without first consulting with the Corporation.

     Section 21.  Change of Rights Agent.  The Rights Agent or any successor
                  ----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Corporation and to each transfer
agent of the Common Shares or Preferred Shares by registered or certified mail,
and to the holders of the Right Certificates by first-class mail.  The
Corporation may remove the Rights Agent or any successor Rights Agent upon 60
days' notice in writing, mailed to the Rights Agent or successor Rights Agent,
as the case may be, and to each transfer agent of the Common Shares or Preferred
Shares by registered or certified mail, and to holders of the Right Certificates
by first-class mail.  If the Rights Agent shall resign or be remove d or shall
otherwise become incapable of acting, the Corporation shall appoint a successor
to the Rights Agent.  If the Corporation shall fail to make such appointment
within a period of 60 days after giving notice of such removal or after it has
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the
Corporation), then the registered holder of any Right Certificate may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Corporation or by such a
court, shall be a Person organized and doing business under the laws of the
United States or of the States of Delaware or New York (or of any other state of
the United States so long as such Person is authorized to do business in the
States of Delaware or New York), in good standing, having an office in the
States of Delaware or New York, which is subject to supervision or examination
by federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50,000,000.  After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose.  Not later than the effective date of any
such appointment the Corporation shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares or
Preferred Shares, and mail a notice thereof in writing to the registered holders
of the Right Certificates.  Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.

     Section 22.  Issuance of New Right Certificates.  Notwithstanding any of
                  ----------------------------------
the provisions of this Agreement or of the Rights to the contrary, the
Corporation may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement.

     In addition, in connection with the issuance or sale of Common Shares
following the Distribution Date and prior to the earlier of the Redemption Date
and the Final Expiration Date, the Corporation (a) shall with respect to Common
Shares so issued or sold pursuant to the

                                       27
<PAGE>

exercise of stock options or under any employee plan or arrangement, or upon the
exercise, conversion or exchange of securities, notes or debentures issued by
the Corporation, and (b) may, in any other case, if deemed necessary or
appropriate by the Board of Directors of the Corporation, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) the Corporation shall not
                       --------  -------
be obligated to issue any such Right Certificates if, and to the extent that,
the Corporation shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Corporation or the
Person to whom such Right Certificate would be issued, and (ii) no Right
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.

     Section 23.  Redemption and Termination.
                  --------------------------

          (a)     (i)  The Board of Directors of the Corporation may, at its
option, redeem all but not less than all of the then outstanding Rights at a
redemption price of $.01 per Right, as such amount may be appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof (such redemption price being hereinafter referred to as
the "Redemption Price"), at any time prior to the earlier of (x) the occurrence
     ----------------
of a Section 11(a)(ii) Event, or (y) the Final Expiration Date.

                  (ii) In addition, the Board of Directors of the Corporation
may, at its option, at any time following the occurrence of a Section 11(a)(ii)
Event and the expiration of any period during which the holder of Rights may
exercise the rights under Section 11(a)(ii) but prior to any Section 13 Event
redeem all but not less than all of the then outstanding Rights at the
Redemption Price (x) in connection with any merger, consolidation or sale or
other transfer (in one transaction or in a series of related transactions) of
assets or earning power aggregating 50% or more of the earning power of the
Corporation and its subsidiaries (taken as a whole) in which all holders of
Common Shares are treated alike and not involving (other than as a holder of
Common Shares being treated like all other such holders) an Interested
Stockholder or (y) (aa) if and for so long as the Acquiring Person is not
thereafter the Beneficial Owner of 15% of the Common Shares, and (bb) at the
time of redemption no other Persons are Acquiring Persons.

          (b) In the case of a redemption permitted under Section 23(a)(i),
immediately upon the date for redemption set forth (or determined in the manner
specified in) in a resolution of the Board of Directors of the Corporation
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price for each Right so held.  In the case of a redemption permitted only under
Section 23(a)(ii), the right to exercise the Rights will terminate and represent
only the right to receive the Redemption Price upon the later of ten Business
Days following the giving of such notice or the expiration of any period during
which the rights under Section 11(a)(ii) may be exercised.  The Corporation
shall promptly give public notice and notify the Rights Agent of any such
redemption; provided, however, that the failure to give, or any defect in, any
            --------  -------
such notice shall not affect the validity of such redemption.  Within 10 days
after such date for redemption set forth in a resolution of the Board of
Directors ordering the redemption of the Rights, the Corporation shall mail a
notice of redemption to all the holders of the then outstanding Rights at their
last addresses as they appear upon the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry

                                       28
<PAGE>

books of the transfer agent for the Common Shares. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the Corporation
nor any of its Affiliates or Associates may redeem, acquire or purchase for
value any Rights at any time in any manner other than that specifically set
forth in this Section 23 and other than in connection with the purchase of
Common Shares prior to the Distribution Date.

          (c) The Corporation may, at its option, discharge all of its
obligations with respect to the Rights by (i) issuing a press release announcing
the manner of redemption of the Rights in accordance with this Agreement and
(ii) mailing payment of the Redemption Price to the registered holders of the
Rights at their last addresses as they appear on the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
Transfer Agent of the Common Shares, and upon such action, all outstanding
Rights and Right Certificates shall be null and void without any further action
by the Corporation.

     Section 24.  Exchange.
                  --------

          (a) The Board of Directors of the Corporation may, at its option, at
any time after the time that any Person becomes an Acquiring Person, exchange
all or part of the then outstanding and exercisable Rights (which shall not
include Rights that have become null and void pursuant to the provisions of
Section 7(e) and Section 11(a)(ii) hereof) for Common Shares of the Corporation
at an exchange ratio of one Common Share per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such exchange ratio being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Corporation's Board of
 --------------
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Corporation, any Subsidiary of the Corporation, any
employee benefit plan of the Corporation or any such Subsidiary, any Person
organized, appointed or established by the Corporation for or pursuant to the
terms of any such plan or any trustee, administrator or fiduciary of such a
plan), together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding.

          (b) Immediately upon the action of the Board of Directors of the
Corporation ordering the exchange of any Rights pursuant to subsection (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such rights shall terminate and the only right thereafter of the
holders of such Rights shall be to receive that number of Common Shares equal to
the number of such rights held by such holder multiplied by the Exchange Ratio.
The Corporation shall promptly give public notice and notify the Rights Agent of
any such exchange; provided, however, that the failure to give, or any defect
                   --------  -------
in, such notice shall not affect the validity of such exchange.  The Corporation
promptly shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent.  Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice.  Each such notice
of exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number of
Rights will be exchanged.  Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights

                                       29
<PAGE>

which have become null and void pursuant to the provisions of Section 7(e) and
Section 11(a)(ii) hereof) held by each holder of Rights.

          (c) In any exchange pursuant to this Section 24, the Corporation, at
its option, may substitute Preferred Shares (or equivalent preferred shares, as
such term is defined in Section 11(b) hereof) for some or all of the Common
Shares exchangeable for Rights, at the initial rate of one one-thousandth of a
Preferred Share (or equivalent preferred share) for each Common Share, as
appropriately adjusted to reflect adjustments in the voting rights of the
Preferred Shares pursuant to the terms thereof, so that the fraction of a
Preferred Share delivered in lieu of each Common Share shall have the same
voting rights as one Common Share.

          (d) The Board shall not authorize any exchange transaction referred to
in Section 24(a) hereof unless at the time such exchange is authorized there
shall be sufficient Common Shares or Preferred Shares issued but not
outstanding, or authorized but unissued, to permit the exchange of Rights as
contemplated in accordance with this Section 24.

     Section 25.  Notice of Certain Events.
                  ------------------------

          (a) In case the Corporation shall propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Shares or to make
any other distribution to the holders of its Preferred Shares (other than a
regularly quarterly cash dividend), (ii) to offer to the holders of its
Preferred Shares rights or warrants to subscribe for or to purchase any
additional Preferred Shares or shares of stock of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with any other Person (other than a Subsidiary of the Corporation in a
transaction which does not violate Section 11(n) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer) in one or more transactions, of 50% or more of the
assets or earning power of the Corporation and its Subsidiaries (taken as a
whole) to any other Person or Persons (other than the Corporation and/or any of
its Subsidiaries in one or more transactions each of which does not violate
Section 11(n) hereof), or (v) to effect the liquidation, dissolution or winding
up of the Corporation, then, in each such case, the Corporation shall give to
the Rights Agent and to each holder of a Right Certificate, in accordance with
Section 26 hereof, a notice of such proposed action and file a certificate with
the Rights Agent to that effect, which shall specify the record date for the
purposes of such stock dividend, or distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the Preferred Shares, if any such date
is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 20 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Preferred Shares, whichever shall be the earlier.

          (b) In case of a Section 11(a)(ii) Event, then (i) the Corporation
shall as soon as practicable thereafter give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of the occurrence of
such event, which notice shall describe such event and the

                                       30
<PAGE>

consequences of such event to holders of Rights under Section 11(a)(ii) hereof,
and (ii) all references in the preceding paragraph (a) to Preferred Shares shall
be deemed thereafter to refer also to Common Shares and/or, if appropriate,
other securities of the Corporation.

     Section 26.  Notices.  Notices or demands authorized by this Agreement to
                  -------
be given or made by the Rights Agent or by the holder of any Right Certificate
to or on the Corporation shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:

               NNG, Inc.
               1840 Century Park East
               Los Angeles, California 90067
               Attention:  Office of the Secretary

Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Corporation or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Corporation) as follows:

               EquiServe Trust Company, N. A.
               P.O. Box 842010
               Boston, Massachusetts 002284-2010
               Attention:  General Counsel

Notices or demands authorized by this Agreement to be given or made by the
Corporation or the Rights Agent to the holder of any Right Certificate or, if
prior to the Distribution Date, to the holder of certificates representing
Common Shares shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Corporation.

     Section 27.  Supplements and Amendments.  Except as set forth in the
                  --------------------------
penultimate sentence of this Section 27, prior to the Distribution Date, the
Corporation may and the Rights Agent shall, if the Corporation so directs,
supplement or amend any provision of this Agreement without the approval of any
holders of certificates representing Common Shares.  From and after the
Distribution Date, the Corporation may and the Rights Agent shall, if the
Corporation so directs, supplement or amend this Agreement without the approval
of any holders of Right Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any
time period hereunder or (iv) to change or supplement the provisions hereunder
in any manner which the Corporation may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Right Certificates
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person); provided, however, that this Agreement may not be supplemented or
         --------  -------
amended to lengthen, pursuant to clause (iii) of this sentence, (A) a time
period relating to when the Rights may be redeemed at such time as the Rights
are not then redeemable, or (B) any other time period unless any such
lengthening is for the purpose of protecting, enhancing or clarifying the rights
of, and/or the benefits to, the holders of Rights.  Upon the delivery of a
certificate from an appropriate officer of the Corporation

                                       31
<PAGE>

which states that the proposed supplement or amendment is in compliance with the
terms of this Section 27, and if requested by the Rights Agent an opinion of
counsel, the Rights Agent shall execute such supplement or amendment; provided,
                                                                      --------
that such supplement or amendment does not adversely affect the rights or
obligations of the Rights Agent under Section 18 or Section 20 of this
Agreement. Prior to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of the holders of Common
Shares.

     Section 28.  Determination and Actions by the Board of Directors, etc.  The
                  ---------------------------------------------------------
Board of Directors of the Corporation shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board, or the Corporation, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or to amend the Agreement and
whether any proposed amendment adversely affects the interests of the holders of
Right Certificates).  For all purposes of this Agreement, any calculation of the
number of Common Shares or other securities outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding Common Shares or any other securities of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement.  All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith (and the Rights Agent shall be able to assume that the Board acted
in such good faith), shall (x) be final, conclusive and binding on the
Corporation, the Rights Agent, the holders of the Right Certificates and all
other Persons, and (y) not subject the Board to any liability to the holders of
the Right Certificates.

     Section 29.  Successors.  All the covenants and provisions of this
                  ----------
Agreement by or for the benefit of the Corporation or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.

     Section 30.  Benefits of this Agreement.  Nothing in this Agreement shall
                  --------------------------
be construed to give to any person or corporation other than the Corporation,
the Rights Agent and the registered holders of the Right Certificates (and,
prior to the Distribution Date, the Common Shares) any legal or equitable right,
remedy or claim under this Agreement; but this Agreement shall be for the sole
and exclusive benefit of the Corporation, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).

     Section 31.  Severability.  If any term, provision, covenant or restriction
                  ------------
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.

     Section 32.  Governing Law.  This Agreement, each Right and each Right
                  -------------
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware

                                       32
<PAGE>

and for all purposes shall be governed by and construed in accordance with the
laws of such State applicable to contracts to be made and performed entirely
within such State; except that all provisions regarding the rights, duties and
obligations of the Rights Agent shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such State.

     Section 33.  Counterparts.  This Agreement may be executed in any number of
                  ------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.

     Section 34.  Descriptive Headings.  Descriptive headings of the several
                  --------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

                           [signature page follows]

                                       33
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the date and year first above written.


                                      NNG, INC.

Attest:


By: /s/ Kathleen M. Salmas            By: /s/ John H. Mullan
    --------------------------            ------------------------------------
    Name:  Kathleen M. Salmas             Name: John H. Mullan
    Title: Assistant Secretary                  Title: Corporate Vice President,
                                                Secretary and Associate General
                                                Counsel

                                       EQUISERVE TRUST COMPANY, N. A.

Attest:


By: /s/ Kevin Laurita                 By: /s/ Gregory P. Denman
    --------------------------            ------------------------------------
    Name:  Kevin Laurita                   Name:  Gregory P. Denman
    Title: Managing Director               Title: Senior Account Manager

                                       34
<PAGE>

                                                                       Exhibit A
                                                                       ---------

                         NORTHROP GRUMMAN CORPORATION
                             (FORMERLY NNG, INC.)
                    CERTIFICATE OF DESIGNATION, PREFERENCES
                  AND RIGHTS OF SERIES A JUNIOR PARTICIPATING
                                PREFERRED STOCK

                           (Pursuant to Section 151
           of the General Corporation Law of the State of Delaware)

     We, Albert F. Myers, Corporate Vice President and Treasurer and John H.
Mullan, Corporate Vice President, Secretary and Associate General Counsel of
NNG, Inc., a corporation organized and existing under the General Corporation
Law of the State of Delaware (the "Corporation"), in accordance with the
provisions of Section 103 thereof, do hereby certify:

     That pursuant to the authority conferred upon the Board of Directors by the
Corporation's Amended and Restated Certificate of Incorporation (as amended from
time to time, the "Certificate of Incorporation"), the Board of Directors, by a
unanimous written consent dated January 31, 2001, adopted the following
resolution creating a series of shares of Preferred Stock designated as Series A
Junior Participating Preferred Stock:

     WHEREAS, the Certificate of Incorporation provides that the Corporation is
authorized to issue 10,000,000 shares of preferred stock, none of which are
outstanding, now therefore it is.

     RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by Article FOURTH of the Certificate of Incorporation, a
series of Preferred Stock of the Corporation be, and it hereby is, created out
of the authorized but unissued shares of the capital stock of the Corporation,
such series to be designated Series A Junior Participating Preferred Stock, par
value $1.00 per share (the "Participating Preferred Stock"), to consist of such
amounts as may be necessary to permit the issuance of Preferred Shares upon
exercise of the Rights, of which the preferences and relative and other rights,
and the qualifications, limitations or restrictions thereof, shall be as
follows:

     1.   Future Increase or Decrease.  Subject to paragraph 4(e) of this
          ---------------------------
resolution, the number of shares of said series may at any time or from time to
time be increased or decreased by the Board of Directors notwithstanding that
shares of such series may be outstanding at such time of increase or decrease.

     2.   Dividend Rate.
          -------------

          (a)  The holders of shares of Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for that purpose, quarterly dividends payable in cash on
the first day of each November, February, May and August in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Participating Preferred Stock (the "First
Issuance"),

                                      A-1
<PAGE>

in an amount per share (rounded to the nearest cent) equal to the greater of (i)
$10.00 or (ii) 1,000 times the aggregate per share amount of all cash dividends
and 1,000 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions, other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock, par value $1.00
per share, of the Corporation (the "Common Stock") since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Participating Preferred Stock. In the event the
Corporation shall at any time after the First Issuance declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount to which holders of shares of Participating
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

          (b)  On or after the first issuance of any share or fractional share
of Participating Preferred Stock, no dividend on Common Stock shall be declared
unless concurrently therewith a dividend or distribution is declared on the
Participating Preferred Stock as provided in paragraph (a) above; and the
declaration of any such dividend on the Common Stock shall be expressly
conditioned upon payment or declaration of and provision for a dividend on the
Participating Preferred Stock as above provided. In the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $10.00 per share on the Participating
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.

          (c)  Whenever quarterly dividends or other dividends payable on the
Participating Preferred Stock as provided in paragraph (a) above are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Participating Preferred Stock outstanding shall
have been paid in full, the Corporation shall not redeem or purchase or
otherwise acquire for consideration shares of any stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the
Participating Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the Corporation ranking junior (as to
dividends and upon dissolution, liquidation or winding up) to the Participating
Preferred Stock.

          (d)  Dividends shall begin to accrue and be cumulative on outstanding
shares of Participating Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Participating Preferred
Stock, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the

                                      A-2
<PAGE>

determination of holders of shares of Participating Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. The Board of Directors may fix a record date for the
determination of holders of shares of Participating Preferred Stock entitled to
receive payment of a dividend distribution declared thereon, which record date
shall be no more than 30 days prior to the date fixed for the payment thereof.

     3.   Dissolution, Liquidation and Winding Up.  In the event of any
          ---------------------------------------
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Corporation (hereinafter referred to as a "Liquidation"), the holders of
Participating Preferred Stock shall receive at least $1,000 per share, plus an
amount equal to all accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, provided that the holders
of shares of Participating Preferred Stock shall be entitled to receive at least
an aggregate amount per share equal to 1,000 times the aggregate amount to be
distributed per share to holders of Common Stock (the "Participating Preferred
Liquidation Preference"). In the event the Corporation shall at any time after
the First Issuance declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount to
which holders of shares of Participating Preferred Stock were entitled
immediately prior to such event under the preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

     4.   Voting Rights.  The holders of shares of Participating Preferred Stock
          -------------
shall have the following voting rights:

          (a)  Each share of Participating Preferred Stock shall entitle the
holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation.  In the event the Corporation shall at any time
after the First Issuance declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Participating Preferred Stock
were entitled immediately prior to such event under the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

          (b)  Except as otherwise provided herein, or by law, the Certificate
of Incorporation or the Restated By-laws of the Corporation (as amended from
time to time, the "By-laws"), the holders of shares of Participating Preferred
Stock and the holders of shares of

                                      A-3
<PAGE>

Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.

          (c)  If and whenever dividends on the Participating Preferred Stock
shall be in arrears in an amount equal to six quarterly dividend payments, then
and in such event the holders of the Participating Preferred Stock, voting
separately as a class (subject to the provisions of subparagraph (d) below),
shall be entitled at the next annual meeting of the stockholders or at any
special meeting to elect two directors.  Each share of Participating Preferred
Stock shall be entitled to one vote, and holders of fractional shares shall have
the right to a fractional vote.  Upon election, such directors shall become
additional directors of the Corporation and the authorized number of directors
of the Corporation shall thereupon be automatically increased by such number of
directors.  Such right of the holders of Participating Preferred Stock to elect
directors may be exercised until all dividends in default on the Participating
Preferred Stock shall have been paid in full, and dividends for the current
dividend period declared and funds therefor set apart, and when so paid and set
apart, the right of the holders of Participating Preferred Stock to elect such
number of directors shall cease, the term of such directors shall thereupon
terminate, and the authorized number of directors of the Corporation shall
thereupon return to the number of authorized directors otherwise in effect, but
subject always to the same provisions for the vesting of such special voting
rights in the case of any such future dividend default or defaults.  The fact
that dividends have been paid and set apart as required by the preceding
sentence shall be evidenced by a certificate executed by the President and the
Chief Financial Officer of the Corporation and delivered to the Board of
Directors.  The directors so elected by the holders of Participating Preferred
Stock shall serve until the certificate described in the preceding sentence
shall have been delivered to the Board of Directors or until their respective
successors shall be elected or appointed and qualify.

          At any time when such special voting rights have been so vested in the
holders of the Participating Preferred Stock, the Secretary of the Corporation
may, and upon the written request of the holders of record of 10% or more of the
number of shares of the Participating Preferred Stock then outstanding addressed
to such Secretary at the principal office of the Corporation in the State of
California, shall, call a special meeting of the holders of the Participating
Preferred Stock for the election of the directors to be elected by them as
hereinabove provided, to be held in the case of such written request within 40
days after delivery of such request, and in either case to be held at the place
and upon the notice provided by law and in the By-laws of the Corporation for
the holding of meetings of stockholders; provided, however, that the Secretary
                                         --------  -------
shall not be required to call such a special meeting (i) if any such request is
received less than 90 days before the date fixed for the next ensuing annual or
special meeting of stockholders or (ii) if at the time any such request is
received, the holders of Participating Preferred Stock are not entitled to elect
such directors by reason of the occurrence of an event specified in the third
sentence of subparagraph (d) below.

          (d)  If, at any time when the holders of Participating Preferred Stock
are entitled to elect directors pursuant to the foregoing provisions of this
paragraph 4, the holders of any one or more additional series of Preferred Stock
are entitled to elect directors by reason of any default or event specified in
the Certificate of Incorporation, as in effect at the time of the certificate of
designation for such series, and if the terms for such other additional series
so permit, the voting rights of the two or more series then entitled to vote
shall be combined (with

                                      A-4
<PAGE>

each series having a number of votes proportional to the aggregate liquidation
preference of its outstanding shares). In such case, the holders of
Participating Preferred Stock and of all such other series then entitled so to
vote, voting as a class, shall elect such directors. If the holders of any such
other series have elected such directors prior to the happening of the default
or event permitting the holders of Participating Preferred Stock to elect
directors, or prior to a written request for the holding of a special meeting
being received by the Secretary of the Corporation from the holders of not less
than 10% of the then outstanding shares of Participating Preferred Stock, then
such directors so previously elected will be deemed to have been elected by and
on behalf of the holders of Participating Preferred Stock as well as such other
series, without prejudice to the right of the holders of Participating Preferred
Stock to vote for directors if such previously elected directors shall resign,
cease to serve or fail to stand for reelection while the holders of
Participating Preferred Stock are entitled to vote. If the holders of any such
other series are entitled to elect in excess of two directors, the Participating
Preferred Stock shall not participate in the election of more than two such
directors, and those directors whose terms first expire shall be deemed to be
the directors elected by the holders of Participating Preferred Stock; provided,
                                                                       --------
however, that, if at the expiration of such terms the holders of Participating
-------
Preferred Stock are entitled to vote in the election of directors pursuant to
the provisions of this paragraph 4, then the Secretary of the Corporation shall
call a meeting (which meeting may be the annual meeting or special meeting of
stockholders referred to in subparagraph (c)) of the holders of Participating
Preferred Stock for the purpose of electing replacement directors (in accordance
with the provisions of this paragraph 4) to be held on or prior to the time of
expiration of the expiring terms referred to above.

          (e)  Except as otherwise set forth herein or required by law, the
Certificate of Incorporation or the By-laws, the holders of Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for the taking of any corporate action.  No
consent of the holders of outstanding shares of Participating Preferred Stock at
any time outstanding shall be required in order to permit the Board of Directors
to:  (i) increase the number of authorized shares of Participating Preferred
Stock or to decrease such number to a number not below the sum of the number of
shares of Participating Preferred Stock then outstanding and the number of
shares with respect to which there are outstanding rights to purchase; or (ii)
to issue Preferred Stock which is senior to the Participating Preferred Stock,
junior to the Participating Preferred Stock or on a parity with the
Participating Preferred Stock.

     5.   Consolidation, Merger, etc.  In case the Corporation shall enter into
          ---------------------------
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each shares of
Participating Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the First Issuance declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise then by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such

                                      A-5
<PAGE>

case the amount set forth in the preceding sentence which respect to the
exchange or change of shares of Participating Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

     6.   Redemption.  The shares of Participating Preferred Stock shall not be
          ----------
redeemable.

     7.   Conversion Rights.  The Participating Preferred Stock is not
          -----------------
convertible into Common Stock or any other security of the Corporation.

                  [balance of page intentionally left blank]

                                      A-6
<PAGE>

     IN WITNESS WHEREOF, the undersigned Corporate Vice President and Treasurer
and Corporate Vice President, Secretary and Associate General Counsel of the
Corporation each declares under penalty or perjury the truth, to the best of his
knowledge, of this Certificate of Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock.

     Executed this ___ day of _______, 2001.

                                            By:_________________________________
                                               Name:  Albert F. Myers
                                               Title: Corporate Vice President
                                                      and Treasurer

Attest:

By: ___________________________________
    Name:  John H. Mullan
    Title:  Corporate Vice President,
            Secretary and Associate
            General Counsel

                                      A-7
<PAGE>

Preferred                                                              Exhibit B
                                                                       ---------

                           Form of Right Certificate

Certificate No. R-                                                   ____ Rights

     NOT EXERCISABLE AFTER OCTOBER 31, 2008, OR EARLIER IF REDEEMED BY THE
     CORPORATION.  THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT ON THE
     TERMS SET FORTH IN THE RIGHTS AGREEMENT.

                               Right Certificate

                                   NNG, Inc.

     This certifies that [_______________], or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of January 31, 2001 (the "Rights Agreement"), between NNG,
                                              ----------------
Inc., a Delaware corporation (the "Corporation"), and EquiServe Trust Company,
                                   -----------
N. A., a national association (the "Rights Agent"), to purchase from the
                                    ------------
Corporation at any time after the Distribution Date (as such term is defined in
the Rights Agreement) and prior to 5:00 P.M., New York time, on October 31,
2008, unless the Rights evidenced hereby shall have been previously redeemed by
the Corporation, at the office or offices of the Rights Agent designated for
such purpose, or at the office of its successor as Rights Agent, one one-
thousandth of a fully paid non-assessable share of Series A Junior Participating
Preferred Stock, without par value (the "Preferred Shares"), of the Corporation,
                                         ----------------
at a purchase price of $250.00 per one one-thousandth of Preferred Share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
---------------
with the Form of Election to Purchase duly executed.  The number of Rights
evidenced by this Right Certificate (and the number of one one-thousandths of a
Preferred Share which may be purchased upon exercise hereof) set forth above,
and the Purchase Price set forth above, are the number and Purchase Price as of
[____________, 20__,] based on the Preferred Shares as constituted at such date.

     Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined
in the Rights Agreement), if the Rights evidenced by this Right Certificate are
Beneficially Owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Acquiring Person (as such terms are defined in the Rights Agreement),
(ii) a transferee of any such Acquiring Person, Associate or Affiliate who
becomes a transferee after the Acquiring Person becomes such, or (iii) under
certain circumstances specified in the Rights Agreement, a transferee of any
such Acquiring Person, Associate or Affiliate who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such, such Rights shall
become null and void and no holder hereof shall have any right with respect to
such Rights from and after the occurrence of such Section 11(a)(ii) Event.

     As provided in the Rights Agreement, the Purchase Price and the number of
one one-thousandth of a Preferred Share or other securities which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon

                                      B-1
<PAGE>

the happening of certain events, including Triggering Events (as such term is
defined in the Rights Agreement).

     This Right Certificate is subject to all of the terms, covenants and
restrictions of the Rights Agreement, which terms, covenants and restrictions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Corporation and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Corporation and the office or offices of the Rights Agent.

     This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares or other securities as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase.  If this Right Certificate shall be exercised in part, the holder
shall be entitled to receive upon surrender hereof another Right Certificate or
Right Certificates for the number of whole Rights not exercised.

     Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Corporation at a redemption price of
$.01 per Right (subject to adjustment as provided in the Rights Agreement)
payable in cash.

     No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are one one-
thousandth or integral multiples of one one-thousandth of a Preferred Share,
which may, at the election of the Corporation, be evidenced by depositary
receipts), but in lieu thereof a cash payment will be made, as provided in the
Rights Agreement.

     No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Corporation which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Rights Agreement), or to receive dividends or other distributions or to exercise
any preemptive or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate shall have been exercised as provided in the
Rights Agreement.

     This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.

                                      B-2
<PAGE>

     WITNESS the facsimile signature of the proper officers of the Corporation
and its corporate seal.  Dated as of [__________, 20__].

[SEAL]
ATTEST:                                     NNG, INC.

By: _________________________               By: ________________________________
    Name: ___________________                   Name: __________________________
    Title: __________________                   Title: _________________________

Countersigned:
[                       ]

By: _________________________
    Authorized Signatory
    Name: ___________________
    Title: __________________

                                      B-3
<PAGE>

                   Form of Reverse Side of Right Certificate

                              FORM OF ASSIGNMENT
                              ------------------

               (To be executed by the registered holder if such
              holder desires to transfer the Right Certificate.)

     FOR VALUE RECEIVED __________________________________ hereby sells, assigns
and transfers unto ____________________ (Please print name and address of
transferee) this Right Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint ______________
Attorney, to transfer the within Right Certificate on the books of the within-
named Corporation, with full power of substitution.

Dated:  ____________, 20__


                                       _________________________________________
                                       Signature

Signature Guaranteed:

     Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.

     The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being sold, assigned or transferred by or on behalf of
a Person who is or was an Acquiring Person or an Affiliate or Associate thereof
(as such terms are defined in the Right Agreement) and (2) after due inquiry and
to the best knowledge of the undersigned, the undersigned did not acquire the
Rights evidenced by this Right Certificate from any Person who is or was an
Acquiring Person or an Affiliate or Associate thereof (as such terms are defined
in the Rights Agreement).


                                       _________________________________________
                                       Signature

                                       1
<PAGE>

             Form of Reverse Side of Right Certificate--continued

                         FORM OF ELECTION TO PURCHASE
                         ----------------------------

                   (To be executed by the registered holder
                   if such holder desires to exercise Rights
                    represented by the Right Certificate.)

To the Rights Agent:

     The undersigned hereby irrevocably elects to exercise _________________
Rights represented by this Right Certificate to purchase the Preferred Shares,
Common Shares or other securities issuable upon the exercise of such Rights and
requests that certificates for such Preferred Shares, Common Shares or other
securities be issued in the name of:

Please insert social security
or other identifying number: ___________________ (Please print name and address)

If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:

Please insert social security
or other identifying number: ___________________ (Please print name and address)

Dated:  _______________, 20__


                                       _________________________________________
                                       Signature

Signature Guaranteed:

     Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.

                                       2
<PAGE>

             Form of Reverse Side of Right Certificate--continued.

     The undersigned hereby certifies that (1) the Rights evidenced by this
Right Certificate are not being exercised by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement) and (2) after due inquiry and to the best
knowledge of the undersigned, the undersigned did not acquire the Rights
evidenced by this Rights Certificate from any Person who is or was an Acquiring
Person or an Affiliate or Associate thereof (as such terms are defined in the
Rights Agreement).


                                       _________________________________________
                                       Signature

                                       3
<PAGE>

                                    NOTICE
                                    ------

     The signature on the foregoing Forms of Assignment and Election and
certificates must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.

     In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Corporation and the Rights Agent will deem the Beneficial Owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.

                                       4
<PAGE>

                                                                       Exhibit C
                                                                       ---------

                         SUMMARY OF RIGHTS TO PURCHASE
                               PREFERRED SHARES

     On January 31, 2001, the Board of Directors of NNG, Inc. (the
"Corporation") declared a dividend distribution of one preferred share purchase
 -----------
right (a "Right") for each outstanding share of Common Stock, par value $1.00
per share (the "Common Shares"), of the Corporation.  The dividend is payable to
                -------------
the stockholders of record on January 31, 2001 (the "Record Date"), and with
                                                     -----------
respect to Common Shares issued thereafter until the Distribution Date (as
defined below) and, in certain circumstances, with respect to Common Shares
issued after the Distribution Date.  Except as set forth below, each Right, when
it becomes exercisable, entitles the registered holder to purchase from the
Corporation one one-thousandth of a share of Series A Junior Participating
Preferred Stock, $1.00 par value per share (the "Preferred Shares"), of the
                                                 ----------------
Corporation at a price of $250.00 per one one-thousandth of a Preferred Share
(the "Purchase Price"), subject to adjustment.  The description and terms of the
      --------------
Rights are set forth in a Rights Agreement (the "Rights Agreement") between the
                                                 ----------------
Corporation and EquiServe Trust Company, N. A., as Rights Agent (the "Rights
                                                                      ------
Agent"), dated as of January 31, 2001.
-----

     Initially, the Rights will be attached to all certificates representing
Common Shares then outstanding, and no separate Right Certificates will be
distributed.  The Rights will separate from the Common Shares upon the earliest
to occur of (i) a person or group of affiliated or associated persons having
acquired beneficial ownership of 15% or more of the outstanding Common Shares
(except pursuant to a Permitted Offer, as hereinafter defined); or (ii) 10 days
(or such later date as the Board may determine) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in a person or group becoming an Acquiring
Person (as hereinafter defined) (the earliest of such dates being called the
"Distribution Date").  A person or group whose acquisition of Common Shares
------------------
causes a Distribution Date pursuant to clause (i) above is an "Acquiring
                                                               ---------
Person."  The date that a person or group becomes an Acquiring Person is the
"Shares Acquisition Date."
------------------------

     The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Shares.  Until the
Distribution Date (or earlier redemption or expiration of the Rights) new Common
Share certificates issued after the Record Date upon transfer or new issuance of
Common Shares will contain a notation incorporating the Rights Agreement by
reference.  Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificate.
As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
                        ------------------
of the Common Shares as of the close of business on the Distribution Date (and
to each initial record holder of certain Common Shares issued after the
Distribution Date), and such separate Right Certificates alone will evidence the
Rights.

                                      C-1
<PAGE>

     The Rights are not exercisable until the Distribution Date and will expire
at the close of business on October 31, 2008, unless earlier redeemed by the
Corporation as described below.

     In the event that any person becomes an Acquiring Person or an affiliate or
associate thereof, (except pursuant to a tender or exchange offer which is for
all outstanding Common Shares at a price and on terms which a majority of
certain members of the Board of Directors determines to be adequate and in the
best interests of the Corporation, its stockholders and other relevant
constituencies, other than such Acquiring Person, its affiliates and associates
(a "Permitted Offer")), each holder of a Right will thereafter have the right
    ---------------
(the "Flip-In Right") to receive upon exercise the number of Common Shares or of
      -------------
one one-thousandth of a share of Preferred Shares (or, in certain circumstances,
other securities of the Corporation) having a value (immediately prior to such
triggering event) equal to two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of the event described
above, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person or any
affiliate or associate thereof will be null and void.

     In the event that, at any time following the Shares Acquisition Date, (i)
the Corporation is acquired in a merger or other business combination
transaction in which the holders of all of the outstanding Common Shares
immediately prior to the consummation of the transaction are not the holders of
all of the surviving corporation's voting power, or (ii) more than 50% of the
Corporation's assets or earning power is sold or transferred, in either case
with or to an Acquiring Person or any affiliate or associate or any other person
in which such Acquiring Person, affiliate or associate has an interest or any
person acting on behalf of or in concert with such Acquiring Person, affiliate
or associate, or, if in such transaction all holders of Common Shares are not
treated alike, any other person, then each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have the
right (the "Flip-Over Right") to receive, upon exercise, common shares of the
            ---------------
acquiring company (or in certain circumstances, its parent) having a value equal
to two times the exercise price of the Right.  The holder of a Right will
continue to have the Flip-Over Right whether or not such holder exercises or
surrenders the Flip-In Right.

     The Purchase Price payable, and the number of Preferred Shares, Common
Shares or other securities issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).

     The number of outstanding Rights and the number of one one-thousandths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.

                                      C-2
<PAGE>

     Preferred Shares purchasable upon exercise of the Rights will not be
redeemable.  Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $10.00 per share but, if greater, will be entitled
to an aggregate dividend per share of 1,000 times the dividend declared per
Common Share.  In the event of liquidation, the holders of the Preferred Shares
will be entitled to a minimum preferential liquidation payment of $1,000 per
share; provided, however, that the holders will be entitled to an aggregate
       --------  -------
payment per share of at least 1,000 times the aggregate payment made per Common
Share.  These rights are protected by customary anti-dilution provisions.  In
the event that the amount of accrued and unpaid dividends on the Preferred
Shares is equivalent to six full quarterly dividends or more, the holders of the
Preferred Shares shall have the right, voting as a class, to elect two directors
in addition to the directors elected by the holders of the Common Shares, until
all cumulative dividends on the Preferred Shares have been paid through the last
quarterly dividend payment date or until non-cumulative dividends have been paid
regularly for at least one year.

     With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.  No fractional Preferred Shares will be issued (other than
fractions which are one one-thousandth or integral multiples of one one-
thousandth of a Preferred Share, which may, at the election of the Corporation,
be evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Shares on the last
trading day prior to the date of exercise.

     At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, and under certain other
circumstances, the Corporation may redeem the Rights in whole, but not in part,
at a price of $.01 per Right (the "Redemption Price") which redemption shall be
effective upon the action of the Board of Directors.  Additionally, following
the Shares Acquisition Date, the Corporation may redeem the then outstanding
Rights in whole, but not in part, at the Redemption Price; provided, however,
                                                           --------  -------
that such redemption is in connection with a merger or other business
combination transaction or series of transactions involving the Corporation in
which all holders of Common Shares are treated alike but not involving an
Acquiring Person or its affiliates or associates.

     All of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Corporation prior to the Distribution Date.  After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, defect or inconsistency, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or, subject to certain limitations, to
shorten or lengthen any time period under the Rights Agreement.

     Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Corporation, including, without limitation, the
right to vote or to receive dividends.  While the distribution of the Rights
will not be taxable to stockholders of the Corporation, stockholders may,
depending upon the circumstances, recognize taxable income should the Rights
become exercisable or upon the occurrence of certain events thereafter.

     A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
March [__], 2001.  A

                                      C-3
<PAGE>

copy of the Rights Agreement is available free of charge from the Corporation.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is hereby
incorporated herein by reference.

                                      C-4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>364-DAY REVOLVING CREDIT AGREEMENT
<TEXT>

<PAGE>

                                                                    Exhibit 10.6

================================================================================

                                    Form of
                               $2,500,000,000
                      364-DAY REVOLVING CREDIT AGREEMENT

                                  dated as of

                                March 30, 2001

                                     among

                                  NNG, INC.,

                         NORTHROP GRUMMAN CORPORATION,

                           LITTON INDUSTRIES, INC.,

                           The Lenders Party Hereto,

                           THE CHASE MANHATTAN BANK

                                      and

                          CREDIT SUISSE FIRST BOSTON,
                          as Co-Administrative Agents

                                      and

                           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


                           JP MORGAN, a division of
                             CHASE SECURITIES INC.
                                      and
                          CREDIT SUISSE FIRST BOSTON,
                 as Joint Lead Arrangers and Joint Bookrunners

================================================================================
<PAGE>


                            TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----

                                   ARTICLE I

                                  Definitions

<S>                                                                                            <C>
SECTION 1.01.  Defined Terms.................................................................    2
SECTION 1.02.  Classification of Loans and Borrowings........................................   20
               --------------------------------------
SECTION 1.03.  Terms Generally...............................................................   20
SECTION 1.04.  Accounting Terms; GAAP........................................................   20
[SECTION 1.05.  Certain Financial Covenant Calculations......................................   21

                                  ARTICLE II

                                  The Credits

SECTION 2.01.  Commitments...................................................................   21
SECTION 2.02.  Revolving Loans and Revolving Borrowings......................................   21
SECTION 2.03.  Requests for Revolving Borrowings.............................................   22
SECTION 2.04.  Competitive Bid Procedure.....................................................   23
SECTION 2.05.  Funding of Revolving Borrowings...............................................   25
SECTION 2.06.  Interest Elections............................................................   25
SECTION 2.07.  Termination and Reduction of Commitments......................................   27
SECTION 2.08.  Repayment of Loans; Evidence of Debt..........................................   27
SECTION 2.09.  Prepayment of Revolving Loans.................................................   28
SECTION 2.10.  Fees..........................................................................   29
SECTION 2.11.  Interest......................................................................   29
SECTION 2.12.  Alternate Rate of Interest....................................................   30
SECTION 2.13.  Increased Costs...............................................................   31
SECTION 2.14.  Break Funding Payments........................................................   32
SECTION 2.15.  Taxes.........................................................................   33
SECTION 2.16.  Payments Generally; Pro Rata Treatment; Sharing of Setoffs....................   34
SECTION 2.17.  Mitigation Obligations; Replacement of Lenders................................   36

                                  ARTICLE III

Representations and Warranties
SECTION 3.01.  Corporate Existence...........................................................   36
SECTION 3.02.  Certain Financial Information.................................................   37
SECTION 3.03.  Litigation....................................................................   38
SECTION 3.04.  No Breach.....................................................................   38
SECTION 3.05.  Corporate Action..............................................................   38
SECTION 3.06.  Approvals.....................................................................   39
SECTION 3.07.  Use of Proceeds, Etc..........................................................   39
SECTION 3.08.  ERISA.........................................................................   39
SECTION 3.09.  Taxes.........................................................................   39
</TABLE>
<PAGE>

                                                                               2

<TABLE>
<S>                                                                                            <C>
SECTION 3.10.  Funded Debt....................................................................   39
SECTION 3.11.  Properties.....................................................................   40
SECTION 3.12.  Environmental Matters..........................................................   40
SECTION 3.13.  True and Complete Disclosure...................................................   40
SECTION 3.14.  Acquisition....................................................................   41
SECTION 3.15.  Intercompany Indebtedness......................................................   41


                                  ARTICLE IV

                                  Conditions

SECTION 4.01.  Effective Date.................................................................  41


                                   ARTICLE V

                             Affirmative Covenants

SECTION 5.01.  Financial Statements...........................................................  44
SECTION 5.02.  Existence, Payment of Taxes, ERISA, Etc........................................  45
SECTION 5.03.  Notice of Litigation...........................................................  46
SECTION 5.04.  Insurance......................................................................  46
SECTION 5.05.  Access to Books and Properties.................................................  46
SECTION 5.06.  Ratings by Moody's and S&P.....................................................  47


                                  ARTICLE VI

                              Negative Covenants

SECTION 6.01.  Restricted Payments............................................................  47
SECTION 6.03.  Guarantees.....................................................................  48
SECTION 6.04.  Fundamental Changes and Acquisitions...........................................  48
SECTION 6.05.  Limitation on Liens............................................................  49
SECTION 6.06.  Investments....................................................................  50
SECTION 6.07.  Indebtedness...................................................................  51
SECTION 6.08.  Leverage Ratio.................................................................  52
SECTION 6.09.  Funded Debt to Consolidated EBITDA Ratio.......................................  52
SECTION 6.10.  Fixed Charge Coverage Ratio....................................................  52
SECTION 6.11.  Use of Proceeds................................................................  53
SECTION 6.12.  Margin Stock...................................................................  53
SECTION 6.13.  Interest Rate Protection Agreements............................................  53
SECTION 6.14.  Modifications of Certain Documents.............................................  53
SECTION 6.15.  Subsidiary Equity Issuance.....................................................  53


                                  ARTICLE VII

Events of Default.............................................................................  53
</TABLE>
<PAGE>

                                                                               3

<TABLE>
<CAPTION>
                                 ARTICLE VIII

<S>                                                                                          <C>
The Agents..................................................................................   57


                                  ARTICLE IX


Joint and Several Liability of Borrowers....................................................   59


                                   ARTICLE X

                                 Miscellaneous

SECTION 10.01.  Notices......................................................................  61
SECTION 10.02.  Waivers; Amendments..........................................................  61
SECTION 10.03.  Expenses; Indemnity; Damage Waiver...........................................  62
SECTION 10.04.  Successors and Assigns; Joint and Several Obligations........................  63
SECTION 10.05.  Survival.....................................................................  66
SECTION 10.06.  Counterparts; Integration; Effectiveness.....................................  66
SECTION 10.07.  Severability.................................................................  66
SECTION 10.08.  Right of Setoff..............................................................  67
SECTION 10.09.  Governing Law; Jurisdiction; Consent to Service of Process...................  67
SECTION 10.10.  WAIVER OF JURY TRIAL.........................................................  67
SECTION 10.11.  Headings.....................................................................  68
SECTION 10.12.  Confidentiality..............................................................  68
SECTION 10.13.  Interest Rate Limitation.....................................................  68
</TABLE>
<PAGE>

                                                                               4

SCHEDULES:
---------

Schedule 1.01(a)        -    Refinanced Debt
Schedule 2.01           -    Commitments
Schedule 3.03           -    Material Litigation
Schedule 3.06           -    Government Approvals
Schedule 6.07           -    Outstanding Indebtedness After Giving Effect to the
                             Acquisition

EXHIBITS:
--------

Exhibit A               -   Form of Assignment and Acceptance
Exhibit B-1             -   Form of Opinion of Sheppard, Mullin, Richter &
                            Hampton LLP, counsel for the Borrowers
Exhibit B-2             -   Form of Opinion of John Mullan, Assistant General
                            Counsel of Northrop Grumman Corporation
Exhibit B-3             -   Form of Opinion of W. Burks Terry, General Counsel
                            of Litton Industries, Inc.
Exhibit B-4             -   Form of Opinion of Kaye, Scholer LLP, special New
                            York counsel for the Borrowers
Exhibit C               -   Form of Note
Exhibit D               -   Form of Confidentiality Agreement
<PAGE>

                    CREDIT AGREEMENT dated as of March 30, 2001, among NNG,
               INC., a Delaware corporation (the "Company"); NORTHROP GRUMMAN
               CORPORATION, a Delaware corporation ("Northrop Operating"); at
               all times after it shall have become a subsidiary of the Company,
               LITTON INDUSTRIES, INC., a Delaware corporation ("Litton
               Operating" and, together with the Company and Northrop Operating,
               the "Borrowers"); the LENDERS party hereto, 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.

          The Company intends to acquire (the "Acquisition") Litton Operating
pursuant to the Amended and Restated Agreement and Plan of Merger dated as of
January 23, 2001 (the "Merger Agreement"), among Northrop Operating, LII
Acquisition, Inc. ("Litton Merger Sub") and Litton Operating. Pursuant to the
Merger Agreement, Litton Merger Sub has made an offer (the "Exchange Offer") to
acquire all the issued and outstanding capital stock of Litton Operating for
consideration consisting of (a) in the case of Litton Operating's common stock,
at the election of the holders thereof and subject to certain other conditions
and adjustments, (i) $80.25 per common share, net to the Seller in cash, and/or
(ii) a combination of new common stock of the Company (approximately 13,000,000
shares in the aggregate) and/or new preferred stock of the Company (valued at up
to $350,000,000 in the aggregate) and (b) in the case of Litton Operating's
preferred stock, $35 per share, net to the Seller in cash. Immediately prior to
the consummation of the Exchange Offer, the Company will cause a newly formed,
wholly-owned subsidiary ("Northrop Merger Sub") to merge (the "Northrop Merger")
with and into Northrop Operating, as consideration for which the existing
stockholders of Northrop Operating will receive common stock of the Company. As
promptly as practicable following the consummation of the Exchange Offer, (i)
Litton Merger Sub will merge with and into Litton Operating (the "Litton Merger"
and, together with the Northrop Merger, the "Mergers") in a transaction in
which, subject to stockholders' dissent rights, each issued and outstanding
share of common stock of Litton Operating not acquired in the Exchange Offer
will be converted into the right to receive $80.25 per common share in cash and
(ii) Litton Operating will become a party to this Agreement as a Borrower. The
aggregate consideration payable to the stockholders of Litton Operating in the
Acquisition will be approximately not greater than $4,000,000,000 in cash and
stock. In connection and substantially concurrent with the Acquisition, Northrop
Operating and Litton Operating will repay all amounts outstanding under, and
terminate, their primary existing bank credit agreements (the "Existing Credit
Agreements") and repay the Refinanced Debt.
<PAGE>

                                                                               2


          The parties hereto agree as follows:

                                   ARTICLE I

                                  Definitions

           SECTION 1.01.  Defined Terms.  As used in this Agreement, the
following terms have the meanings specified below:

          "ABR", when used in reference to any Revolving Loan or Revolving
Borrowing, refers to whether such Revolving Loan, or the Revolving Loans
comprising such Revolving Borrowing, are bearing interest at a rate determined
by reference to the Alternate Base Rate.

          "Acquisition" has the meaning assigned to such term in the preamble to
this Agreement.

          "Adjusted LIBO Rate" means, with respect to any Eurodollar Revolving
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.

          "Administrative Questionnaire" means an Administrative Questionnaire
in a form supplied by the Payment Agent.

          "Affiliate" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.

          "Agents" means, collectively, the Co-Administrative Agents and the
Payment Agent.

          "Alternate Base Rate" means, for any day, a rate per annum equal to
the greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.

          "Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment. If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.

          "Applicable Rate" means, for any day, with respect to any Eurodollar
Revolving Loan or ABR Loan, or with respect to the facility fees payable
hereunder, as the case may be, the
<PAGE>

                                                                               3

applicable rate per annum set forth below under the caption "Eurodollar Spread",
"ABR Spread" or "Facility Fee Rate", as the case may be, based upon the ratings
by Moody's and S&P, respectively, applicable on such date to the Senior Long
Term Debt:


==========================================================================
         Senior Long Term             Facility    Eurodollar     ABR
           Debt Ratings               Fee Rate      Spread     Spread
--------------------------------------------------------------------------
Category 1                              0.100%       0.650%    0.000%
BBB+ or higher or Baal or higher
--------------------------------------------------------------------------
Category 2                              0.125%       0.875%    0.000%
BBB or Baa2, and no other
 Category applies
--------------------------------------------------------------------------
Category 3                              0.175%       1.075%    0.075%
BBB- and Baa3
--------------------------------------------------------------------------
Category 4                              0.250%       1.250%    0.250%
BBB- and Ba1 or BB+ and Baa3
--------------------------------------------------------------------------
Category 5                              0.300%       1.450%    0.450%
BB+ and Ba1
--------------------------------------------------------------------------
Category 6                              0.375%       1.875%    0.875%
Lower than BB+ or lower
than Ba1
--------------------------------------------------------------------------

If either Moody's or S&P shall not have in effect a rating for the Senior Long
Term Debt, then the Company and the Co-Administrative Agents shall endeavor in
good faith to agree upon a Substitute Rating Agency and the ratings of such
Substitute Rating Agency corresponding to the ratings of Moody's or S&P, as the
case may be, in each of the Categories in the table above, and following such
agreement the Applicable Rate shall be determined by substituting the ratings of
such Substitute Rating Agency applicable to the Senior Long Term Debt for the
ratings of Moody's or S&P, as the case may be, in the table above; provided,
that (a) a single Substitute Rating Agency may not be substituted pursuant to
this sentence for both Moody's and S&P and (b) until the Company and the Co-
Administrative Agents shall have reached agreement on the matters referred to in
this sentence, the Applicable Rate shall be determined by reference to the
single available rating by Moody's or S&P, as the case may be (or, if there is
no available rating, the rating most recently in effect). If the ratings
established or deemed to have been established by Moody's and S&P (or a
Substitute Rating Agency) for the Senior Long Term Debt shall be changed (other
than as a result of a change in the rating system of Moody's or S&P (or a
Substitute Rating Agency)), such change shall be effective as of the date on
which it is first announced by the applicable rating agency. Each change in the
Applicable Rate shall apply during the period commencing on the effective date
of such change and ending on the date immediately preceding the effective date
of the next such change. If the rating system of Moody's or S&P or an applicable
Substitute Rating Agency shall change, the Company and the Lenders shall
negotiate in good faith to amend this definition to reflect such changed rating
system and, pending the effectiveness of any
<PAGE>

                                                                               4

such amendment, the Applicable Rate shall be determined by reference to the
rating most recently in effect from such rating agency prior to such change.

          "Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 10.04), and accepted by the Payment Agent, in the form of
Exhibit A or any other form approved by the Payment Agent and the Borrowers.

          "Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.

          "Bankruptcy Code" means the Federal Bankruptcy Code of 1978, as
amended from time to time.

          "Board" means the Board of Governors of the Federal Reserve System of
the United States of America.

          "Borrowers" means Northrop Operating and the Company and, from and
after its execution of this Agreement as provided in Section 10.14, Litton
Operating.

          "Borrowing" means a group of Loans of the same type, made, converted
or continued on the same date and, in the case of Eurodollar Loans or Fixed Rate
Loans, as to which a single Interest Period applies.

          "Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.

          "Capital Expenditures" means, for any period, expenditures (including,
without limitation, the aggregate amount of Capital Lease Obligations incurred
during such period) made by the Company or any of the Subsidiaries to acquire or
construct fixed assets, plant and equipment (including renewals, improvements
and replacements, but excluding repairs) during such period computed in
accordance with GAAP.

          "Capital Lease Obligations" of any Person means the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) Property, which obligations are required
to be classified and accounted for as capital leases on a balance sheet of such
Person under GAAP, and the amount of such obligations shall be the capitalized
amount thereof determined in accordance with GAAP.

          "Change in Law" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender (or, for
purposes of Section 2.13(b), by any lending office of such
<PAGE>

                                                                               5

Lender or by such Lender's holding company, if any) with any request, guideline
or directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.

          "Chase" means The Chase Manhattan Bank and its successors.

          "Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans
or Competitive Loans.

          "Co-Administrative Agents" means Chase and CSFB, in their capacities
as co-administrative agents for the Lenders hereunder, or any successors,
thereto appointed in accordance with Article VIII.

          "Code" means the Internal Revenue Code of 1986, as amended from time
to time.

          "Commitment" means, with respect to each Lender, the commitment of
such Lender to make Revolving Loans hereunder, expressed as an amount
representing the maximum aggregate permitted amount of such Lender's Revolving
Credit Exposure hereunder, as such commitment may be (a) reduced from time to
time pursuant to Section 2.07 and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 10.04. The
initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in
the Assignment and Acceptance pursuant to which such Lender shall have assumed
its Commitment, as applicable.

          "Company" has the meaning assigned to such term in the preamble to
this Agreement.

          "Competitive Bid" means an offer by a Lender to make a Competitive
Loan in accordance with Section 2.04.

          "Competitive Bid Rate" means, with respect to any Competitive Bid, the
Margin or the Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.

          "Competitive Bid Request" means a request by a Borrower for
Competitive Bids in accordance with Section 2.04.

          "Competitive Loan" means a loan made pursuant to Section 2.04.

          "Competitive Loan Exposure" means, with respect to any Lender at any
time, the aggregate principal amount of the outstanding Competitive Loans of
such Lender.

          "Consolidated EBITDA" means, for any period, Consolidated Net Income
for such period plus, without duplication and to the extent deducted in
determining such Net Income, the sum of (i) Interest Expense for such period,
(ii) consolidated income tax expense for such period, (iii) all amounts
attributable to depreciation and amortization for such period, (iv) any noncash
charges for such period and (v) fees and expenses incurred in connection with
the Transactions,
<PAGE>

                                                                               6

minus, without duplication and to the extent included in determining such Net
Income, any noncash income for such period.

          "Consolidated Net Income" means, for the Company and the Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for any fiscal
period, an amount equal to the consolidated net income of the Company and its
Subsidiaries for such fiscal period.

          "Consolidated Net Income Available for Restricted Payments" means an
amount equal to (i) the sum of $300,000,000 plus 80% (or minus 100% in case of
consolidated net loss) of Consolidated Net Income for the period (taken as one
accounting period) commencing January 1, 2001 and terminating on the Fiscal Date
immediately preceding the date of any proposed Restricted Payment, less (ii) the
sum of (A) the aggregate amount of all dividends (other than dividends payable
solely in common stock of the Company) and other distributions paid or declared
by the Company (for all periods on or after the Effective Date) or either
Northrop Operating or Litton Operating (for the period from January 1, 2001
through the Effective Date) on any class of its stock and (B) the excess (if
any) of the aggregate amount expended, directly or indirectly, by the Company
(for all periods on or after the Effective Date) or by either Northrop Operating
or Litton Operating (for the period from January 1, 2001 through the Effective
Date) for the redemption, purchase or other acquisition of any shares of its
stock, over the aggregate amount of any cash or cash equivalents received by the
Company on and after said date as consideration for the sale of any shares of
its stock.

          "Consolidated Stockholders' Equity" means the amount of stockholders'
equity of the Company and the Subsidiaries (determined on a consolidated basis
in accordance with GAAP).

          "Consolidating Financial Statements" means, for any fiscal period, the
unaudited consolidating statements of financial position and income for the
corporate office and principal operating centers of the Company and the
Subsidiaries substantially in the form of the consolidating financial statements
for such corporate office and principal operating centers as at and for Northrop
Operating's fiscal year ended December 31, 1999 heretofore delivered to the
Lenders.

          "Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.

          "CSFB" means Credit Suisse First Boston and its successors.

          "Debt Service" means, for any period, the sum, for the Company and the
Subsidiaries (determined on a consolidated basis in accordance with GAAP), of
the following: (a) all regularly scheduled payments of principal of Indebtedness
(including, without limitation, the principal component of any payments in
respect of Capital Lease Obligations but excluding amounts repaid under Working
Capital Credit Lines) made during such period plus (b) all Interest Expense for
such period.
<PAGE>

                                                                               7

          "Default" means any event or condition which constitutes an Event of
Default or which with notice, passage of time or both would become an Event of
Default.

          "Disbursement Account" means the Company's account (910-2-475762) with
the Payment Agent, or, at any time, any other account of the Company with the
Payment Agent that shall have been designated in a notice delivered by the
Company to the Payment Agent not fewer than three Business Days prior to such
time.

          "Disposition" means any sale, assignment, transfer or other
disposition (or series of related sales, assignments, transfers or other
dispositions) of any Property (whether now owned or hereafter acquired) by the
Company or any of the Subsidiaries to any other Person (other than the Company
or a Subsidiary) that results in Net Cash Payments to the Company and/or one or
more Subsidiaries in an aggregate amount greater than $10,000,000, excluding any
sales, assignments, transfers or dispositions of inventory in the ordinary
course of business.

          "Dollars" or "$" refers to lawful money of the United States of
America.

          "Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 10.02).

          "Environmental Laws" means any and all Federal, state, local and
foreign laws, rules or regulations, and any orders or decrees, in each case as
now or hereafter in effect, relating to the regulation or protection of human
health, safety or the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or toxic or hazardous
substances or wastes into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes.

          "Equity" means (i) any capital stock or any warrants, options or
rights exercisable in respect of capital stock, including any capital stock
issued upon the exercise of any such warrants, options or rights (other than any
capital stock, warrants, options or rights issued to directors, officers or
employees of the Company or any of the Subsidiaries pursuant to employee benefit
plans, stock option plans or long-term incentive plans established in the
ordinary course of business and any capital stock of the Company issued upon the
exercise of such warrants, options or rights) or (ii) any other security or
instrument representing an equity interest in the Company or any of the
Subsidiaries.

          "Equity Issuance" means (a) any issuance or sale (including any
issuance or sale as a result of a conversion or exchange of debt securities) by
the Company or any Subsidiary of Equity or (b) the receipt by the Company of any
capital contribution (whether or not evidenced by any equity security issued by
the Company) other than (i) any issuance of Equity of the Company to the former
stockholders of Litton Operating in connection with the Acquisition, (ii) any
issuance of Equity to, or receipt of any such capital contribution from, the
Company or a Subsidiary and (iii) any issuance of Equity of the Company to
employees, officers or directors of the Company and
<PAGE>

                                                                               8

the Subsidiaries pursuant to employee stock options or employee benefit plans in
effect from time to time.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.

          "ERISA Affiliate" means any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.

          "Eurodollar", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate or, in the
case of Competitive Loans, the LIBO Rate.

          "Event of Default" has the meaning assigned to such term in Article
VII.

          "Exchange Act" means the Securities Exchange Act of 1934, together
with the Rules and Regulations of the SEC thereunder.

          "Exchange Offer" has the meaning assigned to such term in the preamble
to this Agreement.

          "Excluded Taxes" means, with respect to any Lender or any other
recipient of any payment to be made by or on account of any obligation of a
Borrower hereunder, (a) income or franchise taxes imposed on (or measured by)
its net income by the United States of America, or by the jurisdiction under the
laws of which such recipient is organized or in which its principal office is
located or, in the case of any Lender, in which its applicable lending office is
located, (b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other jurisdiction described in clause (a) above
and (c) in the case of a Foreign Lender (other than an assignee pursuant to a
request by a Borrower under Section 2.17(b)), any withholding tax imposed by the
United States of America that (i) is in effect and would apply to amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from a Borrower with respect to any withholding tax pursuant to Section
2.15, or (ii) is attributable to such Foreign Lender's failure to comply with
Section 2.15(e).

          "Existing Credit Agreements" means, with respect to Northrop
Operating, the Credit Agreement dated as of April 15, 1994, as amended by an
Amended and Restated Credit Agreement dated as of March 1, 1996 and a Second
Amended and Restated Credit Agreement dated as of November 1, 1996, as amended,
among Northrop Operating, Chase, Chase Securities Inc. and Bank of America
National Trust and Savings Association and, with respect to Litton Operating,
the 364-Day and Five-Year Credit Agreements dated as of March 22, 2000 among
Litton Industries, Inc. and Morgan Guaranty Trust Company of New York.
<PAGE>

                                                                               9

          "Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Payment Agent from three Federal funds brokers of
recognized standing selected by it.

          "Financial Officer" means any of the chief financial officer,
principal accounting officer, treasurer, assistant treasurer, or controller of
the Company.

          "Fiscal Dates" means the last day of each March, June, September and
December in each year, the first of which shall be the first such day after the
date hereof.

          "Five-Year Credit Agreement" means the Five-Year Credit Agreement
dated as of the date hereof among the Borrowers, the lenders party thereto and
Chase and CSFB, as the co-administrative agents.

          "Fixed Charge Coverage Ratio" means, at any Fiscal Date, the ratio of
(a) the sum of (i) Consolidated EBITDA for the period of four consecutive fiscal
quarters of the Company ending on such date minus (ii) Capital Expenditures
during such period to (b) the sum of (i) Interest Expense for such period plus
(ii) Restricted Payments made by the Company or, prior to the Northrop Merger,
by Northrop Operating during such period.

          "Fixed Rate" means, with respect to any Competitive Loan (other than a
Eurodollar Competitive Loan), the fixed rate of interest per annum specified by
the Lender making such Competitive Loan in its related Competitive Bid.

          "Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed
Rate.

          "Foreign Lender" means any Lender that is organized under the laws of
a jurisdiction other than the United States of America, a State thereof or the
District of Columbia.

          "Funded Debt" means any Indebtedness of the Company or any Subsidiary
for borrowed money or the deferred purchase price of Property which is shown on
the consolidated financial statements of the Company as a liability, in any
event including (a) Capital Lease Obligations and (b) Guarantees which are
deemed Funded Debt under Section 6.03 hereof but excluding (i) items customarily
reflected as current liabilities and classified as other than debt (it being
understood that progress payments, trade accounts payable, obligations under
leases which are not capitalized leases and income taxes payable are excluded
from "Funded Debt" under this definition) and (ii) deferred income taxes minus
cash and cash equivalents of the Company and its Subsidiaries.

          "Funded Debt to Consolidated EBITDA Ratio" means, at any Fiscal Date,
the ratio of (a) Funded Debt as at such date to (b) Consolidated EBITDA for the
period of four consecutive fiscal quarters of the Company ending on such date.
<PAGE>

                                                                              10

          "GAAP" means generally accepted accounting principles in the United
States of America, applied in accordance with Section 1.04.

          "Government" means the United States of America or any department or
agency thereof.

          "Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.

          "Granting Lender" has the meaning assigned to such term in Section
10.04.

          "Guarantee" means, with respect to any Person, a guarantee, an
endorsement, a contingent agreement to purchase or to furnish funds for the
payment or maintenance of, or otherwise to be or become contingently liable
under or with respect to, the Indebtedness, other obligations, net worth,
working capital or earnings of any other Person, or a guarantee of the payment
of dividends or other distributions upon the stock or equity interests of any
other Person, or an agreement to purchase, sell or lease (as lessee or lessor)
Property, products, materials, supplies or services primarily for the purpose of
enabling any other Person to make payment of its obligations or an agreement to
assure a creditor of such Person against loss, and including, without
limitation, causing a bank or other financial institution to issue a standby
letter of credit or other similar instrument supporting the obligations of
another Person, but excluding endorsements for collection or deposit in the
ordinary course of business.  The amount of any Guarantee in respect of
Indebtedness shall be deemed to be an amount equal to the stated or determinable
amount of the related Indebtedness (unless the Guarantee is limited by its terms
to a lesser amount, in which case, to the extent of such amount) or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith.  The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.

          "Indebtedness" means, for any Person: (a) obligations created, issued
or incurred by such Person for borrowed money (whether by loan, the issuance and
sale of debt securities or the sale of Property to another Person subject to an
understanding or agreement, contingent or otherwise, to repurchase such Property
from such Person); (b) obligations of such Person to pay the deferred purchase
or acquisition price of Property or services, other than trade accounts payable
(other than for borrowed money) arising, and accrued expenses incurred, in the
ordinary course of business so long as such trade accounts payable are payable
within 180 days of the date the respective goods are delivered or the respective
services are rendered; (c) indebtedness of others secured by a Lien on the
Property of such Person, whether or not the respective Indebtedness so secured
has been assumed by such Person (but only to the extent of the fair market value
of such Property if not assumed by such Person); (d) obligations (contingent or
otherwise) in respect of letters of credit, banker's acceptances and similar
instruments issued or accepted for the account of such Person; (e) Capital Lease
Obligations of such Person; and (f) Guarantees by such Person of Indebtedness of
others.
<PAGE>

                                                                              11



          "Indemnified Taxes" means Taxes other than Excluded Taxes.

          "Indemnitee" has the meaning assigned to such term in Section 10.03.

          "Information Memorandum" means the Confidential Information Memorandum
dated January 2001 relating to the Borrowers and the Acquisition.

          "Interest Election Request" means a request by a Borrower to convert
or continue a Revolving Borrowing in accordance with Section 2.06.

          "Interest Expense" means, for any period, the sum, without
duplication, for the Company and the Subsidiaries (determined on a consolidated
basis in accordance with GAAP), of the following:  (a) all interest in respect
of Funded Debt (including, without limitation, the interest component of any
payments in respect of Capital Lease Obligations) accrued or capitalized during
such period (whether or not actually paid during such period) plus (b) the net
amount payable (or minus the net amount receivable) under Interest Rate
Protection Agreements during such period (whether or not actually paid or
received during such period) minus (c) all interest income accrued during such
period (whether or not actually received during such period).

          "Interest Payment Date" means (a) with respect to any ABR Loan, each
Fiscal Date, (b) with respect to any Eurodollar Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and, in
the case of a Eurodollar Borrowing with an Interest Period of more than three
months' duration, each day prior to the last day of such Interest Period that
occurs at intervals of three months' duration after the first day of such
Interest Period and (c) with respect to any Fixed Rate Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and, in
the case of a Fixed Rate Borrowing with an Interest Period of more than 90 days'
duration (unless otherwise specified in the applicable Competitive Bid Request),
each day prior to the last day of such Interest Period that occurs at intervals
of 90 days' duration after the first day of such Interest Period, and any other
dates that are specified in the applicable Competitive Bid Request as Interest
Payment Dates with respect to such Borrowing.

          "Interest Period" means (a) with respect to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the applicable Borrower may elect, or any other period
agreed to by such Borrower and each Lender, and (b) with respect to any Fixed
Rate Borrowing, the period (which shall not be less than 7 days or more than 360
days) commencing on the date of such Borrowing and ending on the date specified
in the applicable Competitive Bid Request; provided, that (i) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the immediately preceding Business Day, and (ii) any
Interest Period that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period.  For purposes hereof, the date
<PAGE>

                                                                              12

of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.

          "Interest Rate Protection Agreement" means, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest rate risks either generally or under specific
contingencies and entered into as bona fide hedges (and not for speculative
purposes) against such interest rate risks.

          "Investment" means, for any Person:  (a) the acquisition (whether for
cash, Property, services or securities or otherwise) of capital stock, bonds,
notes, debentures or other debt obligations, partnership or other ownership
interests or other securities of any other Person or any agreement to make any
such acquisition (including, any "short sale" or any sale of any securities at a
time when such securities are not owned by the Person entering into such sale);
(b) the making of any deposit with, or advance, loan or other extension of
credit to, any other Person (including the purchase of Property from another
Person subject to an understanding or agreement, contingent or otherwise, to
resell such Property to such Person), but excluding any such advance, loan or
extension of credit having a term not exceeding 180 days arising in connection
with the sale of inventory or supplies by such Person in the ordinary course of
business; or (c) the entering into of any Guarantee of, or other contingent
obligation with respect to, Indebtedness or other liability of any other Person
and (without duplication) any amount committed to be advanced, lent or extended
to such Person.

          "Investment Grade Rating Period" means, after (i) the consummation of
the Acquisition (or the express statement by Moody's and S&P that the same has
been taken into account in reaffirming or announcing the ratings referred to in
clause (ii) below) and (ii) the date after the date hereof on which both Moody's
and S&P shall have first either reaffirmed or announced revised ratings for the
Senior Long Term Debt, any period during which the rating of the Senior Long
Term Debt is BBB- or higher by S&P (or a Substitute Rating is at the
corresponding rating level or higher) and Baa3 or higher by Moody's (or a
Substitute Rating is at the corresponding rating level or higher).

          "Lenders" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance in compliance with Section 10.04, other than any such Person that
shall have ceased to be a party hereto pursuant to an Assignment and Acceptance.

          "Leverage Ratio" means, at any Fiscal Date, the ratio of (a) the
aggregate amount (determined without duplication on a consolidated basis) of all
Funded Debt outstanding at such time to (b) the sum of (i) Consolidated
Stockholders' Equity at such time plus (ii) all Funded Debt outstanding at such
time.

          "LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
<PAGE>

                                                                              13

Payment Agent from time to time for purposes of providing quotations of interest
rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Payment Agent in immediately
available funds in the London interbank market at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period.

          "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
The term "Lien" shall not include the ownership interests in receivables
acquired by a purchaser under a Permitted Receivables Sale Agreement.

          "Litton Operating" means Litton Industries, Inc.

          "Litton Merger" has the meaning assigned to such term in the preamble
to this Agreement.

          "Litton Merger Sub" has the meaning assigned to such term in the
preamble to this Agreement.

          "Litton Operating Senior Indentures" means the Indenture dated as of
December 15, 1991, between Litton Operating and The Bank of New York, as trustee
and the Indenture dated as of April 13, 1998, between Litton Operating and The
Bank of New York, as trustee.

          "Loan" means a Revolving Loan or a Competitive Loan.

          "Loan Documents" means this Agreement and each promissory note, if
any, delivered pursuant to this Agreement, as such documents may be amended,
modified, supplemented or restated from time to time.

          "Margin" means, with respect to any Competitive Loan bearing interest
at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be
added to or subtracted from the LIBO Rate to determine the rate of interest
applicable to such Loan, as specified by the Lender making such Loan in its
related Competitive Bid.

          "Margin Stock" means "margin stock" as defined in Regulation U of the
Board.

          "Material Adverse Effect" means a material adverse effect on (a) the
business, operations, condition (financial or otherwise) or prospects of the
Company and the Subsidiaries taken as a whole, (b) the consummation of the
Acquisition, (c) the ability of the Borrowers to perform their material
obligations under any of the Loan Documents, (d) the validity or enforceability
of any of the Loan Documents, (e) the rights and remedies of the Lenders and the
<PAGE>

                                                                              14

Co-Administrative Agents under any of the Loan Documents or (f) the timely
payment of the principal of or interest on the Loans or other amounts payable in
connection therewith.

          "Material Subsidiary" means, at any time, (a) each Borrower and (b)
any other Subsidiary if, at such time, such Subsidiary would qualify as a
"significant subsidiary" under Regulation S-X of the SEC as in effect on the
date hereof.

          "Maturity Date" means March 29, 2002.

          "Merger Agreement" has the meaning assigned to such term in the
preamble to this Agreement.

          "Moody's" means Moody's Investors Service, Inc. and its successors and
assigns.

          "Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Borrowers or
any ERISA Affiliate and which is covered by Title IV of ERISA.

          "Net Available Proceeds" means:

          (a)  in the case of any Disposition, the amount of Net Cash Payments
     received in connection with such Disposition;

          (b)  in the case of any Equity Issuance, the aggregate amount of any
     cash or cash equivalents received by the Company and the Subsidiaries in
     respect of such Equity Issuance net of all reasonable fees and expenses
     incurred by the Company and the Subsidiaries in connection therewith; and

          (c) in the case of the incurrence by the Company or any Subsidiary of
     any Funded Debt (but excluding Funded Debt under the Five-Year Credit
     Agreement and Funded Debt under Working Capital Credit Lines), the
     aggregate amount of all cash or cash equivalents received by the Company
     and the Subsidiaries in respect of such incurrence of Indebtedness, net of
     all reasonable fees and expenses incurred by the Company and the
     Subsidiaries in connection therewith.

          "Net Cash Payments" means, with respect to any Disposition, the
aggregate amount of all cash payments, and the fair market value of any non-cash
consideration, received by the Company and the Subsidiaries directly or
indirectly in connection with such Disposition; provided that (a) Net Cash
Payments shall be net of (i) the amount of any legal, title and recording tax
expenses, commissions and other fees and expenses paid by the Company and the
Subsidiaries in connection with such Disposition and (ii) any Federal, state and
local income or other taxes estimated in good faith to be payable by the Company
and the Subsidiaries as a result of such Disposition and (b) Net Cash Payments
shall be net of any required repayments by the Company or any of the
Subsidiaries of Indebtedness related to the Property disposed of in such
Disposition.
<PAGE>

                                                                              15

          "Northrop Merger" has the meaning assigned to such term in the
preamble to this Agreement.

          "Northrop Merger Sub" has the meaning assigned to such term in the
preamble to this Agreement.

          "Northrop Operating Senior Indenture" means the Indenture dated as of
October 15, 1994 between Northrop Operating and Chase, as trustee, as
supplemented by the Officers Certificate dated February 27, 1996 pursuant to
Sections 201, 301 and 303 of such Indenture, and as the same shall be further
modified and supplemented and in effect from time to time.

          "Northrop Operating Subordinated Indenture" means the form of
Indenture filed as Exhibit 4-6 to Northrop Operating's Registration Statement on
Form S-3 filed with the SEC on August 19, 1994, as amended by the Northrop
Operating's Form 8-K filed with the SEC on February 28, 1996.

          "Obligations" means (i) the obligations of the Borrowers under this
Agreement and the other Loan Documents with respect to the payment of the
principal of and interest on the Loans when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise and (ii)
all other monetary obligations of the Borrowers hereunder and thereunder.

          "Other Taxes" means any and all present or future recording, stamp,
documentary, excise, transfer, sales, property or similar taxes, charges or
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.

          "Participant" has the meaning assigned to such term in Section 10.04.

          "Payment Agent" means Chase, in its capacity as paying agent for the
Lenders hereunder, or any successor thereto appointed in accordance with Article
VIII.

          "PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

          "Permitted Investments" means:

          (a)  direct obligations of, or obligations the principal of and
     interest on which are unconditionally guaranteed by, the United States of
     America (or by any agency thereof to the extent such obligations are backed
     by the full faith and credit of the United States of America), in each case
     maturing within one year from the date of acquisition thereof;

          (b)  investments in commercial paper maturing within 270 days from the
     date of acquisition thereof and having, at such date of acquisition, the
     highest credit rating obtainable from S&P or from Moody's;
<PAGE>

                                                                              16

          (c)  investments in certificates of deposit, banker's acceptances and
     time deposits maturing within 180 days from the date of acquisition thereof
     issued or guaranteed by or placed with, and money market deposit accounts
     issued or offered by, any office located in the United States of America of
     any commercial bank organized under the laws of the United States of
     America or any State thereof which has a combined capital and surplus and
     undivided profits of not less than $500,000,000;

          (d)  fully collateralized repurchase agreements with a term of not
     more than 30 days for securities described in clause (a) above and entered
     into with a financial institution satisfying the criteria described in
     clause (c) above; and

          (e)  investments purchased for cash management purposes by offices or
     other establishments of the Company and the Subsidiaries located outside
     the United States of America, to the extent the credit quality of such
     investments is comparable to that of the investments described in clauses
     (a) through (d) above.

          "Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.

          "Plan" means an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and which is covered by Title
IV of ERISA, other than a Multiemployer Plan.

          "Prepayment Event" means:

          (a)  any Disposition that results in Net Available Proceeds of
     $25,000,000 or more; or

          (b)  any series of Dispositions, whether or not related, that have not
     yet been deemed to constitute a Prepayment Event under this clause (b) and
     that have resulted in aggregate Net Available Proceeds of $100,000,000 or
     more (it being agreed that, for purposes of Section 2.07(c), the Net
     Available Proceeds of any such Prepayment Event shall be deemed to have
     been received on the date on which the aggregate Net Available Proceeds
     received by the Company and/or one or more Subsidiaries in respect thereof
     shall equal or exceed $100,000,000); or

          (c)  any Equity Issuance that results in Net Available Proceeds, or

          (d)  the incurrence by the Company or any Subsidiary of any Funded
     Debt after the date hereof, but excluding Funded Debt under this Agreement
     and the Five-Year Credit Agreement (and replacement Indebtedness referred
     to in Section 6.07(a)(i)) and Funded Debt under Working Capital Credit
     Lines.

          "Prime Rate" means the rate of interest per annum publicly announced
from time to time by Chase as its prime rate in effect at its principal office
in New York City; each change in
<PAGE>

                                                                              17

the Prime Rate shall be effective from and including the date such change is
publicly announced as being effective.

          "Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, whether now owned or
hereafter acquired.

          "Quarterly Period" means the period from but excluding one Fiscal Date
through and including the next succeeding Fiscal Date.

          "Refinanced Debt" means the Indebtedness of the Borrowers and their
respective subsidiaries listed in Schedule 1.01(a).

          "Register" has the meaning set forth in Section 10.04.

          "Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.

          "Required Lenders" means, at any time, Lenders having Revolving Credit
Exposures and unused Commitments representing more than 50% of the total
Revolving Credit Exposures and unused Commitments at such time; provided that,
in connection with the exercise of remedies under Article VII and for all
purposes after the Loans become due and payable or the Commitments expire or
terminate,  "Required Lenders" will mean, at any time, Lenders having Revolving
Credit Exposures and outstanding Competitive Loans representing more than 50% of
the total Revolving Credit Exposures and outstanding Competitive Loans at such
time.

          "Restricted Payment" means any dividend (other than dividends payable
solely in stock of the Company) or any other distribution with respect to any
stock of the Company, whether now or hereafter outstanding, or any payment on
account of the purchase, acquisition, redemption or other retirement, directly
or indirectly, of any shares of such stock.

          "Revolving Borrowing" means a Borrowing consisting of Revolving Loans.

          "Revolving Borrowing Request" means a request by a Borrower for a
Revolving Borrowing in accordance with Section 2.03.

          "Revolving Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make Revolving Loans, expressed as an
amount representing the maximum aggregate amount of such Lender's Revolving
Exposure hereunder, as such commitment may be reduced from time to time pursuant
to Article II and reduced or increased from time to time pursuant to Article X.
The initial amount of each Lender's Revolving Commitment is set forth on
Schedule 2.01. The initial aggregate amount of the Lenders' Revolving
Commitments is $2,500,000,000.

          "Revolving Credit Exposure" means, with respect to any Lender at any
time, the sum of the outstanding principal amount of such Lender's Revolving
Loans at such time.
<PAGE>

                                                                              18

          "Revolving Loan" means a loan made pursuant to Section 2.10 and 2.03.

          "SEC" means the Securities and Exchange Commission or any successor.

          "Senior Long Term Debt" means Indebtedness of the Company that (a) is
not contractually subordinated to any other Indebtedness of the Company, (b) is
considered as of the date of its incurrence under GAAP to be "long-term" debt,
(c) is not secured by a Lien on any Property of the Company or any of the
Subsidiaries or, if secured, is secured only by a pledge of the capital stock of
one or more Subsidiaries on a pari passu basis with the Indebtedness of the
Company hereunder and (d) upon which no other Person is liable, under a
Guarantee or otherwise, or if another Person is so liable, such Person is liable
on a pari passu basis for the Indebtedness of the Company hereunder.

          "Senior Securities" means $750,000,000 of Northrop Operating's 7 1/8%
Senior Notes due 2011 and $750,000,000 of Northrop Operating's 7 3/4% Senior
Notes due 2031 issued under the Northrop Operating Senior Indenture and
guaranteed concurrently with the Effective Date by the Company and Litton
Operating.

          "S&P" means Standard & Poor's Rating Group, a division of McGraw Hill,
Inc., and its successors and assigns.

          "SPC" has the meaning assigned to such term in Section 10.04.

          "Statutory Reserve Rate" means a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Payment Agent is subject, for eurodollar
funding (currently referred to as "Eurodollar Liabilities" in Regulation D of
the Board).  Such reserve percentages shall include those imposed pursuant to
such Regulation D.  Eurodollar Revolving Loans shall be deemed to constitute
Eurodollar funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D or any comparable
regulation.  The Statutory Reserve Rate shall be adjusted automatically on and
as of the effective date of any change in any reserve percentage.

          "Subordinated Indebtedness" means, with respect to any of the
Borrowers, (a) Indebtedness issued pursuant to the Northrop Operating
Subordinated Indenture (i) that does not have any principal or sinking fund
payment due prior to the Maturity Date and (ii) in respect of which interest is
payable not more often than semiannually and (b) Indebtedness (i) for which one
or more of the Company, Northrop Operating or Litton Operating is directly and
primarily liable, (ii) in respect of which none of the Subsidiaries (other than
Northrop Operating or Litton Operating) is contingently or otherwise obligated,
(iii) that does not have any principal or sinking fund payment due prior to the
Maturity Date, (iv) in respect of which interest is payable not more often than
semi-annually, (v) that is subordinated to the obligations of the Borrowers to
pay principal of and interest on the Loans and fees and other amounts payable
hereunder on terms no less favorable, taken as a whole, to the Lenders than
those contained in the Northrop Operating Subordinated Indenture, (vi) that does
not in any event contain financial covenants or events of default more
restrictive than those in the Northrop Operating
<PAGE>

                                                                              19

Subordinated Indenture and (vii) the documentation for which contains other
terms that, taken as a whole, are no less favorable to the Lenders than those
contained in the Northrop Operating Subordinated Indenture.

          "subsidiary" means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity of which securities or other ownership interests representing more than
50% of the equity or more than 50% of the ordinary voting power or, in the case
of a partnership, more than 50% of the general partnership interests are, as of
such date, owned, controlled or held.

          "Subsidiary" means any direct or indirect subsidiary of the Company.

          "Substitute Rating Agency" means any rating agency (other than Moody's
or S&P) proposed by the Company and reasonably acceptable to the Co-
Administrative Agents.

          "Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.

          "Termination Event" shall mean any event or condition which
constitutes grounds under Section 4042 of ERISA for the termination of, or for
the appointment of a trustee to administer, any Plan and which involves a
liability of the Company to the PBGC in excess of $50,000,000.

          "Transactions" means the execution, delivery and performance by the
Borrowers of this Agreement and the other Loan Documents, the borrowing of the
Loans and the use of the proceeds thereof, the Acquisition (including the making
and consummation of the Exchange Offer and the Mergers), the refinancing of the
Existing Credit Agreements and the Refinanced Debt and the other transactions in
connection therewith.

          "Type", when used in reference to any Revolving Loan or Revolving
Borrowing, refers to whether the rate of interest on such Revolving Loan, or on
the Revolving Loans comprising such Revolving Borrowing, is determined by
reference to the Adjusted LIBO Rate or the Alternate Base Rate.

          "Wholly-Owned Subsidiary" shall mean any Subsidiary of which all of
the equity securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are owned by the Company or one or
more Wholly-Owned Subsidiaries.

          "Working Capital Credit Lines" means short-term credit facilities
(including commercial paper facilities and facilities providing for the issuance
of letters of credit or similar instruments but excluding the facilities
established by this Agreement and the Five-Year Credit Agreement) extended to
the Borrowers and Subsidiaries for working capital purposes.
<PAGE>

                                                                              20

          SECTION 1.02.  Classification of Loans and Borrowings.  For purposes
                         ---------------------------------------
of this Agreement, Loans may be classified and referred to by Class (e.g., a
                                                                     ----
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
                              ----
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
-----
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
                      ----                                       ----
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
                                              ----
Borrowing").

          SECTION 1.03.  Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.

          SECTION 1.04.  Accounting Terms; GAAP.  Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
that, if the Company notifies the Co-Administrative Agents that the Company
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Co-Administrative Agents notify the
Company that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

          SECTION 1.05.  Certain Financial Covenant Calculations.  For purposes
of determining the Funded Debt to Consolidated EBITDA Ratio and the Consolidated
Fixed Charge Coverage Ratio for the four quarter periods ending June 30, 2001,
September 30, 2001 and December 31, 2001, the fiscal quarter ending March 31,
2001, shall be excluded and:

          (a)  Consolidated EBITDA and Capital Expenditures shall be determined
on a pro forma basis combining, as applicable to reflect the then four most
recently completed fiscal quarters (excluding the fiscal quarter ending March
31, 2001), (i) the balance sheet information
<PAGE>

                                                                              21


and results of Litton Operating at and for the quarter ended July 31, 2000 set
forth in Litton's public filings with the SEC as of the Effective Date, and the
actual balance sheet information and results of Northrop operating at and for
the quarter ended June 30, 2000; (ii) the balance sheet information and results
of Litton operating at and for the quarter ended October 31, 2000 set forth in
Litton's public filings with the SEC as of the Effective Date, and the actual
balance sheet information and results of Northrop Operating at and for the
quarter ended September 30, 2000; and (iii) the balance sheet information and
results of Litton Operating at and for the quarter ended January 31, 2001 set
forth in Litton's public filings with the SEC as of the Effective Date, and the
actual balance sheet information and results of Northrop Operating at and for
the quarter ended December 31, 2000; and

          (b)  Interest Expense shall be determined on a pro forma basis by
annualizing, as applicable to reflect the fiscal quarters then most recently
completed since the Effective Date, (i) as of June 30, 2001, by multiplying the
actual consolidated Interest Expense of the Company for the fiscal quarter then
ended by four, (ii), as of September 30, 2001, by multiplying the actual
consolidated Interest Expense of the Company for the two fiscal quarter period
then ended by two, and (iii) as of December 31, 2001, by multiplying the actual
consolidated Interest Expense of the Company for the three fiscal quarter period
then ended by four thirds.

                                  ARTICLE II

                                  The Credits

          SECTION 2.01.  Commitments.  Subject to the terms and conditions set
forth herein, each Lender agrees to make Revolving Loans to the Borrowers from
time to time during the Availability Period in an aggregate principal amount
that will not result in (a) such Lender's Revolving Credit Exposure exceeding
such Lender's Commitment or (b) the sum of the total Revolving Credit Exposures
plus the total Competitive Loan Exposures exceeding the total Commitments.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the Borrowers may borrow, prepay and reborrow Revolving Loans.

          SECTION 2.02.  Revolving Loans and Revolving Borrowings. (a) Each
Revolving Loan shall be made as part of a Revolving Borrowing consisting of
Revolving Loans made by the Lenders ratably in accordance with their respective
Commitments. The failure of any Lender to make any Revolving Loan required to be
made by it shall not relieve any other Lender of its obligations hereunder;
provided that the Commitments and Competitive Bids of the Lenders are several
and no Lender shall be responsible for any other Lender's failure to make Loans
as required.

          (b)  Subject to Section 2.13, (i) each Revolving Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the applicable Borrower
may request in accordance herewith and (ii) each Competitive Borrowing shall be
comprised entirely of Eurodollar Loans or Fixed Rate Loans as the Borrower may
request in accordance herewith. Each Competitive Loan shall be made in
accordance with the procedures set forth in Section 2.04. Each Lender at its
option may make any Eurodollar Loan by causing any domestic or foreign branch or
Affiliate of
<PAGE>

                                                                              22

such Lender to make such Loan; provided that any exercise of such option shall
not affect the obligation of the Borrowers to repay such Loan in accordance with
the terms of this Agreement.

          (c)  At the commencement of each Interest Period for any Eurodollar
Revolving Borrowing, such Revolving Borrowing shall be in an aggregate amount
that is an integral multiple of $5,000,000 and not less than $25,000,000.  At
the time that each ABR Borrowing is made, such Borrowing shall be in an
aggregate amount that is an integral multiple of $5,000,000 and not less than
$10,000,000.  Notwithstanding the foregoing, any Revolving Borrowing may be in
an aggregate amount that is equal to the entire unused balance of the
Commitments.  Each Competitive Borrowing shall be in an aggregate amount that is
an integral multiple of $5,000,000 and not less than $25,000,000.  Revolving
Borrowings of more than one Type may be outstanding at the same time, provided
that there shall not at any time be more than a total of 15 Eurodollar Revolving
Borrowings outstanding.

          (d)  Notwithstanding any other provision of this Agreement, no
Borrower shall be entitled to request, or to elect to convert or continue, any
Revolving Borrowing if the Interest Period requested with respect thereto would
end after the Maturity Date, or to request any Competitive Borrowing if the
Interest Period requested with respect thereto would end after the Maturity
Date.

          SECTION 2.03.  Requests for Revolving Borrowings. To request a
Revolving Borrowing, the Borrowers (or any of them) shall notify the Payment
Agent of such request by telephone or by telecopy (a) in the case of a
Eurodollar Revolving Borrowing, not later than 11:00 a.m., New York City time,
three Business Days before the date of the proposed Revolving Borrowing or (b)
in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time,
on the same day as the date of the proposed Revolving Borrowing. Each such
Revolving Borrowing Request shall be irrevocable and, if telephonic, shall be
confirmed promptly by hand delivery or telecopy to the Payment Agent of a
written Revolving Borrowing Request in a form agreed to by the Payment Agent and
signed by the applicable Borrower. Each such telephonic and written Revolving
Borrowing Request shall specify the following information in compliance with
Section 2.02:

          (i)  the aggregate amount of the requested Revolving Borrowing;

          (ii)  the date of such Revolving Borrowing, which shall be a Business
     Day;

          (iii) whether such Revolving Borrowing is to be an ABR Borrowing or a
     Eurodollar Revolving Borrowing; and

          (iv) in the case of a Eurodollar Revolving Borrowing, the initial
     Interest Period to be applicable thereto, which shall be a period
     contemplated by the definition of the term "Interest Period".

If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing.  If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the applicable Borrower shall be deemed to have
<PAGE>

                                                                              23

selected an Interest Period of one month's duration. Promptly following receipt
of a Revolving Borrowing Request in accordance with this Section, the Payment
Agent shall advise each Lender of the details thereof and of the amount of such
Lender's Revolving Loan to be made as part of the requested Revolving Borrowing.

          SECTION 2.04.  Competitive Bid Procedure.  (a)  Subject to the terms
and conditions set forth herein, from time to time during the Availability
Period any Borrower may request Competitive Bids and may (but shall not have any
obligation to) accept Competitive Bids and borrow Competitive Loans; provided
that after giving effect to any Borrowing of Competitive Loans the sum of the
total Revolving Credit Exposures plus the total Competitive Loan Exposure shall
not exceed the total Commitments.  To request Competitive Bids, the Borrower
shall notify the Payment Agent of such request by telephone or by telecopy, in
the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, four Business Days before the date of the proposed Borrowing and, in the
case of a Fixed Rate Borrowing, not later than 11:00 a.m., New York City Time,
one Business Day before the date of the proposed Borrowing; provided that the
Borrower may submit up to (but not more than) five Competitive Bid Requests on
the same day, but a Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid Request, unless any
and all such previous Competitive Bid Requests shall have been withdrawn or all
Competitive Bids received in response thereto rejected.  Each such telephonic
Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy
to the Payment Agent of a written Competitive Bid Request in a form approved by
the Payment Agent and signed by the Borrower.  Each such telephonic and written
Competitive Bid Request shall specify the following information in compliance
with Section 2.03:

          (i)   the aggregate principal amount of the requested Borrowing;

          (ii)  the date of such Borrowing, which shall be a Business Day;

          (iii) whether such Borrowing is to be a Eurodollar Borrowing or a
     Fixed Rate Borrowing; and

          (iv)  the Interest Period to be applicable to such Borrowing, which
     shall be a period contemplated by the definition of the term "Interest
     Period" and shall end no later than the Maturity Date.

Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Payment Agent shall notify the Lenders of the details thereof by
telecopy, inviting the Lenders to submit Competitive Bids.

          (b)   Each Lender may (but shall not have any obligation to) make one
or more Competitive Bids to the Borrower in response to a Competitive Bid
Request. Each Competitive Bid by a Lender must be in a form approved by the
Payment Agent and must be received by the Applicable Agent by telecopy, in the
case of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York
City Time, three Business Days before the proposed date of such Competitive
Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m.,
New York City Time, on the proposed date of such Competitive Borrowing.
Competitive Bids that do not
<PAGE>

                                                                              24


conform substantially to the form approved by the Payment Agent may be rejected
by the Payment Agent, and the Payment Agent shall notify the applicable Lender
as promptly as practicable. Each Competitive Bid shall specify (i) the
principal amount (which shall be an amount at least equal to $5,000,000 and an
integral multiple of $1,000,000 and which may equal the entire principal amount
of the Competitive Borrowing requested by the Borrower) of the Competitive Loan
or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or
Rates at which the Lender is prepared to make such Loan or Loans (expressed as a
percentage rate per annum in the form of a decimal to no more than four decimal
places) and (iii) the Interest Period applicable to each such Loan and the last
day thereof.

          (c)  The Payment Agent shall notify the Borrower by telecopy, not
later than 45 minutes after the applicable deadline for receipt of Competitive
Bids, of the Competitive Bid Rate and the principal amount specified in each
Competitive Bid and the identity of the Lender that shall have made such
Competitive Bid.

          (d)  Subject only to the provisions of this paragraph, the Borrower
may accept or reject any Competitive Bid. The Borrower shall notify the Payment
Agent by telecopy or by telephone, confirmed by telecopy in a form approved by
the Payment Agent, whether and to what extent it has decided to accept or reject
each Competitive Bid, in the case of a Eurodollar Competitive Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before the date
of the proposed Competitive Borrowing, and in the case of a Fixed Rate
Borrowing, not later than 11:00 a.m., New York City time, on the proposed date
of the Competitive Borrowing; provided that (i) the failure of the Borrower to
give such notice shall be deemed to be a rejection of each Competitive Bid, (ii)
the Borrower shall not accept a Competitive Bid made at a particular Competitive
Bid Rate if the Borrower rejects a Competitive Bid made at a lower Competitive
Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the
Borrower shall not exceed the aggregate amount of the requested Competitive
Borrowing specified in the related Competitive Bid Request, (iv) to the extent
necessary to comply with clause (iii) above, the Borrower may accept Competitive
Bids at the same Competitive Bid Rate in part, which acceptance, in the case of
multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata
in accordance with the amount of each such Competitive Bid, and (v) except
pursuant to clause (iv) above, no Competitive Bid shall be accepted for a
Competitive Loan unless such Competitive Loan is in a minimum principal amount
of at least $5,000,000 that is an integral multiple of $1,000,000; provided
further that if a Competitive Loan must be in an amount less than $5,000,000
because of the provisions of clause (iv) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner determined by the
Borrower. A notice given by the Borrower pursuant to this paragraph shall be
irrevocable.

          (e)  The Payment Agent shall promptly notify each bidding Lender by
telecopy whether or not its Competitive Bid has been accepted (and, if so, the
amount and Competitive Bid Rate so accepted), and each successful bidder will
thereupon become bound, subject to the terms and conditions hereof, to make the
Competitive Loan in respect of which its Competitive Bid has been accepted.
<PAGE>

                                                                              25

          (f)  If the Payment Agent shall elect to submit a Competitive Bid in
its capacity as a Lender, it shall submit such Competitive Bid directly to the
Borrower at least one quarter of an hour earlier than the time by which the
other Lenders are required to submit their Competitive Bids to the Payment Agent
pursuant to paragraph (b) of this Section.

          SECTION 2.05.  Funding of Revolving Borrowings. (a) Each Lender shall
make each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 1:00 p.m., New York City time, to the
account of the Payment Agent most recently designated by it for such purpose by
notice to the Lenders. The Payment Agent will make such Loans available to the
Borrowers by promptly crediting the amounts so received, in like funds, to
Disbursement Account.

          (b)  Unless the Payment Agent shall have received notice from a Lender
prior to the proposed date of any Borrowing that such Lender will not make
available to the Payment Agent such Lender's share of such Borrowing, the
Payment Agent may assume that such Lender has made such share available on such
date in accordance with paragraph (a) of this Section and may, in reliance upon
such assumption, make available to the Borrowers a corresponding amount.  In
such event, if a Lender has not in fact made its share of the applicable
Borrowing available to the Payment Agent, then the applicable Lender and the
Borrowers severally agree to pay to the Payment Agent forthwith on demand such
corresponding amount with interest thereon, for each day from and including the
date such amount is made available to the Borrowers to but excluding the date of
payment to the Payment Agent, at (i) in the case of such Lender, the greater of
(x) the Federal Funds Effective Rate and (y) a rate determined by the Payment
Agent in accordance with banking industry rules on interbank compensation or
(ii) in the case of the Borrowers, the interest rate for the applicable
Borrowing.  If such Lender pays such amount to the Payment Agent, then such
amount shall constitute such Lender's Loan included in such Borrowing.

          SECTION 2.06.  Interest Elections. (a) Each Revolving Borrowing
initially shall be of the Type specified in the applicable Revolving Borrowing
Request and, in the case of a Eurodollar Revolving Borrowing, shall have an
initial Interest Period as specified in such Revolving Borrowing Request.
Thereafter, the applicable Borrower may elect to convert such Borrowing to a
different Type or to continue such Revolving Borrowing and, in the case of a
Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The applicable Borrower may elect different options
with respect to different portions of the affected Revolving Borrowing, in which
case each such portion shall be allocated ratably among the Lenders holding the
Revolving Loans comprising such Revolving Borrowing, and the Revolving Loans
comprising each such portion shall be considered a separate Revolving Borrowing.
This Section shall not apply to Competitive Borrowings, which may not be
converted or continued.

          (b)  To make an election pursuant to this Section, a Borrower shall
notify the Payment Agent of such election by telephone or by telecopy by the
time that a Revolving Borrowing Request would be required under Section 2.03 if
such Borrower were requesting a Revolving Borrowing of the Type resulting from
such election to be made on the effective date of such election. Each such
Interest Election Request shall be irrevocable and, if telephonic, shall be
<PAGE>

                                                                              26

confirmed promptly by hand delivery or telecopy to the Payment Agent of a
written Interest Election Request in a form approved by the Payment Agent and
signed by such Borrower.

          (c)   Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:

          (i)   the Revolving Borrowing to which such Interest Election Request
     applies and, if different options are being elected with respect to
     different portions thereof, the portions thereof to be allocated to each
     resulting Revolving Borrowing (in which case the information to be
     specified pursuant to clauses (iii) and (iv) below shall be specified for
     each resulting Revolving Borrowing);

          (ii)  the effective date of the election made pursuant to such
     Interest Election Request, which shall be a Business Day;

          (iii) whether the resulting Borrowing is to be an ABR Borrowing or a
     Eurodollar Revolving Borrowing; and

          (iv)  if the resulting Revolving Borrowing is a Eurodollar Revolving
     Borrowing, the Interest Period to be applicable thereto after giving effect
     to such election, which shall be a period contemplated by the definition of
     the term "Interest Period".

If any such Interest Election Request requests a Eurodollar Revolving Borrowing
but does not specify an Interest Period, then the applicable Borrower shall be
deemed to have selected an Interest Period of one month's duration.

          (d)   Promptly following receipt of an Interest Election Request, the
Payment Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Revolving Borrowing.

          (e)   If a Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Revolving Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Revolving Borrowing is
repaid as provided herein, at the end of such Interest Period such Revolving
Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary
provision hereof, if an Event of Default has occurred and is continuing and the
Payment Agent, at the request of the Required Lenders, so notifies the
Borrowers, then, so long as an Event of Default is continuing (i) no outstanding
Revolving Borrowing may be converted to or continued as a Eurodollar Revolving
Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be
converted to an ABR Borrowing at the end of the Interest Period applicable
thereto.

          SECTION 2.07.  Termination and Reduction of Commitments. (a) Unless
previously terminated, the Commitments shall terminate on the Maturity Date.

          (b)   The Borrowers may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
shall be in an amount that is an integral multiple of $5,000,000 and not less
than $25,000,000 and (ii) the Borrowers shall not
<PAGE>

                                                                              27


terminate or reduce the Commitments if, after giving effect to any concurrent
prepayment of the Revolving Loans in accordance with Section 2.09, the total
Revolving Credit Exposures and Competitive Loan Exposures would exceed the total
Commitments.

          (c)  In the event and on each occasion that any Net Available Proceeds
are received by or on behalf of the Company or any Subsidiary in respect of any
Prepayment Event, the Borrowers shall, within three Business Days after such Net
Available Proceeds are received, permanently reduce the Commitments hereunder
(and prepay any outstanding Revolving Loans hereunder) by an aggregate amount
equal to the amount of such Net Available Proceeds. Amounts to be applied
pursuant to this paragraph to the prepayment of Revolving Loans shall be applied
first to reduce outstanding ABR Loans and then to prepay Eurodollar Revolving
Loans. Notwithstanding the foregoing, in the event the amount of any prepayment
required to be made pursuant to this paragraph shall exceed the aggregate
principal amount of the ABR Loans outstanding (the amount of any such excess
being called the "Excess Amount") and the immediate prepayment of Eurodollar
Loans would result in amounts becoming due under Section 2.14, the Borrowers
shall have the right to prepay all the outstanding ABR Loans and to prepay
Eurodollar Loans in an aggregate amount equal to the Excess Amount at the ends
of the current Interest Periods applicable thereto.

          (d)  Immediately upon completion of the Acquisition, the Commitments
will be reduced by an aggregate amount equal to the number of common and
preferred shares of Litton Operating acquired in the Acquisition for
consideration consisting of stock of the Company multiplied by (i)$80.25 per
share in the case of the common shares of Litton Operating and (ii) $35 per
share in the case of preferred shares of Litton Operating.  The Commitments will
also be reduced, on the Effective Date, by $500,000,000 as a result of the
issuance of the Senior Securities.

          (e)  The Borrowers shall notify the Payment Agent of any election to
terminate, or of any optional or mandatory reduction of, the Commitments under
paragraph (b) or (c) of this Section at least three Business Days prior to the
effective date of such termination or reduction, specifying such election or
requirement and the effective date thereof.  Promptly following receipt of any
notice, the Payment Agent shall advise the Lenders of the contents thereof.
Each notice delivered by a Borrower pursuant to this Section shall be
irrevocable; provided that a notice of termination of the Commitments delivered
by a Borrower under paragraph (b) of this Section may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by a Borrower (by notice to the Payment Agent on or
prior to the specified effective date) if such condition is not satisfied.  Any
termination or reduction of the Commitments shall be permanent.  Each reduction
of the Commitments shall be made ratably among the Lenders in accordance with
their respective Commitments.

          SECTION 2.08.  Repayment of Loans; Evidence of Debt. (a) The Borrowers
hereby unconditionally jointly and severally promise to pay (i) to the Payment
Agent for the account of each Lender the unpaid principal amount of each Loan on
the Maturity Date and (ii) to the Payment Agent for the account of each Lender
the unpaid principal amount of each Competitive Loan on the last day of the
Interest Period applicable to such Loan.
<PAGE>

                                                                              28


          (b)  Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the Indebtedness of the Borrowers to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.

          (c)  The Payment Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period, if any, applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrowers to each
Lender hereunder and (iii) the amount of any sum received by the Payment Agent
hereunder for the account of the Lenders and each Lender's share thereof.

          (d)  The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided that the failure of any
Lender or the Payment Agent to maintain such accounts or any error therein shall
not in any manner affect the obligation of a Borrower to repay the Loans in
accordance with the terms of this Agreement.

          (e)  Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, each Borrower shall execute and deliver to such
Lender a promissory note payable to the order of such Lender (or, if requested
by such Lender, to such Lender and its registered assigns) in substantially the
form attached hereto as Exhibit C. Thereafter, the Loans evidenced by such
promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 10.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).

          SECTION 2.09.  Prepayment of Revolving Loans.  (a)  The Borrowers
shall have the right at any time and from time to time to prepay any Revolving
Borrowing in whole or in part, subject to prior notice in accordance with
paragraph (c) of this Section and payment of any amounts required under Section
2.14; provided that the Borrower shall not have the right to prepay any
Competitive Loan without the prior consent of the Lender thereof.

          (b)  In the event and on each occasion that the total Revolving Credit
Exposures and Competitive Loan Exposures exceed the total Commitments, the
Borrowers shall promptly prepay Revolving Borrowings in an aggregate amount
sufficient to eliminate such excess.

          (c)  The Borrowers shall notify the Payment Agent by telephone
(confirmed by telecopy) or by telecopy of any prepayment hereunder (i) in the
case of prepayment of a Eurodollar Revolving Borrowing, not later than 11:00
a.m., New York City time, three Business Days before the date of such
prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later
than 11:00 a.m., New York City time, on the Business Day of such prepayment.
Each such notice shall be irrevocable and shall specify the prepayment date and
the principal amount of each Revolving Borrowing or portion thereof to be
prepaid; provided that, if a notice of prepayment is given in connection with a
conditional notice of termination of the Commitments as contemplated by Section
2.07, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.07. Promptly following
receipt of any such notice, the
<PAGE>

                                                                              29

Payment Agent shall advise the Lenders of the contents thereof. Each partial
prepayment, other than a mandatory prepayment, of any Revolving Borrowing shall
be in an amount that would be permitted in the case of an advance of a Revolving
Borrowing of the same Type as provided in Section 2.02. Each prepayment of a
Revolving Borrowing shall be applied ratably to the Loans included in the
prepaid Revolving Borrowing. Prepayments shall be accompanied by accrued
interest to the extent required by Section 2.11.

          SECTION 2.10.  Fees. (a) The Borrowers agree, jointly and severally,
to pay to the Payment Agent for the account of each Lender a facility fee, which
shall accrue at the relevant Facility Fee Rate specified in the definition of
Applicable Rate on the daily amount of the Commitment of such Lender (whether
used or unused) during the period from the date of this Agreement to but
excluding the Maturity Date; provided that, if such Lender continues to have any
Revolving Credit Exposure or Competitive Loan Exposure after the Maturity Date
or other termination of all the Commitments, then such facility fee shall
continue to accrue on the daily aggregate amount of such Lender's Revolving
Credit Exposure and Competitive Loan Exposure from and including the Maturity
Date or other termination of all the Commitments to but excluding the date on
which such Lender ceases to have any Revolving Credit Exposure or Competitive
Loan Exposure. Accrued facility fees shall be payable in arrears on June 30,
2001 and on the last day of each subsequent September, December, March and June
of each year, on any date prior to the Maturity Date on which the Commitments
terminate and on the Maturity Date, commencing on the first such date to occur
after the date hereof; provided that any facility fees accruing after the
Maturity Date or other termination of all the Commitments shall be payable on
demand. All facility fees shall be computed on the basis of a year of 360 days
and shall be payable for the actual number of days elapsed (including the first
day but excluding the last day).

          (b)  The Borrowers agree, jointly and severally, to pay to the Payment
Agent, for the accounts of the Lenders, on the date hereof, the upfront fees
separately agreed upon in the Fee Letter dated January 29, 2001, between the
Borrowers and the Co-Administrative Agents.

          (c)  The Borrowers agree, jointly and severally, to pay to each of the
Co-Administrative Agents, for their own accounts, fees payable in the amounts
and at the times separately agreed upon between the Borrowers and the Co-
Administrative Agents.

          (d)  All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Payment Agent for distribution to the
Persons entitled thereto. Fees paid shall not be refundable under any
circumstances.

          SECTION 2.11.  Interest. (a) The Loans comprising each ABR Borrowing
shall bear interest at the Alternate Base Rate plus the Applicable Rate.

          (b)  The Loans comprising each Eurodollar Borrowing shall bear
interest (i) in the case of a Eurodollar Revolving Loan, at the Adjusted LIBO
Rate for the Interest Period in effect for such Revolving Borrowing plus the
Applicable Rate or (ii) in the case of a Eurodollar Competitive Loan, at the
LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus,
as applicable) the Margin applicable to such Loan.
<PAGE>

                                                                              30

          (c)  Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan.

          (d)  Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrowers hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.

          (e)  Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and upon termination of the Commitments;
provided that (i) interest accrued pursuant to paragraph (c) of this Section
shall be payable on demand, (ii) in the event of any repayment or prepayment of
any Loan (other than a prepayment of an ABR Loan prior to the end of the
Availability Period), accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment and (iii) in the
event of any conversion of any Eurodollar Revolving Loan prior to the end of the
current Interest Period therefor, accrued interest on such Revolving Loan shall
be payable on the effective date of such conversion.

          (f)  All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day).  The applicable Alternate Base Rate or
Adjusted LIBO Rate shall be determined by the Payment Agent, and such
determination shall be conclusive absent manifest error.

          SECTION 2.12.  Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:

          (a)  the Payment Agent determines (which determination shall be
     conclusive absent manifest error) that adequate and reasonable means do not
     exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as
     applicable, for such Interest Period; or

          (b)  the Payment Agent is advised by the Required Lenders (or, in the
     case of a Eurodollar Competitive Loan, the Lender required to make such
     Loan) that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such
     Interest Period will not adequately and fairly reflect the cost to such
     Lenders or such Lender of making or maintaining the Eurodollar Loans
     included in such Borrowing or its Eurodollar Loan for such Interest Period;

then the Payment Agent shall give notice thereof to the Borrowers and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Payment Agent notifies the Borrowers and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of
<PAGE>

                                                                              31

any Revolving Borrowing as, a Eurodollar Revolving Borrowing shall be
ineffective, and such Revolving Borrowing shall be converted to or continued as
an ABR Borrowing on the last day of the Interest Period applicable thereto, (ii)
if any Revolving Borrowing Request requests a Eurodollar Revolving Borrowing,
such Revolving Borrowing shall be made as an ABR Borrowing (or such Revolving
Borrowing shall not be made if the Borrowers revoke (and in such circumstances,
such Revolving Borrowing Request may be revoked notwithstanding any other
provision of this Agreement) such Revolving Borrowing Request by telephonic
notice, confirmed promptly in writing, not later than one Business Day prior to
the proposed date of such Revolving Borrowing) and (iii) any request by the
Borrowers for a Eurodollar Competitive Borrowing shall be ineffective; provided
that (A) if the circumstances giving rise to such notice do not affect all the
Lenders, then requests by the Borrowers for Eurodollar Competitive Borrowings
may be made to Lenders that are not affected thereby and (B) if the
circumstances giving rise to such notice affect only one Type of Borrowings,
then the other Type of Borrowings shall be permitted.

          SECTION 2.13.  Increased Costs.  (a)  If any Change in Law shall:

          (i)  impose, modify or deem applicable any reserve, special deposit or
     similar requirement against assets of, deposits with or for the account of,
     or credit extended by, any Lender (except to the extent any such reserve
     requirement is reflected in the Adjusted LIBO Rate); or

          (ii) impose on any Lender or the London interbank market any other
     condition affecting this Agreement or Eurodollar or Fixed Rate Loans made
     by such Lender;

and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to increase the cost to
such Lender or to reduce the amount of any sum received or receivable by such
Lender hereunder (whether of principal, interest or otherwise), in each case by
an amount deemed by such Lender in good faith to be material, then the Borrowers
will pay to such Lender, within ten Business Days following a demand therefor
accompanied by the certificate referred to in paragraph (c) below, such
additional amount or amounts as will compensate such Lender on an after-tax
basis for such additional costs incurred or reduction suffered.

          (b)  If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by such Lender to a level
below that which such Lender or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Borrowers will pay to such Lender,
within ten Business Days following a demand therefor accompanied by the
certificate referred to in paragraph (c) below, such additional amount or
amounts as will compensate such Lender or such Lender's holding company for any
such reduction suffered.  It is acknowledged that this Agreement is being
entered into by the Lenders on the understanding that the Lenders will not be
required to maintain capital against their Commitments under currently
applicable laws, regulations and regulatory guidelines.  In the event Lenders
shall be advised by any Governmental Authority or shall otherwise determine on
the basis
<PAGE>

                                                                              32



of pronouncements of any Governmental Authority that such understanding is
incorrect, it is agreed that a Change in Law will be deemed to have occurred and
that the Lenders will be entitled to make claims under this paragraph based upon
market requirements prevailing on the date hereof for commitments under
comparable credit facilities against which capital is required to be maintained.

          (c)  A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section, together with supporting
documentation or computations, shall be delivered to the Borrowers and shall be
conclusive absent manifest error.  The Borrowers shall pay such Lender the
amount shown as due on any such certificate within 10 Business Days after
receipt thereof.

          (d)  Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; provided that the Borrowers shall not be required to
compensate a Lender pursuant to this Section for any increased costs or
reductions incurred more than 90 days prior to the date that such Lender
notifies the Borrowers of the Change in Law giving rise to such increased costs
or reductions and of such Lender's intention to claim compensation therefor;
provided further that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the 90-day period referred to above shall be
extended to include the period of retroactive effect thereof.

          SECTION 2.14.  Break Funding Payments. In the event of (a) the payment
of any principal of any Eurodollar or Fixed Rate Loan other than on the last day
of an Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Revolving Loan other than on the
last day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Eurodollar or Fixed Rate Loan on the date
specified in any notice delivered pursuant hereto (regardless of whether such
notice may be revoked under Section 2.07(d) or 2.09 and is revoked in accordance
therewith), (d) the failure to borrow any Competitive Loan after acceptance of
the Competitive Bid to make such Loan or (e) the assignment of any Eurodollar or
Fixed Rate Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrowers pursuant to Section 2.17,
then, in any such event, the Borrowers shall compensate each Lender for the
loss, cost and expense attributable to such event (which loss, cost or expense
will not be deemed to include lost profit). In the case of a Eurodollar or Fixed
Rate Loan, such loss, cost or expense to any Lender shall be deemed to include
an amount determined by such Lender to be the excess, if any, of (i) the amount
of interest which would have accrued on the principal amount of such Loan had
such event not occurred, at the Adjusted LIBO Rate or LIBO Rate (without adding
thereto the Applicable Rate or the Margin, as the case may be) that would have
been applicable to such Loan, for the period from the date of such event to the
last day of the then current Interest Period therefor (or, in the case of a
failure to borrow, convert or continue, for the period that would have been the
Interest Period for such Loan), over (ii) the amount of interest which would
accrue on such principal amount for such period at the interest rate which such
Lender would bid were it to bid, at the commencement of such period, for
deposits of a comparable amount and period from other banks in the eurodollar
market or, in the case of Fixed Rate Loans, other market. A certificate of any
Lender setting forth any amount or amounts that such Lender is entitled to
receive pursuant to this Section, together
<PAGE>

                                                                              33


with supporting documentation or computations, shall be delivered to the
Borrowers and shall be conclusive absent manifest error. The Borrowers shall pay
such Lender the amount shown as due on any such certificate within 10 Business
Days after receipt thereof.

          SECTION 2.15.  Taxes.  (a) Any and all payments by or on account of
any obligations of the Borrowers hereunder or under any other Loan Document
shall be made free and clear of and without deduction for any Indemnified Taxes
or Other Taxes; provided that if a Borrower shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions of
Indemnified Taxes or Other Taxes (including deductions applicable to additional
sums payable under this Section) the Agent or Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Borrower shall make such deductions and (iii)
such Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.

          (b)  In addition, the Borrowers shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.

          (c)  The Borrowers shall indemnify each Agent and each Lender, within
10 Business Days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by such Agent or such Lender on or with
respect to any payment by or on account of any obligation of the Borrowers
hereunder or under any other Loan Document (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority.  A certificate setting forth in reasonable detail the amount and
nature of such payment or liability delivered to the Borrowers by a Lender, or
by an Agent on its own behalf or on behalf of a Lender, shall be conclusive
absent manifest error.

          (d)  As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrowers to a Governmental Authority, the Borrowers shall
deliver to the Payment Agent the original or a certified copy of a receipt
issued by such Governmental Authority evidencing such payment, a copy of the
return reporting such payment or other evidence of such payment reasonably
satisfactory to the Payment Agent.

          (e)  Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which a
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrowers (with
copies to the Co-Administrative Agents), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law or reasonably requested by the Borrowers as will permit such
payments to be made without withholding or at a reduced rate.

          (f)  If an Agent or a Lender determines in good faith, that it has
received a refund of any Taxes or Other Taxes as to all or a portion of which it
has been indemnified by a Borrower
<PAGE>

                                                                              34

or with respect to all or a portion of which a Borrower has paid additional
amounts pursuant to this Section 2.15, it shall pay over such refund to such
Borrower (but only to the extent of indemnity payments made, or additional
amounts paid, by such Borrower under this Section 2.15 with respect to the Taxes
or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of
such Agent or such Lender and without interest (other than any interest paid by
the relevant Governmental Authority with respect to such refund); provided, that
such Borrower, upon the request of such Agent or such Lender, agrees to repay
the amount paid over to such Borrower (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) to such Agent or such
Lender in the event such Agent or such Lender is required to repay such refund
to such Governmental Authority. This Section shall not be construed to require
any Agent or any Lender to make available its tax returns (or any other
information relating to its taxes which it deems confidential) to any Borrower
or any other Person.

          SECTION 2.16.  Payments Generally; Pro Rata Treatment; Sharing of
Setoffs. (a) Each Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest or
fees, or of amounts payable under Section 2.13, 2.14 or 2.15, or otherwise)
prior to 2:00 p.m., New York City time, on the date when due, in immediately
available funds, without setoff or counterclaim. Any amounts received after such
time on any date may, in the discretion of the Payment Agent, be deemed to have
been received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Payment Agent at its
offices at 270 Park Avenue, New York, New York, except that payments pursuant to
Sections 2.13, 2.14, 2.15 or 10.03 shall be made directly to the Persons
entitled thereto. The Payment Agent shall distribute any such payments received
by it for the account of any other Person to the appropriate recipient promptly
following receipt thereof. If any payment under any Loan Document shall be due
on a day that is not a Business Day, the date for payment shall be extended to
the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension.
All payments hereunder shall be made in Dollars. Any payment required to be made
by the Payment Agent hereunder shall be deemed to have been made by the time
required if the Payment Agent shall, at or before such time, have taken the
necessary steps to make such payment in accordance with the regulations or
operating procedures of the clearing or settlement system used by the Payment
Agent to make such payment.

          (b)  If at any time insufficient funds are received by and available
to the Payment Agent to pay fully all amounts of principal, interest and fees
then due hereunder, such funds shall be applied (i) first, towards payment of
interest and fees then due hereunder, ratably among the parties entitled thereto
in accordance with the amounts of interest and fees then due to such parties,
and (ii) second, towards payment of principal then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal then
due to such parties.

          (c)  If any Lender shall, by exercising any right of set off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by
<PAGE>

                                                                              35


the Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Loans; provided that (i) if any such
participations are purchased and all or any portion of the payment giving rise
thereto is recovered, such participations shall be rescinded and the purchase
price restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by a Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans to any assignee or
participant, other than to a Borrower or any Subsidiary or Affiliate thereof (as
to which the provisions of this paragraph shall apply). Each Borrower consents
to the foregoing and agrees, to the extent it may effectively do so under
applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against such Borrower's rights of setoff and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of such Borrower in the amount of such participation.

          (d)  Unless the Payment Agent shall have received notice from the
applicable Borrower prior to the date on which any payment is due to the Payment
Agent for the account of the Lenders hereunder that such Borrower will not make
such payment, the Payment Agent may assume that such Borrower has made such
payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders, the amount due.  In the event, if such
Borrower has not in fact made such payment, then each of the Lenders severally
agrees to repay to the Payment Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Payment Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Payment Agent in accordance with banking industry
rules on interbank compensation.

          (e)  If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.05(b) or 2.16(d), then the Payment Agent may, in its
discretion (notwithstanding any contrary provision hereof), apply any amounts
thereafter received by the Payment Agent for the account of such Lender to
satisfy such Lender's obligations under such Sections until all such unsatisfied
obligations are fully paid.

          SECTION 2.17.  Mitigation Obligations; Replacement of Lenders. (a) If
any Lender requests compensation under Section 2.13, or if a Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.15; then such
Lender shall use reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions) to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates if, in the
reasonable judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15 as the case
may be, in the future and (ii) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be disadvantageous to such Lender. Each
Borrower hereby agrees, jointly and severally to pay all reasonable costs and
expenses incurred by any Lender in connection with any such designation or
assignment.
<PAGE>

                                                                              36

          (b)  If any Lender requests compensation under Section 2.13, or if a
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrowers may upon notice to such Lender and the Payment Agent, require such
Lender to assign and delegate, without recourse, all its interests, rights and
obligations under this Agreement (other than any outstanding Competitive Loans
held by it) to an assignee that shall assume such obligations (which assignee
may be another Lender if a Lender accepts such assignment); provided that (i)
the Borrowers shall have received the prior written consent of the Payment Agent
to the identity of the assignee (if not then a Lender), which consent shall not
unreasonably be withheld or delayed and (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Revolving Loans,
accrued interest thereon, accrued fees and all other amounts payable to it
hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrowers (in the case of all other amounts).

                                  ARTICLE III

                        Representations and Warranties

          Each of the Borrowers represents and warrants to the Lenders that:

          SECTION 3.01.  Corporate Existence.  Each Borrower and each Material
Subsidiary:  (a) is a business entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization; (b) has
all requisite corporate or other power, and has all material governmental
licenses, authorizations, consents and approvals, necessary to own its assets
and carry on its business as now being conducted; and (c) is qualified to do
business and is in good standing in all jurisdictions in which the failure to so
qualify could reasonably be expected to have a Material Adverse Effect.

          SECTION 3.02.  Certain Financial Information. (a) Financial Condition
of Northrop Operating. The consolidated statement of financial position of
Northrop Operating and its subsidiaries (i) as at December 31, 1999, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows of Northrop Operating and its subsidiaries for the fiscal year
ended on said date, with the opinion thereon of Deloitte & Touche LLP, and (ii)
as at September 30, 2000, and the respective related consolidated statements of
operations, changes in stockholders' equity and cash flows of Northrop Operating
and its subsidiaries for the fiscal quarter and portion of the fiscal year then
ended, certified by the chief financial officer of Northrop Operating, in each
case as heretofore furnished to each of the Lenders, are complete and present
fairly, in all material respects, the consolidated financial condition of
Northrop Operating and its subsidiaries as at said dates and the consolidated
results of their operations for such periods, all in accordance with GAAP
applied on a consistent basis, subject to year-end audit adjustments and the
absence of footnotes in the case of the statements referred to in clause (ii)
above. Neither Northrop Operating nor any of its subsidiaries had on said dates
any material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in said
statements of financial position as at said dates. Except as expressly disclosed
in writing to the Lenders prior to
<PAGE>

                                                                              37

the date hereof, since December 31, 1999, there has been no material adverse
change in the consolidated financial condition or operations, or the prospects
or business, taken as a whole, of Northrop Operating and its subsidiaries from
that set forth in said financial statements as at said date.

          (b)  Financial Condition of Litton Operating. The consolidated
statement of financial position of Litton Operating and its subsidiaries (i) as
at July 31, 2000, and the respective related consolidated statements of income,
stockholders' equity and cash flows of Litton Operating and its subsidiaries for
the period ended on such date, with the opinion thereon of Deloitte & Touche
LLP, and (ii) as at October 31, 2000, and the related consolidated statements of
income, stockholders' equity and cash flows of Litton Operating and its
subsidiaries for the fiscal quarter and portion of the fiscal year then ended,
certified by the chief financial officer of Litton Operating, in each case as
heretofore furnished to each of the Lenders, are complete and present fairly, in
all material respects, the consolidated financial condition of Litton Operating
and its subsidiaries as at said dates and the consolidated results of their
operations for such periods, all in accordance with GAAP applied on a consistent
basis, subject to year-end audit adjustments and the absence of footnotes in the
case of the statements referred to in clause (ii) above, except, in each case,
for matters not known to the Company or Northrop Operating that would not,
individually or in the aggregate, be material and adverse to the consolidated
financial condition or operations, or the prospects or business, of the Company
and the Subsidiaries (including Litton Operating and its subsidiaries) taken as
a whole, giving pro forma effect to the Transactions. As of the date hereof,
except as expressly disclosed in writing to the Lenders prior to the date
hereof, since July 31, 2000, there has been no material adverse change in the
consolidated financial condition or operations, or the prospects or business,
taken as a whole, of Litton Operating and its subsidiaries from that set forth
in said financial statements as at July 31, 2000.

          (c)  Projections. The Company has heretofore furnished to each of the
Lenders projected consolidated financial statements of the Company and the
Subsidiaries (including Litton Operating), on an annual basis through and
including 2007. Such projected financial statements set forth projected
consolidated balance sheets of the Company and such Subsidiaries and projected
consolidated statements of operations, changes in stockholders' equity and cash
flows of the Company and such Subsidiaries (giving effect to the Acquisition and
the related financing thereof, as if they had occurred on January 1, 2001) for
the respective fiscal periods covered thereby. Such projected financial
statements are based upon assumptions believed by the Company to be reasonable
as of the date hereof (it being understood that such projections are subject to
uncertainty).

          SECTION 3.03.  Litigation. There are no legal or arbitral proceedings
or any proceedings by or before any Governmental Authority, now pending or (to
the knowledge of any of the Borrowers) threatened against the Company or any
Material Subsidiary which, if adversely determined, would be reasonably likely
to result in any Material Adverse Effect, except as heretofore disclosed to the
Lenders in Northrop Operating's Annual Report on Form 10-K for the year ended
December 31, 1999, Litton Operating's Annual Report on Form 10-K for the year
ended July 31, 2000, Northrop Operating's Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 2000 and Litton Operating's
Quarterly Reports on
<PAGE>

                                                                              38

Form 10-Q for the quarters ended January 31, April 30, and October 31, 2000,
copies of which have been furnished to the Lenders, or in Schedule 3.03.

          SECTION 3.04.  No Breach.  Except as expressly disclosed in writing to
the Lenders on or before the date hereof, none of the Transactions will conflict
with or result in a breach of, or require any consent under, the charters or by-
laws of any of the Borrowers, or any applicable law or regulation, or any order,
writ, injunction or decree of any court or Governmental Authority, or any
material agreement or instrument to which the Company or any Material Subsidiary
(including Litton Operating and any of its subsidiaries that are Material
Subsidiaries) is a party or by which any of them is bound or to which any of
them is subject, or constitute a material default under any such material
agreement or instrument, or result in the creation or imposition of any Lien
upon any of the revenues or assets of the Company or any such Subsidiary
pursuant to the terms of any such material agreement or instrument.

          SECTION 3.05.  Corporate Action.  Each of the Borrowers has all
necessary corporate power and authority to execute, deliver and perform its
obligations under the Loan Documents and, in the case of the Borrower, to borrow
the Loans hereunder; and the execution, delivery and performance by each of the
Borrowers of the Loan Documents and the borrowing of the Loans hereunder have
been duly authorized by all necessary corporate action on its part; and this
Agreement has been duly and validly executed and delivered by each of the
Borrowers and constitutes, and each of the other Loan Documents (assuming in the
case of any promissory notes issued hereunder, execution and delivery thereof
for value) will constitute, legal, valid and binding obligations of each of the
Borrowers, enforceable in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general applicability affecting the
enforcement of creditors' rights and (b) the application of general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).

          SECTION 3.06.  Approvals. No authorizations, approvals, consents or
licenses of, and no filings or registrations with, any Governmental Authority
are necessary to authorize or are necessary in connection with (i) the
execution, delivery and performance of any Loan Document or the Merger
Agreement, (ii) the legality, validity, binding effect or enforceability of any
Loan Document or the Merger Agreement or (iii) the borrowing of the Loans
hereunder or the consummation of the other Transactions, in each case other than
those which have been or concurrently with the effectiveness hereof shall be
duly obtained, given or made, except consents of the Government set forth in
Schedule 3.06, which are required with respect to the transfer to Northrop
Operating of contracts between Litton Operating or its subsidiaries and the
Government and which none of the Borrowers has any reason to believe will not be
obtained in due course.

          SECTION 3.07.  Use of Proceeds, Etc. Neither the making of any Loan
hereunder, nor the use of the proceeds thereof, will violate the provisions of
Regulation U or X of the Board of Governors of the Federal Reserve System and no
part of the proceeds of any Loan will be used to purchase or carry any Margin
Stock in violation of Regulation U or X or to extend credit for the purpose of
purchasing or carrying any Margin Stock in violation of Regulation U or X.
Neither the Company nor any of the Subsidiaries is engaged principally, or as
one of its
<PAGE>

                                                                              39

primary activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.

          SECTION 3.08.  ERISA. Each of the Company and the ERISA Affiliates has
fulfilled its obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan, is in compliance in all material respects with
the applicable provisions of ERISA and the Code and has not incurred any
liability to the PBGC or any Plan or Multiemployer Plan (other than a liability
to make payments or contributions in the ordinary course of business). No
Termination Event has occurred and is continuing.

          SECTION 3.09.  Taxes.  United States Federal income tax returns of
Northrop Operating and its subsidiaries and Litton Operating and its
subsidiaries have been filed through 1999 and examined and reported on by the
Internal Revenue Service or closed by applicable statutes and satisfied through
the fiscal year of Northrop Operating ended December 31, 1991 and the fiscal
year of Litton Operating ended October 31, 1985, respectively.  Each of Northrop
Operating and its subsidiaries, and Litton Operating and its subsidiaries has
filed all United States Federal and State income tax returns which are required
to be filed by it and has paid all taxes due pursuant to such returns or
pursuant to any assessment received by Northrop Operating and its subsidiaries,
or Litton Operating and its subsidiaries, to the extent that such taxes have
become due (except as to such taxes which are being contested in good faith by
appropriate proceedings). The charges, accruals and reserves on the books of the
Company and the Subsidiaries in respect of taxes and other governmental charges
are, in the opinion of each of the Borrowers, adequate. The California Franchise
tax returns of Northrop Operating have been examined and reported on by the
California Franchise Tax Board or closed by applicable statutes and satisfied
for all fiscal years prior to, and including, the fiscal year ended December 31,
1999.

          SECTION 3.10.  Funded Debt. As of the Effective Date, after giving
effect to the Transactions, no default exists under the provisions of any
instrument evidencing Funded Debt in an outstanding principal amount in excess
of $50,000,000 or of any agreement relating thereto.

          SECTION 3.11.  Properties. The Company has, and each of the Material
Subsidiaries has, good and marketable title to its respective material
properties and assets, including the properties and assets reflected in the
balance sheet as at December 31, 1999 herein above described in Section 3.02 (a)
(other than Properties disposed of in the ordinary course of business), subject
to no Lien of any kind except Liens permitted by Section 6.05.

          SECTION 3.12.  Environmental Matters. (a) Except as disclosed in
Northrop Operating's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and Litton Operating's Annual Report on Form 10-K for the
fiscal year ended July 31, 2000, neither the Company nor any Subsidiary
(including Litton Operating and its subsidiaries) (i) has received notice or
otherwise obtained knowledge of any claim, demand, action, event, condition,
report or investigation indicating or concerning any potential or actual
liability which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect arising in connection with: (1) any non-
compliance with or violation of the requirements of any applicable Federal,
state and local environmental health and safety statutes and regulations or (2)
the release or threatened release of toxic or hazardous waste, substance or
constituent, or other substance into the
<PAGE>

                                                                              40


environment, (ii) to the best knowledge of each of the Borrowers, has any
threatened or actual liability in connection with the release or threatened
release of any toxic or hazardous waste, substance or constituent, or other
substance into the environment which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, (iii) has received
notice or otherwise obtained knowledge of any Federal or state investigation
evaluating whether any remedial action is needed to respond to a release or
threatened release of any toxic or hazardous waste, substance or constituent or
other substance into the environment for which the Company or any such
Subsidiary, is or may be liable, which remedial action would have a Material
Adverse Effect or (iv) has received notice that the Company or any such
Subsidiary, is or may be liable to any Person under the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C.
(S)9601 et seq. ("CERCLA"), or any analogous state law, which liability would
have a material Adverse Effect.

          (b)  Each of the Company and each Subsidiary (including Litton
Operating and each of its subsidiaries) is in compliance in all material
respects with the financial responsibility requirements of all Environmental
Laws, including, those contained in 40 C.F.R., Parts 264 and 265, Subpart H, and
any similar state law requirements.

          SECTION 3.13.  True and Complete Disclosure. All factual information
(taken as a whole) furnished on or before the Effective Date by or on behalf of
the Company or the Subsidiaries in writing to any Co-Administrative Agent or
Lender (including, all factual information contained in the Information
Memorandum) for purposes of or in connection with this Agreement or any
transaction contemplated herein is, and all other such factual information
(taken as a whole) furnished after the Effective Date by or on behalf of the
Company or the Subsidiaries in writing to the Co-Administrative Agents or any
Lender will be, true and accurate in all material respects on the date as of
which such information is dated or certified and not incomplete by omitting to
state any material fact necessary to make such information (taken as a whole)
not misleading at such time in light of the circumstances under which such
information was provided. There is no fact known to any of the Borrowers which
has, or is reasonably likely to have, a Material Adverse Effect which has not
been disclosed herein or in such other documents, certificates and statements
furnished to the Lenders for use in connection with the transactions
contemplated hereby.

          SECTION 3.14.  Acquisition.  On and as of the Effective Date, all
material consents and approvals of, and filings and registrations with, and all
other actions in respect of, all Governmental Authorities required in order to
make or consummate the Acquisition, or otherwise required in connection with the
Acquisition, will have been obtained, given, filed or taken and are or will be
in full force and effect (or effective judicial relief with respect thereto will
have been obtained) (except with respect to any vote of the stockholders of
Litton Operating that may be required to effect the Litton Merger, in the event
that less than 90% of the outstanding common stock of Litton Operating shall
have been acquired by Litton Merger Sub in the Exchange Offer).  All actions
pursuant to or in furtherance of the Acquisition have been and will be taken in
compliance with all applicable laws.
<PAGE>

                                                                              41


                                  ARTICLE IV

                                  Conditions

          SECTION 4.01.  Effective Date. The obligations of the Lenders to make
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 10.02 or
provided for, in the case of the conditions set forth in paragraphs (a), (b),
(c) and (e) below insofar as they relate to Litton Operating, in the manner
described in Section 10.14):

          (a)  Execution of Agreement.  The Co-Administrative Agents (or their
               -----------------------
counsel) shall have received from each party hereto (including Litton Operating,
as provided in Section 10.14) either (i) a counterpart of this Agreement signed
on behalf of such party or (ii) written evidence satisfactory to the Co-
Administrative Agents (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart of
this Agreement.

          (b)  Corporate Documents.  Certified copies of the certificates of
               --------------------
incorporation and the by-laws of each of the Borrowers and of all corporate
action taken by each of the Borrowers approving each Loan Document and the
borrowings by the Borrowers hereunder (including, a certificate setting forth
the resolutions of the Board of Directors of each of the Borrowers adopted in
respect of the transactions contemplated thereby).

          (c)  Incumbency Certificate.  A certificate of the Secretary of each
               -----------------------
of the Borrowers, dated the Effective Date, in respect of the incumbency and
specimen signature of each of the officers (i) who is authorized to sign the
Loan Documents on such Borrower's behalf and (ii) who will, until replaced by
another officer or officers duly authorized for that purpose, act as such
Borrower's representative for the purposes of signing documents and giving
notices and other communications in connection with the Loan Documents and the
transactions contemplated thereby.  The Co-Administrative Agents and each of the
Lenders may conclusively rely on such certificates until it receives notice in
writing from the applicable Borrower to the contrary.

          (d)  Officer's Certificate.  A certificate of a senior officer of the
               ----------------------
Company, dated the Effective Date, to the effect set forth in clauses (a) and
(b) of Section 4.02 hereof (after giving effect to the consummation of the
Acquisition).

          (e)  Opinions.  (i)  An opinion of Sheppard, Mullin, Richter & Hampton
               ---------
LLP, counsel for the Company and Northrop Operating, dated the Effective Date,
substantially in the form of Exhibit B-1 hereto, (ii) an opinion of John Mullan,
Esq., Assistant General Counsel of Northrop Operating, dated the Effective Date,
substantially in the form of Exhibit B-2 hereto, (iii) an opinion of W. Burks
Terry, General Counsel of Litton Operating, dated the Effective Date,
substantially in the form of Exhibit B-3 hereto, (iv) an opinion of Kaye,
Scholer LLP, special New York counsel for the Borrowers, dated the Effective
Date, substantially in the form of Exhibit B-4 hereto (and each Borrower hereby
instructs each such counsel to deliver such opinions to the Lenders and the Co-
Administrative Agents).
<PAGE>

                                                                              42

          (f)  Promissory Notes.  To the extent requested by any Lenders,
               -----------------
promissory notes evidencing the Loans of such Lenders, duly completed and
executed and delivered.

          (g)  Merger Agreement.  (i)  A true and complete copy of the Merger
               -----------------
Agreement (which shall include copies of all amendments, schedules, exhibits and
other attachments thereto), together with true and complete copies of each
material document, certificate and opinion referred to in or delivered in
connection therewith, and (ii) a certificate of a senior officer of the Company,
dated the Effective Date, to the effect that (x) the Merger Agreement and all
related documentation have been duly executed and delivered by each of the
parties thereto and are in full force and effect on the Effective Date and (y)
the provisions of the Merger Agreement and such related documentation have not
been amended, waived or otherwise modified, or executed and delivered in forms
other than the forms delivered to the Co-Administrative Agents prior to the date
hereof.

          (h)  Consummation of the Exchange Offer.  A certificate of a senior
               -----------------------------------
officer of the Company, dated the Effective Date, to the effect that (i) the
Exchange Offer shall have been consummated and there shall have been validly
tendered thereunder and not withdrawn a majority of the capital stock of Litton
Operating, such that Litton Merger Sub would be able to consummate the Litton
Merger without the vote of any other stockholder of Litton Operating, in each
case in accordance with applicable law; (ii) all conditions to the consummation
of the Exchange Offer as set forth in the Merger Agreement have been (or will
concurrently be) fulfilled or waived by the parties thereto (which waiver, in
the case of any waiver by the Company or Northrop Operating, shall be given only
with the consent of the Lenders, and which conditions, in the case of conditions
to be fulfilled to the satisfaction of the Company or Northrop Operating, shall
be fulfilled to the satisfaction of the Co-Administrative Agents); and (iii) the
Northrop Merger shall have been consummated and Northrop Operating shall be a
Wholly Owned Subsidiary of the Company.

          (i)  Terms of Acquisition.  A certificate of a senior officer of the
               ---------------------
Company, dated the Effective Date, to the effect that (i) the cash portion of
the purchase price paid by the Company in the Acquisition will not exceed
$4,000,000,000 and (ii) the fees and expenses relating to the Acquisition will
be substantially consistent with the amount set forth in the table of sources
and uses heretofore furnished to the Co-Administrative Agents.

          (j)  Payment of Fees and Expenses.  Evidence that (i) all principal of
               -----------------------------
and interest on the loans under the Existing Credit Agreements and the
Refinanced Debt shall have been (or will concurrently be) paid in full and (ii)
all fees and expenses payable under the Existing Credit Agreements and the
Refinanced Debt accrued to the Effective Date and unpaid and all costs, fees and
expenses, and all other compensation contemplated by the Loan Documents and by
the Fee Letter dated January 29, 2001 among the Borrowers and the Co-
Administrative Agents (including, legal fees and expenses) shall have been (or
will concurrently be) paid by the Borrowers to the extent due.

          (k)  Senior Securities; Other Indebtedness and Preferred Stock.  After
               ----------------------------------------------------------
giving effect to the Transactions and the other transactions contemplated
hereby, the Company and its Subsidiaries shall have outstanding no Indebtedness
or preferred stock other than the Loans under the Loan Documents, Indebtedness
under Working Capital Credit Lines, Indebtedness under the Five-Year Credit
Agreement, the Senior Securities, the preferred stock issued by the Company in
<PAGE>

                                                                              43




connection with the Exchange Offer and any Indebtedness disclosed in [refer to
pro forma financial statements included in Exchange Offer documents].

          (l)  Litigation.  Except as set forth on Schedule 3.03, no litigation
               -----------
administrative or procedural action by any entity (private or governmental)
shall be pending or threatened against any of the Borrowers (a) with respect to
this Agreement or any other Loan Document, (b) that could reasonably be expected
to restrain, prevent or impose burdensome conditions on the Transactions or (c)
which the Required  Lenders shall reasonably determine would be likely to have a
Material Adverse Effect.

          (m)  Miscellaneous.  The Co-Administrative Agents shall have received
               --------------
such other documents as the Co-Administrative Agents or any Lender shall
reasonably have requested.

The Payment Agent shall promptly notify each Lender of the occurrence of the
Effective Date.

          SECTION 4.02. Initial and Subsequent Loans.  The obligation of any
Lender to make any Loan to the Borrowers upon the occasion of each borrowing
hereunder is subject to the further conditions precedent that, as of the date of
such Loan and after giving effect thereto:

          (a)  no Default shall have occurred and be continuing; and

          (b)  the representations and warranties made by the Borrowers in
     Article III hereof shall be true in all material respects on and as of the
     date of the making of such Loan with the same force and effect as if made
     on and as of such date (except to the extent such representations or
     warranties expressly relate to an earlier date, in which case they shall be
     true in all material respects as of such earlier date).

Each notice of or request for a Borrowing by a Borrower hereunder shall
constitute a certification by the Borrowers to the effect set forth in the
preceding sentence (both as of the date of such notice and, unless any of the
Borrowers otherwise notifies the Payment Agent prior to the date of such
borrowing, as of the date of such borrowing).


                                   ARTICLE V

                             Affirmative Covenants

          Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, each of the Borrowers covenants and agrees with the Lenders
as to itself and its subsidiaries that:

          SECTION 5.01.  Financial Statements.  The Company shall deliver to
each of the Lenders and to the Co-Administrative Agents:

          (a)  within 105 days after the end of each fiscal year of the Company,
     (i) a consolidated statement of financial position of the Company and the
     Subsidiaries as at the
<PAGE>

                                                                              44

     close of such fiscal year and consolidated statements of operations,
     changes in stockholders' equity and cash flows of the Company and the
     Subsidiaries for such year, certified by Deloitte & Touche LLP or by other
     independent public accountants selected by the Company and reasonably
     satisfactory to the Co-Administrative Agents and (ii) the Consolidating
     Financial Statements for such year;

          (b)  within 60 days after the end of each of the first three fiscal
     quarters of each fiscal year of the Company, (i) an unaudited consolidated
     statement of financial position of the Company and the Subsidiaries as at
     the end of such quarter and unaudited consolidated statements of
     operations, changes in stockholders' equity and cash flows of the Company
     and the Subsidiaries for such quarter and for the period from the beginning
     of the fiscal year to the end of such quarter, certified by an authorized
     financial or accounting officer of the Company and (ii) the Consolidating
     Financial Statements for such fiscal quarter;

          (c)  promptly upon becoming available, copies of all financial
     statements, reports, notices, proxy statements and final prospectuses sent
     by the Company to stockholders or by any of the Borrowers to the SEC;

          (d)  subject to Government restrictions, such other statement or
     statements of the position and affairs of the Company and of the
     Subsidiaries and the status of their contracts, open accounts and budgets
     or forecasts, and other financial information, as may be reasonably
     requested by the Co-Administrative Agents;

          (e)  with each of the audited financial statements required to be
     delivered under Section 5.01(a), a certificate by the independent public
     accountants certifying such statements to the effect that they are familiar
     with the provisions of this Agreement and that, in making the examination
     necessary for their opinion on such financial statements, nothing came to
     their attention that caused them to believe that the Company was not in
     compliance with this Agreement insofar as it relates to accounting matters
     or, if the contrary is the case, specifying the nature of such non-
     compliance;

          (f)  with each of the financial statements required to be delivered
     under Section 5.01(a) or Section 5.01(b), a statement by an authorized
     financial or accounting officer of the Company to the effect that no
     Default has occurred and is continuing, or if any Default has occurred and
     is continuing, describing such Default and the action taken or proposed to
     be taken by the Company with respect thereto, and a detailed computation,
     in form and substance satisfactory to the Co-Administrative Agents, of the
     financial calculations required in Sections 6.08, 6.09 and 6.10;

          (g)  (x) promptly after each of Moody's and S&P first either reaffirms
     or announces revised ratings for the Senior Long Term Debt after the
     consummation of the Acquisition and (y) thereafter, promptly after (1)
     either Moody's or S&P first announces or publishes a revised rating for the
     Senior Long Term Debt or (2) either Moody's or S&P ceases to rate the
     Senior Long Term Debt, notice thereof; and
<PAGE>

                                                                              45


          (h)  promptly after the Company knows or has reason to know that any
     Default has occurred, a notice of such Default describing the same in
     reasonable detail and, together with such notice or as soon thereafter as
     is reasonably practicable, a description of the action that the Company has
     taken or proposes to take with respect thereto in such detail as the
     Company reasonably believes to be appropriate.

For the purposes of this section, the Company's obligation to deliver the items
referred to in clauses (a), (b) and (c) above will be deemed satisfied by the
posting of such items on a web site to which the Lenders have access, and which
shall have been designated in a notice delivered to the Lenders and the Co-
Administrative Agents.

          SECTION 5.02.  Existence, Payment of Taxes, ERISA, Etc. Each Borrower
shall, and shall cause each of the Material Subsidiaries to:

          (a)  preserve and maintain its legal existence and all of its material
     rights, privileges, licenses and franchises (provided that nothing in this
     Section 5.02 shall prohibit any transaction expressly permitted under
     Section 6.02 or 6.04 hereof);

          (b)  comply in all material respects with the requirements of all
     applicable laws, rules, regulations and orders of governmental or
     regulatory authorities if failure to comply with such requirements is
     reasonably likely (either individually or in the aggregate) to have a
     Material Adverse Effect;

          (c)  promptly pay and discharge all taxes, assessments and
     governmental charges prior to the date on which material penalties attach
     thereto, but only to the extent that such taxes, assessments and charges
     shall not be contested in good faith and by appropriate proceedings by the
     Company or such Material Subsidiary; and

          (d)  maintain all of its Properties used or useful in its business in
     good working order and condition, ordinary wear and tear excepted.

          The Company shall furnish to the Payment Agent the following:

          (i)   As soon as possible and in any event within 30 days after the
     Company know or has reason to know that any Termination Event has occurred,
     a statement of a senior financial or accounting officer of the Company
     describing such Termination Event and the action, if any, which the Company
     proposes to take with respect thereto;

          (ii)  Promptly after receipt thereof by the Company, copies of each
     notice received from the PBGC of its intention to terminate any Plan or to
     have a trustee appointed to administer any Plan; and

          (iii) Promptly after request therefor, such other documents and
     information relating to any Plan as the Co-Administrative Agents may
     reasonably request from time to time.
<PAGE>

                                                                              46

          SECTION 5.03.  Notice of Litigation. The Company shall promptly give
notice in writing to the Co-Administrative Agents (which shall promptly notify
the Lenders) of any litigation or proceeding against the Company or any
Subsidiary if in the opinion of the General Counsel of the Company (or any
individual acting in such capacity) such action or proceeding is reasonably
likely to have a Material Adverse Effect. Without limiting the generality of the
foregoing, the Company shall give notice in writing to the Co-Administrative
Agents (which will promptly notify each Lender) of the assertion of any claim by
any Person of violation of or non-compliance with any Environmental Laws
against, or with respect to the activities of, the Company or any Subsidiary,
and notice of any alleged violation of or non-compliance with any Environmental
Laws or any permits, licenses or authorizations under Environmental Laws if in
the opinion of the General Counsel of the Company (or any individual acting in
such capacity) such claim or violation or non-compliance is reasonably likely
(either individually or in the aggregate) to have a Material Adverse Effect.

          SECTION 5.04.  Insurance. The Company shall maintain, and cause each
Subsidiary to maintain, insurance with responsible companies in such amounts and
against such risks as is usually carried by owners of similar businesses and
Property in the same general area in which the Company or such Subsidiary
operates, including reasonable war, comprehensive and commercial risk insurance,
when and if available, subject to such deductibles, receptions and self
insurance programs as the Company deems appropriate.

           SECTION 5.05. Access to Books and Properties.  The Company shall:

          (a)  keep adequate records and books of account, in which complete
     entries will be made in accordance with GAAP consistently applied; and

          (b)  as may be reasonably requested, give any representatives of the
     Lenders reasonable access, subject to restrictions imposed by Governmental
     Authorities and customer confidentiality agreements, during normal business
     hours to, and permit them to examine, copy or make extracts from, any and
     all books, records and documents in the possession of the Company or any
     Subsidiary relating to its affairs and to inspect any Properties of the
     Company or any Subsidiary.

          SECTION 5.06.  Ratings by Moody's and S&P. The Company will at all
times use commercially reasonable efforts to cause Moody's and S&P (or, if
applicable, a Substitute Rating Agency) to have in effect ratings for the Senior
Long Term Debt.

          SECTION 5.07.  Consummation of Merger. The Company will cause (a) the
Northrop Merger to be consummated on or prior to the Effective Date and (b) the
Litton Merger to be consummated as promptly as practicable following the
Effective Date.


                                  ARTICLE VI

                              Negative Covenants
<PAGE>

                                                                              47

          Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full
each of the Borrowers covenants and agrees with the Lenders as to itself and its
subsidiaries that:

          SECTION 6.01.  Restricted Payments. The Company shall not declare, pay
or authorize any Restricted Payment if (a) any such Restricted Payment is not
paid out of Consolidated Net Income Available for Restricted Payments, (b) at
the time of, and immediately after, the making of any such Restricted Payment
(or the declaration of any dividend except a stock dividend) a Default has
occurred and remains continuing or (c) the making of any such Restricted Payment
would cause the Leverage Ratio to exceed the percentage which the Company will
be required to maintain as of the next Fiscal Date pursuant to Section 6.08.

          SECTION 6.02.  Asset Dispositions. The Company shall not, and shall
not permit any of its Subsidiaries to, sell, transfer, lease or otherwise
dispose of any asset, including any Equity owned by it in any other Person, nor
shall the Company permit any of its Subsidiaries to issue any additional Equity
in such Subsidiary, except:

          (a)  sales of inventory, used or surplus equipment, surplus real
     estate and Permitted Investments in the ordinary course of business;

          (b)  sales, transfers and dispositions to the Company or a Subsidiary;

          (c)  sales, transfers and dispositions for which the Company and the
     Subsidiaries receive consideration with a value of less than $10,000,000 in
     the aggregate for any individual transaction or series of related
     transactions; and

          (d)  sales, transfers and other dispositions of assets (other than
     Equity in a Subsidiary) that are not permitted by any other clause of this
     Section; provided that the aggregate fair market value of all assets sold,
     transferred or otherwise disposed of in reliance upon this clause (d) after
     the date hereof shall not exceed 20% of the consolidated assets of the
     Company as at December 31, 2000, after giving pro forma effect to the
     Transactions;

provided that all sales, transfers, leases and other dispositions permitted
under clauses (a) and (d) of this Section (other than those resulting in the
receipt by the Company and the Subsidiaries of consideration with a fair market
value of less than $25,000,000 in the aggregate for any individual transaction
or series of related transactions) shall be made for fair value.

          SECTION 6.03.  Guarantees. The Company shall not, and shall not permit
any Subsidiary to, Guarantee any obligation of any Person, or suffer to exist
any such Guarantee, except that:

          (a)  the Company may Guarantee any obligation of any Subsidiary;

          (b)  any Subsidiary may Guarantee any obligation of the Company or any
     other Subsidiary; and
<PAGE>

                                                                              48


          (c)  the Company or any Subsidiary may issue a Guarantee of any
     obligation of a Person other than the Company or any Subsidiary, or assume
     an obligation of any such Person; provided that (i) the excess (if any) of
     (x) the aggregate amount of all obligations referred to in this clause (c)
     (to the extent said obligations do not otherwise constitute Funded Debt)
     over (y) 5% of Consolidated Shareholders' Equity shall be deemed Funded
     Debt for the purposes of this Agreement.

          SECTION 6.04.  Fundamental Changes and Acquisitions. The Company will
not, nor will it permit any of the Subsidiaries to, enter into any transaction
of merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution). The Company will not, nor
will it permit any of the Subsidiaries to, acquire any business from or all or
any significant part of the Property of, or all or any significant part of the
capital stock of, or be a party to any acquisition of, any Person.

          Notwithstanding the foregoing:

          (a)  any Subsidiary may be merged or consolidated with or into:  (i)
     any Borrower if such Borrower shall be the continuing or surviving
     corporation or (ii) any other Subsidiary; provided that if any such
     transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary,
     the Wholly-Owned Subsidiary shall be the continuing or surviving
     corporation;

          (b)  during any Investment Grade Rating Period, any Borrower or any
     Subsidiary may merge or consolidate with any other Person if (i) in the
     case of a merger or consolidation of any Borrower, such Borrower is the
     surviving corporation and, in any other case, the surviving corporation is
     a Wholly-Owned Subsidiary and (ii) after giving effect thereto no Default
     would exist;

          (c)  the Borrowers may consummate the Acquisition and the related
     Transactions; and

          (d)  the Company or any of the Subsidiaries may acquire the business
     of, or all or any significant part of the Property of, or all or any
     significant part of the capital stock of, or be a party to any acquisition
     of, any Person engaged in the same line of business as the Company and its
     Subsidiaries, taken as a whole, or a  related line of business (whether
     directly or through the merger of a Wholly-Owned Subsidiary with that
     Person) subject to the following:

               (i)  at the time of such acquisition, and after giving effect
          thereto, no Default shall exist; and

               (ii) if the sum of (A) the aggregate value of the consideration
          to be paid in such acquisition and (B) the aggregate value of the
          consideration paid in all prior acquisitions that shall have been
          completed since the most recent fiscal quarter end of the Company
          shall exceed $150,000,000, the Company shall have delivered a
          certificate of a senior accounting or financial officer of the Company
          to the
<PAGE>

                                                                              49


          Co-Administrative Agents prior to such acquisition demonstrating
          compliance with Sections 6.08, 6.09 and 6.10 on a pro forma basis as
          if such acquisition and all such prior acquisitions had occurred at
          the beginning of the most recently ended period of four consecutive
          fiscal quarters of the Company;

     provided that, during any period which is not an Investment Grade Rating
     Period, and notwithstanding the provisions of clause (i) above, the
     consideration for any such acquisition shall consist exclusively of Equity
     of the Company.

          SECTION 6.05.  Limitation on Liens. The Company shall not, and shall
not permit any Subsidiary to, create, assume or suffer to exist any Lien on any
of its Property, whether now owned or hereafter acquired, except:

          (a)  deposits or pledges to secure payments of workers' compensation,
     unemployment insurance, old age pensions or other social security, or in
     connection with or to secure the performance of bids, tenders, contracts
     (other than contracts for the repayment of borrowed money) or leases, or to
     secure statutory obligations or surety or appeal bonds, or other pledges or
     deposits for purposes of like nature in the ordinary and normal operation
     of its business;

          (b)  Liens created in favor of the United States of America or any
     department or agency thereof or any other contracting party or customer in
     connection with advance or progress payments or similar forms of vendor
     financing or incentive arrangements;

          (c)  mechanics', carriers', workers', repairmen's or other like Liens
     arising in the ordinary course of business in respect of obligations which
     are not overdue;

          (d)  Liens for taxes which at the particular time are not due, or
     remain payable without penalty, or which are being contested in good faith
     and by proper proceedings;

          (e)  Liens already existing on Property acquired after the date
     hereof, and securing obligations assumed in connection with a transaction
     permitted by Section 6.04 hereof (and not created in anticipation thereof);

          (f)  purchase money Liens on fixed assets (including trust deeds or
     first mortgages) given substantially concurrently with (or within 180 days
     after) the acquisition of the fixed assets and Liens existing on such fixed
     assets at the time of acquisition thereof, conditional sales agreements or
     other title retention agreements with respect to fixed assets hereafter
     acquired, and extensions and renewals of any of the same; provided that (i)
     the Indebtedness secured by any such Lien shall be reasonably related to
     the fair market value of the related asset acquired by the Company or a
     Subsidiary, as the case may be, and (ii) no such Lien shall extend to any
     Property other than that then being acquired; and

          (g)  Liens existing on the Effective Date, as set forth in Schedule
     6.05(g).
<PAGE>

                                                                              50

provided that the aggregate amount of Indebtedness or obligations (whether or
not assumed by the Company or a Subsidiary) secured by all Liens and agreements
permitted by clauses (e) and (f) of this Section 6.05 shall not at any time
exceed $375,000,000.

           SECTION 6.06.  Investments.  The Company shall not, and shall not
permit any Subsidiary to, make any Investment except:

          (a)  the Acquisition, and other acquisitions expressly permitted by
     Section 6.04;

          (b)  Investments existing on the date hereof in any Person;

          (c)  Permitted Investments;

          (d)  Investments made in the ordinary and normal operation of its
     business as presently conducted;

          (e)  reasonable advances to its subcontractors and suppliers in
     anticipation of deliveries;

          (f)  Investments in any Person or Persons, whether domestic or
     foreign, to the extent covered by Guarantees or insurance covering all
     political and credit risks issued by the Overseas Private Investment
     Corporation or another agency of the United States acceptable to the
     Administrative Agent or by an agency of a foreign government which is rated
     investment grade by Moody's or S&P; and

          (g)  other Investments in any Person or Persons, whether domestic or
     foreign, in amounts which do not exceed in the aggregate at any time
     outstanding 5% of the consolidated total assets of the Company and the
     Subsidiaries as at the last day of the most recently completed Quarterly
     Period, so long as the aggregate amount of Investments in Person(s) that
     are not Wholly-Owned Subsidiaries does not as at such day exceed 2% of the
     consolidated total assets of the Company and the Subsidiaries.
<PAGE>

                                                                              51

          SECTION 6.07.  Indebtedness. (a) The Company will not, nor will it
permit any of its Subsidiaries to, create, incur or suffer to exist any
Indebtedness except:

          (i)    Indebtedness to the Lenders hereunder and under the Five-Year
     Credit Agreement and unsecured Indebtedness replacing in whole or in part
     the facility established by this Agreement or by the Five-Year Credit
     Agreement; provided that (a) the Loans outstanding under this Agreement or
     the Five-Year Credit Agreement will be repaid, and the Commitments under
     such Agreements shall be reduced, by amounts equal to the aggregate net
     proceeds of such replacement Indebtedness at the time of the issuance
     thereof, (b) the weighted average life to maturity of such replacement
     Indebtedness shall not be less than that of the Indebtedness under this
     Agreement or the Five-Year Credit Agreement, as the case may be, and (c)
     the obligors in respect of any such replacement Indebtedness shall be
     limited to the Borrowers;

          (ii)   the Senior Securities and the Guarantees thereof by the Company
     and Litton Operating;

          (iii)  Indebtedness outstanding on the date hereof and reflected in
     Schedule 6.07, and refinancings and extensions of any thereof that do not
     increase the outstanding principal amount of such Indebtedness;

          (iv)   Subordinated Indebtedness;

          (v)    Indebtedness of (x) Subsidiaries to the Company to the extent
     the Company is permitted by Section 6.06 to make Investments in
     Subsidiaries, (y) Subsidiaries to other Subsidiaries or (z) the Company to
     Subsidiaries;

          (vi)   Guarantees permitted by Section 6.03;

          (vii)  Indebtedness under Working Capital Credit Lines, provided that
     the Working Capital Credit Lines of Subsidiaries other than Northrop
     Operating and Litton Operating shall be in an aggregate principal amount
     not greater than $300,000,000;

          (viii) Indebtedness in respect of letters of credit, banker's
     acceptances and similar instruments issued or accepted for the account of
     the Company or any Subsidiary in the ordinary course of its business;

          (ix)   Indebtedness issued pursuant to the Northrop Operating Senior
     Indenture or the Litton Operating Senior Indenture;

          (x)    Indebtedness under Interest Rate Protection Agreements
     permitted or required by Section 6.13;

          (xi)   Indebtedness under the Existing Credit Agreements and the
     Refinanced Debt, but only until the Effective Date; and
<PAGE>

                                                                              52

          (xii)  additional Indebtedness of the Company and the Subsidiaries
     (including Capital Lease Obligations and other Indebtedness secured by
     Liens permitted under clauses (e) and (f) of Section 6.05 hereof) up to but
     not exceeding $375,000,000 in the aggregate at any one time outstanding.

          (b)    The Borrowers will not permit the Indebtedness of all of the
Subsidiaries that are not Borrowers (other than Indebtedness owing to the
Company or another Subsidiary) to exceed $425,000,000 in the aggregate at any
one time outstanding.

          SECTION 6.08.  Leverage Ratio. The Company will not permit the
Leverage Ratio as of any Fiscal Date set forth below to exceed the percentage
set forth below opposite such Fiscal Date:

              Fiscal Date                          Percentage
              -----------                          ----------

     June 30, 2001                                   60.0%

     September 30, 2001                              60.0%

     December 31, 2001 and each Fiscal Date          57.5%
     thereafter

SECTION 6.09.  Funded Debt to Consolidated EBITDA Ratio.  The Company will not
permit the Funded Debt to Consolidated EBITDA Ratio as of any Fiscal Date set
forth below to exceed the percentage set forth below opposite such Fiscal Date:

              Fiscal Date                              Ratio
              -----------                              -----

     June 30, 2001                                     4.75x

     September 30, 2001                                4.75x

     December 31, 2001 and each Fiscal Date            4.25x
     thereafter

      SECTION 6.10.  Fixed Charge Coverage Ratio.  The Company will not permit
the Fixed Charge Coverage Ratio as of any Fiscal Date set forth below to be less
than the ratio set forth below opposite such Fiscal Date:


              Fiscal Date                              Ratio
              -----------                              -----

     June 30, 2001                                     1.25x

     September 30, 2001                                1.25x

--------------------------------------------------------------------------------
<PAGE>

                                                                              53

              Fiscal Date                              Ratio
              -----------                              -----

     December 31, 2001 and each Fiscal Date            1.25x
     thereafter

          SECTION 6.11.  Use of Proceeds. The proceeds of the Loans hereunder
will be used (a) to pay the cash consideration payable in the Exchange Offer and
the Litton Merger, (b) to refinance the Existing Credit Agreements and
Refinanced Debt, (c) to pay related fees and expenses and (d) for working
capital, to finance capital expenditures and permitted acquisitions and for
other general corporate purposes. All borrowings will be in compliance with all
applicable legal and regulatory requirements, including Regulations U and X.

          SECTION 6.12.  Margin Stock. The Company shall not permit more than
25% of the value (as determined by any reasonable method) of the Property of the
Company and the Subsidiaries subject to the restrictions of Section 6.02, 6.04
or 6.05 hereof (or any similar restriction) to be represented by margin stock
(within the meaning of Regulation U or X).

          SECTION 6.13.  Interest Rate Protection Agreements. (a) The Company
will not permit any of its Subsidiaries to enter into or become obligated in
respect of any Interest Rate Protection Agreement, other than, in the case of
any Subsidiary, any Interest Rate Protection Agreement entered into with respect
to Indebtedness of such Subsidiary permitted under Section 6.07.

          (b)  Not later than 120 days after the Effective Date, the Company
shall cause, and thereafter maintain, through a combination of Interest Rate
Protection Agreements and fixed rate Funded Debt, the effective fixed rate
component of its Funded Debt to be approximately equal to or greater than 50%.

          SECTION 6.14.  Modifications of Certain Documents. The Company will
not consent to any modification, supplement or waiver of any of the provisions
of the Northrop Operating Senior Indenture the Northrop Operating Subordinated
Indenture or the Litton Operating Senior Indenture or any agreement, instrument
or other document evidencing or relating to Subordinated Indebtedness, in each
case to the extent that the same would adversely affect in any material respect
the rights or interests of the Agents and the Lenders, without the prior written
consent of the Co-Administrative Agents.

          SECTION 6.15.  Subsidiary Equity Issuance. The Company shall not
permit any Subsidiary to issue Equity to any Person other than the Company or a
Wholly-Owned Subsidiary except (a) directors' qualifying shares and (b) in
connection with the establishment or capitalization of a bona fide joint venture
with the Person or Persons to whom such Equity is issued.

                                  ARTICLE VII

                               Events of Default
<PAGE>

                                                                              54


     If one or more of the following events (herein called "Events of Default")
shall occur and be continuing:

     (a)  the Borrowers shall default in the payment of any principal of any
  Loan when due; or the Borrowers shall default in the payment of any interest
  on any Loan or any other amount payable by them hereunder to any Lender or any
  Agent when due which nonpayment shall have continued for a period of two
  Business Days or more; or

     (b)  (i)  default by the Company or any Subsidiary in the payment of any
  Indebtedness of the Company or any Subsidiary after any applicable period of
  grace, (ii) any event specified in any note, agreement, indenture or other
  document evidencing or relating to any of the Company or any Subsidiary
  Indebtedness shall occur if the effect of such event is to cause, or (with the
  giving of any notice or the lapse of time or both) to permit the holder or
  holders of such Indebtedness (or a trustee or agent on behalf of such holder
  or holders) to cause, such Indebtedness to become due prior to its stated
  maturity or (iii) any event specified in any Interest Rate Protection
  Agreement of the Company or any Subsidiary shall occur if the effect of such
  event is to cause, or (with the giving of any notice or the lapse of time or
  both) to permit, any termination or liquidation payment or payments to become
  due thereunder; except for a default in respect of Indebtedness, (in the case
  of clauses (i) or (ii) of this paragraph), or payments (in the case of clause
  (iii) of this paragraph) not exceeding $50,000,000 in aggregate amount; or

     (c)  any representation, warranty or certification made or deemed made in
  any of the Loan Documents by the Borrowers or any certificate furnished to any
  Lender or Agent pursuant to the provisions hereof shall prove to have been
  false or misleading as of the time made or deemed made or furnished in any
  material respect; or

     (d)  any of the Borrowers shall default in the performance of any of its
  obligations under Section 5.01(h), Section 10.14 or Article VI hereof (other
  than Section 6.15); any of the Borrowers shall default in the performance of
  any of its other obligations in this Agreement and such default shall continue
  unremedied for a period of 30 days after notice thereof to the Borrowers by
  the Co-Administrative Agents or any Lender (through the Co-Administrative
  Agents); or

     (e)  any Borrower or any Subsidiary having total assets of $100,000,000 or
  more shall admit in writing its inability to, or be generally unable to, pay
  its debts as such debts become due; or

     (f)  any Borrower or any Subsidiary having total assets of $100,000,000 or
  more shall (i) apply for or consent to the appointment of, or the taking of
  possession by, a receiver, custodian, trustee or liquidator of itself or of
  all or a substantial part of its property, (ii) make a general assignment for
  the benefit of its creditors, (iii) commence a voluntary case under any law
  relating to bankruptcy, insolvency, reorganization (as now or hereafter in
  effect), (iv) file a petition seeking to take advantage of any other law
  relating to bankruptcy, insolvency, reorganization, winding-up, or composition
  or readjustment of debts, (v) fail to controvert in a timely and appropriate
  manner, or acquiesce in writing to, any petition filed against it in an
<PAGE>

                                                                              55

  involuntary case under any law relating to bankruptcy, insolvency,
  reorganization, or (vi) take any corporate action for the purpose of effecting
  any of the foregoing; or

     (g)  a proceeding or case shall be commenced, without the application or
  consent of any Borrower or any Subsidiary having total assets of $100,000,000
  or more, in any court of competent jurisdiction, seeking (i) its liquidation,
  reorganization, dissolution or winding-up, or the composition or readjustment
  of its debts, (ii) the appointment of a trustee, receiver, custodian,
  liquidator or the like of such Borrower or such Subsidiary or of all or any
  substantial part of its assets, or (iii) similar relief in respect of such
  Borrower or such Subsidiary under any law relating to bankruptcy, insolvency,
  reorganization, winding-up, or composition or adjustment of debts, and such
  proceeding or case shall continue undismissed, or an order, judgment or decree
  approving or ordering any of the foregoing shall be entered and continue
  unstayed and in effect, for a period of 60 days; or an order for relief
  against such Borrower or such Subsidiary shall be entered in an involuntary
  case under any law relating to bankruptcy, insolvency, reorganization; or

     (h)  if (i) a final judgment which, with other outstanding final judgments
  against the Company and all Subsidiaries, exceeds an aggregate of
  $100,000,000, excluding (A) any amounts covered by insurance as to which the
  insurance company shall have acknowledged coverage and (B) the amount of any
  judgment against a Subsidiary other than a Borrower that exceeds the fair
  market value of the assets of such Subsidiary (but only if neither the Company
  nor any other Subsidiary is directly or contingently liable therefor), shall
  be rendered against the Company or any Subsidiary and (ii) within 60 days
  after entry thereof, such judgment shall not have been discharged, vacated or
  reversed or execution thereof stayed pending appeal or within 60 days after
  the expiration of any such stay, such judgment shall not have been discharged,
  vacated or reversed; or

     (i)  an event or condition (i) which might constitute grounds under Section
  4042 of ERISA for the termination of, or for the appointment of a trustee to
  administer, any Plan or Multiemployer Plan and which involves a liability of
  the Company or any Subsidiary having total assets of $100,000,000 or more to
  PBGC in excess of $100,000,000 or (ii) leading to the receipt by the Company
  or any Subsidiary having total assets of $100,000,000 or more from the PBGC of
  a notice of its intention to terminate any Plan or Multiemployer Plan or to
  have a trustee appointed to administer any such Plan or Multiemployer Plan
  shall occur or exist and, as a result of such event or condition, together
  with all other such events or conditions, the Company or any ERISA Affiliate
  shall incur or in the opinion of the Required Lenders shall be reasonably
  likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any
  combination of the foregoing) which is, in the determination of the Required
  Lenders, material in relation to the consolidated financial position of the
  Company and the Subsidiaries; or

     (j)  (i) any person or group of persons (within the meaning of Section 13
  or 14 of the Exchange Act, it being agreed that an employee of the Company or
  any Subsidiary for whom shares are held under an employee stock ownership,
  employee retirement, employee savings or similar plan and whose shares are
  voted in accordance with the instructions of such employee shall not be a
  member of a group of persons within the meaning of said Section 13 or 14
  solely because such employee's shares are held by a trustee under said plan)
  shall acquire, directly or
<PAGE>

                                                                              56

  indirectly, beneficial ownership (within the meaning of Rule 13d-3 promulgated
  by the SEC under said Act, as amended) of more than 50% of the outstanding
  shares of stock of the Company having by the terms thereof ordinary voting
  power to elect (whether immediately or ultimately) a majority of the board of
  directors of the Company (irrespective of whether or not at the time stock of
  any other class or classes of stock of the Company shall have or might have
  voting power by reason of the happening of any contingency) or (ii) the
  Company shall cease to own, directly or indirectly, beneficially and of
  record, shares representing 100% of the issued and outstanding capital stock
  of (x) Northrop Operating or (y) after the Litton Merger, Litton Operating; or

     (k)  at any time during any period of 25 consecutive calendar months
  following the date hereof, a majority of the Board of Directors of the Company
  shall not be composed of individuals (i) who were members of the Board of the
  Company or the Board of Northrop Operating (in each case after giving effect
  to the consummation of the Exchange Offer) on the first day of such period,
  (ii) whose election or nomination to said Board was approved by individuals
  referred to in clause (i) above constituting at the time of such election or
  nomination at least a majority of said Board or (iii) whose election or
  nomination to said Board was approved by individuals referred to in clauses
  (i) and (ii) above constituting at the time of such election or nomination at
  least a majority of said Board; or

     (l)  the joint liability of any Borrower for any of the Obligations shall
  cease to be, or shall be asserted by any Borrower not to be, valid and
  enforceable;

     Thereupon, (i) in the case of an Event of Default other than one referred
to in clause (f) or (g) of this Article VII, (x) the Co-Administrative Agents,
upon request of the Required Lenders, shall, by notice to the Borrowers, (x)
cancel the Commitments and/or (y) declare the principal amount then outstanding
of and the accrued interest on the Loans and all other amounts payable by the
Borrowers hereunder to be forthwith due and payable, whereupon such amounts
shall be immediately due and payable without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrowers; and (ii) in the case of the occurrence of an Event of Default
referred to in clause (f) or (g) of this Article VII, the Commitments shall be
automatically canceled and the principal amount then outstanding of, and the
accrued interest on, the Loans and all other amounts payable by the Borrowers
hereunder shall become automatically immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrowers.

     Without limiting Section 10.02, the Required Lenders may, on behalf of all
the Lenders, waive, for the period and on the conditions (if any) specified in
such waiver, any Event of Default arising from the failure by any Borrower to
perform any of its obligations under Articles V and VI hereof and any
consequences thereof (including any termination of the Commitments and/or any
declaration that the principal of and interest on the Loans and all other
amounts payable by the Borrowers hereunder shall be forthwith due and payable).
In the case of any such waiver, the Borrowers, the Lenders and the Co-
Administrative Agents, for said period and on said conditions, shall be restored
to their respective former positions and rights hereunder, and any Event of
Default so waived shall, for said period and on said conditions, be deemed not
to be continuing for the
<PAGE>

                                                                              57


purposes of this Agreement; provided that no such waiver shall extend to any
subsequent or other Event of Default or impair any other right of any Lender or
Agent hereunder.


                                 ARTICLE VIII

                                  The Agents

     In order to expedite the transactions contemplated by this Agreement, Chase
and CSFB are hereby appointed to act as Co-Administrative Agents and Chase is
hereby appointed to act as Payment Agent.  Each of the Lenders hereby
irrevocably authorizes the Co-Administrative Agents and the Payment Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Co-Administrative Agents and the Payment Agent by the terms of the Loan
Documents, together with such actions and powers as are reasonably incidental
thereto.

     Any bank serving as Co-Administrative Agent or Payment Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not such Co-Administrative
Agent or Payment Agent, and such bank and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of business with the
Borrowers, any Subsidiary or other Affiliate thereof as if it were not such Co-
Administrative Agent or Payment Agent hereunder.

     The Co-Administrative Agents and the Payment Agent shall not have any
duties or obligations except those expressly set forth in the Loan Documents.
Without limiting the generality of the foregoing, (a) no Co-Administrative Agent
or Payment Agent shall be subject to any fiduciary or other implied duties,
regardless of whether a Default has occurred and is continuing, (b) no Co-
Administrative Agent or Payment Agent shall have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated by the Loan Documents that such Co-
Administrative Agent or Payment Agent is required to exercise in writing by the
Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 10.02), and (c) except
as expressly set forth in the Loan Documents, no Co-Administrative Agent or
Payment Agent shall have any duty to disclose, and shall not be liable for the
failure to disclose, any information relating to the Company or any Subsidiary
that is communicated to or obtained by the bank serving as Co-Administrative
Agent or Payment Agent or any of its Affiliates in any capacity. No Co-
Administrative Agent or Payment Agent shall be liable for any action taken or
not taken by it with the consent or at the request of the Required Lenders (or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 10.02) or in the absence of its own gross
negligence or wilful misconduct. No Co-Administrative Agent or Payment Agent
shall be deemed to have knowledge of any Default unless and until written notice
thereof is given to such Co-Administrative Agent or Payment Agent by the
Borrowers or a Lender, and no such Co-Administrative Agent or Payment Agent
shall be responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or representation made in or in connection with any Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
<PAGE>

                                                                              58



forth in any Loan Document, (iv) the validity, enforceability, effectiveness or
genuineness of any Loan Document or any other agreement, instrument or document,
or (v) the satisfaction of any condition set forth in Article IV or elsewhere in
any Loan Document, other than to confirm receipt of items expressly required to
be delivered to such Co-Administrative Agent or Payment Agent.

     Each Co-Administrative Agent or Payment Agent shall be entitled to rely
upon, and shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. Each
Co-Administrative Agent or Payment Agent also may rely upon any statement made
to it orally or by telephone and believed by it to be made by the proper Person,
and shall not incur any liability for relying thereon. Each Co-Administrative
Agent or Payment Agent may consult with legal counsel (who may be counsel for
the Borrowers), independent accountants and other experts selected by it, and
shall not be liable for any action taken or not taken by it in accordance with
the advice of any such counsel, accountants or experts.

     Each Co-Administrative Agent or Payment Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more sub-
agents appointed by such Co-Administrative Agent or Payment Agent. Each Co-
Administrative Agent or Payment Agent and any such sub-agent may perform any and
all its duties and exercise its rights and powers through their respective
Related Parties. The exculpatory provisions of the preceding paragraphs and the
provisions of Section 10.03 shall apply to any such sub-agent and to the Related
Parties of the Co-Administrative Agents or Payment Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Co-Administrative Agent or Payment Agent.

     Subject to the appointment and acceptance of a successor Co-Administrative
Agent or Payment Agent as provided in this paragraph, any Co-Administrative
Agent or the Payment Agent may resign at any time by notifying the Lenders and
the Company. Upon any such resignation, the Required Lenders shall have the
right (in consultation with, and with the consent of (unless an Event of Default
has occurred and is continuing pursuant to clause (f) or (g) of Article VII) the
Company, which shall not be unreasonably withheld) to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Co-Administrative
Agent or Payment Agent gives notice of its resignation, then the retiring Co-
Administrative Agent or Payment Agent may (in consultation with, and with the
consent of (unless an Event of Default has occurred and is continuing pursuant
to clause (f) or (g) of Article VII), the Company, which shall not unreasonably
withhold such consent and which shall, if the retiring Co-Administrative Agent
or Payment Agent shall so request, designate and approve a successor Co-
Administrative Agent or Payment Agent) on behalf of the Lenders, appoint a
successor Co-Administrative Agent or Payment Agent which shall be a bank with an
office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Co-Administrative Agent or Payment Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Co-Administrative
Agent or Payment Agent, and the retiring Co-Administrative Agent or Payment
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrowers to a successor Co-Administrative Agent or the Payment
Agent shall be the same as those payable to its predecessor unless otherwise
agreed
<PAGE>

                                                                              59


among the Borrowers and such successor. After a Co-Administrative Agent's or the
Payment Agent's resignation hereunder, the provisions of this Article and
Section 10.03 shall continue in effect for the benefit of such retiring Co-
Administrative Agent or Payment Agent, its sub-agents and their respective
Related Parties in respect of any actions taken or omitted to be taken by any of
them while it was acting as Co-Administrative Agent or Payment Agent.

     Each Lender acknowledges that it has, independently and without reliance
upon the Co-Administrative Agents or the Payment Agent or any other Lender and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Co-
Administrative Agents or the Payment Agent or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any other Loan Document, any related agreement or any
document furnished hereunder or thereunder.

     None of the institutions named as Syndication Agent or Co-Documentation
Agents in the heading of this Agreement shall, in their capacities as such, have
any duties or responsibilities of any kind under this Agreement.


                                  ARTICLE IX

                   Joint and Several Liability of Borrowers

     In order to induce the Lenders to extend credit hereunder, each Borrower
agrees that it will be jointly and severally liable for all the Obligations,
including the principal of and interest on all Loans requested by and made to
either of the other Borrowers.  Each Borrower further agrees that the due and
punctual payment of the Obligations may be extended or renewed, in whole or in
part, without notice to or further assent from it, and that it will remain bound
hereunder notwithstanding any such extension or renewal of any Obligation.

     Each Borrower waives presentment to, demand of payment from and protest to
any other Borrower of any of the Obligations, and also waives notice of
acceptance of its obligations and notice of protest for nonpayment. The
obligations of the Borrowers hereunder shall not be affected by (a) the failure
of any Lender or Agent to assert any claim or demand or to enforce or exercise
any right or remedy against any other Borrower under the provisions of this
Agreement or otherwise or (b) any rescission, waiver, amendment or modification
of any of the terms or provisions of this Agreement or any other agreement.

     Each Borrower further agrees that its agreement under this Article IX
constitutes a promise of payment when due (whether or not any bankruptcy or
similar proceeding shall have stayed the accrual or collection of any of the
Obligations or operated as a discharge thereof) and not merely of collection,
and waives any right to require that any resort be had by any Lender to any
balance of any deposit account or credit on the books of any Lender in favor of
any Borrower or any other Person.
<PAGE>

                                                                              60

     The obligations of each Borrower under this Article IX shall not be subject
to any reduction, limitation, impairment or termination for any reason, and
shall not be subject to any defense or setoff, counterclaim, recoupment or
termination whatsoever, by reason of the invalidity, illegality or
unenforceability of the Obligations, any impossibility in the performance of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of the Borrowers under this Article IX shall not be discharged or
impaired or otherwise affected by the failure of any Agent or any Lender to
assert any claim or demand or to enforce any remedy under this Agreement or any
other agreement, by any waiver or modification in respect of any thereof, by any
default, failure or delay, willful or otherwise, in the performance of any of
the Obligations, or by any other act or omission which may or might in any
manner or to any extent vary the risk of such Borrower or otherwise operate as a
discharge of such Borrower or any Borrower as a matter of law or equity.

     Each Borrower further agrees that its obligations under this Article IX
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by the any Agent or any Lender upon the bankruptcy or
reorganization of any other Borrower or otherwise.

     In furtherance of the foregoing and not in limitation of any other right
which any Agent or any Lender may have at law or in equity against any Borrower
by virtue of this Article IX, upon the failure of any other Borrower to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, each Borrower hereby
promises to and will, upon receipt of written demand by any Agent, forthwith
pay, or cause to be paid, in cash the amount of such unpaid Obligation.

     If by virtue of the provisions set forth herein, either Northrop Operating
or Litton Operating is required to repay and shall repay Loans the proceeds of
which were received by the other, the Borrower that received such proceeds
agrees to reimburse the Borrower that shall have repaid such Loans. Upon payment
by any Borrower of any sums as provided above, all rights of such Borrower
against any Borrower arising as a result thereof by way of right of subrogation
or otherwise shall in all respects be subordinated and junior in right of
payment to the prior indefeasible payment in full of all the Obligations owed by
the Borrowers to the Lenders.


                                   ARTICLE X

                                 Miscellaneous

      SECTION 10.01.  Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:

     (a)  if to any of the Borrowers, to it at 1840 Century Park East, Los
  Angeles, CA 90067-2199, Attention of Albert F. Myers, Corporate Vice President
  and Treasurer and David H. Strode, Assistant Treasurer (both at Telecopy No.
  (310) 201-3088);
<PAGE>

                                                                              61

     (b) if to the Agents:

          (1)  to The Chase Manhattan Bank, Loan and Agency Services Group, One
    Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of
    Richard Smith (Telecopy No. (212) 270-5150), with a copy to The Chase
    Manhattan Bank, 270 Park Avenue, New York, NY 10017, Attention of Doris Mesa
    (Telecopy No. (212) 552-5650); and

          (2)  to Credit Suisse First Boston, 11 Madison Avenue, New York, NY
    10010, Attention of [   ] Telecopy No. [   ]); and

          (c)  if to any other Lender, to it at its address (or telecopy number)
  set forth in its Administrative Questionnaire.

Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto.  All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.

          SECTION 10.02.  Waivers; Amendments. (a) No failure or delay by any
Agent or any Lender in exercising any right or power hereunder or under any
other Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Agents and the Lenders hereunder and under any other Loan
Documents are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of any Loan Document or
consent to any departure by the Borrowers therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether any Agent or any Lender may have had notice or
knowledge of such Default at the time.

          (b)  Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except pursuant
to an agreement or agreements in writing entered into by the Borrowers party
thereto and the Required Lenders or by the Borrowers party thereto and the Co-
Administrative Agents with the consent of the Required Lenders; provided that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
reduce the rate of interest thereon, or reduce any fees payable to any Lender
hereunder, without the written consent of each Lender affected thereby, (iii)
postpone the scheduled date of payment of the principal amount of any Loan, or
any interest thereon, or any fees payable hereunder, or reduce the amount of,
waive or excuse any such payment, or postpone the scheduled date of expiration
of any Commitment, without the written consent of each Lender affected thereby,
(iv) change Section 2.15 in a manner that would alter the pro rata sharing of
payments required thereby, without the written consent of each Lender affected
thereby, (v) change any of the provisions of this Section or the definition of
<PAGE>

                                                                              62



"Required Lenders" or any other provision of any Loan Document specifying the
number or percentage of Lenders required to waive, amend or modify any rights
hereunder or make any determination or grant any consent hereunder or (vi)
release any Borrower from its joint and several liability for the Obligations
hereunder, or limit its liability in respect of such joint and several
liability, without the written consent of each Lender; provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties of
any Agent hereunder without the prior written consent of such Agent.

      SECTION 10.03.  Expenses; Indemnity; Damage Waiver. (a) The Borrowers
shall pay (i) all reasonable out-of-pocket expenses incurred by the Agents and
their Affiliates named on the cover of this Agreement, including the reasonable
fees, charges and disbursements of one outside counsel for the Agents, in
connection with the syndication, prior to the date hereof, of the credit
facilities provided for herein, the preparation and administration of the Loan
Documents or any amendments, modifications or waivers (requested by or for the
benefit of the Borrowers) of the provisions hereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), and (ii) all
reasonable out-of-pocket expenses incurred by any Agent or any Lender, including
the fees, charges and disbursements of any counsel for any Agent or any Lender,
(A) related to the enforcement of its rights in connection with the Loan
Documents (including its rights under this Section) or (B) incurred during any
workout, restructuring or related negotiations in respect of the Loan Documents
or the Loans.

     (b)  The Borrowers shall indemnify each Agent, each Lender, each of their
Affiliates and each officer, director, employee or agent of the foregoing
Persons involved directly or indirectly in the Transactions (each such Person
being called an "Indemnitee") against, and hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities and reasonable related expenses
(other than Excluded Taxes), including the reasonable fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted against
any Indemnitee arising out of, in connection with, or as a result of (i) the
execution or delivery of any Loan Document or any agreement or instrument
contemplated thereby, the performance by the parties to the Loan Documents of
their respective obligations thereunder or the consummation of the Transactions
or any other transactions contemplated hereby, (ii) any Loan or the use of the
proceeds therefrom or (iii) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is a
party thereto, except, as to each Indemnitee, for losses, claims, damages,
liabilities and related expenses determined by a court of competent jurisdiction
to have resulted from the gross negligence or wilful misconduct of such
Indemnitee.

     (c)  To the extent that the Borrowers fail to pay any amount required to be
paid by them to any Agent under paragraph (a) or (b) of this Section each Lender
severally agrees to pay to such Agent such Lender's Applicable Percentage
(determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount; provided that the unreimbursed expense
or indemnified loss, claim, damage, liability or related expense, as the case
may be, was incurred by or asserted against such Agent in its capacity as such.

     (d)  To the extent permitted by applicable law, the Borrowers shall not
assert, and hereby waive, any claim against any Indemnitee, on any theory of
liability, for special, indirect,
<PAGE>

                                                                              63


consequential or punitive damages (as opposed to direct or actual damages)
arising out of, in connection with, or as a result of, this Agreement or any
agreement or instrument contemplated hereby, the Transactions, any Loan or the
use of the proceeds thereof.

     (e)  All amounts due under this Section shall be payable promptly after
written demand therefor setting forth the amount and the nature of the expense
or claim, as applicable.

      SECTION 10.04.  Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that none
of the Borrowers may assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
attempted assignment or transfer by any of the Borrowers without such consent
shall be null and void). Nothing in this Agreement, expressed or implied, shall
be construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Agents and the Lenders)
any legal or equitable right, remedy or claim under or by reason of this
Agreement.

     (b)  Any Lender may assign to one or more assignees all or a portion of its
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it); provided that (i) except in
the case of an assignment to a Lender or an Affiliate of a Lender, the Company
and the Payment Agent must give their prior written consent to such assignment
(which consent shall not be unreasonably withheld), (ii) except in the case of
an assignment to a Lender or an Affiliate of a Lender or an assignment of the
entire remaining amount of the assigning Lender's Commitment, the amount of the
Commitment of the assigning Lender subject to each such assignment (determined
as of the date of the Assignment and Acceptance with respect to such assignment
is delivered to the Payment Agent) shall not be less than $10,000,000 unless the
Company and the Payment Agent otherwise consent, (iii) each partial assignment
shall be made as an assignment of a proportionate part of all the assigning
Lender's rights and obligations under this Agreement, except that this clause
(iii) shall not apply to its rights in respect of outstanding Competitive Loans,
(iv) the parties to each assignment shall execute and deliver to the Co-
Administrative Agents an Assignment and Acceptance, together with (except in the
case of an assignment by or to a Co-Administrative Agent) a processing and
recordation fee of $3,500, and (v) the assignee, if it shall not be a Lender,
shall deliver to the Payment Agent an Administrative Questionnaire; and provided
further that any consent of the Company otherwise required under this paragraph
shall not be required if an Event of Default under clause (f) or (g) of Article
VII has occurred and is continuing.  Subject to acceptance and recording thereof
pursuant to paragraph (d) of this Section, from and after the effective date
specified in each Assignment and Acceptance the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Acceptance, be released from its obliga  tions
under this Agreement (and, in the case of an Assignment and Acceptance covering
all of the assigning Lender's rights and obligations under this Agreement, such
Lender shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.13, 2.14, 2.15 and 10.03.  Any assignment or transfer by
a Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for
<PAGE>

                                                                              64

purposes of this Agreement as a sale by such Lender of a participation in such
rights and obligations in accordance with paragraph (e) of this Section.

     (c)  The Payment Agent, acting for this purpose as agent of the Borrowers,
shall maintain at one of its offices in The City of New York a copy of each
Assignment and Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitment of, and principal
amount of the Loans owing to, each Lender pursuant to the terms hereof from time
to time (the "Register").  The entries in the Register shall be conclusive, and
the Borrowers, the Co-Administrative Agents and the Lenders may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement, notwithstanding notice to
the contrary.  The Register shall be available for inspection by the Borrowers
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.

     (d)  Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Payment Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register.  No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.

     (e)  Any Lender may, without the consent of the Borrowers or the Payment
Agent, sell participations to one or more banks or other entities (a
"Participant") in all or a portion of such Lender's rights and obligations under
this Agreement (including all or a portion of its Commitment and the Loans owing
to it); provided that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (iii) the Borrowers,
the Co-Administrative Agents, and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce the Loan Documents and to approve any amendment,
modification or waiver of any provision of the Loan Documents; provided that
such agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 10.02(b) that affects such
Participant.  Subject to paragraph (f) of this Section, each Borrower agrees
that each Participant shall be entitled to the benefits of Sections 2.13, 2.14
and 2.15 to the same extent as if it were a Lender and had acquired its interest
by assignment pursuant to paragraph (b) of this Section.

     (f)  A Participant shall not be entitled to receive any greater payment
under Section 2.13 or 2.15 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant. A
Participant that would be a Foreign Lender if it were a Lender shall not be
entitled to the benefits of Section 2.15 unless the Borrowers are notified of
the participation sold to such Participant and such Participant agrees, for the
benefit of the Borrowers, to comply with Section 2.15(e) as though it were a
Lender.
<PAGE>

                                                                              65



     (g)  Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure obligations of such
Lender to a Federal Reserve Bank, and this Section shall not apply to any such
pledge or assignment of a security interest; provided that no such pledge or
assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.

     (h)  Notwithstanding anything to the contrary contained herein, any Lender
(a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC")
of such Granting Lender, identified as such in writing from time to time by the
Granting Lender to the Co-Administrative Agents and the Borrowers, the option to
provide to the Borrowers all or any part of any Loan that such Granting Lender
would otherwise be obligated to make to the Borrowers pursuant to Section 2.01;
provided that (i) nothing herein shall constitute a commitment to make any Loan
by any SPC and (ii) if an SPC elects not to exercise such option or otherwise
fails to provide all or any part of such Loan, the Granting Lender shall be
obligated to make such Loan pursuant to the terms hereof. The making of a Loan
by an SPC hereunder shall be deemed to utilize the Commitment of the Granting
Lender to the same extent, and as if, such Loan were made by the Granting
Lender. Each party hereto hereby agrees that no SPC shall be liable for any
payment under this Agreement for which a Lender would otherwise be liable, for
so long as, and to the extent, the related Granting Lender makes such payment.
In furtherance of the foregoing, each party hereto hereby agrees that, prior to
the date that is one year and one day after the payment in full of all
outstanding senior indebtedness of any SPC, it will not institute against, or
join any other person in instituting against, such SPC any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or similar
proceedings under the laws of the United States or any State thereof. In
addition, notwithstanding anything to the contrary contained in this Section
10.04, any SPC may (i) with notice to, but without the prior written consent of,
the Borrowers and the Co-Administrative Agents and without paying any processing
fee therefor, assign all or a portion of its interests in any Loans to its
Granting Lender or (if consented to by the Borrowers and Co-Administrative
Agents) to any financial institutions providing liquidity and/or credit
facilities to or for the account of such SPC to fund the Loans made by such SPC
or to support the securities (if any) issued by such SPC to fund such Loans and
(ii) disclose on a confidential basis any non-public information relating to its
Loans (but not relating to any of the Borrowers or their Affiliates, except with
such Borrower's consent) to any rating agency, commercial paper dealer or
provider of any surety, guarantee or credit or liquidity enhancement to such
SPC.

     SECTION 10.05.  Survival. All covenants, agreements, representations and
warranties made by the Borrowers herein, in the other Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that any Co-Administrative Agent or any Lender may have had notice or knowledge
of any Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Agreement is outstanding and unpaid and so long as the
Commitments have not expired or terminated. The provisions of Sections 2.13,
2.14, 2.15 and 10.03 and Article VIII shall survive and remain in full force and
effect regardless of the
<PAGE>

                                                                              66

consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Commitments or the termination of
this Agreement or any provision hereof.

     SECTION 10.06.  Counterparts; Integration; Effectiveness. This Agreement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement, the other
Loan Documents and any separate letter agreements with respect to fees payable
to the Co-Administrative Agents constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Co-Administrative Agents and
when the Co-Administrative Agents shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto
(other than Litton Operating, which shall execute a counterpart of this
Agreement as provided in Section 10.14), and thereafter shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.

     SECTION 10.07.  Severability. Any provision of any Loan Document held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions of such Loan Document; and the invalidity of a
particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.

     SECTION 10.08.  Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender is hereby authorized at any time and from time to
time, to the fullest extent permitted by law, to setoff and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other obligations at any time owing by such Lender or Affiliate to or
for the credit or the account of any Borrower against any of and all the
obligations of the Borrowers now or hereafter existing under this Agreement held
by such Lender, irrespective of whether or not such Lender shall have made any
demand under this Agreement. The rights of each Lender under this Section are in
addition to and shall not limit other rights and remedies (including other
rights of setoff) which such Lender may have.

     SECTION 10.09.  Governing Law; Jurisdiction; Consent to Service of Process.
(a) This Agreement shall be construed in accordance with and governed by the law
of the State of New York.

     (b)  Each of the Borrowers hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the United
States District Court of the Southern District of New York, and any appellate
court from any thereof, in any action or proceeding arising out of or relating
to any Loan Document, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by
<PAGE>

                                                                              67

law, in such Federal court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement or any other Loan Document shall
affect any right that any Agent or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement or any other Loan Document
against the Borrowers or their properties in the courts of any jurisdiction.

     (c)  Each of the Borrowers hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection which
they may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any other Loan
Document in any court referred to in paragraph (b) of this Section. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.

     SECTION 10.10.  WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.

     SECTION 10.11.  Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.

     SECTION 10.12.  Confidentiality. Each Lender and each of the Co-
Administrative Agents agrees (on behalf of itself and each of its affiliates,
directors, officers, employees and representatives) to keep confidential, in
accordance with their customary procedures for handling confidential information
of this nature and in accordance with safe and sound banking practices, any non-
public information supplied to it by the Borrowers pursuant to this Agreement
which is identified by the Borrowers as being proprietary, private and/or
confidential at the time the same is delivered to the Lenders or the Co-
Administrative Agents, provided that nothing herein shall limit the disclosure
of any such information (a) to the extent required by statute, rule, regulation
or judicial process, (b) to counsel for any of the Lenders or the Co-
Administrative Agents, (c) to bank examiners, auditors or accountants, (d) to
the Co-Administrative Agents or any other Lender, (e) in connection with any
litigation to which any one or more of the Lenders or the Co-Administrative
Agents is a party or (f) to any assignee or participant (or prospective assignee
or participant) SO LONG AS SUCH ASSIGNEE OR PARTICIPANT (OR PROSPECTIVE ASSIGNEE
OR PARTICIPANT) FIRST EXECUTES AND DELIVERS TO THE RESPECTIVE LENDER A
<PAGE>

                                                                              68


CONFIDENTIALITY AGREEMENT SUBSTANTIALLY IN THE FORM OF EXHIBIT D (WHEREUPON SUCH
BANK SHALL PROMPTLY DELIVER A COPY OF SUCH CONFIDENTIALITY AGREEMENT TO THE
COMPANY); provided, further, that (i) unless specifically prohibited by
applicable law or court order, each Lender and the Co-Administrative Agents
shall, prior to disclosure thereof, notify the Borrowers of any request for
disclosure of any such non-public information (x) by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of such Lender by such governmental
agency) or (y) pursuant to legal process and (ii) in no event shall any Lender
or the Co-Administrative Agents be obligated or required to return any materials
furnished by the Borrowers; and, provided, finally, that no Lender shall,
without the applicable Borrower's prior consent, provide any information
relating to projections of that Borrower's financial performance to any
participant or any prospective assignee or participant (other than any bank or
other financial institution identified to the Borrowers as a participant under
the Existing Credit Agreement in a notice given to the Borrowers prior to the
Restatement Date), and, in lieu thereof, each of the Borrowers shall, promptly
following the request of any Lender and at the Borrowers' expense, provide to a
participant the projections of each of the Borrowers' financial performance that
has been made available to such Lender. Each Lender agrees that money damages
would not be a sufficient remedy for any breach of such Lender's obligations
under this Section 10.12 and that, in addition to all other remedies available
to the Borrowers at law or in equity, the Borrowers shall be entitled to
injunctive relief against such Lender as a remedy for such breach.

     SECTION 10.13.  Interest Rate Limitation. Notwithstanding anything herein
to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.

     SECTION 10.14.  Execution by Litton Operating. At such time as Litton
Operating shall have become a Subsidiary, the Company will forthwith cause
Litton Operating to execute this Agreement in the space provided below, to
deliver a counterpart hereof to the Co-Administrative Agents and to deliver such
other documents as shall be required to satisfy the conditions set forth in
Section 4.01(a), (b), (c) and (e), insofar as they relate to Litton Operating,
and upon such execution and delivery, Litton Operating shall become a party to
and a Borrower under this Agreement with the same effect as if it had originally
been a party hereto.
<PAGE>

                                                                              69


     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.


                                NNG, INC.,

                                      by
                                        _______________________________________
                                        Name:
                                        Title:


                                NORTHROP GRUMMAN CORPORATION,

                                      by
                                        _______________________________________
                                        Name:
                                        Title:


                                THE CHASE MANHATTAN BANK,
                                individually and as Co-Administrative Agent and
                                Payment Agent,

                                      by
                                        _______________________________________
                                        Name:
                                        Title:


                                CREDIT SUISSE FIRST BOSTON,
                                individually and as Co-Administrative Agent,

                                      by
                                        _______________________________________
                                        Name:
                                        Title:

                                     by
                                        _______________________________________
                                        Name:
                                        Title:
<PAGE>

                                                                              70


                                CITIBANK, N.A.,

                                        by
                                           ____________________________________
                                           Name:
                                           Title:


                                THE BANK OF NOVA SCOTIA,

                                        by
                                           ____________________________________
                                           Name:
                                           Title:


                                DEUTSCHE BANC ALEX. BROWN
                                SECURITIES INC.

                                        by
                                           ____________________________________
                                           Name:
                                           Title:


                                [LENDERS],

                                        by
                                           ____________________________________
                                           Name:
                                           Title:

In accordance with Section 10.14 of the foregoing Agreement, Litton Industries,
Inc., by its execution hereof, hereby becomes a party to and a Borrower under
such Agreement with the same effect as if it had originally been a party
thereto.

                                LITTON INDUSTRIES, INC.,

                                        by
                                           ____________________________________
                                           Name:
                                           Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>FIVE-YEAR REVOLVING CREDIT AGREEMENT
<TEXT>

<PAGE>

                                                                    Exhibit 10.7

================================================================================

                                    Form of
                                $2,500,000,000
                     FIVE-YEAR REVOLVING CREDIT AGREEMENT

                                  dated as of

                                March 30, 2001

                                     among

                                  NNG, INC.,

                         NORTHROP GRUMMAN CORPORATION,

                           LITTON INDUSTRIES, INC.,

                           The Lenders Party Hereto,

                           THE CHASE MANHATTAN BANK

                                      and

                          CREDIT SUISSE FIRST BOSTON,
                          as Co-Administrative Agents

                                      and

                           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

                           JP MORGAN, a division of
                             CHASE SECURITIES INC.
                                      and
                          CREDIT SUISSE FIRST BOSTON,
                 as Joint Lead Arrangers and Joint Bookrunners
================================================================================
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                      ----
                                                  ARTICLE I

                                                 Definitions
<S>                                                                                                   <C>
SECTION 1.01.  Defined Terms.........................................................................    2
SECTION 1.02.  Classification of Loans and Borrowings................................................   19
SECTION 1.03.  Terms Generally.......................................................................   19
SECTION 1.04.  Accounting Terms; GAAP................................................................   19

                                                  ARTICLE II

                                                  The Credits

SECTION 2.01.  Commitments...........................................................................   20
SECTION 2.02.  Revolving Loans and Revolving Borrowings..............................................   20
SECTION 2.03.  Requests for Revolving Borrowings.....................................................   21
SECTION 2.04.  Competitive Bid Procedure.............................................................   22
SECTION 2.05.  Funding of Revolving Borrowings.......................................................   24
SECTION 2.06.  Interest Elections....................................................................   24
SECTION 2.07.  Termination and Reduction of Commitments..............................................   26
SECTION 2.08.  Repayment of Loans; Evidence of Debt..................................................   26
SECTION 2.09.  Prepayment of Revolving Loans.........................................................   27
SECTION 2.10.  Fees..................................................................................   27
SECTION 2.11.  Interest..............................................................................   28
SECTION 2.12.  Alternate Rate of Interest............................................................   29
SECTION 2.13.  Increased Costs.......................................................................   30
SECTION 2.14.  Break Funding Payments................................................................   31
SECTION 2.15.  Taxes.................................................................................   31
SECTION 2.16.  Payments Generally; Pro Rata Treatment; Sharing of Setoffs............................   32
SECTION 2.17.  Mitigation Obligations; Replacement of Lenders........................................   34

                                                  ARTICLE III

                                        Representations and Warranties

SECTION 3.01.  Corporate Existence...................................................................   35
SECTION 3.02.  Certain Financial Information.........................................................   35
SECTION 3.03.  Litigation............................................................................   36
SECTION 3.04.  No Breach.............................................................................   36
SECTION 3.05.  Corporate Action......................................................................   37
SECTION 3.06.  Approvals.............................................................................   37
SECTION 3.07.  Use of Proceeds, Etc..................................................................   37
SECTION 3.08.  ERISA.................................................................................   37
SECTION 3.09.  Taxes.................................................................................   37
SECTION 3.10.  Funded Debt...........................................................................   38
</TABLE>
<PAGE>

                                                                               2

<TABLE>
<S>                                                                                                   <C>
SECTION 3.11.  Properties............................................................................   38
SECTION 3.12.  Environmental Matters.................................................................   38
SECTION 3.13.  True and Complete Disclosure..........................................................   39
SECTION 3.14.  Acquisition...........................................................................   39
SECTION 3.15.  Intercompany Indebtedness.............................................................   40

                                                  ARTICLE IV

                                                  Conditions

SECTION 4.01.  Effective Date........................................................................   39


                                                  ARTICLE V

                                             Affirmative Covenants

SECTION 5.01.  Financial Statements..................................................................   42
SECTION 5.02.  Existence, Payment of Taxes, ERISA, Etc...............................................   44
SECTION 5.03.  Notice of Litigation..................................................................   44
SECTION 5.04.  Insurance.............................................................................   45
SECTION 5.05.  Access to Books and Properties........................................................   45
SECTION 5.06.  Ratings by Moody's and S&P............................................................   45

                                                 ARTICLE VI

                                             Negative Covenants

SECTION 6.01.  Restricted Payments...................................................................   45
SECTION 6.03.  Guarantees............................................................................   46
SECTION 6.04.  Fundamental Changes and Acquisitions..................................................   47
SECTION 6.05.  Limitation on Liens...................................................................   48
SECTION 6.06.  Investments...........................................................................   49
SECTION 6.07.  Indebtedness..........................................................................   50
SECTION 6.08.  Leverage Ratio........................................................................   51
SECTION 6.09.  Funded Debt to Consolidated EBITDA Ratio..............................................   51
SECTION 6.10.  Fixed Charge Coverage Ratio...........................................................   52
SECTION 6.11.  Use of Proceeds.......................................................................   52
SECTION 6.12.  Margin Stock..........................................................................   52
SECTION 6.13.  Interest Rate Protection Agreements...................................................   52
SECTION 6.14.  Modifications of Certain Documents....................................................   52
SECTION 6.15.  Subsidiary Equity Issuance............................................................   53

                                                 ARTICLE VII

Events of Default....................................................................................   53

                                                 ARTICLE VIII
The Agents...........................................................................................   56

                                                  ARTICLE IX
</TABLE>
<PAGE>

                                                                               3

<TABLE>
<S>                                                                                                   <C>
Joint and Several Liability of Borrowers.............................................................   59

                                             ARTICLE X

                                           Miscellaneous

SECTION 10.01.  Notices..............................................................................   60
SECTION 10.02.  Waivers; Amendments..................................................................   61
SECTION 10.03.  Expenses; Indemnity; Damage Waiver...................................................   61
SECTION 10.04.  Successors and Assigns; Joint and Several Obligations................................   62
SECTION 10.05.  Survival.............................................................................   65
SECTION 10.06.  Counterparts; Integration; Effectiveness.............................................   65
SECTION 10.07.  Severability.........................................................................   66
SECTION 10.08.  Right of Setoff......................................................................   66
SECTION 10.09.  Governing Law; Jurisdiction; Consent to Service of Process...........................   66
SECTION 10.10.  WAIVER OF JURY TRIAL.................................................................   67
SECTION 10.11.  Headings.............................................................................   67
SECTION 10.12.  Confidentiality......................................................................   67
SECTION 10.13.  Interest Rate Limitation.............................................................   68
</TABLE>
<PAGE>

                                                                               4

SCHEDULES:
----------

Schedule 1.01(a)        -   Refinanced Debt
Schedule 2.01           -   Commitments
Schedule 3.03           -   Material Litigation
Schedule 3.06           -   Government Approvals
Schedule 6.07           -   Outstanding Indebtedness After Giving Effect to the
                            Acquisition

EXHIBITS:
---------

Exhibit A               -   Form of Assignment and Acceptance
Exhibit B-1             -   Form of Opinion of Sheppard, Mullin, Richter &
                            Hampton LLP, counsel for the Borrowers
Exhibit B-2             -   Form of Opinion of John Mullan, Assistant General
                            Counsel of Northrop Grumman Corporation
Exhibit B-3             -   Form of Opinion of W. Burks Terry, General Counsel
                            of Litton Industries, Inc.
Exhibit B-4             -   Form of Opinion of Kaye, Scholer LLP, special New
                            York counsel for the Borrowers
Exhibit C               -   Form of Note
Exhibit D               -   Form of Confidentiality Agreement
<PAGE>

                         FIVE-YEAR CREDIT AGREEMENT dated as of March 30, 2001,
                    among NNG, INC., a Delaware corporation (the "Company");
                    NORTHROP GRUMMAN CORPORATION, a Delaware corporation
                    ("Northrop Operating"); at all times after it shall have
                    become a subsidiary of the Company, LITTON INDUSTRIES, INC.,
                    a Delaware corporation ("Litton Operating" and, together
                    with the Company and Northrop Operating, the "Borrowers");
                    the LENDERS party hereto, 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.

               The Company intends to acquire (the "Acquisition") Litton
Operating pursuant to the Amended and Restated Agreement and Plan of Merger
dated as of January 23, 2001 (the "Merger Agreement"), among Northrop Operating,
LII Acquisition, Inc. ("Litton Merger Sub") and Litton Operating. Pursuant to
the Merger Agreement, Litton Merger Sub has made an offer (the "Exchange Offer")
to acquire all the issued and outstanding capital stock of Litton Operating for
consideration consisting of (a) in the case of Litton Operating's common stock,
at the election of the holders thereof and subject to certain other conditions
and adjustments, (i) $80.25 per common share, net to the Seller in cash, and/or
(ii) a combination of new common stock of the Company (approximately 13,000,000
shares in the aggregate) and/or new preferred stock of the Company (valued at up
to $350,000,000 in the aggregate) and (b) in the case of Litton Operating's
preferred stock, $35 per share, net to the Seller in cash. Immediately prior to
the consummation of the Exchange Offer, the Company will cause a newly formed,
wholly-owned subsidiary ("Northrop Merger Sub") to merge (the "Northrop Merger")
with and into Northrop Operating, as consideration for which the existing
stockholders of Northrop Operating will receive common stock of the Company. As
promptly as practicable following the consummation of the Exchange Offer, (i)
Litton Merger Sub will merge with and into Litton Operating (the "Litton Merger"
and, together with the Northrop Merger, the "Mergers") in a transaction in
which, subject to stockholders' dissent rights, each issued and outstanding
share of common stock of Litton Operating not acquired in the Exchange Offer
will be converted into the right to receive $80.25 per common share in cash and
(ii) Litton Operating will become a party to this Agreement as a Borrower. The
aggregate consideration payable to the stockholders of Litton Operating in the
Acquisition will be approximately not greater than $4,000,000,000 in cash and
stock. In connection and substantially concurrent with the Acquisition, Northrop
Operating and Litton Operating will repay all amounts outstanding under, and
terminate, their primary existing bank credit agreements (the "Existing Credit
Agreements") and repay the Refinanced Debt.
<PAGE>

                                                                               2



          The parties hereto agree as follows:

                                   ARTICLE I

                                  Definitions

          SECTION 1.01.  Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:

          "ABR", when used in reference to any Revolving Loan or Revolving
Borrowing, refers to whether such Revolving Loan, or the Revolving Loans
comprising such Revolving Borrowing, are bearing interest at a rate determined
by reference to the Alternate Base Rate.

          "Acquisition" has the meaning assigned to such term in the preamble to
this Agreement.

          "Adjusted LIBO Rate" means, with respect to any Eurodollar Revolving
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.

          "Administrative Questionnaire" means an Administrative Questionnaire
in a form supplied by the Payment Agent.

          "Affiliate" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.

          "Agents" means, collectively, the Co-Administrative Agents and the
Payment Agent.

          "Alternate Base Rate" means, for any day, a rate per annum equal to
the greater of (a) the Prime Rate in effect on such day and (b) the Federal
Funds Effective Rate in effect on such day plus  1/2 of 1%.  Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.

          "Applicable Percentage" means, with respect to any Lender, the
percentage of the total Commitments represented by such Lender's Commitment.  If
the Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.

          "Applicable Rate" means, for any day, with respect to any Eurodollar
Revolving Loan or ABR Loan, or with respect to the facility fees payable
hereunder, as the case may be, the
<PAGE>

                                                                               3

applicable rate per annum set forth below under the caption "Eurodollar Spread",
"ABR Spread" or "Facility Fee Rate", as the case may be, based upon the ratings
by Moody's and S&P, respectively, applicable on such date to the Senior Long
Term Debt:

----------------------------------------------------------------------
         Senior Long Term               Facility  Eurodollar   ABR
           Debt Ratings                 Fee Rate   Spread     Spread
----------------------------------------------------------------------
 Category 1                             0.150%      0.600%    0.000%
 BBB+ or higher or Baal or higher
----------------------------------------------------------------------
 Category 2                             0.175%      0.825%    0.000%
 BBB or Baa2, and no other
  Category applies
----------------------------------------------------------------------
 Category 3                             0.225%      1.025%    0.025%
 BBB- and Baa3
----------------------------------------------------------------------
 Category 4                             0.375%      1.125%    0.125%
 BBB- and Ba1 or BB+ and Baa3
----------------------------------------------------------------------
 Category 5                             0.425%      1.325%    0.325%
 BB+ and Ba1
----------------------------------------------------------------------
 Category 6                             0.500%      1.750%    0.750%
 Lower than BB+ or lower
 than Ba1
----------------------------------------------------------------------

If either Moody's or S&P shall not have in effect a rating for the Senior Long
Term Debt, then the Company and the Co-Administrative Agents shall endeavor in
good faith to agree upon a Substitute Rating Agency and the ratings of such
Substitute Rating Agency corresponding to the ratings of Moody's or S&P, as the
case may be, in each of the Categories in the table above, and following such
agreement the Applicable Rate shall be determined by substituting the ratings of
such Substitute Rating Agency applicable to the Senior Long Term Debt for the
ratings of Moody's or S&P, as the case may be, in the table above; provided,
that (a) a single Substitute Rating Agency may not be substituted pursuant to
this sentence for both Moody's and S&P and (b) until the Company and the Co-
Administrative Agents shall have reached agreement on the matters referred to in
this sentence, the Applicable Rate shall be determined by reference to the
single available rating by Moody's or S&P, as the case may be (or, if there is
no available rating, the rating most recently in effect).  If the ratings
established or deemed to have been established by Moody's and S&P (or a
Substitute Rating Agency) for the Senior Long Term Debt shall be changed (other
than as a result of a change in the rating system of Moody's or S&P (or a
Substitute Rating Agency)), such change shall be effective as of the date on
which it is first announced by the applicable rating agency.  Each change in the
Applicable Rate shall apply during the period commencing on the effective date
of such change and ending on the date immediately preceding the effective date
of the next such change.  If the rating system of Moody's or S&P or an
applicable Substitute Rating Agency shall change, the Company and the Lenders
shall negotiate in good faith to amend this definition to reflect such changed
rating system and, pending the effectiveness of any
<PAGE>

                                                                               4

such amendment, the Applicable Rate shall be determined by reference to the
rating most recently in effect from such rating agency prior to such change.

          "Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 10.04), and accepted by the Payment Agent, in the form of
Exhibit A or any other form approved by the Payment Agent and the Borrowers.

          "Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Commitments.

          "Bankruptcy Code" means the Federal Bankruptcy Code of 1978, as
amended from time to time.

          "Board" means the Board of Governors of the Federal Reserve System of
the United States of America.

          "Borrowers" means Northrop Operating and the Company and, from and
after its execution of this Agreement as provided in Section 10.14, Litton
Operating.

          "Borrowing" means a group of Loans of the same type, made, converted
or continued on the same date and, in the case of Eurodollar Loans or Fixed Rate
Loans, as to which a single Interest Period applies.

          "Business Day" means any day that is not a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.

          "Capital Expenditures" means, for any period, expenditures (including,
without limitation, the aggregate amount of Capital Lease Obligations incurred
during such period) made by the Company or any of the Subsidiaries to acquire or
construct fixed assets, plant and equipment (including renewals, improvements
and replacements, but excluding repairs) during such period computed in
accordance with GAAP.

          "Capital Lease Obligations" of any Person means the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) Property, which obligations are required
to be classified and accounted for as capital leases on a balance sheet of such
Person under GAAP, and the amount of such obligations shall be the capitalized
amount thereof determined in accordance with GAAP.

          "Change in Law" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender (or, for
purposes of Section 2.13(b), by any lending office of such
<PAGE>

                                                                               5

Lender or by such Lender's holding company, if any) with any request, guideline
or directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.

          "Chase" means The Chase Manhattan Bank and its successors.

          "Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans
or Competitive Loans.

          "Co-Administrative Agents" means Chase and CSFB, in their capacities
as co-administrative agents for the Lenders hereunder, or any successors,
thereto appointed in accordance with Article VIII.

          "Code" means the Internal Revenue Code of 1986, as amended from time
to time.

          "Commitment" means, with respect to each Lender, the commitment of
such Lender to make Revolving Loans hereunder, expressed as an amount
representing the maximum aggregate permitted amount of such Lender's Revolving
Credit Exposure hereunder, as such commitment may be (a) reduced from time to
time pursuant to Section 2.07 and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 10.04.  The
initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in
the Assignment and Acceptance pursuant to which such Lender shall have assumed
its Commitment, as applicable.

          "Company" has the meaning assigned to such term in the preamble to
this Agreement.

          "Competitive Bid" means an offer by a Lender to make a Competitive
Loan in accordance with Section 2.04.

          "Competitive Bid Rate" means, with respect to any Competitive Bid, the
Margin or the Fixed Rate, as applicable, offered by the Lender making such
Competitive Bid.

          "Competitive Bid Request" means a request by a Borrower for
Competitive Bids in accordance with Section 2.04.

          "Competitive Loan" means a loan made pursuant to Section 2.04.

          "Competitive Loan Exposure" means, with respect to any Lender at any
time, the aggregate principal amount of the outstanding Competitive Loans of
such Lender.

          "Consolidated EBITDA" means, for any period, Consolidated Net Income
for such period plus, without duplication and to the extent deducted in
determining such Net Income, the sum of (i) Interest Expense for such period,
(ii) consolidated income tax expense for such period, (iii) all amounts
attributable to depreciation and amortization for such period, (iv) any noncash
charges for such period and (v) fees and expenses incurred in connection with
the Transactions,
<PAGE>

                                                                               6

minus, without duplication and to the extent included in determining such Net
Income, any noncash income for such period.

          "Consolidated Net Income" means, for the Company and the Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for any fiscal
period, an amount equal to the consolidated net income of the Company and its
Subsidiaries for such fiscal period.

          "Consolidated Net Income Available for Restricted Payments" means an
amount equal to (i) the sum of $300,000,000 plus 80% (or minus 100% in case of
consolidated net loss) of Consolidated Net Income for the period (taken as one
accounting period) commencing January 1, 2001 and terminating on the Fiscal Date
immediately preceding the date of any proposed Restricted Payment, less (ii) the
sum of (A) the aggregate amount of all dividends (other than dividends payable
solely in stock of the Company) and other distributions paid or declared by the
Company (for all periods on or after the Effective Date) or either Northrop
Operating or Litton Operating (for the period from January 1, 2001 through the
Effective Date) on any class of its stock and (B) the excess (if any) of the
aggregate amount expended, directly or indirectly, by the Company (for all
periods on or after the Effective Date) or by either Northrop Operating or
Litton Operating (for the period from January 1, 2001 through the Effective
Date) for the redemption, purchase or other acquisition of any shares of its
stock, over the aggregate net amount of any cash or cash equivalents received by
the Company on and after said date as consideration for the sale of any shares
of its stock.

          "Consolidated Stockholders' Equity" means the amount of stockholders'
equity of the Company and the Subsidiaries (determined on a consolidated basis
in accordance with GAAP).

          "Consolidating Financial Statements" means, for any fiscal period, the
unaudited consolidating statements of financial position and income for the
corporate office and principal operating centers of the Company and the
Subsidiaries substantially in the form of the consolidating financial statements
for such corporate office and principal operating centers as at and for Northrop
Operating's fiscal year ended December 31, 1999 heretofore delivered to the
Lenders.

          "Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.

          "CSFB" means Credit Suisse First Boston and its successors.

          "Debt Service" means, for any period, the sum, for the Company and the
Subsidiaries (determined on a consolidated basis in accordance with GAAP), of
the following: (a) all regularly scheduled payments of principal of Indebtedness
(including, without limitation, the principal component of any payments in
respect of Capital Lease Obligations but excluding amounts repaid under Working
Capital Credit Lines) made during such period plus (b) all Interest Expense for
such period.
<PAGE>

                                                                               7

          "Default" means any event or condition which constitutes an Event of
Default or which with notice, passage of time or both would become an Event of
Default.

          "Disbursement Account" means the Company's account (910-2-475762) with
the Payment Agent, or, at any time, any other account of the Company with the
Payment Agent that shall have been designated in a notice delivered by the
Company to the Payment Agent not fewer than three Business Days prior to such
time.

          "Dollars" or "$" refers to lawful money of the United States of
America.

          "Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 10.02).

          "Environmental Laws" means any and all Federal, state, local and
foreign laws, rules or regulations, and any orders or decrees, in each case as
now or hereafter in effect, relating to the regulation or protection of human
health, safety or the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or toxic or hazardous
substances or wastes into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes.

          "Equity" means (i) any capital stock or any warrants, options or
rights exercisable in respect of capital stock, including any capital stock
issued upon the exercise of any such warrants, options or rights (other than any
capital stock, warrants, options or rights issued to directors, officers or
employees of the Company or any of the Subsidiaries pursuant to employee benefit
plans, stock option plans or long-term incentive plans established in the
ordinary course of business and any capital stock of the Company issued upon the
exercise of such warrants, options or rights) or (ii) any other security or
instrument representing an equity interest in the Company or any of the
Subsidiaries.

          "Equity Issuance" means (a) any issuance or sale (including any
issuance or sale as a result of a conversion or exchange of debt securities) by
the Company or any Subsidiary of Equity or (b) the receipt by the Company of any
capital contribution (whether or not evidenced by any equity security issued by
the Company) other than (i) any issuance of Equity of the Company to the former
stockholders of Litton Operating in connection with the Acquisition, (ii) any
issuance of Equity to, or receipt of any such capital contribution from, the
Company or a Subsidiary and (iii) any issuance of Equity of the Company to
employees, officers or directors of the Company and the Subsidiaries pursuant to
employee stock options or employee benefit plans in effect from time to time.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
<PAGE>

                                                                               8

          "ERISA Affiliate" means any corporation or trade or business which is
a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.

          "Eurodollar", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate or, in the
case of Competitive Loans, the LIBO Rate.

          "Event of Default" has the meaning assigned to such term in Article
VII.

          "Exchange Act" means the Securities Exchange Act of 1934, together
with the Rules and Regulations of the SEC thereunder.

          "Exchange Offer" has the meaning assigned to such term in the preamble
to this Agreement.

          "Excluded Taxes" means, with respect to any Lender or any other
recipient of any payment to be made by or on account of any obligation of a
Borrower hereunder, (a) income or franchise taxes imposed on (or measured by)
its net income by the United States of America, or by the jurisdiction under the
laws of which such recipient is organized or in which its principal office is
located or, in the case of any Lender, in which its applicable lending office is
located, (b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other jurisdiction described in clause (a) above
and (c) in the case of a Foreign Lender (other than an assignee pursuant to a
request by a Borrower under Section 2.17(b)), any withholding tax imposed by the
United States of America that (i) is in effect and would apply to amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from a Borrower with respect to any withholding tax pursuant to Section
2.15, or (ii) is attributable to such Foreign Lender's failure to comply with
Section 2.15(e).

          "Existing Credit Agreements" means, with respect to Northrop
Operating, the Credit Agreement dated as of April 15, 1994, as amended by an
Amended and Restated Credit Agreement dated as of March 1, 1996 and a Second
Amended and Restated Credit Agreement dated as of November 1, 1996, as amended,
among Northrop Operating, Chase, Chase Securities Inc. and Bank of America
National Trust and Savings Association and, with respect to Litton Operating,
the 364-Day and Five-Year Credit Agreements dated as of March 22, 2000 among
Litton Industries, Inc. and Morgan Guaranty Trust Company of New York.

          "Federal Funds Effective Rate" means, for any day, the weighted
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
<PAGE>

                                                                               9


necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Payment Agent from three Federal funds brokers of
recognized standing selected by it.

          "Financial Officer" means any of the chief financial officer,
principal accounting officer, treasurer, assistant treasurer, or controller of
the Company.

          "Fiscal Dates" means the last day of each March, June, September and
December in each year, the first of which shall be the first such day after the
date hereof.

          "Fixed Charge Coverage Ratio" means, at any Fiscal Date, the ratio of
(a) the sum of (i) Consolidated EBITDA for the period of four consecutive fiscal
quarters of the Company ending on such date minus (ii) Capital Expenditures
during such period to (b) the sum of (i) Interest Expense for such period plus
(ii) Restricted Payments made by the Company or, prior to the Northrop Merger,
by Northrop Operating during such period.

          "Fixed Rate" means, with respect to any Competitive Loan (other than a
Eurodollar Competitive Loan), the fixed rate of interest per annum specified by
the Lender making such Competitive Loan in its related Competitive Bid.

          "Fixed Rate Loan" means a Competitive Loan bearing interest at a Fixed
Rate.

          "Foreign Lender" means any Lender that is organized under the laws of
a jurisdiction other than the United States of America, a State thereof or the
District of Columbia.

          "Funded Debt" means any Indebtedness of the Company or any Subsidiary
for borrowed money or the deferred purchase price of Property which is shown on
the consolidated financial statements of the Company as a liability, in any
event including (a) Capital Lease Obligations and (b) Guarantees which are
deemed Funded Debt under Section 6.03 hereof but excluding (i) items customarily
reflected as current liabilities and classified as other than debt (it being
understood that progress payments, trade accounts payable, obligations under
leases which are not capitalized leases and income taxes payable are excluded
from "Funded Debt" under this definition) and (ii) deferred income taxes minus
cash and cash equivalents of the Company and its Subsidiaries.

          "Funded Debt to Consolidated EBITDA Ratio" means, at any Fiscal Date,
the ratio of (a) Funded Debt as at such date to (b) Consolidated EBITDA for the
period of four consecutive fiscal quarters of the Company ending on such date.

          "GAAP" means generally accepted accounting principles in the United
States of America, applied in accordance with Section 1.04.

          "Government" means the United States of America or any department or
agency thereof.

          "Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency,
<PAGE>

                                                                              10

authority, instrumentality, regulatory body, court, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.

          "Granting Lender" has the meaning assigned to such term in Section
10.04.

          "Guarantee" means, with respect to any Person, a guarantee, an
endorsement, a contingent agreement to purchase or to furnish funds for the
payment or maintenance of, or otherwise to be or become contingently liable
under or with respect to, the Indebtedness, other obligations, net worth,
working capital or earnings of any other Person, or a guarantee of the payment
of dividends or other distributions upon the stock or equity interests of any
other Person, or an agreement to purchase, sell or lease (as lessee or lessor)
Property, products, materials, supplies or services primarily for the purpose of
enabling any other Person to make payment of its obligations or an agreement to
assure a creditor of such Person against loss, and including, without
limitation, causing a bank or other financial institution to issue a standby
letter of credit or other similar instrument supporting the obligations of
another Person, but excluding endorsements for collection or deposit in the
ordinary course of business.  The amount of any Guarantee in respect of
Indebtedness shall be deemed to be an amount equal to the stated or determinable
amount of the related Indebtedness (unless the Guarantee is limited by its terms
to a lesser amount, in which case, to the extent of such amount) or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith.  The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.

          "Indebtedness" means, for any Person:  (a) obligations created, issued
or incurred by such Person for borrowed money (whether by loan, the issuance and
sale of debt securities or the sale of Property to another Person subject to an
understanding or agreement, contingent or otherwise, to repurchase such Property
from such Person); (b) obligations of such Person to pay the deferred purchase
or acquisition price of Property or services, other than trade accounts payable
(other than for borrowed money) arising, and accrued expenses incurred, in the
ordinary course of business so long as such trade accounts payable are payable
within 180 days of the date the respective goods are delivered or the respective
services are rendered; (c) indebtedness of others secured by a Lien on the
Property of such Person, whether or not the respective Indebtedness so secured
has been assumed by such Person (but only to the extent of the fair market value
of such Property if not assumed by such Person); (d) obligations (contingent or
otherwise) in respect of letters of credit, banker's acceptances and similar
instruments issued or accepted for the account of such Person; (e) Capital Lease
Obligations of such Person; and (f) Guarantees by such Person of Indebtedness of
others.

          "Indemnified Taxes" means Taxes other than Excluded Taxes.

          "Indemnitee" has the meaning assigned to such term in Section
10.03(b).

          "Information Memorandum" means the Confidential Information Memorandum
dated January 2001 relating to the Borrowers and the Acquisition.
<PAGE>

                                                                              11


          "Interest Election Request" means a request by a Borrower to convert
or continue a Revolving Borrowing in accordance with Section 2.06.

          "Interest Expense" means, for any period, the sum, without
duplication, for the Company and the Subsidiaries (determined on a consolidated
basis in accordance with GAAP), of the following: (a) all interest in respect of
Funded Debt (including, without limitation, the interest component of any
payments in respect of Capital Lease Obligations) accrued or capitalized during
such period (whether or not actually paid during such period) plus (b) the net
amount payable (or minus the net amount receivable) under Interest Rate
Protection Agreements during such period (whether or not actually paid or
received during such period) minus (c) all interest income accrued during such
period (whether or not actually received during such period).

          "Interest Payment Date" means (a) with respect to any ABR Loan, each
Fiscal Date, (b) with respect to any Eurodollar Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and, in
the case of a Eurodollar Borrowing with an Interest Period of more than three
months' duration, each day prior to the last day of such Interest Period that
occurs at intervals of three months' duration after the first day of such
Interest Period and (c) with respect to any Fixed Rate Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and, in
the case of a Fixed Rate Borrowing with an Interest Period of more than 90 days'
duration (unless otherwise specified in the applicable Competitive Bid Request),
each day prior to the last day of such Interest Period that occurs at intervals
of 90 days' duration after the first day of such Interest Period, and any other
dates that are specified in the applicable Competitive Bid Request as Interest
Payment Dates with respect to such Borrowing.

          "Interest Period" means (a) with respect to any Eurodollar Borrowing,
the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the applicable Borrower may elect, or any other period
agreed to by such Borrower and each Lender, and (b) with respect to any Fixed
Rate Borrowing, the period (which shall not be less than 7 days or more than 360
days) commencing on the date of such Borrowing and ending on the date specified
in the applicable Competitive Bid Request; provided, that (i) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall
be extended to the next succeeding Business Day unless, such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the immediately preceding Business Day, and (ii) any
Interest Period that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period.  For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.

          "Interest Rate Protection Agreement" means, for any Person, an
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest rate risks either generally or under specific
contingencies and entered into as bona fide hedges (and not for speculative
purposes) against such interest rate risks.
<PAGE>

                                                                              12

          "Investment" means, for any Person:  (a) the acquisition (whether for
cash, Property, services or securities or otherwise) of capital stock, bonds,
notes, debentures or other debt obligations, partnership or other ownership
interests or other securities of any other Person or any agreement to make any
such acquisition (including, any "short sale" or any sale of any securities at a
time when such securities are not owned by the Person entering into such sale);
(b) the making of any deposit with, or advance, loan or other extension of
credit to, any other Person (including the purchase of Property from another
Person subject to an understanding or agreement, contingent or otherwise, to
resell such Property to such Person), but excluding any such advance, loan or
extension of credit having a term not exceeding 180 days arising in connection
with the sale of inventory or supplies by such Person in the ordinary course of
business; or (c) the entering into of any Guarantee of, or other contingent
obligation with respect to, Indebtedness or other liability of any other Person
and (without duplication) any amount committed to be advanced, lent or extended
to such Person.

          "Investment Grade Rating Period" means, after (i) the consummation of
the Acquisition (or the express statement by Moody's and S&P that the same has
been taken into account in reaffirming or announcing the ratings referred to in
clause (ii) below) and (ii) the date after the date hereof on which both Moody's
and S&P shall have first either reaffirmed or announced revised ratings for the
Senior Long Term Debt, any period during which the rating of the Senior Long
Term Debt is BBB- or higher by S&P (or a Substitute Rating is at the
corresponding rating level or higher) and Baa3 or higher by Moody's (or a
Substitute Rating is at the corresponding rating level or higher).

          "Lenders" means the Persons listed on Schedule 2.01 and any other
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance in compliance with Section 10.04, other than any such Person that
shall have ceased to be a party hereto pursuant to an Assignment and Acceptance.

          "Leverage Ratio" means, at any Fiscal Date, the ratio of (a) the
aggregate amount (determined without duplication on a consolidated basis) of all
Funded Debt outstanding at such time to (b) the sum of (i) Consolidated
Stockholders' Equity at such time plus (ii) all Funded Debt outstanding at such
time.

          "LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the Payment
Agent from time to time for purposes of providing quotations of interest rates
applicable to dollar deposits in the London interbank market) at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period, as the rate for dollar deposits with a maturity comparable to
such Interest Period.  In the event that such rate is not available at such time
for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing
for such Interest Period shall be the rate at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are offered by
the principal London office of the Payment Agent in immediately available funds
in the London interbank market at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period.
<PAGE>

                                                                              13

          "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
The term "Lien" shall not include the ownership interests in receivables
acquired by a purchaser under a Permitted Receivables Sale Agreement.

          "Litton Operating" means Litton Industries, Inc.

          "Litton Merger" has the meaning assigned to such term in the preamble
to this Agreement.

          "Litton Merger Sub" has the meaning assigned to such term in the
preamble to this Agreement.

          "Litton Operating Senior Indentures" means the Indenture dated as of
December 15, 1991, between Litton Operating and The Bank of New York, as trustee
and the Indenture dated as of April 13, 1998, between Litton Operating and The
Bank of New York, as trustee.

          "Loan" means a Revolving Loan or a Competitive Loan.

          "Loan Documents" means this Agreement and each promissory note, if
any, delivered pursuant to this Agreement, as such documents may be amended,
modified, supplemented or restated from time to time.

          "Margin" means, with respect to any Competitive Loan bearing interest
at a rate based on the LIBO Rate, the marginal rate of interest, if any, to be
added to or subtracted from the LIBO Rate to determine the rate of interest
applicable to such Loan, as specified by the Lender making such Loan in its
related Competitive Bid.

          "Margin Stock" means "margin stock" as defined in Regulation U of the
Board.

          "Material Adverse Effect" means a material adverse effect on (a) the
business, operations, condition (financial or otherwise) or prospects of the
Company and the Subsidiaries taken as a whole, (b) the consummation of the
Acquisition, (c) the ability of the Borrowers to perform their material
obligations under any of the Loan Documents, (d) the validity or enforceability
of any of the Loan Documents, (e) the rights and remedies of the Lenders and the
Co-Administrative Agents under any of the Loan Documents or (f) the timely
payment of the principal of or interest on the Loans or other amounts payable in
connection therewith.

          "Material Subsidiary" means, at any time, (a) each Borrower and (b)
any other Subsidiary if, at such time, such Subsidiary would qualify as a
"significant subsidiary" under Regulation S-X of the SEC as in effect on the
date hereof.

          "Maturity Date" means March 30, 2006.
<PAGE>

                                                                              14

          "Merger Agreement" has the meaning assigned to such term in the
preamble to this Agreement.

          "Moody's" means Moody's Investors Service, Inc. and its successors and
assigns.

          "Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Borrowers or
any ERISA Affiliate and which is covered by Title IV of ERISA

          "Northrop Merger" has the meaning assigned to such term in the
preamble to this Agreement.

          "Northrop Merger Sub" has the meaning assigned to such term in the
preamble to this Agreement.

          "Northrop Operating Senior Indenture" means the Indenture dated as of
October 15, 1994 between Northrop Operating and Chase, as trustee, as
supplemented by the Officers Certificate dated February 27, 1996 pursuant to
Sections 201, 301 and 303 of such Indenture, and as the same shall be further
modified and supplemented and in effect from time to time.

          "Northrop Operating Subordinated Indenture" means the form of
Indenture filed as Exhibit 4-6 to Northrop Operating's Registration Statement on
Form S-3 filed with the SEC on August 19, 1994, as amended by the Northrop
Operating's Form 8-K filed with the SEC on February 28, 1996.

          "Obligations" means (i) the obligations of the Borrowers under this
Agreement and the other Loan Documents with respect to the payment of the
principal of and interest on the Loans when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise and (ii)
all other monetary obligations of the Borrowers hereunder and thereunder.

          "Other Taxes" means any and all present or future recording, stamp,
documentary, excise, transfer, sales, property or similar taxes, charges or
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.

          "Participant" has the meaning assigned to such term in Section 10.04.

          "Payment Agent" means Chase, in its capacity as paying agent for the
Lenders hereunder, or any successor thereto appointed in accordance with Article
VIII.

          "PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

          "Permitted Investments" means:
<PAGE>

                                                                              15

          (a)  direct obligations of, or obligations the principal of and
     interest on which are unconditionally guaranteed by, the United States of
     America (or by any agency thereof to the extent such obligations are backed
     by the full faith and credit of the United States of America), in each case
     maturing within one year from the date of acquisition thereof;

          (b)  investments in commercial paper maturing within 270 days from the
     date of acquisition thereof and having, at such date of acquisition, the
     highest credit rating obtainable from S&P or from Moody's;

          (c)  investments in certificates of deposit, banker's acceptances and
     time deposits maturing within 180 days from the date of acquisition thereof
     issued or guaranteed by or placed with, and money market deposit accounts
     issued or offered by, any office located in the United States of America of
     any commercial bank organized under the laws of the United States of
     America or any State thereof which has a combined capital and surplus and
     undivided profits of not less than $500,000,000;

          (d)  fully collateralized repurchase agreements with a term of not
     more than 30 days for securities described in clause (a) above and entered
     into with a financial institution satisfying the criteria described in
     clause (c) above; and

          (e)  investments purchased for cash management purposes by offices or
     other establishments of the Company and the Subsidiaries located outside
     the United States of America, to the extent the credit quality of such
     investments is comparable to that of the investments described in clauses
     (a) through (d) above.

          "Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.

          "Plan" means an employee benefit or other plan established or
maintained by the Company or any ERISA Affiliate and which is covered by Title
IV of ERISA, other than a Multiemployer Plan.

          "Prime Rate" means the rate of interest per annum publicly announced
from time to time by Chase as its prime rate in effect at its principal office
in New York City; each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being effective.

          "Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, whether now owned or
hereafter acquired.

          "Quarterly Period" means the period from but excluding one Fiscal Date
through and including the next succeeding Fiscal Date.

          "Refinanced Debt" means the Indebtedness of the Borrowers and their
respective subsidiaries listed in Schedule 1.01(a).
<PAGE>

                                                                              16

          "Register" has the meaning set forth in Section 10.04.

          "Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.

          "Required Lenders" means, at any time, Lenders having Revolving Credit
Exposures and unused Commitments representing more than 50% of the total
Revolving Credit Exposures and unused Commitments at such time; provided that,
in connection with the exercise of remedies under Article VII and for all
purposes after the Loans become due and payable or the Commitments expire or
terminate,  "Required Lenders" will mean, at any time, Lenders having Revolving
Credit Exposures and outstanding Competitive Loans representing more than 50% of
the total Revolving Credit Exposures and outstanding Competitive Loans at such
time.

          "Restricted Payment" means any dividend (other than dividends payable
solely in stock of the Company) or any other distribution with respect to any
stock of the Company, whether now or hereafter outstanding, or any payment on
account of the purchase, acquisition, redemption or other retirement, directly
or indirectly, of any shares of such stock.

          "Revolving Borrowing" means a Borrowing consisting of Revolving Loans.

          "Revolving Borrowing Request" means a request by a Borrower for a
Revolving Borrowing in accordance with Section 2.03.

          "Revolving Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make Revolving Loans, expressed as an
amount representing the maximum aggregate amount of such Lender's Revolving
Exposure hereunder, as such commitment may be reduced from time to time pursuant
to Article II and reduced or increased from time to time pursuant to Article X.
The initial amount of each Lender's Revolving Commitment is set forth on
Schedule 2.01. The initial aggregate amount of the Lenders' Revolving
Commitments is $2,500,000,000.

          "Revolving Credit Exposure" means, with respect to any Lender at any
time, the sum of the outstanding principal amount of such Lender's Revolving
Loans at such time.

          "Revolving Loan" means a loan made pursuant to Section 2.10 and 2.03.

          "SEC" means the Securities and Exchange Commission or any successor.

          "Senior Long Term Debt" means Indebtedness of the Company that (a) is
not contractually subordinated to any other Indebtedness of the Company, (b) is
considered as of the date of its incurrence under GAAP to be "long-term" debt,
(c) is not secured by a Lien on any Property of the Company or any of the
Subsidiaries or, if secured, is secured only by a pledge of the capital stock of
one or more Subsidiaries on a pari passu basis with the Indebtedness of the
Company hereunder and (d) upon which no other Person is liable, under a
Guarantee or otherwise,
<PAGE>

                                                                              17

or if another Person is so liable, such Person is liable on a pari passu basis
for the Indebtedness of the Company hereunder.

          "Senior Securities" means the $750,000,000 of Northrop Operating's 7
 1/8% Senior Notes due 2011 and $750,000,000 of Northrop Operating's 7 3/4%
 Senior Notes due 2031 issued under the Northrop Operating Senior Indenture and
 guaranteed concurrently with the Effective Date by the Company and Litton
 Operating.

          "S&P" means Standard & Poor's Rating Group, a division of McGraw Hill,
Inc., and its successors and assigns.

          "SPC" has the meaning assigned to such term in Section 10.04.

          "Statutory Reserve Rate" means a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Payment Agent is subject, for eurodollar
funding (currently referred to as "Eurodollar Liabilities" in Regulation D of
the Board). Such reserve percentages shall include those imposed pursuant to
such Regulation D. Eurodollar Revolving Loans shall be deemed to constitute
Eurodollar funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D or any comparable
regulation. The Statutory Reserve Rate shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.

          "Subordinated Indebtedness" means, with respect to any of the
Borrowers, (a) Indebtedness issued pursuant to the Northrop Operating
Subordinated Indenture (i) that does not have any principal or sinking fund
payment due prior to the Maturity Date and (ii) in respect of which interest is
payable not more often than semiannually and (b) Indebtedness (i) for which one
or more of the Company, Northrop Operating or Litton Operating is directly and
primarily liable, (ii) in respect of which none of the Subsidiaries (other than
Northrop Operating or Litton Operating) is contingently or otherwise obligated,
(iii) that does not have any principal or sinking fund payment due prior to the
Maturity Date, (iv) in respect of which interest is payable not more often than
semi-annually, (v) that is subordinated to the obligations of the Borrowers to
pay principal of and interest on the Loans and fees and other amounts payable
hereunder on terms no less favorable, taken as a whole, to the Lenders than
those contained in the Northrop Operating Subordinated Indenture, (vi) that does
not in any event contain financial covenants or events of default more
restrictive than those in the Northrop Operating Subordinated Indenture and
(vii) the documentation for which contains other terms that, taken as a whole,
are no less favorable to the Lenders than those contained in the Northrop
Operating Subordinated Indenture.

          "subsidiary" means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity of
<PAGE>

                                                                              18

which securities or other ownership interests representing more than 50% of the
equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held.

          "Subsidiary" means any direct or indirect subsidiary of the Company.

          "Substitute Rating Agency" means any rating agency (other than Moody's
or S&P) proposed by the Company and reasonably acceptable to the Co-
Administrative Agents.

          "364-Day Credit Agreement" means the 364-Day Credit Agreement dated as
of the date hereof among the Borrowers, the lenders party thereto and Chase and
CSFB, as the co-administrative agents.

          "Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.

          "Termination Event" shall mean any event or condition which
constitutes grounds under Section 4042 of ERISA for the termination of, or for
the appointment of a trustee to administer, any Plan and which involves a
liability of the Company to the PBGC in excess of $50,000,000.

          "Transactions" means the execution, delivery and performance by the
Borrowers of this Agreement and the other Loan Documents, the borrowing of the
Loans and the use of the proceeds thereof, the Acquisition (including the making
and consummation of the Exchange Offer and the Mergers), the refinancing of the
Existing Credit Agreements and the Refinanced Debt and the other transactions in
connection therewith.

          "Type", when used in reference to any Revolving Loan or Revolving
Borrowing, refers to whether the rate of interest on such Revolving Loan, or on
the Revolving Loans comprising such Revolving Borrowing, is determined by
reference to the Adjusted LIBO Rate or the Alternate Base Rate.

          "Wholly-Owned Subsidiary" shall mean any Subsidiary of which all of
the equity securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are owned by the Company or one or
more Wholly-Owned Subsidiaries.

          "Working Capital Credit Lines" means short-term credit facilities
(including commercial paper facilities and facilities providing for the issuance
of letters of credit or similar instruments but excluding the facilities
established by this Agreement and the 364-Day Credit Agreement) extended to the
Borrowers and Subsidiaries for working capital purposes.

          SECTION 1.02.  Classification of Loans and Borrowings.  For purposes
                         ---------------------------------------
of this Agreement, Loans may be classified and referred to by Class (e.g., a
                                                                     ----
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
                              ----
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
-----
referred to by Class (e.g., a "Revolving Borrowing") or by
<PAGE>

                                                                              19

Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar
      ---                                                   ---
Revolving Borrowing").

          SECTION 1.03.  Terms Generally.  The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined.  Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.  The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation".  The word
"will" shall be construed to have the same meaning and effect as the word
"shall".  Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.

          SECTION 1.04.  Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
that, if the Company notifies the Co-Administrative Agents that the Company
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Co-Administrative Agents notify the
Company that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

          SECTION 1.05.  Certain Financial Covenant Calculations. For purposes
of determining the Funded Debt to Consolidated EBITDA Ratio and the Consolidated
Fixed Charge Coverage Ratio for the four quarter periods ending June 30, 2001,
September 30, 2001 and December 31, 2001, the fiscal quarter ending March 31,
2001, shall be excluded and:

          (a)  Consolidated EBITDA and Capital Expenditures shall be determined
on a pro forma basis combining, as applicable to reflect the then four most
recently completed fiscal quarters (excluding the fiscal quarter ending March
31, 2001), (i) the balance sheet information and results of Litton Operating at
and for the quarter ended July 31, 2000 set forth in Litton's public filings
with the SEC as of the Effective Date, and the actual balance sheet information
and results of Northrop Operating at and for the quarter ended June 30, 2000;
(ii) the balance sheet information and results of Litton Operating at and for
the quarter ended October 31, 2000 set forth in Litton's public filings with the
SEC as of the Effective Date, and the actual balance sheet

<PAGE>

                                                                              20

information and results of Northrop Operating at and for the quarter ended
September 30, 2000; and (iii) the balance sheet information and results of
Litton Operating at and for the quarter ended January 31, 2001 set forth in
Litton's public filings with the SEC as of the Effective Date, and the actual
balance sheet information and results of Northrop Operating at and for the
quarter ended December 31, 2000; and

          (b)  Interest Expense shall be determined on a pro forma basis by
annualizing, as applicable to reflect the fiscal quarters then most recently
completed since the Effective Date, (i) as of June 30, 2001, by multiplying the
actual consolidated Interest Expense of the Company for the fiscal quarter then
ended by four, (ii), as of September 30, 2001, by multiplying the actual
consolidated Interest Expense of the Company for the two fiscal quarter period
then ended by two, and (iii) as of December 31, 2001, by multiplying the actual
consolidated Interest Expense of the Company for the three fiscal quarter period
then ended by four thirds.

                                  ARTICLE II

                                  The Credits

          SECTION 2.01.  Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees to make Revolving Loans to the Borrowers from
time to time during the Availability Period in an aggregate principal amount
that will not result in (a) such Lender's Revolving Credit Exposure exceeding
such Lender's Commitment or (b) the sum of the total Revolving Credit Exposures
plus the total Competitive Loan Exposures exceeding the total Commitments.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the Borrowers may borrow, prepay and reborrow Revolving Loans.

          SECTION 2.02.  Revolving Loans and Revolving Borrowings. (a) Each
Revolving Loan shall be made as part of a Revolving Borrowing consisting of
Revolving Loans made by the Lenders ratably in accordance with their respective
Commitments. The failure of any Lender to make any Revolving Loan required to be
made by it shall not relieve any other Lender of its obligations hereunder;
provided that the Commitments and Competitive Bids of the Lenders are several
and no Lender shall be responsible for any other Lender's failure to make Loans
as required.

          (b)  Subject to Section 2.13, (i) each Revolving Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the applicable Borrower
may request in accordance herewith and (ii) each Competitive Borrowing shall be
comprised entirely of Eurodollar Loans or Fixed Rate Loans as the Borrower may
request in accordance herewith. Each Competitive Loan shall be made in
accordance with the procedures set forth in Section 2.04. Each Lender at its
option may make any Eurodollar Loan by causing any domestic or foreign branch or
Affiliate of such Lender to make such Loan; provided that any exercise of such
option shall not affect the obligation of the Borrowers to repay such Loan in
accordance with the terms of this Agreement.

          (c)  At the commencement of each Interest Period for any Eurodollar
Revolving Borrowing, such Revolving Borrowing shall be in an aggregate amount
that is an integral multiple of $5,000,000 and not less than $25,000,000. At the
time that each ABR Borrowing is made, such
<PAGE>

                                                                              21


Borrowing shall be in an aggregate amount that is an integral multiple of
$5,000,000 and not less than $10,000,000. Notwithstanding the foregoing, any
Revolving Borrowing may be in an aggregate amount that is equal to the entire
unused balance of the Commitments. Each Competitive Borrowing shall be in an
aggregate amount that is an integral multiple of $5,000,000 and not less than
$25,000,000. Revolving Borrowings of more than one Type may be outstanding at
the same time, provided that there shall not at any time be more than a total of
15 Eurodollar Revolving Borrowings outstanding.

          (d)  Notwithstanding any other provision of this Agreement, no
Borrower shall be entitled to request, or to elect to convert or continue, any
Revolving Borrowing if the Interest Period requested with respect thereto would
end after the Maturity Date, or to request any Competitive Borrowing if the
Interest Period requested with respect thereto would end after the Maturity
Date.

          SECTION 2.03.  Requests for Revolving Borrowings. To request a
Revolving Borrowing, the Borrowers (or any of them) shall notify the Payment
Agent of such request by telephone or by telecopy (a) in the case of a
Eurodollar Revolving Borrowing, not later than 11:00 a.m., New York City time,
three Business Days before the date of the proposed Revolving Borrowing or (b)
in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time,
on the same day as the date of the proposed Revolving Borrowing. Each such
Revolving Borrowing Request shall be irrevocable and, if telephonic, shall be
confirmed promptly by hand delivery or telecopy to the Payment Agent of a
written Revolving Borrowing Request in a form agreed to by the Payment Agent and
signed by the applicable Borrower. Each such telephonic and written Revolving
Borrowing Request shall specify the following information in compliance with
Section 2.02:

          (i)   the aggregate amount of the requested Revolving Borrowing;

          (ii)  the date of such Revolving Borrowing, which shall be a Business
     Day;

          (iii) whether such Revolving Borrowing is to be an ABR Borrowing or a
     Eurodollar Revolving Borrowing; and

          (iv)  in the case of a Eurodollar Revolving Borrowing, the initial
     Interest Period to be applicable thereto, which shall be a period
     contemplated by the definition of the term "Interest Period".

If no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing.  If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the applicable Borrower shall be deemed to have selected an Interest Period of
one month's duration.  Promptly following receipt of a Revolving Borrowing
Request in accordance with this Section, the Payment Agent shall advise each
Lender of the details thereof and of the amount of such Lender's Revolving Loan
to be made as part of the requested Revolving Borrowing.
<PAGE>

                                                                              22

          SECTION 2.04.  Competitive Bid Procedure. (a) Subject to the terms and
conditions set forth herein, from time to time during the Availability Period
any Borrower may request Competitive Bids and may (but shall not have any
obligation to) accept Competitive Bids and borrow Competitive Loans; provided
that after giving effect to any Borrowing of Competitive Loans the sum of the
total Revolving Credit Exposures plus the total Competitive Loan Exposure shall
not exceed the total Commitments. To request Competitive Bids, the Borrower
shall notify the Payment Agent of such request by telephone or by telecopy, in
the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, four Business Days before the date of the proposed Borrowing and, in the
case of a Fixed Rate Borrowing, not later than 11:00 a.m., New York City Time,
one Business Day before the date of the proposed Borrowing; provided that the
Borrower may submit up to (but not more than) five Competitive Bid Requests on
the same day, but a Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid Request, unless any
and all such previous Competitive Bid Requests shall have been withdrawn or all
Competitive Bids received in response thereto rejected. Each such telephonic
Competitive Bid Request shall be confirmed promptly by hand delivery or telecopy
to the Payment Agent of a written Competitive Bid Request in a form approved by
the Payment Agent and signed by the Borrower. Each such telephonic and written
Competitive Bid Request shall specify the following information in compliance
with Section 2.03:

          (i)   the aggregate principal amount of the requested Borrowing;

          (ii)  the date of such Borrowing, which shall be a Business Day;

          (iii) whether such Borrowing is to be a Eurodollar Borrowing or a
     Fixed Rate Borrowing; and

          (iv)  the Interest Period to be applicable to such Borrowing, which
     shall be a period contemplated by the definition of the term "Interest
     Period" and shall end no later than the Maturity Date.

Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Payment Agent shall notify the Lenders of the details thereof by
telecopy, inviting the Lenders to submit Competitive Bids.

          (b)   Each Lender may (but shall not have any obligation to) make one
or more Competitive Bids to the Borrower in response to a Competitive Bid
Request. Each Competitive Bid by a Lender must be in a form approved by the
Payment Agent and must be received by the Applicable Agent by telecopy, in the
case of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York
City Time, three Business Days before the proposed date of such Competitive
Borrowing, and in the case of a Fixed Rate Borrowing, not later than 9:30 a.m.,
New York City Time, on the proposed date of such Competitive Borrowing.
Competitive Bids that do not conform substantially to the form approved by the
Payment Agent may be rejected by the Payment Agent, and the Payment Agent shall
notify the applicable Lender as promptly as practicable. Each Competitive Bid
shall specify (i) the principal amount (which shall be an amount at least equal
to $5,000,000 and an integral multiple of $1,000,000 and which may equal the
entire principal amount of the Competitive Borrowing requested by the Borrower)
of the Competitive Loan or
<PAGE>

                                                                              23


Loans that the Lender is willing to make, (ii) the Competitive Bid Rate or Rates
at which the Lender is prepared to make such Loan or Loans (expressed as a
percentage rate per annum in the form of a decimal to no more than four decimal
places) and (iii) the Interest Period applicable to each such Loan and the last
day thereof.

          (c)  The Payment Agent shall notify the Borrower by telecopy, not
later than 45 minutes after the applicable deadline for receipt of Competitive
Bids, of the Competitive Bid Rate and the principal amount specified in each
Competitive Bid and the identity of the Lender that shall have made such
Competitive Bid.

          (d)  Subject only to the provisions of this paragraph, the Borrower
may accept or reject any Competitive Bid.  The Borrower shall notify the Payment
Agent by telecopy or by telephone, confirmed by telecopy in a form approved by
the Payment Agent, whether and to what extent it has decided to accept or reject
each Competitive Bid, in the case of a Eurodollar Competitive Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before the date
of the proposed Competitive Borrowing, and in the case of a Fixed Rate
Borrowing, not later than 11:00 a.m., New York City time, on the proposed date
of the Competitive Borrowing; provided that (i) the failure of the Borrower to
give such notice shall be deemed to be a rejection of each Competitive Bid, (ii)
the Borrower shall not accept a Competitive Bid made at a particular Competitive
Bid Rate if the Borrower rejects a Competitive Bid made at a lower Competitive
Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the
Borrower shall not exceed the aggregate amount of the requested Competitive
Borrowing specified in the related Competitive Bid Request, (iv) to the extent
necessary to comply with clause (iii) above, the Borrower may accept Competitive
Bids at the same Competitive Bid Rate in part, which acceptance, in the case of
multiple Competitive Bids at such Competitive Bid Rate, shall be made pro rata
in accordance with the amount of each such Competitive Bid, and (v) except
pursuant to clause (iv) above, no Competitive Bid shall be accepted for a
Competitive Loan unless such Competitive Loan is in a minimum principal amount
of at least $5,000,000 that is an integral multiple of $1,000,000; provided
further that if a Competitive Loan must be in an amount less than $5,000,000
because of the provisions of clause (iv) above, such Competitive Loan may be for
a minimum of $1,000,000 or any integral multiple thereof, and in calculating the
pro rata allocation of acceptances of portions of multiple Competitive Bids at a
particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be
rounded to integral multiples of $1,000,000 in a manner determined by the
Borrower. A notice given by the Borrower pursuant to this paragraph shall be
irrevocable.

          (e)  The Payment Agent shall promptly notify each bidding Lender by
telecopy whether or not its Competitive Bid has been accepted (and, if so, the
amount and Competitive Bid Rate so accepted), and each successful bidder will
thereupon become bound, subject to the terms and conditions hereof, to make the
Competitive Loan in respect of which its Competitive Bid has been accepted.

          (f)  If the Payment Agent shall elect to submit a Competitive Bid in
its capacity as a Lender, it shall submit such Competitive Bid directly to the
Borrower at least one quarter of an hour earlier than the time by which the
other Lenders are required to submit their Competitive Bids to the Payment Agent
pursuant to paragraph (b) of this Section.
<PAGE>

                                                                              24


          SECTION 2.05.  Funding of Revolving Borrowings. (a) Each Lender shall
make each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 1:00 p.m., New York City time, to the
account of the Payment Agent most recently designated by it for such purpose by
notice to the Lenders. The Payment Agent will make such Loans available to the
Borrowers by promptly crediting the amounts so received, in like funds, to
Disbursement Account.

          (b)  Unless the Payment Agent shall have received notice from a Lender
prior to the proposed date of any Borrowing that such Lender will not make
available to the Payment Agent such Lender's share of such Borrowing, the
Payment Agent may assume that such Lender has made such share available on such
date in accordance with paragraph (a) of this Section and may, in reliance upon
such assumption, make available to the Borrowers a corresponding amount. In such
event, if a Lender has not in fact made its share of the applicable Borrowing
available to the Payment Agent, then the applicable Lender and the Borrowers
severally agree to pay to the Payment Agent forthwith on demand such
corresponding amount with interest thereon, for each day from and including the
date such amount is made available to the Borrowers to but excluding the date of
payment to the Payment Agent, at (i) in the case of such Lender, the greater of
(x) the Federal Funds Effective Rate and (y) a rate determined by the Payment
Agent in accordance with banking industry rules on interbank compensation or
(ii) in the case of the Borrowers, the interest rate for the applicable
Borrowing. If such Lender pays such amount to the Payment Agent, then such
amount shall constitute such Lender's Loan included in such Borrowing.

          SECTION 2.06.  Interest Elections. (a) Each Revolving Borrowing
initially shall be of the Type specified in the applicable Revolving Borrowing
Request and, in the case of a Eurodollar Revolving Borrowing, shall have an
initial Interest Period as specified in such Revolving Borrowing Request.
Thereafter, the applicable Borrower may elect to convert such Borrowing to a
different Type or to continue such Revolving Borrowing and, in the case of a
Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as
provided in this Section. The applicable Borrower may elect different options
with respect to different portions of the affected Revolving Borrowing, in which
case each such portion shall be allocated ratably among the Lenders holding the
Revolving Loans comprising such Revolving Borrowing, and the Revolving Loans
comprising each such portion shall be considered a separate Revolving Borrowing.
This Section shall not apply to Competitive Borrowings, which may not be
converted or continued.

          (b)  To make an election pursuant to this Section, a Borrower shall
notify the Payment Agent of such election by telephone or by telecopy by the
time that a Revolving Borrowing Request would be required under Section 2.03 if
such Borrower were requesting a Revolving Borrowing of the Type resulting from
such election to be made on the effective date of such election. Each such
Interest Election Request shall be irrevocable and, if telephonic, shall be
confirmed promptly by hand delivery or telecopy to the Payment Agent of a
written Interest Election Request in a form approved by the Payment Agent and
signed by such Borrower.
<PAGE>

                                                                              25

          (c)   Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02:

          (i)   the Revolving Borrowing to which such Interest Election Request
     applies and, if different options are being elected with respect to
     different portions thereof, the portions thereof to be allocated to each
     resulting Revolving Borrowing (in which case the information to be
     specified pursuant to clauses (iii) and (iv) below shall be specified for
     each resulting Revolving Borrowing);

          (ii)  the effective date of the election made pursuant to such
     Interest Election Request, which shall be a Business Day;

          (iii) whether the resulting Borrowing is to be an ABR Borrowing or a
     Eurodollar Revolving Borrowing; and

          (iv)  if the resulting Revolving Borrowing is a Eurodollar Revolving
     Borrowing, the Interest Period to be applicable thereto after giving effect
     to such election, which shall be a period contemplated by the definition of
     the term "Interest Period".

If any such Interest Election Request requests a Eurodollar Revolving Borrowing
but does not specify an Interest Period, then the applicable Borrower shall be
deemed to have selected an Interest Period of one month's duration.

          (d)   Promptly following receipt of an Interest Election Request, the
Payment Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Revolving Borrowing.

          (e)   If a Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Revolving Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Revolving Borrowing is
repaid as provided herein, at the end of such Interest Period such Revolving
Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary
provision hereof, if an Event of Default has occurred and is continuing and the
Payment Agent, at the request of the Required Lenders, so notifies the
Borrowers, then, so long as an Event of Default is continuing (i) no outstanding
Revolving Borrowing may be converted to or continued as a Eurodollar Revolving
Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be
converted to an ABR Borrowing at the end of the Interest Period applicable
thereto.

          SECTION 2.07.  Termination and Reduction of Commitments.  (a)  Unless
previously terminated, the Commitments shall terminate on the Maturity Date.

          (b)   The Borrowers may at any time terminate, or from time to time
reduce, the Commitments; provided that (i) each reduction of the Commitments
shall be in an amount that is an integral multiple of $5,000,000 and not less
than $25,000,000 and (ii) the Borrowers shall not terminate or reduce the
Commitments if, after giving effect to any concurrent prepayment of the
Revolving Loans in accordance with Section 2.09, the total Revolving Credit
Exposures and Competitive Loan Exposures would exceed the total Commitments.
<PAGE>

                                                                              26

          (c)   The Borrowers shall notify the Payment Agent of any election to
terminate, or of any optional or mandatory reduction of, the Commitments under
paragraph (b) of this Section at least three Business Days prior to the
effective date of such termination or reduction, specifying such election or
requirement and the effective date thereof. Promptly following receipt of any
notice, the Payment Agent shall advise the Lenders of the contents thereof. Each
notice delivered by a Borrower pursuant to this Section shall be irrevocable;
provided that a notice of termination of the Commitments delivered by a Borrower
under paragraph (b) of this Section may state that such notice is conditioned
upon the effectiveness of other credit facilities, in which case such notice may
be revoked by a Borrower (by notice to the Payment Agent on or prior to the
specified effective date) if such condition is not satisfied. Any termination or
reduction of the Commitments shall be permanent. Each reduction of the
Commitments shall be made ratably among the Lenders in accordance with their
respective Commitments.

          SECTION 2.08.  Repayment of Loans; Evidence of Debt.  (a)  The
Borrowers hereby unconditionally jointly and severally promise to pay (i) to the
Payment Agent for the account of each Lender the unpaid principal amount of each
Loan on the Maturity Date  and (ii) to the Payment Agent for the account of each
Lender the unpaid principal amount of each Competitive Loan on the last day of
the Interest Period applicable to such Loan.

          (b)   Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the Indebtedness of the Borrowers to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.

          (c)   The Payment Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period, if any, applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrowers to each
Lender hereunder and (iii) the amount of any sum received by the Payment Agent
hereunder for the account of the Lenders and each Lender's share thereof.

          (d)   The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Payment Agent to maintain such accounts or any
error therein shall not in any manner affect the obligation of a Borrower to
repay the Loans in accordance with the terms of this Agreement.

          (e)   Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, each Borrower shall execute and deliver to such
Lender a promissory note payable to the order of such Lender (or, if requested
by such Lender, to such Lender and its registered assigns) in substantially the
form attached hereto as Exhibit C. Thereafter, the Loans evidenced by such
promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 10.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
<PAGE>

                                                                              27


          SECTION 2.09.  Prepayment of Revolving Loans. (a) The Borrowers shall
have the right at any time and from time to time to prepay any Revolving
Borrowing in whole or in part, subject to prior notice in accordance with
paragraph (c) of this Section and payment of any amounts required under Section
2.14; provided that the Borrower shall not have the right to prepay any
Competitive Loan without the prior consent of the Lender thereof.

          (b)  In the event and on each occasion that the total Revolving Credit
Exposures and Competitive Loan Exposures exceed the total Commitments, the
Borrowers shall promptly prepay Revolving Borrowings in an aggregate amount
sufficient to eliminate such excess.

          (c)  The Borrowers shall notify the Payment Agent by telephone
(confirmed by telecopy) or by telecopy of any prepayment hereunder (i) in the
case of prepayment of a Eurodollar Revolving Borrowing, not later than 11:00
a.m., New York City time, three Business Days before the date of such
prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later
than 11:00 a.m., New York City time, on the Business Day of such prepayment.
Each such notice shall be irrevocable and shall specify the prepayment date and
the principal amount of each Revolving Borrowing or portion thereof to be
prepaid; provided that, if a notice of prepayment is given in connection with a
conditional notice of termination of the Commitments as contemplated by Section
2.07, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.07. Promptly following
receipt of any such notice, the Payment Agent shall advise the Lenders of the
contents thereof. Each partial prepayment, other than a mandatory prepayment, of
any Revolving Borrowing shall be in an amount that would be permitted in the
case of an advance of a Revolving Borrowing of the same Type as provided in
Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably
to the Loans included in the prepaid Revolving Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.11.

          SECTION 2.10.  Fees. (a)  The Borrowers agree, jointly and severally,
to pay to the Payment Agent for the account of each Lender a facility fee, which
shall accrue at the relevant Facility Fee Rate specified in the definition of
Applicable Rate on the daily amount of the Commitment of such Lender (whether
used or unused) during the period from the date of this Agreement to but
excluding the Maturity Date; provided that, if such Lender continues to have any
Revolving Credit Exposure or Competitive Loan Exposure after the Maturity Date
or other termination of all the Commitments, then such facility fee shall
continue to accrue on the daily aggregate amount of such Lender's Revolving
Credit Exposure and Competitive Loan Exposure from and including the Maturity
Date or other termination of all the Commitments to but excluding the date on
which such Lender ceases to have any Revolving Credit Exposure or Competitive
Loan Exposure. Accrued facility fees shall be payable in arrears on June 30,
2001 and on the last day of each subsequent September, December, March and June
of each year, on any date prior to the Maturity Date on which the Commitments
terminate and on the Maturity Date, commencing on the first such date to occur
after the date hereof; provided that any facility fees accruing after the
Maturity Date or other termination of all the Commitments shall be payable on
demand. All facility fees shall be computed on the basis of a year of 360 days
and shall be payable for the actual number of days elapsed (including the first
day but excluding the last day).
<PAGE>

                                                                              28

          (b)  The Borrowers agree, jointly and severally, to pay to the Payment
Agent, for the accounts of the Lenders, on the date hereof, the upfront fees
separately agreed upon in the Fee Letter dated January 29, 2001, between the
Borrowers and the Co-Administrative Agents.

          (c)  The Borrowers agree, jointly and severally, to pay to each of the
Co-Administrative Agents, for their own accounts, fees payable in the amounts
and at the times separately agreed upon between the Borrowers and the Co-
Administrative Agents.

          (d)  All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Payment Agent for distribution to the
Persons entitled thereto.  Fees paid shall not be refundable under any
circumstances.

          SECTION 2.11.  Interest.  (a)  The Loans comprising each ABR Borrowing
shall bear interest at the Alternate Base Rate plus the Applicable Rate.

          (b)  The Loans comprising each Eurodollar Borrowing shall bear
interest (i) in the case of a Eurodollar Revolving Loan, at the Adjusted LIBO
Rate for the Interest Period in effect for such Revolving Borrowing plus the
Applicable Rate or (ii) in the case of a Eurodollar Competitive Loan, at the
LIBO Rate for the Interest Period in effect for such Borrowing plus (or minus,
as applicable) the Margin applicable to such Loan.

          (c)  Each Fixed Rate Loan shall bear interest at the Fixed Rate
applicable to such Loan.

          (d)  Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrowers hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.

          (e)  Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and upon termination of the Commitments;
provided that (i) interest accrued pursuant to paragraph (c) of this Section
shall be payable on demand, (ii) in the event of any repayment or prepayment of
any Loan (other than a prepayment of an ABR Loan prior to the end of the
Availability Period), accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment and (iii) in the
event of any conversion of any Eurodollar Revolving Loan prior to the end of the
current Interest Period therefor, accrued interest on such Revolving Loan shall
be payable on the effective date of such conversion.

          (f)  All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day).  The applicable Alternate Base Rate or
<PAGE>

                                                                              29

Adjusted LIBO Rate shall be determined by the Payment Agent, and such
determination shall be conclusive absent manifest error.

          SECTION 2.12.  Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:

          (a)  the Payment Agent determines (which determination shall be
     conclusive absent manifest error) that adequate and reasonable means do not
     exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as
     applicable, for such Interest Period; or

          (b)  the Payment Agent is advised by the Required Lenders (or, in the
     case of a Eurodollar Competitive Loan, the Lender required to make such
     Loan) that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such
     Interest Period will not adequately and fairly reflect the cost to such
     Lenders or such Lender of making or maintaining the Eurodollar Loans
     included in such Borrowing or its Eurodollar Loan for such Interest Period;

then the Payment Agent shall give notice thereof to the Borrowers and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Payment Agent notifies the Borrowers and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurodollar Revolving Borrowing
shall be ineffective, and such Revolving Borrowing shall be converted to or
continued as an ABR Borrowing on the last day of the Interest Period applicable
thereto, (ii) if any Revolving Borrowing Request requests a Eurodollar Revolving
Borrowing, such Revolving Borrowing shall be made as an ABR Borrowing (or such
Revolving Borrowing shall not be made if the Borrowers revoke (and in such
circumstances, such Revolving Borrowing Request may be revoked notwithstanding
any other provision of this Agreement) such Revolving Borrowing Request by
telephonic notice, confirmed promptly in writing, not later than one Business
Day prior to the proposed date of such Revolving Borrowing) and (iii) any
request by the Borrowers for a Eurodollar Competitive Borrowing shall be
ineffective; provided that (A) if the circumstances giving rise to such notice
do not affect all the Lenders, then requests by the Borrowers for Eurodollar
Competitive Borrowings may be made to Lenders that are not affected thereby and
(B) if the circumstances giving rise to such notice affect only one Type of
Borrowings, then the other Type of Borrowings shall be permitted.

          SECTION 2.13.  Increased Costs.  (a)  If any Change in Law shall:

          (i)  impose, modify or deem applicable any reserve, special deposit or
     similar requirement against assets of, deposits with or for the account of,
     or credit extended by, any Lender (except to the extent any such reserve
     requirement is reflected in the Adjusted LIBO Rate); or

          (ii) impose on any Lender or the London interbank market any other
     condition affecting this Agreement or Eurodollar or Fixed Rate Loans made
     by such Lender;
<PAGE>

                                                                              30


and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar or Fixed Rate Loan (or of
maintaining its obligation to make any such Loan) or to increase the cost to
such Lender to reduce the amount of any sum received or receivable by such
Lender hereunder (whether of principal, interest or otherwise), in each case by
an amount deemed by such Lender in good faith to be material, then the Borrowers
will pay to such Lender, within ten Business Days following a demand therefor
accompanied by the certificate referred to in paragraph (c) below, such
additional amount or amounts as will compensate such Lender on an after-tax
basis for such additional costs incurred or reduction suffered.

          (b)  If any Lender determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of this Agreement or the Loans made by such Lender to a level
below that which such Lender, or such Lender's holding company could have
achieved but for such Change in Law (taking into consideration such Lender's
policies and the policies of such Lender's holding company with respect to
capital adequacy), then from time to time the Borrowers will pay to such Lender
within ten Business Days following a demand therefor accompanied by the
certificate referred to in paragraph (c) below, such additional amount or
amounts as will compensate such Lender or such Lender's holding company for any
such reduction suffered.

          (c)  A certificate of a Lender setting forth the amount or amounts
necessary to compensate such Lender or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section, together with supporting
documentation or computations, shall be delivered to the Borrowers and shall be
conclusive absent manifest error.  The Borrowers shall pay such Lender the
amount shown as due on any such certificate within 10 Business Days after
receipt thereof.

          (d)  Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; provided that the Borrowers shall not be required to
compensate a Lender pursuant to this Section for any increased costs or
reductions incurred more than 90 days prior to the date that such Lender
notifies the Borrowers of the Change in Law giving rise to such increased costs
or reductions and of such Lender's intention to claim compensation therefor;
provided further that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the 90-day period referred to above shall be
extended to include the period of retroactive effect thereof.

          SECTION 2.14.  Break Funding Payments.  In the event of (a) the
payment of any principal of any Eurodollar or Fixed Rate Loan other than on the
last day of an Interest Period applicable thereto (including as a result of an
Event of Default), (b) the conversion of any Eurodollar Revolving Loan other
than on the last day of the Interest Period applicable thereto, (c) the failure
to borrow, convert, continue or prepay any Eurodollar or Fixed Rate Loan on the
date specified in any notice delivered pursuant hereto (regardless of whether
such notice may be revoked under Section 2.07(d)  or 2.09 and is revoked in
accordance therewith), (d) the failure to borrow any Competitive Loan after
acceptance of the Competitive Bid to make such Loan or (e) the assignment of any
Eurodollar or Fixed Rate Loan other than on the last day of the Interest Period
applicable thereto as a result of a request by the Borrowers pursuant to Section
2.17, then,
<PAGE>

                                                                              31

in any such event, the Borrowers shall compensate each Lender for the loss, cost
and expense attributable to such event (which loss, cost or expense will not be
deemed to include lost profit). In the case of a Eurodollar or Fixed Rate Loan,
such loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate or LIBO Rate (without adding
thereto the Applicable Rate or the Margin, as the case may be) that would have
been applicable to such Loan, for the period from the date of such event to the
last day of the then current Interest Period therefor (or, in the case of a
failure to borrow, convert or continue, for the period that would have been the
Interest Period for such Loan), over (ii) the amount of interest which would
accrue on such principal amount for such period at the interest rate which such
Lender would bid were it to bid, at the commencement of such period, for
deposits of a comparable amount and period from other banks in the eurodollar
market or, in the case of Fixed Rate Loans, other market. A certificate of any
Lender setting forth any amount or amounts that such Lender is entitled to
receive pursuant to this Section, together with supporting documentation or
computations, shall be delivered to the Borrowers and shall be conclusive absent
manifest error. The Borrowers shall pay such Lender the amount shown as due on
any such certificate within 10 Business Days after receipt thereof.

          SECTION 2.15. Taxes. (a) Any and all payments by or on account of any
obligations of the Borrowers hereunder or under any other Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if a Borrower shall be required to deduct any Indemnified
Taxes or Other Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that after making all required deductions of
Indemnified Taxes or Other Taxes (including deductions applicable to additional
sums payable under this Section) the Agent or Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Borrower shall make such deductions and (iii)
such Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.

          (b)  In addition, the Borrowers shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.

          (c)  The Borrowers shall indemnify each Agent, each Lender, within 10
Business Days after written demand therefor, for the full amount of any
Indemnified Taxes or Other Taxes paid by such Agent or such Lender on or with
respect to any payment by or on account of any obligation of the Borrowers
hereunder or under any other Loan Document (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate setting forth in reasonable detail the amount and
nature of such payment or liability delivered to the Borrowers by a Lender, or
by an Agent on its own behalf or on behalf of a Lender, shall be conclusive
absent manifest error.

          (d)  As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrowers to a Governmental Authority, the Borrowers shall
deliver to the Payment Agent the original or a certified copy of a receipt
issued by such Governmental Authority
<PAGE>

                                                                              32


evidencing such payment, a copy of the return reporting such payment or other
evidence of such payment reasonably satisfactory to the Payment Agent.

          (e)  Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which a
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrowers (with
copies to the Co-Administrative Agents), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law or reasonably requested by the Borrowers as will permit such
payments to be made without withholding or at a reduced rate.

          (f)  If an Agent or a Lender determines in good faith, that it has
received a refund of any Taxes or Other Taxes as to all or a portion of which it
has been indemnified by a Borrower or with respect to all or a portion of which
a Borrower has paid additional amounts pursuant to this Section 2.15, it shall
pay over such refund to such Borrower (but only to the extent of indemnity
payments made, or additional amounts paid, by such Borrower under this Section
2.15 with respect to the Taxes or Other Taxes giving rise to such refund), net
of all out-of-pocket expenses of such Agent or such Lender and without interest
(other than any interest paid by the relevant Governmental Authority with
respect to such refund); provided, that such  Borrower, upon the request of such
Agent or such Lender, agrees to repay the amount paid over to such Borrower
(plus any penalties, interest or other charges imposed by the relevant
Governmental Authority) to such Agent or such Lender in the event such Agent or
such Lender is required to repay such refund to such Governmental Authority.
This Section shall not be construed to require any Agent or any Lender to make
available its tax returns (or any other information relating to its taxes which
it deems confidential) to any Borrower or any other Person.

          SECTION 2.16.  Payments Generally; Pro Rata Treatment; Sharing of
Setoffs. (a) Each Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest or
fees, or of amounts payable under Section 2.13, 2.14 or 2.15, or otherwise)
prior to 2:00 p.m., New York City time, on the date when due, in immediately
available funds, without setoff or counterclaim. Any amounts received after such
time on any date may, in the discretion of the Payment Agent, be deemed to have
been received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Payment Agent at its
offices at 270 Park Avenue, New York, New York, except that payments pursuant to
Sections 2.13, 2.14 or 2.15 or 10.03 shall be made directly to the Persons
entitled thereto. The Payment Agent shall distribute any such payments received
by it for the account of any other Person to the appropriate recipient promptly
following receipt thereof. If any payment under any Loan Document shall be due
on a day that is not a Business Day, the date for payment shall be extended to
the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension.
All payments hereunder shall be made in Dollars. Any payment required to be made
by the Payment Agent hereunder shall be deemed to have been made by the time
required if the Payment Agent shall, at or before such time, have taken the
necessary steps to make such payment in accordance with the regulations or
operating procedures of the clearing or settlement system used by the Payment
Agent to make such payment.
<PAGE>

                                                                              33

          (b)  If at any time insufficient funds are received by and available
to the Payment Agent to pay fully all amounts of principal, interest and fees
then due hereunder, such funds shall be applied (i) first, towards payment of
interest and fees then due hereunder, ratably among the parties entitled thereto
in accordance with the amounts of interest and fees then due to such parties,
and (ii) second, towards payment of principal then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal then
due to such parties.

          (c)  If any Lender shall, by exercising any right of set off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Loans; provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by a Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans to any assignee or
participant, other than to a Borrower or any Subsidiary or Affiliate thereof (as
to which the provisions of this paragraph shall apply).  Each Borrower consents
to the foregoing and agrees, to the extent it may effectively do so under
applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against such Borrower's rights of setoff and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of such Borrower in the amount of such participation.

          (d)  Unless the Payment Agent shall have received notice from the
applicable Borrower prior to the date on which any payment is due to the Payment
Agent for the account of the Lenders hereunder that such Borrower will not make
such payment, the Payment Agent may assume that such Borrower has made such
payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders, the amount due. In the event, if such
Borrower has not in fact made such payment, then each of the Lenders severally
agrees to repay to the Payment Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Payment Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Payment Agent in accordance with banking industry
rules on interbank compensation.

          (e)  If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.05(b) or 2.16(d), then the Payment Agent may, in its
discretion (notwithstanding any contrary provision hereof), apply any amounts
thereafter received by the Payment Agent for the account of such Lender to
satisfy such Lender's obligations under such Sections until all such unsatisfied
obligations are fully paid.
<PAGE>

                                                                              34

          SECTION 2.17.  Mitigation Obligations; Replacement of Lenders. (a) If
any Lender requests compensation under Section 2.13, or if a Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.15; then such
Lender shall use reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions) to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates if, in the
reasonable judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15 as the case
may be, in the future and (ii) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be disadvantageous to such Lender. Each
Borrower hereby agrees, jointly and severally to pay all reasonable costs and
expenses incurred by any Lender in connection with any such designation or
assignment.

          (b)  If any Lender requests compensation under Section 2.13, or if a
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrowers may upon notice to such Lender and the Payment Agent, require such
Lender to assign and delegate, without recourse, all its interests, rights and
obligations under this Agreement (other than any outstanding Competitive Loans
held by it) to an assignee that shall assume such obligations (which assignee
may be another Lender if a Lender accepts such assignment); provided that (i)
the Borrowers shall have received the prior written consent of the Payment Agent
to the identity of the assignee (if not then a Lender), which consent shall not
unreasonably be withheld or delayed and (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Revolving Loans,
accrued interest thereon, accrued fees and all other amounts payable to it
hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrowers (in the case of all other amounts).


                                  ARTICLE III

                        Representations and Warranties

          Each of the Borrowers represents and warrants to the Lenders that:

          SECTION 3.01.  Corporate Existence. Each Borrower and each Material
Subsidiary: (a) is a business entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization; (b) has
all requisite corporate or other power, and has all material governmental
licenses, authorizations, consents and approvals, necessary to own its assets
and carry on its business as now being conducted; and (c) is qualified to do
business and is in good standing in all jurisdictions in which the failure to so
qualify could reasonably be expected to have a Material Adverse Effect.

          SECTION 3.02.  Certain Financial Information. (a) Financial Condition
of Northrop Operating. The consolidated statement of financial position of
Northrop Operating and its subsidiaries (i) as at December 31, 1999, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows of Northrop Operating and its subsidiaries for the
<PAGE>

                                                                              35

fiscal year ended on said date, with the opinion thereon of Deloitte & Touche
LLP, and (ii) as at September 30, 2000, and the respective related consolidated
statements of operations, changes in stockholders' equity and cash flows of
Northrop Operating and its subsidiaries for the fiscal quarter and portion of
the fiscal year then ended, certified by the chief financial officer of Northrop
Operating, in each case as heretofore furnished to each of the Lenders, are
complete and present fairly, in all material respects, the consolidated
financial condition of Northrop Operating and its subsidiaries as at said dates
and the consolidated results of their operations for such periods, all in
accordance with GAAP applied on a consistent basis, subject to year-end audit
adjustments and the absence of footnotes in the case of the statements referred
to in clause (ii) above. Neither Northrop Operating nor any of its subsidiaries
had on said dates any material contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, except as referred to or reflected or provided
for in said statements of financial position as at said dates. Except as
expressly disclosed in writing to the Lenders prior to the date hereof, since
December 31, 1999, there has been no material adverse change in the consolidated
financial condition or operations, or the prospects or business, taken as a
whole, of Northrop Operating and its subsidiaries from that set forth in said
financial statements as at said date.

          (b)  Financial Condition of Litton Operating. The consolidated
statement of financial position of Litton Operating and its subsidiaries (i) as
at July 31, 2000, and the respective related consolidated statements of income,
stockholders' equity and cash flows of Litton Operating and its subsidiaries for
the period ended on such date, with the opinion thereon of Deloitte & Touche
LLP, and (ii) as at October 31, 2000, and the related consolidated statements of
income, stockholders' equity and cash flows of Litton Operating and its
subsidiaries for the fiscal quarter and portion of the fiscal year then ended,
certified by the chief financial officer of Litton Operating, in each case as
heretofore furnished to each of the Lenders, are complete and present fairly, in
all material respects, the consolidated financial condition of Litton Operating
and its subsidiaries as at said dates and the consolidated results of their
operations for such periods, all in accordance with GAAP applied on a consistent
basis, subject to year-end audit adjustments and the absence of footnotes in the
case of the statements referred to in clause (ii) above, except, in each case,
for matters not known to the Company or Northrop Operating that would not,
individually or in the aggregate, be material and adverse to the consolidated
financial condition or operations, or the prospects or business, of the Company
and the Subsidiaries (including Litton Operating and its subsidiaries) taken as
a whole, giving pro forma effect to the Transactions. As of the date hereof,
except as expressly disclosed in writing to the Lenders prior to the date
hereof, since July 31, 2000, there has been no material adverse change in the
consolidated financial condition or operations, or the prospects or business,
taken as a whole, of Litton Operating and its subsidiaries from that set forth
in said financial statements as at July 31, 2000.

          (c)  Projections. The Company has heretofore furnished to each of the
Lenders projected consolidated financial statements of the Company and the
Subsidiaries (including Litton Operating), on an annual basis through and
including 2007. Such projected financial statements set forth projected
consolidated balance sheets of the Company and such Subsidiaries and projected
consolidated statements of operations, changes in stockholders' equity and cash
flows of the Company and such Subsidiaries (giving effect to the Acquisition and
the related financing thereof, as if they had occurred on January 1, 2001) for
the respective fiscal periods covered thereby. Such
<PAGE>

                                                                              36

projected financial statements are based upon assumptions believed by the
Company to be reasonable as of the date hereof (it being understood that such
projections are subject to uncertainty).

          SECTION 3.03.  Litigation.  There are no legal or arbitral proceedings
or any proceedings by or before any Governmental Authority, now pending or (to
the knowledge of any of the Borrowers) threatened against the Company or any
Material Subsidiary which, if adversely determined, would be reasonably likely
to result in any Material Adverse Effect, except as heretofore disclosed to the
Lenders in Northrop Operating's Annual Report on Form 10-K for the year ended
December 31, 1999, Litton Operating's Annual Report on Form 10-K for the year
ended July 31, 2000, Northrop Operating's Quarterly Reports on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 2000 and Litton Operating's
Quarterly Reports on Form 10-Q for the quarters ended January 31, April 30, and
October 31, 2000, copies of which have been furnished to the Lenders, or in
Schedule 3.03.

          SECTION 3.04.  No Breach. Except as expressly disclosed in writing to
the Lenders on or before the date hereof, none of the Transactions will conflict
with or result in a breach of, or require any consent under, the charters or by-
laws of any of the Borrowers, or any applicable law or regulation, or any order,
writ, injunction or decree of any court or Governmental Authority, or any
material agreement or instrument to which the Company or any Material Subsidiary
(including Litton Operating and any of its subsidiaries that are Material
Subsidiaries) is a party or by which any of them is bound or to which any of
them is subject, or constitute a material default under any such material
agreement or instrument, or result in the creation or imposition of any Lien
upon any of the revenues or assets of the Company or any such Subsidiary
pursuant to the terms of any such material agreement or instrument.

          SECTION 3.05.  Corporate Action. Each of the Borrowers has all
necessary corporate power and authority to execute, deliver and perform its
obligations under the Loan Documents and, in the case of the Borrower, to borrow
the Loans hereunder; and the execution, delivery and performance by each of the
Borrowers of the Loan Documents and the borrowing of the Loans hereunder have
been duly authorized by all necessary corporate action on its part; and this
Agreement has been duly and validly executed and delivered by each of the
Borrowers and constitutes, and each of the other Loan Documents (assuming in the
case of any promissory notes issued hereunder, execution and delivery thereof
for value) will constitute, legal, valid and binding obligations of each of the
Borrowers, enforceable in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general applicability affecting the
enforcement of creditors' rights and (b) the application of general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).

          SECTION 3.06.  Approvals. No authorizations, approvals, consents or
licenses of, and no filings or registrations with, any Governmental Authority
are necessary to authorize or are necessary in connection with (i) the
execution, delivery and performance of any Loan Document or the Merger
Agreement, (ii) the legality, validity, binding effect or enforceability of any
Loan Document or the Merger Agreement or (iii) the borrowing of the Loans
hereunder or the consummation of the other Transactions, in each case other than
those which have been or
<PAGE>

                                                                              37

concurrently with the effectiveness hereof shall be duly obtained, given or
made, except consents of the Government set forth in Schedule 3.06, which are
required with respect to the transfer to Northrop Operating of contracts between
Litton Operating or its subsidiaries and the Government and which none of the
Borrowers has any reason to believe will not be obtained in due course.

          SECTION 3.07.  Use of Proceeds, Etc. Neither the making of any Loan
hereunder, nor the use of the proceeds thereof, will violate the provisions of
Regulation U or X of the Board of Governors of the Federal Reserve System and no
part of the proceeds of any Loan will be used to purchase or carry any Margin
Stock in violation of Regulation U or X or to extend credit for the purpose of
purchasing or carrying any Margin Stock in violation of Regulation U or X.
Neither the Company nor any of the Subsidiaries is engaged principally, or as
one of its primary activities, in the business of extending credit for the
purpose of purchasing or carrying Margin Stock.

          SECTION 3.08.  ERISA. Each of the Company and the ERISA Affiliates has
fulfilled its obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan, is in compliance in all material respects with
the applicable provisions of ERISA and the Code and has not incurred any
liability to the PBGC or any Plan or Multiemployer Plan (other than a liability
to make payments or contributions in the ordinary course of business). No
Termination Event has occurred and is continuing.

          SECTION 3.09.  Taxes. United States Federal income tax returns of
Northrop Operating and its subsidiaries and Litton Operating and its
subsidiaries have been filed through 1999 and examined and reported on by the
Internal Revenue Service or closed by applicable statutes and satisfied through
the fiscal year of Northrop Operating ended December 31, 1991 and the fiscal
year of Litton Operating ended October 31, 1985, respectively. Each of Northrop
Operating and its subsidiaries, and Litton Operating and its subsidiaries has
filed all United States Federal and State income tax returns which are required
to be filed by it and has paid all taxes due pursuant to such returns or
pursuant to any assessment received by Northrop Operating and its subsidiaries,
or Litton Operating and its subsidiaries, to the extent that such taxes have
become due (except as to such taxes which are being contested in good faith by
appropriate proceedings). The charges, accruals and reserves on the books of the
Company and the Subsidiaries in respect of taxes and other governmental charges
are, in the opinion of each of the Borrowers, adequate. The California Franchise
tax returns of Northrop Operating have been examined and reported on by the
California Franchise Tax Board or closed by applicable statutes and satisfied
for all fiscal years prior to, and including, the fiscal year ended December 31,
1999.

          SECTION 3.10.  Funded Debt. As of the Effective Date, after giving
effect to the Transactions, no default exists under the provisions of any
instrument evidencing Funded Debt in an outstanding principal amount in excess
of $50,000,000 or of any agreement relating thereto.

          SECTION 3.11.  Properties. The Company has, and each of the Material
Subsidiaries has, good and marketable title to its respective material
properties and assets, including the properties and assets reflected in the
balance sheet as at December 31, 1999 herein above described in Section 3.02 (a)
(other than Properties disposed of in the ordinary course of business), subject
to no Lien of any kind except Liens permitted by Section 6.05.
<PAGE>

                                                                              38

          SECTION 3.12.  Environmental Matters. (a) Except as disclosed in
Northrop Operating's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and Litton Operating's Annual Report on Form 10-K for the
fiscal year ended July 31, 2000, neither the Company nor any Subsidiary
(including Litton Operating and its subsidiaries) (i) has received notice or
otherwise obtained knowledge of any claim, demand, action, event, condition,
report or investigation indicating or concerning any potential or actual
liability which, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect arising in connection with: (1) any non-
compliance with or violation of the requirements of any applicable Federal,
state and local environmental health and safety statutes and regulations or (2)
the release or threatened release of toxic or hazardous waste, substance or
constituent, or other substance into the environment, (ii) to the best knowledge
of each of the Borrowers, has any threatened or actual liability in connection
with the release or threatened release of any toxic or hazardous waste,
substance or constituent, or other substance into the environment which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, (iii) has received notice or otherwise obtained
knowledge of any Federal or state investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of any toxic or
hazardous waste, substance or constituent or other substance into the
environment for which the Company or any such Subsidiary, is or may be liable,
which remedial action would have a Material Adverse Effect or (iv) has received
notice that the Company or any such Subsidiary, is or may be liable to any
Person under the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, 42 U.S.C. (S)9601 et seq. ("CERCLA"), or any
analogous state law, which liability would have a material Adverse Effect.

          (b)  Each of the Company and each Subsidiary (including Litton
Operating and each of its subsidiaries) is in compliance in all material
respects with the financial responsibility requirements of all Environmental
Laws, including, those contained in 40 C.F.R., Parts 264 and 265, Subpart H, and
any similar state law requirements.

          SECTION 3.13.  True and Complete Disclosure. All factual information
(taken as a whole) furnished on or before the Effective Date by or on behalf of
the Company or the Subsidiaries in writing to any Co-Administrative Agent or
Lender (including, all factual information contained in the Information
Memorandum) for purposes of or in connection with this Agreement or any
transaction contemplated herein is, and all other such factual information
(taken as a whole) furnished after the Effective Date by or on behalf of the
Company or the Subsidiaries in writing to the Co-Administrative Agents or any
Lender will be, true and accurate in all material respects on the date as of
which such information is dated or certified and not incomplete by omitting to
state any material fact necessary to make such information (taken as a whole)
not misleading at such time in light of the circumstances under which such
information was provided. There is no fact known to any of the Borrowers which
has, or is reasonably likely to have, a Material Adverse Effect which has not
been disclosed herein or in such other documents, certificates and statements
furnished to the Lenders for use in connection with the transactions
contemplated hereby.

          SECTION 3.14.  Acquisition.  On and as of the Effective Date, all
material consents and approvals of, and filings and registrations with, and all
other actions in respect of, all Governmental Authorities required in order to
make or consummate the Acquisition, or otherwise
<PAGE>

                                                                              39

required in connection with the Acquisition, will have been obtained, given,
filed or taken and are or will be in full force and effect (or effective
judicial relief with respect thereto will have been obtained) (except with
respect to any vote of the stockholders of Litton Operating that may be required
to effect the Litton Merger, in the event that less than 90% of the outstanding
common stock of Litton Operating shall have been acquired by Litton Merger Sub
in the Exchange Offer). All actions pursuant to or in furtherance of the
Acquisition have been and will be taken in compliance with all applicable laws.


                                  ARTICLE IV

                                  Conditions

          SECTION 4.01.  Effective Date. The obligations of the Lenders to make
Loans hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 10.02 or
provided for, in the case of the conditions set forth in paragraphs (a), (b),
(c) and (e) below insofar as they relate to Litton Operating, in the manner
described in Section 10.14):

          (a)  Execution of Agreement.  The Co-Administrative Agents (or their
               -----------------------
counsel) shall have received from each party hereto (including Litton Operating,
as provided in Section 10.14) either (i) a counterpart of this Agreement signed
on behalf of such party or (ii) written evidence satisfactory to the Co-
Administrative Agents (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart of
this Agreement.

          (b)  Corporate Documents.  Certified copies of the certificates of
               --------------------
incorporation and the by-laws of each of the Borrowers and of all corporate
action taken by each of the Borrowers approving each Loan Document and the
borrowings by the Borrowers hereunder (including, a certificate setting forth
the resolutions of the Board of Directors of each of the Borrowers adopted in
respect of the transactions contemplated thereby).

          (c)  Incumbency Certificate.  A certificate of the Secretary of each
               -----------------------
of the Borrowers, dated the Effective Date, in respect of the incumbency and
specimen signature of each of the officers (i) who is authorized to sign the
Loan Documents on such Borrower's behalf and (ii) who will, until replaced by
another officer or officers duly authorized for that purpose, act as such
Borrower's representative for the purposes of signing documents and giving
notices and other communications in connection with the Loan Documents and the
transactions contemplated thereby.  The Co-Administrative Agents and each of the
Lenders may conclusively rely on such certificates until it receives notice in
writing from the applicable Borrower to the contrary.

          (d)  Officer's Certificate.  A certificate of a senior officer of the
               ----------------------
Company, dated the Effective Date, to the effect set forth in clauses (a) and
(b) of Section 4.02 hereof (after giving effect to the consummation of the
Acquisition).
<PAGE>

                                                                              40

          (e)  Opinions.  (i)  An opinion of Sheppard, Mullin, Richter & Hampton
               ---------
LLP, counsel for the Company and Northrop Operating, dated the Effective Date,
substantially in the form of Exhibit B-1 hereto, (ii) an opinion of John Mullan,
Esq., Assistant General Counsel of Northrop Operating, dated the Effective Date,
substantially in the form of Exhibit B-2 hereto, (iii) an opinion of W. Burks
Terry, General Counsel of Litton Operating, dated the Effective Date,
substantially in the form of Exhibit B-3 hereto, (iv) an opinion of Kaye,
Scholer LLP, special New York counsel for the Borrowers, dated the Effective
Date, substantially in the form of Exhibit B-4 hereto (and each Borrower hereby
instructs each such counsel to deliver such opinions to the Lenders and the Co-
Administrative Agents).

          (f)  Promissory Notes.  To the extent requested by any Lenders,
               -----------------
promissory notes evidencing the Loans of such Lenders, duly completed and
executed and delivered.

          (g)  Merger Agreement.  (i)  A true and complete copy of the Merger
               -----------------
Agreement (which shall include copies of all amendments, schedules, exhibits and
other attachments thereto), together with true and complete copies of each
material document, certificate and opinion referred to in or delivered in
connection therewith, and (ii) a certificate of a senior officer of the Company,
dated the Effective Date, to the effect that (x) the Merger Agreement and all
related documentation have been duly executed and delivered by each of the
parties thereto and are in full force and effect on the Effective Date and (y)
the provisions of the Merger Agreement and such related documentation have not
been amended, waived or otherwise modified, or executed and delivered in forms
other than the forms delivered to the Co-Administrative Agents prior to the date
hereof.

          (h)  Consummation of the Exchange Offer.  A certificate of a senior
               -----------------------------------
officer of the Company, dated the Effective Date, to the effect that (i) the
Exchange Offer shall have been consummated and there shall have been validly
tendered thereunder and not withdrawn a majority of the capital stock of Litton
Operating, such that Litton Merger Sub would be able to consummate the Litton
Merger without the vote of any other stockholder of Litton Operating, in each
case in accordance with applicable law; (ii) all conditions to the consummation
of the Exchange Offer as set forth in the Merger Agreement have been (or will
concurrently be) fulfilled or waived by the parties thereto (which waiver, in
the case of any waiver by the Company or Northrop Operating, shall be given only
with the consent of the Lenders, and which conditions, in the case of conditions
to be fulfilled to the satisfaction of the Company or Northrop Operating, shall
be fulfilled to the satisfaction of the Co-Administrative Agents); and (iii) the
Northrop Merger shall have been consummated and Northrop Operating shall be a
Wholly Owned Subsidiary of the Company.

          (i)  Terms of Acquisition.  A certificate of a senior officer of the
               ---------------------
Company, dated the Effective Date, to the effect that (i) the cash portion of
the purchase price paid by the Company in the Acquisition will not exceed
$4,000,000,000 and (ii) the fees and expenses relating to the Acquisition will
be substantially consistent with the amount set forth in the table of sources
and uses heretofore furnished to the Co-Administrative Agents.

          (j)  Payment of Fees and Expenses.  Evidence that (i) all principal of
               -----------------------------
and interest on the loans under the Existing Credit Agreements and the
Refinanced Debt shall have been (or will concurrently be) paid in full and (ii)
all fees and expenses payable under the Existing Credit Agreements and the
Refinanced Debt accrued to the Effective Date and unpaid and all costs, fees
<PAGE>

                                                                              41

and expenses, and all other compensation contemplated by the Loan Documents and
by the Fee Letter dated January 29, 2001 among the Borrowers and the Co-
Administrative Agents (including, legal fees and expenses) shall have been (or
will concurrently be) paid by the Borrowers to the extent due.

          (k)  Senior Securities; Other Indebtedness and Preferred Stock.  After
               ----------------------------------------------------------
giving effect to the Transactions and the other transactions contemplated
hereby, the Company and its Subsidiaries shall have outstanding no Indebtedness
or preferred stock other than the Loans under the Loan Documents, Indebtedness
under Working Capital Credit Lines, Indebtedness under the 364-Day Credit
Agreement, the Senior Securities, the preferred stock issued by the Company in
connection with the Exchange Offer and any Indebtedness disclosed in [refer to
pro forma financial statements included in Exchange Offer documents].

          (l)  Litigation.  Except as set forth on Schedule 3.03, no litigation
               -----------
administrative or procedural action by any entity (private or governmental)
shall be pending or threatened against any of the Borrowers (a) with respect to
this Agreement or any other Loan Document, (b) that could reasonably be expected
to restrain, prevent or impose burdensome conditions on the Transactions or (c)
which the Required  Lenders shall reasonably determine would be likely to have a
Material Adverse Effect.

          (m)  Miscellaneous.  The Co-Administrative Agents shall have received
               --------------
such other documents as the Co-Administrative Agents or any Lender shall
reasonably have requested.

The Payment Agent shall promptly notify each Lender of the occurrence of the
Effective Date.

          SECTION 4.02. Initial and Subsequent Loans.  The obligation of any
Lender to make any Loan to the Borrowers upon the occasion of each borrowing
hereunder is subject to the further conditions precedent that, as of the date of
such Loan and after giving effect thereto:

          (a)  no Default shall have occurred and be continuing; and

          (b)  the representations and warranties made by the Borrowers in
     Article III hereof shall be true in all material respects on and as of the
     date of the making of such Loan with the same force and effect as if made
     on and as of such date (except to the extent such representations or
     warranties expressly relate to an earlier date, in which case they shall be
     true in all material respects as of such earlier date).

Each notice of or request for a Borrowing by a Borrower hereunder shall
constitute a certification by the Borrowers to the effect set forth in the
preceding sentence (both as of the date of such notice and, unless any of the
Borrowers otherwise notifies the Payment Agent prior to the date of such
borrowing, as of the date of such borrowing).
<PAGE>

                                                                              42


                                   ARTICLE V

                             Affirmative Covenants

          Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full, each of the Borrowers covenants and agrees with the Lenders
as to itself and its subsidiaries that:

          SECTION 5.01.  Financial Statements.  The Company shall deliver to
each of the Lenders and to the Co-Administrative Agents:

          (a)  within 105 days after the end of each fiscal year of the Company,
     (i) a consolidated statement of financial position of the Company and the
     Subsidiaries as at the close of such fiscal year and consolidated
     statements of operations, changes in stockholders' equity and cash flows of
     the Company and the Subsidiaries for such year, certified by Deloitte &
     Touche LLP or by other independent public accountants selected by the
     Company and reasonably satisfactory to the Co-Administrative Agents and
     (ii) the Consolidating Financial Statements for such year;

          (b)  within 60 days after the end of each of the first three fiscal
     quarters of each fiscal year of the Company, (i) an unaudited consolidated
     statement of financial position of the Company and the Subsidiaries as at
     the end of such quarter and unaudited consolidated statements of
     operations, changes in stockholders' equity and cash flows of the Company
     and the Subsidiaries for such quarter and for the period from the beginning
     of the fiscal year to the end of such quarter, certified by an authorized
     financial or accounting officer of the Company and (ii) the Consolidating
     Financial Statements for such fiscal quarter;

          (c)  promptly upon becoming available, copies of all financial
     statements, reports, notices, proxy statements and final prospectuses sent
     by the Company to stockholders or by any of the Borrowers to the SEC;

          (d)  subject to Government restrictions, such other statement or
     statements of the position and affairs of the Company and of the
     Subsidiaries and the status of their contracts, open accounts and budgets
     or forecasts, and other financial information, as may be reasonably
     requested by the Co-Administrative Agents;

          (e)  with each of the audited financial statements required to be
     delivered under Section 5.01(a), a certificate by the independent public
     accountants certifying such statements to the effect that they are familiar
     with the provisions of this Agreement and that, in making the examination
     necessary for their opinion on such financial statements, nothing came to
     their attention that caused them to believe that the Company was not in
     compliance with this Agreement insofar as it relates to accounting matters
     or, if the contrary is the case, specifying the nature of such non-
     compliance;
<PAGE>

                                                                              43

          (f)  with each of the financial statements required to be delivered
     under Section 5.01(a) or Section 5.01(b), a statement by an authorized
     financial or accounting officer of the Company to the effect that no
     Default has occurred and is continuing, or if any Default has occurred and
     is continuing, describing such Default and the action taken or proposed to
     be taken by the Company with respect thereto, and a detailed computation,
     in form and substance satisfactory to the Co-Administrative Agents, of the
     financial calculations required in Sections 6.08, 6.09 and 6.10;

          (g)  (x) promptly after each of Moody's and S&P first either reaffirms
     or announces revised ratings for the Senior Long Term Debt after the
     consummation of the Acquisition and (y) thereafter, promptly after (1)
     either Moody's or S&P first announces or publishes a revised rating for the
     Senior Long Term Debt or (2) either Moody's or S&P ceases to rate the
     Senior Long Term Debt, notice thereof; and

          (h)  promptly after the Company knows or has reason to know that any
     Default has occurred, a notice of such Default describing the same in
     reasonable detail and, together with such notice or as soon thereafter as
     is reasonably practicable, a description of the action that the Company has
     taken or proposes to take with respect thereto in such detail as the
     Company reasonably believes to be appropriate.

For the purposes of this section, the Company's obligation to deliver the items
referred to in clauses (a), (b) and (c) above will be deemed satisfied by the
posting of such items on a web site to which the Lenders have access, and which
shall have been designated in a notice delivered to the Lenders and the Co-
Administrative Agents.

          SECTION 5.02.  Existence, Payment of Taxes, ERISA, Etc. Each Borrower
shall, and shall cause each of the Material Subsidiaries to:

          (a)  preserve and maintain its legal existence and all of its material
     rights, privileges, licenses and franchises (provided that nothing in this
     Section 5.02 shall prohibit any transaction expressly permitted under
     Section 6.02 or 6.04 hereof);

          (b)  comply in all material respects with the requirements of all
     applicable laws, rules, regulations and orders of governmental or
     regulatory authorities if failure to comply with such requirements is
     reasonably likely (either individually or in the aggregate) to have a
     Material Adverse Effect;

          (c)  promptly pay and discharge all taxes, assessments and
     governmental charges prior to the date on which material penalties attach
     thereto, but only to the extent that such taxes, assessments and charges
     shall not be contested in good faith and by appropriate proceedings by the
     Company or such Material Subsidiary; and

          (d)  maintain all of its Properties used or useful in its business in
     good working order and condition, ordinary wear and tear excepted.
<PAGE>

                                                                              44

               The Company shall furnish to the Payment Agent the following:

               (i)   As soon as possible and in any event within 30 days after
     the Company know or has reason to know that any Termination Event has
     occurred, a statement of a senior financial or accounting officer of the
     Company describing such Termination Event and the action, if any, which the
     Company proposes to take with respect thereto;

               (ii)  Promptly after receipt thereof by the Company, copies of
     each notice received from the PBGC of its intention to terminate any Plan
     or to have a trustee appointed to administer any Plan; and

               (iii) Promptly after request therefor, such other documents and
     information relating to any Plan as the Co-Administrative Agents may
     reasonably request from time to time.

               SECTION 5.03.  Notice of Litigation. The Company shall promptly
give notice in writing to the Co-Administrative Agents (which shall promptly
notify the Lenders) of any litigation or proceeding against the Company or any
Subsidiary if in the opinion of the General Counsel of the Company (or any
individual acting in such capacity) such action or proceeding is reasonably
likely to have a Material Adverse Effect. Without limiting the generality of the
foregoing, the Company shall give notice in writing to the Co-Administrative
Agents (which will promptly notify each Lender) of the assertion of any claim by
any Person of violation of or non-compliance with any Environmental Laws
against, or with respect to the activities of, the Company or any Subsidiary,
and notice of any alleged violation of or non-compliance with any Environmental
Laws or any permits, licenses or authorizations under Environmental Laws if in
the opinion of the General Counsel of the Company (or any individual acting in
such capacity) such claim or violation or non-compliance is reasonably likely
(either individually or in the aggregate) to have a Material Adverse Effect.

               SECTION 5.04.  Insurance. The Company shall maintain, and cause
each Subsidiary to maintain, insurance with responsible companies in such
amounts and against such risks as is usually carried by owners of similar
businesses and Property in the same general area in which the Company or such
Subsidiary operates, including reasonable war, comprehensive and commercial risk
insurance, when and if available, subject to such deductibles, receptions and
self insurance programs as the Company deems appropriate.

               SECTION 5.05.  Access to Books and Properties. The Company shall:

               (a)  keep adequate records and books of account, in which
     complete entries will be made in accordance with GAAP consistently applied;
     and

               (b)  as may be reasonably requested, give any representatives of
     the Lenders reasonable access, subject to restrictions imposed by
     Governmental Authorities and customer confidentiality agreements, during
     normal business hours to, and permit them to examine, copy or make extracts
     from, any and all books, records and documents in the
<PAGE>

                                                                              45

     possession of the Company or any Subsidiary relating to its affairs and to
     inspect any Properties of the Company or any Subsidiary.

          SECTION 5.06.  Ratings by Moody's and S&P. The Company will at all
times use commercially reasonable efforts to cause Moody's and S&P (or, if
applicable, a Substitute Rating Agency) to have in effect ratings for the Senior
Long Term Debt.

          SECTION 5.07.  Consummation of Merger. The Company will cause (a) the
Northrop Merger to be consummated on or prior to the Effective Date and (b) the
Litton Merger to be consummated as promptly as practicable following the
Effective Date.

                                  ARTICLE VI

                              Negative Covenants

          Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full,
each of the Borrowers covenants and agrees with the Lenders as to itself and its
subsidiaries that:

          SECTION 6.01. Restricted Payments. The Company shall not declare, pay
or authorize any Restricted Payment if (a) any such Restricted Payment is not
paid out of Consolidated Net Income Available for Restricted Payments, (b) at
the time of, and immediately after, the making of any such Restricted Payment
(or the declaration of any dividend except a stock dividend) a Default has
occurred and remains continuing or (c) the making of any such Restricted Payment
would cause the Leverage Ratio to exceed the percentage which the Company will
be required to maintain as of the next Fiscal Date pursuant to Section 6.08.

          SECTION 6.02. Asset Dispositions. The Company shall not, and shall not
permit any of its Subsidiaries to, sell, transfer, lease or otherwise dispose of
any asset, including any Equity owned by it in any other Person, nor shall the
Company permit any of its Subsidiaries to issue any additional Equity in such
Subsidiary, except:

          (a)  sales of inventory, used or surplus equipment, surplus real
     estate and Permitted Investments in the ordinary course of business;

          (b)  sales, transfers and dispositions to the Company or a Subsidiary;

          (c)  sales, transfers and dispositions for which the Company and the
     Subsidiaries receive consideration with a value of less than $10,000,000
     for any individual transaction or series of related transactions; and

          (d)  sales, transfers and other dispositions of assets (other than
     Equity in a Subsidiary) that are not permitted by any other clause of this
     Section; provided that the aggregate fair market value of all assets sold,
     transferred or otherwise disposed of in reliance upon this clause (d) after
     the date hereof shall not exceed 20% of the consolidated
<PAGE>

                                                                              46

     assets of the Company as at December 31, 2000, after giving pro forma
     effect to the Transactions;

provided that all sales, transfers, leases and other dispositions permitted
under clauses (a) and (d) of this Section (other than those resulting in the
receipt by the Company and the Subsidiaries of consideration with a fair market
value of less than $25,000,000 in the aggregate for any individual  transaction
or series of related transactions) shall be made for fair value.

          SECTION 6.03.  Guarantees. The Company shall not, and shall not permit
any Subsidiary to, Guarantee any obligation of any Person, or suffer to exist
any such Guarantee, except that:

          (a)  the Company may Guarantee any obligation of any Subsidiary;

          (b)  any Subsidiary may Guarantee any obligation of the Company or any
     other Subsidiary; and

          (c)  the Company or any Subsidiary may issue a Guarantee of any
     obligation of a Person other than the Company or any Subsidiary, or assume
     an obligation of any such Person; provided that (i) the excess (if any) of
     (x) the aggregate amount of all obligations referred to in this clause (c)
     (to the extent said obligations do not otherwise constitute Funded Debt)
     over (y) 5% of Consolidated Shareholders' Equity shall be deemed Funded
     Debt for the purposes of this Agreement.

          SECTION 6.04.  Fundamental Changes and Acquisitions.  The Company will
not, nor will it permit any of the Subsidiaries to, enter into any transaction
of merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution).  The Company will not, nor
will it permit any of the Subsidiaries to, acquire any business from or all or
any significant part of the Property of, or all or any significant part of the
capital stock of, or be a party to any acquisition of, any Person.

          Notwithstanding the foregoing:

          (a)  any Subsidiary may be merged or consolidated with or into:  (i)
     any Borrower if such Borrower shall be the continuing or surviving
     corporation or (ii) any other Subsidiary; provided that if any such
     transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary,
     the Wholly-Owned Subsidiary shall be the continuing or surviving
     corporation;

          (b)  during any Investment Grade Rating Period, any Borrower or any
     Subsidiary may merge or consolidate with any other Person if (i) in the
     case of a merger or consolidation of any Borrower, such Borrower is the
     surviving corporation and, in any other case, the surviving corporation is
     a Wholly-Owned Subsidiary and (ii) after giving effect thereto no Default
     would exist;
<PAGE>

                                                                              47

          (c)  the Borrowers may consummate the Acquisition and the related
     Transactions; and

          (d)  the Company or any of the Subsidiaries may acquire the business
     of, or all or any significant part of the Property of, or all or any
     significant part of the capital stock of, or be a party to any acquisition
     of, any Person engaged in the same line of business as the Company and its
     Subsidiaries, taken as a whole, or a  related line of business (whether
     directly or through the merger of a Wholly-Owned Subsidiary with that
     Person) subject to the following:

               (i)  at the time of such acquisition, and after giving effect
          thereto, no Default shall exist; and

               (ii) if the sum of (A) the aggregate value of the consideration
          to be paid in such acquisition and (B) the aggregate value of the
          consideration paid in all prior acquisitions that shall have been
          completed since the most recent fiscal quarter end of the Company
          shall exceed $150,000,000, the Company shall have delivered a
          certificate of a senior accounting or financial officer of the Company
          to the Co-Administrative Agents prior to such acquisition
          demonstrating compliance with Sections 6.08, 6.09 and 6.10 on a pro
          forma basis as if such acquisition and all such prior acquisitions had
          occurred at the beginning of the most recently ended period of four
          consecutive fiscal quarters of the Company;

     provided that, during any period which is not an Investment Grade Rating
     Period, and notwithstanding the provisions of clause (i) above, the
     consideration for any such acquisition shall consist exclusively of Equity
     of the Company.

          SECTION 6.05.  Limitation on Liens. The Company shall not, and shall
not permit any Subsidiary to, create, assume or suffer to exist any Lien on any
of its Property, whether now owned or hereafter acquired, except:

          (a)  deposits or pledges to secure payments of workers' compensation,
     unemployment insurance, old age pensions or other social security, or in
     connection with or to secure the performance of bids, tenders, contracts
     (other than contracts for the repayment of borrowed money) or leases, or to
     secure statutory obligations or surety or appeal bonds, or other pledges or
     deposits for purposes of like nature in the ordinary and normal operation
     of its business;

          (b)  Liens created in favor of the United States of America or any
     department or agency thereof or any other contracting party or customer in
     connection with advance or progress payments or similar forms of vendor
     financing or incentive arrangements;

          (c)  mechanics', carriers', workers', repairmen's or other like Liens
     arising in the ordinary course of business in respect of obligations which
     are not overdue;
<PAGE>

                                                                              48

          (d)  Liens for taxes which at the particular time are not due, or
     remain payable without penalty, or which are being contested in good faith
     and by proper proceedings;

          (e)  Liens already existing on Property acquired after the date
     hereof, and securing obligations assumed in connection with a transaction
     permitted by Section 6.04 hereof (and not created in anticipation thereof);

          (f)  purchase money Liens on fixed assets (including trust deeds or
     first mortgages) given substantially concurrently with (or within 180 days
     after) the acquisition of the fixed assets and Liens existing on such fixed
     assets at the time of acquisition thereof, conditional sales agreements or
     other title retention agreements with respect to fixed assets hereafter
     acquired, and extensions and renewals of any of the same; provided that (i)
     the Indebtedness secured by any such Lien shall be reasonably related to
     the fair market value of the related asset acquired by the Company or a
     Subsidiary, as the case may be, and (ii) no such Lien shall extend to any
     Property other than that then being acquired; and

          (g)  Liens existing on the Effective Date, as set forth in Schedule
     6.05(g).

provided that the aggregate amount of Indebtedness or obligations (whether or
not assumed by the Company or a Subsidiary) secured by all Liens and agreements
permitted by clauses (e) and (f) of this Section 6.05 shall not at any time
exceed $375,000,000.

          SECTION 6.06.  Investments.  The Company shall not, and shall not
permit any Subsidiary to, make any Investment except:

          (a)  the Acquisition, and other acquisitions expressly permitted by
     Section 6.04;

          (b)  Investments existing on the date hereof in any Person;

          (c)  Permitted Investments;

          (d)  Investments made in the ordinary and normal operation of its
     business as presently conducted;

          (e)  reasonable advances to its subcontractors and suppliers in
     anticipation of deliveries;

          (f)  Investments in any Person or Persons, whether domestic or
     foreign, to the extent covered by Guarantees or insurance covering all
     political and credit risks issued by the Overseas Private Investment
     Corporation or another agency of the United States acceptable to the
     Administrative Agent or by an agency of a foreign government which is rated
     investment grade by Moody's or S&P; and

          (g)  other Investments in any Person or Persons, whether domestic or
     foreign, in amounts which do not exceed in the aggregate at any time
     outstanding 5% of the consolidated total assets of the Company and the
     Subsidiaries as at the last day of the most
<PAGE>

                                                                              49

     recently completed Quarterly Period, so long as the aggregate amount of
     Investments in Person(s) that are not Wholly-Owned Subsidiaries does not as
     at such day exceed 2% of the consolidated total assets of the Company and
     the Subsidiaries.

          SECTION 6.07.  Indebtedness.  (a) The Company will not, nor will it
permit any of its Subsidiaries to, create, incur or suffer to exist any
Indebtedness except:

          (i)    Indebtedness to the Lenders hereunder and under the 364-Day
     Credit Agreement and unsecured Indebtedness replacing in whole or in part
     the facility established by this Agreement or by the 364-Day Credit
     Agreement; provided that (a) the Loans outstanding under this Agreement or
     the 364-Day Credit Agreement will be repaid, and the Commitments under such
     Agreements shall be reduced, by amounts equal to the aggregate net proceeds
     of such replacement Indebtedness at the time of the issuance thereof, (b)
     the weighted average life of maturity of such replacement Indebtedness
     shall not be less than that of the Indebtedness under this Agreement or the
     364-Day Credit Agreement, as the case may be, and (c) the obligors in
     respect of any such replacement Indebtedness shall be limited to the
     Borrowers;

          (ii)   the Senior Securities and the Guarantees thereof by the Company
     and Litton Operating;

          (iii)  Indebtedness outstanding on the date hereof and reflected in
     Schedule 6.07, and refinancings and extensions of any thereof that do not
     increase the outstanding principal amount of such Indebtedness;

          (iv)   Subordinated Indebtedness;

          (v)    Indebtedness of (x) Subsidiaries to the Company to the extent
     the Company is permitted by Section 6.06 to make Investments in
     Subsidiaries, (y) Subsidiaries to other Subsidiaries or (z) the Company to
     Subsidiaries;

          (vi)   Guarantees permitted by Section 6.03;

          (vii)  Indebtedness under Working Capital Credit Lines, provided that
     the Working Capital Credit Lines of Subsidiaries other than Northrop
     Operating and Litton Operating shall be in an aggregate principal amount
     not greater than $300,000,000;

          (viii) Indebtedness in respect of letters of credit, banker's
     acceptances and similar instruments issued or accepted for the account of
     the Company or any Subsidiary in the ordinary course of its business;

          (ix)   Indebtedness issued under the Northrop Operating Senior
     Indenture or the Litton Operating Senior Indenture and outstanding on the
     date hereof;

          (x)    Indebtedness issued under the Northrop Operating Senior
     Indenture or the Litton Operating Senior Indenture after the date hereof;
     provided that at the time of and
<PAGE>

                                                                              50

     immediately after giving effect to such issuance (A) the Leverage Ratio at
     the then most recent Fiscal Date, determined on a pro forma basis to give
     effect to such issuance as if it had occurred on such Fiscal Date, shall
     not exceed 50%, (B) the Senior Long Term Debt shall be rated at least BBB-
     by S&P and at least Baa3 by Moody's and (C) no Default shall have occurred
     and be continuing;

          (xi)   Indebtedness under Interest Rate Protection Agreements
     permitted or required by Section 6.13;

          (xii)  Indebtedness under the Existing Credit Agreements and the
     Refinanced Debt, but only until the Effective Date; and

          (xiii) additional Indebtedness of the Company and the Subsidiaries
     (including Capital Lease Obligations and other Indebtedness secured by
     Liens permitted under clauses (e) and (f) of Section 6.05 hereof) up to but
     not exceeding $375,000,000 in the aggregate at any one time outstanding.

          (b)    The Borrowers will not permit the Indebtedness of all of the
Subsidiaries that are not Borrowers (other than Indebtedness owing to the
Company or another Subsidiary) to exceed $425,000,000 in the aggregate at any
one time outstanding.

          SECTION 6.08.  Leverage Ratio.  The Company will not permit the
Leverage Ratio as of any Fiscal Date set forth below to exceed the percentage
set forth below opposite such Fiscal Date:

              Fiscal Date                     Percentage
              -----------                     ----------

  June 30, 2001                                 60.0%

  September 30, 2001                            60.0%

  December 31, 2001 - September 30, 2002        57.5%

  December 31, 2002 - September 30, 2003        55.0%

  December 31, 2003 - September 30, 2004        52.5%

  December 31, 2004 and each Fiscal Date        50.0%
  thereafter

SECTION 6.09.  Funded Debt to Consolidated EBITDA Ratio.  The Company will not
permit the Funded Debt to Consolidated EBITDA Ratio as of any Fiscal Date set
forth below to exceed the ratio set forth below opposite such Fiscal Date:

              Fiscal Date                 Ratio
              -----------                 -----

June 30, 2001                             4.75x
--------------------------------------------------------------------------------
<PAGE>

                                                                              51

              Fiscal Date                   Ratio
              -----------                   -----

  September 30, 2001                        4.75x

  December 31, 2001 - September 30, 2002    4.25x

  December 31, 2002 - September 30, 2003    4.00x

  December 31, 2003 - September 30, 2004    3.50x

  December 31, 2004 and each Fiscal Date    3.00x


          SECTION 6.10.  Fixed Charge Coverage Ratio.  The Company will not
permit the Fixed Charge Coverage Ratio as of any Fiscal Date set forth below to
be less than the ratio set forth below opposite such Fiscal Date:

              Fiscal Date                   Ratio
              -----------                   -----

  June 30, 2001                             1.25x

  September 30, 2001                        1.25x

  December 31, 2001 - September 30, 2002    1.25x

  December 31, 2002 - September 30, 2003    1.75x

  December 31, 2003 - September 30, 2004    2.00x

  December 31, 2004 and each Fiscal Date    2.25x

          SECTION 6.11.  Use of Proceeds. The proceeds of the Loans hereunder
will be used (a) to pay the cash consideration payable in the Exchange Offer and
the Litton Merger, (b) to refinance the Existing Credit Agreements and
Refinanced Debt, (c) to pay related fees and expenses and (d) for working
capital, to finance capital expenditures and permitted acquisitions and for
other general corporate purposes.  All borrowings will be in compliance with all
applicable legal and regulatory requirements, including Regulations U and X.

          SECTION 6.12.  Margin Stock.  The Company shall not permit more than
25% of the value (as determined by any reasonable method) of the Property of the
Company and the Subsidiaries subject to the restrictions of Section 6.02, 6.04
or 6.05 hereof (or any similar restriction) to be represented by margin stock
(within the meaning of Regulation U or X).

          SECTION 6.13.  Interest Rate Protection Agreements. (a)  The Company
will not permit any of its Subsidiaries to enter into or become obligated in
respect of any Interest Rate Protection Agreement, other than, in the case of
any Subsidiary, any Interest Rate Protection Agreement entered into with respect
to Indebtedness of such Subsidiary permitted under Section 6.07.
<PAGE>

                                                                              52

          (b)  Not later than 120 days after the Effective Date, the Company
shall cause, and thereafter maintain, through a combination of Interest Rate
Protection Agreements and fixed rate Funded Debt, the effective fixed rate
component of its Funded Debt to be approximately equal to or greater than 50%.

          SECTION 6.14.  Modifications of Certain Documents. The Company will
not consent to any modification, supplement or waiver of any of the provisions
of the Northrop Operating Senior Indenture the Northrop Operating Subordinated
Indenture or the Litton Operating Senior Indenture or any agreement, instrument
or other document evidencing or relating to Subordinated Indebtedness, in each
case to the extent that the same would adversely affect in any material respect
the rights or interests of the Agents and the Lenders, without the prior written
consent of the Co-Administrative Agents.

          SECTION 6.15.  Subsidiary Equity Issuance. The Company shall not
permit any Subsidiary to issue Equity to any Person other than the Company or a
Wholly-Owned Subsidiary except (a) directors' qualifying shares and (b) in
connection with the establishment or capitalization of a bona fide joint venture
with the Person or Persons to whom such Equity is issued.


                                  ARTICLE VII

                               Events of Default

          If one or more of the following events (herein called "Events of
Default") shall occur and be continuing:

          (a)  the Borrowers shall default in the payment of any principal of
     any Loan when due; or the Borrowers shall default in the payment of any
     interest on any Loan or any other amount payable by them hereunder to any
     Lender or any  Agent when due which nonpayment shall have continued for a
     period of two Business Days or more; or

          (b)  (i) default by the Company or any Subsidiary in the payment of
     any Indebtedness of the Company or any Subsidiary after any applicable
     period of grace, (ii) any event specified in any note, agreement, indenture
     or other document evidencing or relating to any of the Company or any
     Subsidiary Indebtedness shall occur if the effect of such event is to
     cause, or (with the giving of any notice or the lapse of time or both) to
     permit the holder or holders of such Indebtedness (or a trustee or agent on
     behalf of such holder or holders) to cause, such Indebtedness to become due
     prior to its stated maturity or (iii) any event specified in any Interest
     Rate Protection Agreement of the Company or any Subsidiary shall occur if
     the effect of such event is to cause, or (with the giving of any notice or
     the lapse of time or both) to permit, any termination or liquidation
     payment or payments to become due thereunder; except for a default in
     respect of Indebtedness, (in the case of clauses (i) or (ii) of this
     paragraph), or payments (in the case of clause (iii) of this paragraph) not
     exceeding $50,000,000 in aggregate amount; or
<PAGE>

                                                                              53

          (c)  any representation, warranty or certification made or deemed made
     in any of the Loan Documents by the Borrowers or any certificate furnished
     to any Lender or Agent pursuant to the provisions hereof shall prove to
     have been false or misleading as of the time made or deemed made or
     furnished in any material respect; or

          (d)  any of the Borrowers shall default in the performance of any of
     its obligations under Section 5.01(h), Section 10.14 or Article VI hereof
     (other than Section 6.15); any of the Borrowers shall default in the
     performance of any of its other obligations in this Agreement and such
     default shall continue unremedied for a period of 30 days after notice
     thereof to the Borrowers by the Co-Administrative Agents or any Lender
     (through the Co-Administrative Agents); or

          (e)  any Borrower or any Subsidiary having total assets of
     $100,000,000 or more shall admit in writing its inability to, or be
     generally unable to, pay its debts as such debts become due; or

          (f)  any Borrower or any Subsidiary having total assets of
     $100,000,000 or more shall (i) apply for or consent to the appointment of,
     or the taking of possession by, a receiver, custodian, trustee or
     liquidator of itself or of all or a substantial part of its property, (ii)
     make a general assignment for the benefit of its creditors, (iii) commence
     a voluntary case under any law relating to bankruptcy, insolvency,
     reorganization (as now or hereafter in effect), (iv) file a petition
     seeking to take advantage of any other law relating to bankruptcy,
     insolvency, reorganization, winding-up, or composition or readjustment of
     debts, (v) fail to controvert in a timely and appropriate manner, or
     acquiesce in writing to, any petition filed against it in an involuntary
     case under any law relating to bankruptcy, insolvency, reorganization, or
     (vi) take any corporate action for the purpose of effecting any of the
     foregoing; or

          (g)  a proceeding or case shall be commenced, without the application
     or consent of any Borrower or any Subsidiary having total assets of
     $100,000,000 or more, in any court of competent jurisdiction, seeking (i)
     its liquidation, reorganization, dissolution or winding-up, or the
     composition or readjustment of its debts, (ii) the appointment of a
     trustee, receiver, custodian, liquidator or the like of such Borrower or
     such Subsidiary or of all or any substantial part of its assets, or (iii)
     similar relief in respect of such Borrower or such Subsidiary under any law
     relating to bankruptcy, insolvency, reorganization, winding-up, or
     composition or adjustment of debts, and such proceeding or case shall
     continue undismissed, or an order, judgment or decree approving or ordering
     any of the foregoing shall be entered and continue unstayed and in effect,
     for a period of 60 days; or an order for relief against such Borrower or
     such Subsidiary shall be entered in an involuntary case under any law
     relating to bankruptcy, insolvency, reorganization; or

          (h)  if (i) a final judgment which, with other outstanding final
     judgments against the Company and all Subsidiaries, exceeds an aggregate of
     $100,000,000, excluding (A) any amounts covered by insurance as to which
     the insurance company shall have acknowledged coverage and (B) the amount
     of any judgment against a Subsidiary other than a Borrower that exceeds the
     fair market value of the assets of such Subsidiary (but
<PAGE>

                                                                              54


     only if neither the Company nor any other Subsidiary is directly or
     contingently liable therefor), shall be rendered against the Company or any
     Subsidiary and (ii) within 60 days after entry thereof, such judgment shall
     not have been discharged, vacated or reversed or execution thereof stayed
     pending appeal or within 60 days after the expiration of any such stay,
     such judgment shall not have been discharged, vacated or reversed; or

          (i)  an event or condition (i) which might constitute grounds under
     Section 4042 of ERISA for the termination of, or for the appointment of a
     trustee to administer, any Plan or Multiemployer Plan and which involves a
     liability of the Company or any Subsidiary having total assets of
     $100,000,000 or more to PBGC in excess of $100,000,000 or (ii) leading to
     the receipt by the Company or any Subsidiary having total assets of
     $100,000,000 or more from the PBGC of a notice of its intention to
     terminate any Plan or Multiemployer Plan or to have a trustee appointed to
     administer any such Plan or Multiemployer Plan shall occur or exist and, as
     a result of such event or condition, together with all other such events or
     conditions, the Company or any ERISA Affiliate shall incur or in the
     opinion of the Required Lenders shall be reasonably likely to incur a
     liability to a Plan, a Multiemployer Plan or PBGC (or any combination of
     the foregoing) which is, in the determination of the Required Lenders,
     material in relation to the consolidated financial position of the Company
     and the Subsidiaries; or

          (j)  (i) any person or group of persons (within the meaning of Section
     13 or 14 of the Exchange Act, it being agreed that an employee of the
     Company or any Subsidiary for whom shares are held under an employee stock
     ownership, employee retirement, employee savings or similar plan and whose
     shares are voted in accordance with the instructions of such employee shall
     not be a member of a group of persons within the meaning of said Section 13
     or 14 solely because such employee's shares are held by a trustee under
     said plan) shall acquire, directly or indirectly, beneficial ownership
     (within the meaning of Rule 13d-3 promulgated by the SEC under said Act, as
     amended) of more than 50% of the outstanding shares of stock of the Company
     having by the terms thereof ordinary voting power to elect (whether
     immediately or ultimately) a majority of the board of directors of the
     Company (irrespective of whether or not at the time stock of any other
     class or classes of stock of the Company shall have or might have voting
     power by reason of the happening of any contingency) or (ii) the Company
     shall cease to own, directly or indirectly, beneficially and of record,
     shares representing 100% of the issued and outstanding capital stock of (x)
     Northrop Operating or (y) after the Litton Merger, Litton Operating; or

          (k)  at any time during any period of 25 consecutive calendar months
     following the date hereof, a majority of the Board of Directors of the
     Company shall not be composed of individuals (i) who were members of the
     Board of the Company or the Board of Northrop Operating (in each case after
     giving effect to the consummation of the Exchange Offer) on the first day
     of such period, (ii) whose election or nomination to said Board was
     approved by individuals referred to in clause (i) above constituting at the
     time of such election or nomination at least a majority of said Board or
     (iii) whose election or nomination to said Board was approved by
     individuals referred to in clauses (i) and (ii) above constituting at the
     time of such election or nomination at least a majority of said Board; or
<PAGE>

                                                                              55

          (l)  the joint liability of any Borrower for any of the Obligations
     shall cease to be, or shall be asserted by any Borrower not to be, valid
     and enforceable;

          Thereupon, (i) in the case of an Event of Default other than one
referred to in clause (f) or (g) of this Article VII, (x) the Co-Administrative
Agents, upon request of the Required Lenders, shall, by notice to the Borrowers,
(x) cancel the Commitments and/or (y) declare the principal amount then
outstanding of and the accrued interest on the Loans and all other amounts
payable by the Borrowers hereunder to be forthwith due and payable, whereupon
such amounts shall be immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrowers; and (ii) in the case of the occurrence of an Event of
Default referred to in clause (f) or (g) of this Article VII, the Commitments
shall be automatically canceled and the principal amount then outstanding of,
and the accrued interest on, the Loans and all other amounts payable by the
Borrowers hereunder shall become automatically immediately due and payable
without presentment, demand, protest or other formalities of any kind, all of
which are hereby expressly waived by the Borrowers.

          Without limiting Section 10.02, the Required Lenders may, on behalf of
all the Lenders, waive, for the period and on the conditions (if any) specified
in such waiver, any Event of Default arising from the failure by any Borrower to
perform any of its obligations under Articles V and VI hereof and any
consequences thereof (including any termination of the Commitments and/or any
declaration that the principal of and interest on the Loans and all other
amounts payable by the Borrowers hereunder shall be forthwith due and payable).
In the case of any such waiver, the Borrowers, the Lenders and the Co-
Administrative Agents, for said period and on said conditions, shall be restored
to their respective former positions and rights hereunder, and any Event of
Default so waived shall, for said period and on said conditions, be deemed not
to be continuing for the purposes of this Agreement; provided that no such
waiver shall extend to any subsequent or other Event of Default or impair any
other right of any Lender or Agent hereunder.


                                 ARTICLE VIII

                                  The Agents

          In order to expedite the transactions contemplated by this Agreement,
Chase and CSFB are hereby appointed to act as Co-Administrative Agents and Chase
is hereby appointed to act as Payment Agent.  Each of the Lenders hereby
irrevocably authorizes the Co-Administrative Agents and the Payment Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Co-Administrative Agents and the Payment Agent by the terms of the Loan
Documents, together with such actions and powers as are reasonably incidental
thereto.

          Any bank serving as Co-Administrative Agent or Payment Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not such Co-Administrative
Agent or Payment Agent, and such bank and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of business with the
Borrowers, any Subsidiary or other Affiliate thereof as if it were not such Co-
Administrative Agent or Payment Agent hereunder.
<PAGE>

                                                                              56

          The Co-Administrative Agents and the Payment Agent shall not have any
duties or obligations except those expressly set forth in the Loan Documents.
Without limiting the generality of the foregoing, (a) no Co-Administrative Agent
or Payment Agent shall be subject to any fiduciary or other implied duties,
regardless of whether a Default has occurred and is continuing, (b) no Co-
Administrative Agent or Payment Agent shall have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated by the Loan Documents that such Co-
Administrative Agent or Payment Agent is required to exercise in writing by the
Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 10.02), and (c) except
as expressly set forth in the Loan Documents, no Co-Administrative Agent or
Payment Agent shall have any duty to disclose, and shall not be liable for the
failure to disclose, any information relating to the Company or any Subsidiary
that is communicated to or obtained by the bank serving as Co-Administrative
Agent or Payment Agent or any of its Affiliates in any capacity.  No Co-
Administrative Agent or Payment Agent shall be liable for any action taken or
not taken by it with the consent or at the request of the Required Lenders (or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 10.02) or in the absence of its own gross
negligence or wilful misconduct.  No Co-Administrative Agent or Payment Agent
shall be deemed to have knowledge of any Default unless and until written notice
thereof is given to such Co-Administrative Agent or Payment Agent by the
Borrowers or a Lender, and no such Co-Administrative Agent or Payment Agent
shall be responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or representation made in or in connection with any Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth in any Loan Document, (iv) the validity, enforceability, effectiveness or
genuineness of any Loan Document or any other agreement, instrument or document,
or (v) the satisfaction of any condition set forth in Article IV or elsewhere in
any Loan Document, other than to confirm receipt of items expressly required to
be delivered to such Co-Administrative Agent or Payment Agent.

          Each Co-Administrative Agent or Payment Agent shall be entitled to
rely upon, and shall not incur any liability for relying upon, any notice,
request, certificate, consent, statement, instrument, document or other writing
believed by it to be genuine and to have been signed or sent by the proper
Person.  Each Co-Administrative Agent or Payment Agent also may rely upon any
statement made to it orally or by telephone and believed by it to be made by the
proper Person, and shall not incur any liability for relying thereon.  Each Co-
Administrative Agent or Payment Agent may consult with legal counsel (who may be
counsel for the Borrowers), independent accountants and other experts selected
by it, and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts.

          Each Co-Administrative Agent or Payment Agent may perform any and all
its duties and exercise its rights and powers by or through any one or more sub-
agents appointed by such Co-Administrative Agent or Payment Agent.  Each Co-
Administrative Agent or Payment Agent and any such sub-agent may perform any and
all its duties and exercise its rights and powers through their respective
Related Parties.  The exculpatory provisions of the preceding paragraphs and the
provisions of Section 10.03 shall apply to any such sub-agent and to the Related
Parties of the Co-Administrative Agents or Payment Agent and any such sub-agent,
and shall apply to their
<PAGE>

                                                                              57

respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Co-Administrative Agent
or Payment Agent.

          Subject to the appointment and acceptance of a successor Co-
Administrative Agent or Payment Agent as provided in this paragraph, any Co-
Administrative Agent or the Payment Agent may resign at any time by notifying
the Lenders and the Company.  Upon any such resignation, the Required Lenders
shall have the right (in consultation with, and with the consent of (unless an
Event of Default has occurred and is continuing pursuant to clause (f) or (g) of
Article VII) the Company, which shall not be unreasonably withheld) to appoint a
successor. If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring Co-
Administrative Agent or Payment Agent gives notice of its resignation, then the
retiring Co-Administrative Agent or Payment Agent may (in consultation with, and
with the consent of (unless an Event of Default has occurred and is continuing
pursuant to clause (f) or (g) of Article VII), the Company, which shall not
unreasonably withhold such consent and which shall, if the retiring Co-
Administrative Agent or Payment Agent shall so request, designate and approve a
successor Co-Administrative Agent or Payment Agent) on behalf of the Lenders,
appoint a successor Co-Administrative Agent or Payment Agent which shall be a
bank with an office in New York, New York, or an Affiliate of any such bank.
Upon the acceptance of its appointment as Co-Administrative Agent or Payment
Agent hereunder by a successor, such successor shall succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Co-
Administrative Agent or Payment Agent, and the retiring Co-Administrative Agent
or Payment Agent shall be discharged from its duties and obligations hereunder.
The fees payable by the Borrowers to a successor Co-Administrative Agent or the
Payment Agent shall be the same as those payable to its predecessor unless
otherwise agreed among the Borrowers and such successor.  After a Co-
Administrative Agent's or the Payment Agent's resignation hereunder, the
provisions of this Article and Section 10.03 shall continue in effect for the
benefit of such retiring Co-Administrative Agent or Payment Agent, its sub-
agents and their respective Related Parties in respect of any actions taken or
omitted to be taken by any of them while it was acting as Co-Administrative
Agent or Payment Agent.

          Each Lender acknowledges that it has, independently and without
reliance upon the Co-Administrative Agents or the Payment Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement.  Each
Lender also acknowledges that it will, independently and without reliance upon
the Co-Administrative Agents or the Payment Agent or any other Lender and based
on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Loan Document, any related
agreement or any document furnished hereunder or thereunder.

          None of the institutions named as Syndication Agent or Co-
Documentation Agents in the heading of this Agreement shall, in their capacities
as such, have any duties or responsibilities of any kind under this Agreement.
<PAGE>

                                                                              58


                                  ARTICLE IX

                    Joint and Several Liability of Borrowers

          In order to induce the Lenders to extend credit hereunder, each
Borrower agrees that it will be jointly and severally liable for all the
Obligations, including the principal of and interest on all Loans requested by
and made to either of the other Borrowers.  Each Borrower further agrees that
the due and punctual payment of the Obligations may be extended or renewed, in
whole or in part, without notice to or further assent from it, and that it will
remain bound hereunder notwithstanding any such extension or renewal of any
Obligation.

          Each Borrower waives presentment to, demand of payment from and
protest to any other Borrower of any of the Obligations, and also waives notice
of acceptance of its obligations and notice of protest for nonpayment. The
obligations of the Borrowers hereunder shall not be affected by (a) the failure
of any Lender or Agent to assert any claim or demand or to enforce or exercise
any right or remedy against any other Borrower under the provisions of this
Agreement or otherwise or (b) any rescission, waiver, amendment or modification
of any of the terms or provisions of this Agreement or any other agreement.

          Each Borrower further agrees that its agreement under this Article IX
constitutes a promise of payment when due (whether or not any bankruptcy or
similar proceeding shall have stayed the accrual or collection of any of the
Obligations or operated as a discharge thereof) and not merely of collection,
and waives any right to require that any resort be had by any Lender to any
balance of any deposit account or credit on the books of any Lender in favor of
any Borrower or any other Person.

          The obligations of each Borrower under this Article IX shall not be
subject to any reduction, limitation, impairment or termination for any reason,
and shall not be subject to any defense or setoff, counterclaim, recoupment or
termination whatsoever, by reason of the invalidity, illegality or
unenforceability of the Obligations, any impossibility in the performance of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of the Borrowers under this Article IX shall not be discharged or
impaired or otherwise affected by the failure of any Agent or any Lender to
assert any claim or demand or to enforce any remedy under this Agreement or any
other agreement, by any waiver or modification in respect of any thereof, by any
default, failure or delay, willful or otherwise, in the performance of any of
the Obligations, or by any other act or omission which may or might in any
manner or to any extent vary the risk of such Borrower or otherwise operate as a
discharge of such Borrower or any Borrower as a matter of law or equity.

          Each Borrower further agrees that its obligations under this Article
IX shall continue to be effective or be reinstated, as the case may be, if at
any time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by the any Agent or any Lender upon the bankruptcy or
reorganization of any other Borrower or otherwise.

          In furtherance of the foregoing and not in limitation of any other
right which any Agent or any Lender may have at law or in equity against any
Borrower by virtue of this
<PAGE>

                                                                              59

Article IX, upon the failure of any other Borrower to pay any Obligation when
and as the same shall become due, whether at maturity, by acceleration, after
notice of prepayment or otherwise, each Borrower hereby promises to and will,
upon receipt of written demand by any Agent, forthwith pay, or cause to be paid,
in cash the amount of such unpaid Obligation.

          If by virtue of the provisions set forth herein, either Northrop
Operating or Litton Operating is required to repay and shall repay Loans the
proceeds of which were received by the other, the Borrower that received such
proceeds agrees to reimburse the Borrower that shall have repaid such Loans.
Upon payment by any Borrower of any sums as provided above, all rights of such
Borrower against any Borrower arising as a result thereof by way of right of
subrogation or otherwise shall in all respects be subordinated and junior in
right of payment to the prior indefeasible payment in full of all the
Obligations owed by the Borrowers to the Lenders.

                                   ARTICLE X

                                 Miscellaneous

          SECTION 10.01.  Notices.  Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:

          (a)  if to any of the Borrowers, to it at 1840 Century Park East, Los
     Angeles, CA 90067-2199, Attention of Albert F. Myers, Corporate Vice
     President and Treasurer and David H. Strode, Assistant Treasurer (both at
     Telecopy No. (310) 201-3088);

          (b)  if to the Agents:

               (1)  to The Chase Manhattan Bank, Loan and Agency Services Group,
          One Chase Manhattan Plaza, 8th Floor, New York, New York 10081,
          Attention of Richard Smith (Telecopy No. (212) 270-5150), with a copy
          to The Chase Manhattan Bank, 270 Park Avenue, New York, NY 10017,
          Attention of Doris Mesa (Telecopy No. (212) 552-5650); and

               (2)  to Credit Suisse First Boston, 11 Madison Avenue, New York,
          NY 10010, Attention of [    ] Telecopy No. [    ]); and

          (c)  if to any other Lender, to it at its address (or telecopy number)
     set forth in its Administrative Questionnaire.

Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto.  All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
<PAGE>

                                                                              60

          SECTION 10.02.  Waivers; Amendments.  (a)  No failure or delay by any
Agent or any Lender in exercising any right or power hereunder or under any
other Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power.  The
rights and remedies of the Agents and the Lenders hereunder and under any other
Loan Documents are cumulative and are not exclusive of any rights or remedies
that they would otherwise have.  No waiver of any provision of any Loan Document
or consent to any departure by the Borrowers therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given.  Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether any Agent or any Lender may have had notice or
knowledge of such Default at the time.

          (b)  Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except pursuant
to an agreement or agreements in writing entered into by the Borrowers party
thereto and the Required Lenders or by the Borrowers party thereto and the Co-
Administrative Agents with the consent of the Required Lenders; provided that no
such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
reduce the rate of interest thereon, or reduce any fees payable to any Lender
hereunder, without the written consent of each Lender affected thereby, (iii)
postpone the scheduled date of payment of the principal amount of any Loan or
any interest thereon, or any fees payable hereunder, or reduce the amount of,
waive or excuse any such payment, or postpone the scheduled date of expiration
of any Commitment, without the written consent of each Lender affected thereby,
(iv) change Section 2.15 in a manner that would alter the pro rata sharing of
payments required thereby, without the written consent of each Lender affected
thereby, (v) change any of the provisions of this Section or the definition of
"Required Lenders" or any other provision of any Loan Document specifying the
number or percentage of Lenders required to waive, amend or modify any rights
hereunder or make any determination or grant any consent hereunder or (vi)
release any Borrower from its joint and several liability for the Obligations
hereunder, or limit its liability in respect of such joint and several
liability, without the written consent of each Lender; provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties of
any Agent hereunder without the prior written consent of such Agent.

          SECTION 10.03.  Expenses; Indemnity; Damage Waiver.  (a)  The
Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by the
Agents and their Affiliates named on the cover of this Agreement, including the
reasonable fees, charges and disbursements of one outside counsel for the
Agents, in connection with the syndication, prior to the date hereof, of the
credit facilities provided for herein, the preparation and administration of the
Loan Documents or any amendments, modifications or waivers (requested by or for
the benefit of the Borrowers) of the provisions hereof (whether or not the
transactions contemplated hereby or thereby shall be consummated) and (ii) all
reasonable out-of-pocket expenses incurred by any Agent or any Lender, including
the fees, charges and disbursements of any counsel for any Agent or any Lender,
(A) related to the enforcement of its rights in connection with the Loan
Documents (including its rights
<PAGE>

                                                                              61

under this Section) or (B) incurred during any workout, restructuring or related
negotiations in respect of the Loan Documents or the Loans.

          (b)  The Borrowers shall indemnify each Agent, each Lender, each of
their Affiliates and each officer, director, employee or agent of the foregoing
Persons involved directly or indirectly in the Transactions (each such Person
being called an "Indemnitee") against, and hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities and reasonable related expenses
(other than Excluded Taxes), including the reasonable fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted against
any Indemnitee arising out of, in connection with, or as a result of (i) the
execution or delivery of any Loan Document or any agreement or instrument
contemplated thereby, the performance by the parties to the Loan Documents of
their respective obligations thereunder or the consummation of the Transactions
or any other transactions contemplated hereby, (ii) any Loan or the use of the
proceeds therefrom or (iii) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is a
party thereto, except, as to each Indemnitee, for losses, claims, damages,
liabilities and related expenses determined by a court of competent jurisdiction
to have resulted from the gross negligence or wilful misconduct of such
Indemnitee.

          (c)  To the extent that the Borrowers fail to pay any amount required
to be paid by them to any Agent under paragraph (a) or (b) of this Section each
Lender severally agrees to pay to such Agent such Lender's Applicable Percentage
(determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount; provided that the unreimbursed expense
or indemnified loss, claim, damage, liability or related expense, as the case
may be, was incurred by or asserted against such Agent in its capacity as such.

          (d)  To the extent permitted by applicable law, the Borrowers shall
not assert, and hereby waive, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Loan or the use of the proceeds thereof.

          (e)  All amounts due under this Section shall be payable promptly
after written demand therefor setting forth the amount and the nature of the
expense or claim, as applicable.

          SECTION 10.04.  Successors and Assigns.  (a)  The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby, except that none
of the Borrowers may assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
attempted assignment or transfer by any of the Borrowers without such consent
shall be null and void).  Nothing in this Agreement, expressed or implied, shall
be construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby and, to the extent expressly
contemplated hereby, the Related Parties of each of the Agents and the Lenders)
any legal or equitable right, remedy or claim under or by reason of this
Agreement.
<PAGE>

                                                                              62

          (b)  Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans at the time owing to it); provided that (i)
except in the case of an assignment to a Lender or an Affiliate of a Lender, the
Company and the Payment Agent must give their prior written consent to such
assignment (which consent shall not be unreasonably withheld), (ii) except in
the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment,
the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment is delivered to the Payment Agent) shall not be less
than $10,000,000 unless the Company and the Payment Agent otherwise consent,
(iii) each partial assignment shall be made as an assignment of a proportionate
part of all the assigning Lender's rights and obligations under this Agreement,
except that this clause (iii) shall not apply to its rights in respect of
outstanding Competitive Loans, (iv) the parties to each assignment shall execute
and deliver to the Co-Administrative Agents an Assignment and Acceptance,
together with (except in the case of an assignment by or to a Co-Administrative
Agent) a processing and recordation fee of $3,500, and (v) the assignee, if it
shall not be a Lender, shall deliver to the Payment Agent an Administrative
Questionnaire; and provided further that any consent of the Company otherwise
required under this paragraph shall not be required if an Event of Default under
clause (f) or (g) of Article VII has occurred and is continuing.  Subject to
acceptance and recording thereof pursuant to paragraph (d) of this Section, from
and after the effective date specified in each Assignment and Acceptance the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obliga  tions under this Agreement (and, in the case of an Assignment
and Acceptance covering all of the assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto but shall
continue to be entitled to the benefits of Sections 2.13 and 2.14, 2.15 and
10.03.  Any assignment or transfer by a Lender of rights or obligations under
this Agreement that does not comply with this paragraph shall be treated for
purposes of this Agreement as a sale by such Lender of a participation in such
rights and obligations in accordance with paragraph (e) of this Section.

          (c)  The Payment Agent, acting for this purpose as agent of the
Borrowers, shall maintain at one of its offices in The City of New York a copy
of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register").  The entries in the Register shall be
conclusive, and the Borrowers, the Co-Administrative Agents and the Lenders may
treat each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding
notice to the contrary.  The Register shall be available for inspection by the
Borrowers and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.

          (d)  Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by
<PAGE>

                                                                              63

paragraph (b) of this Section, the Payment Agent shall accept such Assignment
and Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.

          (e)  Any Lender may, without the consent of the Borrowers or the
Payment Agent, sell participations to one or more banks or other entities (a
"Participant") in all or a portion of such Lender's rights and obligations under
this Agreement (including all or a portion of its Commitment and the Loans owing
to it); provided that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (iii) the Borrowers,
the Co-Administrative Agents, and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce the Loan Documents and to approve any amendment,
modification or waiver of any provision of the Loan Documents; provided that
such agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 10.02(b) that affects such
Participant.  Subject to paragraph (f) of this Section, each Borrower agrees
that each Participant shall be entitled to the benefits of Sections 2.13, 2.14
and 2.15 to the same extent as if it were a Lender and had acquired its interest
by assignment pursuant to paragraph (b) of this Section.

          (f)  A Participant shall not be entitled to receive any greater
payment under Section 2.13 or 2.15 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant.
A Participant that would be a Foreign Lender if it were a Lender shall not be
entitled to the benefits of Section 2.15 unless the Borrowers are notified of
the participation sold to such Participant and such Participant agrees, for the
benefit of the Borrowers, to comply with Section 2.15(e) as though it were a
Lender.

          (g)  Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender to a Federal Reserve Bank, and this Section shall not apply to
any such pledge or assignment of a security interest; provided that no such
pledge or assignment of a security interest shall release a Lender from any of
its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.

          (h)  Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an
"SPC") of such Granting Lender, identified as such in writing from time to time
by the Granting Lender to the Co-Administrative Agents and the Borrowers, the
option to provide to the Borrowers all or any part of any Loan that such
Granting Lender would otherwise be obligated to make to the Borrowers pursuant
to Section 2.01; provided that (i) nothing herein shall constitute a commitment
to make any Loan by any SPC and (ii) if an SPC elects not to exercise such
option or otherwise fails to provide all or any part of such Loan, the Granting
Lender shall be obligated to make such Loan pursuant to the terms hereof.  The
making of a Loan by an SPC hereunder shall be deemed to utilize the Commitment
of the Granting Lender to the same extent, and as if, such Loan were made
<PAGE>

                                                                              64

by the Granting Lender. Each party hereto hereby agrees that no SPC shall be
liable for any payment under this Agreement for which a Lender would otherwise
be liable, for so long as, and to the extent, the related Granting Lender makes
such payment. In furtherance of the foregoing, each party hereto hereby agrees
that, prior to the date that is one year and one day after the payment in full
of all outstanding senior indebtedness of any SPC, it will not institute
against, or join any other person in instituting against, such SPC any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
or similar proceedings under the laws of the United States or any State thereof.
In addition, notwithstanding anything to the contrary contained in this Section
10.04, any SPC may (i) with notice to, but without the prior written consent of,
the Borrowers and the Co-Administrative Agents and without paying any processing
fee therefor, assign all or a portion of its interests in any Loans to its
Granting Lender or (if consented to by the Borrowers and Co-Administrative
Agents) to any financial institutions providing liquidity and/or credit
facilities to or for the account of such SPC to fund the Loans made by such SPC
or to support the securities (if any) issued by such SPC to fund such Loans and
(ii) disclose on a confidential basis any non-public information relating to its
Loans (but not relating to any of the Borrowers or their Affiliates, except with
such Borrower's consent) to any rating agency, commercial paper dealer or
provider of any surety, guarantee or credit or liquidity enhancement to such
SPC.

          SECTION 10.05.  Survival.  All covenants, agreements, representations
and warranties made by the Borrowers herein, in the other Loan Documents and in
the certificates or other instruments delivered in connection with or pursuant
to this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that any Co-Administrative Agent or any Lender may have had notice or knowledge
of any Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Agreement is outstanding and unpaid and so long as the
Commitments have not expired or terminated.  The provisions of Sections 2.13,
2.14 and 2.15 and 10.03 and Article VIII shall survive and remain in full force
and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Loans, the expiration or termination of the
Commitments or the termination of this Agreement or any provision hereof.

          SECTION 10.06.  Counterparts; Integration; Effectiveness.  This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract.  This Agreement,
the other Loan Documents and any separate letter agreements with respect to fees
payable to the Co-Administrative Agents constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof.  Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Co-Administrative Agents and
when the Co-Administrative Agents shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto
(other than Litton Operating, which shall execute a counterpart of this
Agreement as provided in Section 10.14), and thereafter shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.  Delivery of an executed counterpart of a
<PAGE>

                                                                              65

signature page of this Agreement by telecopy shall be effective as delivery of a
manually executed counterpart of this Agreement.

          SECTION 10.07.  Severability.  Any provision of any Loan Document held
to be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions of such Loan Document; and the invalidity of a
particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.

          SECTION 10.08.  Right of Setoff.  If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to setoff and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other obligations at any time owing by such Lender or
Affiliate to or for the credit or the account of any Borrower against any of and
all the obligations of the Borrowers  now or hereafter existing under this
Agreement held by such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement.  The rights of each Lender under this
Section are in addition to and shall not limit other rights and remedies
(including other rights of setoff) which such Lender may have.

          SECTION 10.09.  Governing Law; Jurisdiction; Consent to Service of
Process.  (a)  This Agreement shall be construed in accordance with and governed
by the law of the State of New York.

          (b)  Each of the Borrowers hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
Supreme Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to any Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement or any other Loan Document shall affect any right that
any Agent or any Lender may otherwise have to bring any action or proceeding
relating to this Agreement or any other Loan Document against the Borrowers or
their properties in the courts of any jurisdiction.

          (c)  Each of the Borrowers hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement or any
other Loan Document in any court referred to in paragraph (b) of this Section.
Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
<PAGE>

                                                                              66

          SECTION 10.10.  WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.

          SECTION 10.11.  Headings.  Article and Section headings and the Table
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.

          SECTION 10.12.  Confidentiality.  Each Lender and each of the Co-
Administrative Agents agrees (on behalf of itself and each of its affiliates,
directors, officers, employees and representatives) to keep confidential, in
accordance with their customary procedures for handling confidential information
of this nature and in accordance with safe and sound banking practices, any non-
public information supplied to it by the Borrowers pursuant to this Agreement
which is identified by the Borrowers as being proprietary, private and/or
confidential at the time the same is delivered to the Lenders or the Co-
Administrative Agents, provided that nothing herein shall limit the disclosure
of any such information (a) to the extent required by statute, rule, regulation
or judicial process, (b) to counsel for any of the Lenders or the Co-
Administrative Agents, (c) to bank examiners, auditors or accountants, (d) to
the Co-Administrative Agents or any other Lender, (e) in connection with any
litigation to which any one or more of the Lenders or the Co-Administrative
Agents is a party or (f) to any assignee or participant (or prospective assignee
or participant) SO LONG AS SUCH ASSIGNEE OR PARTICIPANT (OR PROSPECTIVE ASSIGNEE
OR PARTICIPANT) FIRST EXECUTES AND DELIVERS TO THE RESPECTIVE LENDER A
CONFIDENTIALITY AGREEMENT SUBSTANTIALLY IN THE FORM OF EXHIBIT D (WHEREUPON SUCH
BANK SHALL PROMPTLY DELIVER A COPY OF SUCH CONFIDENTIALITY AGREEMENT TO THE
COMPANY); provided, further, that (i) unless specifically prohibited by
applicable law or court order, each Lender and the Co-Administrative Agents
shall, prior to disclosure thereof, notify the Borrowers of any request for
disclosure of any such non-public information (x) by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of such Lender by such governmental
agency) or (y) pursuant to legal process and (ii) in no event shall any Lender
or the Co-Administrative Agents be obligated or required to return any materials
furnished by the Borrowers; and, provided, finally, that no Lender shall,
without the applicable Borrower's prior consent, provide any information
relating to projections of that Borrower's financial performance to any
participant or any prospective assignee or participant (other than any bank or
other financial institution identified to the Borrowers as a participant under
the Existing Credit Agreement in a notice given to the Borrowers prior to the
Restatement Date), and, in lieu
<PAGE>

                                                                              67

thereof, each of the Borrowers shall, promptly following the request of any
Lender and at the Borrowers' expense, provide to a participant the projections
of each of the Borrowers' financial performance that has been made available to
such Lender. Each Lender agrees that money damages would not be a sufficient
remedy for any breach of such Lender's obligations under this Section 10.12 and
that, in addition to all other remedies available to the Borrowers at law or in
equity, the Borrowers shall be entitled to injunctive relief against such Lender
as a remedy for such breach.

          SECTION 10.13.  Interest Rate Limitation.  Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.

          SECTION 10.14.  Execution by Litton Operating.  At such time as Litton
Operating shall have become a Subsidiary, the Company will forthwith cause
Litton Operating to execute this Agreement in the space provided below, to
deliver a counterpart hereof to the Co-Administrative Agents and to deliver such
other documents as shall be required to satisfy the conditions set forth in
Section 4.01(a), (b), (c) and (e) insofar as they relate to Litton Operating,
and upon such execution and delivery, Litton Operating shall become a party to
and a Borrower under this Agreement with the same effect as if it had originally
been a party hereto.
<PAGE>

                                                                              68


          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.


                               NNG, INC.,

                                      by
                                         ______________________________________
                                         Name:
                                         Title:


                               NORTHROP GRUMMAN CORPORATION,

                                      by
                                         ______________________________________
                                         Name:
                                         Title:


                               THE CHASE MANHATTAN BANK,
                               individually and as Co-Administrative Agent and
                               Payment Agent,

                                      by
                                         ______________________________________
                                         Name:
                                         Title:


                               CREDIT SUISSE FIRST BOSTON,
                               individually and as Co-Administrative Agent,

                                      by
                                         ______________________________________
                                         Name:
                                         Title:

                                      by
                                         ______________________________________
                                         Name:
                                         Title:
<PAGE>

                                                                              69

                               CITIBANK, N.A.,

                                      by
                                         _____________________________________
                                         Name:
                                         Title:



                               THE BANK OF NOVA SCOTIA,

                                      by
                                         _____________________________________
                                         Name:
                                         Title:


                               DEUTSCHE BANC ALEX. BROWN
                               SECURITIES INC.

                                      by
                                         _____________________________________
                                         Name:
                                         Title:


                               [OTHER BANKS],

                                      by
                                         _____________________________________
                                         Name:
                                         Title:


In accordance with Section 10.14 of the foregoing Agreement, Litton Industries,
Inc., by its execution hereof, hereby becomes a party to and a Borrower under
such Agreement with the same effect as if it had originally been a party
thereto.

                               LITTON INDUSTRIES, INC.,

                                      by
                                         _____________________________________
                                         Name:
                                         Title:
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>STATEMENT REGARDING COMPUTATION OF EARNINGS
<TEXT>

<PAGE>

                                                                    EXHIBIT 12.1

    Ratio of Combined Earnings to Fixed Charges and Preferred Dividends

<TABLE>
<CAPTION>
                                   Pro Forma
                         -----------------------------
                         Year ended December 31, 2000   Fiscal Year Ended December 31,
                         ----------------------------- ----------------------------------
                         Minimum Equity Maximum Equity
                            Issuance       Issuance     2000    1999   1998  1997  1996
                         -------------- -------------- ------- ------- ------------------
<S>                      <C>            <C>            <C>     <C>     <C>   <C>   <C>
Income from Continuing
 operations before
 income taxes and
 accounting change:.....     $1,047         $1,083     $   975 $   747 $ 309 $ 512 $ 478
                             ------         ------     ------- ------- ----- ----- -----
Plus Fixed Charges:
  Interest on all
   Indebtedness:........        503            467         175     224   232   257   270
  Amortization of debt
   expense:.............         24             24          13      13    14    15    24
  Portion of rental
   expenses on operating
   leases deemed to be
   representative of the
   interest factor:.....         61             61          41      32    32    33    25
  Preferred stock
   dividend requirements
   of consolidated
   subsidiaries:........         42             49         --      --    --    --    --
                             ------         ------     ------- ------- ----- ----- -----
Total Fixed Charges:....        630            601         229     269   278   305   319
Less Preferred stock
 dividend:..............        (42)           (49)        --      --    --    --    --
                             ------         ------     ------- ------- ----- ----- -----
Earnings:...............     $1,635         $1,635     $ 1,204 $ 1,016 $ 587 $ 817 $ 797
                             ------         ------     ------- ------- ----- ----- -----
  Fixed Charges Ratio:..       2.60           2.72        5.26    3.78  2.11  2.68  2.50
                             ======         ======     ======= ======= ===== ===== =====
</TABLE>

   For purposes of computing the ratios of combined earnings to fixed charges
and preferred dividends, earnings represent earnings from continuing operations
before income taxes and fixed charges, and fixed charges consist of interest
expense, the portion of rental expense calculated to be representative of the
interest factor and preferred stock dividend. The ratios of earnings to fixed
charges should be read in conjunction with the financial statements and other
financial data included or incorporated by reference in this offer to purchase
or exchange.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.6
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>CONSENT OF DELOITTE & TOUCHE LLP
<TEXT>

<PAGE>


                                                               EXHIBIT 23.6

                       INDEPENDENT AUDITORS' CONSENT

   We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-54800 of NNG, Inc. on Form S-4 of our report
dated October 10, 2000, appearing in the Annual Report on Form 10-K of Litton
Industries, Inc. for the year ended July 31, 2000 and to the reference to us
under the heading "Experts" in such Registration Statement.

Deloitte & Touche LLP

Los Angeles, California

March 27, 2001
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.7
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>CONSENT OF DELOITTE & TOUCHE LLP
<TEXT>

<PAGE>

                                                                    EXHIBIT 23.7

                         INDEPENDENT AUDITORS' CONSENT

   We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-54800 of NNG, Inc. on Form S-4 of our report
dated January 24, 2001, except for the subsequent events footnote, as to which
the date is March 1, 2001 appearing in the Annual Report on Form 10K/A of
Northrop Grumman Corporation for the year ended December 31, 2000 and to the
reference to us under the heading "Experts" in such Registration Statement.

Deloitte & Touche LLP

Los Angeles, California
March 27, 2001
</TEXT>
</DOCUMENT>
</SUBMISSION>
