<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-2384
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TRW Inc.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0575430
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 Richmond Road, Cleveland, Ohio 44124
-----------------------------------------
(Address of principal executive offices)
(Zip Code)
(216) 291-7000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
As of July 30, 1999, there were 121,227,924 shares of
TRW Common Stock, $0.625 par value, outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Statements of Earnings (unaudited)
TRW Inc. and subsidiaries
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Second quarter ended Six months ended
June 30 June 30
In millions except per share data 1999 1998 1999 1998
- ---------------------------------------------------------- ------------------
<S> <C> <C> <C> <C>
Sales $ 4,785 $ 3,028 $ 7,882 $ 6,123
Cost of sales 3,940 2,481 6,558 5,056
- ---------------------------------------------------------- ------------------
Gross profit 845 547 1,324 1,067
Administrative and selling expenses 331 192 515 391
Research and development expenses 171 123 315 244
Purchased in-process research and
development -- -- 85 --
Interest expense 142 38 185 76
Other (income)expense-net (16) (4) -- (46)
- ---------------------------------------------------------- ------------------
Earnings before income taxes 217 198 224 402
Income taxes 78 72 113 147
- ---------------------------------------------------------- ------------------
Net earnings $ 139 $ 126 $ 111 $ 255
- ---------------------------------------------------------- ------------------
- ---------------------------------------------------------- ------------------
Per share of common stock
Diluted earnings per share $ 1.14 $ 1.00 $ .91 $ 2.03
Basic earnings per share $ 1.16 $ 1.03 $ .92 $ 2.08
Dividends declared $ .33 $ .31 $ .33 $ .31
- ---------------------------------------------------------- ------------------
- ---------------------------------------------------------- ------------------
Shares used in computing per share
amounts
Diluted 123.2 125.4 123.0 125.8
Basic 120.6 122.1 120.4 122.3
- ---------------------------------------------------------- ------------------
</TABLE>
1
<PAGE> 3
<TABLE>
<CAPTION>
Balance Sheets (unaudited)
TRW Inc. and subsidiaries
- ------------------------------------------------------------------------------
June 30 December 31
In millions 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 609 $ 83
Accounts receivable 2,684 1,721
Inventories 1,048 616
Prepaid expenses 237 104
Net assets of acquired businesses held for sale 963 --
Deferred income taxes 227 179
- ------------------------------------------------------------------------------
Total current assets 5,768 2,703
Property, plant and equipment-on the basis of cost 7,915 6,604
Less accumulated depreciation and amortization 3,999 3,921
- ------------------------------------------------------------------------------
Total property, plant and equipment-net 3,916 2,683
Intangible assets
Intangibles arising from acquisitions 3,359 850
Other 921 360
- ------------------------------------------------------------------------------
4,280 1,210
Less accumulated amortization 180 143
- ------------------------------------------------------------------------------
Total intangible assets-net 4,100 1,067
Investments in affiliated companies 298 243
Long-term deferred income taxes -- 33
Other notes and accounts receivable 394 227
Prepaid pension cost 2,471 --
Other assets 394 213
- ------------------------------------------------------------------------------
$ 17,341 $ 7,169
- ------------------------------------------------------------------------------
Liabilities and shareholders' investment
Current liabilities
Short-term debt $ 3,406 $ 839
Accounts payable 1,596 964
Current portion of long-term debt 625 30
Other current liabilities 1,995 1,185
- ------------------------------------------------------------------------------
Total current liabilities 7,622 3,018
Long-term liabilities 1,708 826
Long-term debt 5,661 1,353
Long-term deferred income taxes 587 --
Minority interests in subsidiaries 107 94
Capital stock 76 75
Other capital 462 457
Retained earnings 2,089 2,021
Treasury shares-cost in excess of par value (598) (637)
Accumulated other comprehensive income(loss) (373) (38)
- ------------------------------------------------------------------------------
Total shareholders' investment 1,656 1,878
- ------------------------------------------------------------------------------
$ 17,341 $ 7,169
- ------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 4
Statements of Cash Flows (unaudited)
TRW Inc. and subsidiaries
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Six months ended
June 30
In millions 1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net earnings $ 111 $ 255
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Purchased in-process research and development 85 --
Depreciation and amortization 363 278
Deferred income taxes (131) (123)
Other-net 16 3
Changes in assets and liabilities, net of effects
of businesses acquired:
Accounts receivable (131) (90)
Inventories and prepaid expenses 173 (88)
Accounts payable and other accruals 29 (6)
Other-net (169) (14)
- ----------------------------------------------------------------------------------
Net cash provided by operating activities 346 215
- ----------------------------------------------------------------------------------
Investing activities
Capital expenditures (356) (273)
Acquisitions, net of cash acquired (6,049) (236)
Proceeds from divestitures 91 --
Other-net 48 6
- ----------------------------------------------------------------------------------
Net cash used in investing activities (6,266) (503)
- ----------------------------------------------------------------------------------
Financing activities
Increase(decrease) in short-term debt 2,551 (263)
Proceeds from debt in excess of 90 days 4,901 871
Principal payments on debt in excess of 90 days (854) (179)
Reacquisition of common stock -- (72)
Dividends paid (80) (76)
Other-net (32) 17
- ----------------------------------------------------------------------------------
Net cash provided by financing activities 6,486 298
- ----------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents (40) (4)
- ----------------------------------------------------------------------------------
Increase in cash and cash equivalents 526 6
Cash and cash equivalents at beginning of period 83 70
- ----------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 609 $ 76
- ----------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 5
Results by Business Segments (unaudited)
TRW Inc. and subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Quarter ended Six months ended
June 30 June 30
In millions 1999 1998 1999 1998
- --------------------------------------------------------- -------------------
<S> <C> <C> <C> <C>
Sales
Automotive $ 3,293 $ 1,813 $ 5,258 $ 3,699
Aerospace & Information Systems 1,492 1,215 2,624 2,424
- --------------------------------------------------------- -------------------
Sales $ 4,785 $ 3,028 $ 7,882 $ 6,123
- --------------------------------------------------------- -------------------
Segment profit before income taxes
Automotive $ 159 $ 153 $ 295 $ 302
Aerospace & Information Systems 221 112 312 237
- --------------------------------------------------------- -------------------
Segment profit before income taxes 380 265 607 539
Purchased in-process research and
development -- -- (85) --
Corporate expense and other (66) (29) (147) (59)
Pension income 58 -- 58 --
Financing costs (155) (38) (209) (78)
- --------------------------------------------------------- -------------------
Earnings before income taxes $ 217 $ 198 $ 224 $ 402
- --------------------------------------------------------- -------------------
</TABLE>
4
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
(unaudited)
Principles of Consolidation
- ---------------------------
The financial statements include the accounts of TRW and its subsidiaries except
for four wholly owned insurance subsidiaries. The insurance subsidiaries and the
investments in affiliated companies are accounted for by the equity or cost
method as appropriate. The consolidated financial statements reflect the
adjusted preliminary allocation of the purchase price for LucasVarity Limited
(LucasVarity), which may be adjusted as further information becomes available,
and the consolidated results of LucasVarity's operations and cash flows
subsequent to the date of acquisition, March 25, 1999.
Acquisition
- -----------
On February 6, 1999, TRW commenced an offer for the entire issued share capital
of LucasVarity. The offer was declared unconditional in all respects on March
25, 1999. On March 29, 1999, TRW issued notices to those LucasVarity
shareholders who had not already accepted the offer, informing them that it
intended to exercise its rights under Section 429 of the Companies Act of 1985
to acquire compulsorily all LucasVarity shares that had not been acquired in the
offer. At midnight on May 10, 1999, TRW compulsorily acquired all shares that
had not been acquired in the offer, thereby closing the acquisition of
LucasVarity.
LucasVarity manufactures and supplies advanced technology systems, products and
services in the automotive and aerospace industries. It is a major producer of
braking systems, fuel injection systems, electrical and electronic systems to
the automotive industry and has a significant position in automotive aftermarket
operations and services. LucasVarity provides the aerospace industry with high
integrity systems in engine controls, electrical power generation and
management, flight controls and cargo handling, all backed by a worldwide
customer support operation.
LucasVarity employs approximately 51,000 employees worldwide and the majority of
its operating facilities are located in Europe and the United States.
The aggregate cash purchase price for LucasVarity was approximately $6.8 billion
and the transaction was accounted for as a purchase business combination.
Assets and liabilities have been recorded based on their respective fair values.
The preliminary purchase price allocation resulted in an $85 million charge to
earnings, with no income tax benefit, for the fair value of acquired in-process
research and development that had not reached technological feasibility and had
no future alternative use.
The fair value of acquired in-process research and development was determined
using the income approach under the proportional method. The fair value of
identifiable intangible assets were determined primarily using the income
approach. A risk adjusted discount rate of 18 percent, representing the cost of
capital and a premium for the risk, was used to discount the projects' cash
flows. Operating margins were assumed to be similar to historical margins of
similar products. The size of the applicable market was verified for
reasonableness with outside research sources. The projects were in various
stages of completion, ranging from approximately 40 to 80 percent complete as of
the valuation date. The stage of completion for each project was estimated by
evaluating the cost to complete, complexity of the technology and time to
market. The projects are anticipated to be completed from late 1999 through
2002. The estimated cost to complete the projects is $65 million.
5
<PAGE> 7
During the second quarter 1999, the valuation of certain LucasVarity employee
benefit plans was completed and certain pre-acquisition contingencies were
adjusted. The preliminary allocation of the purchase price has been adjusted to
incorporate these items and may be adjusted in subsequent periods through March
2000 based on changes to pre-acquisition contingencies and restructuring.
The adjusted preliminary allocation of the purchase price and the estimated
goodwill are summarized as follows:
(In millions)
Cash purchase price $ 6,778
Cash and cash equivalents 774
Accounts receivable 887
Inventory 524
Net assets of businesses held for sale 986
Prepaid expenses 182
Current deferred income taxes 37
Property, plant and equipment 1,357
Intangible assets 556
Prepaid pension costs 2,471
Other assets 426
-------
Total assets 8,200
Accounts payable (686)
Other accruals (773)
Debt (970)
Long-term liabilities (856)
Long-term deferred income taxes (773)
-------
Total liabilities (4,058)
Minority interest (39)
Purchased in-process research and development 85
-------
Excess of purchase price over fair value of net
assets acquired $ 2,590
=======
Goodwill is being amortized on a straight-line basis over 40 years and
identifiable intangible assets are being amortized on a straight-line basis over
useful lives ranging from 16 to 30 years.
Pro Forma Financial Information
- -------------------------------
The following unaudited pro forma financial information for the second quarter
and six months ended June 30, 1999 and 1998, assumes the LucasVarity acquisition
occurred as of the beginning of the respective periods, after giving effect to
certain adjustments, including the amortization of intangible assets, interest
expense on acquisition debt, additional depreciation based on the fair market
value of the property, plant and equipment acquired, write-off of purchased
in-process research and development and income tax effects. The pro forma
results have been prepared for comparative purposes only and are not necessarily
indicative of the results of operations which may occur in the future or that
would have occurred had the acquisition of LucasVarity been effected on the
dates indicated, nor are they necessarily indicative of TRW's future results of
operations.
6
<PAGE> 8
<TABLE>
<CAPTION>
Second quarter ended Six months ended
(In millions) June 30 June 30
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $4,785 $4,762 $9,508 $9,735
Net earnings from continuing
operations 161 144 264 266
Diluted earnings per share from
continuing operations 1.31 1.15 2.15 2.11
</TABLE>
Foreign Exchange Contracts
- --------------------------
TRW enters into forward exchange contracts which hedge firm foreign currency
commitments, anticipated transactions and certain intercompany transactions. At
June 30, 1999, TRW had contracts outstanding with a notional amount of $1.1
billion denominated principally in the British pound, the U.S. dollar, the
Spanish peseta, the French franc, the German deutsche mark, the Euro and the
Canadian dollar, maturing at various dates through January 2007. Contracts
outstanding increased from $162 million at December 31, 1998 primarily due to
the acquisition of LucasVarity and the hedging of foreign currency exposures
associated with its aerospace and automotive businesses.
The combined fair market value of the forward exchange contracts was
approximately $65 million at June 30, 1999, primarily all of which related to
LucasVarity. The fair market value of forward contracts at December 31, 1998 was
$1 million. Changes in market value of the contracts which hedge firm foreign
currency commitments and intercompany transactions are generally included in the
basis of the transactions. Changes in market value of the contracts which hedge
anticipated transactions are generally recognized in earnings.
Foreign exchange contracts are placed with a number of major financial
institutions to minimize credit risk. No collateral is held in relation to the
contracts, and TRW anticipates that these financial institutions will satisfy
their obligations under the contracts.
Interest Rate Swap Agreements
- -----------------------------
In anticipation of offering debt securities to finance the acquisition of
LucasVarity, TRW entered into a combination of forward starting interest rate
swaps and treasury locks during the first six months of 1999 with a mandatory
cash settlement in the second quarter. These agreements effectively fixed the
base rate of interest on an aggregate notional principal amount of $1.8 billion
of debt securities TRW issued during the second quarter 1999. These hedges were
settled simultaneously with the issuance of the debt securities and a before-tax
gain of $23 million is being recognized as an adjustment to interest expense
over the life of the debt securities issued using the effective interest rate.
During the second quarter, TRW entered into an interest rate swap in order to
convert the fixed rate to a floating rate on a notional principal amount of $425
million of notes issued during the quarter. The fair market value of the
interest rate swap is a liability of approximately $400,000 at June 30, 1999.
Net payments or receipts under the agreement will be recognized as an adjustment
to interest expense. The agreement was entered into with a major financial
institution, and TRW anticipates that the financial institution will satisfy its
obligation under the agreement. No collateral is held in relation to the
agreement.
7
<PAGE> 9
Issuance of a Subsidiary's Stock
- --------------------------------
TRW includes gains or losses arising from the issuance of a subsidiary's or
equity affiliate's stock in non-operating income.
Comprehensive Income
- --------------------
The components of comprehensive income, net of related tax, for the second
quarter and first six months of 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Second quarter ended Six months ended
(In millions) June 30 June 30
-------------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 139 $ 126 $ 111 $ 255
Foreign currency translation
adjustments (186) 14 (310) (9)
Unrealized losses on securities (14) (6) (25) (4)
----- ----- ----- -----
Comprehensive income(loss) $ (61) $ 134 $(224) $ 242
----- ----- ----- -----
</TABLE>
The components of accumulated other comprehensive income, net of related tax, at
June 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
June 30 December 31
(In millions) 1999 1998
---------------------------
<S> <C> <C>
Foreign currency translation adjustments $(365) $ (55)
Unrealized gains on securities 5 30
Minimum pension liability adjustments (13) (13)
----- -----
Accumulated other comprehensive income(loss) $(373) $ (38)
----- -----
</TABLE>
New Accounting Pronouncement
- ----------------------------
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
is effective for years beginning after June 15, 2000. The Company is considering
earlier adoption. Under this statement, changes in the market value of contracts
which hedge anticipated transactions will be deferred and recognized in earnings
when realized. The effect of this statement on TRW's results of operations and
financial condition will not be material.
8
<PAGE> 10
Divestitures
- ------------
On May 17, 1999, TRW announced it will divest its engine businesses, which
consist of TRW Engine Components and Lucas Diesel Systems operations; TRW Nelson
Stud Welding; and the LucasVarity Wiring companies.
Sales included in TRW's second quarter and six months ended June 30, 1999
Statements of Earnings for the businesses to be sold were $443 million and $617
million, respectively. Sales included in TRW's second quarter and six months
ended 1998 Statements of Earnings for the businesses to be sold were $147
million and $300 million, respectively.
TRW's investment in the LucasVarity Wiring companies and Lucas Diesel Systems
operations is included in the balance sheet caption "Net assets of acquired
businesses held for sale."
TRW expects to complete the divestitures of these businesses by year end 1999.
Operating Segments
- ------------------
On April 28, 1999, TRW announced a reorganization of its business into two
segments: Automotive and Aerospace & Information Systems. TRW's and
LucasVarity's automotive businesses were combined into TRW's Automotive
Segment and TRW's space, defense and information systems businesses were
combined with LucasVarity's aerospace business to form the Aerospace &
Information Systems Segment.
As a result of the acquisition of LucasVarity, segment assets increased
significantly. The preliminary valuation of the LucasVarity assets applicable to
each segment is $4.7 billion for the Automotive Segment and $1.5 billion for the
Aerospace & Information Systems Segment.
The caption "Financing costs" displayed in the reconciliation of segment profit
before income taxes to consolidated earnings before income taxes includes
interest expense as well as the underwriting and participation fees associated
with the acquisition of LucasVarity.
The first quarter 1999 and 1998 results of operations for TRW's
Telecommunications business were recorded as part of "Corporate expense and
other." During the second quarter of 1999, management determined that the
results of operations for the Telecommunications business would be reviewed and
managed as part of the Aerospace & Information Systems segment and as such,
segment profit for the first quarter 1999 and 1998 has been restated to include
the Telecommunications business.
"Corporate expense and other" includes approximately $20 million and $70 million
of foreign exchange losses related to the acquisition of LucasVarity for the
second quarter and first six months of 1999, respectively.
9
<PAGE> 11
Inventories
- -----------
Inventories consist of the following:
June 30 December 31
(In millions) 1999 1998
----------------------
Finished products and work in process $ 556 $ 316
Raw materials and supplies 492 300
------ ------
$1,048 $ 616
------ ------
The increase in inventory is due to the acquisition of LucasVarity.
Long-Term Liabilities
- ---------------------
Long-term liabilities at June 30, 1999 and December 31, 1998, include $1,164
million and $651 million, respectively, relating to postretirement benefits
other than pensions. The increase is due to the acquisition of LucasVarity.
Debt and Credit Agreements
- --------------------------
TRW received fully underwritten financing for the acquisition of LucasVarity in
the form of a $7.4 billion two-tranche credit agreement with 59 banks. Tranche
one of $3.7 billion expires December 31, 1999 and the second tranche of $3.7
billion expires January 26, 2000 with an option to extend the maturity of up to
$2.0 billion of borrowings to January 26, 2001. The interest rates under the
agreement are the prime rate and a rate based on a London Interbank Offered
Rate. Issuance of long-term debt securities in the public or private capital
markets and the net proceeds from divestitures, among other items, reduce the
amount of the commitments by 100 percent under tranche one until it is zero and
then by 50 percent under tranche two, with a maximum reduction under tranche two
of $1.7 billion. At June 30, 1999, there were no outstanding borrowings under
this agreement.
During the first quarter of 1999, TRW amended the terms of its $750 million and
$745 million U.S. revolving credit agreements and its $250 million multicurrency
revolving credit agreement to change commitment fees, borrowing margins and
other key terms and conditions to conform to the terms of the $7.4 billion
agreement. In addition, the expiration date of the $745 million agreement was
extended from December 6, 1999 to January 26, 2000, with the provision that TRW
may extend the maturity of borrowings to January 26, 2001.
During the first quarter of 1999, the Company incurred short-term borrowings of
approximately $519 million to finance the purchase of LucasVarity's Ordinary
Shares on the open market. In addition, a $6.3 billion payable was incurred for
LucasVarity shares tendered in the offer. During the second quarter, the Company
settled the payable for LucasVarity shares by the issuance of commercial paper.
During the second quarter 1999, TRW refinanced commercial paper by issuing $2.4
billion of notes and debentures on May 26, 1999 with $400 million 6.5% Notes Due
2002, $700 million 6.625% Notes Due 2004, $750 million 7.125% Notes Due 2009,
and $550 million 7.75% Debentures Due 2029. An additional $1.0 billion of notes
was issued on June 18, 1999 with $575 million Floating Rate Notes due 2000 and
$425 million 6.45% Notes due 2001. The $425 million 6.45% Notes due 2001 were
simultaneously changed to floating rate through the execution of a $425 million
interest rate swap. Due to the issuance of long-term debt, tranche one of the
$7.4 billion credit agreement was reduced by $3.4 billion during the second
quarter.
At June 30, 1999, $1.1 billion of short-term obligations were reclassified to
long-term obligations as TRW intends to refinance the obligations on a long-term
basis and has the ability to do so under its existing credit agreements.
10
<PAGE> 12
Other (Income)Expense-Net
- -------------------------
Other (income)expense-net included the following:
<TABLE>
<CAPTION>
(In millions) Second quarter ended Six months ended
June 30 June 30
-------------------- ----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other income $ (26) $ (15) $ (51) $ (81)
Other expense 68 11 104 33
Gain from issuance of equity
affiliate's stock -- -- (29) --
Gain from sale of equity
affiliate's stock (79) -- (94) --
Foreign currency exchange 21 -- 70 2
----- ----- ----- -----
$ (16) $ (4) $ -- $ (46)
----- ----- ----- -----
</TABLE>
Other income for the six months ended June 30, 1998 included a $49 million
benefit from the settlement of certain patent litigation.
Other expense for the second quarter of 1999 and the six months ended June 30,
1999 included charges for underwriting and participation fees incurred to secure
committed credit facilities related to the acquisition of LucasVarity of $12
million and $22 million, respectively, and additional goodwill amortization of
$19 million and $21 million, respectively, primarily related to the acquisition
of LucasVarity.
During the first quarter of 1999, RF Micro Devices, Inc. (RFMD), an equity
affiliate which designs, develops, manufactures and markets priority radio
frequency integrated circuits for wireless communications applications, issued
2,012,500 shares of stock at $61.44 per share in a registered public offering,
resulting in a gain of $29 million. Deferred taxes have been provided on the
gain.
During the first quarter of 1999, TRW sold 287,500 shares of RFMD common stock
in the registered public offering resulting in a gain of $15 million. TRW sold
an additional 1.7 million shares of RFMD during the second quarter of 1999
resulting in a gain of $79 million. TRW owned approximately 23 percent of RFMD
as of June 30, 1999.
Foreign currency exchange for the six months ended June 30, 1999 included a $50
million nonrecurring loss on foreign currency hedges related to the acquisition
of LucasVarity. Foreign currency exchange for the second quarter and six months
ended June, 30 1999 included a $20 million loss on foreign currency hedges of
anticipated transactions.
Supplemental Cash Flow Information
- ----------------------------------
Six months ended
(In millions) June 30
----------------
1999 1998
---- ----
Interest paid (net of amount capitalized) $152 $ 62
Income taxes paid (net of refunds) $111 $149
For purposes of the statements of cash flows, TRW considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
11
<PAGE> 13
Earnings Per Share
- ------------------
<TABLE>
<CAPTION>
Quarter ended Six months ended
In millions except per share data June 30 June 30
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator
Net earnings $ 139.8 $ 125.8 $ 111.4 $ 255.2
Preferred stock dividends .1 .1 .3 .3
------- ------- ------- -------
Numerator for basic earnings per
share--earnings available to common
shareholders 139.7 125.7 111.1 254.9
Effect of dilutive securities
Preferred stock dividends .1 .1 .3 .3
------- ------- ------- -------
Numerator for diluted earnings per share--
earnings available to common shareholders
after assumed conversions $ 139.8 $ 125.8 $ 111.4 $ 255.2
------- ------- ------- -------
Denominator
Denominator for basic earnings per
share--weighted-average common shares 120.6 122.1 120.4 122.3
Effect of dilutive securities
Convertible preferred stock .8 .9 .8 .9
Employee stock options 1.8 2.4 1.8 2.6
------- ------- ------- -------
Dilutive potential common shares 2.6 3.3 2.6 3.5
Denominator for diluted earnings per
share--adjusted weighted-average shares
and assumed conversions 123.2 125.4 123.0 125.8
------- ------- ------- -------
Basic earnings per share $ 1.16 $ 1.03 $ 0.92 $ 2.08
------- ------- ------- -------
Diluted earnings per share $ 1.14 $ 1.00 $ 0.91 $ 2.03
------- ------- ------- -------
</TABLE>
Contingencies
- -------------
During 1997, TRW Vehicle Safety Systems Inc., a wholly owned subsidiary of the
Company, reported to the Arizona Department of Environmental Quality (ADEQ)
potential violations of the Arizona hazardous waste law at its Queen Creek,
Arizona facility for the possible failure to properly label and dispose of
wastewater that might be classified as hazardous waste. ADEQ is conducting an
investigation into these potential violations and the Company is cooperating
with the investigation. If ADEQ initiates proceedings against the Company with
respect to such matters, the Company could be liable for penalties and fines and
other relief. The Arizona State Attorney General also is investigating matters,
and federal, civil and criminal governmental investigations with respect to
these potential violations are ongoing. Management is currently evaluating this
matter and is unable to make a meaningful estimate of the amount or range of
possible liability, if any, at this time, although management believes that the
Company would have meritorious defenses.
During 1996, the Company was advised by the United States Department of Justice
(DOJ) that it had been named as a defendant in two lawsuits brought by a former
employee of the Company's former Space & Technology Group and originally filed
under seal in 1994 and 1995, respectively, in the United States District Court
for the Central District of California under the qui tam provisions of the civil
False Claims Act. The Act permits an individual to bring suit in the name of the
United States and share in any recovery. The allegations in the lawsuits relate
to the classification of costs incurred by the Company that were charged to
certain of its federal contracts. Under the law, the government must investigate
the allegations and determine whether it wishes to intervene and take
responsibility for the lawsuits. On February 13,
12
<PAGE> 14
1998, the DOJ intervened in the litigation. On February 19, 1998 and March 4,
1998, the former employee filed amended complaints in the Central District of
California that realleged certain of the claims included in the 1994 and 1995
lawsuits and omitted the remainder. The amended complaints allege that the
United States has incurred substantial damages and that the Company should be
ordered to cease and desist from violations of the civil False Claims Act and is
liable for treble damages, penalties, costs, including attorneys' fees, and such
other relief as deemed proper by the court. On March 17, 1998, the DOJ filed its
complaint against the Company upon intervention in the 1994 lawsuit, which set
forth a limited number of the allegations in the 1994 lawsuit and other
allegations not in the 1994 lawsuit. The DOJ elected not to pursue the other
claims in the 1994 lawsuit or the claims in the 1995 lawsuit. The DOJ's
complaint alleges that the Company is liable for treble damages, penalties,
interest, costs and "other proper relief." On March 18, 1998, the former
employee withdrew the first amended complaint in the 1994 lawsuit at the request
of the DOJ. On May 18, 1998, the Company filed answers to the former employee's
first amended complaint in the 1995 lawsuit and to the DOJ's complaint, denying
all substantive allegations against the Company contained therein. At the same
time, the Company filed counterclaims against both the former employee and the
federal government. On July 20, 1998, both the former employee and the DOJ filed
motions seeking to dismiss the Company's counterclaims. On November 23, 1998
(entered as an Order on January 21, 1999), the court dismissed certain
counterclaims asserted against the former employee and the federal government
and took under advisement the former employee's motion to dismiss certain other
counterclaims. On March 15, 1999, the DOJ was granted leave to file a First
Amended Complaint, which adds certain allegations concerning the Company's
subcontracts. The Company cannot presently predict the outcome of these
lawsuits, although management believes that their ultimate resolution will not
have a material effect on the Company's financial condition or results of
operations.
Interim Statements
- ------------------
The financial statements are based in part on approximations and are subject to
adjustments that may develop, such as unsettled contract and renegotiation
matters and matters that arise in connection with the annual audit of the
financial statements; however, in the opinion of management, all adjustments
(which consist of normal recurring accruals) necessary for a fair presentation
of the results of operations for the periods presented have been included.
Results of operations for any interim period are not necessarily indicative of
the results to be expected for the full year.
13
<PAGE> 15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
(In millions except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Second Quarter June 30
-------------------------------- ----------------------------
Percent Percent
1999 1998 Inc (Dec) 1999 1998 Inc (Dec)
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $4,785 $3,028 58% $7,882 $6,123 29%
Segment profit before
income taxes $ 380 $ 265 44% $ 607 $ 539 13%
Net earnings $ 139 $ 126 11% $ 111 $ 255 (56%)
Diluted earnings per
share $ 1.14 $ 1.00 14% $ 0.91 $ 2.03 (55%)
Effective tax rate 35.7% 36.5% 50.4% 36.5%
</TABLE>
Second quarter 1999 sales, segment profit before tax and net earnings reflect
the first full quarter results of LucasVarity, which was acquired on March 25.
Second quarter 1999 sales and segment profit before tax increased primarily due
to the inclusion of LucasVarity sales and segment profit of $1.7 billion and
$111 million, respectively.
Net earnings for the second quarter 1999 increased primarily due to the net
effect of the LucasVarity acquisition and a gain from the sale of RFMD stock
which were partially offset by increased interest expense and automotive
restructuring charges.
Net earnings for the second quarter 1999 included a $52 million gain from the
sale of RFMD stock offset by charges of $40 million for automotive restructuring
and $26 million for unusual items pertaining to LucasVarity, which included: $13
million in unrealized losses on foreign currency hedges; a $13 million reduction
in earnings to reflect the adjustment of the fair market value of inventory; and
$8 million for fees incurred to secure committed credit facilities, reduced by
the $8 million effect of discontinuing the depreciation of assets of businesses
held for sale. Net earnings for the second quarter of 1998 included the effects
of the General Motors strike and a litigation settlement, which reduced earnings
by $.07 per share.
Sales and segment profit before tax for the six months ended June 30, 1999
increased primarily due to the inclusion of LucasVarity sales and segment profit
of $1.8 billion and $121 million, respectively.
Net earnings for the first half of 1999 decreased primarily due to the net
effect of the LucasVarity acquisition, increased interest expense, automotive
restructuring charges and charges related to aerospace and information systems'
contracts which were partially offset by a gain related to RFMD.
Net earnings for the first half of 1999 included a gain of $80 million related
to RFMD offset by charges of $47 million for automotive restructuring, $28
million for a commercial fixed-price contract and a capped cost reimbursable
contract for the U.S. Army, and $152 million for unusual items related to
LucasVarity, which included: an $85 million charge for purchased in-process
research and development; a non-recurring loss of $33 million relating to
forward contracts and currency options to purchase British pounds; $13 million
in unrealized losses on foreign currency hedges; a $13 million reduction in
earnings to reflect the adjustment of the fair market value of inventory; and
$16 million for fees incurred to secure committed credit facilities, reduced by
the $8 million effect of discontinuing the depreciation of assets of businesses
held for sale.
Net earnings for the first six months of 1998 included a $32 million benefit
from the settlement of certain patent litigation, offset in part by $26 million
in charges for litigation and contract reserves and severance costs
14
<PAGE> 16
relating to the combination of TRW's systems integration business with BDM
International, Inc., a business acquired in December of 1997.
Interest expense was $185 million for the first six months of 1999 compared to
$76 million for the first half of 1998. The increase in interest expense was
primarily due to the debt incurred for the purchase of LucasVarity.
The effective tax rate was 50.4 percent for the first six months of 1999
compared to 36.5 percent in 1998. Excluding the write-off of purchased
in-process research and development, which has no tax benefit, the effective tax
rate would have been 36.5 percent for the first six months of 1999.
Automotive
<TABLE>
<CAPTION>
Six Months Ended
(In millions) Second Quarter June 30
---------------------------- ---------------------------
Percent Percent
1999 1998 Inc (Dec) 1999 1998 Inc (Dec)
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $3,293 $1,813 82% $5,258 $3,699 42%
Segment profit
before income
taxes $ 159 $ 153 4% $ 295 $ 302 (3%)
</TABLE>
Second quarter 1999 sales increased primarily due to the inclusion of
LucasVarity sales of $1.4 billion. Excluding LucasVarity, second quarter
1999 sales increased 4 percent to $1.9 billion from $1.8 billion in 1998 as
higher volume, primarily in occupant restraints and electronics, was partially
offset by the effects of a strong U.S. dollar and lower pricing across all
product lines. Second quarter 1998 sales were affected by the General Motors
strike.
Second quarter 1999 segment profit before tax increased due to the inclusion of
LucasVarity operations of $81 million. Excluding LucasVarity results and
automotive restructuring charges of $59 million, segment profit before tax
decreased 11 percent to $137 million in 1999, compared with $153 million in
1998, as cost reductions and increased volume were offset by lower pricing,
start-up costs, and production inefficiencies related to the transfer of certain
operations to lower-cost facilities in Mexico. Second quarter 1998 segment
profit was affected by the General Motors strike.
Sales for the six months ended June 30, 1999 increased primarily due to the
inclusion of LucasVarity operations of $1.5 billion, as higher volume was
partially offset by lower pricing and the effects of a strong U.S. dollar.
Segment profit for the six months ended June 30, 1999 decreased as LucasVarity
results of $89 million, cost reductions and increased volume were offset by
automotive restructuring charges of $69 million, lower pricing, start-up costs,
and production inefficiencies related to the transfer of certain operations to
lower-cost facilities in Mexico.
Overall, the automotive restructuring program is progressing, as six
manufacturing facilities have been closed and eight others have been announced
for closure or sale, which included recently a plant in England and two
facilities in Australia. TRW has reduced employee headcount by more than 3,800
against a goal of 7,500. As to elimination of suppliers, TRW has reduced the
total supplier count by more than 20 percent of its goal. In addition, on an
annual basis, $60 million of the planned $75 million in selling, general, and
administrative expense reductions has been achieved.
15
<PAGE> 17
Aerospace & Information Systems
<TABLE>
<CAPTION>
Six Months Ended
(In millions) Second Quarter June 30
---------------------------- ----------------------------
Percent Percent
1999 1998 Inc (Dec) 1999 1998 Inc (Dec)
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,492 $1,215 23% $2,624 $2,424 8%
Segment profit
before income
taxes $ 221 $ 112 99% $ 312 $ 237 32%
</TABLE>
Second quarter 1999 sales increased due to the inclusion of LucasVarity sales of
$282 million.
Second quarter 1999 segment profit before tax increased as LucasVarity
operations of $30 million, a gain of $79 million from the sale of RFMD stock and
new contract awards were partially offset by contracts nearing completion.
Segment profit before tax in the second quarter of 1998 included a $7 million
charge for a litigation settlement.
Sales for the six months ended June 30, 1999 increased as LucasVarity sales of
$300 million and new contract awards were partially offset by contracts nearing
completion, reduced funding on current programs, including a contract
modification announced in 1998, and the termination of the SBIRS-Low contract.
Segment profit before tax for the six months ended June 30, 1999 increased as
LucasVarity operations of $32 million, a gain of $123 million related to RFMD
and new contract awards were partially offset by contracts nearing completion,
reduced funding on current programs, lower sales volume, increased product
development costs associated with commercial programs and a $43 million charge
for a commercial fixed-price contract and a capped cost reimbursable contract
for the U.S. Army. Segment profit before tax for the first six months of 1998
included a $49 million benefit from the settlement of certain patent litigation,
offset in part by $41 million in charges for litigation and contract reserves
and severance costs relating to the combination of TRW's systems integration
business with BDM.
The first quarter of 1999 and 1998 results of operations for TRW's
Telecommunications business were recorded as part of "Corporate expense and
other." During the second quarter of 1999, management determined that the
results of operations for the Telecommunications business would be reviewed and
managed as part of the Aerospace & Information Systems segment and as such,
segment profit for the first quarter of 1999 and 1998 has been restated to
include the Telecommunications business.
16
<PAGE> 18
ACQUISITIONS
LucasVarity
- -----------
On March 25, 1999, TRW acquired LucasVarity for approximately $6.8 billion in
cash. The acquisition was accounted for as a purchase. The adjusted preliminary
purchase price allocation resulted in an $85 million charge to earnings, with no
income tax benefit, for the fair value of acquired in-process research and
development (IPR&D) that had not reached technological feasibility and had no
future alternative use, $560 million for identified intangible assets including
intellectual property and workforce, and incremental fair value adjustments of
approximately $1.5 billion for a prepaid pension asset, primarily from an
overfunded pension plan, $180 million for fixed assets and $30 million for
inventory.
The fair value of IPR&D was determined using the income approach under the
proportional method. The following projects were included in the valuation: next
generation caliper of $26 million, next generation ABS brakes of $23 million,
electro hydraulic braking of $12 million, aerospace engine controls of $18
million, and electrical parking brake of $6 million.
A risk adjusted discount rate of 18 percent representing the cost of capital and
a premium for the risk was used to discount the projects' cash flows. Operating
margins were assumed to be similar to historical margins of similar products.
The size of the applicable market was verified for reasonableness
with outside research sources. The projects were in various stages of completion
ranging from approximately 40 to 80 percent complete as of the valuation date.
The stage of completion for each project was estimated by evaluating the cost to
complete, complexity of the technology, and time to market. The projects are
anticipated to be completed from late 1999 through 2002. The estimated cost to
complete the projects is $65 million.
TRW currently anticipates that these projects will be successfully developed as
budgeted for both the estimated cost and time of completion. Any delay or
cancellation of the projects would not have a material adverse impact on the
results of operations or the financial condition of TRW.
See the "Acquisitions" footnote in the Notes to Financial Statements for further
discussion of the LucasVarity acquisition.
17
<PAGE> 19
Astrolink LLC
- -------------
On May 6, 1999, TRW announced that it will invest $250 million in Astrolink LLC,
a strategic venture initiated by Lockheed Martin. In addition to TRW's
investment, Lockheed Martin Global Telecommunications will invest $400 million
and Telespazio, a Telecom Italia Group Company, will invest $250 million.
Astrolink will commence construction of a system that will enable it to provide
global, on-demand, wireless broadband service. Service is scheduled to begin in
2003.
Astrolink will focus on the high-growth area of broadband data services,
carrying traffic for Internet, intranet, multimedia and corporate data networks.
TRW will build and deliver the digital, packet-switched communications payloads
to Lockheed Martin Commercial Space Systems for integration into satellites
which will be delivered to Astrolink. In addition, TRW will have the opportunity
to be an Astrolink service provider. TRW's $250 million investment will be made
in five installments over the next eighteen months, of which $83 million was
invested in July 1999.
BDM International, Inc.
- -----------------------
In December of 1997, TRW acquired BDM International, Inc., resulting in a charge
for in-process research & development of $548 million. To date, several
commercial projects, including the Web-enabled warehouse and distribution
project, have been delayed about one year due to the following circumstances:
competitive pressures in the information technology markets requiring different
or added functionality; delay in industry standards to be enacted by third
parties; change in internal project staffing; and increased focus on Year 2000
compliance by customers. The costs to complete the projects are substantially
unchanged from the assumptions used in the valuation. The delays of the projects
are not expected to affect materially TRW's expected investment returns.
TRW anticipates that these projects will be successfully developed; however,
there can be no assurance that the products will be viable in the rapidly
changing commercial marketplace. Any delay or cancellation of the projects would
not have a material adverse impact on the results of operations or the financial
condition of TRW.
LIQUIDITY AND FINANCIAL POSITION
In the first six months of 1999, a net increase in debt of $6,598 million, cash
flow provided by operating activities of $346 million and proceeds from
divestitures of $91 million were used to fund acquisitions of $6,049 million,
capital expenditures of $356 million, dividend payments of $80 million and other
items of $24 million. As a result, cash and cash equivalents increased by $526
million.
Net debt (short-term debt, the current portion of long-term debt, long-term debt
less cash and cash equivalents) was $9.1 billion at June 30, 1999, compared to
$2.1 billion at December 31, 1998. The ratio of net debt to total capital (net
debt, minority interests and shareholders' investment) was 84 percent at June
30, 1999, compared to 52 percent at December 31, 1998.
18
<PAGE> 20
During the second quarter 1999, TRW refinanced short-term debt by issuing $2.4
billion of notes and debentures on May 26, 1999 with $400 million 6.5% Notes Due
2002, $700 million 6.625% Notes Due 2004, $750 million 7.125% Notes Due 2009,
and $550 million 7.75% Debentures Due 2029. An additional $1.0 billion of notes
were issued on June 18, 1999 with $575 million Floating Rate Notes due 2000 and
$425 million 6.45% Notes due 2001. The $425 million 6.45% Notes due 2001 were
simultaneously changed to floating rate through the execution of a $425 million
interest rate swap.
At June 30, 1999, $1.1 billion of short-term obligations were reclassified to
long-term obligations as TRW intends to refinance the obligations on a long-term
basis and has the ability to do so under its existing credit agreements.
TRW received fully underwritten financing for the acquisition of LucasVarity in
the form of a $7.4 billion two-tranche credit agreement with 59 banks. Tranche
one of $3.7 billion expires December 31, 1999 and the second tranche of $3.7
billion expires January 26, 2000 with an option to extend the maturity of up to
$2.0 billion of borrowings to January 26, 2001. The interest rates under the
agreement are the prime rate and a rate based on a London Interbank Offered
Rate. Issuance of long-term debt securities in the public or private capital
markets and the net proceeds from divestitures, among other items, reduce the
amount of the commitments by 100 percent under tranche one until it is zero and
then by 50 percent under tranche two, with a maximum reduction under tranche two
of $1.7 billion. At June 30, 1999, there were no outstanding borrowings under
this agreement and tranche one was reduced by $3.4 billion due to the issuance
of long-term debt.
During the first quarter of 1999, TRW amended the terms of its $750 million and
$745 million U.S. revolving credit agreements and its $250 million multicurrency
revolving credit agreement to change commitment fees, borrowing margins and
other key terms and conditions to conform to the terms of the $7.4 billion
agreement. In addition, the expiration date of the $745 million agreement was
extended from December 6, 1999 to January 26, 2000, with the provision that TRW
may extend the maturity of borrowings to January 26, 2001.
It is currently management's intention to renegotiate the Company's revolving
credit agreements upon expiration to maintain facilities adequate to meet the
Company's liquidity requirements.
No securities were issued under the Universal Shelf Registration Statement
during the first six months of 1999.
As a result of the debt incurred for the LucasVarity acquisition, ratings on
TRW's short and long-term debt were lowered. Moody's Investors Service has rated
TRW's commercial paper at P-2 and senior unsecured debt at Baa1. Standard &
Poor's has rated TRW's commercial paper at A-2 and senior unsecured debt at BBB.
These rating changes are not expected to have a material impact on TRW's
financial position.
On May 17, 1999, TRW announced that it will divest its engine businesses, which
consist of TRW Engine Components and Lucas Diesel Systems operations; TRW Nelson
Stud Welding; and the LucasVarity Wiring companies. The estimated net proceeds
from these divestitures are expected to be $1.2 to $1.5 billion. TRW has
established a goal of reducing its net debt by approximately $2.5 billion,
including the effects of these divestitures, by year-end 2000.
Management believes TRW's current financial position and financing arrangements,
including financing for the acquisition of LucasVarity, allow flexibility in
worldwide financing activities and permit TRW to respond to changing conditions
in credit markets. Management believes that funds generated from operations, the
divestiture program and existing borrowing capacity are adequate to fund capital
expenditures, working capital including tax requirements, company-sponsored
research and development programs, dividend payments to shareholders and debt
service requirements.
19
<PAGE> 21
OTHER MATTERS
During 1997, TRW Vehicle Safety Systems Inc., a wholly owned subsidiary of the
Company, reported to the Arizona Department of Environmental Quality (ADEQ)
potential violations of the Arizona hazardous waste law at its Queen Creek,
Arizona facility for the possible failure to properly label and dispose of
wastewater that might be classified as hazardous waste. If ADEQ initiates
proceedings against the Company with respect to such matters, the Company could
be liable for penalties and fines and other relief. Management is currently
evaluating this matter and is unable to make a meaningful estimate of the amount
or range of possible liability, if any, at this time, although management
believes that the Company would have meritorious defenses.
During 1996, the Company was advised by the United States Department of Justice
that it had been named as a defendant in two lawsuits brought by a former
employee and filed under seal in 1994 and 1995, respectively, in the United
States District Court for the Central District of California under the qui tam
provisions of the civil False Claims Act. The Company cannot presently predict
the outcome of these lawsuits, although management believes that their ultimate
resolution will not have a material effect on the Company's financial condition
or results of operations.
Refer to the "Contingencies" footnote in the Notes to Financial Statements for
further discussion of these matters.
Year 2000
A company-wide Year 2000 (Y2K) compliance program has been implemented to
determine Y2K issues and assure Y2K compliance. TRW's Y2K compliance program now
encompasses the Y2K program of LucasVarity. The compliance program has four
major areas: internal computer systems, factory floor systems, supplier and
service management and products and contracts.
The general phases of the compliance program are Project Start-up; Inventory and
Assessment; Conversion, Upgrade and Renovation; Validation, including testing;
and Implementation. The Project Start-up and the Inventory and Assessment phases
are complete. Conversion, Upgrade and Renovation are essentially complete with
the remainder of the Y2K compliance program scheduled to be complete by year-end
1999, except for certain Y2K upgrades for nonmaterial and low priority items.
The internal computer systems are comprised of engineering and research and
development facilities, business computer systems, end user systems and
technical infrastructure. The Company estimates that 96 percent of TRW's
internal computer systems are Y2K compliant and expects the remainder to be
essentially complete by the end of September 1999. Remaining activities are
driven by customer changes, planned later upgrades, or continuing updates to
reflect vendor Y2K upgrades. The Company estimates that 98 percent of
LucasVarity's internal computer systems are Y2K compliant and expects the
remainder to be essentially complete by the end of September 1999. The majority
of critical contingency plans for these systems were developed during the second
quarter 1999, with the remainder to be developed during the third quarter 1999.
The factory floor systems are comprised of manufacturing and warehousing
equipment. The Company estimates that 96 percent of TRW's factory floor systems
are Y2K compliant and expects the remainder to be essentially complete by the
end of September 1999. The Company estimates that 99 percent of LucasVarity's
factory floor systems are Y2K compliant and expects the remainder to be
essentially complete by the end of September 1999. The majority of critical
contingency plans for these systems were developed during the second quarter
1999 with the remainder to be developed during the third quarter 1999.
The Company is continuing to evaluate Y2K issues associated with suppliers to
TRW's Automotive business by working with the Automotive Industries Action Group
(AIAG), which consists of several of TRW's largest automotive customers and
suppliers. The AIAG sent self-assessment surveys to approximately 15,000
20
<PAGE> 22
TRW suppliers. The Company continues to evaluate the criticality of suppliers
and has reduced its estimated critical suppliers to TRW's automotive business
from 3,900 to 3,000. The Company has validated the critical suppliers' state of
Y2K readiness and evaluated the risk to the Company by reviewing the
self-assessment surveys and by conducting telephone surveys or on-site visits
for selected critical suppliers. Y2K readiness responses have been received from
critical automotive suppliers and service providers, except for a small number
of suppliers where evaluations continue. The Company has developed 86 percent of
contingency plans for critical suppliers and service providers and will continue
this activity throughout 1999. Such plans consider alternate sourcing,
stockpiling of inventory and supplies and disaster recovery scenarios.
Y2K certification requests were sent to approximately 8,200 suppliers and
service providers to TRW's space, defense and information systems businesses, of
which about 1,200 are considered critical. All of these critical suppliers have
certified Y2K compliance. Contingency plans were developed during the second
quarter and will continue to be developed throughout 1999.
Approximately 5,500 of LucasVarity's 20,000 automotive and aerospace suppliers
and service providers are critical to its business. Each critical supplier and
service provider is being contacted and their state of Y2K readiness is being
validated. LucasVarity has received responses from approximately 99 percent of
its critical suppliers and service providers, and these responses have been
reviewed to determine what, if any, follow up actions may be necessary.
Suppliers and service providers assessed as being high risk, or of particular
significance to the business, have been reviewed further to evaluate the risks
to LucasVarity. The validation and contingency planning related to LucasVarity's
suppliers and service providers will be essentially complete by the end of
September 1999.
The Company has assessed the products of the existing TRW automotive business
and determined that there should be no Y2K issues. Also, LucasVarity has
assessed its automotive and aerospace products and determined that there should
be no Y2K issues.
Contracts entered into by TRW's space, defense and information systems
businesses after January 1, 1996 and contract modifications entered into after
January 1, 1996 that add major scope to earlier contracts have been assessed.
The Company continues to review and refine the contracts identified as having
Y2K impacts. At the end of the second quarter, the Company has determined that
approximately 400 contracts have Y2K impacts. The remediation and validation has
been completed for 360 of these contracts. Work continues based on customer
mandated schedules for the remaining contracts. The Company expects renovations
and critical contingency planning to be performed throughout 1999.
As part of a continuing process under the Y2K program, issues are being assessed
as they are identified, using formal program reviews to assess progress and
initiate required actions. As the Company's Y2K compliance program proceeds,
contingency plans are being prepared, updated and implemented as necessary to
address the risks identified.
The Company has identified the most likely risks of Y2K noncompliance as the
risk that key suppliers will not be Y2K compliant and the risk that space,
defense and information systems' contracts will have unanticipated Y2K-related
issues. Due to the general uncertainty inherent in the Y2K problem, the Company
is unable to determine at this time whether the consequences of Y2K compliance
failures will have a material effect on the Company's results of operations or
financial condition. In addition, the Company does not have control over service
providers and as a result cannot currently estimate to what extent future
operating results may be adversely affected by the failure of these service
providers to address their Y2K issues successfully.
The total cost of the Company's Y2K compliance program, including LucasVarity
from the date of acquisition, is estimated to be $170 million and includes $85
million for capitalizable costs and $85 million of costs that are being expensed
as incurred. The Company has expensed approximately $63 million to
21
<PAGE> 23
date, including $2 million relating to LucasVarity. The Company expects to
expense an additional $15 million throughout the remainder of 1999. The Company
does not anticipate that the overall costs of the Company's Y2K compliance
program will have a material effect on the Company's financial results or
financial condition.
The dates of completion and the costs of the Company's Y2K program are based on
management's estimates, which were derived utilizing assumptions of future
events, including the availability of certain resources, third party
modification plans and other factors. There can be no guarantee that these
estimates will be achieved, and if the actual timing and costs for the Company's
Y2K program differ materially from those anticipated, the Company's financial
results and financial condition could be materially adversely affected.
Euro Conversion
On December 31, 1998, certain member countries of the European Union irrevocably
fixed the conversion rates between their national currencies and a common
currency, the "Euro," which became their legal currency on January 1, 1999. The
participating countries' former national currencies will continue to exist as
denominations of the Euro between January 1, 1999 and January 1, 2002.
TRW has evaluated the business implications of conversion to the Euro, including
the need to adapt internal systems to accommodate Euro-denominated transactions,
including receipts and payments, the competitive implications of cross-border
price transparency and other strategic implications. TRW's primary customers in
the automotive industry in Europe are expected to require Euro invoicing during
1999. Invoicing and other business functions will be Euro-capable by the end of
the transition period but may be converted earlier where operationally efficient
or cost-effective or to meet customer requirements. TRW's exposure to foreign
currency risk and the related use of derivative contracts to mitigate that risk
is expected to be reduced as a result of conversion to the Euro.
TRW does not expect the conversion to the Euro to have a material effect on its
financial condition or results of operations.
Forward-Looking Statements
Statements in this filing that are not statements of historical fact are
forward-looking statements. In addition, from time to time, TRW and its
representatives may make statements that are forward-looking. All
forward-looking statements involve risks and uncertainties. This section
provides readers with cautionary statements identifying, for purposes of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995,
important factors that could cause TRW's actual results to differ materially
from those contained in forward-looking statements made in this filing or
otherwise made by, or on behalf of, TRW.
The following are some of the factors that could cause actual results to differ
materially from estimates contained in TRW's forward-looking statements:
Our consolidated results could be affected by: unanticipated events and
circumstances that may occur and render TRW's acquisition of LucasVarity less
beneficial to TRW than anticipated; intense competition in our markets that make
it impossible to achieve the expected financial and operating results and
synergies from the acquisition of LucasVarity; the ability of TRW to integrate
LucasVarity into its operations and thereby achieve the anticipated cost savings
and be in a position to take advantage of potential growth opportunities; the
ability to continue technical innovation and the development of and demand for
new products and contract awards; pricing pressures from customers; the ability
to reduce the level of outstanding debt from cash flow from operations and the
proceeds from dispositions planned in
22
<PAGE> 24
our automotive business; the ability to effectively implement the company-wide
Y2K compliance program in accordance with the estimated timetable and costs
described herein and the preparedness of our critical suppliers; the
introduction of competing products or technology by competitors; the
availability of funding for research and development; the ability to meet
performance and delivery requirements on systems for customers; the economic,
regulatory and political instability of Brazil, Asia and certain emerging
countries; and the ability to attract and retain skilled employees with
high-level technical competencies.
Our automotive business also could be affected by: the ability to effectively
implement the Company's automotive restructuring program and improve automotive
margins; changes in consumer debt levels and interest rates; the cyclical nature
of the automotive industry; moderation or decline in the automobile build rate;
work stoppages; customer warranty claims; and changes to the regulatory
environment regarding automotive safety.
Our aerospace and information systems business also could be affected by: the
level of defense funding by the government; the termination of existing
government contracts; and the ability to develop and market products and
services for customers outside of the traditional aerospace and information
systems markets.
The foregoing list of important factors is not exclusive.
We caution that any forward-looking statement reflects only the beliefs of TRW
or its management at the time the statement is made. The Company undertakes no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement was made.
23
<PAGE> 25
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
TRW is subject to inherent risks attributed to operating in a global economy. It
is TRW's policy to utilize derivative financial instruments to manage its
interest rate and foreign currency exchange rate risks. When appropriate, TRW
uses derivatives to hedge its exposure to short-term interest rate changes as a
lower cost substitute for the issuance of fixed-rate debt. TRW manages cash flow
transactional foreign exchange risk pursuant to a written corporate policy.
Forward contracts and, to a lesser extent, options are utilized to protect TRW's
cash flow from adverse movements in exchange rates. Also, at certain times, TRW
may use interest rate agreements in the management of interest rate exposure on
debt issuances.
TRW is exposed to credit loss in the event of nonperformance by the other party
to derivative financial instruments. TRW limits this exposure by entering into
agreements with a number of major financial institutions that meet credit
standards established by TRW and that are expected to satisfy fully their
obligations under the contracts. Derivative financial instruments are viewed by
TRW as a risk management tool and are not used for speculative or trading
purposes.
Based on TRW's interest rate exposure on variable rate borrowings at June 30,
1999, a one-percentage-point increase in the average interest rate on TRW's
variable rate borrowings would increase future interest expense by approximately
$5 million per month.
Based on TRW's exposure to foreign currency exchange rate risk resulting from
derivative foreign currency instruments outstanding at June 30, 1999, a 10
percent uniform strengthening in the value of the U.S. dollar relative to the
currencies in which those derivative foreign currency instruments are
denominated would result in a $75 million loss in fair value.
Based on TRW's interest rate exposure with regard to the interest rate swap
outstanding at June 30, 1999, a 10 percent increase of the fixed interest rate
component of the swap at June 30, 1999 would result in a $5 million loss in fair
value.
TRW's sensitivity analyses of the effects of changes in interest rates and
foreign currency exchange rates do not reflect the effect of such changes on the
related hedged transactions or on other operating transactions. TRW's
sensitivity analyses of the effects of changes in interest rates and foreign
currency exchange rates do not factor in a potential change in the level of
variable rate borrowings or derivative instruments outstanding that could take
place if these hypothetical conditions prevailed.
Refer to the "Foreign Exchange Contracts" and the "Interest Rate Swap
Agreements" footnotes in the Notes to Financial Statements for further
discussion of derivative instruments as of June 30, 1999.
24
<PAGE> 26
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company held its 1999 Annual Meeting of Shareholders on April 28,
1999.
(b) Proxies for the Annual Meeting of Shareholders were solicited pursuant
to Regulation 14 under the Act; there was no solicitation in opposition
to management's nominees as listed in the proxy statement, and all of
such nominees were elected.
(c) Martin Feldstein was elected a Director of the Company with 104,704,487
votes for election, 2,086,929 votes withheld from voting and 13,307,275
shares not voted, including broker non-votes.
Robert M. Gates was elected a Director of the Company with 104,707,482
votes for election, 2,083,934 votes withheld from voting and 13,307,275
shares not voted, including broker non-votes.
E. Bradley Jones was elected a Director of the Company with 104,538,852
votes for election, 2,252,564 votes withheld from voting and 13,307,275
shares not voted, including broker non-votes.
David Baker Lewis was elected a Director of the Company with
104,637,794 votes for election, 2,153,622 votes withheld from voting
and 13,307,275 shares not voted, including broker non-votes.
The shareholders ratified the appointment of Ernst & Young LLP as the
Company's independent auditors for the 1999 fiscal year with
105,835,702 votes for, 496,668 votes against, 459,046 votes abstaining
and 13,307,275 shares not voted, including broker non-votes.
The shareholders defeated a shareholder proposal regarding the annual
election of directors, with 46,562,726 votes for the annual election of
directors, 52,835,188 votes against and 20,700,777 shares not voted,
including broker non-votes and abstentions.
(d) None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
4(a) Second Supplemental Indenture between TRW and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2,
1999 (incorporated by reference to Exhibit 4(c) to TRW
Inc.'s Registration Statement on Form S-4, filed July 20,
1999, File No. 333-83227)
4(b) Third Supplemental Indenture between TRW and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2,
1999 (incorporated by reference to Exhibit 4(d) to TRW
Inc.'s Registration Statement on Form S-4, filed July 20,
1999, File No. 333-83227)
4(c) Fourth Supplemental Indenture between TRW and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2,
1999 (incorporated by reference to Exhibit 4(e) to TRW
Inc.'s Registration Statement on Form S-4, filed July 20,
1999, File No. 333-83227)
4(d) Fifth Supplemental Indenture between TRW and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2,
1999 (incorporated by reference to Exhibit 4(f) to TRW
Inc.'s Registration Statement on Form S-4, filed July 20,
1999, File No. 333-83227)
25
<PAGE> 27
4(e) Sixth Supplemental Indenture between TRW and The Chase
Manhattan Bank, as successor Trustee, dated as of June 23,
1999 (incorporated by reference to Exhibit 4(g) to TRW
Inc.'s Registration Statement on Form S-4, filed July 20,
1999, File No. 333-83227)
4(f) Registration Rights Agreement, dated May 26, 1999, among TRW
and Morgan Stanley & Co. Incorporated, J.P. Morgan
Securities Inc. and Salomon Smith Barney Inc., as
representatives of the initial purchasers (incorporated by
reference to Exhibit 4(m) to TRW Inc.'s Registration
Statement on Form S-4, filed July 20, 1999, File No.
333-83227)
4(g) Registration Rights Agreement, dated June 23, 1999, between
TRW and Goldman, Sachs & Co., as representative of the
initial purchasers (incorporated by reference to Exhibit
4(n) to TRW Inc.'s Registration Statement on Form S-4, filed
July 20, 1999, File No. 333-83227)
10(a) Purchase Agreement, dated May 26, 1999, between TRW and
Morgan Stanley & Co. Incorporated, J.P. Morgan Securities
Inc. and Salomon Smith Barney Inc., as representatives of
the initial purchasers named therein
10(b) Purchase Agreement, dated June 18, 1999, between TRW and
Goldman, Sachs & Co., as representative of the initial
purchasers named therein
10(c) Letter Agreement, dated April 28, 1999, between TRW and Carl
Hahn regarding services as an Advisory Director of TRW
27 Financial Data Schedule
99 Computation of Ratio of Earnings to Fixed Charges --
Unaudited (Supplement to Exhibit 12 of the following Form
S-3 Registration Statement of the Company: No. 333-48443,
filed March 23, 1998)
Certain instruments with respect to long-term debt have not been filed
as exhibits as the total amount of securities authorized under any one
of such instruments does not exceed 10 percent of the total assets of
the registrant and its subsidiaries on a consolidated basis. The
registrant agrees to furnish to the Commission a copy of each such
instrument upon request.
(b) Reports on Form 8-K:
Current Report on Form 8-K dated March 26, 1999, as amended May 17,
1999, as to the completion of the acquisition of LucasVarity plc and
filing the pro forma and historical financial statements of LucasVarity
plc.
Current Report on Form 8-K dated May 27, 1999, as to the sale of $2.4
billion aggregate principal amount of debt securities under Rule 144A
and Regulation S.
Current Report on Form 8-K dated June 21, 1999, as to the sale of $1.0
billion aggregate principal amount of debt securities under Rule 144A.
26
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRW Inc.
Date: August 12, 1999 By: /s/ William B. Lawrence
-----------------------
William B. Lawrence
Executive Vice President and Secretary
By: /s/ Carl G. Miller
------------------
Carl G. Miller
Executive Vice President
and Chief Financial Officer
27
<PAGE> 29
EXHIBIT INDEX
-------------
Exhibit Number Description
-------------- -----------
4(a) Second Supplemental Indenture between TRW and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2,
1999 (incorporated by reference to Exhibit 4(c) to TRW
Inc.'s Registration Statement on Form S-4, filed July 20,
1999, File No. 333-83227)
4(b) Third Supplemental Indenture between TRW and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2,
1999 (incorporated by reference to Exhibit 4(d) to TRW
Inc.'s Registration Statement on Form S-4, filed July 20,
1999, File No. 333-83227)
4(c) Fourth Supplemental Indenture between TRW and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2,
1999 (incorporated by reference to Exhibit 4(e) to TRW
Inc.'s Registration Statement on Form S-4, filed July 20,
1999, File No. 333-83227)
4(d) Fifth Supplemental Indenture between TRW and The Chase
Manhattan Bank, as successor Trustee, dated as of June 2,
1999 (incorporated by reference to Exhibit 4(f) to TRW
Inc.'s Registration Statement on Form S-4, filed July 20,
1999, File No. 333-83227)
4(e) Sixth Supplemental Indenture between TRW and The Chase
Manhattan Bank, as successor Trustee, dated as of June 23,
1999 (incorporated by reference to Exhibit 4(g) to TRW
Inc.'s Registration Statement on Form S-4, filed July 20,
1999, File No. 333-83227)
4(f) Registration Rights Agreement, dated May 26, 1999, among
TRW and Morgan Stanley & Co. Incorporated, J.P. Morgan
Securities Inc. and Salomon Smith Barney Inc., as
representatives of the initial purchasers (incorporated by
reference to Exhibit 4(m) to TRW Inc.'s Registration
Statement on Form S-4, filed July 20, 1999, File No.
333-83227)
4(g) Registration Rights Agreement, dated June 23, 1999,
between TRW and Goldman, Sachs & Co., as representative of
the initial purchasers (incorporated by reference to
Exhibit 4(n) to TRW Inc.'s Registration Statement on Form
S-4, filed July 20, 1999, File No. 333-83227)
10(a) Purchase Agreement, dated May 26, 1999, between TRW and
Morgan Stanley & Co. Incorporated, J.P. Morgan Securities
Inc. and Salomon Smith Barney Inc., as representatives of
the initial purchasers named therein
10(b) Purchase Agreement, dated June 18, 1999, between TRW and
Goldman, Sachs & Co., as representative of the initial
purchasers named therein
28
<PAGE> 30
10(c) Letter Agreement, dated April 28, 1999, between TRW and
Carl Hahn regarding services as an Advisory Director of
TRW
27 Financial Data Schedule
99 Computation of Ratio of Earnings to Fixed Charges -
Unaudited (Supplement to Exhibit 12 of the following Form
S-3 Registration Statement of the Company: No. 333-48443,
filed March 23, 1998)
<PAGE> 1
Exhibit 10(a)
-------------
$400,000,000
$700,000,000
$750,000,000
$550,000,000
TRW INC.
6 1/2% Notes Due 2002
6 5/8% Notes Due 2004
7 1/8% Notes Due 2009
7 3/4% Debentures Due 2029
PURCHASE AGREEMENT
May 26, 1999
<PAGE> 2
May 26, 1999
Morgan Stanley & Co. Incorporated
J.P. Morgan Securities Inc.
Salomon Smith Barney Inc.,
as representatives of the Initial Purchasers
named in Schedule II hereto
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
TRW Inc., an Ohio corporation (the "COMPANY"), proposes to
issue and sell to the several purchasers named in Schedule II hereto (the
"INITIAL PURCHASERS"), for whom you (the "Representatives") are acting as
representatives, $400,000,000 principal amount of its 6 1/2% Notes Due 2002,
$700,000,000 principal amount of its 6 5/8% Notes Due 2004, $750,000,000
principal amount of its 7 1/8% Notes Due 2009, and $550,000,000 principal amount
of its 7 3/4% Debentures Due 2029 (collectively, the "SECURITIES"), to be issued
pursuant to the provisions of an Indenture dated as of May 1, 1986 (as
supplemented, the "INDENTURE"), as supplemented by the First Supplemental
Indenture dated as of August 24, 1989, the Second Supplemental Indenture dated
as of June 2, 1999, the Third Supplemental Indenture dated as of June 2, 1999,
the Fourth Supplemental Indenture dated as of June 2, 1999, and the Fifth
Supplemental Indenture dated as of June 2, 1999, between the Company and The
Chase Manhattan Bank, as successor Trustee (the "TRUSTEE") to Mellon Bank N.A.
The Securities will be offered and sold without being
registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
to qualified institutional buyers in compliance with the exemption from
registration provided by Rule 144A under the Securities Act, in offshore
transactions in reliance on Regulation S under the Securities Act ("REGULATION
S") and to institutional accredited investors (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) that deliver a letter in the form
annexed to the Final Memorandum (as defined below).
In connection with the sale of the Securities, the Company has prepared a
preliminary offering memorandum (the "PRELIMINARY MEMORANDUM") and will prepare
a final offering memorandum (the "FINAL MEMORANDUM" and, with the Preliminary
Memorandum, each a "MEMORANDUM") including or incorporating by reference a
description of the terms of the Securities, the terms of the offering and a
description of the Company. The Company hereby confirms that it has authorized
the use of each Memorandum in connection with the offering and resale of the
Securities by the Initial Purchasers, subject to their obligations hereunder. As
used herein, the term "Memorandum" shall include in each case the documents
incorporated by reference therein. The terms "SUPPLEMENT", "AMENDMENT"
and "AMEND" as used herein with
2
<PAGE> 3
respect to a Memorandum shall include all documents deemed to be incorporated by
reference in the Preliminary Memorandum or Final Memorandum that are filed
subsequent to the date of such Memorandum with the Securities and Exchange
Commission (the "COMMISSION") pursuant to the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT").
The Initial Purchasers and their direct and indirect permitted
transferees will be entitled to the benefits of the Registration Rights
Agreement dated the date hereof between the Company and the Initial Purchasers
(the "Registration Rights Agreement"), pursuant to which the Company will file a
registration statement or registration statements (each, a "Registration
Statement") with the Commission registering the Securities and/or the Exchange
Securities (as defined in the Registration Rights Agreement) under the
Securities Act.
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, each Initial Purchaser as set forth below in this Section
1:
(a) Each document, if any, filed or to be filed pursuant to
the Exchange Act and incorporated by reference in either Memorandum
complied or will comply when so filed in all material respects with the
Exchange Act and the rules and regulations thereunder and when read
together and with the other information in the Preliminary Memorandum
does not contain and the Final Memorandum, in the form used by the
Initial Purchasers to confirm sales and on the Closing Date (as defined
in Section 4), will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Any documents filed by the Company under the Exchange Act
that are incorporated by reference (in whole or in part) in either
Memorandum or that are incorporated by reference (in whole or in part)
in a Registration Statement, as of the dates they were filed or
hereafter are with the Commission, complied and will comply as to form
in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission thereunder (the "Exchange
Act Regulations").
(c) When the Securities are issued and delivered pursuant to
this Agreement, such securities will not be of the same class (within
the meaning of Rule 144A) as securities of the Company which are listed
on a national securities exchange registered under Section 6 of the
Exchange Act or quoted in a U.S. automated interdealer quotation
system.
(d) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Ohio, with
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in each Memorandum and is duly
qualified as a foreign corporation to transact business in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
3
<PAGE> 4
that the failure to be so qualified would not have a material adverse
effect on the financial condition or earnings, business affairs or
business prospects of the Company and its subsidiaries, taken as a
whole; and the Company is in good standing in the State of California
and the Commonwealth of Virginia.
(e) (if the Company has one or more Significant Subsidiaries
as of the date hereof and as of the Closing Date) each Significant
Subsidiary of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own, lease and operate its property and to conduct its
business as described in each Memorandum and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the financial condition, or the earnings, business
affairs or business prospects of the Company and its subsidiaries,
taken as a whole; all of the issued shares of capital stock of each
Significant Subsidiary of the Company held by the Company have been
duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims. For
purposes of this paragraph a "Significant Subsidiary" shall mean a
"significant subsidiary" as defined in Rule 405 of Regulation C under
the Act.
(f) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The Securities have been duly authorized and, when
executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, will constitute valid and
legally binding obligations of the Company enforceable in accordance
with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting
enforcement of creditors' rights or by general equity principles, and
except further as enforcement thereof may be limited by (i)
requirements that a claim with respect to any Securities denominated
other than in United States dollars (or a foreign currency or currency
unit judgment in respect of such claim) be converted into United States
dollars at a rate of exchange prevailing on a date determined pursuant
to applicable law or (ii) governmental authority to limit, delay or
prohibit the making of payments in a foreign currency or currency units
or payments outside the United States; the Securities and the Indenture
will be substantially in the form heretofore delivered to the Initial
Purchasers and conform in all material respects to all statements
relating thereto contained in the Final Memorandum; and the Securities
will be entitled to the benefits provided by the Indenture.
(h) Each of the Indenture and the Registration Rights
Agreement has been duly authorized, executed and delivered by, and is a
valid and legally binding agreement of, the Company enforceable in
accordance with its terms, except as enforcement thereof may be limited
by bankruptcy, insolvency or other laws
4
<PAGE> 5
relating to or affecting enforcement of creditors' rights or by general
equity principles and except as rights to indemnification and
contribution under the Registration Rights Agreement may be limited
under applicable law. The Registration Rights Agreement will conform in
all material respects to the description thereof, if any, to be
contained in either Memorandum.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement,
the Indenture, the Registration Rights Agreement and the Securities
will not contravene any provision of applicable law or constitute a
default under the Amended Articles of Incorporation of the Company or
by-laws of the Company or any indenture, other agreement or instrument
binding upon the Company or any of its subsidiaries that is material to
the Company and its subsidiaries, taken as a whole, or any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any court
or governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, the Indenture, the
Securities or the Registration Rights Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Securities.
(j) Except as may be set forth in either Memorandum, there is
no action, suit or proceeding before or by any court or governmental
agency or body, domestic or foreign, now pending, against or affecting,
the Company or any of its subsidiaries, which might, in the opinion of
the Company, result in any material adverse change in the financial
position of the Company and its subsidiaries taken as a whole, or might
materially and adversely affect the assets of the Company and its
subsidiaries, taken as a whole.
(k) The Company is not, and after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Final Memorandum, will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
(l) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act, an "AFFILIATE") of the
Company has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Securities Act) which is or will be
integrated with the sale of the Securities in a manner that would
require the registration under the Securities Act of the Securities or
(ii) engaged in any form of general solicitation or general advertising
in connection with the offering of the Securities, (as those terms are
used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act; provided, however, the Company makes no representations
with respect to the activities of the Initial Purchasers.
(m) None of the Company, its Affiliates or any person acting
on its or their behalf has engaged or will engage in any directed
selling efforts (within the
5
<PAGE> 6
meaning of Regulation S) with respect to the Securities and the Company
and its Affiliates and any person acting on its or their behalf have
complied and will comply with the offering restrictions requirement of
Regulation S; provided, however, the Company makes no representations
with respect to the activities of the Initial Purchasers.
(n) It is not necessary in connection with the offer, sale and
delivery of the Securities to the Initial Purchasers in the manner
contemplated by this Agreement to register the Securities under the
Securities Act or to qualify any indenture in respect of the Securities
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act").
(o) The Securities satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(p) The financial statements of the Company and its
consolidated subsidiaries included or incorporated by reference in
either Memorandum present fairly the consolidated financial position of
the Company and its consolidated subsidiaries as at the dates indicated
and the consolidated results of their operations for the periods
specified; and except as stated therein, said financial statements have
been prepared in conformity with generally accepted accounting
principles in the United States applied on a consistent basis.
2. Agreements to Sell and Purchase. The Company hereby agrees
to sell to the several Initial Purchasers, and each Initial Purchaser, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from the Company at the purchase price for the Securities set forth in Schedule
I hereto, the respective principal amount of Securities set forth opposite such
Initial Purchaser's name in Schedule II hereto.
3. Terms of Offering. You have advised the Company that the
Initial Purchasers will make an offering of the Securities purchased by the
Initial Purchasers hereunder on the terms to be set forth in the Final
Memorandum, as soon as practicable after this Agreement is entered into as in
your judgment is advisable.
4. Payment and Delivery. Payment for the Securities shall be
made to the Company in Federal or other funds immediately available in New York
City against delivery of such Securities for the respective accounts of the
several Initial Purchasers at 10:00 a.m., New York City time, on June 2, 1999,
or at such other time on the same or such other date, not later than June 9,
1999, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "CLOSING DATE."
Certificates for the Securities shall be in definitive form or
global form, as specified by you, and registered in such names and in such
denominations as you shall request in writing not later than one full business
day prior to the Closing Date. The certificates evidencing the Securities shall
be delivered to you on the Closing Date for the respective accounts of the
several Initial Purchasers, with any transfer taxes payable in connection with
the transfer of the Securities to the Initial Purchasers duly paid, against
6
<PAGE> 7
payment of the Purchase Price therefor plus accrued interest, if any, to the
date of payment and delivery.
5. Conditions to the Initial Purchasers' Obligations. The
several obligations of the Initial Purchasers to purchase and pay for the
Securities on the Closing Date shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the date hereof, and as of the Closing Date, to the accuracy of the statements
of the Company made in any certificates pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder, to the due
execution and delivery of the Indenture and to the following additional
conditions:
(a) The Initial Purchasers shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect that the representations and
warranties of the Company contained in this Agreement are true and
correct in all material respects as of the Closing Date with the same
effect as if made on the Closing Date and that the Company has complied
with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied hereunder on or before the Closing
Date and that, subsequent to the date of most recent financial
statements in the Final Memorandum, there has been no material adverse
change in the condition (financial or other), earnings, business or
properties of the Company and its subsidiaries taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated by the Final
Memorandum or as described in such certificate.
(b) The Initial Purchasers shall have received on the Closing
Date an opinion of the General Counsel or an Assistant General Counsel
of the Company, dated the Closing Date, to the effect set forth in
Exhibit A.
(c) The Initial Purchasers shall have received on the Closing
Date an opinion of Cravath, Swaine & Moore, counsel for the Initial
Purchasers, dated the Closing Date, to the effect set forth in Exhibit
B.
(d) The Initial Purchasers shall have received on the Closing
Date a letter, dated the Closing Date in form and substance
satisfactory to the Initial Purchasers, from each of (i) Ernst & Young
LLP, independent public accountants, (ii) KPMG Audit plc, independent
public accountants, (iii) KPMG Audit plc and Ernst & Young, jointly,
and (iv) Ernst & Young, independent public accountants, in each case
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in or
incorporated by reference into the Final Memorandum; provided that (A)
the Ernst & Young LLP letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof and (B) the KPMG Audit
plc letter delivered on the Closing Date shall use a "cut-off date" not
earlier than March 24, 1999.
7
<PAGE> 8
(e) Subsequent to the execution of this Agreement, there shall
not have been any decrease in the ratings of any of the Company's debt
securities by Moody's Investors Service, Inc. or Standard & Poor's
Corporation.
(f) Prior to the Closing Date, the Company shall have
furnished to the Initial Purchasers such further information,
certificates and documents as the Representatives may reasonably
request.
(g) The Registration Rights Agreement shall have been duly
authorized, executed and delivered by the Company, the Indenture shall
have been duly authorized, executed and delivered by the Company, all
the covenants and agreements contained herein to be fulfilled or
complied with by the Company at or prior to such Closing Date shall
have been duly performed, fulfilled or complied with in all material
respects.
If any of the conditions specified in this Section 5 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Initial Purchasers and counsel for the
Initial Purchasers, this Agreement and all obligations of the Initial Purchasers
hereunder may be canceled at, or at any time prior to, the Closing Date by the
Initial Purchasers. Notice of such cancelation shall be given to the Company in
writing or by telephone or telegraph confirmed in writing.
6. Covenants of the Company. In further consideration of the
agreements of the Initial Purchasers contained in this Agreement, the Company
covenants with each Initial Purchaser as follows:
(a) To furnish to you in New York City, without charge, prior
to 10:00 a.m., New York City time, on the business day next succeeding
the date of this Agreement and during the period mentioned in Section
6(c), as many copies of the Final Memorandum, any documents
incorporated by reference therein and any supplements and amendments
thereto as you may reasonably request. The Company will pay the
expenses of printing all documents relating to the offering.
(b) The Company will advise the Initial Purchasers promptly of
any proposal to amend or supplement either Memorandum and will afford
the Initial Purchasers a reasonable opportunity to comment on any such
proposed amendment or supplement. The Company will not file any
document under the Exchange Act before the completion of the offering
of the Securities by the Initial Purchasers if such document would be
incorporated by reference in either Memorandum and if the filing of
such document would cause either Memorandum, as amended or supplemented
by the filing of such document, to contain an untrue statement of a
material fact or to omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
8
<PAGE> 9
(c) If, during such period after the date hereof and prior to
the date on which all of the Securities shall have been sold by the
Initial Purchasers to purchasers who are not affiliates of such Initial
Purchaser, any event occurs as a result of which the Final Memorandum
as then amended (including, without limitation, any document
incorporated by reference therein) would include any untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, forthwith to prepare and furnish, at
its own expense, to the Initial Purchasers, either amendments or
supplements to the Final Memorandum which will correct such statement
or omission or misstatement.
(d) To endeavor to qualify the Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request.
(e) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's counsel and the Company's
accountants in connection with the issuance and sale of the Securities
and all other fees or expenses in connection with the preparation of
each Memorandum and all amendments and supplements thereto, including
all printing costs associated therewith, and the delivering of copies
thereof to the Initial Purchasers, in the quantities herein above
specified, (ii) all costs and expenses related to the transfer and
delivery of the Securities to the Initial Purchasers, including any
transfer or other taxes payable thereon, (iii) the cost of printing or
producing any Blue Sky memorandum in connection with the offer and sale
of the Securities under state securities laws and all expenses in
connection with the qualification of the Securities for offer and sale
under state securities laws as provided in Section 6(d) hereof,
including filing fees and the reasonable fees and disbursements of
counsel for the Initial Purchasers in connection with such
qualification and in connection with the Blue Sky memorandum, (iv) any
fees charged by rating agencies for the rating of the Securities, (v)
all document production charges and expenses of counsel to the Initial
Purchasers (but not including their fees for professional services) in
connection with the preparation of this Agreement, (vi) the costs and
charges of the Trustee and any transfer agent, listing agent, registrar
or depositary, (vii) the cost of the preparation, issuance and delivery
of the Securities, (viii) the costs and expenses of the Company
relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Securities,
including, without limitation, expenses associated with the production
of road show slides and graphics, fees and expenses of any consultants
engaged in connection with the road show presentations with the prior
approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants,
and the cost of any aircraft chartered in connection with the road
show, and (ix) all other cost and expenses incident to the performance
of the obligations of the Company hereunder for which provision is not
otherwise made in this Section. It is understood, however, that except
as provided in this Section, Section 8, and the last paragraph of
Section 10, the Initial Purchasers will pay all of their costs and
9
<PAGE> 10
expenses, including fees and disbursements of their counsel and
transfer taxes payable on resale of any of the Securities by them.
(f) Neither the Company nor any Affiliate will sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require the
registration under the Securities Act of the Securities.
(g) Not to solicit any offer to buy or offer or sell the
Securities by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.
(h) While any of the Securities remain "restricted securities"
within the meaning of the Securities Act, to make available, upon
request, to any seller of such Securities the information specified in
Rule 144A(d)(4) under the Securities Act, unless the Company is then
subject to Section 13 or 15(d) of the Exchange Act.
(i) None of the Company, its Affiliates or any person acting
on its or their behalf (other than the Initial Purchasers) will engage
in any directed selling efforts (as that term is defined in Regulation
S) with respect to the Securities, and the Company and its Affiliates
and each person acting on its or their behalf (other than the Initial
Purchasers) will comply with the offering restrictions requirement of
Regulation S.
(j) During the period from the Closing Date to the earlier of
(i) two years after the Closing Date, or (ii) the date of effectiveness
of a registration statement with respect to the Securities as
contemplated in the Registration Rights Agreement, the Company will
not, and will not permit any of its affiliates (as defined in Rule 144
under the Securities Act) to, resell any of the Securities that have
been reacquired by them, except for Securities purchased by the Company
or any of its affiliates and resold in a transaction registered under
the Securities Act.
(k) The Company will use its reasonable best efforts in
cooperation with the Initial Purchasers to permit the Securities to be
eligible for clearance and settlement through The Depository Trust
Company.
(l) Each Security will bear the legends specified in the
Indenture until, in the opinion of counsel of the Company, such legends
are is no longer advisable because such Security is no longer subject
to the restrictions on transfer described therein.
(m) For a period beginning at the time of execution of this
Agreement and ending on the business day following the Closing Date,
the Company will not, without the consent of Morgan Stanley & Co.
Incorporated on behalf of the Initial Purchasers, offer, sell, contract
to sell or otherwise dispose of any United States
10
<PAGE> 11
dollar-denominated debt securities issued or guaranteed by the Company
and having a maturity of more than 390 days from the date of issue.
7. Offering of Securities; Restrictions on Transfer. (a) Each
Initial Purchaser, severally and not jointly, represents and warrants that such
Initial Purchaser is a qualified institutional buyer as defined in Rule 144A
under the Securities Act (a "QIB") and an institutional accredited investor (as
defined below). Each Initial Purchaser, severally and not jointly, agrees with
the Company that (i) it will not solicit offers for, or offer or sell, such
Securities by any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act and (ii) it will solicit offers for such Securities only from, and will
offer such Securities only to, persons that it reasonably believes to be (A) in
the case of offers inside the United States, (1) QIBs or (2) other institutional
accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act ("INSTITUTIONAL ACCREDITED INVESTORS") that, prior to their
purchase of the Securities, deliver to such Initial Purchaser a letter
containing the representations and agreements set forth in Appendix A to the
Memorandum and (B) in the case of offers outside the United States, to persons
other than U.S. persons ("FOREIGN PURCHASERS," which term shall include dealers
or other professional fiduciaries in the United States acting on a discretionary
basis for foreign beneficial owners (other than an estate or trust)) in reliance
upon Regulation S under the Securities Act that, in each case, in purchasing
such Securities are deemed to have represented and agreed as provided in the
Final Memorandum under the caption "Transfer Restrictions".
(b) Each Initial Purchaser, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales outside the
United States that:
(i) such Initial Purchaser understands that no action has been
or will be taken in any jurisdiction by the Company that would permit a
public offering of the Securities, or possession or distribution of
either Memorandum or any other offering or publicity material relating
to the Securities, in any country or jurisdiction where action for that
purpose is required;
(ii) such Initial Purchaser will comply with all applicable
laws and regulations in each jurisdiction in which it acquires, offers,
sells or delivers Securities or has in its possession or distributes
either Memorandum or any such other material, in all cases at its own
expense;
(iii) the Securities have not been registered under the
Securities Act and may not be offered or sold within the United States
or to, or for the account or benefit of, U.S. persons except in
accordance with Rule 144A or Regulation S under the Securities Act or
pursuant to another exemption from the registration requirements of the
Securities Act;
(iv) such Initial Purchaser has offered the Securities and
will offer and sell the Securities (A) as part of their distribution at
any time and (B) otherwise until 40 days after the later of the
commencement of the offering and the Closing Date,
11
<PAGE> 12
only in accordance with Rule 903 of Regulation S or as otherwise
permitted in Section 7(a); accordingly, neither such Initial Purchaser,
its Affiliates nor any persons acting on its or their behalf have
engaged or will engage in any directed selling efforts (within the
meaning of Regulation S) with respect to the Securities, and any such
Initial Purchaser, its Affiliates and any such persons have complied
and will comply with the offering restrictions requirement of
Regulation S;
(v) such Initial Purchaser has (A) not offered or sold and,
prior to the date six months after the Closing Date, will not offer or
sell any Securities to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995;
(B) complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the Securities in, from or otherwise involving the United
Kingdom, and (C) only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with
the issue of the Securities to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on;
(vi) such Initial Purchaser understands that the Securities
have not been and will not be registered under the Securities and
Exchange Law of Japan, and represents that it has not offered or sold,
and agrees not to offer or sell, directly or indirectly, any Securities
in Japan or for the account of any resident thereof except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law of Japan and otherwise in compliance with applicable
provisions of Japanese law;
(vii) such Initial Purchaser understands that the Securities
have not been and will not be qualified for sale under the securities
laws of any province or territory of Canada, and represents that it has
not offered or sold, and agrees not to offer or sell, directly or
indirectly, any Securities in Canada or to or for the account of any
resident of Canada in contravention of the securities laws of any
province or territory thereof; and
(viii) such Initial Purchaser agrees that, at or prior to
confirmation of sales of the Securities, it will have sent to each
distributor, dealer or person receiving a selling concession, fee or
other remuneration that purchases Securities from it during the
restricted period a confirmation or notice to substantially the
following effect:
"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933 (the "Securities Act") and may not be
offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of their distribution at any time
or (ii) otherwise until 40 days after the later
12
<PAGE> 13
of the commencement of the offering and the closing date, except in
either case in accordance with Regulation S (or Rule 144A if available)
under the Securities Act. Terms used above have the meaning given to
them by Regulation S."
Terms used in this Section 7(b) have the meanings given to
them by Regulation S.
8. Indemnity and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, who controls
any Initial Purchaser within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act against any and all losses, claims,
damages or liabilities, joint or several (including amounts paid in settlement
of any litigation if such settlement is effected with the written consent of the
Company), to which they or any of them may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in either Memorandum or
in any amendment thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that (i) the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any Initial Purchaser specifically for use in connection with the
preparation thereof and (ii) such indemnity with respect to any Memorandum shall
not inure to the benefit of any Initial Purchaser (or any person controlling
such Initial Purchaser) from whom the person asserting any such loss, claim,
damage or liability purchased the Securities which are the subject thereof if
such person did not receive a copy of the Final Memorandum (as amended or
supplemented) excluding documents incorporated therein by reference if such
Initial Purchaser was required by law to deliver such Final Memorandum at or
prior to the confirmation of the sale of such Securities to such person and the
untrue statement or omission of a material fact contained in the Preliminary
Memorandum was corrected in the Final Memorandum (as amended or supplemented).
This indemnity agreement will be in addition to any liability which the Company
may otherwise have.
(b) Each Initial Purchaser severally, and not jointly, agrees
to indemnify and hold harmless the Company, each of its directors, each of its
officers and each person who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to each Initial Purchaser,
but only with reference to written information relating to such Initial
Purchaser furnished to the Company by such Initial Purchaser expressly for use
in either Memorandum or any amendments or supplements thereto. This indemnity
agreement will be in addition to any liability which any Initial Purchaser may
otherwise have.
13
<PAGE> 14
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party, under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party,
otherwise than under this Section 8. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent that it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party, or parties shall have the right to
select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party, of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Representatives in the case of paragraph (a)
of this Section 8, representing the indemnified parties under such paragraph (a)
who are parties to such action), (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party; and except
that, if clause (i) or (iii) is applicable, such liability shall be only in
respect of the counsel referred to in such clause (i) or (iii).
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party under paragraph (a) or (b)
hereof or insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Initial Purchasers on the other hand from
the offering of the Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and of the Initial
Purchasers on the other in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits
14
<PAGE> 15
received by the Company on the one hand and the Initial Purchasers on the other
in connection with the offering of the Securities shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Securities
(before deducting expenses) received by the Company bear to the total discounts
and commissions received by the Initial Purchasers in respect thereof. The
relative fault of the Company on the one hand and of the Initial Purchasers on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Initial Purchasers and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
(e) The Company and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to in Section 8(d).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in Section 8(d) shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, no Initial Purchaser shall be required to contribute any amount in
excess of the amount by which the total price at which the Securities resold by
it in the initial placement of such Securities were offered to investors exceeds
the amount of any damages that such Initial Purchaser has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Initial Purchasers' obligations to contribute pursuant to
this Section 8 are several, in proportion to the respective principal amounts of
Securities purchased by each of such Initial Purchasers, and not joint.
9. Termination. An Initial Purchaser may terminate this
Agreement, immediately upon notice to the Company, at any time prior to the
Closing Date (a) if there has been, since the date of this Agreement or since
the respective dates as of which information is given in the Final Memorandum,
any change, or any development involving a prospective change, in or affecting
the business or properties of the Company and its subsidiaries, shall have
occurred the effect of which is, in the judgment of Morgan Stanley & Co.
Incorporated, so material and adverse to the Company and its subsidiaries taken
as a whole as to make it impractical or inadvisable to proceed with the delivery
of the Securities or (b) if there shall have occurred any material adverse
change in the financial markets in the United States or any outbreak or
escalation of hostilities or other national or international calamity or crisis,
the effect of which shall be such as to make it, in the judgment of Morgan
Stanley & Co. Incorporated, impracticable to market the Securities or enforce
contracts for the sale of the Securities, or (c) if trading in any securities of
the Company shall have been suspended by the Commission or a national securities
exchange, or if trading generally on either the American Stock Exchange or the
New York Stock Exchange shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required, by either of said exchanges or by order of the
Commission or any other
15
<PAGE> 16
governmental authority, or if a banking moratorium shall have been declared by
either Federal or New York authorities or if a banking moratorium shall have
been declared by the relevant authorities in the country or countries of origin
of any foreign currency or currencies in which the Securities are denominated or
payable, or (d) if the rating assigned by any nationally recognized securities
rating agency to any debt securities of the Company as of the date of this
Agreement shall have been lowered since that date or if any such rating agency
shall have publicly announced that it has placed any debt securities of the
Company on what is commonly termed a "watch list" for possible downgrading, or
(e) if there shall have come to the attention of such Initial Purchaser any
facts that would cause you to believe that the Final Memorandum, at the time it
was required to be delivered to a purchaser of Securities, contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in light of the circumstances existing at
the time of such delivery, not misleading.
10. Effectiveness; Defaulting Initial Purchasers. This
Agreement shall become effective upon the execution and delivery hereof by the
parties hereto.
If, on the Closing Date, any one or more of the Initial
Purchasers shall fail to purchase and pay for any of the Securities that it or
they have agreed to purchase hereunder on such date, and such failure to
purchase shall constitute a default in the performance of its or their
obligations under this Agreement, the remaining Initial Purchasers shall be
obligated severally to take up and pay for (in the respective proportions which
the amount of Securities set forth opposite their names in Schedule II hereto
bears to the aggregate amount of Securities set forth opposite their names of
all the remaining Initial Purchasers) the Securities which the defaulting
Initial Purchaser or Initial Purchasers agreed but failed to purchase; provided,
however, that in the event that the aggregate amount of Securities which the
defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase
shall exceed 10% of the aggregate amount of Securities set forth in Schedule II
hereto, the remaining Initial Purchasers shall have the right to purchase all,
but shall not be under any obligation to purchase any, of the Securities, and if
such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Initial
Purchaser or the Company. In the event of a default by any Initial Purchaser as
set forth in this Section 10, the Closing Date shall be postponed for such
period, not exceeding seven days, as the Representatives shall determine in
order that the required changes in the Final Memorandum or in any other
documents or arrangements may be effective. Nothing contained in this Agreement
shall relieve any defaulting Initial Purchaser of its liability, if any, to the
Company and any nondefaulting Initial Purchaser for damages occasioned by its
default hereunder.
If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Initial Purchasers
set forth in Section 5 hereof is not satisfied because of any refusal, inability
or failure on the part of the Company to perform any agreement herein or comply
with any provision hereof other than by reason of a default by any of the
Initial Purchasers, the Company will reimburse the Initial Purchasers severally
upon demand for all reasonable out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities but the
16
<PAGE> 17
Company shall be under no further liability to the Initial Purchasers with
respect to such Securities except as provided in Section 8 hereof.
11. Representatives and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Initial Purchasers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of any Initial Purchaser or the Company
or any of the officers, directors or controlling persons referred to in Section
8 hereof, and will survive delivery of and payment for the Securities. The
provisions of the third paragraph of Section 10 and the provisions of Section 8
hereof shall survive the termination or cancellation of this Agreement.
12. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
14. Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
15. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Initial Purchasers, will be
mailed, delivered or telegraphed and confirmed to the Representatives of the
Initial Purchasers, at the address specified in Schedule II hereto; or, if sent
to the Company, will be mailed, delivered or telegraphed and confirmed to it,
care of 1900 Richmond Road, Cleveland, Ohio 44124, Attention of the Secretary.
16. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
17
<PAGE> 18
17. Business Day. For purposes of this Agreement, "business
day" means any day on which the New York Stock Exchange is open for trading.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
between the Company and each of the Initial Purchasers.
Very truly yours,
TRW INC.
By: /s/ Carl G. Miller
Name: Carl G. Miller
Title: Executive Vice President
and Chief Financial Officer
18
<PAGE> 19
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
J.P. Morgan Securities Inc.
Salomon Smith Barney Inc.
Acting severally on behalf of themselves and
the several Initial Purchasers named in
Schedule II hereto.
By: Morgan Stanley & Co. Incorporated By: J.P. Morgan Securities Inc.
By: /s/ Michael Fusco By: /s/ Maria Sramek
------------------------------------- ------------------------------
Name: Michael Fusco Name: Maria Sramek
Title: Vice President Title: Vice President
By: Salomon Smith Barney Inc.
By: /s/ Martha D. Bailey
------------------------------------
Name: Martha D. Bailey
Title: Vice President
19
<PAGE> 20
SCHEDULE I
Description of the Securities:
Title and Purchase Price of 6 1/2% Notes Due 2002:
Title: 61/2% Notes Due 2002
Principal amount: $400,000,000
Interest rate: 6 1/2%
Interest payment dates: June 1 and December 1
Date of maturity: June 1, 2002
Purchase price (include
accrued interest or
amortization, if any): 99.616%
Initial offering price: 99.866%
Title and Purchase Price of 6 5/8% Notes Due 2004:
Title: 6 5/8% Notes Due 2004
Principal amount: $700,000,000
Interest rate: 6 5/8 %
Interest payment dates: June 1 and December 1
Date of maturity: June 1, 2004
Purchase price (include
accrued interest or
amortization, if any): 99.002%
Initial offering price: 99.352%
<PAGE> 21
Title and Purchase Price of 7 1/8% Notes Due 2009:
Title: 7 1/8% Notes Due 2009
Principal amount: $750,000,000
Interest rate: 7 1/8%
Interest payment dates: June 1 and December 1
Date of maturity: June 1, 2009
Purchase price (include
accrued interest or
amortization, if any): 98.602%
Initial offering price: 99.052%
Title and Purchase Price of 7 3/4% Debentures Due 2029:
Title: 7 3/4% Debentures Due 2029
Principal amount: $550,000,000
Interest rate: 7 3/4%
Interest payment dates: June 1 and December 1
Date of maturity: June 1, 2029
Purchase price (include
accrued interest or
amortization, if any): 98.206%
Initial offering price: 99.081%
Closing Date, Time and Location: June 2, 1999, at 9:00 a.m. at the
offices of Cravath, Swaine & Moore,
Worldwide Plaza, 825 Eighth Avenue,
New York, New York 10019
<PAGE> 22
SCHEDULE II
$400,000,000 of 6 1/2% Notes Due 2002
<TABLE>
<CAPTION>
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2002
NOTES TO BE PURCHASED
<S> <C>
Morgan Stanley & Co. Incorporated.............................. $108,000,000
J.P. Morgan Securities Inc..................................... 108,000,000
Salomon Smith Barney Inc....................................... 108,000,000
Banc of America Securities LLC................................. 13,000,000
Barclays Bank PLC.............................................. 13,000,000
Chase Securities Inc........................................... 13,000,000
Goldman, Sachs & Co............................................ 13,000,000
Banc One Capital Markets, Inc.................................. 4,000,000
Blaylock & Partners, L.P....................................... 4,000,000
Deutsche Bank Securities Inc................................... 4,000,000
Dresdner Bank AG (London Branch)............................... 4,000,000
McDonald Investments, Inc. (A KeyCorp Company)................. 4,000,000
RBC Dominion Securities Corporation............................ 4,000,000
Total:.................................................. $400,000,000
============
</TABLE>
<PAGE> 23
$700,000,000 of 6 5/8% Notes Due 2004
<TABLE>
<CAPTION>
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2004
NOTES TO BE PURCHASED
<S> <C>
Morgan Stanley & Co. Incorporated.............................. $189,000,000
J.P. Morgan Securities Inc..................................... 189,000,000
Salomon Smith Barney Inc....................................... 189,000,000
Banc of America Securities LLC................................. 22,750,000
Barclays Bank PLC.............................................. 22,750,000
Chase Securities Inc........................................... 22,750,000
Goldman, Sachs & Co............................................ 22,750,000
Banc One Capital Markets, Inc.................................. 7,000,000
Blaylock & Partners, L.P....................................... 7,000,000
Deutsche Bank Securities Inc................................... 7,000,000
Dresdner Bank AG (London Branch)............................... 7,000,000
McDonald Investments, Inc. (A KeyCorp Company)................. 7,000,000
RBC Dominion Securities Corporation............................ 7,000,000
Total: $700,000,000
============
</TABLE>
<PAGE> 24
$750,000,000 of 7 1/8% Notes Due 2009
<TABLE>
<CAPTION>
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2009
NOTES TO BE PURCHASED
<S> <C>
Morgan Stanley & Co. Incorporated................................. $202,500,000
J.P. Morgan Securities Inc........................................ 202,500,000
Salomon Smith Barney Inc.......................................... 202,500,000
Banc of America Securities LLC.................................... 24,375,000
Barclays Bank PLC................................................. 24,375,000
Chase Securities Inc.............................................. 24,375,000
Goldman, Sachs & Co............................................... 24,375,000
Banc One Capital Markets, Inc..................................... 7,500,000
Blaylock & Partners, L.P.......................................... 7,500,000
Deutsche Bank Securities Inc...................................... 7,500,000
Dresdner Bank AG (London Branch).................................. 7,500,000
McDonald Investments, Inc. (A KeyCorp Company).................... 7,500,000
RBC Dominion Securities Corporation............................... 7,500,000
Total:............................................. $750,000,000
============
</TABLE>
<PAGE> 25
$550,000,000 of 7 3/4% Debentures Due 2029
<TABLE>
<CAPTION>
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2029
NOTES TO BE PURCHASED
<S> <C>
Morgan Stanley & Co. Incorporated................................. $148,500,000
J.P. Morgan Securities Inc........................................ 148,500,000
Salomon Smith Barney Inc.......................................... 148,500,000
Banc of America Securities LLC.................................... 17,875,000
Barclays Bank PLC................................................. 17,875,000
Chase Securities Inc.............................................. 17,875,000
Goldman, Sachs & Co............................................... 17,875,000
Banc One Capital Markets, Inc..................................... 5,500,000
Blaylock & Partners, L.P.......................................... 5,500,000
Deutsche Bank Securities Inc...................................... 5,500,000
Dresdner Bank AG (London Branch).................................. 5,500,000
McDonald Investments, Inc. (A KeyCorp Company).................... 5,500,000
RBC Dominion Securities Corporation............................... 5,500,000
Total:................................................... $550,000,000
============
</TABLE>
<PAGE> 26
EXHIBIT A
FORM OF OPINION OF WILLIAM B. LAWRENCE
Gentlemen and Ladies:
This opinion is addressed to you with respect to $400,000,000 in aggregate
principal amount of 6 1/2% Notes Due 2002, $700,000,000 aggregate principal
amount of 6 5/8% Notes Due 2004, $750,000,000 aggregate principal amount of 7
1/8% Notes Due 2009, and $550,000,000 aggregate principal amount of 7 3/4%
Debentures Due 2029 (collectively, the "Offered Securities") of TRW Inc., an
Ohio corporation (the "Company"), to be issued under an Indenture dated as of
May 1, 1986, supplemented by the First Supplemental Indenture dated August 24,
1989, the Second Supplemental Indenture dated as of June 2, 1999, the Third
Supplemental Indenture dated as of June 2, 1999, the Fourth Supplemental
Indenture dated as of June 2, 1999, and the Fifth Supplemental Indenture dated
as of June 2, 1999 (as supplemented, the "Indenture"), between the Company and
The Chase Manhattan Bank as successor trustee ("Trustee") to Mellon Bank, N.A.,
pursuant to Section 5(b) of the Purchase Agreement dated May 26, 1999 (the
"Purchase Agreement"), entered into among the Company and each of you as
representatives (the "Representatives"). Capitalized terms used but not defined
in this letter are used as defined in the Purchase Agreement.
I am General Counsel of the Company and have acted in such capacity in
connection with the proposed issue and sale by the Company of the Offered
Securities. With respect thereto, I have examined or caused to be examined by
members of the TRW Law Department the following: (i) the Amended Articles of
Incorporation of the Company; (ii) the Regulations of the Company; (iii) the
corporate proceedings of the Company relating to the Offered Securities, the
Final Offering Memorandum (as defined below), and the execution and delivery of
the Purchase Agreement, the Registration Rights Agreement and the Indenture;
(iv) the Company's Annual Report on Form 10-K for the year ended December 31,
1998, the Company's Quarterly Reports on Form 10-Q for the quarter ended March
31, 1999, the Company's Current Reports on Form 8-K dated as of January 28,
1999, February 5, 1999, March 26, 1999 (as amended May 17, 1999) (the
"Incorporated Documents"), all of which documents have been filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and are incorporated by
reference in the Final Offering Memorandum; (v) the Offering Memorandum dated
May 26, 1999 (the "Final Offering Memorandum"); (vi) the Purchase Agreement;
(vii) the Indenture; (viii) the Registration Rights Agreement and (ix) the Form
of the Offered Securities.
<PAGE> 27
I have also made or caused to be made such other examinations as I have deemed
necessary to enable me to give the opinions herein expressed. However, as to
each of the opinions set forth below which is limited to my knowledge, you
should be aware that I have neither made nor caused to be made any independent
review for purposes of rendering this opinion, although in the regular course of
advising TRW I have reviewed or caused to be reviewed various documents, records
and matters of law. As to matters relating to that portion of the Company that
constituted LucasVarity plc ("LucasVarity") prior to its purchase by the
Company, I have relied on the opinion of Russell Kelley, General Counsel of
LucasVarity Ltd. As to matters relating to Lucas Limited and governed by English
law, I have relied on the opinion of Allen & Overy.
Based upon the foregoing, I am of the opinion that:
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio, with full corporate power and
authority to own its properties and conduct the business now being conducted by
it as described in the Final Offering Memorandum, and is duly qualified to do
business as a foreign corporation in each jurisdiction which requires such
qualification wherein it owns or leases material properties or conducts material
business, except where the failure to so qualify would not have a material
adverse effect on the financial condition or the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise; and the Company is in good standing in the State of California and
the Commonwealth of Virginia;
2. Lucas Limited, a private limited company organized and existing under the
laws of England and Wales ("Lucas Limited"), is duly incorporated, validly
existing and in good standing as a private company with limited liability under
the laws of England. The registers of charges of Lucas Limited's immediate
holding company, Lucas Investment Finance Limited, and of Joseph Lucas Limited,
as at June 2, 1999, do not disclose any charges over the shares in Lucas Limited
held by them. Each of the certificate of incorporation and Memorandum and
Articles of Association of Lucas Limited do not prohibit Lucas Limited from
engaging in the business of producing and selling automotive and aerospace
products;
3. Kelsey-Hayes Company, a Delaware corporation ("Kelsey-Hayes"), has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation or organization has the corporate
power and authority to own its property and to conduct its business as described
in the Final Memorandum and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the financial condition, or the earnings,
<PAGE> 28
business affairs or business prospects of the Company and its subsidiaries,
taken as a whole; all of the issued shares of capital stock of Kelsey-Hayes have
been duly and validly authorized and issued, are fully paid and non-assessable,
and are owned directly or indirectly, free and clear of all liens, encumbrances,
equities or claims;
4. Each of the Indenture and the Registration Rights Agreement has been duly
authorized, executed and delivered by or on behalf of the Company, and
constitutes a legal, valid and binding instrument enforceable against the
Company in accordance with its terms except (i) as rights to indemnification and
contribution under the Registration Rights Agreement may be limited under
applicable law and (ii) as the enforcement of remedies may be (A) limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other laws or
proceedings affecting the enforcement of creditors' rights generally from time
to time in effect or (B) subject to the effect of general principles of equity,
whether applied by a court of law or equity; and the Offered Securities have
been duly authorized and, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Initial
Purchasers pursuant to the Purchase Agreement, will constitute legal, valid and
binding obligations of the Company entitled to the benefits of the Indenture,
the Registration Rights Agreement and the Purchase Agreement except as the
enforcement of remedies may be (i) limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws or proceedings affecting
the enforcement of creditors' rights generally from time to time in effect or
(ii) subject to the effect of general principles of equity, whether applied by a
court of law or equity;
5. To my knowledge, there is no pending or threatened action, suit or proceeding
before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries, of a character that would be
required to be disclosed in a registration statement filed under the Securities
Act of 1933, as amended (the "Act"), which is not adequately disclosed in the
Final Memorandum, and there is no franchise, contract or other document of a
character that would be required to be described in a registration statement or
prospectus filed under the Act, or to be filed as an exhibit, which is not
described or filed as required; and the statements included or incorporated in
the Final Memorandum describing any legal proceedings or material contracts or
agreements relating to the Company fairly summarize such matters;
6. I have no reason to believe that the Final Memorandum, or any amendment
thereof, at the date of this letter contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Final
Memorandum, as amended or supplemented, at the date of this letter, includes any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; PROVIDED, HOWEVER, that I express no opinion as
to
<PAGE> 29
the information contained in or omitted from the Final Memorandum or any
amendment thereof or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any Initial
Purchaser specifically for use in connection with the preparation of the Final
Memorandum or any amendment thereof or supplement thereto;
7. The Purchase Agreement has been duly authorized, executed and delivered by
the Company;
8. No consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation of the transactions contemplated
herein except such as have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Securities by the Initial Purchasers;
9. Neither the issue and sale of the Securities, nor the consummation of any
other of the transactions contemplated by the Purchase Agreement nor the
fulfillment of the terms of the Purchase Agreement, the Indenture, the
Registration Rights Agreement and the Securities will conflict with, result in a
breach of, or constitute a default under, the Amended Articles of Incorporation
or Regulations of the Company or the terms of any indenture or other agreement
or instrument known to me and to which the Company is a party or bound, or any
order or regulation known to me to be applicable to the Company of any court,
regulatory body, administrative agency, governmental body or arbitrator having
jurisdiction over the Company; and
10. Based upon the representations, warranties and agreements of the Company in
Sections 1(m), 1(n), 1(o), 6(f), 6(g) and 6(j) of the Purchase Agreement and of
the Initial Purchasers in Section 7 of the Purchase Agreement, and assuming (i)
the accuracy of the representations and warranties of each of the purchasers to
whom the Initial Purchasers initially resell the Securities, (ii) compliance by
the Initial Purchasers with the offering and transfer procedures and
restrictions described in the Offering Memorandum and (iii) receipt by the
purchasers to whom the Initial Purchasers initially resell the Securities of a
copy of the Offering Memorandum prior to such sale, it is not necessary in
connection with the offer, sale and delivery of the Securities to the Initial
Purchasers under the Purchase Agreement or in connection with the initial resale
of such Securities by the Initial Purchasers in accordance with Section 7 of the
Purchase Agreement to register the Securities under the Securities Act of 1933,
or to qualify the Indenture under the Trust Indenture Act of 1939, it being
understood that no opinion is expressed as to any subsequent resale of any
Security.
<PAGE> 30
I am a member of the bar of the State of Ohio and do not purport to be an expert
on, generally familiar with or qualified to express legal conclusions based on
laws other than the laws of the State of Ohio and the United States of America.
This opinion is being delivered to the Initial Purchasers solely for their
benefit as representatives under the Purchase Agreement and Initial Purchasers
and may be relied upon only by you for such purpose.
Very truly yours,
William B. Lawrence
General Counsel
<PAGE> 31
EXHIBIT B
FORM OF OPINION OF CRAVATH, SWAINE & MOORE
TRW Inc.
$400,000,000 6 1/2% Notes Due 2002
$700,000,000 6 5/8% Notes Due 2004
$750,000,000 7 1/8% Notes Due 2009
$550,000,000 7 3/4% Debentures Due 2029
Ladies and Gentlemen:
We have acted as your counsel in connection with the purchase
by you, pursuant to the Purchase Agreement dated May 26, 1999 (the "Purchase
Agreement"), among you and TRW Inc., an Ohio corporation (the "Company"), of
$400,000,000 principal amount of the Company's 6 1/2% Notes Due 2002,
$700,000,000 principal amount of the Company's 6 5/8% Notes Due 2004,
$750,000,000 principal amount of the Company's 7 1/8% Notes Due 2009 and
$550,000,000 principal amount of the Company's 7 3/4% Debentures Due 2029
(collectively, the "Securities") to be issued under the Indenture dated as of
May 1, 1986, as supplemented and amended by the First Supplemental Indenture
dated as of August 24, 1989, the Second Supplemental Indenture dated as of June
2, 1999, the Third Supplemental Indenture dated as of June 2, 1999, the Fourth
Supplemental Indenture dated as of June 2, 1999, and the Fifth Supplemental
Indenture dated June 2, 1999 (the "Indenture"), between the Company and The
Chase Manhattan Bank, as Trustee. Capitalized terms used and not otherwise
defined herein have the meanings ascribed thereto in the Purchase Agreement.
In that connection, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for the purposes of this opinion, including: (a) resolutions adopted
by the Board of Directors of the Company on February 10, 1999; (b) the Offering
Memorandum dated May 26, 1999 (the "Offering Memorandum"); (c) the Purchase
Agreement; (d) the Registration Rights Agreement; (e) the Indenture; and (f) the
form of the Securities.
Based on the foregoing, we are of opinion as follows:
<PAGE> 32
1. Assuming that the Indenture has been duly authorized,
executed and delivered by the Company, the Indenture constitutes a legal, valid
and binding obligation of the Company enforceable in accordance with its terms
(subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws affecting creditors' rights
generally from time to time in effect and to general principles of equity,
including concepts of materiality, reasonableness, good faith and fair dealing,
regardless of whether considered in a proceeding in equity or at law).
2. The Securities conform in all material respects to the
description thereof contained in the Offering Memorandum. Assuming that the
Securities have been duly authorized, when executed and authenticated in
accordance with the provisions of the Indenture and delivered to and paid for by
the Initial Purchasers pursuant to the Purchase Agreement, will constitute
legal, valid and binding obligations of the Company entitled to the benefits of
the Indenture and enforceable against the Company in accordance with their terms
(subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws affecting creditors' rights
generally from time to time in effect and to general principles of equity,
including concepts of materiality, reasonableness, good faith and fair dealing,
regardless of whether considered in a proceeding in equity or at law).
3. Assuming (i) the accuracy of, and compliance with, the
representations, warranties and covenants of the Company in the Purchase
Agreement, (ii) the accuracy of, and compliance with, the representations,
warranties and covenants of the Initial Purchasers in the Purchase Agreement,
(iii) the accuracy of the representations and warranties of each of the
purchasers to whom the Initial Purchasers initially resell the Securities, (iv)
compliance by the Initial Purchasers with the offering and transfer procedures
and restrictions described in the Offering Memorandum and (v) receipt by the
purchasers to whom the Initial Purchasers initially resell the Securities of a
copy of the Offering Memorandum prior to such sale, it is not necessary in
connection with the offer, sale and delivery of the Securities or in connection
with the initial resale of such Securities in the manner contemplated by the
Purchase Agreement and the Offering Memorandum to register the Securities under
the Securities Act of 1933, as amended, and the Indenture does not require
qualification under the Trust Indenture Act of 1939, as amended, it being
understood that no opinion is expressed as to any subsequent resale of any
Securities.
Although we have not performed an independent verification of
the substance of counsel's opinion and take no responsibility therefor, the
opinion dated the date hereof of William B. Lawrence, General Counsel for the
Company, delivered to you pursuant to Section 5(b) of the Purchase Agreement, is
substantially responsive to the requirements of the Purchase Agreement. This
letter is delivered to you pursuant to Section 5(c) of the Purchase Agreement.
<PAGE> 33
We are admitted to practice in the State of New York, and we
express no opinion as to matters governed by any laws other than the laws of the
State of New York, the General Corporation Law of the State of Delaware and the
Federal laws of the United States of America. In particular, we do not purport
to pass on any matter governed by the laws of the State of Ohio. In rendering
this opinion, we have assumed without independent investigation, the correctness
of, and take no responsibility for, the opinion dated June 2, 1999, of William
B. Lawrence, General Counsel for the Company, a copy of which has been delivered
to you pursuant to Section 5(b) of the Purchase Agreement, as to all matters of
law covered therein relating to the laws of the State of Ohio.
<PAGE> 34
We are furnishing this opinion to you solely for your benefit.
This opinion may not be relied upon by any other person or for any other purpose
or used, circulated, quoted or otherwise referred to for any other purpose.
Very truly yours,
Morgan Stanley & Co. Incorporated
J.P. Morgan Securities Inc.
Salomon Smith Barney Inc.
Banc of America Securities LLC
Barclays Bank PLC
Chase Securities Inc.
Goldman, Sachs & Co.
Banc One Capital Markets, Inc.
Blaylock & Partners, L.P.
Deutsche Bank Securities Inc.
Dresdner Bank AG (London Branch)
McDonald Investments, Inc. (A KeyCorp Company)
RBC Dominion Securities Corporation
In care of Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
J.P. Morgan Securities Inc.
60 Wall Street
New York, NY 10260
Salomon Smith Barney Inc.
Seven World Trade Center
New York, NY 10048
<PAGE> 1
Exhibit 10(b)
-------------
TRW INC.
$575,000,000 Floating Rate Notes due 2000
$425,000,000 6.45% Notes due 2001
PURCHASE AGREEMENT
June 18, 1999
<PAGE> 2
June 18, 1999
Goldman, Sachs & Co.
as representative of the Initial Purchasers
named in Schedule II hereto
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Dear Sirs and Mesdames:
TRW Inc., an Ohio corporation (the "COMPANY"), proposes to
issue and sell to the several purchasers named in Schedule II hereto (the
"INITIAL PURCHASERS"), for whom you (the "Representative") are acting as
representative, $575,000,000 principal amount of its Floating Rate Notes due
2000 (the "2000 Notes") and $425,000,000 principal amount of its 6.45% Notes due
2001 (the "2001 Notes" and, together with 2000 Notes, the "SECURITIES"), to be
issued pursuant to the provisions of an Indenture dated as of May 1, 1986 (as
supplemented, the "INDENTURE"), as supplemented by the First Supplemental
Indenture dated as of August 24, 1989, the Second Supplemental Indenture dated
as of June 2, 1999, the Third Supplemental Indenture dated as of June 2, 1999,
the Fourth Supplemental Indenture dated as of June 2, 1999, the Fifth
Supplemental Indenture dated as of June 2, 1999, the Sixth Supplemental
Indenture dated as of June 23, 1999, and the Seventh Supplemental Indenture
dated as of June 23, 1999, between the Company and The Chase Manhattan Bank, as
successor Trustee (the "TRUSTEE") to Mellon Bank N.A.
The Securities will be offered and sold without being
registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
to qualified institutional buyers in compliance with the exemption from
registration provided by Rule 144A under the Securities Act.
In connection with the sale of the Securities, the Company
will prepare an offering circular (the "OFFERING CIRCULAR") including or
incorporating by reference a description of the terms of the Securities, the
terms of the offering and a description of the Company. The Company hereby
confirms that it has authorized the use of the Offering Circular in connection
with the offering and resale of the Securities by the Initial Purchasers,
subject to their obligations hereunder. As used herein, the term "Offering
Circular" shall include in each case the documents incorporated by reference
therein. The terms "SUPPLEMENT", "AMENDMENT" and "AMEND" as used herein with
respect to the Offering Circular shall include all documents deemed to be
incorporated by reference in the Offering Circular that are filed subsequent to
the date of the Offering Circular with the Securities and Exchange Commission
(the "COMMISSION") pursuant to the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT").
<PAGE> 3
The Initial Purchasers and their direct and indirect permitted
transferees will be entitled to the benefits of the Registration Rights
Agreement dated as of the Closing Date between the Company and the Initial
Purchasers (the "Registration Rights Agreement"), pursuant to which the Company
will file a registration statement or registration statements (each, a
"Registration Statement") with the Commission registering the Securities and/or
the Exchange Securities (as defined in the Registration Rights Agreement) under
the Securities Act.
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, each Initial Purchaser as set forth below in this Section
1:
(a) Each document, if any, filed or to be filed pursuant to
the Exchange Act and incorporated by reference in the Offering Circular
complied or will comply when so filed in all material respects with the
Exchange Act and the rules and regulations thereunder and when read
together and with the other information in the Offering Circular, in
the form used by the Initial Purchasers to confirm sales and on the
Closing Date (as defined in Section 4), will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading.
(b) Any documents filed by the Company under the Exchange Act
that are incorporated by reference (in whole or in part) in the
Offering Circular or that are incorporated by reference (in whole or in
part) in a Registration Statement, as of the dates they were filed or
hereafter are with the Commission, complied and will comply as to form
in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission thereunder (the "Exchange
Act Regulations").
(c) When the Securities are issued and delivered pursuant to
this Agreement, such securities will not be of the same class (within
the meaning of Rule 144A) as securities of the Company which are listed
on a national securities exchange registered under Section 6 of the
Exchange Act or quoted in a U.S. automated interdealer quotation
system.
(d) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Ohio, with
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Offering Circular and
is duly qualified as a foreign corporation to transact business in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified would not have a material adverse
effect on the financial condition or earnings, business affairs or
business prospects of the
2
<PAGE> 4
Company and its subsidiaries, taken as a whole; and the Company is in
good standing in the State of California and the Commonwealth of
Virginia.
(e) (if the Company has one or more Significant Subsidiaries
as of the date hereof and as of the Closing Date) each Significant
Subsidiary of the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own, lease and operate its property and to conduct its
business as described in the Offering Circular and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the financial condition, or the earnings, business
affairs or business prospects of the Company and its subsidiaries,
taken as a whole; all of the issued shares of capital stock of each
Significant Subsidiary of the Company held by the Company have been
duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company,
free and clear of all liens, encumbrances, equities or claims. For
purposes of this paragraph a "Significant Subsidiary" shall mean a
"significant subsidiary" as defined in Rule 405 of Regulation C under
the Act.
(f) This Agreement has been duly authorized, executed and
delivered by the Company.
(g) The Securities have been duly authorized and, when
executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, will constitute valid and
legally binding obligations of the Company enforceable in accordance
with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting
enforcement of creditors' rights or by general equity principles, and
except further as enforcement thereof may be limited by (i)
requirements that a claim with respect to any Securities denominated
other than in United States dollars (or a foreign currency or currency
unit judgment in respect of such claim) be converted into United States
dollars at a rate of exchange prevailing on a date determined pursuant
to applicable law or (ii) governmental authority to limit, delay or
prohibit the making of payments in a foreign currency or currency units
or payments outside the United States; the Securities and the Indenture
will be substantially in the form heretofore delivered to the Initial
Purchasers and conform in all material respects to all statements
relating thereto contained in the Offering Circular; and the Securities
will be entitled to the benefits provided by the Indenture.
3
<PAGE> 5
(h) (i) The Indenture has been duly authorized, and, when
executed and delivered by the Company and the Trustee, the Indenture
will constitute a valid and legally binding agreement of, the Company
enforceable in accordance with its terms, except as enforcement thereof
may be limited by bankruptcy, insolvency or other laws relating to or
affecting enforcement of creditors' rights or by general equity
principles and (ii) the Registration Rights Agreement has been duly
authorized, and, when executed and delivered by the Company (assuming
the due authorization, execution and delivery by the Initial
Purchasers), will constitute a valid and legally binding agreement of,
the Company enforceable in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency or other
laws relating to or affecting enforcement of creditors' rights or by
general equity principles and except as rights to indemnification and
contribution under the Registration Rights Agreement may be limited
under applicable law. The Registration Rights Agreement will conform in
all material respects to the description thereof, if any, to be
contained in the Offering Circular.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement,
the Indenture, the Registration Rights Agreement and the Securities
will not contravene any provision of applicable law or constitute a
default under the Amended Articles of Incorporation of the Company or
by-laws of the Company or any indenture, other agreement or instrument
binding upon the Company or any of its subsidiaries that is material to
the Company and its subsidiaries, taken as a whole, or any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any court
or governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, the Indenture, the
Securities or the Registration Rights Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Securities.
(j) Except as may be set forth in the Offering Circular, there
is no action, suit or proceeding before or by any court or governmental
agency or body, domestic or foreign, now pending, against or affecting,
the Company or any of its subsidiaries, which might, in the opinion of
the Company, result in any material adverse change in the financial
position of the Company and its subsidiaries taken as a whole, or might
materially and adversely affect the assets of the Company and its
subsidiaries, taken as a whole.
(k) The Company is not, and after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Offering Circular, will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
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<PAGE> 6
(l) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act, an "AFFILIATE") of the
Company has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Securities Act) which is or will be
integrated with the sale of the Securities in a manner that would
require the registration under the Securities Act of the Securities or
(ii) engaged in any form of general solicitation or general advertising
in connection with the offering of the Securities, (as those terms are
used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act; provided, however, the Company makes no representations
with respect to the activities of the Initial Purchasers.
(m) None of the Company, its Affiliates or any person acting
on its or their behalf has engaged or will engage in any directed
selling efforts (within the meaning of Regulation S) with respect to
the Securities and the Company and its Affiliates and any person acting
on its or their behalf have complied and will comply with the offering
restrictions requirement of Regulation S; provided, however, the
Company makes no representations with respect to the activities of the
Initial Purchasers.
(n) It is not necessary in connection with the offer, sale and
delivery of the Securities to the Initial Purchasers in the manner
contemplated by this Agreement to register the Securities under the
Securities Act or to qualify any indenture in respect of the Securities
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act").
(o) The Securities satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(p) The financial statements of the Company and its
consolidated subsidiaries included or incorporated by reference in the
Offering Circular present fairly the consolidated financial position of
the Company and its consolidated subsidiaries as at the dates indicated
and the consolidated results of their operations for the periods
specified; and except as stated therein, said financial statements have
been prepared in conformity with generally accepted accounting
principles in the United States applied on a consistent basis.
2. Agreements to Sell and Purchase. The Company hereby agrees
to sell to the several Initial Purchasers, and each Initial Purchaser, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from the Company at the purchase price for the Securities set forth in Schedule
I hereto, the respective principal amount of Securities set forth opposite such
Initial Purchaser's name in Schedule II hereto.
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<PAGE> 7
3. Terms of Offering. You have advised the Company that the
Initial Purchasers will make an offering of the Securities purchased by the
Initial Purchasers hereunder on the terms to be set forth in the Offering
Circular, as soon as practicable after this Agreement is entered into as in your
judgment is advisable.
4. Payment and Delivery. Payment for the Securities shall be
made to the Company in Federal or other funds immediately available in New York
City against delivery of such Securities for the respective accounts of the
several Initial Purchasers at 10:00 a.m., New York City time, on June 23, 1999,
or at such other time on the same or such other date, not later than June 30,
1999, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "CLOSING DATE."
Certificates for the Securities shall be in definitive form or
global form, as specified by you, and registered in such names and in such
denominations as you shall request in writing not later than one full business
day prior to the Closing Date. The certificates evidencing the Securities shall
be delivered to you on the Closing Date for the respective accounts of the
several Initial Purchasers, with any transfer taxes payable in connection with
the transfer of the Securities to the Initial Purchasers duly paid, against
payment of the Purchase Price therefor plus accrued interest, if any, to the
date of payment and delivery.
5. Conditions to the Initial Purchasers' Obligations. The
several obligations of the Initial Purchasers to purchase and pay for the
Securities on the Closing Date shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the date hereof, and as of the Closing Date, to the accuracy of the statements
of the Company made in any certificates pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder, to the due
execution and delivery of the Indenture and to the following additional
conditions:
(a) The Initial Purchasers shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect that the representations and
warranties of the Company contained in this Agreement are true and
correct in all material respects as of the Closing Date with the same
effect as if made on the Closing Date and that the Company has complied
with all of the agreements and satisfied all of the conditions on its
part to be performed or satisfied hereunder on or before the Closing
Date and that, subsequent to the date of most recent financial
statements in the Offering Circular, there has been no material adverse
change in the condition (financial or other), earnings, business or
properties of the Company and its subsidiaries taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated by the Offering
Circular or as described in such certificate.
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<PAGE> 8
(b) The Initial Purchasers shall have received on the Closing
Date an opinion of the General Counsel or an Assistant General Counsel
of the Company, dated the Closing Date, to the effect set forth in
Exhibit A.
(c) The Initial Purchasers shall have received on the Closing
Date an opinion of Cravath, Swaine & Moore, counsel for the Initial
Purchasers, dated the Closing Date, to the effect set forth in Exhibit
B.
(d) The Initial Purchasers shall have received on the Closing
Date a letter, dated the Closing Date in form and substance
satisfactory to the Initial Purchasers, from each of (i) Ernst & Young
LLP, independent public accountants, (ii) KPMG Audit plc, independent
public accountants, (iii) KPMG Audit plc and Ernst & Young, jointly,
and (iv) Ernst & Young, independent public accountants, in each case
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in or
incorporated by reference into the Offering Circular; provided that (A)
the Ernst & Young LLP letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof and (B) the KPMG Audit
plc letter delivered on the Closing Date shall use a "cut-off date" not
earlier than March 24, 1999.
(e) Subsequent to the execution of this Agreement, there shall
not have been any decrease in the ratings of any of the Company's debt
securities by Moody's Investors Service, Inc. or Standard & Poor's
Corporation.
(f) Prior to the Closing Date, the Company shall have
furnished to the Initial Purchasers such further information,
certificates and documents as the Representatives may reasonably
request.
(g) The Registration Rights Agreement shall have been duly
authorized, executed and delivered by the Company, the Indenture shall
have been duly authorized, executed and delivered by the Company, all
the covenants and agreements contained herein to be fulfilled or
complied with by the Company at or prior to such Closing Date shall
have been duly performed, fulfilled or complied with in all material
respects.
If any of the conditions specified in this Section 5 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the Initial Purchasers and counsel for the
Initial Purchasers, this Agreement and all obligations of the Initial Purchasers
hereunder may be canceled at, or at any time prior to, the Closing Date by the
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<PAGE> 9
Initial Purchasers. Notice of such cancelation shall be given to the Company in
writing or by telephone or telegraph confirmed in writing.
6. Covenants of the Company. In further consideration of the
agreements of the Initial Purchasers contained in this Agreement, the Company
covenants with each Initial Purchaser as follows:
(a) To furnish to you in New York City, without charge, prior
to 10:00 a.m., New York City time, on the business day next succeeding
the date of this Agreement and during the period mentioned in Section
6(c), as many copies of the Offering Circular, any documents
incorporated by reference therein and any supplements and amendments
thereto as you may reasonably request. The Company will pay the
expenses of printing all documents relating to the offering.
(b) The Company will advise the Initial Purchasers promptly of
any proposal to amend or supplement the Offering Circular and will
afford the Initial Purchasers a reasonable opportunity to comment on
any such proposed amendment or supplement. The Company will not file
any document under the Exchange Act before the completion of the
offering of the Securities by the Initial Purchasers if such document
would be incorporated by reference in the Offering Circular and if the
filing of such document would cause the Offering Circular, as amended
or supplemented by the filing of such document, to contain an untrue
statement of a material fact or to omit to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(c) If, during such period after the date hereof and prior to
the date on which all of the Securities shall have been sold by the
Initial Purchasers to purchasers who are not affiliates of such Initial
Purchaser, any event occurs as a result of which the Offering Circular
as then amended (including, without limitation, any document
incorporated by reference therein) would include any untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, forthwith to prepare and furnish, at
its own expense, to the Initial Purchasers, either amendments or
supplements to the Offering Circular which will correct such statement
or omission or misstatement.
(d) To endeavor to qualify the Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request.
(e) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement,
8
<PAGE> 10
including: (i) the fees, disbursements and expenses of the Company's
counsel and the Company's accountants in connection with the issuance
and sale of the Securities and all other fees or expenses in connection
with the preparation of the Offering Circular and all amendments and
supplements thereto, including all printing costs associated therewith,
and the delivering of copies thereof to the Initial Purchasers, in the
quantities herein above specified, (ii) all costs and expenses related
to the transfer and delivery of the Securities to the Initial
Purchasers, including any transfer or other taxes payable thereon,
(iii) the cost of printing or producing any Blue Sky memorandum in
connection with the offer and sale of the Securities under state
securities laws and all expenses in connection with the qualification
of the Securities for offer and sale under state securities laws as
provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Initial Purchasers
in connection with such qualification and in connection with the Blue
Sky memorandum, (iv) any fees charged by rating agencies for the rating
of the Securities, (v) all document production charges and expenses of
counsel to the Initial Purchasers (but not including their fees for
professional services) in connection with the preparation of this
Agreement, (vi) the costs and charges of the Trustee and any transfer
agent, listing agent, registrar or depositary, (vii) the cost of the
preparation, issuance and delivery of the Securities, (viii) the costs
and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the offering
of the Securities, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses
of any consultants engaged in connection with the road show
presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and
any such consultants, and the cost of any aircraft chartered in
connection with the road show, and (ix) all other cost and expenses
incident to the performance of the obligations of the Company hereunder
for which provision is not otherwise made in this Section. It is
understood, however, that except as provided in this Section, Section
8, and the last paragraph of Section 10, the Initial Purchasers will
pay all of their costs and expenses, including fees and disbursements
of their counsel and transfer taxes payable on resale of any of the
Securities by them.
(f) Neither the Company nor any Affiliate will sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require the
registration under the Securities Act of the Securities.
(g) Not to solicit any offer to buy or offer or sell the
Securities by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.
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<PAGE> 11
(h) While any of the Securities remain "restricted securities"
within the meaning of the Securities Act, to make available, upon
request, to any seller of such Securities the information specified in
Rule 144A(d)(4) under the Securities Act, unless the Company is then
subject to Section 13 or 15(d) of the Exchange Act.
(i) None of the Company, its Affiliates or any person acting
on its or their behalf (other than the Initial Purchasers) will engage
in any directed selling efforts (as that term is defined in Regulation
S) with respect to the Securities, and the Company and its Affiliates
and each person acting on its or their behalf (other than the Initial
Purchasers) will comply with the offering restrictions requirement of
Regulation S.
(j) During the period from the Closing Date to the earlier of
(i) two years after the Closing Date, or (ii) the date of effectiveness
of a registration statement with respect to the Securities as
contemplated in the Registration Rights Agreement, the Company will
not, and will not permit any of its affiliates (as defined in Rule 144
under the Securities Act) to, resell any of the Securities that have
been reacquired by them, except for Securities purchased by the Company
or any of its affiliates and resold in a transaction registered under
the Securities Act.
(k) The Company will use its reasonable best efforts in
cooperation with the Initial Purchasers to permit the Securities to be
eligible for clearance and settlement through The Depository Trust
Company.
(l) Each Security will bear the legends specified in the
Indenture until, in the opinion of counsel of the Company, such legends
are is no longer advisable because such Security is no longer subject
to the restrictions on transfer described therein.
(m) For a period beginning at the time of execution of this
Agreement and ending on the business day following the Closing Date,
the Company will not, without the consent of Goldman, Sachs & Co. on
behalf of the Initial Purchasers, offer, sell, contract to sell or
otherwise dispose of any United States dollar-denominated debt
securities issued or guaranteed by the Company and having a maturity of
more than 390 days from the date of issue.
7. Offering of Securities; Restrictions on Transfer. (a) Each
Initial Purchaser, severally and not jointly, represents and warrants that such
Initial Purchaser is a qualified institutional buyer as defined in Rule 144A
under the Securities Act (a "QIB"). Each Initial Purchaser, severally and not
jointly, agrees with the Company that (i) it will not solicit offers for, or
offer or sell, such Securities by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
or
10
<PAGE> 12
in any manner involving a public offering within the meaning of Section 4(2) of
the Securities Act and (ii) it will solicit offers for such Securities only
from, and will offer such Securities only to, persons that it reasonably
believes to be QIBs that, in each case, in purchasing such Securities are deemed
to have represented and agreed as provided in the Offering Circular under the
caption "Notice to Investors".
11
<PAGE> 13
(b) Each Initial Purchaser, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales outside the
United States that:
(i) such Initial Purchaser understands that no action
has been or will be taken in any jurisdiction by the Company that would
permit a public offering of the Securities, or possession or
distribution of the Offering Circular or any other offering or
publicity material relating to the Securities, in any country or
jurisdiction where action for that purpose is required;
(ii) such Initial Purchaser will comply with all
applicable laws and regulations in each jurisdiction in which it
acquires, offers, sells or delivers Securities or has in its possession
or distributes the Offering Circular or any such other material, in all
cases at its own expense;
(iii) the Securities have not been registered under
the Securities Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons except in
accordance with Rule 144A; and
(iv) such Initial Purchaser has (A) not offered or
sold and, prior to the date six months after the Closing Date, will not
offer or sell any Securities to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995; (B) complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything
done by it in relation to the Securities in, from or otherwise
involving the United Kingdom, and (C) only issued or passed on and will
only issue or pass on in the United Kingdom any document received by it
in connection with the issue of the Securities to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom such document may otherwise lawfully be issued or passed on.
Terms used in this Section 7(b) have the meanings given to
them by Regulation S.
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<PAGE> 14
8. Indemnity and Contribution. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, who controls
any Initial Purchaser within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act against any and all losses, claims,
damages or liabilities, joint or several (including amounts paid in settlement
of any litigation if such settlement is effected with the written consent of the
Company), to which they or any of them may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Offering
Circular or in any amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
agrees to reimburse each such indemnified party for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Initial Purchaser specifically for use in
connection with the preparation thereof. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Initial Purchaser severally, and not jointly, agrees
to indemnify and hold harmless the Company, each of its directors, each of its
officers and each person who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to each Initial Purchaser,
but only with reference to written information relating to such Initial
Purchaser furnished to the Company by such Initial Purchaser expressly for use
in the Offering Circular or any amendments or supplements thereto. This
indemnity agreement will be in addition to any liability which any Initial
Purchaser may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party, under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party,
otherwise than under subparagraph (a) or (b) of this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and to the extent that it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party;
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<PAGE> 15
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party, or parties shall
have the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party, of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel, approved by Goldman, Sachs & Co. in the case of
paragraph (a) of this Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action), (ii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party; and except
that, if clause (i) or (iii) is applicable, such liability shall be only in
respect of the counsel referred to in such clause (i) or (iii).
(d) To the extent the indemnification provided for in this
Section 8 is unavailable to an indemnified party under paragraph (a) or (b)
hereof or insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Initial Purchasers on the other hand from
the offering of the Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and of the Initial
Purchasers on the other in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Initial Purchasers on the other in connection with the
offering of the Securities shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Securities (before deducting
expenses) received by the Company bear to the total discounts and commissions
received by the Initial Purchasers in respect thereof. The relative fault of the
Company on the one hand and of the Initial Purchasers on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
14
<PAGE> 16
omission to state a material fact relates to information supplied by the Company
or by the Initial Purchasers and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
(e) The Company and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to in Section 8(d).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in Section 8(d) shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, no Initial Purchaser shall be required to contribute any amount in
excess of the amount by which the total price at which the Securities resold by
it in the initial placement of such Securities were offered to investors exceeds
the amount of any damages that such Initial Purchaser has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Initial Purchasers' obligations to contribute pursuant to
this Section 8 are several, in proportion to the respective principal amounts of
Securities purchased by each of such Initial Purchasers, and not joint.
9. Termination. An Initial Purchaser may terminate this
Agreement, immediately upon notice to the Company, at any time prior to the
Closing Date (a) if there has been, since the date of this Agreement or since
the respective dates as of which information is given in the Offering Circular,
any change, or any development involving a prospective change, in or affecting
the business or properties of the Company and its subsidiaries, shall have
occurred the effect of which is, in the judgment of Morgan Stanley & Co.
Incorporated, so material and adverse to the Company and its subsidiaries taken
as a whole as to make it impractical or inadvisable to proceed with the delivery
of the Securities or (b) if there shall have occurred any material adverse
change in the financial markets in the United States or any outbreak or
escalation of hostilities or other national or international calamity or crisis,
the effect of which shall be such as to make it, in the judgment of Morgan
Stanley & Co. Incorporated, impracticable to market the Securities or enforce
contracts for the sale of the Securities, or (c) if trading in any securities of
the Company shall have been suspended by the Commission or a national securities
exchange, or if trading generally on either the American Stock Exchange or the
New York Stock Exchange shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required, by either of said exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium shall
have been declared by either Federal or New York authorities or if a banking
moratorium shall have been declared by
15
<PAGE> 17
the relevant authorities in the country or countries of origin of any foreign
currency or currencies in which the Securities are denominated or payable, or
(d) if the rating assigned by any nationally recognized securities rating agency
to any debt securities of the Company as of the date of this Agreement shall
have been lowered since that date or if any such rating agency shall have
publicly announced that it has placed any debt securities of the Company on what
is commonly termed a "watch list" for possible downgrading, or (e) if there
shall have come to the attention of such Initial Purchaser any facts that would
cause you to believe that the Offering Circular, at the time it was required to
be delivered to a purchaser of Securities, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances existing at the time of such
delivery, not misleading.
10. Effectiveness; Defaulting Initial Purchasers. This
Agreement shall become effective upon the execution and delivery hereof by the
parties hereto.
If, on the Closing Date, any one or more of the Initial
Purchasers shall fail to purchase and pay for any of the Securities that it or
they have agreed to purchase hereunder on such date, and such failure to
purchase shall constitute a default in the performance of its or their
obligations under this Agreement, the remaining Initial Purchasers shall be
obligated severally to take up and pay for (in the respective proportions which
the amount of Securities set forth opposite their names in Schedule II hereto
bears to the aggregate amount of Securities set forth opposite their names of
all the remaining Initial Purchasers) the Securities which the defaulting
Initial Purchaser or Initial Purchasers agreed but failed to purchase; provided,
however, that in the event that the aggregate amount of Securities which the
defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase
shall exceed 10% of the aggregate amount of Securities set forth in Schedule II
hereto, the remaining Initial Purchasers shall have the right to purchase all,
but shall not be under any obligation to purchase any, of the Securities, and if
such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Initial
Purchaser or the Company. In the event of a default by any Initial Purchaser as
set forth in this Section 10, the Closing Date shall be postponed for such
period, not exceeding seven days, as the Representatives shall determine in
order that the required changes in the Offering Circular or in any other
documents or arrangements may be effective. Nothing contained in this Agreement
shall relieve any defaulting Initial Purchaser of its liability, if any, to the
Company and any nondefaulting Initial Purchaser for damages occasioned by its
default hereunder.
If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Initial Purchasers
set forth in Section 5 hereof is not satisfied because of any refusal, inability
or failure on the part of the Company to perform any agreement herein or comply
with any provision hereof other than by reason of a default by any of the
Initial Purchasers, the Company will reimburse the Initial Purchasers severally
upon demand for all reasonable out-of-pocket expenses (including reasonable fees
and
16
<PAGE> 18
disbursements of counsel) that shall have been incurred by them in connection
with the proposed purchase and sale of the Securities but the Company shall be
under no further liability to the Initial Purchasers with respect to such
Securities except as provided in Section 8 hereof.
11. Representatives and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Initial Purchasers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of any Initial Purchaser or the Company
or any of the officers, directors or controlling persons referred to in Section
8 hereof, and will survive delivery of and payment for the Securities. The
provisions of the third paragraph of Section 10 and the provisions of Section 8
hereof shall survive the termination or cancellation of this Agreement.
12. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
14. Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
15. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the Initial Purchasers, will be
mailed, delivered or telegraphed and confirmed to the Representatives of the
Initial Purchasers, at the address specified in Schedule II hereto; or, if sent
to the Company, will be mailed, delivered or telegraphed and confirmed to it,
care of 1900 Richmond Road, Cleveland, Ohio 44124, Attention of the Secretary.
16. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
17. Business Day. For purposes of this Agreement, "business
day" means any day on which the New York Stock Exchange is open for trading.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your
17
<PAGE> 19
acceptance shall represent a binding agreement between the Company and each of
the Initial Purchasers.
Very truly yours,
TRW INC.
By: /s/ Ronald P. Vargo
---------------------------------------------
Name: Ronald P. Vargo
Title: Vice President and Treasurer
Accepted as of the date hereof
Goldman, Sachs & Co.
Acting severally on behalf of itself and
the several Initial Purchasers named in
Schedule II hereto.
By: Goldman, Sachs & Co.
By: /s/ Goldman, Sachs & Co.
----------------------------------------
18
<PAGE> 20
SCHEDULE I
Description of the Securities:
Title and Purchase Price of Floating Rate Notes due 2000:
Title: Floating Rate Notes due 2000
Principal amount: $575,000,000
Interest rate: Three month LIBOR plus 0.42%
Date interest begins to accrue: June 23, 1999
Interest payment dates: September 28, 1999, and
thereafter on December 28,
1999, March 28, 2000, and at
maturity
Date of maturity: June 28, 2000
Purchase price (including
accrued interest or
amortization, if any): 99.991%
Initial offering price: 100%
19
<PAGE> 21
Title and Purchase Price of 6.45% Notes due 2001:
Title: 6.45% Notes due 2001
Principal amount: $425,000,000
Interest rate: 6.45%
Date interest begins to accrue: June 23, 1999
Interest payment dates: December 15 and June 15 of
each year, commencing on
December 15, 1999
Date of maturity: June 15, 2001
Purchase price (including
accrued interest or
amortization, if any): 99.55%
Initial offering price: 99.991%
Closing Date, Time and Location: June 23, 1999, at 9:00 a.m.
at the offices of Cravath,
Swaine & Moore, Worldwide
Plaza, 825 Eighth Avenue,
New York, New York 10019
20
<PAGE> 22
$575,000,000 of Floating Rate Notes due 2000
<TABLE>
<CAPTION>
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2000 NOTES TO BE
PURCHASED
<S> <C>
Goldman, Sachs & Co..................................................... $345,000,000
Chase Securities Inc.................................................... 115,000,000
Morgan Stanley & Co. Incorporated....................................... 115,000,000
Total:..................................................... $575,000,000
===========
</TABLE>
21
<PAGE> 23
$425,000,000 of 6.45% Notes due 2001
<TABLE>
<CAPTION>
INITIAL PURCHASERS PRINCIPAL AMOUNT OF 2001 NOTES TO BE
PURCHASED
<S> <C>
Goldman, Sachs & Co..................................................... $255,000,000
Chase Securities Inc.................................................... 85,000,000
Morgan Stanley & Co. Incorporated....................................... 85,000,000
Total:.................................................... $425,000,000
===========
</TABLE>
22
<PAGE> 24
EXHIBIT A
FORM OF OPINION OF WILLIAM B. LAWRENCE
Gentlemen and Ladies:
This opinion is addressed to you with respect to $575,000,000 aggregate
principal amount of Floating Rate Notes due 2000, and $425,000,000 aggregate
principal amount of 6.45% Notes due 2001 (collectively, the "Offered
Securities") of TRW Inc., an Ohio corporation (the "Company"), to be issued
under an Indenture dated as of May 1, 1986, supplemented by the First
Supplemental Indenture dated August 24, 1989, the Second Supplemental Indenture
dated as of June 2, 1999, the Third Supplemental Indenture dated as of June 2,
1999, the Fourth Supplemental Indenture dated as of June 2, 1999, the Fifth
Supplemental Indenture dated as of June 2, 1999, the Sixth Supplemental
Indenture dated as of June 23, 1999, and the Seventh Supplemental Indenture
dated as of June 23, 1999 (as supplemented, the "Indenture"), between the
Company and The Chase Manhattan Bank as successor trustee ("Trustee") to Mellon
Bank, N.A., pursuant to Section 5(b) of the Purchase Agreement dated June 18,
1999 (the "Purchase Agreement"), entered into among the Company and you as
representative (the "Representative"). Capitalized terms used but not defined in
this letter are used as defined in the Purchase Agreement.
I am General Counsel of the Company and have acted in such capacity in
connection with the proposed issue and sale by the Company of the Offered
Securities. With respect thereto, I have examined or caused to be examined by
members of the TRW Law Department the following: (i) the Amended Articles of
Incorporation of the Company; (ii) the Regulations of the Company; (iii) the
corporate proceedings of the Company relating to the Offered Securities, the
Offering Circular (as defined below), and the execution and delivery of the
Purchase Agreement, the Registration Rights Agreement and the Indenture; (iv)
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
the Company's Quarterly Reports on Form 10-Q for the quarter ended March 31,
1999, the Company's Current Reports on Form 8-K dated as of January 28, 1999,
February 5, 1999, March 26, 1999 (as amended May 17, 1999), and May 27, 1999
(the "Incorporated Documents"), all of which documents have been filed with the
Securities and Exchange Commission (the "Commission") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and are incorporated by
reference in the Offering Circular; (v) the Offering Circular dated June 18,
1999 (the "Offering Circular"); (vi) the Purchase Agreement; (vii) the
Indenture; (viii) the Registration Rights Agreement and (ix) the Form of the
Offered Securities.
23
<PAGE> 25
I have also made or caused to be made such other examinations as I have deemed
necessary to enable me to give the opinions herein expressed. However, as to
each of the opinions set forth below which is limited to my knowledge, you
should be aware that I have neither made nor caused to be made any independent
review for purposes of rendering this opinion, although in the regular course of
advising TRW I have reviewed or caused to be reviewed various documents, records
and matters of law. As to matters relating to that portion of the Company that
constituted LucasVarity plc ("LucasVarity") prior to its purchase by the
Company, I have relied on the opinion of Russell Kelley, General Counsel of
LucasVarity Ltd. As to matters relating to Lucas Limited and governed by English
law, I have relied on the opinion of Allen & Overy.
Based upon the foregoing, I am of the opinion that:
1. The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio, with full corporate power and
authority to own its properties and conduct the business now being conducted by
it as described in the Offering Circular, and is duly qualified to do business
as a foreign corporation in each jurisdiction which requires such qualification
wherein it owns or leases material properties or conducts material business,
except where the failure to so qualify would not have a material adverse effect
on the financial condition or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise; and
the Company is in good standing in the State of California and the Commonwealth
of Virginia;
2. Lucas Limited, a private limited company organized and existing under the
laws of England and Wales ("Lucas Limited"), is duly incorporated, validly
existing and in good standing as a private company with limited liability under
the laws of England. The registers of charges of Lucas Limited's immediate
holding company, Lucas Investment Finance Limited, and of Joseph Lucas Limited,
as at June 22, 1999, do not disclose any charges over the shares in Lucas
Limited held by them. Each of the certificate of incorporation and Memorandum
and Articles of Association of Lucas Limited do not prohibit Lucas Limited from
engaging in the business of producing and selling automotive and aerospace
products;
3. Kelsey-Hayes Company, a Delaware corporation ("Kelsey-Hayes"), has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation or organization has the corporate
power and authority to own its property and to conduct its business as described
in the Offering Circular and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the financial condition, or the earnings, business
affairs or business prospects of the Company and its subsidiaries,
24
<PAGE> 26
taken as a whole; all of the issued shares of capital stock of Kelsey-Hayes have
been duly and validly authorized and issued, are fully paid and non-assessable,
and are owned directly or indirectly, free and clear of all liens, encumbrances,
equities or claims;
4. Each of the Indenture and the Registration Rights Agreement has been duly
authorized, executed and delivered by or on behalf of the Company, and
constitutes a legal, valid and binding instrument enforceable against the
Company in accordance with its terms except (i) as rights to indemnification and
contribution under the Registration Rights Agreement may be limited under
applicable law and (ii) as the enforcement of remedies may be (A) limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other laws or
proceedings affecting the enforcement of creditors' rights generally from time
to time in effect or (B) subject to the effect of general principles of equity,
whether applied by a court of law or equity; and the Offered Securities have
been duly authorized and, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Initial
Purchasers pursuant to the Purchase Agreement, will constitute legal, valid and
binding obligations of the Company entitled to the benefits of the Indenture,
the Registration Rights Agreement and the Purchase Agreement except as the
enforcement of remedies may be (i) limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws or proceedings affecting
the enforcement of creditors' rights generally from time to time in effect or
(ii) subject to the effect of general principles of equity, whether applied by a
court of law or equity;
5. To my knowledge, there is no pending or threatened action, suit or proceeding
before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries, of a character that would be
required to be disclosed in a registration statement filed under the Securities
Act of 1933, as amended (the "Act"), which is not adequately disclosed in the
Offering Circular, and there is no franchise, contract or other document of a
character that would be required to be described in a registration statement or
prospectus filed under the Act, or to be filed as an exhibit, which is not
described or filed as required; and the statements included or incorporated in
the Offering Circular describing any legal proceedings or material contracts or
agreements relating to the Company fairly summarize such matters;
6. I have no reason to believe that the Offering Circular, or any amendment
thereof, at the date of this letter contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Offering
Circular, as amended or supplemented, at the date of this letter, includes any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; PROVIDED, HOWEVER, that I express no opinion as
to the information contained in or omitted from the Offering Circular or any
amendment thereof or supplement thereto in reliance upon and in
25
<PAGE> 27
conformity with written information furnished to the Company by or on behalf of
any Initial Purchaser specifically for use in connection with the preparation of
the Offering Circular or any amendment thereof or supplement thereto;
7. The Purchase Agreement has been duly authorized, executed and delivered by
the Company;
8. No consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation of the transactions contemplated
herein except such as have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Securities by the Initial Purchasers;
9. Neither the issue and sale of the Securities, nor the consummation of any
other of the transactions contemplated by the Purchase Agreement nor the
fulfillment of the terms of the Purchase Agreement, the Indenture, the
Registration Rights Agreement and the Securities will conflict with, result in a
breach of, or constitute a default under, the Amended Articles of Incorporation
or Regulations of the Company or the terms of any indenture or other agreement
or instrument known to me and to which the Company is a party or bound, or any
order or regulation known to me to be applicable to the Company of any court,
regulatory body, administrative agency, governmental body or arbitrator having
jurisdiction over the Company; and
10. Based upon the representations, warranties and agreements of the Company in
Sections 1(m), 1(n), 1(o), 6(f), 6(g) and 6(j) of the Purchase Agreement and of
the Initial Purchasers in Section 7 of the Purchase Agreement, and assuming (i)
the accuracy of the representations and warranties of each of the purchasers to
whom the Initial Purchasers initially resell the Securities, (ii) compliance by
the Initial Purchasers with the offering and transfer procedures and
restrictions described in the Offering Circular and (iii) receipt by the
purchasers to whom the Initial Purchasers initially resell the Securities of a
copy of the Offering Circular prior to such sale, it is not necessary in
connection with the offer, sale and delivery of the Securities to the Initial
Purchasers under the Purchase Agreement or in connection with the initial resale
of such Securities by the Initial Purchasers in accordance with Section 7 of the
Purchase Agreement to register the Securities under the Securities Act of 1933,
or to qualify the Indenture under the Trust Indenture Act of 1939, it being
understood that no opinion is expressed as to any subsequent resale of any
Security.
I am a member of the bar of the State of Ohio and do not purport to be an expert
on, generally familiar with or qualified to express legal conclusions based on
laws other than the laws of the State of Ohio and the United States of America.
26
<PAGE> 28
This opinion is being delivered to you solely for your benefit as a
representative under the Purchase Agreement and to the Initial Purchasers and
may be relied upon only by you for such purpose.
Very truly yours,
William B. Lawrence
General Counsel
27
<PAGE> 29
EXHIBIT B
FORM OF OPINION OF CRAVATH, SWAINE & MOORE
TRW INC.
$575,000,000 FLOATING RATE NOTES DUE 2000
$425,000,000 6.45% NOTES DUE 2001
Ladies and Gentlemen:
We have acted as your counsel in connection with the purchase
by you, pursuant to the Purchase Agreement dated June 18, 1999 (the "Purchase
Agreement"), among you and TRW Inc., an Ohio corporation (the "Company"), of
$575,000,000 principal amount of the Company's Floating Rate Notes due 2000, and
$425,000,000 principal amount of the Company's 6.45% Notes due 2001
(collectively, the "Securities") to be issued under the Indenture dated as of
May 1, 1986, as supplemented and amended by the First Supplemental Indenture
dated as of August 24, 1989, the Second Supplemental Indenture dated as of June
2, 1999, the Third Supplemental Indenture dated as of June 2, 1999, the Fourth
Supplemental Indenture dated as of June 2, 1999, the Fifth Supplemental
Indenture dated June 2, 1999, the Sixth supplemental Indenture dated as of June
23, 1999, and the Seventh Supplemental Indenture dated as of June 23, 1999 (the
"Indenture"), between the Company and The Chase Manhattan Bank, as Trustee.
Capitalized terms used and not otherwise defined herein have the meanings
ascribed thereto in the Purchase Agreement.
In that connection, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for the purposes of this opinion, including: (a) resolutions adopted
by the Board of Directors of the Company on February 10, 1999; (b) the Offering
Circular dated June 18, 1999 (the "Offering Circular"); (c) the Purchase
Agreement; (d) the Registration Rights Agreement; (e) the Indenture; and (f) the
form of the Securities.
Based on the foregoing, we are of opinion as follows:
1. Assuming that the Indenture has been duly authorized,
executed and delivered by the Company, the Indenture constitutes a legal, valid
and binding obligation of the Company enforceable in accordance with its terms
(subject to
28
<PAGE> 30
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws affecting creditors' rights generally from
time to time in effect and to general principles of equity, including concepts
of materiality, reasonableness, good faith and fair dealing, regardless of
whether considered in a proceeding in equity or at law).
2. The Securities conform in all material respects to the
description thereof contained in the Offering Circular. Assuming that the
Securities have been duly authorized, when executed and authenticated in
accordance with the provisions of the Indenture and delivered to and paid for by
the Initial Purchasers pursuant to the Purchase Agreement, will constitute
legal, valid and binding obligations of the Company entitled to the benefits of
the Indenture and enforceable against the Company in accordance with their terms
(subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws affecting creditors' rights
generally from time to time in effect and to general principles of equity,
including concepts of materiality, reasonableness, good faith and fair dealing,
regardless of whether considered in a proceeding in equity or at law).
3. Assuming (i) the accuracy of, and compliance with, the
representations, warranties and covenants of the Company in the Purchase
Agreement, (ii) the accuracy of, and compliance with, the representations,
warranties and covenants of the Initial Purchasers in the Purchase Agreement,
(iii) the accuracy of the representations and warranties of each of the
purchasers to whom the Initial Purchasers initially resell the Securities, (iv)
compliance by the Initial Purchasers with the offering and transfer procedures
and restrictions described in the Offering Circular and (v) receipt by the
purchasers to whom the Initial Purchasers initially resell the Securities of a
copy of the Offering Circular prior to such sale, it is not necessary in
connection with the offer, sale and delivery of the Securities or in connection
with the initial resale of such Securities in the manner contemplated by the
Purchase Agreement and the Offering Circular to register the Securities under
the Securities Act of 1933, as amended, and the Indenture does not require
qualification under the Trust Indenture Act of 1939, as amended, it being
understood that no opinion is expressed as to any subsequent resale of any
Securities.
Although we have not performed an independent verification of
the substance of counsel's opinion and take no responsibility therefor, the
opinion dated the date hereof of William B. Lawrence, General Counsel for the
Company, delivered to you pursuant to Section 5(b) of the Purchase Agreement, is
substantially responsive to the requirements of the Purchase Agreement. This
letter is delivered to you pursuant to Section 5(c) of the Purchase Agreement.
We are admitted to practice in the State of New York, and we
express no opinion as to matters governed by any laws other than the laws of the
State of New
29
<PAGE> 31
York, the General Corporation Law of the State of Delaware and the Federal laws
of the United States of America. In particular, we do not purport to pass on any
matter governed by the laws of the State of Ohio. In rendering this opinion, we
have assumed without independent investigation, the correctness of, and take no
responsibility for, the opinion dated June 23, 1999, of William B. Lawrence,
General Counsel for the Company, a copy of which has been delivered to you
pursuant to Section 5(b) of the Purchase Agreement, as to all matters of law
covered therein relating to the laws of the State of Ohio.
We are furnishing this opinion to you solely for your benefit.
This opinion may not be relied upon by any other person or for any other purpose
or used, circulated, quoted or otherwise referred to for any other purpose.
Very truly yours,
Goldman, Sachs & Co.
Chase Securities Inc.
In care of Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
30
<PAGE> 1
Exhibit 10(c)
-------------
April 28, 1999
Dr. Carl H. Hahn
Porschestrasse 53
38440 Wolfsburg
Germany
Dear Carl:
This letter will confirm our understanding relating to your services as an
Advisory Director of TRW. The attached terms and conditions (Exhibit A),
together with this letter, constitute our "Agreement."
We will request your advice and counsel from time to time. The services to be
performed may include some or all of the following:
(a) Attendance at all of the Directors' meetings;
(b) Attendance at Committee meetings of the Directors from time to time as
requested by the Chairman of the Board; and
(c) Such advice and counsel as may be requested from time to time by the
Chairman of the Board.
You understand that you will not be able to exercise voting rights at any
meeting of the Directors or Committees of the Directors.
This arrangement will become effective on April 28, 1999 and will continue for
one year, terminating on April 28, 2000. Thereafter, the Agreement may be
extended on mutually agreeable terms and conditions. The Agreement may be
terminated by either TRW or you in accordance with the attached terms and
conditions.
As compensation for your services as an Advisory Director, TRW will pay you
$90,000 per year, in monthly installments, representing the current annual
Directors' retainer of $70,000 and $20,000 in lieu of an annual grant of stock
options. These payments are not eligible for the
<PAGE> 2
Carl H. Hahn
April 28, 1999
Page 2
Director's Deferred Compensation Plan. If at any time the current annual
retainer for Directors is increased during the term of this Agreement, your
compensation will be increased to equal the level of the total cash retainer
paid to Directors.
You will be reimbursed for all reasonable, actually incurred travel and other
out-of-pocket expenses and costs in conjunction with performing the above
services. Receipts for such expenses should be submitted for processing and
approval in the same manner as you have been submitting your expenses for your
services as a Director.
Sincerely,
/s/ Joseph T. Gorman
Joseph T. Gorman
ACCEPTED:
/s/ Carl Hahn
- ---------------------
Carl Hahn
Date: 4/28/99
----------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000100030
<NAME> TRW INC.
<MULTIPLIER> 1,000,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 609
<SECURITIES> 0
<RECEIVABLES> 2,684
<ALLOWANCES> 0
<INVENTORY> 1,048
<CURRENT-ASSETS> 5,768
<PP&E> 7,915
<DEPRECIATION> 3,999
<TOTAL-ASSETS> 17,341
<CURRENT-LIABILITIES> 7,622
<BONDS> 5,661
0
0
<COMMON> 76
<OTHER-SE> 1,580
<TOTAL-LIABILITY-AND-EQUITY> 17,341
<SALES> 7,882
<TOTAL-REVENUES> 7,882
<CGS> 6,558
<TOTAL-COSTS> 6,558
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> 224
<INCOME-TAX> 113
<INCOME-CONTINUING> 111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111
<EPS-BASIC> .92
<EPS-DILUTED> .91
</TABLE>
<PAGE> 1
Exhibit 99
TRW Inc. and Subsidiaries
Computation of Ratio of Earnings
to Fixed Charges - Unaudited
(In millions except ratio data)
<TABLE>
<CAPTION>
Years Ended December 31
Six Months Ended -------------------------------------------------------------
June 30, 1999 1998 1997 1996 1995 1994
---------------- ---------- -------------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing
operations before income
taxes $ 224.5(A) $ 746.1 $ 239.7(B) $ 302.2(C) $ 625.5 $ 435.5
Unconsolidated affiliates (30.9) 1.0 (8.0) 1.4 1.3 (0.6)
Minority earnings 9.2 10.5 20.2 11.5 10.8 7.7
Fixed charges excluding
capitalized interest 214.7 174.3 123.9 129.0 137.2 145.3
-------- -------- -------- -------- -------- --------
Earnings $ 417.5 $ 931.9 $ 375.8 $ 444.1 $ 774.8 $ 587.9
-------- -------- -------- -------- -------- --------
Fixed Charges:
Interest expense $ 184.7 $ 114.4 $ 75.4 $ 84.2 $ 94.7 $ 104.7
Capitalized interest 1.7 4.7 4.5 3.5 5.1 6.6
Portion of rents representa-
tive of interest factor 30.0 59.9 48.5 43.2 41.4 39.2
Interest expense of uncon-
solidated affiliates 0.0 0.0 0.0 1.6 1.1 1.4
-------- -------- -------- -------- -------- --------
Total fixed charges $ 216.4 $ 179.0 $ 128.4 $ 132.5 $ 142.3 $ 151.9
-------- -------- -------- -------- -------- --------
Ratio of earnings to fixed
charges 1.9x 5.2x 2.9x 3.4x 5.4x 3.9x
-------- -------- -------- -------- -------- --------
</TABLE>
(A) Earnings from continuing operations before income taxes for the six
months ended June 30, 1999 of $224.5 million, includes an $85.3 million
earnings charge for purchased in-process research and development. See
"Acquisitions" footnote in the Notes to Financial Statements.
(B) The 1997 earnings from continuing operations before income taxes of
$239.7 million includes a $548 million earnings charge for purchased
in-process research and development. See "Acquisitions" footnote in the
Notes to Financial Statements of the Company's 1997 Annual Report to
Shareholders.
(C) The 1996 earnings from continuing operations before income taxes of
$302.2 million includes a charge of $384.8 million as a result of actions
taken in the automotive and space and defense businesses. See "Special
Charges and Divestiture" footnote in the Notes to Financial Statements of
the Company's 1996 Annual Report to Shareholders.
